ATP Case Digests (Sky Notes)

Agency,
Trust, and
Partnership Case Digests
PROFESSOR: ATTY. ALIAKHBAR AMPATU JUMNRANI
PREPARED BY: SAMANTHA V. MAKAYAN
AGENCY, TRUST, AND PARTNERSHIP CASE DIGESTS

Table of Contents
A. LAW ON PARTNERSHIP ..................................................................................................................................... 3
IV. Cases ............................................................................................................................................................................. 3
Sunga-Chan v. Chua ............................................................................................................................................................................................... 3
Litonjua v. Litonjua ................................................................................................................................................................................................ 5
HSBC v. Aldecoa & Co. .......................................................................................................................................................................................... 9
Heirs of Tan Eng Kee v. Court of Appeals .................................................................................................................................................. 11
La Compania Maritima v. Muñoz ................................................................................................................................................................... 13
Tocao v. Court of Appeals ................................................................................................................................................................................. 15
Pascual v. CIR ......................................................................................................................................................................................................... 17
Saludo v. PNB ......................................................................................................................................................................................................... 19
Mendiola v. Court of Appeals .......................................................................................................................................................................... 21
Aurbach v. Sanitary Wares ............................................................................................................................................................................... 22
Benjamin Yu v. NLRC .......................................................................................................................................................................................... 24
Rojas v. Maglana ................................................................................................................................................................................................... 26
V. Art. 1776-1783: Persons prohibited from entering into a universal partnership; exceptions ... 28
CIR v. Suter .............................................................................................................................................................................................................. 28
VI. Art. 1784-1799 ....................................................................................................................................................... 31
Benjamin Yu v. NLRC .......................................................................................................................................................................................... 31
Rojas v. Maglana ................................................................................................................................................................................................... 32
VII. Cases ........................................................................................................................................................................ 33
Tai Tong Chuache v. Insurance Commission ............................................................................................................................................ 33
Mendiola v. Court of Appeals .......................................................................................................................................................................... 35
Information Technology v. COMELEC ......................................................................................................................................................... 36
Mobil Oil v. CFI of Rizal ...................................................................................................................................................................................... 38
Lim Tong Lim v. Phil. Fishing Gear ............................................................................................................................................................... 40
Ortega v. Court of Appeals ................................................................................................................................................................................ 42
Dan Fue Leung v. IAC .......................................................................................................................................................................................... 44
Emnace v. Court of Appeals ............................................................................................................................................................................. 46
IX. Art. 1810-1814 ....................................................................................................................................................... 49
Realubit v. Jaso ...................................................................................................................................................................................................... 49
X. Art. 1815-1827 ........................................................................................................................................................ 51
Island Sales v. United Pioneers ...................................................................................................................................................................... 51
Guy v. Gacott ........................................................................................................................................................................................................... 53
XI. Art. 1828-1842 ....................................................................................................................................................... 57
Villareal v. Ramirez ............................................................................................................................................................................................. 57
B. LAW ON AGENCY .............................................................................................................................................. 58
I. Introductory Concepts ........................................................................................................................................... 58
Tuazon v. Ramos ................................................................................................................................................................................................... 58
Bautista-Spille v. Nicorp Management ........................................................................................................................................................ 60
Professional Services v. Agana ....................................................................................................................................................................... 61
Banate v. Philippine Countryside Rural Bank .......................................................................................................................................... 62
II. Kinds of Agency ....................................................................................................................................................... 63
Yun Kwan Byung v. PAGCOR ........................................................................................................................................................................... 63
Siy v. Tomlin ........................................................................................................................................................................................................... 66
III. Form of a contract of agency ............................................................................................................................. 68
Alcantara v. Nido .................................................................................................................................................................................................. 68
Yoshizaki v. Joy Training Center .................................................................................................................................................................... 70
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IV. General and Special Power of Attorney ......................................................................................................... 72
Absolute Management v. Metrobank ........................................................................................................................................................... 72
Gozun v. Mercado ................................................................................................................................................................................................. 75
Bravo-Guerrero v . Bravo .................................................................................................................................................................................. 77
V. Rights and Obligations of the Principal and the Agent .............................................................................. 79
Citibank v. Chua .................................................................................................................................................................................................... 79
Roberto R. Ignacio v. Myrna P. Ragasa ........................................................................................................................................................ 82
Coleongco v. Claparols ....................................................................................................................................................................................... 84
VI. Dealings with Third Persons ............................................................................................................................. 87
San Juan Structural v. CA ................................................................................................................................................................................... 87
Manila Memorial Park v. Linsangan ............................................................................................................................................................. 90
Air France v. CA ..................................................................................................................................................................................................... 93
Sunace International v. NLRC ......................................................................................................................................................................... 95
Fieldman’s Insurance v. Songco ..................................................................................................................................................................... 97
New Life Enterprises v. CA ............................................................................................................................................................................... 99
Manila Remnant Co. v. CA .............................................................................................................................................................................. 101
VII. Modes of Extinguishment of Agency ........................................................................................................... 103
Rallos v. Go Chan ............................................................................................................................................................................................... 103
Lopez v. CA ........................................................................................................................................................................................................... 106
Republic v. Evangelista ................................................................................................................................................................................... 109
Bacaling v. Muya ................................................................................................................................................................................................ 111
International Exchange Bank v. Spouses Briones ............................................................................................................................... 114
C. LAW ON TRUST ............................................................................................................................................... 117
I. Definition and Types ............................................................................................................................................ 117
PNB v. Court of Appeals .................................................................................................................................................................................. 117
VI. Cases ........................................................................................................................................................................ 118
Yap v. Court of Appeals ................................................................................................................................................................................... 118
Tala Realty Services v. Banco Filipino ...................................................................................................................................................... 120
Buan Vda. De Esconde v. Court of Appeals ............................................................................................................................................. 121
Lopez v. Court of Appeals .............................................................................................................................................................................. 122
Heirs of Labsite v. Heirs of Labsite ............................................................................................................................................................ 125
Ringor v. Ringor ................................................................................................................................................................................................. 126
Ty v. Court of Appeals ..................................................................................................................................................................................... 128
GSIS v. Santiago .................................................................................................................................................................................................. 129
Aniceto Uy v. Court of Appeals .................................................................................................................................................................... 131
Mercedes S. Gatmaytan v. Misibis Land ................................................................................................................................................... 132

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A. LAW ON PARTNERSHIP
IV. Cases
Sunga-Chan v. Chua

LILIBETH SUNGA-CHAN and CECILIA SUNGA, petitioners, vs.

LAMBERT T. CHUA, respondent.

G.R. No. 143340 August 15, 2001

FACTS:

Lambert Chua alleged that he verbally entered a business partnership with Jacinto. Chua and Jacinto allegedly agreed
to register the business name of their partnership, under the name of Jacinto as a sole proprietorship. The
partnership allegedly had Jacinto as manager, assisted by Josephine Sy, a sister of the wife of Chua, Erlinda Sy.

Upon Jacinto's death, his surviving wife, petitioner Cecilia and particularly his daughter, petitioner Lilibeth, took
over the operations, control, custody, disposition, and management of Shellite without Chua’s consent. Despite
Chua’s repeated demands upon petitioners for accounting, inventory, appraisal, winding up and restitution of his
net shares in the partnership, petitioners failed to comply.

Petitioners filed their Answer with Compulsory Counterclaims, contending that they are not liable for partnership
shares, unreceived income/profits, interests, damages, and attorney's fees; that Chua does not have a cause of action
against them; and that the trial court has no jurisdiction over the nature of the action, the Securities and Exchange
Commission being the agency that has original and exclusive jurisdiction over the case. As counterclaim, petitioner
sought attorney's fees and expenses of litigation.

The trial court rendered its Decision ruling for respondent Chua. Petitioners filed a Notice of Appeal with the trial
court, the CA dismissed the appeal. Hence, this petition.

Petitioners question the correctness of the finding of the trial court and the Court of Appeals that a partnership
existed between Chua and Jacinto from 1977 until Jacinto's death. In the absence of any written document to show
such partnership between Chua and Jacinto, petitioners argue that these courts were proscribed from hearing the
testimonies of Chua and his witness, Josephine Sy, to prove the alleged partnership three years after Jacinto's death.
To support this argument, petitioners invoke the "Dead Man's Statute' or "Survivorship Rule" under Section 23, Rule
130 of the Rules of Court.

Petitioners thus ask this Court to rule that the testimonies of respondent and Josephine should not have been
admitted to prove certain claims against a deceased person (Jacinto), now represented by petitioners.

ISSUE:

Whether or not the "Dead Man's Statute" applies to this case so as to render respondent's testimony and that of
Josephine inadmissible. (NO)

RULING:

The "Dead Man's Statute" provides that if one party to the alleged transaction is precluded from testifying by death,
insanity, or other mental disabilities, the surviving party is not entitled to the undue advantage of giving his own
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uncontradicted and unexplained account of the transaction. But before this rule can be successfully invoked to bar
the introduction of testimonial evidence, it is necessary that:

1. The witness is a party or assignor of a party to case or persons in whose behalf a case in prosecuted.
2. The action is against an executor or administrator or other representative of a deceased person or a person
of unsound mind;
3. The subject-matter of the action is a claim or demand against the estate of such deceased person or against
person of unsound mind;
4. His testimony refers to any matter of fact of which occurred before the death of such deceased person or
before such person became of unsound mind.

Two reasons forestall the application of the "Dead Man's Statute" to this case.

First, petitioners filed a compulsory counterclaim against respondents in their answer before the trial court, and
with the filing of their counterclaim, petitioners themselves effectively removed this case from the ambit of the "Dead
Man's Statute". Well entrenched is the rule that when it is the executor or administrator or representatives of
the estates that sets up the counterclaim, the plaintiff, herein respondent Chua, may testify to occurrences
before the death of the deceased to defeat the counterclaim. Moreover, as defendant in the counterclaim,
respondent is not disqualified from testifying as to matters of facts occurring before the death of the
deceased, said action not having been brought against but by the estate or representatives of the deceased.

Second, the testimony of Josephine is not covered by the "Dead Man's Statute" for the simple reason that she is not
"a party or assignor of a party to a case or persons in whose behalf a case is prosecuted." Records show that
respondent Chua offered the testimony of Josephine to establish the existence of the partnership between
respondent and Jacinto. Petitioners' insistence that Josephine is the alter ego of respondent does not make her an
assignor because the term "assignor" of a party means "assignor of a cause of action which has arisen, and not the
assignor of a right assigned before any cause of action has arisen." Plainly then, Josephine is merely a witness of
respondent Chua, the latter being the party plaintiff.

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Litonjua v. Litonjua

AURELIO K. LITONJUA, JR., petitioners, vs.

EDUARDO K. LITONJUA, SR., ROBERT T. YANG, ANGLO PHILS. MARITIME, INC., CINEPLEX, INC., DDM
GARMENTS, INC., LITONJUA SECURITIES, INC. (formerly E.K. Litonjua Sec), LUNETA THEATER, INC., E&L
REALTY, (formerly E&L INT’L SHIPPING CORP.), FNP CO., INC., HOME ENTERPRISES, INC., BEAUMONT DEV.
REALTY CO., INC., GLOED LAND CORP., EQUITY TRADING CO., INC., 3D CORP., “L” DEV. CORP., LCM
THEATRICAL ENTERPRISES, INC., LITONJUA SHIPPING CO. INC., MACOIL INC., ODEON REALTY CORP.,
SARATOGA REALTY, INC., ACT THEATER INC. (formerly General Theatrical & Film Exchange, INC.), AVENUE
REALTY, INC., AVENUE THEATER, INC. and LVF PHILIPPINES, INC., (formerly VF Philippines), respondent.

G.R. Nos. 166299-300 December 13, 2005

FACTS:

On December 4, 2002, in the RTC at Pasig City, Aurelio filed a suit against his brother Eduardo and respondent Robert
T. Yang (Yang) and several corporations for specific performance and accounting. Aurelio alleged that, since June
1973, he and Eduardo are into a joint venture/partnership arrangement in the Odeon Theater business which had
expanded thru investment in Cineplex, Inc., LCM Theatrical Enterprises, Odeon Realty Corporation (operator of
Odeon I and II theatres), Avenue Realty, Inc., owner of lands and buildings, among other corporations.

This joint venture/partnership agreement was contained in a memorandum addressed by Eduardo to his siblings,
parents and other relatives. Sometime in 1992, the relations between [Aurelio] and Eduardo became sour so that
[Aurelio] requested for an accounting and liquidation of his share in the joint venture/partnership [but these
demands for complete accounting and liquidation were not heeded].

Then, [Aurelio] has reasonable cause to believe that Eduardo and the corporate defendants as well as Yang, are
transferring various real properties of the corporations belonging to the joint venture/partnership to other parties
in fraud of [Aurelio]. In consequence, [Aurelio] is therefore causing at this time the annotation on the titles of these
real properties, a notice of lis pendens.

On December 20, 2002, Eduardo and the corporate respondents, as defendants a quo, filed a joint ANSWER With
Compulsory Counterclaim denying under oath the material allegations of the complaint, more particularly that
portion thereof depicting petitioner and Eduardo as having entered into a contract of partnership. As affirmative
defenses, Eduardo, et al., apart from raising a jurisdictional matter, alleged that the complaint states no cause of
action, since no cause of action may be derived from the actionable document, being void under the terms of Article
1767 in relation to Article 1773 of the Civil Code. It is further alleged that whatever undertaking Eduardo agreed to
do, if any, are unenforceable under the provisions of the Statute of Frauds.

Yang - who was served with summons after the other defendants submitted their answer – moved to dismiss on the
ground, that petitioner has no cause of action and the complaint does not state any. Petitioner opposed this motion
to dismiss.

On January 10, 2003, Eduardo, et al., filed a Motion to Resolve Affirmative Defenses in which petitioner interposed
an Opposition with ex-Parte Motion to Set the Case for Pre-trial.

The trial court, in an Omnibus Order dated March 5, 2003, denied the affirmative defenses and, except for Yang, set
the case for pre-trial on April 10, 2003.
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Eduardo and the corporate defendants, on the contention that grave abuse of discretion and injudicious haste
attended the issuance of the trial court’s aforementioned Omnibus Orders dated March 5, and April 2, 2003, sought
relief from the CA via similar recourse.

The appellate court came out with the herein assailed Decision dated March 31, 2004, finding for Eduardo and Yang,
as lead petitioners therein, dismissed the complaint filed by Eduardo against petitioners.

The appellate court stated that the alleged partnership, as evidenced by the actionable documents, and upon which
petitioner solely predicates his right/s allegedly violated by Eduardo, Yang and the corporate defendants is "void or
legally inexistent.”

ISSUE:

Whether or not petitioner and respondent Eduardo are partners in the theatre, shipping, and realty business, as
one claims but which the other denies. (NO)

RULING: The instant petition is DENIED and the Decision and Resolution of the Court of Appeals AFFIRMED.

The petition lacks merit. The documents (Annex "A-1"), on its face, contains typewritten entries, personal in tone,
but is unsigned and undated. As an unsigned document, the documents (Annex "A-1") do not meet the public
instrumentation requirements exacted under Article 1771 of the Civil Code. Moreover, being unsigned and
doubtless referring to a partnership involving more than P3,000.00 in money or property, the documents (Annex
"A-1") cannot be presented for notarization, let alone registered with the Securities and Exchange Commission
(SEC), as called for under the Article 1772 of the Code. The next logical point of inquiry turns on the nature of
petitioner’s contribution, if any, to the supposed partnership. The CA, addressing the foregoing query, correctly
stated that petitioner’s contribution consisted of immovables and real rights.

Petitioner’s contribution as a partner in the alleged partnership/joint venture consisted of immovable properties
and real rights. His contribution to the partnership consisted of his share in the Litonjua family businesses which
owned variable immovable properties. Petitioner’s assertion in his motion for reconsideration of the CA’s decision,
that "what was to be contributed to the business [of the partnership] was [petitioner’s] industry and his share in the
family [theatre and land development] business" leaves no room for speculation as to what petitioner contributed
to the perceived partnership.

Petitioner argues that the immovables in questions were not contributed but were acquired after the formation of
the supposed partnership. This Court does not agree. For, as earlier stated, petitioner himself admitted contributing
his share in the supposed shipping, movie theatres and realty development family businesses which already owned
immovables even before Annex "A1" was allegedly executed.

Considering thus the value and nature of petitioner’s alleged contribution to the purported partnership, the Court,
even if so disposed, cannot plausibly extend Annex "A-1" the legal effects that petitioner so desires and pleads to be
given. The document (Annex "A-1”) cannot support the existence of the partnership sued upon and sought
to be enforced. The legal and factual milieu of the case calls for this disposition. A partnership may be constituted
in any form, save when immovable property or real rights are contributed thereto or when the partnership
has a capital of at least ₱3,000.00, in which case a public instrument shall be necessary. And if only to stress
what has repeatedly been articulated, an inventory to be signed by the parties and attached to the public
instrument is also indispensable to the validity of the partnership whenever immovable property is
contributed to it.
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Considering that the allegations in the complaint showed that [petitioner] contributed immovable properties to the
alleged partnership, the "Memorandum" (Annex "A" of the complaint) which purports to establish the said
"partnership/joint venture" is NOT a public instrument and there was NO inventory of the immovable
property duly signed by the parties. As such, the said "Memorandum" is null and void for purposes of
establishing the existence of a valid contract of partnership. Indeed, because of the failure to comply with the
essential formalities of a valid contract, the purported "partnership/joint venture" is legally inexistent and
it produces no effect whatsoever. Necessarily, a void or legally inexistent contract cannot be the source of any
contractual or legal right. Accordingly, the allegations in the complaint, including the actionable document
attached thereto, clearly demonstrates that [petitioner] has NO valid contractual or legal right which could
be violated by the [individual respondents] herein. As a consequence, [petitioner’s] complaint does NOT
state a valid cause of action because NOT all the essential elements of a cause of action are present.

What respondent Eduardo imposed upon himself under the above passage, if he indeed wrote Annex "A-1", is a
promise which is not to be performed within one year from "contract" execution on June 22, 1973. Accordingly, the
agreement embodied in Annex "A-1" is covered by the Statute of Frauds and ergo unenforceable for non-
compliance therewith.

Petitioner is the intended beneficiary of the P1 Million or 10% equity of the family businesses supposedly
promised by Eduardo to give in the near future. Any suggestion that the stated amount or the equity
component of the promise was intended to go to a common fund would be to read something not written in
Annex "A-1". Thus, even this angle alone argues against the very idea of a partnership, the creation of which requires
two or more contracting minds mutually agreeing to contribute money, property or industry to a common fund with
the intention of dividing the profits between or among themselves.

In sum then, the Court rules that petitioner’s complaint for specific performance anchored on an actionable
document of partnership which is legally inexistent or void or unenforceable does not state a cause of action
as against respondent Eduardo and the corporate defendants. And if no of action can successfully be maintained
against respondent Eduardo because no valid partnership existed between him and petitioner, the Court cannot see
its way clear on how the same action could plausibly prosper against Yang. Surely, Yang could not have become a
partner in, or could not have had any form of business relationship with, an inexistent partnership. Petitioner
has not sufficiently established in his complaint the legal vinculum whence he sourced his right to drag Yang into the
fray.

Per the Court’s own count, petitioner used in his complaint the mixed words "joint venture/partnership" nineteen
(19) times and the term "partner" four (4) times. He made reference to the "law of joint venture/partnership [being
applicable] to the business relationship between [him], Eduardo and [Yang]" and to his "rights in all specific
properties of their joint venture/partnership". Given this consideration, petitioner’s right of action against
respondents Eduardo and Yang creates doubts on the existence of the partnership between the three of
them, as purportedly evidenced by the undated and unsigned Annex "A-1". A void Annex "A-1", as an
actionable document of partnership, would strip petitioner of a cause of action under the premises. A
complaint for delivery and accounting of partnership property based on such void or legally nonexistent actionable
document is dismissible for failure to state of action. So, in gist, said the Court of Appeals. The Court agrees.

RATIONALE:

Petitioner’s demand is for delivery or payment to him, as Eduardo’s and Yang’s partner, of his partnership/joint
venture share, after an accounting has been duly conducted of what he deems to be partnership/joint venture
property.
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A partnership exists when two or more persons agree to place their money, effects, labor, and skill in lawful
commerce or business, with the understanding that there shall be a proportionate sharing of the profits and losses
between them. A contract of partnership is defined by the Civil Code as one where two or more persons bound
themselves to contribute money, property, or industry to a common fund with the intention of dividing the profits
among themselves. A joint venture, on the other hand, is hardly distinguishable from, and may be likened to, a
partnership since their elements are similar, i.e., community of interests in the business and sharing of profits and
losses. Being a form of partnership, a joint venture is generally governed by the law on partnership.

Clearly, then, a look at the legal provisions determinative of the existence, or defining the formal requisites, of a
partnership is indicated in the Civil Code:

Art. 1771. A partnership may be constituted in any form, except where immovable property or real rights are
contributed thereto, in which case a public instrument shall be necessary.

Art. 1772. Every contract of partnership having a capital of three thousand pesos or more, in money or property,
shall appear in a public instrument, which must be recorded in the Office of the Securities and Exchange Commission.

Failure to comply with the requirement of the preceding paragraph shall not affect the liability of the partnership
and the members thereof to third persons.

Art. 1773. A contract of partnership is void, whenever immovable property is contributed thereto, if an inventory of
said property is not made, signed by the parties, and attached to the public instrument.

The contract-validating inventory requirement under Article 1773 of the Civil Code applies as long real property or
real rights are initially brought into the partnership. In short, it is really of no moment which of the partners, or, in
this case, who between petitioner and his brother Eduardo, contributed immovables. In context, the more important
consideration is that real property was contributed, in which case an inventory of the contributed property duly
signed by the parties should be attached to the public instrument, else there is legally no partnership to speak of.

By force of the statute of frauds, an agreement that by its terms is not to be performed within a year from the making
thereof shall be unenforceable by action, unless the same, or some note or memorandum thereof, be in writing and
subscribed by the party charged. Corollarily, no action can be proved unless the requirement exacted by the statute
of frauds is complied with.

Petitioner has not, in his complaint, provide the logical nexus that would tie Yang to him as his partner. In fact,
attendant circumstances would indicate the contrary.

Springing surprises on the opposing party is offensive to the sporting idea of fair play, justice and due process; hence,
the proscription against a party shifting from one theory at the trial court to a new and different theory in the
appellate court. On the same rationale, an issue which was neither averred in the complaint cannot be raised for the
first time on appeal. Petitioner’s protestation that his act of introducing the concept of innominate contract was not
a case of changing theories but of supporting his pleaded cause of action – that of the existence of a partnership - by
another legal perspective/argument, strikes the Court as a strained attempt to rationalize an untenable position.

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HSBC v. Aldecoa & Co.

THE HONGKONG & SHANGHAI BANKING CORPORATION, plaintiff-appellee, vs.

ALDECOA & CO., in liquidation, JOAQUIN IBANEZ DE ALDECOA Y PALET, ZOILIO IBANEZ DE ALDECOA Y
PALET, CECILIA IBANEZDE ALDECOA Y PALET, and ISABEL PALET DE GABARRO, defendants-appellants.
WILLIAM URUHART, intervener-appellant.

Antonio Sanz and Chicote and Miranda for appellants.
Hausermann, Cohn and Fisher for appellee.

G.R. No. L- 8437 March 23, 1915

FACTS:

Joaquin, Zoilo, and Cecilia Ibañez de Aldecoa were born in the Philippine Islands, being the legitimate children of
Zoilo Ibañez de Aldecoa and Isabel Palet. Both parent were native of Spain, but domiciled in Manila, where the father
died in 1895. At the time of his death the father was a member and managing director of an ordinary general
mercantile partnership known as Adecoa and Co. In December, 1896, Isabel Palet, for herself and as the parent of
her above-named three children, exercising the patria potestad, entered into a new contract with various persons
whereby the property and good will, together with the liabilities of the firm of which her husband was a partner,
were taken over. The new firm was also an ordinary general mercantile partnership and likewise denominated
Aldecoa and Co. Although having the same name, the new firm was entirely distinct from the old one and was, in fact,
a new enterprise. The widow entered into the new partnership as a capitalistic partner and caused her three children
to appear in the articles of partnership as industrial partners. At the time of the execution of this new contract
Joaquin was twelve years of age, Zoilo eleven, and Cecilia nine.

ISSUE:

(1) Whether or not the mother of the 3 children legally bind them as industrial partners of the firm of Aldecoa and
Co. under the above facts. (NO)
(2) Whether or not they are liable jointly and severally with all their property, both real and person, for the debts of
the firm. (NO)

RULING:

(1) As the firm of which it is claimed the children are industrial partners was not a continuation of the firm of which
their deceased father was a member, but was a new partnership operating under its own articles of agreement,
it is clear that Article 4 and 5 of the Code of Commerce does not sustain the mother’s power to bind her children
as industrial partners of the new firm. The appellant children had not a single one of these qualifications in 1896
when the mother attempted to enter them as industrial partners of the firm of Aldecoa and Co.
(2) Cecilia was never emancipated and there is no evidence indicating that she has ever ratified the contract by word
or deed. The mother did not secure judicial approval to enter into the contract of partnership on behalf of her
children. She is, therefore, completely exonerated from liability for the debts of Aldecoa and Co.

RATIONALE:

Article 4 of the Code of Commerce reads:
9

The persons having the following conditions shall have legal capacity to customarily engage in commerce:
1. Those who have reached the age of twenty-one years.
2. Those who are not subject to the authority of a father or mother or to a marital authority.
3. Those who have the free disposition of their property.

Article 5 of the Code of Commerce reads:

Persons under twenty-one years of age and incapacitated persons may continue, through their guardians, the commerce
which their parents or persons from whom the right is derived may have been engaged in. If the guardians do not have
legal capacity to trade, or have some incompatibility, they shall be under the obligation to appoint one or more factors
who possess the legal qualifications, and we shall take their places in the trade.

The other two children, Joaquin and Zoilo, were emancipated by their mother after they had reached the age of
eighteen and prior to seeking annullment of the contract of partnership had participated by vote and otherwise in
the management of the firm, as is evidenced by Exhibits W, Y, and Z. These various acts sufficiently show a ratification
of the partnership contract and would have the effect of making the two children industrial partners if they had been
of age at that time.

Article 164 of the Civil Code reads:

The father, or the mother in a proper case, cannot alienate the real property of the child, the usufruct or administration
of which belongs to them, nor encumber the same, except for sufficient reasons of utility or necessity, and after
authorization from the judge of the domicile, upon hearing by the department of public prosecution, excepting the
provisions which, with regard to the effects of transfers, the mortgage law establishes.
10

Heirs of Tan Eng Kee v. Court of Appeals

HEIRS OF TAN ENG KEE, petitioner, vs.

COURT OF APPEALS and BENGUET LUMBER COMPANY, represented by its President TAN ENG LAY,
respondents.

G.R. No. 126881 October 3, 2000

FACTS:

Benguet Lumber has been around even before World War II but during the war, its stocks were confiscated by the
Japanese. After the war, the brothers Tan Eng Lay and Tan Eng Kee pooled their resources in order to revive the
business. In 1981, Tan Eng Lay caused the conversion of Benguet Lumber into a corporation called Benguet Lumber
and Hardware Company, with him and his family as the incorporators. In 1983, Tan Eng Kee died. Thereafter, the
heirs of Tan Eng Kee demanded for an accounting and the liquidation of the partnership.

Tan Eng Lay denied that there was a partnership between him and his brother. He said that Tan Eng Kee was merely
an employee of Benguet Lumber. He showed evidence consisting of Tan Eng Kee’s payroll; his SSS as an employee
and Benguet Lumber being the employee. As a result of the presentation of said evidence, the heirs of Tan Eng Kee
filed a criminal case against Tan Eng Lay for allegedly fabricating those evidence. Said criminal case was however
dismissed for lack of evidence.

ISSUE:

Whether or not Tan Eng Kee and Ten Eng Lay were partners in Benguet Lumber. (NO)

RULING:

TEK was only an employee, not a partner which can be seen in Exhibits 4-4U. There was no certificate of
partnership between the brothers. The heirs were not able to show what was the agreement between the brothers
as to the sharing of profits. All they presented were circumstantial evidence which in no way proved partnership. It
is obvious that there was no partnership whatsoever. Except for a firm name, there was no firm account, no firm
letterheads submitted as evidence, no certificate of partnership, no agreement as to profits and losses, and no time
fixed for the duration of the partnership. There was even no attempt to submit an accounting corresponding to the
period after the war until Kee’s death in 1984. It had no business book, no written account nor any memorandum
for that matter and no license mentioning the existence of a partnership.

RATIONALE:

Tan Eng Lay was able to show evidence that Benguet Lumber is a sole proprietorship. He registered the same as
such in 1954; that Kee was just an employee based on the latter’s payroll and SSS coverage, and other records
indicating Tan Eng Lay as the proprietor. Also, the business definitely amounted to more P3,000.00 hence if there
was a partnership, it should have been made in a public instrument.

But the business was started after the war (1945) prior to the publication of the New Civil Code in 1950? Even so,
nothing prevented the parties from complying with this requirement.

11

Also, the Supreme Court emphasized that for 40 years, Tan Eng Kee never asked for an accounting. The essence of a
partnership is that the partners share in the profits and losses. Each has the right to demand an accounting as long
as the partnership exists. Even if it can be speculated that a scenario wherein “if excellent relations exist among the
partners at the start of the business and all the partners are more interested in seeing the firm grow rather than get
immediate returns, a deferment of sharing in the profits is perfectly plausible.” But in the situation in the case at bar,
the deferment, if any, had gone on too long to be plausible. A person is presumed to take ordinary care of his
concerns. A demand for periodic accounting is evidence of a partnership which Kee never did. The issue as to
whether a partnership exists is a factual matter to be decided on the basis of all circumstances.

The Supreme Court also noted:

In determining whether a partnership exists, these rules shall apply:

Article 1769

(1) Except as provided by Article 1825, persons who are not partners as to each other are not partners as to
third persons;
(2) Co-ownership or co-possession does not of itself establish a partnership, whether such co-owners or co-
possessors do or do not share any profits made by the use of the property;
(3) The sharing of gross returns does not of itself establish a partnership, whether or not the persons sharing
them have a joint or common right or interest in any property which the returns are derived;
(4) The receipt by a person of a share of the profits of a business is prima facie evidence that he is a partner in
the business, but no such inference shall be drawn if such profits were received in payment:
a) As a debt by installment or otherwise;
b) As wages of an employee or rent to a landlord;
c) As an annuity to a widow or representative of a deceased partner;
d) As interest on a loan, though the amount of payment vary with the profits of the business;
e) As the consideration for the sale of a goodwill of a business or other property by installments or
otherwise.
12

La Compania Maritima v. Muñoz

LA COMPANIA MARITIMA, plaintiff-appellant, vs.

FRANCISCO MUNOZ, ET AL., defendants-appellees.

Rosado, Sanz and Opisso, for appellant.
Haussermann, Cohn and Williams, for appellees.

G.R. No. L-3704 December 12, 1907

FACTS:

In 1905, Francisco Muñ oz, Emilio Muñ oz, and Rafael Naval formed an ordinary general mercantile partnership in
accordance with the Code of Commerce. They named the partnership “Francisco Muñ oz & Sons”. Francisco was the
capitalist partner while the other two were industrial partners. In the articles of partnership, it was agreed upon by
the three that for pro ts, Francisco shall have a 3/4th share while the other two would have 1/8th each. For losses,
only Francisco shall bear it. Later, the partnership was sued by La Compañ ia Martitama for collection of sum of
money amounting to P26,828.30. The partnership lost the case and was ordered to make said payment; that in case
the partnership can’t pay the debt, all the partners should be liable for it.

The ruling is in accordance with Article 127 of the Code of Commerce which states: “All the members of the general
co-partnership, be they or be they not managing partners of the same, are liable personally and in solidum with all
their property for the results of the transactions made in the name and for the account of the partnership, under the
signature of the latter, and by a person authorized to make use thereof.”

Francisco (the capitalist partner) now argues that the industrial partners should NOT be liable pursuant to Article
141 of the Code of Commerce which states: “Losses shall be charged in the same proportion among the partners who
have contributed capital, without including those who have not, unless by special agreement the latter have been
constituted as participants therein.

ISSUE:

Whether or not the industrial partners are liable to third parties like La Compañ ia Martitama? (YES)

RATIONALE:

The controlling law is Article 127 which states that:
All the members of the general co-partnership, be they or be they not managing partners of the same, are liable
personally and in solidum with all their property for the results of the transactions made in the name and for the
account of the partnership, under the signature of the latter, and by a person authorized to make use thereof.

It cannot have been intended that, in such a partnership as the one in question, where there were two industrial and
only one capitalist partner, the industrial partners should have no voice in the management of the business when
the articles of partnership were silent on that subject; that when the manager appointed mismanages the business
the industrial partners should have no right to appoint a comanager; that they should have no right to examine the
books; that they might use the rm name in their private business; or that they have no voice in the liquidation of the
business after dissolution. To give a person who contributed no more than, say, P500, these rights and to take them
13

away from a person who contributed his services, worth, perhaps, in nitely more than P500, would be discriminate
unfairly against industrial partners.

Article 141 states that:
Losses shall be charged in the same proportion among the partners who have contributed capital, without
including those who have not, unless by special agreement the latter have been constituted as participants
therein.

Art. 141 relates exclusively to the settlement of the partnership (a airs) among the partners themselves and has
nothing to do with the liability of the partners to third persons; that each one of the industrial partners is liable to
third persons for the debts; that if he has paid such debts out of his private property during the life of the partnership,
when its (a airs) are settled he is entitled to credit for the amount so paid, and if it results that there is not enough
property in the partnership to pay him, then the capitalist partners must pay him.

In relation to this, the Supreme Court noted that partnerships under the Civil Code provides for a scenario where all
partners are industrial partners (like when it is a partnership for the exercise of a profession). In such case, if it is
permitted that industrial partners are not liable to third persons then such third persons would get practically
nothing from such partnerships if the latter is indebted.

The stipulation that all the industrial partners and some of the capital partners would be exempted from liability in
so far as third persons are concerned, is null and void.

Liability refers to responsibility towards third persons and losses refers to responsibility as among the partners.
14

Tocao v. Court of Appeals

MARJORIE TOCAO and WILLIAM T. BELO, petitioners, vs.

COURT OF APPEALS and NENITA A. ANAY, respondents.

G.R. No. 127405 October 4, 2000

FACTS:

Private respondent Nenita A. Anay met petitioner William T. Belo who introduced Anay to petitioner Marjorie Tocao.
The three agreed to form a joint venture for the importation and local distribution of kitchen cookwares. Under the
joint venture, Belo contributed P2.5 million, Tocao contributed some cash and acted as president and general
manager, and Anay acted as head of the marketing department and later, vice-president for sales.

Operating under the name of Geminesse Enterprise, the sole proprietorship was registered in Marjorie Tocao's
name. The parties agreed that Anay would be entitled to: (1) ten percent (10%) of the annual net profits of the
business; (2) overriding commission of six percent (6%) of the overall weekly production; (3) thirty percent (30%)
of the sales she would make; and (4) two percent (2%) for her demonstration services.

The agreement was not reduced to writing, likewise, the parties agreed that Belo's name should not appear in any
documents relating to their transactions with West Bend Company. Anay secured the distributorship of cookware
products from the West Bend Company and organized the administrative staff and the sales force, the cookware
business took off successfully with West Bend.

In 1987, Anay learned that Marjorie Tocao had signed a letter addressed to the Cubao sales office informing to the
effect that she was no longer the vice-president of Geminesse Enterprise. Anay wrote Belo twice to demand her
overriding commission for the period of January 8, 1988 to February 5, 1988 and the audit of the company to
determine her share in the net profits. Anay still received her five percent (5%) overriding commission up to
December 1987. The following year, 1988, she did not receive the same commission although the company netted a
gross sales of P 13,300,360.00.

On April 5, 1988, Nenita A. Anay filed Civil Case No. 88-509, a complaint for sum of money with damages against
Marjorie D. Tocao and William Belo before the Regional Trial Court of Makati, Branch 140. Tocao and Belo, in their
Answer responded that the alleged agreement was not reduced to writing nor ratified therefore either
unenforceable or void or inexistent and that Anay was only a marketing demonstrator for a renumeration.

The trial court held that there was an "oral partnership agreement between the plaintiff and the defendants and
therefore granted damages.” The Court of Appeals affirmed the lower court’s decision; hence, the petition.

ISSUE:

1. Whether or not there is a partnership. (YES)
2. Whether or not respondent is entitled to the payment of damages upon her expulsion from the partnership.
(YES)

RULING: Petition denied. The parties involved in this case formed a partnership. The Supreme Court noted that a
partner who is excluded wrongfully from a partnership is an innocent partner
15

RATIONALE:

1. The Supreme Court held that to be considered a juridical personality, a partnership must fulfill these requisites:
(1) two or more persons bind themselves to contribute money, property or industry to a common fund; and
(2) intention on the part of the partners to divide the profits among themselves. It may be constituted in any
form; a public instrument is necessary only where immovable property or real rights are contributed thereto.
This implies that since a contract of partnership is consensual, an oral contract of partnership is as good as a
written one. It did not matter that the agreement was not in writing because Article 1771 of the Civil Code
provides that a partnership may be "constituted in any form." The fact that there appears to be no record in the
Securities and Exchange Commission of a public instrument embodying the partnership agreement pursuant
to Article 1772 of the Civil Code did not cause the nullification of the partnership.

In the case at hand, Belo acted as capitalist while Tocao as president and general manager, and Anay
contributed expertise to the partnership and hence, under the law, she was the industrial or managing partner.
In a partnership, each partner must share in the profits and losses of the venture, except that the industrial
partner shall not be liable for the losses. As an industrial partner, private respondent had the right to demand
for a formal accounting of the business and to receive her share in the net profit. Petitioners underscore the
fact that the CA did not return the unaccounted and unremitted stocks of Geminesse Enterprise amounting to
P208,250. That claim proves the existence of a partnership between them. The best evidence of the existence
of the partnership were the unsold goods and uncollected receivables. Since the partnership has not been
terminated, the petitioner and private respondent remain as co-partners (Idos v. CA).

2. The Supreme Court noted that a partner who is excluded wrongfully from a partnership is an innocent partner.
Hence, the guilty partner must give him his due upon the dissolution of the partnership as well as damages or
share in the profits "realized from the appropriation of the partnership business and goodwill." An innocent
partner thus possesses "pecuniary interest in every existing contract that was incomplete and in the trade name
of the co-partnership and assets at the time he was wrongfully expelled.

A mere falling out or misunderstanding between partners does not convert the partnership into a sham
organization. The partnership exists until dissolved under the law. Since the partnership created by petitioners
and private respondent has no fixed term and is therefore a partnership at will predicated on their mutual
desire and consent, it may be dissolved by the will of a partner. Thus:

“The right to choose with whom a person wishes to associate himself is the very foundation and essence
of that partnership. Its continued existence is, in turn, dependent on the constancy of that mutual resolve,
along with each partner’s capability to give it, and the absence of cause for dissolution provided by the law
itself. Verily, any one of the partners may, at his sole pleasure, dictate a dissolution of the partnership at
will. He must, however, act in good faith, not that the attendance of bad faith can prevent the dissolution
of the partnership but that it can result in a liability for damages."

An unjustified dissolution by a partner can subject him to action for damages because by the mutual agency
that arises in a partnership, the doctrine of delectus personae allows the partners to have the power, although
not necessarily the right to dissolve the partnership. Tocao’s unilateral exclusion of Anay from the partnership
is shown by her memo to the Cubao office plainly stating that Anay was, as of October 9, 1987, no longer the
vice-president for sales of Geminesse Enterprise. By that memo, petitioner Tocao affected her own withdrawal
from the partnership and considered herself as having ceased to be associated with the partnership in the
carrying on of the business. Nevertheless, the partnership was not terminated thereby; it continues until the
winding up of the business.
16

Pascual v. CIR

MARIANO P. PASCUAL and RENATO P. DRAGON, petitioners, vs.

THE COMMISSIONER ON INTERNAL REVENUE and COURT OF TAX APPEALS, respondents.

G.R. No. 78133 October 18, 1988

FACTS:

On June 22, 1965, petitioners bought two (2) parcels of land from Santiago Bernardino, et al. and on May 28, 1966,
they bought another three (3) parcels of land from Juan Roque. The first two parcels of land were sold by petitioners
in 1968 to Marenir Development Corporation, while the three parcels of land were sold by petitioners to Erlinda
Reyes and Maria Samson on March 19,1970. Petitioner realized a net profit in the sale made in 1968 in the amount
of P165, 224.70, while they realized a net profit of P60,000 in the sale made in 1970. The corresponding capital gains
taxes were paid by petitioners in 1973 and 1974. Respondent Commissioner informed petitioners that in the years
1968 and 1970, petitioners as co-owners in the real estate transactions formed an unregistered partnership or joint
venture taxable as a corporation under Section 20(b) and its income was subject to the taxes prescribed under
Section 24, both of the National Internal Revenue Code; that the unregistered partnership was subject to corporate
income tax as distinguished from profits derived from the partnership by them which is subject to individual income
tax.

ISSUE:

Whether or not the CA erred in affirming the decision that petitioners formed an unregistered partnership. (YES)

RULING:

The CA erred because there is clear evidence of co-ownership between the petitioners. Petition is meritorious.

RATIONALE:

There is no evidence that petitioners entered into an agreement to contribute money, property or industry to a
common fund, and that they intended to divide the profits among themselves. Respondent commissioner and/ or
his representative just assumed these conditions to be present on the basis of the fact that petitioners purchased
certain parcels of land and became co-owners thereof.

In Evangelists, there was a series of transactions where petitioners purchased twenty-four (24) lots showing that the
purpose was not limited to the conservation or preservation of the common fund or even the properties acquired
by them. The character of habituality peculiar to business transactions engaged in for the purpose of gain was present.

In the instant case, petitioners bought two (2) parcels of land in 1965. They did not sell the same nor make any
improvements thereon. The character of habituality peculiar to business transactions for the purpose of gain was
not present.

17

In Evangelista, the properties were leased out to tenants for several years. The business was under the management
of one of the partners. Such condition existed for over fifteen (15) years. None of the circumstances are present in
the case at bar. The co-ownership started only in 1965 and ended in 1970.

The sharing of returns does not in itself establish a partnership whether or not the persons sharing therein have a
joint or common right or interest in the property. There must be a clear intent to form a partnership, the existence
of a juridical personality different from the individual partners, and the freedom of each party to transfer or assign
the whole property.

In the present case, there is clear evidence of co-ownership between the petitioners. There is no adequate basis to
support the proposition that they thereby formed an unregistered partnership. The two isolated transactions
whereby they purchased properties and sold the same a few years thereafter did not thereby make them partners.
They shared in the gross profits as co- owners and paid their capital gains taxes on their net profits and availed of
the tax amnesty thereby. Under the circumstances, they cannot be considered to have formed an unregistered
partnership which is thereby liable for corporate income tax, as the respondent commissioner proposes.

And even assuming for the sake of argument that such unregistered partnership appears to have been formed, since
there is no such existing unregistered partnership with a distinct personality nor with assets that can be held liable
for said deficiency corporate income tax, then petitioners can be held individually liable as partners for this unpaid
obligation of the partnership. However, as petitioners have availed of the benefits of tax amnesty as individual
taxpayers in these transactions, they are thereby relieved of any further tax liability arising therefrom.

18

Saludo v. PNB

ANICETO G. SALUDO, JR., petitioners, vs.

PHILIPPINE NATIONAL BANK, respondents.

G.R. No. 193138 August 20, 2018

FACTS:

On June 11, 1998, Saludo Agpalo Fernandez and Aquino Law Office entered into a Contract of Lease with PNB,
whereby the latter agreed to lease 632 square meters of the second floor of the PNB Financial Center Building in
Quezon City for a period of three years and for a monthly rental fee of P189,600.00. The rental fee is subject to a
yearly escalation rate of 10%. SAFA Law Office then occupied the leased premises and paid advance rental fees and
security deposit in the total amount of P1,137,600.00.On August 1, 2001, the Contract of Lease expired. According
to PNB, SAFA Law Office continued to occupy the leased premises until February 2005 but discontinued paying its
monthly rental obligations after December 2002. Consequently, PNB sent a demand letter dated July 17, 2003for
SAFA Law Office to pay its outstanding unpaid rents in the amount of P4,648,086.34. PNB sent another letter
demanding the payment of unpaid rents in the amount of P5,856,803.53 which was received by SAFA Law Office on
November 10, 2003. In a letter to PNB dated June 9, 2004, SAFA Law Office expressed its intention to negotiate. In
February 2005, SAFA Law Office vacated the leased premises. PNB sent a demand letter dated July 7, 2005 requiring
the firm to pay its rental arrears in the total amount of P10,951,948.32.

In Response, SAFA Law Office sent a letter dated June 8, 2006, proposing a settlement. PNB, however, declined the
settlement proposal in a letter dated July 17, 2006, stating that it was not amenable to the settlement's terms. PNB
then made a final demand for SAFA Law Office to pay its outstanding rental obligations in the amount of
P25,587,838.09. On September 1, 2006, Saludo, in his capacity as managing partner of SAFA Law Office, filed an
amended complaint for accounting and/or re-computation of unpaid rentals and damages against PNB in relation
to the Contract of Lease. On October 4, 2006, PNB filed a motion to include an indispensable party as plaintiff, praying
that Saludo be ordered to amend anew his complaint to include SAFA Law Office as principal plaintiff. PNB argued
that the lessee in the Contract of Lease is not Saludo but SAFA Law Office, and that Saludo merely signed the Contract
of Lease as the managing partner of the law firm. Thus, SAFA Law Office must be joined as a plaintiff in the complaint
because it is considered an indispensable party under Section 7, Rule 3 of the Rules of Court. RTC denied PNB’s
motion to include SAFA Law Office as plaintiff. CA affirmed.

ISSUES:

1. Whether SAFA Law Office is a sole proprietorship. (NO, it is a partnership)
2. Whether SAFA Law Office has a separate and distinct juridical personality. (YES)
3. Whether SAFA is the real party-in-interest. (YES)

RATIONALE:

1. it is a partnership. Here, absent evidence of an earlier agreement, SAFA Law Office was constituted as a
partnership at the time its partners signed the Articles of Partnership wherein they bound themselves to
establish a partnership for the practice of law, contribute capital and industry for the purpose, and receive
compensation and benefits in the course of its operation. The opening paragraph of the Articles of Partnership
reveals the unequivocal intention of its signatories to form a partnership. The subsequent registration of the
19

Articles of Partnership with the SEC, on the other hand, was made in compliance with Article 1772 of the Civil
Code, since the initial capital of the partnership was P500,000.00.

2. Having settled that SAFA Law Office is a partnership, we hold that it acquired juridical personality by operation
of law. o In holding that SAFA Law Office, a partnership for the practice of law, is not a legal entity, the CA cited
the case of Petition for Authority to Continue Use of the Firm Name "Sycip, Salazar, Feliciano, Hernandez &
Castillo" (Sycip case) wherein the Court held that "[a] partnership for the practice of law is not a legal entity. It
is a mere relationship or association for a particular purpose. x x x It is not a partnership formed for the purpose
of carrying on trade or business or of holding property." These are direct quotes from the US case of In re
Crawford's Estate. We hold, however, that our reference to this US case is an obiter dictum which cannot serve
as a binding precedent. The main issue raised for the court's determination in the Sycip case is whether the two
Saludo, Jr. law firms may continue using the names of their deceased partners in their respective firm names.

3. SAFA Law Office is the party that would be benefited or injured by the judgment in the suit before the RTC.
Particularly, it is the party interested in the accounting and/or re-computation of unpaid rentals and damages
in relation to the contract of lease. It is also the party that would be liable for payment to PNB of overdue rentals,
if that claim would be proven. This is because it is the one that entered into the contract of lease with PNB. As
an entity possessed of a juridical personality, it has concomitant rights and obligations with respect to the
transactions it enters into. Equally important, the general rule under Article 1816 of the Civil Code is that
partnership assets are primarily liable for the contracts entered into in the name of the partnership and by a
person authorized to act on its behalf. All partners, including industrial ones, are only liable pro rata with all
their property after all the partnership assets have been exhausted. o Considering that SAFA Law Office is
primarily liable under the contract of lease, it is the real party-in-interest that should be joined as plaintiff in
the RTC case.

20

Mendiola v. Court of Appeals

ARSENIO T. MENDIOLA, petitioners, vs.

COURT OF APPEALS, NATIONAL LABOR RELATIONS COMMISSION, PACIFIC FOREST RESOURCES, PHILS.,
INC. and/or CELLMARK AB, respondents.

G.R. No. 159333 July 31, 2006

FACTS:

Private respondent Pacific Forest Resources, Phils., Inc. (Pacfor) is a corporation organized and existing under the
laws of California, USA. It is a subsidiary of Cellulose Marketing International, a corporation duly organized under
the laws of Sweden, with principal office in Gothenburg, Sweden. Private respondent Pacfor entered into a "Side
Agreement on Representative Office known as Pacific Forest Resources (Phils.), Inc. with petitioner Arsenio T.
Mendiola (ATM), effective May 1, 1995, "assuming that Pacfor-Phils. is already approved by the Securities and
Exchange Commission [SEC] on the said date."

On July 14, 1995, the SEC granted the application that private respondent operational expenses will be borne by the
representative office and funded by all parties "as equal partners," while the profits and commissions will be shared
among them. October 2000, petitioner wrote Pacfor-USA demanding payment of unpaid commissions and office
furniture and equipment rentals, amounting to more than one million dollars On November 27, 2000, private
respondent Pacfor, through counsel, ordered petitioner to turn over to it all papers, documents, files, records, and
other materials in his or ATM Marketing Corporation's possession that belong to Pacfor or Pacfor Phils Private
respondent Pacfor charged petitioner with willful disobedience and serious misconduct for his... refusal to turn over
the service car and the Christmas giveaway fund which he applied to his alleged unpaid commissions. Private
respondent also alleged loss of confidence and gross neglect of duty on the part of petitioner for allegedly allowing
another corporation owned by petitioner's relatives, High End Products, Inc. (HEPI), to use the same telephone and
facsimile numbers of Pacfor, to possibly steal and divert the sales and business of private respondent for HEPI's
principal, International Forest Products, a competitor of private respondent. Petitioner filed his complaint for illegal
dismissal, recovery of separation pay, and payment of attorney's fees with the NLRC. There was no employer-
employee relationship between the parties. Based on the two agreements between the parties, it concluded that
petitioner is not an employee of private respondent Pacfor, but a full co-owner (50/50 equity).

ISSUE:

Whether an employer-employee relationship exists between petitioner and private respondent Pacfor. (NO)

RATIONALE:

Based on the two agreements between the parties, it concluded that petitioner is not an employee of private
respondent Pacfor, but a full co-owner (50/50 equity). We hold that petitioner is an employee of private respondent
Pacfor and that no partnership or co-ownership exists between the parties.

In the case at bar, private respondent Pacfor, as employer, clearly possesses such right of control. Petitioner, as
private respondent Pacfor's resident agent in the Philippines, is, exactly so, only an agent of the corporation, a
representative of Pacfor, who transacts business, and accepts service on its behalf. Next, we shall determine if
petitioner was constructively dismissed from employment.

21

Aurbach v. Sanitary Wares

WOLRGANG AURBACH, JON GRIFFIN, DAVID P. WHITTINGHAM and CHARLES CHAMSAY, petitioners, vs.
SANITARY WARES MANUFACTURING CORPORATION, ERNESTO V. LAGDAMEO, ERNESTO R. LAGDAMEO, JR.,
ENRIQUE R. LAGDAMEO, GEORGE F. LEE, RAUL A. BONCAN, BALDWIN YOUNG and AVELINO V. CRUZ,
respondents.

G.R. No. 75875 December 19, 1989

FACTS:

Saniwares (domestic corporation) and ASI (foreign corporation) entered into an agreement to engage primarily in
the business of manufacturing in the Philippines and selling here and abroad vitreous china and sanitary wares.
They also agreed that the business operations in the Philippines shall be carried on by an incorporated enterprise
and that the name of the corporation shall initially be “Sanitary Wares Manufacturing Corp.” Unfortunately, with the
business successes came the deterioration of the initially harmonious relationship between the two. The
disagreement was allegedly due to Saniwares desire to expand the export operations which was objected by ASI as
it apparently had other subsidiaries of joint venture groups in countries contemplated by Saniwares. Several
incidents in the annual stockholders’ meeting triggered the filing of separate petitions by the parties, both parties
claiming to be the legitimate directors of the corporation. According to Aurbach, the actual intention of the parties
should be viewed from the agreement wherein it is clearly stated that the parties’ intention was to form a
corporation and not a joint venture. No other evidence should be admitted on the ground that it contravenes the
parol evidence rule under sec. 7, Rule 130, Revised Rules of Court. Saniwares on the other hand alleged that the
agreement failed to express the true intent of the parties.

ISSUE:

Whether or not the business established by the parties was a joint venture and not a corporation. (YES)

RATIONALE:

The rule is that whether the parties to a particular contract have thereby established among themselves a joint
venture or some other relation depends upon their actual intention which is determined in accordance with the
rules governing the interpretation and construction of contracts. In the instant cases, our examination of important
provisions of the Agreement as well as the testimonial evidence presented by the Lagdameo and Young Group shows
that the parties agreed to establish a joint venture and not a corporation. The history of the organization of
Saniwares and the unusual arrangements which govern its policy making body are all consistent with a joint venture
and not with an ordinary corporation. According to the unrebutted testimony of Mr. Baldwin Young negotiated the
Agreement with ASI on behalf of the Philippine nationals. He testified that ASI agreed to accept the role of minority
vis-a-vis the Philippine National group of investors, on the condition that the Agreement should contain provisions
to protect ASI as the minority.

The legal concept of a joint venture is of common law origin. It has no precise legal definition but it has been generally
understood to mean an organization formed for some temporary purpose. It is in fact hardly distinguishable from
the partnership, since their elements are similar communities of interest in the business, sharing of profits and
losses, and a mutual right of control. The main distinction cited by most opinions in common law jurisdictions is that
the partnership contemplates a general business with some degree of continuity, while the joint venture is formed
for the execution of a single transaction, and is thus of a temporary nature. This observation is not entirely accurate
22

in this jurisdiction, since under the Civil Code, a partnership may be particular or universal, and a particular
partnership may have for its object a specific undertaking. (Art. 1783, Civil Code).

It would seem therefore that under Philippine law, a joint venture is a form of partnership and should thus be
governed by the law of partnerships. The Supreme Court has however recognized a distinction between these two
business forms, and has held that although a corporation cannot enter into a partnership contract, it may however
engage in a joint venture with others.
23

Benjamin Yu v. NLRC

BENJAMIN YU, petitioners, vs.

NATIONAL LABOR RELTAIONS COMMISSION and JADE MOUNTAIN PRODUCTS COMPANY LIMITED, WILLY
CO., RHODORA D. BENDAL, LEA BENDAL, CHIU SHIAN JENG, and CHENG HO-FU, respondents.

G.R. No. 97212 June 30, 1993

FACTS:

Petitioner Yu was hired as the Assistant General Manager of Jade Mountain Products Company Limited primarily
responsible for the overall operations of marble quarrying and export business of said partnership. He was hired by
a virtue of a Partnership Resolution in 1985 with a monthly salary of P4,000.00. Initially he received only half of his
stipulated monthly salary and was promised by the partners that the balance would be paid upon securing additional
operating funds from abroad. However, in 1988 without his knowledge the general partners as well as one of the
limited partners sold and transferred their interest to Willy Co and Emmanuel Zapanta. Thus the new major partners
decided to transfer the firm’s main office but opted to continue the operation of the old partnership under its old
firm name and with all its employees and workers except for the petitioner. Upon knowing of the changes in the
partnership, petitioner went to the new main office to meet the new partners and demand the payment of his unpaid
salaries, but the latter refused to pay him and instead informed him that since he bought the business from the
original partners, it was for him to decide whether or not he was responsible for the obligations of the old
partnership including petitioners unpaid salaries. Hence, petitioner was dismissed from said partnership.

ISSUES:

1. Whether the partnership which had hired the petitioner as Asst. General Manager had been extinguished and
replaced by a new partnership composed of Willy Co and Emmanuel Zapanta. (YES)
2. Whether petitioner could assert his rights under his employment contract as against the new partnership. (YES)

RATIONALE:

1. The legal effect of the changes in the membership of the partnership was the dissolution of the old partnership
which had hired the petitioner in 1984 and the emergence of the new firm composed of Willy Co and Emmanuel
Zapanta in 1988. This is based on the following provisions: Art. 1828. The dissolution of partnership is the
change in the relation of the partners caused by any partner ceasing to be associated in the carrying on as a
distinguished from the winding up of the business. Art. 1830. Dissolution is caused:

a. Without violation of the agreement between the partners; b. by the express will of any
partner, who must act in good faith, when no definite term or particular undertaking is
specified.
b. in contravention of the agreement between the partners, where the circumstances do not
permit a dissolution under any other provision of this article, by the express will of any
partner at any time; However, the legal consequence of dissolution of a partnership do not
automatically result in the termination of the legal personality of the old partnership as
according to Art. 1829, “ on dissolution of the partnership is not terminated, but continues
until the winding up of the partnership affairs is completed. The new partnership simply
24

continued the operations of the old partnership under its old firm name without winding up
the business affairs of the old partnership.

2. Under Art. 1840, creditors of the old partnership are also creditors of the new partnership which continued the
business of former without liquidation of the partnership affairs. Thus, creditor of the old Jade Mountain, such
as the petitioner is entitled to enforce his claim for unpaid salaries, as well as other claims relating to his
employment with the old partnership against the new Jade Mountain.

25

Rojas v. Maglana

EUFRACIO D. ROJAS, plaintiff-appellant, vs.

CONSTANCIO B. MAGLANA, defendant-appellee.

G.R. No. L-30616 December 10, 1990

FACTS:

Maglana and Rojas executed Articles of Co-Partnership called Eastcoast Development Enterprises (EDE) with two of
them as partners for the purpose of applying and securing timber licenses and to operate, develop and promote such
forests’ rights and concessions. Their sharing basis was in proportion to share and share alike. Maglana managed
the business affairs while Rojas acted as superintendent. Eventually, they availed the services of Pahamotang as
industrial partner. Thereafter, they executed their own Articles of Co-Partnership under the same firm name with
virtually the same purpose. After some time, the two bought the interest of Pahamotang and the two returned to
being the sole partners and continued the partnership without any written agreement or reconstitution of written
Articles of Partnership. Consequently, Rojas entered into a management contract with another logging enterprise in
the name of CMS, withdrew his equipment from EDE for use in CMS, and abandoned the partnership altogether.
Maglana wrote Rojas reminding him of his contributions to the capital investments and to perform his duties as
logging superintended. However, Rojas informed Maglanathat he will not be able to comply with the contribution
and he will no longer work as superintendent.

Thus, Maglana told Rojas that the latter’s share will just be 20% of the net profits. Rojas took funds more than his
contribution. Thus, Maglana notified Rojas that he dissolved the partnership. Thereafter, Rojas filed an action for the
recovery of his share in the profits and for damages for sudden withdrawal of the partnership. For such claim, he
argues that the first partnership between him and Maglana had not been dissolved. Thus, based on the sharing basis
of share and share alike as in the first partnership, which is still subsisting and undissolved after the second
partnership with Pahamotang, he should be entitled to profits as computed. However, the trial court dismissed his
claim for profits and maintained that the partnership subsequent to the second partnership one of a de facto and at
will. Thus, the sharing should be based on their verbal agreements which is on actual contribution.

ISSUES:

1. Whether or not the first partnership dissolved. (NO, It was not the intention of the partners to dissolve the first
partnership upon the constitution of the second one)
2. Whether or not Rojas is entitled to profits. (NO)
3. Whether or not Rojas is entitled to damages (NO)
4. Whether or not Maglana can unilaterally dissolve the partnership. (YES)

RATIONALE:

1. The acceptance of another industrial partner is not sufficient to hold the view that the first partnership on that
basis that: a) They adopted the same name; b) They adopted the same purpose and the same capital
contributions of Rojas and Maglana; c) The timber licenses subsequently procured were in favor of the first
partnership; d) the First Articles of Partnership were only amended in the form of Supplementary Articles of
26

Co-Partnership and was never registered. The new partnership was virtually the same as the old one.
Nevertheless, the second partnership was indeed dissolved by common consent. However, such dissolution did
not affect the first which continued to exist, which is supported by the fact that the two were still reminding
and negotiating with each other in the fulfillment of the duly registered Articles of Co-Partnership. Thus, there
can be no De Facto Partnership nor a Partnership at Will for there is still an existing partnership which is duly
registered.

2. On the basis of the findings of the commissioners, despite the sharing basis, Rojas still has unsatisfied debts to
the partnership. Thus, the Court applied Art. 1786 in that a partner who has undertaken to contribute a sum of
money fail to do so becomes a debtor of the partnership.

3. Rojas cannot claim for damages since he entirely abandoned the partnership and refused to contribute to the
capital investment and perform his duties as stipulated in the partnership agreement.

4. Under Article 1830, par. 2 of the Civil Code, even if there is a specified term, one partner can cause its dissolution
by expressly withdrawing even before the expiration of the period, with or without justifiable cause. Of course,
if the cause is not justified or no cause was given, the withdrawing partner is liable for damages but in no case
can he be compelled to remain in the firm. With his withdrawal, the number of members is decreased, hence,
the dissolution. And in whatever way we may view the situation, the conclusion is inevitable that Rojas and
Maglana shall be guided in the liquidation of the partnership by the provisions of its duly registered Articles of
Co-Partnership: that is, all profits and losses of the partnership shall be divided "share and share alike" between
the partners.

But an accounting must first be made and which in fact was ordered by the trial court and accomplished by the
commissioners appointed for the purpose.

27

V. Art. 1776-1783: Persons prohibited from entering into a universal partnership; exceptions
CIR v. Suter

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs.

WILLIAM J. SUTER and THE COURT OF TAX APPEALS, respondents.

G.R. No. L-25532 February 28, 1968

DOCTRINES:

A husband and a wife may not enter into a contract of general co-partnership, because under the Civil Code, which
applies in the absence of express provision in the Code of Commerce, persons prohibited from making donations to
each other are prohibited from entering into universal partnerships. It follows that the marriage of partners
necessarily brings about the dissolution of a pre-existing partnership.

It being a basic tenet of the Spanish and Philippine law that the partnership has a juridical personality of its own,
distinct and separate from that of its partners

FACTS:

A limited partnership named William J. Suter 'Morcoin' Co., Ltd was formed 30 September 1947 by William J. Suter
as the general partner, and Julia Spirig and Gustav Carlson. They contributed, respectively, P20,000.00, P18,000.00
and P2,000.00. it was also duly registered with the SEC. On 1948 Suter and Spirig got married and in effect Carlson
sold his share to the couple, the same was also registered with the SEC. The firm engaged, among other activities, in
the importation, marketing, distribution and operation of automatic phonographs, radios, television sets and
amusement machines, their parts and accessories.

In 1948, however, general partner Suter and limited partner Spirig got married and, thereafter, on 18 December
1948, limited partner Carlson sold his share in the partnership to Suter and his wife.

The limited partnership had been filing its income tax returns as a corporation, without objection by the herein
petitioner, Commissioner of Internal Revenue, until in 1959 when the latter, in an assessment, consolidated the
income of the firm and the individual incomes of the partners-spouses Suter and Spirig resulting in a determination
of a deficiency income tax against respondent Suter in the amount of P2,678.06 for 1954 and P4,567.00 for 1955.

(Theory of CIR) The fiction of juridical personality of the partnership should be disregarded for income tax purposes
because the spouses have exclusive ownership and control of the business; consequently the income tax return of
respondent Suter for the years in question should have included his and his wife's individual incomes and that of
the limited partnership, in accordance with Section 45 (d) of the National Internal Revenue Code.

(Response of Suter) Suter protested the assessment and request its cancellation and withdrawal but his request was
denied. He maintains, as the Court of Tax Appeals held, that his marriage with limited partner Spirig and their
acquisition of Carlson's interests in the partnership in 1948 is not a ground for dissolution of the partnership, since
its juridical personality had not been affected and since, as a limited partnership, as contra distinguished from a duly
registered general partnership, it is taxable on its income similarly with corporations, Suter was not bound to include
in his individual return the income of the limited partnership.
28

He then appealed to the Court of Tax Appeals which reversed the decision of the CIR. Hence, the petition.

ISSUE:

(1) Whether or not the corporate personality of the William J. Suter "Morcoin" Co., Ltd. should be disregarded for
income tax purposes, considering that respondent William J. Suter and his wife, Julia Spirig Suter actually
formed a single taxable unit; (NO)

(2) Whether or not the partnership was dissolved after the marriage of the partners, respondent William J. Suter
and Julia Spirig Suter and the subsequent sale to them by the remaining partner, Gustav Carlson, of his
participation of P2,000.00 in the partnership for a nominal amount of P1.00. (NO)

RULING: The SC finds the CIR’s appeal unmeritorious.

(1) NO, the corporate personality of the limited partnership should not be disregarded for income tax purposes.
The capital contributions of partners William J. Suter and Julia Spirig were separately owned and contributed
by them before their marriage; and after they were joined in wedlock, such contributions remained their
respective separate property under the Spanish Civil Code (Article 1396). Thus, the individual interest of each
consort in the limited partnership did not become common property of both after their marriage in 1948.

(2) NO, the limited partnership was not dissolved after the marriage of the partners, such marriage not being one
of the causes provided for that purpose either by the Spanish Civil Code or the Code of Commerce.

RATIONALE:

A husband and a wife may not enter into a contract of general co-partnership, because under the Civil Code, which
applies in the absence of express provision in the Code of Commerce, persons prohibited from making donations to
each other are prohibited from entering into universal partnerships. It follows that the marriage of partners
necessarily brings about the dissolution of a pre-existing partnership.

What the law prohibits was when the spouses entered into a general partnership. In the case at bar, the partnership
was limited and particular one. A universal partnership requires either that the object of the association be all the
present property of the partners, as contributed by them to the common fund, or else "all that the partners may
acquire by their industry or work during the existence of the partnership". William J. Suter "Morcoin" Co., Ltd. was
not such a universal partnership, since the contributions of the partners were fixed sums of money, P20,000.00 by
William Suter and P18,000.00 by Julia Spirig and neither one of them was an industrial partner. It follows that
William J. Suter "Morcoin" Co., Ltd. was not a partnership that spouses were forbidden to enter by Article 1677 of
the Civil Code of 1889.

The partnership has a juridical personality of its own, distinct and separate from that of its partners, the bypassing
of the existence of the limited partnership as a taxpayer can only be done by ignoring or disregarding clear statutory
mandates and basic principles of our law. The limited partnership's separate individuality makes it impossible to
equate its income with that of the component members. True, section 24 of the Internal Revenue Code merges
registered general co-partnerships (compañias colectivas) with the personality of the individual partners for income
tax purposes. But this rule is exceptional in its disregard of a cardinal tenet of our partnership laws, and cannot be
extended by mere implication to limited partnerships.

29

Here, the limited partnership is not a mere business conduit of the partner-spouses; it was organized for legitimate
business purposes; it conducted its own dealings with its customers prior to appellee's marriage, and had been filing
its own income tax returns as such independent entity. The change in its membership, brought about by the marriage
of the partners and their subsequent acquisition of all interest therein, is no ground for withdrawing the partnership
from the coverage of Section 24 of the tax code, requiring it to pay income tax. As far as the records show, the
partners did not enter into matrimony and thereafter buy the interests of the remaining partner with the
premeditated scheme or design to use the partnership as a business conduit to dodge the tax laws. Regularity, not
otherwise, is presumed.
30

VI. Art. 1784-1799
Benjamin Yu v. NLRC
Continuation of a partnership beyond its term

BENJAMIN YU, petitioner, vs.

NAITONAL LABOR RELATIONS COMMISSION and JADE MOUNTAIN PRODUCTS COMPANY LIMITED, WILLY
CO, RHODORA D. BENDAL, LEA BENDAL, CHIU SHIAN JENG and CHENG HO-FU, respondents.

G.R. No. 97212 June 30, 1993

DOCTRINES:

FACTS:

ISSUE:

RULING:

RATIONALE:

31

Rojas v. Maglana
Partners as debtors of the partnership

EUFRACIO D. ROJAS, plaintiff-appellant, vs.

CONSTANCIO B. MAGLANA, defendant-appellee.

G.R. No. L-30616 December 10, 1990

DOCTRINES:

FACTS:

ISSUE:

RULING:

RATIONALE:

32

VII. Cases
Tai Tong Chuache v. Insurance Commission

TAI TONG CHUACHE & CO., petitioner, vs.

THE INSURANCE COMMISSION and TRAVELLERS MULTI-INDEMNITY CORPORATION, respondents.

G.R. No. L-55397 February 29, 1988

DOCTRINES:

Art. 1800. The partner who has been appointed manager in the articles of partnership may execute all acts of
administration despite the opposition of his partners, unless he should act in bad faith; and his power is irrevocable
without just or lawful cause. The vote of the partners representing the controlling interest shall be necessary for
such revocation of power.

A power granted after the partnership has been constituted may be revoked at any time.

FACTS:

Azucena Palomo obtained a loan from Tai Tong Chuache Inc. in the amount of P100,000. To secure the payment of
the loan, a mortgage was executed over the land and the building in favor of Tai Tong Chuache & Co. Arsenio Chua,
representative of Tai Tong Chuache & Co. insured the company’s interest with Travellers Multi-Indemnity
Corporation for P100,000.00 (P70,000.00 for the building and P30,000.00 for the contents thereof). Then, Pedro
Palomo secured a Fire Insurance Policy covering the building for P50,000.00 with respondent Zenith Insurance
Corporation. Then, another Fire Insurance was procured from respondent Philippine British Assurance Company,
covering the same building for P50,000.00 and the contents thereof for P70,000.00. On the same year, the building
and the contents were destroyed by fire. Demand was made from respondent Travellers Multi-Indemnity for its
share in the loss but the it was refused. Petitioner seeks to recover from private respondent, its insurer, indemnity
as the property subject of the same was lost due to an insurable risk as per their policy. Respondent counters that
the petitioner has no legal standing to claim the same as the policy was executed between it and a certain Arsenio
Chua in his own name and not the petitioner.

ISSUE:

Whether or not petitioner allowed to recover indemnity. (YES)

RULING: Petition is meritorious. Petitioner, being a partnership, may sue and be sued in its name or by its duly
authorized representative.

Respondent has the burden of proof to show that petitioner has no insurable interest over the insured property at
the time the contingency took place. Upon that point, there is a failure of proof. Respondent exerted no effort to
present any evidence to substantiate its claim, while petitioner did. For said respondent's failure, the decision
must be adverse to it. From said evidence respondent commission inferred that the credit extended by herein
petitioner to the Palomos secured by the insured property must have been paid. Respondent Commission's findings
are based upon a mere inference.

The fact that Arsenio Lopez Chua is the representative of petitioner is not questioned. Petitioner’s declaration that
Arsenio Lopez Chua acts as the managing partner of the partnership was confirmed by respondent insurance
33

company. Thus Chua as the managing partner of the partnership may execute all acts of administration
including the right to sue debtors of the partnership in case of their failure to pay their obligations when it
became due and demandable. Or at the very least, Chua being a partner of petitioner Tai Tong Chuache &
Company is an agent of the partnership. Being an agent, it is understood that he acted for and in behalf of
the firm.

The respondent insurance company having issued a policy in favor of herein petitioner which policy was of legal
force and effect at the time of the fire, it is bound by its terms and conditions. Upon its failure to prove the
allegation of lack of insurable interest on the part of the petitioner, respondent insurance company is and
must be held liable.
34

Mendiola v. Court of Appeals

ARSENIO T. MENDIOLA, petitioner, vs.

COURT OF APPEALS, NATIONAL LABOR RELATIONS COMMISSION, PACIFIC FOREST RESOURCES, PHILS.,
INC. and/or CELLMARK AB, respondents.

G.R. No. 159333 JULY 31, 2006

FACTS:

Private respondent Pacific Forest Resources, Phils., Inc. (Pacfor) is a corporation organized and existing under the
laws of California, USA. It is a subsidiary of Cellulose Marketing International, a corporation duly organized under
the laws of Sweden, with principal office in Gothenburg, Sweden. Private respondent Pacfor entered into a "Side
Agreement on Representative Office known as Pacific Forest Resources (Phils.), Inc. with petitioner Arsenio T.
Mendiola (ATM), effective May 1, 1995, "assuming that Pacfor-Phils. is already approved by the Securities and
Exchange Commission [SEC] on the said date."

On July 14, 1995, the SEC granted the application that private respondent operational expenses will be borne by the
representative office and funded by all parties "as equal partners," while the profits and commissions will be shared
among them. October 2000, petitioner wrote Pacfor-USA demanding payment of unpaid commissions and office
furniture and equipment rentals, amounting to more than one million dollars On November 27, 2000, private
respondent Pacfor, through counsel, ordered petitioner to turn over to it all papers, documents, files, records, and
other materials in his or ATM Marketing Corporation's possession that belong to Pacfor or Pacfor Phils Private
respondent Pacfor charged petitioner with willful disobedience and serious misconduct for his... refusal to turn over
the service car and the Christmas giveaway fund which he applied to his alleged unpaid commissions. Private
respondent also alleged loss of confidence and gross neglect of duty on the part of petitioner for allegedly allowing
another corporation owned by petitioner's relatives, High End Products, Inc. (HEPI), to use the same telephone and
facsimile numbers of Pacfor, to possibly steal and divert the sales and business of private respondent for HEPI's
principal, International Forest Products, a competitor of private respondent. Petitioner filed his complaint for illegal
dismissal, recovery of separation pay, and payment of attorney's fees with the NLRC. There was no employer-
employee relationship between the parties. Based on the two agreements between the parties, it concluded that
petitioner is not an employee of private respondent Pacfor, but a full co-owner (50/50 equity).

ISSUE:

Whether an employer-employee relationship exists between petitioner and private respondent Pacfor. (NO)

RATIONALE:

Based on the two agreements between the parties, it concluded that petitioner is not an employee of private
respondent Pacfor, but a full co-owner (50/50 equity). We hold that petitioner is an employee of private respondent
Pacfor and that no partnership or co-ownership exists between the parties.

In the case at bar, private respondent Pacfor, as employer, clearly possesses such right of control. Petitioner, as
private respondent Pacfor's resident agent in the Philippines, is, exactly so, only an agent of the corporation, a
representative of Pacfor, who transacts business, and accepts service on its behalf. Next, we shall determine if
petitioner was constructively dismissed from employment.

35

Information Technology v. COMELEC

INFORMATION TECHNOLOGY FOUNDATION OF THE PHILIPPINES, MA. CORAZON M. AKOL, MIGUEL UY,
EDUARDO H. LOPEZ, AUGUSTO C. LAGMAN, REX C. DRILON, MIGUEL HILADO, LEY SALCEDO, and MANUEL
ALCUAZ JR., petitioner, vs.
COMMISSION ON ELECTIONS; COMELEC CHAIRMAN BENJAMIN ABALOS SR.; COMELEC BIDDING and AWARD
COMMITTEE CHAIRMAN EDUARDO D. MEJOS and MEMBERS GIDEON DE GUZMAN, JOSE F. BALBUENA,
LAMBERTO P. LLAMAS, and BARTOLOME SINOCRUZ JR.; MEGA PACIFIC eSOLUTIONS, INC.; and MEGA
PACIFIC CONSORTIUM, respondents.

G.R. No. 159139 January 13, 2004

FACTS:

Petitioners were participating bidders questioning the identity and eligibility of the awarded contractor Mega Pacific
Consortium (MPC) where the competing bidder is Mega Pacific eSolutions, Inc. (MPEI) as signed by Mr. Willy Yu of
the latter. Private respondent claims that MPEI is the lead partner tied up with other companies like SK C&C, WeSolv,
Election.com and ePLDT. Respondent COMELEC obtained copies of Memorandum of Agreements and Teaming
Agreements.

Petitioner contended that the award is invalid, since COMELEC gravely abused its discretion when it:
1. Awarded the Contract to MPC though it did not even participate in the bidding;
2. Allowed MPEI to participate in the bidding despite its failure to meet the mandatory eligibility requirements
3. Issued its Resolution of April 15, 2003 awarding the Contract to MPC despite the issuance by the BAC of its
Report, which formed the basis of the assailed Resolution, only on April 21, 200331
4. Awarded the Contract, notwithstanding the fact that during the bidding process, there were violations of
the mandatory requirements of RA 8436 as well as those set forth in Comelec’s own Request for Proposal
on the automated election system
5. Refused to declare a failed bidding and to conduct a re-bidding despite the failure of the bidders to pass the
technical tests conducted by the Department of Science and Technology
6. Failed to follow strictly the provisions of RA 8436 in the conduct of the bidding for the automated counting
machines

On the question of the identity and the existence of the real bidder, respondents insist that the bidder was not Mega
Pacific eSolutions, Inc. (MPEI), which was incorporated only 11 days prior to the bidding itself. Rather, the bidder
was Mega Pacific Consortium (MPC), of which MPEI was but a part. As proof thereof, they point to the March 7, 2003
letter of intent to bid, signed by the president of MPEI allegedly for and on behalf of MPC. They also call attention to
the official receipt issued to MPC, acknowledging payment for the bidding documents, as proof that it was the
"consortium" that participated in the bidding process.

Respondents declare that, for purposes of assessing the eligibility of the bidder, the members of MPC should be
evaluated on a collective basis. Therefore, they contend, the failure of MPEI to submit financial statements (on
account of its recent incorporation) should not by itself disqualify MPC, since the other members of the "consortium"
could meet the criteria set out in the RFP.

Additionally, argues the Comelec, the Implementing Rules and Regulations of RA 6957 (the BuildOperate-Transfer
Law) as amended by RA 7718 would be applicable, as proponents of BOT projects usually form joint ventures or
consortiums. Under the IRR, a joint venture/consortium proponent shall be evaluated based on the individual or the
36

collective experience of the member firms of the joint venture/consortium and of the contractors the proponent has
engaged for the project.

ISSUE:

1) Whether the COMELEC gravely abused its discretion when, in the exercise of its administrative functions, it
awarded to MPC the contract for the 2nd phase of the comprehensive Automated Election System. (YES)

2) Whether or not there was an existence of a consortium. (NO)

RULING: Petition granted. SC declares null and void COMELEC Resolution 6074 as well as the subject Contract
executed between COMELEC and Mega Pacific eSolutions (MPEI).

There was no documentary or other basis for Comelec to conclude that a consortium had actually been
formed amongst MPEI, SK C&C and WeSolv, along with Election.com and ePLDT. The president of MPEI signing
for allegedly in behalf of MPC without any further proof, did not by itself prove the existence of the consortium. It
did not show that MPEI or its president have been duly pre-authorized by the other members of the putative
consortium to represent them, to bid on their collective behalf and, more important, to commit them jointly and
severally to the bid undertakings. The letter is purely self-serving and uncorroborated.

Neither does an official receipt issued to MPC, acknowledging payment for the bidding documents, constitute proof
that it was the purported consortium that participated in the bidding. Such receipts are issued by cashiers without
any legally sufficient inquiry as to the real identity or existence of the supposed payor. To assure itself properly of
the due existence (as well as eligibility and qualification) of the putative consortium, Comelec’s BAC should have
examined the bidding documents submitted on behalf of MPC.

Despite the absence of competent proof as to the existence and eligibility of the alleged consortium (MPC),
its capacity to deliver on the Contract, and the members’ joint and several liability therefor, Comelec
nevertheless assumed that such consortium existed and was eligible. It then went ahead and considered the
bid of MPC, to which the Contract was eventually awarded, in gross violation of the former’s own bidding rules and
procedures contained in its RFP. Therein lies Comelec’s grave abuse of discretion.

This Court in Kilosbayan v. Guingona defined joint venture as "an association of persons or companies jointly
undertaking some commercial enterprise; generally, all contribute assets and share risks. It requires a community
of interest in the performance of the subject matter, a right to direct and govern the policy in connection therewith,
and [a] duty, which may be altered by agreement to share both in profit and losses."

Going back to the instant case, it should be recalled that the automation Contract with Comelec was not executed by
the "consortium" MPC -- or by MPEI for and on behalf of MPC -- but by MPEI, period. The said Contract contains no
mention whatsoever of any consortium or members thereof. This fact alone seems to contradict all the suppositions
about a joint undertaking that would normally apply to a joint venture or consortium: that it is a commercial
enterprise involving a community of interest, a sharing of risks, profits and losses, and so on.

37

Mobil Oil v. CFI of Rizal

MOBIL OIL PHILIPPINES, INC., petitioner, vs.

COURT OF FIRST INSTANCE OF RIZAL, BRANCH VI, GEMINIANO F. YABUT and AGUEDA ENRIQUEZ YABUT,
respondents.

Ramon O. Nolasco and Manuel N. Camacho for petitioner.
Felipe C. Magat for private respondents.

G.R. No. 40457 May 8, 1992

FACTS:

The partnership La Mallorca, through its partner Miguel Enriquez, entered into a sales agreement to purchase
gasoline on credit with Mobil Oil Philippines. But because the mentioned purchase remained unpaid, Mobil Oil filed
a complaint in the Court of First Instance of Rizal against La Mallorca and its general partners, which included private
respondents. Subsequently, Mobil Oil filed an Amended Complaint impleading the heirs of the deceased partners as
defendants. After Mobil Oil had presented its evidence, the counsel of the defendant successfully bargained for a
compromise agreement. The defense agreed to submit the case for decision solely on the basis of evidence adduced
by plaintiff Mobil Oil but past interest in the amount of P150,000.00 shall be excluded and that only nominal
attorney's fees shall be awarded.

Consequently, a Decision was rendered in favor of the Mobil Oil and against defendants. However, defendants filed
a Petition to Modify Decision and/or Petition for Reconsideration, averring that (1) that there was no stipulation or
agreement of the parties on the award of attorney's fees; (2) that Miguel Enriquez, not being a general partner, could
not bind the partnership in the Sales Agreement he signed with Mobil Oil; and (3) that defendant Geminiano Yabut
already withdrew as partner and president of La Mallorca as of September 14, 1972. Thereafter, the CFI issued an
order declaring its previous decision favoring Mobil Oil as null and void. The ground for the decision is that there
was no evidence to show that the counsel for the defendants had been duly authorized by the partnership to enter
into a stipulation of FACTS, a compromise agreement or a confession judgment with Mobil Oil. Mobil Oil filed a
Motion for Reconsideration and Clarification but it was denied. Hence, this petition.

ISSUE:

1. Whether or not public respondent acted with grave abuse of discretion amounting to lack of jurisdiction in
declaring null and void its earlier decision of July 25, 1974. (YES)
2. Whether or not the sales agreement with Mobil Oil which was signed by Miguel Enriquez can bind the
partnership. (YES)
3. Whether or not the withdrawal of Yabut from the partnership will exempt him from liability. (NO)
4. Does non-active participation in the partnership exempt a partner from liability? (NO)

HELD:

Respondents acted with grave abuse of discretion. The judgment was rendered in favor of the plaintiff and against
the defendants ordering the defendant La Mallorca Partnership to pay the plaintiff. From a joint venture/partnership
theory which he adopted and consistently pursued in his complaint. Respondents shall be excluded and that only
nominal attorney's fees shall be awarded. Petitioner embraced the innominate contract theory. The defense agreed
to submit the case for decision solely on the basis of evidence adduced by plaintiff Mobil Oil but past interest in the
38

amount of P150. An inventory of the contributed property duly signed by the parties should be attached to the public
instrument. Being unsigned and referring to a partnership involving more than P3. MOBIL OIL PHILIPPINES. the
counsel of the defendant successfully bargained for a compromise agreement.

Miguel Enriquez is a general partner of La Mallorca. He automatically became a general partner of the partnership
for being one of the heirs of the deceased general partner Mariano Enriquez. Article IV of the Articles of Co-
Partnership of La Mallorca provides that: “If during the existence of this co-partnership, any of the herein partners
should die, the co-partnership shall continue to exist amongst the surviving partners and the heir or heirs of the
deceased partner or partners.”

The debt was incurred long before his withdrawal as partner and his resignation as President of La Mallorca on
September 14, 1972. Respondent Geminiano Yabut could not just withdraw unilaterally from the partnership to
avoid his liability as a general partner to third persons like the petitioner in the instant case.

The alleged non-active participation of respondent Agueda Yabut in the partnership cannot exempt her from the
obligation. Active participation in a partnership is not a condition precedent for membership in a partnership so as
to be entitled to its profits or be burdened with its liabilities.

39

Lim Tong Lim v. Phil. Fishing Gear

LIM TONG LIM, petitioner, vs.

PHILIPPINE FISHING GEAR INDUSTRIES, INC., respondents.

G.R. No. 136448 November 3, 1999

DOCTRINES:

A partnership may be deemed to exist among parties who agree to borrow money to pursue a business and to
divide the profits or losses that may arise therefrom, even if it is shown that they have not contributed any capital
of their own to a "common fund."

Their contribution may be in the form of credit or industry, not necessarily cash or fixed assets. Being partner,
they are all liable for debts incurred by or on behalf of the partnership.

The liability for a contract entered into on behalf of an unincorporated association or ostensible corporation may
lie in a person who may not have directly transacted on its behalf, but reaped benefits from that contract.

FACTS:

Antonio Chua and Peter Yap bought nets of various sizes and floats from Philippine Fishing Gear (PFG) for Ocean
Quest Fishing Corporation (OQF), saying that petitioner was also involved with OQF despite not being a signatory to
the agreement. They failed to pay the purchase price, hence PFG filed a collection case against OQF. PFG also alleged
that OQF is a non-existent corporation by virtue of a certification by the SEC. RTC issued the writ of attachment on
the nets, and was sold at a public auction with the proceeds deposited to the court. RTC ruled there was partnership
between the three (Chua, Yao, Lim) anchoring on the Compromise Agreement they executed in the civil case filed by
Chua and Yao against Lim for the declaration of ownership of the fishing boats, among other things. CA affirmed.

ISSUE:

Whether or not by their acts, Lim, Chua, and Yao are deemed to have entered into a partnership. (YES)

RULING:

A partnership is a contract where two or more persons bind themselves to contribute money, property, or industry
to a common fund, with the intention of dividing the profits among themselves. The three engaged in a commercial
venture for commercial fishing and contracted loans to buy two fishing boats, and the nets and floats needed
to operate the fishing business. In their Compromise Agreement, they subsequently revealed their intention
to pay the loan with the proceeds of the sale of the boats, and to divide equally among them the excess or
loss. These boats, the purchase and the repair of which were financed with borrowed money, fell under the
term "common fund" under Article 1767. The contribution to such fund need not be cash or fixed assets; it could
be an intangible like credit or industry. That the parties agreed that any loss or profit from the sale and
operation of the boats would be divided equally among them also shows that they had indeed formed a
partnership. It extended to the fishing nets and the floats, both essential to fishing, which were obviously
acquired in furtherance of their business.

40

Petitioner’s defense that he was a mere lessor does not hold water. In effect, he would like this Court to believe that
he consented to the sale of his own boats to pay a debt of Chua and Yao, with the excess of the proceeds to be divided
among the three of them. No lessor would do what petitioner did. Indeed, his consent to the sale proved that there
was a preexisting partnership among all three.

Corporation by estoppels: Although the partnership/corporation was never legally formed for unknown
reasons, this fact alone does not preclude the liabilities of the three as contracting parties in representation
of it. Clearly, under the law on estoppel, those acting on behalf of a corporation and those benefited by it,
knowing it to be without valid existence, are held liable as general partners.

41

Ortega v. Court of Appeals

GREGORIO F. ORTEGA, TOMAS O. DEL CASTILLO, JR., and BENJAMIN T. BACORRO, petitioners, vs.
HON. COURT OF APPEALS, SECURITIES AND EXCHANGE COMMISSION and JOAQUIN L. MISA, respondents.

G.R. No. 109248 July 3, 1995

FACTS:

The law firm of Ross, Lawrence, Selph & Carrascoso was duly registered in the Mercantile Registry and reconstituted
with the Securities and Exchange Commission. Through the years, there were several amendments to the Articles of
Partnership and firm name. The firm name was last changed into Bito, Misa & Lozada. Petitioner Ortega, a junior
partner, withdrew from the firm because of unfair treatment to employees. Petitioner filed with the SEC a petition
for dissolution and liquidation of partnership. The hearing officer rendered a decision ruling that petitioner's
withdrawal from the law firm did not dissolve the said partnership. SEC en banc reversed the decision of the hearing
officer and held that the withdrawal of private respondent Atty. Misa had dissolved the partnership of Bito, Misa &
Lozada. Being a partnership at will, the law firm could be dissolved by any partner at any time, such as by his
withdrawal, regardless of good faith or bad faith, since no partner can be forced to continue in the partnership
against his will.

Atty. Misa asked for an appointment of a receiver to take over the assets of the dissolved partnership and to take
charge of the winding up of its affairs. Respondent SEC denied the MR, rejected the petition for receivership, and
remanded the case to the hearing officer. During the pendency of the case with the CA, Atty. Bito and Atty. Lozada
both passed away. The death of the two partners, as well as the admission of new partners, in the law firm prompted
Atty. Misa to renew his application for receivership expressing concern over the need to preserve and care for the
partnership assets. The CA affirmed the SEC decision. CA further ruled that Atty. Misa's withdrawal from the
partnership had changed the relation of the parties and caused the dissolution of the partnership; that such
withdrawal was not in bad faith; that the liquidation should be to the extent of Atty. Misa's interest or participation
in the partnership which could be computed and paid in the manner stipulated in the partnership agreement; The
case should be remanded to the SEC Hearing Officer for the corresponding determination of the value of Attorney
Misa's share in the partnership assets; that the appointment of a receiver was unnecessary as no sufficient proof had
been shown to indicate that the partnership assets were in any such danger of being lost, removed or materially
impaired.

ISSUE:

1. Whether or not the Court of Appeals has erred in holding that the partnership of Bito, Misa & Lozada (now Bito,
Lozada, Ortega & Castillo) is a partnership at will; (NO)

2. Whether or not the Court of Appeals has erred in holding that the withdrawal of private respondent dissolved
the partnership regardless of his good or bad faith; (NO)

3. Whether or not the Court of Appeals has erred in holding that private respondent's demand for the dissolution
of the partnership so that he can get a physical partition of partnership was not made in bad faith; (NO)

RULING:

42

1.The CA did not err. The law firm Bito, Misa & Lozada, now Bito, Lozada, Ortega and Castillo, is a partnership
at will, which is a partnership that does not fix its term.
• The partnership agreement does not provide for a specified period or undertaking. The Duration clause states
that the partnership shall continue so long as mutually satisfactory and upon the death or legal incapacity of
one of the partners, shall be continued by the surviving partners.
• The Purpose clause in the Articles of Partnership is not the specific undertaking contemplated by law.
Otherwise, all partnerships, which necessarily must have a purpose, would all be considered as partnerships
for a definite undertaking. There would therefore be no need to provide for articles on partnership at will as
none would so exist. What the law contemplates, is a specific undertaking or "project" which has a definite or
definable period of completion.

2. The CA did not err. The withdrawal of private respondent dissolved the partnership regardless of his good
or bad faith.
• Any one of the partners may, at his sole pleasure, dictate a dissolution of the partnership at will. The
attendance of bad faith cannot prevent the dissolution of the partnership, however, it can result in a liability
for damages.
• The right to choose with whom a person wishes to associate himself is the very foundation and essence of
that partnership. The birth and life of a partnership at will is predicated on the mutual desire and consent of
the partners.
• Its continued existence is dependent on the constancy of that mutual resolve, along with each partner's
capability to give it, and the absence of a cause for dissolution provided by the law itself.

The doctrine of delectus personae allows them to have the power, although not necessarily the right, to dissolve the
partnership.
• In passing, neither would the presence of a period for its specific duration or the statement of a particular
purpose for its creation prevent the dissolution of any partnership by an act or will of a partner.
• Among partners, mutual agency arises.
• An unjustified dissolution by the partner can subject him to a possible action for damages.

Upon its dissolution, the partnership continues and its legal personality is retained until the complete winding up of
its business culminating in its termination.
• The liquidation of the assets of the partnership following its dissolution is governed by the provisions of the
Civil Code; however, an agreement of the partners, like any other contract, is binding among them and
normally takes precedence to the extent applicable over the Code's general provisions.
• The Articles of Partnership speaks of “death or retirement.” The term "retirement" was interpreted by the
court, in a generic sense, to mean the dissociation by a partner, inclusive of resignation or withdrawal, from
the partnership that thereby dissolves it.

3. The CA did not err. Private respondent's demand for the dissolution so that he can get a physical partition
of partnership was not made in bad faith.
• It would not be right to let any of the partners remain in the partnership under an atmosphere of animosity
or interpersonal conflict; certainly, not against their will.
• Bad faith cannot be said to characterize the withdrawal for as long as the reason of a partner is not contrary
to the dictates of justice and fairness, nor for the purpose of unduly visiting harm and damage upon the
partnership.
• Bad faith, in the context here used, is no different from its normal concept of a conscious and intentional
design to do a wrongful act for a dishonest purpose or moral obliquity.

43

Dan Fue Leung v. IAC

DAN FUE LEUNG, petitioners, vs.

HON. INTERMEDIATE APPELLATE COURT and LEUNG YIU, respondents.

G.R. No. 70926 January 31, 1989

DOCTRINE:

• Art. 1767: By the contract of partnership, 2 or more persons bind themselves to contribute money, property
or industry to a common fund with the intention of dividing the profits among themselves.
• While “financial assistance” ordinarily means ‘giving money to another without expecting any return,’ its use
in the present case gave a different meaning
• Doctrine: ‘the nature of the action filed in court is determined by the facts alleged in the complaint as
constituting the cause of action.’
• The right to demand an accounting exists as long as the partnership exists (Arts. 1806-1809)
• Prescription begins to run only upon the dissolution of the partnership when the final accounting is done.
• Art. 1831: The Court may order the dissolution of a partnership whenever its continuation has become
inequitable.

FACTS:

Dan Fue Leung.The Sun Wah Panciteria was registered as a single proprietorship and its licenses and permits were
issued to and in favor of petitioner Dan Fue Leung as the sole proprietor. Respondent Leung Yiu adduced evidence
during the trial of the case to show that Sun Wah Panciteria was actually a partnership and that he was one of the
partners having contributed P4,000.00 to its initial establishment.Lower court ruled in favor of the private
respondent. Petitioner appealed the trial court's amended decision. However,the questioned decision was further
modified and affirmed by the appellate court.

Both the trial court and the appellate court declared that the private petitioner is a partner and is entitled to a share
of the annual profits of the restaurant. Hence, an appeal to the SC.The petitioner argues that private respondent
extended 'financial assistance' to herein petitioner at the time of the establishment of the Sun Wah Panciteria, in
return of which private respondent allegedly will receive a share in the profits of the restaurant. It was, therefore,
error for the Appellate Court to interpretor construe 'financial assistance' to mean the contribution of capital by a
partner to a partnership.

ISSUE:

WON the private respondent is a partner of the petitioner in the establishment of Sun Wah Panciteria. (YES)

RULING: Dan Fue Leung and Leung Yiu are partners in the establishment of Sun Wag Panciteria

Essentially, the private respondent alleged that when Sun Wah Panciteria was established, he gave P4,000.00 to the
petitioner with the understanding that he would be entitled to twenty-two percent (22%) of the annual profit
derived from the operation of the said panciteria.

44

These allegations, which were proved, make the private respondent and the petitioner partners in the establishment
of Sun Wah Panciteria because Article 1767 of the Civil Code provides that "By the contract of partnership two or
more persons bind themselves to contribute money, property or industry to a common fund, with the intention of
dividing the profits among themselves.”

Therefore, the lower courts did not err in construing the complaint as one wherein the private respondent asserted
his rights as partner of the petitioner in the establishment of the Sun Wah Panciteria, despite the use of the term
financial assistance therein. The SC affirmed appellate court's decision and ordered the dissolution of the
partnership.
45

Emnace v. Court of Appeals

EMILIO EMNACE, petitioner, vs.

COURT OF APPEALS, ESTATE OF VICENTE TABANAO, SHERWIN TABANAO, VICENTE WILLIAM TABANAO,
JANETTE TABANAO DEPOSOY, VICENTA MAY TABANAO VARELA, ROSELA TABANAO and VINCENT
TABANAO, respondents.

G.R. No. 126334 November 23, 2001

DOCTRINES:

For as long as the partnership exists, any of the partners may demand an accounting of the partnership’s business,
and prescription of the said right starts to run only upon the dissolution of the partnership when the final accounting
is done.

CASE SUMMARY:

Emnace, Tabanao, and Divina-Gracia were partners in a fishing industry. They decided to dissolve their partnership.
However hroughout the existence of the partnership, and even after Vicente Tabanao’s demise, Emnace failed to
submit to Tabanao’s heirs any statement of assets and liabilities of the partnership, and to render an accounting of
the partnership’s finances. Emnace also failed to turn over Tabanao’s shares. Heirs of Tabanao filed an action for
accounting and payment of shares against Emnace. The SC ruled in favor of Emnace.

FACTS:

Emilio Emnace, Vicente Tabanao and Jacinto Divina-gracia were partners in a fishing business, Ma. Nelma Fishing
Industry. After Jacinto Divinagracia’s withdrew from the partnership, they decided to dissolve their partnership and
executed an agreement of partition and distribution of the partnership properties among them sometime in January
of 1986. Assets to be distributed were five (5) fishing boats, six (6) vehicles, and two (2) parcels of land. Tabanao
died in 1994.

Throughout the existence of the partnership, and even after Vicente Tabanao’s demise, petitioner failed to submit to
Tabanao’s heirs any statement of assets and liabilities of the partnership, and to render an accounting of the
partnership’s finances. Petitioner also reneged on his promise to turn over to Tabanao’s heirs the deceased’s 1/3
share in the total assets of the partnership, amounting to P30,000,000.00, or the sum of P10,000,000.00, despite
formal demand for payment thereof.

Consequently, Tabanao’s heirs, respondents herein, filed against petitioner an action for accounting, payment of
shares, division of assets and damages.

Petitioner filed a motion to dismiss the complaint on the grounds of improper venue, lack of jurisdiction over the
nature of the action or suit, and lack of capacity of the estate of Tabanao to sue. Trial court denied the motion to
dismiss.

Respondents filed an amended complaint, incorporating the additional prayer that petitioner be ordered to “sell all
(the partnership’s) assets and thereafter pay/remit/deliver/surrender/yield to the plaintiffs” their corresponding
share in the proceeds thereof.

46

Petitioner filed a manifestation and motion to dismiss. As an additional ground, petitioner raised prescription
warranting the outright dismissal of the complaint trial court denying the motion to dismiss.

Trial court ruled that prescription begins to run only upon the dissolution of the partnership when the final
accounting is done. Hence, prescription has not set in the absence of a final accounting.

Court of Appeals rendered the assailed decision, dismissing the petition for certiorari. Petitioner filed the instant
petition for review.

ISSUE:

1. WON the action for accounting was filed in an improper venue. (NO)
2. WON the surviving spouse of Tabunao has legal capacity to sue. (YES)
3. WON the action for accounting has prescribed. (NO)

RULING: Petition is denied for lack of merit.

1. Petitioner’s argument: Petitioner insists that venue was improperly laid since the action is a real action involving
a parcel of land that is located outside the territorial jurisdiction of the court a quo.

SC ruled that there was no error on the part of the trial court and the Court of Appeals in holding that it
was filed in correct venue. An action for accounting, payment of partnership shares, division of assets and
damages is a personal action which, under the Rules, may be commenced and tried where the defendant resides
or may be found, or where the plaintiffs reside, at the election of the latter

2. Petitioner’s argument: Petitioner asserts that the surviving spouse of Vicente Tabanao has no legal capacity to
sue since she was never appointed as administratrix or executrix of his estate.

SC ruled that petitioner’s objection in this regard is misplaced. The surviving spouse does not need to be
appointed as executrix or administratrix of the estate before she can file the action. She and her children are
complainants in their own right as successors of Vicente Tabanao. From the very moment of Vicente Tabanao’s
death, his rights insofar as the partnership was concerned were transmitted to his heirs, for rights to the
succession are transmitted from the moment of death of the decedent.

Whatever claims and rights Vicente Tabanao had against the partnership and petitioner were
transmitted to respondents by operation of law, more particularly by succession. Moreover, respondents
became owners of their respective hereditary shares from the moment Vicente Tabanao died.

As successors who stepped into the shoes of their decedent upon his death, they can commence any action
originally pertaining to the decedent. From the moment of his death, his rights as a partner and to demand
fulfillment of petitioner’s obligations as outlined in their dissolution agreement were transmitted to respondents.
They, therefore, had the capacity to sue and seek the court’s intervention to compel petitioner to fulfill his
obligations.

3. Petitioner’s argument: Petitioner contends that the trial court should have dismissed the complaint on the
ground of prescription, arguing that respondents’ action prescribed four (4) years after it accrued in 1986.

The three (3) final stages of a partnership are: (1) dissolution; (2) winding-up; and (3) termination. The
partnership, although dissolved, continues to exist and its legal personality is retained, at which time it completes
47

the winding up of its affairs, including the partitioning and distribution of the net partnership assets to the
partners.

For as long as the partnership exists, any of the partners may demand an accounting of the partnership’s
business. Prescription of the said right starts to run only upon the dissolution of the partnership when the final
accounting is done.

The SC found that prescription had not even begun to run in the absence of a final accounting.

Article 1842 of the Civil Code provides: The right to an account of his interest shall accrue to any partner, or
his legal representative as against the winding up partners or the surviving partners or the person or partnership
continuing the business, at the date of dissolution, in the absence of any agreement to the contrary.

The provision states that the right to demand an accounting accrues at the date of dissolution in the absence of
any agreement to the contrary. When a final accounting is made, it is only then that prescription begins to run. In
the case at bar, no final accounting has been made, and that is precisely what respondents are seeking in
their action before the trial court, since petitioner has failed or refused to render an accounting of the
partnership’s business and assets. Hence, the said action is not barred by prescription.

48

IX. Art. 1810-1814
Realubit v. Jaso

JOSEFINA P. REALUBIT, petitioner, vs.

PROSENCIO D. JASO and EDEN G. JASO, respondents.

G.R. No. 178782 September 21, 2011

DOCTRINE:

Art. 1813. A conveyance by a partner of his whole interest in the partnership does not itself dissolve the partnership,
or, as against the other partners in the absence of agreement, entitle the assignee, during the continuance of the
partnership, to interfere in the management or administration of the partnership business or affairs, or to require
any information or account of partnership transactions, or to inspect the partnership books; but it merely entitles
the assignee to receive in accordance with his contracts the profits to which the assigning partners would otherwise
be entitled. However, in case of fraud in the management of the partnership, the assignee may avail himself of the
usual remedies. In the case of a dissolution of the partnership, the assignee is entitled to receive his assignor's
interest and may require an account from the date only of the last account agreed to by all the partners.

FACTS:

On 1994, Josefina Realubit entered into joint venture agreement with Francis Eric Amaury Biondo (Biondo) for the
operation of an ice manufacturing business; Josefina is the industrial partner while Biondo as the capitalist partner.
On 1997, Biondo transferred all his rights and interest in favour of Eden Jaso (Eden) as evidenced in the Deed of
Assignment. The spouses Jaso demanded from Josefina an accounting and inventory of the partnership as well as
the remittances of the portion of their profits. Jaso filed an action for specific performance, accounting, examination,
audit and inventory of assets and properties due to Josefina’s failure to comply with the first demand.

The RTC ruled in favour of the spouses Jaso, CA reversed the decision averring that absent showing of Josefina's
knowledge and consent to the transfer of Biondo's share, Eden cannot be considered as a partner in the business
and that while Eden is entitled to the rights of Biondo in the share of the profit of the partnership, the former cannot
interfere with the management of the partnership, require information or account of its transactions and inspect its
books and that the partnership should first be dissolved before Eden can seek an accounting of the transactions and
demand Biondo’s share.

ISSUE:

WON the assignment of right made Eden a partner and corollary, whether the spouses Jaso has the right to order
Josefina to render an accounting of the business. (NO)

RULING: Petition lacks merit and is therefore denied.

In accordance with Art. 1813, it is evident that "the transfer by a partner of his partnership interest does not make
the assignee of such interest a partner of the firm, nor entitle the assignee to interfere in the management of the
partnership business or to receive anything except the assignee's profits. The assignment does not purport to
49

transfer an interest in the partnership, but only a future contingent right to a portion of the ultimate residue as the
assignor may become entitled to receive by virtue of his proportionate interest in the capital."

Although Eden did not, moreover, become a partner as a consequence of the assignment and/or acquire the right to
require an accounting of the partnership business, the CA correctly granted her prayer for dissolution of the
joint venture conformably with the right granted to the purchaser of a partner's interest under Article 1831
of the Civil Code.

Generally understood to mean an organization formed for some temporary purpose, a joint venture is likened to a
particular partnership or one which "has for its object determinate things, their use or fruits, or a specific
undertaking, or the exercise of a profession or vocation." The rule is settled that joint ventures are governed by
the law on partnerships which are, in turn, based on mutual agency or delectus personae.
50

X. Art. 1815-1827
Island Sales v. United Pioneers

ISLAND SALES, INC., plaintiff-appellee, vs.

UNITED PIONEERS GENERAL CONSTRUCTION COMPANY, ET.AL., defendants.
BANJAMIN C. DACO, defendant-appellant.

G.R. No. L-22493 July 31, 1975

DOCTRINES:

Art. 1816 of the Civil Code: All partners including industrial ones, shall be liable pro rata with all their property
and after all the partnership assets have been exhausted, for the contracts which may be entered into in the name
and for the account of the partnership, under its signature and by a person authorized to act for the partnership.
However, any partner may enter into a separate obligation to perform a partnership contract.

The Court held in Co-Pitco v. Yulo: The partnership of Yulo and Palacios was engaged in the operation of a sugar
estate in Negros. It was, therefore, a civil partnership as distinguished from a mercantile partnership. Being
a civil partnership, by the express provisions of articles l698 and 1137 of the Civil Code, the partners are not liable
each for the whole debt of the partnership. The liability is pro rata and in this case Pedro Yulo is responsible to
plaintiff for only one-half of the debt. The fact that the other partner, Jaime Palacios, had left the country
cannot increase the liability of Pedro Yulo.

FACTS:

In 1961, the defendant United Pioneers General Construction Company, et al, a general partnership duly registered
under the laws of the Philippines, purchased from plaintiff Island Sales, Inc. a motor vehicle on the installment basis
and for this purpose executed a promissory note for P9,440.00, payable in twelve (12) equal monthly installments
of P786.63, the first installment payable on or before May 22, 1961 and the subsequent installments on the 22nd
day of every month thereafter, until fully paid, with the condition that failure to pay any of said installments as they
fall due would render the whole unpaid balance immediately due and demandable. Having failed to receive the
installment due on July 22, 1961, plaintiff Island Sales, Inc. sued the defendant company for the unpaid balance
amounting to P7,119.07. Benjamin C. Daco, Daniel A. Guizona, Noel C. Sim, Romulo B. Lumauig, and Augusto Palisoc
were included as co-defendants in their capacity as general partners of the defendant company.

The defendants Benjamin C. Daco and Noel C. Sim moved to reconsider the decision claiming that since there are five
(5) general partners, the joint and subsidiary liability of each partner should not exceed one-fifth ( 1 / 5 ) of the
obligations of the defendant company. But the trial court denied the said motion notwithstanding the conformity of
the plaintiff to limit the liability of the defendants Daco and Sim to only one-fifth ( 1 / 5 ) of the obligations of the
defendant company.

ISSUE:

Whether or not the dismissal of the complaint to favor one of the general partners of a partnership increases the
joint and subsidiary liability of each of the remaining partners for the obligations of the partnership. (NO)

51

RULING:

In the instant case, there were five (5) general partners when the promissory note in question was executed for and
in behalf of the partnership.

Since the liability of the partners is pro rata, the liability of the appellant Benjamin C. Daco shall be limited to
only one-fifth ( 1 / 5 ) of the obligations of the defendant company.

The fact that the complaint against the defendant Romulo B. Lumauig was dismissed, upon motion of the
plaintiff, does not unmake the said Lumauig as a general partner in the defendant company.

In so moving to dismiss the complaint, the plaintiff merely condoned Lumauig's individual liability to the plaintiff.

52

Guy v. Gacott

MICHAEL C. GUY, petitioner, vs.

ATTY. GLENN C. GACOTT, respondent.

G.R. No. 206147 January 13, 2016

DOCTRINES:

Arts. 1822, 1823, and 1824 articulate that it is the act of a partner which caused loss or injury to a third person
that makes all other partners solidarily liable with the partnership because of the words "any wrongful act or
omission of any partner acting in the ordinary course of the business," "one partner acting within the scope of his
apparent authority" and "misapplied by any partner while it is in the custody of the partnership." The obligation is
solidary because the law protects the third person, who in good faith relied upon the authority of a partner,
whether such authority is real or apparent.

A third person who transacted with said partnership can hold the partners solidarily liable for the whole obligation
if the case of the third person falls under Articles 1822 or 1823

FACTS:

Atty. Gacott purchased two (2) brand new transreceivers from Quantech Systems Corporation (QSC) in Manila
through its employee Rey Medestomas (Medestomas), amounting to a total of P18,000.00. However, due to major
defects, Gacott personally returned the transreceivers to QSC and requested that they be replaced. Time passed and
Gacott did not receive the replacement units as promised. Despite several demands, both oral and written, Gacott
was never given a replacement or a refund. Thus, Gacott filed a complaint for damages.

The RTC found that the two (2) transreceivers were defective and that QSC and Medestomas failed to replace the
same or return Gacott's money. The decision became final as QSC and Medestomas did not interpose an appeal.

During the execution stage, Gacott learned that QSC was not a corporation, but was in fact a general partnership
registered with the Securities and Exchange Commission (SEC). In the articles of partnership, 9 Guy was appointed
as General Manager of QSC.

To execute the judgment, Branch Sheriff Ronnie L. Felizarte (Sheriff Felizarte) went to the main office of the
Department of Transportation and Communications, Land Transportation Office (DOTCLTO), Quezon City, and
verified whether Medestomas, QSC and Guy had personal properties registered therein. 10 Upon learning that Guy
had vehicles registered in his name, Gacott instructed the sheriff to proceed with the attachment of one of the motor
vehicles of Guy based on the certification issued by the DOTC-LTO.

Guy filed his Motion to Lift Attachment Upon Personalty, arguing that he was not a judgment debtor and, therefore,
his vehicle could not be attached. However, the RTC denied Guy’s motion explaining that considering QSC was not a
corporation, but a registered partnership, Guy should be treated as a general partner pursuant to Section 21 of the
Corporation Code, and he may be held jointly and severally liable with QSC and Medestomas. Moreover, it stated that
all partners are liable solidarily with the partnership for everything chargeable to the partnership under Article
1822 and 1823.
53

Guy moved for reconsideration of the denial of his motion. He argued that he was neither impleaded as a defendant
nor validly served with summons and, thus, the trial court did not acquire jurisdiction over his person; that under
Article 1824 of the Civil Code, the partners were only solidarily liable for the partnership liability under exceptional
circumstances; and that in order for a partner to be liable for the debts of the partnership, it must be shown that all
partnership assets had first been exhausted.

After seeking relied before the CA, the CA rendered the assailed decision dismissing Guy’s appeal for the same
reasons given by the trial court. The verified Answer filed by one of the partners, Elton Ong, binds him as a partner
because the Rules of Court does not require that summons be served on all the partners. It is sufficient that service
be made on the "president, managing partner, general manager, corporate secretary, treasurer or in-house counsel."
It is immaterial whether the summons to QSC was served on the theory that it was a corporation. What is important
is that the summons was served on QSC’s authorized officer. The CA stressed that Guy, being a partner in QSC, was
bound by the summons served upon QSC based on Article 1821 of the Civil Code. The CA further opined that the law
did not require a partner to be actually involved in a suit in order for him to be made liable. He remained “solidarily
liable whether he participated or not, whether he ratified it or not, or whether he had knowledge of the act or
omission.”

ISSUE:

1. Whether or not the CA committed reversible error in holding that petitioner Guy is solidarily liable with the
partnership for damages arising from the breach of the contract of sale with respondent Gacott. (YES)
2. Whether or not the trial court’s jurisdiction over QSC extended to the person of Guy insofar as holding him
solidarily liable with the partnership. (NO)
3. Whether QSC was an alleged ostensible corporation or a duly registered partnership

RULING: Petitioner is meritorious and granted and CA’s decisions is reversed.

NO. Although a partnership is based on delectus personae or mutual agency, whereby any partner can generally
represent the partnership in its business affairs, it is non sequitur that a suit against the partnership is
necessarily a suit impleading each and every partner. It must be remembered that a partnership is a juridical
entity that has a distinct and separate personality from the persons composing it.

Guy was never made a party to the case. He did not have any participation in the entire proceeding until his vehicle
was levied upon and he suddenly became QSC’s “co-defendant debtor” during the judgment execution stage. It is a
basic principle of law that money judgments are enforceable only against the property incontrovertibly
belonging to the judgment debtor. The power of the court in executing judgments extends only to properties
unquestionably belonging to the judgment debtor alone. An execution can be issued only against a party and not
against one who did not have his day in court. The duty of the sheriff is to levy the property of the judgment debtor
not that of a third person.

A partner must first be impleaded before he could be prejudiced by the judgment against the partnership. A
partner may raise several defenses during the trial to avoid or mitigate his obligation to the partnership liability.
Necessarily, before he could present evidence during the trial, he must first be impleaded and informed of the case
against him. Without any showing that Guy himself acted maliciously on behalf of the company, causing
damage or injury to the complainant, then he and his personal properties cannot be made directly and solely
accountable for the liability of QSC, the judgment debtor, because he was not a party to the case.

54

Further, Article 1821 of the Civil Code does not state that there is no need to implead a partner in order to be
bound by the partnership liability. It provides that:

Notice to any partner of any matter relating to partnership affairs, and the knowledge of the partner
acting in the particular matter, acquired while a partner or then present to his mind, and the knowledge of any
other partner who reasonably could and should have communicated it to the acting partner, operate as notice
to or knowledge of the partnership, except in the case of fraud on the partnership, committed by or with the
consent of that partner.

Notice to any partner, under certain circumstances, operates as notice to or knowledge to the partnership only.
Unless there is an unequivocal law which states that a partner is automatically charged in a complaint against the
partnership, the constitutional right to due process takes precedence and a partner must first be impleaded
before he can be considered as a judgment debtor.

Article 1816 of the Civil Code governs the liability of the partners to third persons:

Article 1816. All partners, including industrial ones, shall be liable pro rata with all their property and after
all the partnership assets have been exhausted, for the contracts which may be entered into in the name and
for the account of the partnership, under its signature and by a person authorized to act for the partnership.
However, any partner may enter into a separate obligation to perform a partnership contract.

FIRST, the partners’ obligation with respect to the partnership liabilities is subsidiary in nature. It provides that the
partners shall only be liable with their property after all the partnership assets have been exhausted. To say that
one’s liability is subsidiary means that it merely becomes secondary and only arises if the one primarily liable fails
to sufficiently satisfy the obligation. Resort to the properties of a partner may be made only after efforts in
exhausting partnership assets have failed or that such partnership assets are insufficient to cover the entire
obligation. The subsidiary nature of the partners’ liability with the partnership is one of the valid defenses against a
premature execution of judgment directed to a partner. The records, however, miserably failed to show that the
partnership’s properties were exhausted. No genuine efforts were made to locate the properties of QSC that
could have been attached to satisfy the judgment. Being subsidiarily liable, Guy could only be held
personally liable if properly impleaded and after all partnership assets had been exhausted.

SECOND, Article 1816 provides that the partners’ obligation to third persons with respect to the partnership
liability is pro rata or joint. Liability is joint when a debtor is liable only for the payment of only a proportionate
part of the debt. In contrast, a solidary liability makes a debtor liable for the payment of the entire debt.

Article 1207 does not presume solidary liability unless: 1) the obligation expressly so states; or 2) the law or nature
requires solidarity. With regard to partnerships, ordinarily, the liability of the partners is not solidary. The joint
liability of the partners is a defense that can be raised by a partner impleaded in a complaint against the partnership.

It was not shown that Guy or the other partners did a wrongful act or misapplied the money or property he
or the partnership received from Gacott. A third person who transacted with said partnership can hold the
partners solidarily liable for the whole obligation if the case of the third person falls under Articles 1822 or
1823.

It was for a breach of warranty in a contractual obligation entered into in the name and for the account of QSC, not
due to the acts of any of the partners. For said reason, it is the general rule under Article 1816 that governs the joint
liability of such breach, and not the exceptions under Articles 1822 to 1824. Thus, it was improper to hold Guy
solidarily liable for the obligation of the partnership.
55

Section 21 of the Corporation Code, as invoked by the RTC, cannot be applied to sustain Guy's liability. The said
provision states that a general partner shall be liable for all debts, liabilities and damages incurred by an ostensible
corporation. It must be read, however, in conjunction with Article 1816 of the Civil Code, which governs the
liabilities of partners against third persons.

The liability of Guy, if any, would remain to be joint and subsidiary because all partners shall be liable pro rata with
all their property and after all the partnership assets have been exhausted for the contracts which may be entered
into in the name and for the account of the partnership.

56

XI. Art. 1828-1842
Villareal v. Ramirez

LUZVIMINDA J. VILLAREAL, DIOGENES VILLAREAL and CARMELITO JOSE, petitioner, vs.

DONALDO EFREN C. RAMIREZ and Spouses CESAR G. RAMIREZ JR. and CARMELITA C. RAMIREZ, respondent.

G.R. No. 144214 July 14, 2003

DOCTRINES:

FACTS:

ISSUE:

RULING:

RATIONALE:

57

B. LAW ON AGENCY
I. Introductory Concepts
Tuazon v. Ramos

MARIA TUAZON, ALEJANDRO P. TUAZON, MELEELECIO P. TUAZON, Spouses ANASTACIO and MARY T.
BUENAVENTURA, petitioner, vs.
HEIRS OF BARTOLOME RAMOS, respondent.

G.R. No. 156262 July 14, 2005

FACTS:

Respondents allege that spouses Leonilo and Maria Tuazon purchased a total of 8,326 cavans of rice from the
deceased Bartolome Ramos predecessor-in-interest of respondents. That of this quantity, only 4,437 cavans have
been paid for so far, leaving unpaid 3,889 cavans valued at P1,211,919. In payment therefor, the spouses Tuazon
issued several Traders Royal Bank checks. But when these checks were encashed, all of the checks bounced due to
insufficiency of funds. Respondents allege that spouses Tuazon already knew that they had no available fund to
support the checks, and they failed to provide for the payment of these despite repeated demands made on them.

Spouses Tuazon anticipated that they would be sued, they conspired with the other defendants to defraud them as
creditors by executing fictitious sales of their properties. Co-petitioner Melecio Tuazon, a son of spouses Tuazon,
registered a fictitious Deed of Sale on July 19, 1988 over a residential lot located at Nueva Ecija. Another simulated
sale of a Toyota Willys was executed on January 25, 1988 in favor of their other son, co-petitioner Alejandro Tuazon.
As a result of the said sales, the titles of these properties issued in the names of spouses Tuazon were cancelled and
new ones were issued in favor of the co-defendants spouses Buenaventura, Alejandro Tuazon and Melecio Tuazon.
By the said ante-dated and simulated sales and the corresponding transfers there was no more property left
registered in the names of spouses Tuazon answerable to creditors, to the damage and prejudice of respondents.

Defendants argued that it was Evangeline Santos who was the buyer of the rice and issued the checks to Maria
Tuazon as payments therefor. In good faith, the checks were received by petitioner from Evangeline Santos and
turned over to Ramos without knowing that these were not funded. And it is for this reason that petitioner have
been insisting on the inclusion of Evangeline Santos as an indispensable party, and he non-inclusion was a fatal error.
Spouses Tuazon contended that these were sold because they were then meeting financial difficulties but the
disposals were made for value and in good faith and done before the filing of the instant suit. Defendants argued that
there was no sales invoice, officials receipts or like evidence to prove this. They assert that they were merely agents
and should not be held answerable.

Having passed away before the pretrial, Bartolome Ramos was substituted by his heirs, herein respondents.
Contending that Evangeline Santos was an indispensable party in the case, petitioners moved to file a third-party
complaint against her. Allegedly, she was primarily liable to respondents, because she was the one who had
purchased the merchandise from their predecessor, as evidenced by the fact that the checks had been drawn in her
name.

The RTC, however, denied petitioners’ Motion. Sustaining the RTC, the CA held that petitioners had failed to prove
the existence of an agency between respondents and Spouses Tuazon. There was no need to implead Santos.

ISSUE:

1. Whether or not the Honorable CA erred in ruling that petitioners are not agents of the respondents
2. Whether or not the Honorable CA erred in rendering judgment against the petitioners despite the failure of the
respondents to include in their action Evangeline Santos, an indispensable party to the suit

RULING: The Petitioner is unmeritorious.
58

First Issue: Agency

The Supreme Court’s role in a petition under Rule 45 is limited to reviewing errors of law allegedly committed by
the Court of Appeals. Factual findings of the trial court, especially when affirmed by the CA, are conclusive on the
parties and this Court. Petitioners have not given us sufficient reasons to deviate from this rule.

In a contract of agency, one binds oneself to render some service or to do something in representation or on behalf
of another, with the latter’s consent or authority.

The following are the elements of agency:
(1) the parties’ consent, express or implied, to establish the relationship;
(2) the object, which is the execution of a juridical act in relation to a third person;
(3) the representation, by which the one who acts as an agent does so, not for oneself, but as a
representative;
(4) the limitation that the agent acts within the scope of his or her authority.

As the basis of agency is representation, there must be, on the part of the principal, an actual intention to appoint,
an intention naturally inferable from the principal’s words or actions. In the same manner, there must be an
intention on the part of the agent to accept the appointment and act upon it. Absent such mutual intent, there is
generally no agency.

This Court finds no reversible error in the findings of the courts a quo that petitioners were the rice buyers
themselves; they were not mere agents of respondents in their rice dealership. The question of whether a
contract is one of sale or of agency depends on the intention of the parties. The declarations of agents alone are
generally insufficient to establish the fact or extent of their authority. The law makes no presumption of agency;
proving its existence, nature and extent is incumbent upon the person alleging it.

Petitioners, on their own behalf, sued Evangeline Santos for collection of the amounts represented by the bounced
checks, in a separate civil case that they sought to be consolidated with the current one. If, as they claim, they were
mere agents of respondents, petitioners should have brought the suit against Santos for and on behalf of their alleged
principal, in accordance with Section 2 of Rule 3 of the Rules on Civil Procedure. Their filing a suit against her in
their own names negates their claim that they acted as mere agents in selling the rice obtained from
Bartolome Ramos.

Second Issue: Indispensable Party

We hold that respondents’ cause of action is clearly founded on petitioners’ failure to pay the purchase price
of the rice. The trial court held that Petitioner Maria Tuazon had indorsed the questioned checks in favor of
respondents, in accordance with Sections 31 and 63 of the Negotiable Instruments Law. That Santos was the drawer
of the checks is thus immaterial to the respondents’ cause of action.

As indorser, Petitioner Maria Tuazon warranted that upon due presentment, the checks were to be accepted or paid,
or both, according to their tenor; and that in case they were dishonored, she would pay the corresponding amount.
After an instrument is dishonored by nonpayment, indorsers cease to be merely secondarily liable; they become
principal debtors whose liability becomes identical to that of the original obligor. The holder of a negotiable
instrument need not even proceed against the maker before suing the indorser. Clearly, Evangeline Santos -- as
the drawer of the checks -- is not an indispensable party in an action against Maria Tuazon, the indorser of
the checks.

Indispensable parties are those parties in interest without whom no final determination can be had. In this case,
there is no privity of contract between respondents and Santos. Hence ,a final determination of the rights and
interest of the parties may be made without any need to impead her.
59

B. LAW ON AGENCY
Bautista-Spille v. Nicorp Management

FLORENTINA BAUTISTA-SPILLE represented by her Attorney-in-fact, Manuel B. Flores, Jr,, petitioner, vs.
NICORP MANAGEMENT AND DEVELOPMENT CORPORATION, BENJAMIN G. BAUTISTA and INTERNATIONAL
EXCHANGE BANK, respondent.

G.R. No. 124057 October 19, 2015

FACTS:

ISSUE:

Whether or not Benjamin was authorized to sell the subject property

RULING: The Court finds the petitioner meritorious.

60

B. LAW ON AGENCY
Professional Services v. Agana

SPOUSES JOSELINA ALCANTARA AND ANTONIO ALCANTARA, and SPOUSES JOSEFINO RUBI AND ANNIE
DISTOR- RUBI, petitioner, vs.
BRIGIDA L. NIDO, as attorney-in-fact of REVELEN N. SRIVASTAVA, respondent.

G.R. No. 165133 April 19, 2010

DOCTRINES:

FACTS:

ISSUE:

RULING:

RATIONALE:

61

B. LAW ON AGENCY
Banate v. Philippine Countryside Rural Bank


G.R. No. 165133 April 19, 2010

DOCTRINES:

FACTS:

ISSUE:

RULING:

RATIONALE:

62

B. LAW ON AGENCY
II. Kinds of Agency
Yun Kwan Byung v. PAGCOR

YUN KWAN BYUNG, petitioner, vs.

PHILIPPINE AMUSEMENT AND GAMING CORPORATION, respondent.

G.R. No. 163553 December 11, 2009

DOCTRINES:

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 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:
(1) 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.
(2) 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.

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.

FACTS:

PAGCOR is vested with the power to enter into contracts of every kind and for any lawful purpose that pertains to
its business. The Korean-based ABS Corporation availed the Foreign Highroller Marketing Program of PAGCOR. They
agreed to bring in foreign players to play at the five designated gaming tables of the Casino Filipino.

PETITIONER: He came to the Philippines four times to play for high stakes at the Casino Filipino. He was able to
accumulate gambling chips worth US$2.1 million. When he presented the gambling chips for encashment with
PAGCOR's employees or agents, PAGCOR refused to redeem them. PAGCOR would extend to him amenities deserving
of a high roller. A PAGCOR official who meets him at the airport would bring him to Casino Filipino. The card dealers
were all PAGCOR employees, the gambling chips, equipment and furniture belonged to PAGCOR, and PAGCOR
enforced all the regulations dealing with the operation of foreign exchange gambling pits.
63

He was able to redeem his gambling chips with the cashier during his first few winning trips. But later on, the casino
cashier refused to encash his gambling chips so he had no recourse but to deposit his gambling chips at the Grand
Boulevard Hotel's deposit box, every time he departed from Manila

RESPONDENT: Petitioner is a junket player. Only ABS Corporation would make an accounting of these chips to
PAGCOR's casino treasury. As additional information for the junket players playing in the gaming room leased to
ABS Corporation, PAGCOR posted a notice written in English and Korean languages which states that the GAMING
ROOM is exclusively operated by ABS under arrangement with PAGCOR and that the former is solely accountable
for all PLAYING CHIPS wagered on the tables. Under PAGCOR's gaming rules, gambling chips cannot be brought
outside the casino. The gambling chips must be converted to cash at the end of every gaming period as they are
inventoried every shift. It is impossible for PAGCOR players to accumulate two million dollars worth of gambling
chips and to bring the chips out of the casino premises.

Trial Court: PAGCOR has no authority to lease any portion of the gambling tables to a private party like ABS
Corporation. Only PAGCOR could use foreign currency in its gaming tables. When PAGCOR accepted only a fixed
portion of the dollar earnings of ABS Corporation in the concept of a lease of facilities, PAGCOR shared its franchise
with ABS Corporation in violation of the PAGCOR's charter. Hence, the Junket Agreement is void. Since the Junket
Agreement is not permitted by PAGCOR's charter, the mutual rights and obligations of the parties to this case would
be resolved based on agency and estoppel.

Court of Appeals: Dismissed the appeal

ISSUE:

1. Whether or not PAGCOR is liable to petitioner due to the doctrine of implied agency, or agency by estoppel
2. Whether or not the CA erred in failing to consider that PAGCOR ratified, or at least adopted, the acts of the agent,
ABS Corporation

RULING:

NO. Acts and conduct of PAGCOR negates the existence of an implied agency or an agency by estoppel.
Petitioner claims that even assuming that no actual agency existed between PAGCOR and ABS Corporation, there is
still an agency by estoppel based on the acts and conduct of PAGCOR showing apparent authority in favor of ABS
Corporation.

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.

The players brought in by ABS Corporation were covered by a different set of rules in acquiring and encashing chips.
The players used a different kind of chip than what was used in the regular gaming areas of PAGCOR, and that such
junket players played specifically only in the third floor area and did not mingle with the regular patrons of PAGCOR.
Furthermore, PAGCOR, in posting notices stating that the players are playing under special rules, exercised the
necessary precaution to warn the gaming public that no agency relationship exists.

The Court of Appeals correctly used the intent of the contracting parties in determining whether an agency
by estoppel existed in this case. An agency by estoppel, which is similar to the doctrine of apparent authority,
64

requires proof of reliance upon the representations, and that, in turn, needs proof that the representations
predated the action taken in reliance. There can be no apparent authority of an agent without 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.

In the entire duration that petitioner played in Casino Filipino, he was dealing only with ABS Corporation,
and availing of the privileges extended only to players brought in by ABS Corporation. The facts that he
enjoyed special treatment upon his arrival in Manila and special accommodations in Grand Boulevard Hotel, and
that he was playing in special gaming rooms are all indications that petitioner cannot claim good faith that he
believed he was dealing with PAGCOR. Petitioner cannot be considered as an innocent third party and he
cannot claim entitlement to equitable relief as well.
65

B. LAW ON AGENCY
II. Kinds of Agency
Siy v. Tomlin

WILLIAM ANGIDAN SIY, petitioner, vs.

ALVIN TOMLIN, respondent.

G.R. No. 205998 April 24, 2017

FACTS:

Petitioner alleged that he is the owner of a 2007 model Range Rover which he purchased from Lopez. In 2010, he
entrusted the said vehicle to Ong, a businessman who owned a second-hand car sales showroom, after the latter
claimed that he had a prospective buyer therefor. Ong failed to remit the proceeds of the purported sale nor return
the vehicle. Petitioner later found out that the vehicle had been transferred to Chua.

Petitioner filed a complaint before the QCPD's Anti-Carnapping Section. Upon learning of the complaint, Ong met
with the petitioner to arrange the return of the vehicle. Ong still failed to surrender the vehicle and petitioner learned
that the vehicle was being transferred to the respondent. The vehicle was later impounded and taken into custody
by the PNP-HPG at Camp Crame after respondent attempted to process a PNP clearance of the vehicle with a view
to transferring ownership thereof.

Respondent: He is the lawful and registered owner of the subject vehicle, having bought the same and caused
registration thereof in his name. Petitioner could not prove his ownership of the vehicle as the only pieces of
evidence he presented in this regard were a manager's check and cash voucher as proof of payment, and the affidavit
of Lopez attesting to the sale between him and petitioner which are insufficient.

RTC: Issued writ of replevin. Denied respondent's Omnibus Motion for lack of merit. It held that respondent's
remedy is not to move to quash the writ of replevin, but to post a counterbond within the reglementary period
allowed under the 1997 Rules.

Court of Appeals: Reversed the assailed decision. It held that the trial court did not acquire jurisdiction over the
instant case for failure of petitioner to pay the correct docket fees, since petitioner misdeclared the value of the
subject vehicle. The CA added that it was improper for the sheriff to serve a copy of the writ of replevin upon the
respondent on the day following the seizure of the subject vehicle, and not prior to the taking thereof.

ISSUE:

Whether or not there was an agency created between Siy and Ong. (NO)

RULING:

The Court is not unaware of the practice by many vehicle buyers and second-hand car traders of not transferring
registration and ownership over vehicles purchased from their original owners, and rather instructing the latter to
execute and sign in blank deeds of sale covering these vehicles, so that these buyers and dealers may freely and
readily trade or re-sell the vehicles in the second-hand car market without difficulty. This way, multiple transfers,
sales, or trades of the vehicle using these undated deeds signed in blank become possible, until the latest purchaser
decides to actually transfer the certificate of registration in his name. In many cases as well, busy vehicle owners
66

selling their vehicles actually leave them, together with all the documents of title, spare keys, and deeds of sale signed
in blank, with second-hand car traders they know and trust, in order for the latter to display these vehicles for actual
viewing and inspection by prospective buyers at their lots, warehouses, garages, or showrooms, and to enable the
traders to facilitate sales on-the-spot, as-is-where-is, without having to inconvenience the owners with random
viewings and inspections of their vehicles. For this kind of arrangement, an agency relationship is created
between the vehicle owners, as principals, and the car traders, as agents. The situation is akin to an owner of
jewelry who sells the same through an agent, who receives the jewelry in trust and offers it for sale to his/her regular
clients; if a sale is made, the agent takes payment under the obligation to remit the same to the jewelry owner, minus
the agreed commission or other compensation.

From petitioner's own account, he constituted and appointed Ong as his agent to sell the vehicle, surrendering to
the latter the vehicle, all documents of title pertaining thereto, and a deed of sale signed in blank, with full
understanding that Ong would offer and sell the same to his clients or to the public. In return, Ong accepted the
agency by his receipt of the vehicle, the blank deed of sale, and documents of title, and when he gave bond in the
form of two guarantee checks worth ₱4.95 million. All these gave Ong the authority to act for and in behalf of
petitioner.

Under the Civil Code on agency, Art. 1869. Agency may be express, or implied from the acts of the principal,
from his silence or lack of action, or his failure to repudiate the agency, knowing that another person is
acting on his behalf without authority. Agency may be oral, unless the law requires a specific form.

Art. 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.

"The basis of agency is representation and the same may be constituted expressly or impliedly. In an implied agency,
the principal can be bound by the acts of the implied agent. " The same is true with an oral agency.

Acting for and in petitioner's behalf by virtue of the implied or oral agency, Ong was thus able to sell the
vehicle to Chua, but he failed to remit the proceeds thereof to petitioner; his guarantee checks bounced as
well. Since Ong was able to sell the subject vehicle to Chua, petitioner thus ceased to be the owner thereof. Nor is he
entitled to the possession of the vehicle; together with his ownership, petitioner lost his right of possession
over the vehicle.

67

B. LAW ON AGENCY
III. Form of a contract of agency
Alcantara v. Nido


G.R. No. 165133 April 19, 2010

FACTS:

Revelen, who is respondent’s daughter and of legal age, is the owner of an unregistered land in Cardona, Rizal.
Respondent accepted the offer of petitioners to purchase a 200-square meter portion of Revelen’s lot at ₱200 per
square meter. Petitioners paid ₱3,000 as down payment and the balance was payable on installment. Petitioners
constructed their houses and with respondent’s consent, occupied an additional 150 square meters of the lot. By
1987, petitioners had already paid ₱17,500 before petitioners defaulted on their installment payments.

Respondent, acting as administrator and attorney-in-fact of Revelen, filed a complaint for recovery of possession
with damages and prayer for preliminary injunction against petitioners with the RTC.

RTC: Decided in favor of Nido. Based on the evidence presented, Revelen owns the lot and respondent was verbally
authorized to sell 200 square meters to petitioners. Since respondent’s authority to sell the land was not in writing,
the sale was void under Article 1874 of the Civil Code.

CA: Reversed the RTC decision. It held that respondent, as Revelen’s agent, did not have a written authority to enter
into such contract of sale; hence, the contract entered into between petitioners and respondent is void. A void
contract creates no rights or obligations or any juridical relations. Therefore, the void contract cannot be the subject
of rescission.

ISSUE:

WON The appellate court gravely erred in ruling that the contract entered into by respondent, in representation of
her daughter, and former defendant Eduardo Rubi (deceased), is void. (NO)

RULING:

Article 1874 of the Civil Code explicitly requires a written authority before an agent can sell an immovable
property. Based on a review of the records, there is absolutely no proof of respondent’s written authority to
sell the lot to petitioners. In fact, during the pre-trial conference, petitioners admitted that at the time of the
negotiation for the sale of the lot, petitioners were of the belief that respondent was the owner of the lot. Petitioners
only knew that Revelen was the owner of the lot during the hearing of this case. Consequently, the sale of the lot
by respondent who did not have a written authority from Revelen is void. A void contract produces no effect
either against or in favor of anyone and cannot be ratified

Art. 1874. When a sale of a piece of land or any interest therein is through an agent, the authority of the latter shall
be in writing; otherwise, the sale shall be void.
Art. 1878. Special powers of attorney are necessary in the following cases:
68

x x x
(5) To enter into any contract by which the ownership of an immovable is transmitted or acquired either
gratuitously or for a valuable consideration;
x x x

A special power of attorney is also necessary to enter into any contract by which the ownership of an immovable is
transmitted or acquired for a valuable consideration. Without an authority in writing, respondent cannot validly
sell the lot to petitioners. 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.

The express mandate required by law to enable an appointee of an agency 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. (Dizon v. Court of Appeals)

Respondent did not have the written authority to enter into a contract to sell the lot. As the consent of Revelen,
the real owner of the lot, was not obtained in writing as required by law, no contract was perfected. Consequently,
petitioners failed to validly acquire the lot.

Revelen executed a General Power of Attorney constituting respondent as her attorney-in-fact and authorizing her
to enter into any and all contracts and agreements on Revelen’s behalf. The General Power of Attorney was notarized
by Larry A. Reid, Notary Public in California, U.S.A. The General Power of Attorney cannot also be the basis of
respondent’s written authority to sell the lot. Since the General Power of Attorney was executed and
acknowledged in the United States of America, it cannot be admitted in evidence unless it is certified as such in
accordance with the Rules of Court by an officer in the foreign service of the Philippines stationed in the United
States of America. Hence, this document has no probative value.

69

B. LAW ON AGENCY
III. Form of a contract of agency
Yoshizaki v. Joy Training Center

SALLY YOSHIZAKI, petitioner, vs.

JOY TRAINING CENTER OF AURORA, INC., respondent.

G.R. No. 174978 July 31, 2013

FACTS:

Spouses Johnson sold the real properties, a Wrangler jeep, and other personal properties in favor of the spouses
Yoshizaki. A Deed of Absolute Sale and a Deed of Sale of Motor Vehicle were executed in favor of the spouses
Yoshizaki. The spouses Johnson were members of Joy Training’s board of trustees at the time of sale. The old TCT
was cancelled and a new TCT was issued in the name of the spouses Yoshizaki.

Joy Training, represented by its Acting Chairperson Rubio, filed an action for the Cancellation of Sales and Damages
with prayer for the issuance of a TRO and/or Writ of Preliminary Injunction against the spouses Yoshizaki and the
spouses Johnson.

Respondent: The spouses Johnson sold its properties without the requisite authority from the board of directors. It
assailed the validity of a board resolution which purportedly granted the spouses Johnson the authority to sell its
real properties. It averred that only a minority of the board (3 members) authorized the sale through the resolution.
The Articles of Incorporation provides that the board of trustees consists of seven members. TCT No. T-25334 does
not specifically grant the authority to sell the parcel of land to the spouses Johnson.

Petitioner: Joy Training authorized the spouses Johnson to sell the parcel of land. Majority of the board of trustees
approved the resolution. They maintained that the actual members of the board of trustees consist of five members.
The corporate secretary issued a certification authorizing the spouses Johnson to act on Joy Training’s behalf. The
Wrangler jeep and other personal properties were registered in the name of the spouses Johnson. The contract of
agency was subsisting at the time of sale because Section 108 of Presidential Decree No. (PD) 1529 requires that the
revocation of authority must be approved by a court of competent jurisdiction and no revocation was reflected in
the certificate of title.

RTC: Ruled in favor of the spouses Yoshizaki. It found that Joy Training owned the real properties. However, it held
that the sale was valid because Joy Training authorized the spouses Johnson to sell the real properties. It recognized
that there were only five actual members of the board of trustees; consequently, a majority of the board of trustees
validly authorized the sale. It also ruled that the sale of personal properties was valid because they were registered
in the spouses Johnson’s name.

CA: Reversed the ruling with respect to the sale of real properties. The resolution is void because it was not approved
by a majority of the board of trustees. It stated that under Section 25 of the Corporation Code, the basis for
determining the composition of the board of trustees is the list fixed in the articles of incorporation. Seven trustees
constitute the board since Joy Training did not hold an election after its incorporation.

ISSUE:

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Whether or not there was a contract of agency to sell the real properties between Joy Training and the spouses
Johnson. (NO)

RULING: There is no contract of agency between Joy Training and the spouses Johnson to sell the parcel of
land with its improvements. The absence of a contract of agency renders the contract of sale unenforceable.

Article 1868 of the Civil Code defines a contract of agency as a contract whereby 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.” It may be express, or implied from the acts of the principal, from his silence or lack of action, or
his failure to repudiate the agency, knowing that another person is acting on his behalf without authority.

As a general rule, a contract of agency may be oral. However, it must be written when the law requires a specific
form. Specifically, Article 1874 of the Civil Code provides that the contract of agency must be written for the
validity of the sale of a piece of land or any interest therein. Otherwise, the sale shall be void. A related provision,
Article 1878 of the Civil Code, states that special powers of attorney are necessary to convey real rights over
immovable properties.

The special power of attorney mandated by law must be one that expressly mentions a sale or that includes
a sale as a necessary ingredient of the authorized act. A special power of attorney must express the powers of
the agent in clear and unmistakable language for the principal to confer the right upon an agent to sell real
estate. When there is any reasonable doubt that the language so used conveys such power, no such construction
shall be given the document. The purpose of the law in requiring a special power of attorney in the disposition
of immovable property is to protect the interest of an unsuspecting owner from being prejudiced by the
unwarranted act of another and to caution the buyer to assure himself of the specific authorization of the
putative agent.

The certification provides that spouses Johnson were given FULL AUTHORITY for ALL SIGNATORY purposes for the
corporation on ANY and all matters and decisions regarding the property and ministry here. The resolution also
states the undersigned Board of Trustees (in majority) have authorized the sale of land and building owned by
spouses Johnson. The TCT merely states that Joy Training is represented by the spouses Johnson. The title
does not explicitly confer to the spouses Johnson the authority to sell the parcel of land and the building
thereon. Moreover, the phrase “Rep. by Sps. Richard A. Johnson and LINDA S. JOHNSON” only means that the
spouses Johnson represented Joy Training in land registration.

The resolution which purportedly grants the spouses Johnson a special power of attorney is negated by the
phrase “land and building owned by spouses Richard A. and Linda J Johnson.” Even if we disregard such phrase,
the resolution must be given scant consideration. We adhere to the CA’s position that the basis for determining
the board of trustees’ composition is the trustees as fixed in the articles of incorporation and not the actual
members of the board. The Sec. 25(2) of the Corporation Code expressly provides that a majority of the number
of trustees as fixed in the articles of incorporation shall constitute a quorum for the transaction of corporate
business.

Moreover, the certification is a mere general power of attorney which comprises all of Joy Training’s
business.

Article 1877 of the Civil Code clearly states that “[a]n 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.”
71

B. LAW ON AGENCY
IV. General and Special Power of Attorney
Absolute Management v. Metrobank

ABSOLUTE MANAGEMENT CORPORATION, petitioner, vs.

METROPOLITAN BANK AND TRUST COMPANY, respondent.

G.R. No. 190277 July 23, 2014

FACTS:

Sherwood Holdings Corporation and Spouses Ang filed a case for sum of money against private respondent Absolute
Management Corporation. Private respondent filed its answer and incorporated a third-party complaint against
petitioner Metropolitan Bank and Trust Company.

Trial court issued an Order directing petitioner to produce and allow private respondent to copy, microfilm copies
of several checks and the bank ledgers of Current Account Nos. 00719-250162-4 and 00700-250691-9. When the
counsels of the parties were asked by the trial court to produce their respective authorizations to appear at the said
hearing, counsel for petitioner manifested that her authority to appear for petitioner was submitted by them
at the first pre-trial hearing way back in 2004.

Petitioner’s counsel was given the chance to go over the records to look for the Secretary’s Certificate she allegedly
submitted in 2004. Petitioner’s counsel, however, failed to show any written authority. As a result thereof, the
trial court, upon motion of the private respondent, declared petitioner in default. Accordingly, the trial court allowed
private respondent to present evidence ex-parte.

Without waiting for the written order of default, petitioner, filed a Motion to Lift Order of Default seeking
reconsideration of the order, attaching thereto an Affidavit of Merit together with the required Secretary’s Certificate
and Special Power of Attorney.

Trial court denied petitioner’s motion to lift the order of default. Petitioner filed a motion for reconsideration but
the same was denied by the trial court.

CA reversed the trial court’s ruling that respondent’s counsel cannot validly represent respondent due to “the failure
on the part of the representative of respondent to present a Secretary’s Certificate and Special Power of Attorney
authorizing her to represent respondent during the pre-trial stage.” The presumption in favor of the counsel’s
authority to appear in behalf of a client is a strong one. A lawyer is not even required to present a written
authorization from the client. In fact, the absence of a formal notice of entry of appearance will not invalidate the
acts performed by the counsel in his client’s name. However, the court, on its own initiative or on motion of the other
party, may require a lawyer to adduce authorization from the client.

ISSUE:

Whether or not a special power of attorney was needed to be presented in court during pre-trial hearings. (NO)

RULING:

72

The court a quo merely applied the law in this case when it declared that respondent’s counsel did not have the
authority to act on behalf of respondent as its representative during the pre-trial on November 20, 2006. The
applicable provision under Rule 18 of the 1997 Rules of Civil Procedure, as amended, states, viz.:

SEC. 4. Appearance of parties. - It shall be the duty of the parties and their counsel to appear at the pre-trial.
The non-appearance of a party may be excused only if a valid cause is shown therefor or if a representative shall
appear in his behalf fully authorized in writing to enter into an amicable settlement, to submit to alternative
modes of dispute resolution, and to enter into stipulations or admissions of facts and of documents.

SEC. 5. Effect of failure to appear. - The failure of the plaintiff to appear when so required pursuant to the next
preceding section shall be cause for dismissal of the action. The dismissal shall be with prejudice, unless
otherwise ordered by the court. A similar failure on the part of the defendant shall be cause to allow the plaintiff
to present his evidence ex parte and the court to render judgment on the basis thereof.

What needs stressing is that the parties as well as the Trial Court must realize that at the pre-trial, the parties are
obliged not only to make formal identification and specification of the issues and of their proofs, as above
described – indeed, there is no reason why the Court may not oblige the parties to set these matters down in separate
writings and submit them to the Court prior to the pre-trial, and then to discuss, refine and embody the matters
agreed upon in a single document at or shortly after the pre-trial – but also and equally as peremptorily, to
directly address and discuss with sincerity and candor and in entire good faith each of the other subjects
enumerated in Section 1, Rule 20, i.e., the “possibility of an amicable settlement or of a submission to arbitration,”
the “advisability of a preliminary reference of issues to a commissioner,” and “such other matters as may aid in the
prompt disposition of the action,” inclusive of a resort to the modes of discovery.

Consistently with the mandatory character of the pre-trial, the Rules oblige not only the lawyers but the parties
as well to appear for this purpose before the Court, and when a party “fails to appear at a pre-trial conference
(he) may be non-suited or considered as in default.” The obligation “to appear” denotes not simply the personal
appearance, or the mere physical presentation by a party of one’s self, but connotes as importantly, preparedness
to go into the different subject assigned by law to a pre-trial. And in those instances where a party may not
himself be present at the pre-trial, and another person substitutes for him, or his lawyer undertakes to appear not
only as an attorney but in substitution of the client’s person, it is imperative for that representative of the lawyer
to have “special authority” to make such substantive agreements as only the client otherwise has capacity
to make. That “special authority” should ordinarily be in writing or at the very least be “duly established by
evidence other than the self-serving assertion of counsel (or the proclaimed representative) himself.”

Without that special authority, the lawyer or representative cannot be deemed capacitated to appear in place of the
party; hence, it will be considered that the latter has failed to put in an appearance at all, and he [must] therefore
“be non-suited or considered as in default,” notwithstanding his lawyer’s or delegate’s presence.

Atty. Raquel Buendia appeared on behalf of Respondent as both its counsel and representative in the pre-trial. Atty.
Buendia’s authority to appear as counsel on behalf of Respondent is not being questioned. In that regard, the
Court of Appeals correctly ruled that the authority of a counsel to appear in behalf of his client is presumed.
However, it should be noted that Atty. Buendia also appeared as a representative of Respondent in the pre-
trial hearing. In this regard, Section 4, Rule 18 of the Rules of Court specifically mandates that such
representative must be armed with a written authority from the party-litigant. Unfortunately, she was not
able to present one.

It behooves the Court that respondent did not refute the contention of petitioner that the ground for the trial court
in declaring respondent in default was the absence of a Special Power of Attorney (SPA) authorizing its counsel to
73

act on its behalf as “representative” in the pre-trial conference. All that respondent relentlessly invoked was the
liberal application of the rules in order not to defeat the right of the respondent to be heard and to present evidence
in its defense – citing that default orders are frowned upon and that all parties should be given the opportunity to
litigate their claims.

We disagree with respondent that its omission is excusable. Respondent had failed to substantiate its sole
excuse for its representative’s apparent lack of authority to be its representative, in addition to being its counsel,
during the pre-trial conference. To be sure, if indeed there was such an authority previously executed by respondent
in favor of its counsel as early as the pre-trial conferences that respondent alleges to have taken place on February
27, 2004 and April 16, 2004, this fact would have been easily proven by respondent. Such document conveying
authority – having originated from and issued by respondent itself – would have been produced with relative facility.
Respondent, however, failed to produce this document before the court a quo, the appellate court and this Court.
As fairly observed by petitioner, the SPA later submitted by respondent’s counsel is dated December 5, 2006
or “after” the pre-trial conference on November 20, 2006.

Finally, a cursory reading of the assailed decision of the appellate court shows that when it reversed the decision
of the court a quo, it did so on the ground that respondent’s counsel’s filing of a notice of entry of appearance
has given rise to the presumption that she (respondent’s counsel) had the authority to represent
respondent.

74

B. LAW ON AGENCY
Gozun v. Mercado

JESUS M. GOZUN, petitioner, vs.

BRIGJOSE TEOLIFO T. MERCADO aka DON PEPITO MERCADO, respondent.

G.R. No. 167812 December 19, 2006

FACTS:

In the local elections of 1995, respondent vied for the gubernatorial post in Pampanga. Upon respondents request,
petitioner, owner of JMG Publishing House, a printing shop located in San Fernando, Pampanga, submitted to
respondent draft samples and price quotation of campaign materials.

Respondent's wife had told Gozun that respondent already approved his price quotation and that he could start
printing the campaign materials, hence, he did print campaign materials. Given the urgency and limited time to do
the job order, petitioner availed of the services and facilities of Metro Angeles Printing and of St. Joseph Printing
Press, owned by his daughter and mother, respectively. Petitioner delivered the campaign materials to respondents
headquarters.

Respondents' sister in law, Lilian Soriano obtained from the petitioner cash advance of P253,000 allegedly for the
allowances of poll watchers who were attending a seminar and for other related expenses. Petitioner later sent
respondent a Statement of Account in the total amount of P2,177,906 itemized as follows: P640,310 for JMG
Publishing House; P837,696 for Metro Angeles Printing; P446,900 for St. Joseph Printing Press; and P253,000, the
cash advance obtained by Lilian.

Respondents' wife partially paid P1M to petitioner who issued a receipt therefor. Despite repeated demands and
respondents promise to pay, respondent failed to settle the balance of his account to petitioner. Respondent denied
having transacted with petitioner or entering into any contract for the printing of campaign materials. He
alleged that the various campaign materials delivered to him were represented as donations from his family, friends
and political supporters. He added that all contracts involving his personal expenses were coursed through and
signed by him to ensure compliance with pertinent election laws.

Respondent denied having given Lilian authority to get the cash advance. He claimed that petitioner was his overall
coordinator in charge of the conduct of seminars for volunteers and the monitoring of other matters bearing on his
candidacy; and that while his campaign manager, Cabalu, who was authorized to approve details with regard to
printing materials, presented him some campaign materials, those were partly donated.

When confronted with the official receipt issued to his wife acknowledging her payment to JMG Publishing House of
the amount of P1M, respondent claimed that it was his first time to see the receipt, albeit he belatedly came to know
from his wife and Cabalu that the P1M represented compensation to petitioner who helped a lot in the campaign as
a gesture of goodwill. Acknowledging that petitioner is engaged in the printing business, respondent explained that
he sometimes discussed with petitioner strategies relating to his candidacy, he (petitioner) having actively
volunteered to help in his campaign; that his wife was not authorized to enter into a contract with petitioner
regarding campaign materials as she knew her limitations; that he no longer questioned the P1,000,000 his wife
gave petitioner as he thought that it was just proper to compensate him for a job well done; and that he came to
know about petitioners claim against him only after receiving a copy of the complaint, which surprised him because
75

he knew fully well that the campaign materials were donations. Finally, respondent, disclaiming knowledge of the
COMELEC rule that if a campaign material is donated, it must be so stated on its face, acknowledged that nothing of
that sort was written on all the materials made by petitioner.

ISSUE:

Whether or not respondent is liable to petitioner. (YES, but not for Lilian's cash advance)

RULING:

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. Contracts entered into in the name of another
person by one who has been given no authority or legal representation or who has acted beyond his powers are
classified as unauthorized contracts and are declared unenforceable, unless they are ratified.

Generally, the agency may be oral, unless the law requires a specific form. However, a special power of attorney
is necessary for an agent to, as in this case, borrow money, unless it be urgent and indispensable for the
preservation of the things which are under administration. Since nothing in this case involves the
preservation of things under administration, a determination of whether Lilian Soriano had the special
authority to borrow money on behalf of respondent is in order.

While petitioner claims that Lilian was authorized by respondent, the statement of account marked as Exhibit A
states that the amount was received by Lilian in behalf of Mrs. Annie Mercado. Invoking Article 1873 of the
Civil Code, petitioner submits that respondent informed him that he had authorized Lilian to obtain the
loan, hence, following Macke v. Camps which holds that one who clothes another with apparent authority
as his agent, and holds him out to the public as such, respondent cannot be permitted to deny the
authority.

It bears noting that Lilian signed in the receipt in her name alone, without indicating therein that she was acting
for and in behalf of respondent. She thus bound herself in her personal capacity and not as an agent of
respondent or anyone for that matter.
76

B. LAW ON AGENCY
Bravo-Guerrero v . Bravo


G.R. No. 165133 April 19, 2010

FACTS:

Spouses Mauricio Bravo and Simona Bravo owned two parcels of land located along Evangelista Street, Makati City,
Metro Manila. They have three children - Roland, Cesar and Lily, all surnamed Bravo. Cesar died without issue. Lily
Bravo married David Diaz, and had a son, David B. Diaz, Jr. Roland had six children, namely, Lily Elizabeth Bravo-
Guerrero , Edward Bravo , Roland Bravo, Jr., Senia Bravo, Benjamin Mauricio Bravo, and their half-sister, Ofelia
Bravo.

Simona executed a General Power of Attorney ("GPA") in 1966 appointing Mauricio as her attorney-in-fact. In the
GPA, Simona authorized Mauricio to "mortgage or otherwise hypothecate, sell, assign and dispose of any and
all of my property, real, personal or mixed, of any kind whatsoever and wheresoever situated, or any
interest therein xxx." Mauricio subsequently mortgaged the Properties to the Philippine National Bank (PNB) and
Development Bank of the Philippines (DBP) for P10,000 and P5,000, respectively.

In 1970, Mauricio executed a Deed of Sale with Assumption of Real Estate Mortgage ("Deed of Sale") conveying the
Properties to "Roland A. Bravo, Ofelia A. Bravo and Elizabeth Bravo" ("vendees"). However, the Deed of Sale was not
annotated on TCT Nos. 58999 and 59000. Neither was it presented to PNB and DBP. The mortgage loans and the
receipts for loan payments issued by PNB and DBP continued to be in Mauricio’s name even after his death on 20
November 1973. Simona died in 1977.

Edward, represented by his wife, Fatima Bravo, filed an action for the judicial partition of the Properties. Edward
claimed that he and the other grandchildren of Mauricio and Simona are co-owners of the Properties by succession.
Despite this, petitioners refused to share with him the possession and rental income of the Properties.

ISSUE:

Whether or not Simona validly appointed Mauricio as her attorney-in-fact to dispose of the properties in question.
(YES)

RULING:

The SC agreed with the trial court that Simona authorized Mauricio to dispose of the Properties when she
executed the GPA. True, Article 1878 requires a special power of attorney for an agent to execute a contract that
transfers the ownership of an immovable. However, the Court has clarified that Article 1878 refers to the nature
of the authorization, not to its form. Even if a document is titled 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.

77

In Veloso v. Court of Appeals, the Court explained that a general power of attorney could contain a special power
to sell that satisfies the requirement of Article 1878, thus: While it is true that it was denominated as a general
power of attorney, a perusal thereof revealed that it stated an authority to sell, to wit:

"2. To buy or sell, hire or lease, mortgage or otherwise hypothecate lands, tenements and hereditaments or other
forms of real property, more specifically TCT No. 49138, upon such terms and conditions and under such covenants
as my said attorney shall deem fit and proper."

Thus, there was no need to execute a separate and special power of attorney since the general power of
attorney had expressly authorized the agent or attorney in fact the power to sell the subject property. The
special power of attorney can be included in the general power when it is specified therein the act or transaction for
which the special power is required.

In this case, Simona expressly authorized Mauricio in the GPA to "sell, assign and dispose of any and all of my
property, real, personal or mixed, of any kind whatsoever and wheresoever situated, or any interest therein
xxx" as well as to "act as my general representative and agent, with full authority to buy, sell, negotiate and
contract for me and in my behalf." Taken together, these provisions constitute a clear and specific mandate
to Mauricio to sell the Properties. Even if it is called a "general power of attorney," the specific provisions in the
GPA are sufficient for the purposes of Article 1878. These provisions in the GPA likewise indicate that Simona
consented to the sale of the Properties.
78

B. LAW ON AGENCY
V. Rights and Obligations of the Principal and the Agent
Citibank v. Chua


G.R. No. 165133 April 19, 2010

FACTS:

Sps. Velez filed a case for specific performance with damages against Citibank. During the pre-trial conference,
counsel for petitioner bank appeared, presenting a special power of attorney executed by Citibank officer Florencia
Tarriela in favor of petitioner bank's counsel, the J.P. Garcia & Associates, to represent and bind petitioner bank at
the pre-trial conference. The counsel for the private respondents orally moved to declare petitioner bank as in
default on the ground that the special power of attorney was not executed by the Board of Directors of Citibank.

Petitioner bank was then required to file a written opposition to this oral motion to declare it as in default. In said
opposition petitioner bank attached another special power of attorney made by William W. Ferguson, Vice President
and highest ranking officer of Citibank, Philippines, constituting and appointing the J.P. Garcia & Associates to
represent and bind the bank at the pre-trial conference and/or trial of the case. Respondent judge denied private
respondents' oral motion to declare petitioner bank as in default and set the continuation of the pre-trial conference.

On the scheduled pre-trial conference, private respondents reiterated their oral motion to declare petitioner bank
as in default. Petitioner bank again its opposition thereto, stating as follows:

". . . While it has been the practice of Citibank to appoint its counsels as its attorney-in-fact in civil cases because
it considers said counsels equivalent to a Citibank employee, yet, in order to avoid further arguments on the
matter, the defendant Citibank will secure another power of attorney from Mr. William W. Ferguson in favor of
its employee/s who will represent the defendant Citibank in the pre-trial conferences of this case."

In compliance with the above promise, petitioner bank submitted a special power of attorney executed by William
W. Ferguson in favor of Citibank employees to represent and bind Citibank on the pre-trial conference of the case.

Respondent judge, however, issued an order declaring petitioner bank as in default. It reasoned out that "Defendant-
bank, although a foreign corporation, is bound by Philippine laws when doing and conducting business in the
Philippines, and its corporate powers could only be exercised by its Board of Directors (Sec. 23, B.P. Blg. 68). The
Special Power of Attorney executed by Mr. William W. Ferguson in favor of the alleged Citibank employees (Roberto
Reyes, Nemesio Solomon, Aimee Yu and Tomas Yap), assuming the same to be a delegable authority, to represent
the defendant in the pre-trial conference, made no mention of J.P. Garcia & Associates as one of the employees of the
defendant. It stands to reason therefore, that the defendant-bank has no proper representation during the pre-trial
conference.

Petitioner bank then filed a petition for certiorari, prohibition and mandamus with preliminary injunction and/or
temporary restraining order with the Court of Appeals. The Court of Appeals dismissed the petition.

ISSUE:
79

Whether or not the petitioner bank's counsel validly authorized to represent petitioner bank during the pre-trial.
(YES)

RULING:

Although as a general rule, all corporate powers are to be exercised by the board of directors, exceptions are made
where the Code provides otherwise.

Section 25 of said Code provides that the directors of the corporation shall elect its corporate officers, and further
provides as follows:

"SEC. 25. Corporate officers; quorum. — . . . The directors or trustees and officers to be elected shall perform the
duties enjoined on them by law and by the by-laws of the corporation . . ."

Furthermore, Section 47 of the same Code enumerates what may be contained in the by-laws, among which is a
provision for the "qualifications, duties and compensation of directors or trustees, officers and employees".

Taking all the above provisions of law together, it is clear that corporate powers may be directly conferred upon
corporate officers or agents by statute, the articles of incorporation, the by-laws or by resolution or other
act of the board of directors. In addition, an officer who is not a director may also appoint other agents when so
authorized by the by-laws or by the board of directors. Such are referred to as express powers. There are also powers
incidental to express powers conferred. It is a fundamental principle in the law of agency that every delegation of
authority, whether general or special, carries with it, unless the contrary be expressed, implied authority to
do all of those acts, naturally and ordinarily done in such cases, which are reasonably necessary and proper
to be done in order to carry into effect the main authority conferred.

Since the by-laws are a source of authority for corporate officers and agents of the corporation, a resolution of the
Board of Directors of Citibank appointing an attorney in fact to represent and bind it during the pre-trial
conference of the case at bar is not necessary because its by-laws allow its officers, the Executing Officer and the
Secretary Pro-Tem, to execute a power of attorney to a designated bank officer, William W. Ferguson in this case,
clothing him with authority to direct and manage corporate affairs.

Since the general power of attorney granted to Ferguson allows him to delegate his powers in whole or in part, there
can be no doubt that the special power of attorney in favor, first, of J.P. Garcia & Associates and later, of the
bank's employees, constitutes a valid delegation of Ferguson's express power to represent petitioner bank
in the pre-trial conference in the lower court.

From the outset, petitioner bank showed a willingness, if not zeal, in pursuing and defending this case. It even
acceded to private respondent's insistence on the question of proper representation during the pre-trial by
presenting not just one, but three, special powers of attorney. Initially, the special power of attorney was executed
by Florencia Tarriela in favor of J.P. Garcia & Associates, petitioner bank's counsel. Private respondents insisted that
this was not proper authority required by law. To avoid further argument, a second special power of attorney was
presented by petitioner bank, executed by William W. Fersugon, the highest ranking officer of Citibank in the
Philippines, in favor of its counsel J.P. Garcia & Associates. But since the authority to delegate of William A. Fersugon
in favor of an agent is limited to bank employees, another special power of attorney from Wiliam W. Fersugon in
favor of the Citibank employees was presented. But the respondent trial court judge disregarded all these and issued
the assailed default order. There is nothing to show that petitioner bank "miserably failed to oblige"; on the contrary,
three special powers of attorney manifest prudence and diligence on petitioner bank's part.
80

In fact, there was no need for the third power of attorney because we believe that the second power of
attorney was sufficient under the by-law provision authorizing Fersugon to delegate any of his functions to
any one or more employees of the petitioner bank. A reasonable interpretation of this provision would include
an appointment of a legal counsel to represent the bank in court, for, under the circumstances, such legal counsel
can be considered, and in fact was considered by the petitioner bank, an employee for a special purpose.
Furthermore, Fersugon, who heads the Philippine office thousands of miles away from its main office in the United
States, must be understood to have sufficient powers to act promptly in order to protect the interests of his principal.

We reiterate the previous admonitions of this Court against "precipitate orders of default as these have the
effect of denying the litigant the chance to be heard. While there are instances, to be sure, when a party may be
properly defaulted, these should be the exceptions rather than the rule and should be allowed only in clear cases of
an obstinate refusal or inordinate neglect to comply with the orders of the court. Absent such a showing, the party
must be given every reasonable opportunity to present his side and to refute the evidence of the adverse party in
deference to due process of law".

Considering further that petitioner bank has a meritorious defense and that the amount in contest is substantial, the
litigants should be allowed to settle their claims on the arena of the court based on a trial on the merits
rather than on mere technicalities.

81

B. LAW ON AGENCY
Roberto R. Ignacio v. Myrna P. Ragasa

ROBERTO R. IGNACIO AND TERESA R. IGNACIO doing business under the name and style of TERESA R.
IGNACIO, petitioner, vs.
MYRNA P. RAGASA AND AZUCENA B. ROA, respondent.

G.R. No. 227896 January 29, 2020

FACTS:

Petitioners engaged, on an exclusive basis, the services of the respondents, who are both licensed real estate brokers,
to look for and negotiate with a person or entity for a joint venture project involving petitioners' undeveloped lands
in Mindanao Avenue, Quezon City and the developed subdivision sites in Las Piñas City, Parañaque City, and Bacoor.
The contract was embodied in the Authority to Look and Negotiate for a Joint Venture Partner, effective for six
months from January 10, 2000, or until July 10, 2000. The said Authority provided that the petitioners will pay the
respondents a commission equivalent to five percent (5%) of the price of the properties.

Respondents met with Mr. Yusingbo, the General Manager of Woodridge Properties, Inc. and they presented to him
the different subdivisions and project sites available for investment. After inspecting the properties, Yusingbo
expressed Woodridge's interest in acquiring and developing the Krause Park and Teresa Park properties.

As a result, Woodridge sent respondents a formal proposal for a joint venture agreement with the petitioners
covering the Teresa Park. Petitioners met with the representatives of Woodridge to discuss the prices of the
properties, and Woodridge likewise intimated that it would develop both the Krause Park and the Teresa Park.

Respondents met again with Yusingbo and Mr. Elmer Loredo (Loredo), Woodridge's broker, to discuss Woodridge's
proposal for bulk purchase covering the Teresa Park, including the terms of payment. Respondents presented
Woodridge's offer to petitioner Roberto Ignacio. They discussed the projected cash inflows and the advantages of
the scheme. Petitioner Ignacio said he wanted to sell the lots in batches at a lower volume, instead of in bulk.
Respondents communicated the offer to Woodridge and the latter intimated that it will make a revised offer.
Woodridge, however, changed its offer from direct acquisition to joint venture, covering 200 lots in Teresa Park, and
sent the proposal to the respondents, who, in turn, relayed it to the petitioners. Petitioners and respondents
discussed the proposal for joint venture. Petitioners commented that Woodridge's offer was low, but respondents
reassured them that they could negotiate for a better price. After this March 13, 2000 meeting, however, petitioners
stopped communicating with the respondents. Several attempts were made by the respondents to contact the
petitioners to follow-up on the proposal of Woodridge, but to no avail.

Sometime thereafter, respondents learned that the petitioners continued to negotiate with Woodridge, and this led
to the execution of two joint venture agreements between the petitioners and Woodridge, covering the Krause Park.
The two joint venture agreements were notarized on March 7, 2000 and October 16, 2000.

For the Teresa Park, four joint venture agreements were executed between the petitioners and Woodridge, and these
were notarized. Aside from the joint venture agreements, several deeds of sale were also executed between the
petitioners and Woodridge.

Respondents demanded payment of their commission from the petitioners, contending that the joint venture
agreements and the sales over the Krause Park and Teresa Park were products of their successful negotiation with
82

Woodridge. Petitioners, however, refused to pay despite demand. Thus, respondents filed a complaint for sum of
money and damages against petitioners.

Petitioners denied that they have an obligation to pay the respondents. Petitioners contend that the respondents
offered their services as exclusive real estate brokers, but they were never engaged. Petitioners further state that
they were not looking for an exclusive agency and they entertained brokers on a "first come, first served" basis.
Petitioners, likewise, contend that they were not agreeable with the respondents' proposal to sell the lots below the
prevailing market value with no escalation clause, and that the sale of the Krause Park and the Teresa Park was made
through the joint efforts of their consultants, Engr. Julius Aragon and Florence Cabansag. No sales transaction was
realized on account of the respondents.

Petitioners contend that the respondents are not entitled to commission or brokers' fees because they are not the
procuring cause for the successful business transactions between the petitioners and Woodridge.

RTC: Rendered judgment in favor of respondents
CA: Affirmed in toto the ruling of the RTC.

ISSUE:

Whether or not respondents are entitled to broker’s fees. (YES)

RULING:

In Medrano v. Court of Appeals, SC held that "when there is a close, proximate, and causal connection between
the broker's efforts and the principal's sale of his property - or joint venture agreement, in this case - the
broker is entitled to a commission."

Here, the proximity in time between the meetings held by the respondents and Woodridge and the subsequent
execution of the joint venture agreements leads to a logical conclusion that it was the respondents who brokered
it. Likewise, it is inconsequential that the authority of the respondents as brokers had already expired when the joint
venture agreements over the subject properties were executed. The negotiation for these transactions began during
the effectivity of the authority of the respondents, and these were carried out through their efforts. Thus, the
respondents are entitled to a commission.

83

B. LAW ON AGENCY
Coleongco v. Claparols

VICENETE M. COLEONGCO, petitioner, vs.

EDUARDO L. CLAPAROLS, respondent.

G.R. No. L-18616 March 31, 1964

FACTS:

Since 1951, defendant-appellee, Eduardo L. Claparols, operated a factory for the manufacture of nails in Talisay,
Occidental Negros, under the style of "Claparols Steel & Nail Plant". The raw material, nail wire, was imported from
foreign sources, specially from Belgium; and Claparols had a regular dollar allocation therefor, granted by the Import
Control Commission and the Central Bank. The marketing of the nails was handled by the "ABCD Commercial" of
Bacolod, which was owned by a Chinaman named Kho To.

Losses compelled Claparols in 1953 to look for someone to finance his imports of nail wires. At first, Kho To agreed
to do the financing, but on April 25, 1953, the Chinaman introduced his compadre, appellant Vicente Coleongco, to
the appellee, recommending said appellant to be the financier in the stead of Kho To. Claparols agreed, and
Coleongco undertook to finance and put up the funds required for the importation of the nail wire, which Claparols
bound himself to convert into nails at his plant. It was agreed that Coleongco would have the exclusive distribution
of the product, and the "absolute care in the marketing of these nails and the promotion of sales all over the
Philippines", except the Davao Agency; that Coleongco would "share the control of all the cash" from sales or
deposited in banks; that he would have a representative in the management; that all contracts and transactions
should be jointly approved by both parties; that proper books would be kept and annual accounts rendered; and
that profits and losses would be shared "on a 50-50 basis". The contract was renewed from one year to year until
1958, and Coleongco's share subsequently increased by 5% of the net profit of the factory.

Two days after the execution of the initial agreement, Claparols executed in favor of Coleongco, at the latter's behest
a special power of attorney to open and negotiate letters of credit, to sign contracts, bills of lading, invoices, and
papers covering transactions; to represent appellee and the nail factory; and to accept payments and cash advances
from dealers and distributors. Thereafter, Coleongco also became the assistant manager of the factory, and took over
its business transactions, while Claparols devoted most of his time to the nail manufacture processes.

Around mid-November 1956, Claparols learned from the Philippine National Bank (PNB) that Coleongco wrote the
bank trying to discredit him, causing the bank to issue an alias writ of execution. Behind Claparol’s back, Coleongco
wrote the bank alleging that Claparols was not serious in meeting his financial obligations by selling the machines.
Claparols was able to settle the matter with the bank but because of this, he revoked the SPA and informed Coleongco
of the same through registered mail. He also hired an auditing fimrm C. Miller & Company, to go over the books and
records of the business with a view to adjust the accounts of the associates. This is after learning the Coleongco asked
the superintendent Agsam to pour acid on the machinery to paralyze the factory. Coleongco also wrote Kho To to
cut his monthly advances from Php 2,000.00 to Php 1,000.00 to take advantage of the financial difficulties of
Claparols and so that later, they may own the factory. This was carried on by Kho To in a leter advising that he can
only draw Php 1,000.00. The auditors found that Coleongco owed the nail factory the amount of Php 81,387.37 as of
June 30, 1957. Coleongco was also dismissed as the assistant manager, Coleongco denies the allegations and claims
that the revocation of the SPA was illegal and that and that he was entitled to the share of the profits as well as moral
damages.
84

RTC dismissed. Direct appeal to SC.

ISSUE:

Whether or not SPA may be validly revoked. (YES)

RULING:

Coleongco acted in bad faith towards his principal Claparols, is on the record, unquestionable. His letters to the PNB
attempting to undermine the credit of the principal and to acquire the factory of the latter, without the principal’s
knowledge are plain acts of deliberate sabotage by the agent that fully justified the revocation of the power of
attorney. The basic rule of contracts requires parties to act loyally toward each other in the pursuit of the
common end, and appellant clearly violated the rule of good faith prescribed by Article 1315 of the New Civil
Code.

The authority given in an SPA certainly can be revoked for a just cause, such as when the attorney-in-fact betrays
the interest of the principal, as happened in this case. It is not open to serious doubt that the irrevocability of the
power of attorney may not be used to shield the perpetration of acts in bad faith, breach of confidence, or betrayal
of trust, by the agent for that would amount to holding that a power coupled with an interest authorizes the agent
to commit frauds against the principal.

Our new Civil Code, in Article 1172, expressly provides the contrary in prescribing that responsibility arising from
fraud is demandable in all obligations, and that any waiver of action for future fraud is void. It is also on this principle
that the Civil Code, in its Article 1800, declares that the powers of a partner, appointed as manager, in the articles
of co-partnership are irrevocable without just or lawful cause; and an agent with power coupled with an interest
cannot stand on better ground than such a partner in so far as irrevocability of the power is concerned.

Appellant attempts to justify his letter to the Philippine National Bank claiming that Claparols' mal-administration
of the business endangered the security for the advances that he had made under the financing contract. But if that
were the case, it is to be expected that Coleongco would have first protested to Claparols himself, which he never
did. Appellant likewise denies the authorship of the letter to Kho as well as the attempt to induce Agsam to damage
the machinery of the factory. Between the testimony of Agsam and Claparols and that of Coleongco, the court below
whose to believe the former, and we see no reason to alter the lower court's conclusion on the value of the
evidence before it, considering that Kho's letter to Claparols plainly corroborates and dovetails with the
plan outlined in Coleongco's own letter, signed by him, and that the credibility of Coleongco is affected
adversely by his own admission of his having been previously convicted of estafa. There is a clear
preponderance of evidence against appellant.

The action of plaintiff-appellant for damages and lost profits due to the discontinuance of the financing
agreement, Exhibit "B", may not prosper, because the record shows that the appellant likewise breached his part
of the contract. Instead of putting up all the necessary money needed to finance the imports of raw material,
Coleongco merely advanced 25% in cash on account of the price and had the balance covered by surety agreements
executed by Claparols and others as solidary, (joint and several) guarantors. The upshot of this arrangement was
that Claparols was made to shoulder 3/4 of the payment for the imports, contrary to the financing agreement.
Paragraph 11 of the latter expressly denied Coleongco any power or authority to bind Claparols without previous
consultation and authority. When the balances for the cost of the importations became due, Coleongco, in some
instances, paid it with the dealers' advances to the nail factory against future sales without the knowledge of
Claparols. Under paragraphs 8 and 11 of the financing agreement, Coleongco was to give preference to the operating
85

expenses before sharing profits, so that until the operating costs were provided for, Coleongco had no right to apply
the factory's income to pay his own obligations.

Again, the examination of the books by accountant Atienza of C. Miller and Co., showed that from 1954 onwards
Coleongco (who had the control of the factory's cash and bank deposits) never liquidated and paid in full to Claparols
his half of the profits, so that as of June 30, 1957, Coleongco owed to Claparols the sum of P83,466.34 due to diversion
of factory funds. The basic rule of contracts requires parties to act loyally toward each other in the pursuit of
the common end, and appellant clearly violated the rule of good faith prescribed by Art. 1315 of the new
Civil Code. Claparols is also entitled for damages, material, moral and exemplary, because of the mental
anguish and serious anxiety he has experienced based on Coleongco’s acts.
86

B. LAW ON AGENCY
VI. Dealings with Third Persons
San Juan Structural v. CA

SAN JUAN STRUCTUAL AND STEEL FABRICATORS, INC., petitioner, vs.

COURT OF APPEALS, MOTORICH SALES CORPORATION, NENITA LEE GRUENBERG, ACL DEVELOPMENT
CORP, and JNM REALTY AND DEVELOPMENT, respondent.

G.R. No. 129459 September 29, 1998

DOCTRINES:

Art. 1874 and 1878 of the Civil Code of the Philippines provides:

Art. 1874. When a sale of a piece of land or any interest therein is through an agent, the authority of the latter shall
be in writing: otherwise, the sale shall be void.

Art. 1878. Special powers of attorney are necessary in the following case:
(5) To enter any contract by which the ownership of an immovable is transmitted or acquired either gratuitously
or for a valuable consideration;

FACTS:

San Juan Structural and Steel Fabricators, Inc.'s alleged that it entered into an agreement with Motorich Sales
Corporation for the transfer to it of a parcel of land in Acropolis Greens Subdivision located in Quezon City,
containing an area of 414 square meters. It is stipulated in the Agreement that San Juan Structural paid the down
payment in the sum of P100,000.00, the balance to be paid on or before March 2, 1989.

Mr. Andres T. Co, president of San Juan Structural, wrote a letter to Motorich requesting for a computation of the
balance to be paid. It was coursed through Motorich's broker, Linda Aduca, who wrote the computation of the
balance. San Juan Structural and Motorich Sales Corporation were supposed to meet in the office of the former but
Motorich's treasurer, Gruenberg, did not appear.

Motorich, despite repeated demands, had refused to execute the Transfer of Rights/Deed of Assignment which is
necessary to transfer the certificate of title. ACL Development Corp. was impleaded as a necessary party since TCT
was still in the name of said defendant. While JNM Realty & Development Corp. is likewise impleaded as a necessary
party in view of the fact that it is the transferor of right in favor of Motorich Sales Corporation.

ACL Development Corporation and Motorich entered into a Deed of Absolute Sale whereby the former transferred
to the latter the subject property and the Registry of Deeds of QC issued a new title in the name of Motorich,
represented by Nenita Lee Gruenberg and Reynaldo L. Gruenberg, under TCTitle No. 3571. As a result of Gruenberg
and Motorich's bad faith in refusing to execute a formal Transfer of Rights/Deed of Assignment, they are liable for
moral, nominal and exemplary damages. Also, plaintiff-appellant lost the opportunity to construct a residential
building in the sum of P100,000.00 and it has been constrained to obtain the services of counsel at an agreed fee of
P100,000.00 plus appearance fee for every appearance in court hearings.

Motorich and Nenita Lee Gruenberg interposed as defense that the President and Chairman of Motorich did not sign
the agreement adverted to in par. 3 of the amended complaint. Mrs. Gruenberg's signature on the agreement is
87

inadequate to bind Motorich. They also contend that the signature of the President and Chairman of Motorich, is
required and the plaintiff knew this from the very beginning as it was presented a copy of the Transfer of Rights at
the time the Agreement was signed. San Juan drafted the Agreement and insisted that Mrs. Gruenberg accept the
P100,000.00 as earnest money. Granting, without admitting, the enforceability of the agreement, plaintiff
nonetheless failed to pay in legal tender within the stipulated period. It was the understanding between Mrs.
Gruenberg and San Juan that the Transfer of Rights/Deed of Assignment will be signed only upon receipt of cash
payment and they agreed that if the payment be in check, they will meet at a bank designated by San Juan where
they will encash the check and sign the Transfer of Rights/Deed. However, plaintiff-appellant informed Mrs.
Gruenberg of the alleged availability of the check, by phone, only after banking hours.

RTC: Dismissed San Juan Structural's complaint. It ruled that there is no evidence to show that defendant Gruenberg
was indeed authorized by defendant corporation. Since the property is clearly owned by the corporation, then its
disposition should be governed by the requirement laid down in Sec. 40. of the Corporation Code that corporation
may, by a majority vote of its board of directors . . . sell, lease, exchange, mortgage, pledge or otherwise dispose of
all or substantially all of its property and assets including its goodwill . . . when authorized by the vote of the
stockholders representing at least two third (2/3) of the outstanding capital stock . . .

No such vote was obtained by defendant Nenita Lee Gruenberg for that proposed sale. Neither was there evidence
to show that the supposed transaction was ratified by the corporation.

CA: Affirmed the Decision of the RTC

ISSUE:

1. Whether or not the doctrine of piercing the veil of corporate fiction is applicable in the instant case
2. Whether or not there is a valid and enforceable contract between the petitioner and the respondent
corporation. (NO)

RULING:

Gruenberg and Co signed, the Agreement, according to which a lot owned by Motorich Sales Corporation was
purportedly sold. Such contract, however, cannot bind Motorich, because it never authorized or ratified such sale.

A corporation is a juridical person separate and distinct from its stockholders or members. Accordingly, the property
of the corporation is not the property of its stockholders or members and may not be sold by the stockholders or
members without express authorization from the corporation's board of directors. It may act only through its board
of directors or, when authorized either by its bylaws or by its board resolution, through its officers or agents in the
normal course of business. The general principles of agency govern the relation between the corporation and its
officers or agents, subject to the articles of incorporation, bylaws, or relevant provisions of law.

Thus, "a corporate officer or agent may represent and bind the corporation in transactions with third persons to the
extent that the authority to do so has been conferred upon him, and this includes powers which have been
intentionally conferred, and also such powers as, in the usual course of the particular business, are incidental to, or
may be implied from, the powers intentionally conferred, powers added by custom and usage, as usually pertaining
to the particular officer or agent, and such apparent powers as the corporation has caused persons dealing with the
officer or agent to believe that it has conferred."

Furthermore, "persons dealing with an assumed agent, whether the assumed agency be a general or special one
bound at their peril, if they would hold the principal liable, to ascertain not only the fact of agency but also the nature
88

and extent of authority, and in case either is controverted, the burden of proof is upon them to establish it." Unless
duly authorized, a treasurer, whose powers are limited, cannot bind the corporation in a sale of its assets.

In the case, Respondent Motorich categorically denies that it ever authorized Nenita Gruenberg, its treasurer, to sell
the subject parcel of land. Consequently, petitioner had the burden of proving that Nenita Gruenberg was in fact
authorized to represent and bind Motorich in the transaction. Petitioner failed to discharge this burden. Its offer of
evidence before the trial court contained no proof of such authority. It has not shown any provision of said
respondent's articles of incorporation, bylaws or board resolution to prove that Nenita Gruenberg possessed such
power.

Petitioner cannot assume that she, by virtue of her position, was authorized to sell the property of the corporation.
Selling is obviously foreign to a corporate treasurer's function, which generally has been described as "to receive
and keep the funds of the corporation, and to disburse them in accordance with the authority given him by the board
or the properly authorized officers."

Neither was such real estate sale shown to be a normal business activity of Motorich. The primary purpose of
Motorich is marketing, distribution, export and import in relation to a general merchandising business.
Unmistakably, its treasurer is not cloaked with actual or apparent authority to buy or sell real property, an activity
which falls way beyond the scope of her general authority.

Petitioner further contends that Respondent Motorich has ratified said contract of sale because of its "acceptance of
benefits," as evidenced by the receipt issued by Respondent Gruenberg. Petitioner is clutching at straws.

As a general rule, the acts of corporate officers within the scope of their authority are binding on the corporation.
But when these officers exceed their authority, their actions "cannot bind the corporation, unless it has ratified such
acts or is estopped from disclaiming them."

In this case, there is a clear absence of proof that Motorich ever authorized Nenita Gruenberg, or made it appear to
any third person that she had the authority, to sell its land or to receive the earnest money. Neither was there any
proof that Motorich ratified, expressly or impliedly, the contract. Petitioner rests its argument on the receipt which,
however, does not prove the fact of ratification. The document is a hand-written one, not a corporate receipt, and it
bears only Nenita Gruenberg's signature. Certainly, this document alone does not prove that her acts were
authorized or ratified by Motorich.

There is no evidence that Gruenberg was authorized to enter into the contract of sale, or that the said contract was
ratified by Motorich. This factual finding of the two courts is binding on this Court.

89

B. LAW ON AGENCY
Manila Memorial Park v. Linsangan

MANILA MEMORIAL PARK CEMETERY, INC., petitioner, vs.

PEDRO L. LINSANGAN, respondent.

G.R. No. 151319 November 23, 2004

DOCTRINES:

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. Thus, the elements of agency are (i) consent, express
or implied, of the parties to establish the relationship; (ii) the object is the execution of a juridical act in relation to a
third person; (iii) the agent acts as a representative and not for himself; and (iv) the agent acts within the scope of
his authority

Art. 1898. If the agent contracts in the name of the principal, exceeding the scope of his authority, and the principal
does not ratify the contract, it shall be void if the party with whom the agent contracted is aware of the limits of the
powers granted by the principal. In this case, however, the agent is liable if he undertook to secure the principal's
ratification.

Art. 1910. The principal must comply with all the obligations that the agent may have contracted within the scope
of his authority.

As for any obligation wherein the agent has exceeded his power, the principal is not bound except when he ratifies
it expressly or tacitly.

Art. 1911. Even when the agent has exceeded his authority, the principal is solidarily liable with the agent if the
former allowed the latter to act as though he had full powers.

FACTS:

Florencia Baluyot offered Atty. Pedro L. Linsangan a lot called Garden State at the Holy Cross Memorial Park owned
by petitioner. According to Baluyot, a former owner of a memorial lot was no longer interested in acquiring the lot
and had opted to sell his rights subject to reimbursement of the amounts he already paid. The contract was for
P95,000.00. Baluyot reassured Atty. Linsangan that once reimbursement is made to the former buyer, the contract
would be transferred to him. Atty. Linsangan agreed and gave Baluyot P35,295.00 representing the amount to be
reimbursed to the original buyer and to complete the down payment to Petitioner. Baluyot issued handwritten and
typewritten receipts for these payments.

In March 1985, Baluyot informed Atty. Linsangan that he would be issued a new contract covering the subject lot in
the name of the latter instead of old Contract .Atty. Linsangan protested, but Baluyot assured him that he would still
be paying the old price of P95,000.00 with P19,838.00 credited as full down payment leaving a balance of about
P75,000.00.

Baluyot brought an Offer to Purchase Lot No. A11 (15), Block 83, Garden Estate I for the amount of P19,838.00.
Contract No. 28660 has a listed price of P132,250.00. Atty. Linsangan objected to the new contract price, as the same
90

was not the amount previously agreed upon. To convince Atty. Linsangan, Baluyot executed a document confirming
that while the contract price is P132,250.00, Atty. Linsangan would pay only the original price of P95,000.00.

By virtue of this letter, Atty. Linsangan signed the contract and accepted Official Receipt. As requested by Baluyot,
Atty. Linsangan issued twelve (12) postdated checks of P1,800.00 each in favor of MMPCI. The next year, Atty.
Linsangan again issued twelve (12) postdated checks in favor of MMPCI. On 25 May 1987, Baluyot verbally advised
Atty. Linsangan that the Contract was cancelled for reasons the latter could not explain, and presented to him
another proposal for the purchase of an equivalent property. He refused the new proposal and insisted that Baluyot
and MMPCI honor their undertaking. Atty. Linsangan filed a Complaint for Breach of Contract and Damages against
the former.

Petitioner alleged that the Contract was cancelled conformably with the terms of the contract because of non-
payment of arrearages. Petitioner stated that Baluyot was not an agent but an independent contractor, and as such
was not authorized to represent MMPCI or to use its name except as to the extent expressly stated in the Agency
Manager Agreement. Moreover, MMPCI was not aware of the arrangements entered into by Atty. Linsangan and
Baluyot, as it in fact received a down payment and monthly installments as indicated in the contract. Official receipts
showing the application of payment were turned over to Baluyot whom Atty. Linsangan had from the beginning
allowed to receive the same in his behalf. Furthermore, whatever misimpression that Atty. Linsangan may have had
must have been rectified by the Account Updating Arrangement signed by Atty. Linsangan which states that he
"expressly admits that Contract No. 28660 'on account of serious delinquency…is now due for cancellation under its
terms and conditions.''

Trial Court: The trial court held MMPCI and Baluyot jointly and severally liable. It found that Baluyot was an agent
of MMPCI and that the latter was estopped from denying this agency, having received and enchased the checks issued
by Atty. Linsangan and given to it by Baluyot.
CA: Affirmed the decision of the trial court.

ISSUE:

1. Whether or not there was a contract of agency between Baluyot and MMPCI? (YES)
2. Whether or not MMPCI should be liable for Baluyot’s act? (NO)

RULING:

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. As properly found both by the trial court and the Court
of Appeals, Baluyot was authorized to solicit and remit to MMPCI offers to purchase interment spaces obtained on
forms provided by MMPCI. The terms of the offer to purchase, therefore, are contained in such forms and, when
signed by the buyer and an authorized officer of MMPCI, becomes binding on both parties.

While there is no more question as to the agency relationship between Baluyot and MMPCI, there is no indication
that MMPCI let the public, or specifically, Atty. Linsangan to believe that Baluyot had the authority to alter the
standard contracts of the company. Neither is there any showing that prior to signing Contract No. 28660, MMPCI
had any knowledge of Baluyot's commitment to Atty. Linsangan. Even assuming that Atty. Linsangan was misled by
MMPCI's actuations, he still cannot invoke the principle of estoppel, as he was clearly negligent in his dealings with
Baluyot, and could have easily determined, had he only been cautious and prudent, whether said agent was clothed
with the authority to change the terms of the principal's written contract.

To repeat, the acts of the agent beyond the scope of his authority do not bind the principal unless the latter ratifies
the same. It also bears emphasis that when the third person knows that the agent was acting beyond his power or
91

authority, the principal cannot be held liable for the acts of the agent. If the said third person was 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.

Thus, the acts of an agent beyond the scope of his authority do not bind the principal, unless he ratifies them,
expressly or impliedly. Only the principal can ratify; the agent cannot ratify his own unauthorized acts. Moreover,
the principal must have knowledge of the acts he is to ratify.

Ratification in agency is the adoption or confirmation by one person of an act performed on his behalf by another
without authority. The substance of the doctrine is confirmation after conduct, amounting to a substitute for a prior
authority. Ordinarily, the principal must have full knowledge at the time of ratification of all the material facts and
circumstances relating to the unauthorized act of the person who assumed to act as agent. Thus, if material facts
were suppressed or unknown, there can be no valid ratification and this regardless of the purpose or lack thereof in
concealing such facts and regardless of the parties between whom the question of ratification may arise.45
Nevertheless, this principle does not apply if the principal’s ignorance of the material facts and circumstances was
willful, or that the principal chooses to act in ignorance of the facts. However, in the absence of circumstances putting
a reasonably prudent man on inquiry, ratification cannot be implied as against the principal who is ignorant of the
facts.

No ratification can be implied in the instant case. A perusal of Baluyot’s Answer reveals that the real arrangement
between her and Atty. Linsangan was for the latter to pay a monthly installment of P1,800.00 whereas Baluyot was
to shoulder the counterpart amount of P1,455.00 to meet the P3,255.00 monthly installments as indicated in the
contract. Thus, every time an installment falls due, payment was to be made through a check from Atty. Linsangan
for P1,800.00 and a cash component of P1,455.00 from Baluyot. However, it appears that while Atty. Linsangan
issued the post-dated checks, Baluyot failed to come up with her part of the bargain. This was supported by Baluyot’s
statements in her letterto Mr. Clyde Williams, Jr., Sales Manager of MMPCI, two days after she received the copy of
the Complaint. In the letter, she admitted that she was remiss in her duties when she consented to Atty. Linsangan’s
proposal that he will pay the old price while the difference will be shouldered by her. She likewise admitted that the
contract suffered arrearages because while Atty. Linsangan issued the agreed checks, she was unable to give her
share of P1,455.00 due to her own financial difficulties. Baluyot even asked for compassion from MMPCI for the error
she committed.

92

B. LAW ON AGENCY
Air France v. CA

AIR FRANCE, petitioner, vs.

HONORABLE COURT OF APPEALS, JOSE G. GANA (Deceased), CLARA A. GANA, RAMON GANA, MANUEL
GANA, MARIA TERESA GANA, ROBERTO GANA, JAIME JAVIER GANA, CLOTILE VDA. DE AREVALO, and EMILY
SAN JUAN, respondent.

G.R. No. L-57339 December 29, 1983

FACTS:

Jose G. Gana(DECEASED) and his family, numbering nine, purchased from AIR FRANCE through Imperial Travels, a
duly authorized travel agent, nine (9) "open-dated" air passage tickets for the Manila/Osaka/Tokyo/Manila route.
The GANAS paid for their economy and first class fares and travel taxes of P100.00 for each passenger.

AIR FRANCE exchanged or substituted the aforementioned tickets with other tickets for the same route. At this time,
the GANAS were booked for the Manila/Osaka segment on AIR FRANCE Flight 184 for 8 May 1970, and for the
Tokyo/Manila return trip on AIR FRANCE Flight 187 on 22 May 1970. The GANAS did not depart on 8 May 1970.

Jose sought the assistance of Teresita, a Secretary of the Sta. Clara Lumber Company where Gana was the Director
and Treasurer, for the extension of the validity of their tickets, which were due to expire on 8 May 1971. Teresita
enlisted the help of Lee Ella Manager of the Philippine Travel Bureau, who used to handle travel arrangements for
the personnel of the Sta. Clara Lumber Company. Ella sent the tickets to Cesar Rillo, Office Manager of AIR FRANCE.
The tickets were returned to Ella who was informed that extension was not possible unless the fare differentials
resulting from the increase in fares triggered by an increase of the exchange rate of the US dollar to the Philippine
peso and the increased travel tax were first paid. Ella then returned the tickets to Teresita and informed her of the
impossibility of extension.

GANAS had scheduled their departure one day before the expiry date. In the morning of the very day of their
scheduled departure on the first leg of their trip, Teresita requested travel agent Ella to arrange the revalidation of
the tickets. Ella gave the same negative answer and warned her that although the tickets could be used by the GANAS
if they left on 7 May 1971, the tickets would no longer be valid for the rest of their trip because the tickets would
then have expired on 8 May 1971. Teresita replied that it will be up to the GANAS to make the arrangements. With
that assurance, Ella on his own, attached to the tickets validating stickers for the Osaka/Tokyo flight, one a JAL
sticker and the other a Scandinavian Airways System sticker. Ella made no more attempt to contact AIR FRANCE as
there was no more time.

Notwithstanding the warnings, the GANAS departed from Manila in the afternoon of 7 May 1971 on board AIR
FRANCE Flight 184 for Osaka, Japan. However, for the Osaka/Tokyo flight on 17 May 1971, Japan Airlines refused to
honor the tickets because of their expiration, and the GANAS had to purchase new tickets. They encountered the
same difficulty with respect to their return trip to Manila as AIR FRANCE also refused to honor their tickets. They
were able to return only after pre-payment in Manila, through their relatives, of the readjusted rates.

GANAS filed for damages arising from breach of contract of carriage.

AIR FRANCE alleged that the GANAS brought upon themselves the predicament they found themselves in and
assumed the consequential risks. Ella's affixing of validating stickers on the tickets without the knowledge and
93

consent of AIR FRANCE, violated airline tariff rules and regulations and was beyond the scope of his authority as a
travel agent.

Trial Court: Dismissed the Complaint
CA: Set aside and reversed the Trial Court's judgment.

ISSUE:

Whether or not the notice to Teresita, as agent, of the rejection of the request of the validity of the tickets was notice
to the GANAS, her principals. (YES)

RULING:

The GANAS cannot defend by contending lack of knowledge of those rules since the evidence bears out that Teresita,
who handled travel arrangements for the GANAS, was duly informed by travel agent Ella of the advice of Reno, the
Office Manager of Air France, that the tickets in question could not be extended beyond the period of their validity
without paying the fare differentials and additional travel taxes brought about by the increased fare rate and travel
taxes.

The ruling relied on by respondent Appellate Court, therefore, in KLM. vs. Court of Appeals , holding that it would be
unfair to charge respondents therein with automatic knowledge or notice of conditions in contracts of adhesion, is
inapplicable. To all legal intents and purposes, Teresita was the agent of the GANAS and notice to her of the rejection
of the request for extension of the validity of the tickets was notice to the GANAS, her principals.

The SAS validating sticker for the Osaka/Tokyo flight affixed by Ella showing reservations for JAL. Flight 108 for 16
May 1971, without clearing the same with AIR FRANCE allegedly because of the imminent departure of the GANAS
on the same day so that he could not get in touch with Air France was certainly in contravention of IATA rules
although as he had explained, he did so upon Teresita's assurance that for the onward flight from Osaka and return,
the GANAS would make other arrangements.

The circumstances that AIR FRANCE personnel at the ticket counter in the airport allowed the GANAS to leave is not
tantamount to an implied ratification of travel agent Ella's irregular actuations. It should be recalled that the GANAS
left in Manila the day before the expiry date of their tickets and that "other arrangements" were to be made with
respect to the remaining segments. Besides, the validating stickers that Ella affixed on his own merely reflect the
status of reservations on the specified flight and could not legally serve to extend the validity of a ticket or revive an
expired one.

The conclusion is inevitable that the GANAS brought upon themselves the predicament they were in for having
insisted on using tickets that were due to expire in an effort, perhaps, to beat the deadline and in the thought that by
commencing the trip the day before the expiry date, they could complete the trip even thereafter. Japan Air Lines
and AIR FRANCE merely acted within their contractual rights when they dishonored the tickets on the remaining
segments of the trip and when AIR FRANCE demanded payment of the adjusted fare rates and travel taxes for the
Tokyo/Manila flight.

94

B. LAW ON AGENCY
Sunace International v. NLRC

SUNACE INTERNATIONAL MANAGEMENT SERVICES, INC., petitioner, vs.

NATIONAL LABOR RELATIONS COMMISSION, Second Division; HON. ERNESTO S. DINOPOL, in his capacity
as Labor Arbiter, NLRC; Arbitration Branch, Quezon City and DIVINA A. MONTEHERMOZO, respondent.

G.R. No. 161757 January 25, 2006

DOCTRINES:

Article 1924: The agency is revoked if the principal directly manages the business entrusted to the agent, dealing
directly with third persons.

FACTS:

Sunace International, a corporation duly organized and existing under the laws of the Philippines, deployed to
Taiwan, Divina A. Montehermozo as a domestic helper under a 12-month contract effective February 1, 1997. The
deployment was with the assistance of a Taiwanese broker, Edmund Wang, President of Jet Crown International Co.,
Ltd.

After her 12-month contract expired on February 1, 1998, Divina continued working for her Taiwanese employer,
Hang Rui Xiong, for two more years, after which she returned to the Philippines on February 4, 2000. Shortly after
her return on February 14, 2000, Divina filed a complaint before the NLRC against Sunace, one Adelaide Perez, the
Taiwanese broker, and the employer-foreign principal alleging that she was jailed for three months and that she was
underpaid.

Divina claimed that under her original one-year contract and the 2-year extended contract which was with the
knowledge and consent of Sunace. Income tax and savings were deducted from her salary and while the amounts
deducted in 1997 were refunded to her, those deducted in 1998 and 1999 were not.

Sunace, by its Proprietor/General Manager Maria Luisa Olarte, claimed that complainant could not anymore claim
nor entitled for the refund of her 24 months savings as she already took back her saving already last year and the
employer did not deduct any money from her salary. Also, Divina’s 2-year extension of her contract was without its
knowledge and consent, hence, it had no liability attaching to any claim arising therefrom, and Divina in fact executed
a Waiver/Quitclaim and Release of Responsibility and an Affidavit of Desistance, copy of each document was
annexed to said

Labor Arbiter: Rejected Sunace’s claim because Sunace and Edmund Wang have not stopped communicating with
each other and yet the matter of the contract’s extension and Sunace’s alleged non-consent thereto has not been
categorically established. What Sunace should have done was to write to POEA about the extension and its objection
thereto, copy furnished the complainant herself, her foreign employer and the Edmund Wang. And because it did
not, it is presumed to have consented to the extension and should be liable for anything that resulted thereform.

NLRC: affirmed the Labor Arbiter’s decision.
CA: Dismissed it outright

ISSUE:

95

Whether the act of the foreigner-principal in renewing the contract of Divina be attributable to Sunace. (NO)

RULING:

Contrary to the Court of Appeals finding, the alleged continuous communication was with the Taiwanese broker
Wang, not with the foreign employer Xiong. The finding of the CA solely on the basis of the telefax message, that
Sunace continually communicated with the foreign "principal" (sic) and therefore was aware of and had consented
to the execution of the extension of the contract is misplaced. The message does not provide evidence that Sunace
was privy to the new contract executed after the expiration on February 1, 1998 of the original contract. That Sunace
and the Taiwanese broker communicated regarding Divina’s allegedly withheld savings does not necessarily mean
that Sunace ratified the extension of the contract.

As can be seen from that letter communication, it was just an information given to the petitioner that the private
respondent had taken already her savings from her foreign employer and that no deduction was made on her salary.
It contains nothing about the extension or the petitioner’s consent thereto.

The theory of imputed knowledge ascribes the knowledge of the agent, Sunace, to the principal, employer Xiong, not
the other way around. The knowledge of the principal-foreign employer cannot, therefore, be imputed to its agent
Sunace.

There being no substantial proof that Sunace knew of and consented to be bound under the 2-year employment
contract extension, it cannot be said to be privy thereto. As such, it and its "owner" cannot be held solidarily liable
for any of Divina’s claims arising from the 2-year employment extension. As the New Civil Code provides,

Contracts take effect only between the parties, their assigns, and heirs, except in case where the rights and
obligations arising from the contract are not transmissible by their nature, or by stipulation or by provision of law.

Furthermore, as Sunace correctly points out, there was an implied revocation of its agency relationship with its
foreign principal when, after the termination of the original employment contract, the foreign principal directly
negotiated with Divina and entered into a new and separate employment contract in Taiwan.

96

B. LAW ON AGENCY
Fieldman’s Insurance v. Songco

FIELDMAN’S INSURANCE, petitioner, vs.

MERCEDES VARGAS VDA. DE SONGCO, ET AL, and COURT OF APPEALS, respondent.

G.R. No. L-24833 September 23, 1968

FACTS:

Federico Songco of Floridablanca, Pampanga, a man of scant education being only a first grader, owned a private
jeepney. as such private vehicle owner, he was induced by Fieldmen's Insurance Company agent Benjamin Sambat
to apply for a Common Carrier's Liability Insurance Policy covering his motor vehicle. Upon paying an annual
premium of P16.50, defendant Fieldmen's Insurance Company, Inc. issued, Common Carriers Accident Insurance
Policy. The duration of which will be for one (1) year, effective September 15, 1960 to September 15, 1961.

On September 22, 1961, the defendant company, upon payment of the corresponding premium, renewed the policy
by extending the coverage from October 15, 1961 to October 15, 1962. During the effectivity of the renewed policy,
the insured vehicle while being driven by Rodolfo Songco, a duly licensed driver and son of Federico collided with a
car in the municipality of Calumpit, province of Bulacan, as a result of which mishap Federico and Rodolfo died.
Carlos (another son), the latter's wife, Angelita Songco, and a family friend sustained physical injuries of varying
degree.

Amor Songco, son of deceased Federico, testified that when insurance agent Benjamin Sambat was inducing his
father to insure his vehicle, he butted in saying: 'That cannot be, Mr. Sambat, because our vehicle is an "owner"
private vehicle and not for passengers,' to which agent Sambat replied: 'whether our vehicle was an "owner" type or
for passengers it could be insured because their company is not owned by the Government and the Government has
nothing to do with their company. So they could do what they please whenever they believe a vehicle is insurable'.

CFI: Decided in favor of Songco
CA: Affirmed the decision

ISSUE:

Whether or not the Songcos’ can claim the insurance proceeds despite the fact that the vehicle concerned was an
owner and not a common carrier. (YES)

RULING:

This is a case where the doctrine of estoppel undeniably calls for application. After petitioner Fieldmen's Insurance
Co., Inc. had led the insured Federico Songco to believe that he could qualify under the common carrier liability
insurance policy, and to enter into contract of insurance paying the premiums due, it could not, thereafter, in any
litigation arising out of such representation, be permitted to change its stand to the detriment of the heirs of the
insured. As estoppel is primarily based on the doctrine of good faith and the avoidance of harm that will befall the
innocent party due to its injurious reliance, the failure to apply it in this case would result in a gross travesty of
justice.

97

That is all that needs be said insofar as the first alleged error of respondent Court of Appeals is concerned, petitioner
being adamant in its far-from-reasonable plea that estoppel could not be invoked by the heirs of the insured as a bar
to the alleged breach of warranty and condition in the policy. lt would now rely on the fact that the insured owned a
private vehicle, not a common carrier, something which it knew all along when not once but twice its agent, no doubt
without any objection in its part, exerted the utmost pressure on the insured, a man of scant education, to enter into
such a contract.

Nor is there any merit to the second alleged error of respondent Court that no legal liability was incurred under the
policy by petitioner. Why liability under the terms of the policy was inescapable was set forth in the decision of
respondent Court of Appeals. Thus: "Since some of the conditions contained in the policy issued by the defendant-
appellant were impossible to comply with under the existing conditions at the time and 'inconsistent with the known
facts,' the insurer 'is estopped from asserting breach of such conditions.' From this jurisprudence, we find no valid
reason to deviate and consequently hold that the decision appealed from should be affirmed. The injured parties, to
wit, Carlos Songco, Angelito Songco and Jose Manuel, for whose hospital and medical expenses the defendant
company was being made liable, were passengers of the jeepney at the time of the occurrence, and Rodolfo Songco,
for whose burial expenses the defendant company was also being made liable was the driver of the vehicle in
question. Except for the fact, that they were not fare paying passengers, their status as beneficiaries under the policy
is recognized therein."

Even if it be assumed that there was an ambiguity, an excerpt from the Qua Chee Gan decision would reveal anew
the weakness of petitioner's contention. Thus: "Moreover, taking into account the well known rule that ambiguities
or obscurities must be strictly interpreted against the party that caused them, the 'memo of warranty' invoked by
appellant bars the latter from questioning the existence of the appliances called for in the insured premises, since
its initial expression, 'the undernoted appliances for the extinction of fire being kept on the premises insured hereby,
... it is hereby warranted' admits of interpretation as an admission of the existence of such appliances which
appellant can.

98

B. LAW ON AGENCY
New Life Enterprises v. CA

NEW LIFE ENTERPRISES and JULIAN SY, petitioner, vs.

HON. COURT OF APPEALS, EQUITABLE INSURANCE CORPORATION, RELIANCE SURETY AND INSURANCE
CO., INC. and WESTERN GUARANTY CORPORATION, respondent.

G.R. No. 94071 March 31, 1992

FACTS:

Julian Sy and Jose Sy Bang have formed a business partnership in the City of Lucena. Under the business name of
New Life Enterprises, the partnership engaged in the sale of construction materials at its place of business, a two
storey building situated at Iyam, Lucena City. Julian Sy insured the stocks in trade of New Life Enterprises with
Western Guaranty Corporation (Fire Insurance), Reliance Surety and Insurance. Co., Inc.(Fire Insurance), and
Equitable Insurance Corporation (Fire Insurance).

When the building occupied by the New Life Enterprises was gutted by fire at about 2:00 o'clock in the morning of
October 19, 1982, the stocks in the trade inside said building were insured against fire in the total amount of
P1,550,000.00. According to the certification issued by the Headquarters, Philippine Constabulary /Integrated
National Police, the cause of fire was electrical in nature. The building and the stocks inside were burned.

Julian Sy went to the agent of Reliance Insurance whom he asked to accompany him to the office of the company so
that he can file his claim. He averred that in support of his claim, he submitted the fire clearance, the insurance
policies and inventory of stocks. He further testified that the three insurance companies are sister companies, and
as a matter of fact when he was following-up his claim with Equitable Insurance, the Claims Manager told him to go
first to Reliance Insurance and if said company agrees to pay, they would also pay. The same treatment was given
him by the other insurance companies. Ultimately, the three insurance companies denied plaintiffs' claim for
payment.

All three insurance company denied the claim on the ground of breach of policy conditions. In relation to the case
against Reliance Surety and Insurance Company, a certain Atty. Dator, acting in behalf of the New Life, sent a letter
to Executive Vice-President Mary Dee Co asking that he be informed as to the specific policy conditions allegedly
violated by the plaintiff. In her reply-letter, Executive Vice-President Mary Dee Co informed Atty. Dator that Julian
Sy violated Policy Condition No. "3" which requires the insured to give notice of any insurance or insurances already
effected covering the stocks in trade.

RTC: Decided in Favor of New Life Enterprise
CA: Reversed said judgment of the trial court,

ISSUE:

Whether or not Conditions Nos. 3 and 27 of the insurance contracts were violated by petitioners thereby resulting
in their forfeiture of all the benefits thereunder.

RULING:

Petitioners admit that the respective insurance policies issued by private respondents did not state or endorse
thereon the other insurance coverage obtained or subsequently effected on the same stocks in trade for the loss of
99

which compensation is claimed by petitioners. The policy issued by respondent Western did not declare respondent
Reliance and respondent Equitable Insurance Corporation (Equitable) as co-insurers on the same stocks, while
Reliance's Policies covering the same stocks did not likewise declare Western and Equitable as such co-insurers. It
is further admitted by petitioners that Equitable's policy stated "nil" in the space thereon requiring indication of any
co-insurance although there were three (3) policies subsisting on the same stocks in trade at the time of the loss,
namely, that of Western in the amount of P350,000.00 and two (2) policies of Reliance in the total amount of
P1,000,000.00.

Petitioners contend that they are not to be blamed for the omissions, alleging that insurance agent Leon
Alvarez (for Western) and Yap Kam Chuan (for Reliance and Equitable) knew about the existence of the
additional insurance coverage and that they were not informed about the requirement that such other or
additional insurance should be stated in the policy, as they have not even read policies. These contentions
cannot pass judicial muster.

The terms of the contract are clear and unambiguous. The insured is specifically required to disclose to the insurer
any other insurance and its particulars which he may have effected on the same subject matter. The knowledge of
such insurance by the insurer's agents, even assuming the acquisition thereof by the former, is not the
"notice" that would estop the insurers from denying the claim. Besides, the so-called theory of imputed
knowledge, that is, knowledge of the agent is knowledge of the principal, aside from being of dubious
applicability here has likewise been roundly refuted by respondent court.

Thus, it points out that while petitioner Julian Sy claimed that he had informed insurance agent Alvarez regarding
the co-insurance on the property, he contradicted himself by inexplicably claiming that he had not read the terms of
the policies; that Yap Dam Chuan could not likewise have obtained such knowledge for the same reason, aside from
the fact that the insurance with Western was obtained before those of Reliance and Equitable; and that the
conclusion of the trial court that Reliance and Equitable are "sister companies" is an unfounded conjecture drawn
from the mere fact that Yap Kam Chuan was an agent for both companies which also had the same insurance claims
adjuster. Availment of the services of the same agents and adjusters by different companies is a common practice in
the insurance business and such facts do not warrant the speculative conclusion of the trial court.

Petitioners should be aware of the fact that a party is not relieved of the duty to exercise the ordinary care and
prudence that would be exacted in relation to other contracts. The conformity of the insured to the terms of the
policy is implied from his failure to express any disagreement with what is provided for. It may be true that the
majority rule, as cited by petitioners, is that injured persons may accept policies without reading them, and that this
is not negligence per se. But, this is not without any exception. It is and was incumbent upon petitioner Sy to read
the insurance contracts, and this can be reasonably expected of him considering that he has been a businessman
since 1965 and the contract concerns indemnity in case of loss in his money-making trade of which important
consideration he could not have been unaware as it was pre-in case of loss in his money-making trade of which
important consideration he could not have been unaware as it was precisely the reason for his procuring the same.
100

B. LAW ON AGENCY
Manila Remnant Co. v. CA

THE MANILA REMNANT CO, INC., petitioner, vs.

HON. COURT OF APPEALS, and SPS. OSCAR C. VENTANILLA AND CARMEN GLORIA DIAZ, respondent.

G.R. No. 82978 November 22, 1990

DOCTRINES:

Article 1897 of the Civil Code: "the agent who acts as such is not personally liable to that 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."

Article 1911 of the Civil Code provides: "Even when the agent has exceeded his authority, the principal is solidarily
liable with the agent if the former allowed the latter to act as though he had full powers."

FACTS:

Petitioner Manila Remnant Co., Inc. owns parcels of land situated in Quezon City. Manila Remnant and A.U. Valencia
& Co. Inc. entered into a contract entitled "Confirmation of Land Development and Sales Contract" to formalize a
prior verbal agreement whereby A.U. Valencia and Co., Inc. was to develop the aforesaid subdivision for a
consideration of 15.5% commision. At that time the President of both A.U. Valencia and Co. Inc. and Manila Remnant
Co., Inc. was Artemio U. Valencia. Manila Remnant thru A.U. Valencia and Co. executed two "contracts to sell"
covering Lots 1 and 2 of Block 17 in favor of Oscar C. Ventanilla and Carmen Gloria Diaz. Ten days after the signing
of the contracts with the Ventanillas, Artemio U. Valencia, without the knowledge of the Ventanilla couple, sold Lots
1 and 2 of Block 17 again, to Carlos Crisostomo, one of his sales agents without any consideration. Artemio Valencia
then transmitted the fictitious Crisostomo contracts to Manila Remnant while he kept in his files the contracts to sell
in favor of the Ventanillas. All the amounts paid by the Ventanillas were deposited in Valencia's bank account. Upon
orders of Artemio Valencia, the monthly payments of the Ventanillas were remitted to Manila Remnant as payments
of Crisostomo for which the former issued receipts in favor of Crisostomo.

General Manager Karl Landahl, wrote Artemio Valencia informing him that Manila Remnant was terminating its
existing collection agreement with his firm on account of the considerable amount of discrepancies and
irregularities. As a consequence, Artemio Valencia was removed as President by the Board of Directors of Manila
Remnant. Therefore, Valencia stopped transmitting Ventanilla's monthly installments. A.U. Valencia and Co. sued
Manila Remnant to impugn the abrogation of their agency agreement. The court ordered all lot buyers to deposit
their monthly amortizations with the court. But A.U. Valencia and Co. wrote the Ventanillas that it was still
authorized by the court to collect the monthly amortizations and requested them to continue remitting their
amortizations with the assurance that said payments would be deposited later in court.

Thereafter, the trial court issued an order prohibiting A.U. Valencia and Co. from collecting the monthly installments.
Valencia complied with the court's order of submitting the list of all his clients but said list excluded the name of the
Ventanillas. Manila Remnant caused the publication in the Times Journal of a notice cancelling the contracts to sell
of some lot buyers. To prevent the effective cancellation of their contracts, Artemio Valencia filed a complaint for
specific performance with damages against Manila Remnant

101

The Ventanillas, believing that they had already remitted enough money went directly to Manila Remnant and
offered to pay the entire outstanding balance of the purchase price. Unfortunately, they discovered from Gloria
Caballes that their names did not appear in the records of A.U. Valencia and Co. as lot buyers. Also, Manila Remnant
refused the offer of the Ventanillas to pay for the remainder of the contract price. The Ventanillas then commenced
an action for specific performance, annulment of deeds and damages against Manila Remnant, A.U. Valencia and Co.
and Carlos Crisostomo.

Trial Court: Rendered a decision declaring the contracts to sell in favor of the Ventanillas valid and subsisting, and
annulling the contract to sell in favor of Crisostomo.
CA: Sustained the ruling in toto

ISSUE:

Whether or not Manila Remnant should be held solidarily liable together with A.U. Valencia and Co. and Carlos
Crisostomo for the payment of moral, exemplary damages and attorney's fees in favor of the Ventanillas. (YES)

RULING:

In the case at bar, the Valencia realty firm had clearly overstepped the bounds of its authority as agent — and for
that matter, even the law — when it undertook the double sale of the disputed lots. Such being the case, the principal,
Manila Remnant, would have been in the clear pursuant to Article 1897 of the Civil Code which states that "the agent
who acts as such is not personally liable to that 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." However, the unique
relationship existing between the principal and the agent at the time of the dual sale must be underscored. Bear in
mind that the president then of both firms was Artemio U. Valencia, the individual directly responsible for the sale
scam. Hence, despite the fact that the double sale was beyond the power of the agent, Manila Remnant as principal
was chargeable with the knowledge or constructive notice of that fact and not having done anything to correct such
an irregularity was deemed to have ratified the same. More in point, we find that by the principle of estoppel, Manila
Remnant is deemed to have allowed its agent to act as though it had plenary powers.

Article 1911 of the Civil Code provides: "Even when the agent has exceeded his authority, the principal is solidarily
liable with the agent if the former allowed the latter to act as though he had full powers." In such a situation, both
the principal and the agent may be considered as joint feasors whose liability is joint and solidary (Verzosa vs. Lim,
45 Phil. 416). In essence, therefore, the basis for Manila Remnant's solidary liability is estoppel which, in turn, is
rooted in the principal's neglectfulness in failing to properly supervise and control the affairs of its agent and to
adopt the needed measures to prevent further misrepresentation. As a consequence, Manila Remnant is considered
estopped from pleading the truth that it had no direct hand in the deception employed by its agent. That the principal
might not have had actual knowledge of the agent's misdeed is of no moment.

102

B. LAW ON AGENCY
VII. Modes of Extinguishment of Agency
Rallos v. Go Chan

RAMON RALLOS, Administrator of the Estate of CONCEPCION RALLOS, petitioner, vs.

FELIX GO CHAN & SONS RELATY CORPORATION and COURT OF APPEALS, respondent.

G.R. No. L-24332 January 31, 1978

DOCTRINES:

1. It is a basic axiom in civil law embodied in our Civil Code that no one may contract in the name of another without
being authorized by the latter, or unless he has by law a right to represent him. A contract entered into in the name
of another by one who has no authority or the legal representation or who has acted beyond his powers, shall be
unenforceable, unless it is ratified, expressly or impliedly, by the person on whose behalf it has been executed, before
it is revoked by the other contracting party.4 Article 1403 (1) of the same Code also provides:

ART. 1403. The following contracts are unenforceable, unless they are justified:

(1) Those entered into in the name of another person by one who has been given no authority or legal representation
or who has acted beyond his powers;

Out of the above given principles, sprung the creation and acceptance of the relationship of agency whereby one
party, caged the principal (mandante), authorizes another, called the agent (mandatario), to act for and in his behalf
in transactions with third persons. The essential elements of agency are: (1) there is consent, express or implied of
the parties to establish the relationship; (2) the object is the execution of a juridical act in relation to a third person;
(3) the agents acts as a representative and not for himself, and (4) the agent acts within the scope of his authority.

Agency is basically personal representative, and derivative in nature. The authority of the agent to act emanates
from the powers granted to him by his principal; his act is the act of the principal if done within the scope of the
authority. Qui facit per alium facit se. "He who acts through another acts himself".

2. ART. 1919. Agency is extinguished.
xxx xxx xxx
3. By the death, civil interdiction, insanity or insolvency of the principal or of the agent;

By reason of the very nature of the relationship between Principal and agent, agency is extinguished by the death of
the principal or the agent. This is the law in this jurisdiction.
3. 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.

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.

Article 1930 is not involved because admittedly the special power of attorney executed in favor of Simeon Rallos
was not coupled with an interest.
103

Article 1931 is the applicable law. Under this provision, an act done by the agent after the death of his principal is
valid and effective only under two conditions, viz: (1) that the agent acted without knowledge of the death of the
principal and (2) that the third person who contracted with the agent himself acted in good faith. Good faith here
means that the third person was not aware of the death of the principal at the time he contracted with said agent.
These two requisites must concur the absence of one will render the act of the agent invalid and unenforceable.

FACTS:

Concepcion and Gerundia Rallos were sisters and registered co-owners of a parcel of land in Cebu. The sisters
executed a special power of attorney in favor of their brother, Simeon Rallos, authorizing him to sell for and in their
behalf the parcel of land. Concepcion Rallos died. Simeon Rallos sold the undivided shares of his sisters Concepcion
and Gerundia to Felix Go Chan & Sons Realty Corporation. The deed of sale was registered in the Registry of Deeds
of Cebu, and a new transfer certificate of Title was issued in the name of the vendee.

Ramon Rallos as administrator of the Intestate Estate of Concepcion Rallos filed a complaint with the CFI of Cebu,
praying (1) that the sale of the undivided share of the deceased Concepcion Rallos in lot 5983 be declared
unenforceable, and said share be reconveyed to her estate; (2) that the Certificate of 'title issued in the name of Felix
Go Chan & Sons Realty Corporation be cancelled and another title be issued in the names of the corporation and the
"Intestate estate of Concepcion Rallos" in equal undivided.

Trial Court: Decided in favor of Ramon Rallos. Declaring the deed of sale null and void insofar as the one-half pro-
indiviso share of Concepcion Rallos in the property in question.
CA: Resolved the appeal in favor of the appellant corporation.

ISSUE:

Whether or not the sale entered into by an agent is valid although executed after death of the principal. (NO)

RULING:

There are various ways of extinguishing agency, but here we are concerned only with one cause — death of the
principal Paragraph 3 of Art. 1919 of the Civil Code. By reason of the very nature of the relationship between
Principal and agent, agency is extinguished by the death of the principal or the agent. This is the law in this
jurisdiction.

It is the contention of respondent corporation which was sustained by respondent court that despite the death of
the principal Concepcion Rallos the act of the attorney-in-fact, Simeon Rallos in selling the former's sham in the
property is valid and enforceable inasmuch as the corporation acted in good faith in buying the property in question.

Articles 1930 and 1931 of the Civil Code provide the exceptions to the general rule afore-mentioned. Article 1930 is
not involved because admittedly the special power of attorney executed in favor of Simeon Rallos was not coupled
with an interest.

Article 1931 is the applicable law. Under this provision, an act done by the agent after the death of his principal is
valid and effective only under two conditions, viz: (1) that the agent acted without knowledge of the death of the
principal and (2) that the third person who contracted with the agent himself acted in good faith. Good faith here
means that the third person was not aware of the death of the principal at the time he contracted with said agent.
These two requisites must concur the absence of one will render the act of the agent invalid and unenforceable.

104

In the instant case, it cannot be questioned that the agent, Simeon Rallos, knew of the death of his principal at
the time he sold the latter's share in Lot No. 5983 to respondent corporation. The knowledge of the death is
clearly to be inferred from the pleadings filed by Simon Rallos before the trial court. That Simeon Rallos knew
of the death of his sister Concepcion is also a finding of fact of the court a quo and of respondent appellate court
when the latter stated that Simon Rallos 'must have known of the death of his sister, and yet he proceeded with the
sale of the lot in the name of both his sisters Concepcion and Gerundia Rallos without informing appellant (the realty
corporation) of the death of the former.

On the basis of the established knowledge of Simon Rallos concerning the death of his principal Concepcion
Rallos, Article 1931 of the Civil Code is inapplicable. The law expressly requires for its application lack of
knowledge on the part of the agent of the death of his principal; it is not enough that the third person acted in good
faith.

Any act of an agent after the death of his principal is void ab initio unless the same fags under the exception provided
for in the aforementioned Articles 1930 and 1931. Article 1931, being an exception to the general rule, is to be
strictly construed, 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.

If the agency has been granted for the purpose of contracting with certain persons, the revocation must be made
known to them. But if the agency is general iii nature, without reference to particular person with whom the agent
is to contract, it is sufficient that the principal exercise due diligence to make the revocation of the agency publicity
known.

In case of a general power which does not specify the persons to whom represents' on should be made, it is the
general opinion that all acts, executed with third persons who contracted in good faith, without knowledge of the
revocation, are valid. In such case, the principal may exercise his right against the agent, who, knowing of the
revocation, continued to assume a personality which he no longer had.

The above discourse however, treats of revocation by an act of the principal as a mode of terminating an agency
which is to be distinguished from revocation by operation of law such as death of the principal which obtains in this
case. Although a revocation of a power of attorney to be effective must be communicated to the parties concerned,
yet a revocation by operation of law, such as by death of the principal is, as a rule, instantaneously effective inasmuch
as "by legal fiction the agent's exercise of authority is regarded as an execution of the principal's continuing will.
With death, the principal's will ceases or the authority is extinguished.

The Civil Code does not impose a duty on the heirs to notify the agent of the death of the principal What the Code
provides in Article 1932 is that, if the agent die 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. Hence, the fact that no notice of the
death of the principal was registered on the certificate of title of the property in the Office of the Register of Deeds,
is not fatal to the cause of the estate of the principal

105

B. LAW ON AGENCY
Lopez v. CA

MARCELINO E. LOPEZ, FELIZA LOPEZ, ZOILO LOPEZ, LEONARDO LOPEZ and SERGIO F. ANGELES, petitioner,
vs. THE HON. COURT OF APPEALS and PRIMEX CORPORATION, respondent.

G.R. No. 163959 August 1, 2018

DOCTRINES:

For a contract of agency to exist, therefore, the following requisites must concur, namely:
1. there must be consent coming from persons or entities having the juridical capacity and capacity to act to
enter into such contract;
2. there must exist an object in the form of services to be undertaken by the agent in favor of the principal;
3. there must be a cause or consideration for the agency.

One of the modes of extinguishing a contract of agency is by the death of either the principal or the agent.

An agency is extinguished by the death of the principal. Any act by the agent subsequent to the principal's death is
void ab initio, unless any of the exceptions expressly recognized in Article 1930 and Article 1931 of the CC is
applicable. 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.

Although a revocation of a power of attorney to be effective must be communicated by the parties concerned, a
revocation by operation of law, such as by death of the principal is, as a rule, instantaneously effective
because the agent’s exercise of authority is regarded as an execution of the principal’s continuing will. With death,
the principal’s continuing will ceases or is terminated; resulting in the extinguishment of the source of
authority. Thus, the death of a client divests his lawyer of authority to represent him as counsel. A dead client has
no personality and cannot be represented by an attorney

In Rallos v. Felix Go Chan & Sons Realty Corporation, the Court declared that because death of the principal
extinguished the agency, it should follow that any act of the agent after the death of his principal should be held void
ab initio unless the act fell under the exceptions established under Article 1930 and Article 1931 of the Civil Code.
The exceptions should be strictly construed.

GR: Art. 1919, CC: The death of the principal or, by analogy, the agent extinguishes the contract of agency
XPN: Unless any of the circumstances provided for under Article 1930 or Article 1931 obtains; in which case,
despite the death of either principal or agent, the contract of agency continues to exist.

FACTS:

PRIMEX – third person; M. Lopez – Principal (deceased); Agent – Atty. Sergio Angeles

Involved here is the sale of a 14-hectare property situated in Antipolo City between the petitioners (Lopez, et al.)
and respondent Primex Corporation (Primex).

The heirs of deceased Marcelino E. Lopez, one of the original petitioners herein, filed an Urgent Motion to Recall or
Reconsider the March 7, 2012 Resolution Giving Effect to the so-called "Compromise Agreement" submitted by Atty.
106

Sergio Angeles and Primex President Ang, in order to oppose and object to the Compromise Agreement on the
ground that Atty. Sergio Angeles, a counsel of the petitioners and also a petitioner himself, had entered into
the same without valid authority.

Primex Corporation filed, against Lopez et al., a complaint for injunction, specific performance and damages
before the RTC. PRIMEX alleged that it had, as vendee, entered into a Deed of Conditional Sale (DCS) relative to a
portion of land particularly designated as Lot 15 containing more or less 140,029 square meters from a mother
parcel of land comprising an area of more or less 198,888 square meters located along Sumilong Highway,
Antipolo, Rizal covered by an approved Homestead Patent, with the herein defendants-appellees as vendors. The
total land purchase value of P39,208,120.

PRIMEX claimed that from the time of the execution of the DCS with the defendants-appellees, the company had
dutifully complied with all its monetary obligations under the said contract and was again ready to pay another
P2,000,000.00 upon presentation by the defendants-appellees, among others, of a valid certificate of title in the
name of one or all of the vendors as sanctioned under paragraph II(d) of the DCS. However, instead of delivering
a valid title to PRIMEX, the defendants-appellees delivered the former TCT of the Register of Deeds of Rizal. The
problem with this certificate according to PRIMEX was that while it was indeed registered under the name of one
of the vendors, the title was nonetheless derived from OCT No. 537, which had been declared by the SC as null
and void together with all the other TCTs emanating from the said OCT. PRIMEX averred that the defendants-
appellees threatened to sell or mortgage the subject property to other parties on account of PRIMEX's ostensible
refusal to pay part of the purchase price as scheduled.

Trial Court: Rendered a Decision in favor of the defendants and ordered PRIMEX to pay the balance of the
purchase price of the subject property, plus interests, damages and costs of suit.
CA: Decided to set aside the trial court’s decision and remanding the case for trial de novo.
Trial Court: Rendered a new a decision in favor defendants-appellees, which dismissed plaintiff-appellant’s
complaint.

CA: (23 January 2007) Reversed and set aside the judgment of the RTC and ordered the respondent to pay the
petitioners the full balance of the purchase price of the property with legal interest of 6% per annum.

Relevant to this case is, because the petitioners had engaged the services of two different attorneys, Atty. Sergio
Angeles and Atty. Martin Pantaleon, another issue concerning the timeliness of the Motion for Reconsideration filed
by the petitioners arose. Atty. Pantaleon received a copy of the January 23, 2007 CA decision on January 30, 2007 (7
days after), while Atty. Angeles received it on February 23, 2007 (a month after). Atty. Pantaleon would have had
until February 14, 2007 within which to file the petitioners' Motion for Reconsideration but failed to do so. On his
part, Atty. Angeles had until March 10, 2007, and filed a Motion for Reconsideration on March 6, 2007. The CA denied
the Motion for Reconsideration for having been filed out of time, and declared its decision dated January 23, 2007
final and executory as of February 14, 2007. Marcelino Lopez died on December 3, 2009.

On February 21, 2012, the parties submitted the Compromise Agreement with Joint Motion to Dismiss and
Withdrawal of Petition. Thereafter, the heirs of Marcelino Lopez filed their oppositions arguing that Atty. Angeles
no longer had the authority to enter into and submit the Compromise Agreement because the special power of
attorney in his favor had ceased to have force and effect upon the death of Marcelino Lopez.

107

ISSUE:

Whether or not Atty. Angeles no longer had the authority to enter into and submit the Compromise Agreement
because the special power of attorney in his favor had ceased to have force and effect upon the death of Marcelino
Lopez. (YES)

RULING: The Compromise Agreement is void; Decision of the CA dated 23 January 2007 affirmed.

Atty. Angeles asserted that he had been authorized by the Lopezes to enter into the Compromise Agreement; and
that his authority had formed part of the original pre-trial records of the RTC.

Marcelino Lopez died on December 3, 2009, as borne out by the Certificate of Death submitted by his heirs. As such,
the Compromise Agreement, which was filed on February 2, 2012, was entered into more than two years after the
death of Marcelino Lopez. Considering that Atty. Angeles had ceased to be the agent upon the death of
Marcelino Lopez, Atty. Angeles' execution and submission of the Compromise Agreement in behalf of the
Lopezes by virtue of the special power of attorney executed in his favor by Marcelino Lopez is void ab initio
and of no effect. The special power of attorney executed by Marcelino Lopez in favor of Atty. Angeles had by then
become functus officio (of no legal effect). For the same reason, Atty. Angeles had no authority to withdraw the
petition for review on certiorari as far as the interest in the suit of the now-deceased principal and his
successors-in- interest was concerned.

Inapplicability of Art. 1930, CC

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.

Inapplicability of Art. 1931, CC

The want of authority in favor of Atty. Angeles was aggravated by the fact that he had knowledge of the death of
Marcelino Lopez but he did not disclose the death to the Court. His omission reflected the unprofessionalism on
his part, for it gave rise to the suspicion that he thereby tried to pass off the Compromise Agreement as genuine
and valid despite his authority under the special power of attorney having terminated for all legal purposes.

108

B. LAW ON AGENCY
Republic v. Evangelista

REPUBLIC OF THE PHILIPPINES, represented by LT. GEN. JOSE M. CALIMLIM, in his capacity as former Chief
of the Intelligence Service, Armed Forces of the Philippines (ISAFP), and former Commanding General,
Presidential Security Group (PSG), and MAJ. DAVID B. DICIANO, in his capacity as an Officer of ISAFP and
former member of the PSG, petitioner, vs.
HON. VICTORINO EVANGELISTA, in his capacity as Presiding Judge, Regional Trial Court, Branch 223,
Quezon City, and DANTE LEGASPI, represented by his attorney-in-fact, Paul Gutierrez, respondent.

G.R. No. 156015 August 11, 2005

DOCTRINES:

Art. 1868 of the Civil Code provides that by the contract of agency, an agent binds himself to render some service
or do something in representation or on behalf of another, known as the principal, with the consent or authority of
the latter.

FACTS:

Private respondent Legaspi is the owner of a land located in Bigte, Norzagaray, Bulacan. In November 1999,
petitioner Calimlim, representing the RP, and as then head of the Intelligence Service of the AFP and the PSG, entered
into a MOA with one Ciriaco Reyes. The MOA granted Reyes a permit to hunt for treasure in a land in Bigte,
Norzagaray, Bulacan. Petitioner Diciano signed the MOA as a witness. It was further alleged that thereafter, Reyes,
together with petitioners, started, digging, tunneling and blasting works on the said land of Legaspi. The complaint
also alleged that petitioner Calimlim assigned about 80 military personnel to guard the area and encamp thereon to
intimidate Legaspi and other occupants of the area from going near the subject land.

Legaspi executed a SPA appointing his nephew, private respondent Gutierrez, as his attorney-in-fact. Gutierrez was
given the power to deal with the treasure hunting activities on Legaspi’s land and to file charges against those who
may enter it without the latter’s authority. Legaspi agreed to give Gutierrez 40% of the treasure that may be found
in the land.

Gutierrez filed a case for damages and injunction against petitioners for illegally entering Legaspi’s land. He hired
the legal services of Atty. Homobono Adaza. Their contract provided that as legal fees, Atty. Adaza shall be entitled
to 30% of Legaspi’s share in whatever treasure may be found in the land. In addition, Gutierrez agreed to pay Atty.
Adaza ₱5,000.00 as appearance fee per court hearing and defray all expenses for the cost of the litigation. Upon the
filing of the complaint, then Executive Judge Tirona issued a 72-hour temporary restraining order (TRO) against
petitioners.
Petitioners contend that there is no real party-in-interest as the SPA of Gutierrez to bring the suit was already
revoked by Legaspi and Gutierrez failed to establish that the alleged armed men guarding the area were acting on
orders of petitioners.

Trial Court: Granted private respondent’s application for a writ of preliminary injunction on the following grounds:
(1) the diggings and blastings appear to have been made on the land of Legaspi, hence, there is an urgent need to
maintain the status quo to prevent serious damage to Legaspi’s land; and, (2) the SPA granted to Gutierrez continues
to be valid.
CA: Affirmed the decision of the trial court.

109

ISSUE:

Whether or not the contract of agency between legaspi and private respondent gutierrez has been effectively
revoked by legaspi. (NO)

RULING:

Petitioners claim that the special power of attorney of Gutierrez to represent Legaspi has already been revoked by
the latter. Private respondent Gutierrez, however, contends that the unilateral revocation is invalid as his agency is
coupled with interest. The SC agreed with private respondent.

A contract of agency is generally revocable as it is a personal contract of representation based on trust and
confidence reposed by the principal on his agent. As the power of the agent to act depends on the will and license of
the principal he represents, the power of the agent ceases when the will or permission is withdrawn by the principal.
Thus, generally, the agency may be revoked by the principal at will.

However, an exception to the revocability of a contract of agency is when it is coupled with interest, i.e., if a bilateral
contract depends upon the agency. 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.

In the case at bar, the agency granted by Legaspi to Gutierrez is coupled with interest as a bilateral contract depends
on it. It is clear from the records that Gutierrez was given by Legaspi the power to manage the treasure hunting
activities in the subject land; to file any case against anyone who enters the land without authority from Legaspi; to
engage the services of lawyers to carry out the agency; and, to dig for any treasure within the land and enter into
agreements relative thereto. It was likewise agreed upon that Gutierrez shall be entitled to 40% of whatever treasure
may be found in the land. Pursuant to this authority and to protect Legaspi’s land from the alleged illegal entry of
petitioners, agent Gutierrez hired the services of Atty. Adaza to prosecute the case for damages and injunction
against petitioners. As payment for legal services, Gutierrez agreed to assign to Atty. Adaza 30% of Legaspi’s share
in whatever treasure may be recovered in the subject land. It is clear that the treasure that may be found in the land
is the subject matter of the agency; that under the SPA, Gutierrez can enter into contract for the legal services of Atty.
Adaza; and, thus Gutierrez and Atty. Adaza have an interest in the subject matter of the agency, i.e., in the treasures
that may be found in the land. This bilateral contract depends on the agency and thus renders it as one coupled with
interest, irrevocable at the sole will of the principal Legaspi. 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. 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.

110

B. LAW ON AGENCY
Bacaling v. Muya

NELITA M. BACALING, represented by her attorney-in-fact JOSE JUAN TONG, and JOSE JUAN TONG, in his
personal capacity, petitioner, vs.
FELOMINO MUYA, CRISPIN AMOR, WILFREDO JEREZA, RODOLFO LAZARTE and NEMESIO TONOCANTE,
respondent.

G.R. No. 148404-05 April 11, 2002

FACTS:

Spouse Nelita and Ramon Bacaling were the owners of 3 parcels of land located in Barangay Cubay, Jaro, Iloilo City.
These lots were duly covered by TCTs. In 1955 the landholding was subdivided into one hundred ten (110) sub-lots,
inclusive of the Registry of Deeds of the City of Iloilo. The landholding was processed and approved as "residential"
or "subdivision" by the National Urban Planning Commission (NUPC). The Bureau of Lands approved the
corresponding subdivision plan for purposes of developing the said property into a low-cost residential community
which the spouses referred to as the Bacaling-Moreno Subdivision.

A real estate loan was granted to the spouses Bacaling by the GSIS for the development of the subdivision. To secure
the repayment of the loan, the Bacalings executed in favor of the GSIS a real estate mortgage over their parcels of
land including the 110 sub-lots. The Bacalings failed to pay the amortizations on the loan and consequently the
mortgage constituted on the 110 sub-lots was foreclosed by the GSIS. After a court case that reached all the way to
this Court, Nelita Bacaling (by then a widow) in 1989 was eventually able to restore to herself ownership of the 110
sub-lots.

The Office of the President found that respondents clandestinely entered and occupied the entire 110 sub-lots and
grabbed exclusively for themselves the said landholding. Apparently, respondents took advantage of the problematic
peace and order situation at the onset of martial law and the foreclosure of the lots by GSIS. They sowed the lots as
if the same were their own, and altered the roads, drainage, boundaries and monuments established thereon.

Respondents claimed that they were legally instituted by Bacaling's administrator/overseer as tenant-tillers of the
subject parcels of land on sharing basis. In 1974, their relationship with the landowner was changed to one of
leasehold. They religiously delivered their rental payments to Bacaling as agricultural lessor. In 1980, they secured
certificates of land transfer in their names for the 110 sub-lots. They have made various payments to the Land Bank
of the Philippines as amortizing owners-cultivators of their respective tillage.

In 1977, however, the City Council of Iloilo declared the 110 sub-lots as "residential" and "non-agricultural," which
was consistent with the conversion effected in 1955 by the NUPC and the Bureau of Lands. In 1978, Nelita Bacaling
was able to register the subject property as the Bacaling-Moreno Subdivision with the NHA.

Petitioner Jose Juan Tong, together with Vicente Juan and Victoria Siady, bought from Nelita Bacaling the subject 110
sub-lots. The said sale was effected after Bacaling has repurchased the subject property from the GSIS. To secure
performance of the contract of absolute sale and facilitate the transfer of title of the lots to Jose Juan Tong, Bacaling
appointed him in 1992 as her attorney-in-fact, under an irrevocable special power of attorney.

Petitioner Tong (together with Bacaling) filed a petition for cancellation of the certificates of land transfer against
respondents. The DAR, however, dismissed the petition.
111

The Office of the President reversed DAR’s Decision. The OP Decision found that the one hundred ten (110) parcels
of land had been completely converted from agricultural to residential lots as a result of the declarations of the NUPC
and the Bureau of Lands.

Respondents elevated the OP Decision to the Court of Appeals. Before the petition was resolved, Nelita Bacaling
manifested to the appellate court that she was revoking the irrevocable power of attorney in favor of Jose Juan Tong
and that she was admitting the status of respondents as her tenants of the 110 sub-lots which allegedly were
agricultural in character.

CA: Reversed the OP Decision and validated the certificates of land transfers in favor of respondents without
however promulgating a ruling on petitioner Tong's supposedly ensuing lack of material interest in the controversy
as a result of the manifestation.

Bacaling moved to withdraw/dismiss the present petition on the ground that the irrevocable power of attorney in
favor of petitioner Jose Juan Tong had been nullified by her and that Tong consequently lacked the authority to
appear before the Court. She also manifested that, contrary to the arguments of petitioner Tong, respondents were
bona fide tenants of the 110 sub-lots which were allegedly agricultural and not residential pieces of realty.
Accordingly, petitioner Tong was left all alone to pursue the instant case.

ISSUE:

Whether or not petitioner Tong have the requisite interest to litigate this petition for review on certiorari? (YES)

RULING:

Bacaling cannot revoke at her whim and pleasure the irrevocable special power of attorney which she had duly
executed in favor of petitioner Jose Juan Tong and duly acknowledged before a notary public. The agency, to stress,
is one coupled with interest which is explicitly irrevocable since the deed of agency was prepared and signed and/or
accepted by petitioner Tong and Bacaling with a view to completing the performance of the contract of sale of the
one hundred ten (110) sub-lots. It is for this reason that the mandate of the agency constituted Tong as the real party
in interest to remove all clouds on the title of Bacaling and that, after all these cases are resolved, to use the
irrevocable special power of attorney to ultimately "cause and effect the transfer of the aforesaid lots in the name of
the vendees [Tong with two (2) other buyers] and execute and deliver document/s or instrument of whatever nature
necessary to accomplish the foregoing acts and deeds."41 The fiduciary relationship inherent in ordinary contracts
of agency is replaced by material consideration which in the type of agency herein established bars the removal or
dismissal of petitioner Tong as Bacaling's attorney-in-fact on the ground of alleged loss of trust and confidence.

While Bacaling alleges fraud in the performance of the contract of agency to justify its revocation, it is significant to
note that allegations are not proof, and that proof requires the intervention of the courts where both petitioners
Tong and Bacaling are heard. Stated otherwise, Bacaling cannot vest in herself just like in ordinary contracts the
unilateral authority of determining the existence and gravity of grounds to justify the rescission of the irrevocable
special power of attorney. In Sevilla v. Court of Appeals we thus held-

But unlike simple grants of a power of attorney, the agency that we hereby declare to be compatible with the intent
of the parties, cannot be revoked at will. The reason is that it is one coupled with an interest, the agency having been
created for the mutual interest of the agent and the principal xxx [Petitioner's] interest, obviously, is not limited to
the commissions she earned as a result of her business transactions, but one that extends to the very subject matter
of the power of management delegated to her. It is an agency that, as we said, cannot be revoked at the pleasure of
the principal. Accordingly, the revocation complained of should entitle the petitioner x x x to damages.
112

The requirement of a judicial process all the more assumes significance in light of the dismissal with prejudice,
hence, res judicata, of Bacaling's complaint to annul the contract of sale which in turn gave rise to the irrevocable
special power of attorney. It is clear that prima facie there are more than sufficient reasons to deny the revocation
of the said special power of attorney which is coupled with interest. Inasmuch as no judgment has set aside the
agency relationship between Bacaling and Tong, we rule that petitioner Tong maintains material interest to
prosecute the instant petition with or without the desired cooperation of Bacaling.

113

B. LAW ON AGENCY
International Exchange Bank v. Spouses Briones

INTERNATIONAL EXCHANGE BANK NOW UNION BANK OF THE PHILIPPINES, petitioner, vs.
SPOUSES JEROME AND QUINNIE BRIONES, AND JOHN DOE, respondent.

G.R. No. 205657 March 29, 2017

DOCTRINES:

Upon accepting an agency, the agent becomes bound to carry out the agency and shall be held liable for the damages,
which the principal may incur due to the agent's non-performance.

Revocation as a form of extinguishing an agency under Article 1924 of the Civil Code only applies in cases of
incompatibility, such as when the principal disregards or bypasses the agent in order to deal with a third person in
a way that excludes the agent. While a contract of agency is generally revocable at will as it is primarily based on
trust and confidence, Article 1927 of the Civil Code provides the instances when an agency becomes irrevocable:

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.

Rallos v. Felix Go Chan & Sons Realty Corporation lays down the elements of agency:
Out of the above given principles, sprung the creation an acceptance of the relationship of agency whereby one party,
called the principal (mandante), authorizes another, called the agent (mandatario), to act for and in his behalf in
transactions with third persons. The essential elements of agency are: (1) there is consent, express or implied, of the
parties to establish the relationship; (2) the object is the execution of a juridical act in relation to a third person; (3)
the agent acts as a representative and not for himself; and (4) the agent acts within the scope of his authority.

Article 1370 of the Civil Code is categorical that when "the terms of a contract are clear and leave no doubt upon the
intention of the contracting parties, the literal meaning of its stipulations shall control."

FACTS:

Spouses Jerome and Quinnie Briones took out a loan of ₱3,789,216.00 from iBank to purchase a BMW Z4 Roadster.
The monthly amortization for two (2) years was ₱78,942.00.

The Spouses Briones executed a promissory note with chattel mortgage that required them to take out an insurance
policy on the vehicle. The promissory note also gave iBank, as the Spouses Briones' attorney-in-fact, irrevocable
authority to file an insurance claim in case of loss or damage to the vehicle. The insurance proceeds were to be made
payable to iBank.

The mortgaged BMW Z4 Roadster was camapped by three (3) armed men and Jerome immediately reported the
incident to the PNP.

114

The Spouses Briones declared the loss to iBank, which instructed them to continue paying the next three (3) monthly
installments "as a sign of good faith," a directive they complied with. After the Spouses Briones finished paying the
three (3)-month installment, iBank sent them a letter demanding full payment of the lost vehicle.

Spouses Briones submitted a notice of claim with their insurance company, which denied the claim on June 29, 2004
due to the delayed reporting of the lost vehicle. iBank filed a complaint for replevin and/or sum of money against
the Spouses Briones and a person named John Doe.

RTC: Dismissed iBank's complaint. It ruled that as the duly constituted attorney-in- fact of the Spouses Briones, iBank
had the obligation to facilitate the filing of the notice of claim and then to pursue the release of the insurance
proceeds. As the Spouses Briones' agent, iBank prioritized its interest over that of its principal when it failed to file
the notice of claim with the insurance company and demanded full payment from the spouses.
CA: Affirmed RTC’s ruling.

Petitioner iBank claims that it is entitled to recover the mortgaged vehicle or, in the alternative, to collect a sum of
money from respondents because of the clear wording of the promissory note with chattel mortgage executed by
respondents. They assert that it was the duty of the respondents to file a claim with the insurance company. Thus,
they should not be allowed to pass on that responsibility to petitioner and they should be held accountable for the
loan taken out on the carnapped vehicle. Moreover, petitioner Jerome's direct dealing with the insurance company
was a revocation of the agency relationship between petitioner and respondents.

ISSUE:

1. Whether or not an agency relationship existed between the parties; (YES)
2. Whether or not the agency relationship was revoked or terminated. (NO)

RULING:

All the elements of agency exist in this case. Under the promissory note with chattel mortgage, Spouses Briones
appointed iBank as their attorney-in-fact, authorizing it to file a claim with the insurance company if the mortgaged
vehicle was lost or damaged. Petitioner was also authorized to collect the insurance proceeds as the beneficiary of
the insurance policy.

Revocation as a form of extinguishing an agency under Article 1924 of the Civil Code only applies in cases of
incompatibility, such as when the principal disregards or bypasses the agent in order to deal with a third person in
a way that excludes the agent.

In the case at bar, the mortgaged vehicle was carnapped on November 5, 2003 and the Spouses Briones immediately
informed petitioner about the loss. The Spouses Briones continued paying the monthly installment for the next three
(3) months following the vehicle's loss to show their good faith.

However, on March 26, 2004, petitioner demanded full payment from Spouses Briones for the lost vehicle. The
Spouses Briones were thus constrained to file a claim for loss with the insurance company on April 30, 2004,
precisely because petitioner failed to do so despite being their agent and being authorized to file a claim under the
insurance policy.Not surprisingly, the insurance company declined the claim for belated filing.

The Spouses Briones' claim for loss cannot be seen as an implied revocation of the agency or their way of excluding
petitioner. They did not disregard or bypass petitioner when they made an insurance claim; rather, they had no
choice but to personally do it because of their agent's negligence. This is not the implied termination or revocation
of an agency provided for under Article 1924 of the Civil Code.
115

A bilateral contract that depends upon the agency is considered an agency coupled with an interest, making it an
exception to the general rule of revocability at will. Lim v. Saban emphasizes that when an agency is established for
both the principal and the agent, an agency coupled with an interest is created and the principal cannot revoke the
agency at will.

In the promissory note with chattel mortgage, the Spouses Briones authorized petitioner to claim, collect, and apply·
the insurance proceeds towards the full satisfaction of their loan if the mortgaged vehicle were lost or damaged.
Clearly, a bilateral contract existed between the parties, making the agency irrevocable. Petitioner was also aware
of the bilateral contract; thus, it included the designation of an irrevocable agency in the promissory note with chattel
mortgage that it prepared for the Spouses Briones to sign.

116

C. LAW ON TRUST
I. Definition and Types
PNB v. Court of Appeals

PHILIPPINE NATIONAL BANK, petitioners, vs.

COURT OF APPEALS and B.P. MATA AND CO., INC., respondents.

G.R. No. 97995 January 21, 1995

DOCTRINES:

Difference between solution indebili and constructive trust

FACTS:

ISSUE:

RULING:

RATIONALE:

117

C. LAW ON TRUST
VI. Cases
Yap v. Court of Appeals

HEIRS OF LORENZO YAP, namely SALLY SUN YAP, MARGARET YAP-UY and MANUEL YAP, petitioners, vs.
THE HONORABLE COURT OF APPEALS, RAMON YAP and BENJAMIN YAP, respondents.

G.R. No. 133047 August 17. 1999

DOCTRINES:

A trust may either be express or implied. Express trusts are those which are created by the direct and positive acts
of the parties, by some writing or deed, or will, or by words evincing an intention to create a trust. Implied trusts
are those which, without being express, are deducible from the nature of the transaction as matters of intent or,
independently of the particular intention of the parties, as being superinduced on the transaction by operation of
law basically by reason of equity.

These species of implied trust are ordinarily subdivided into resulting and constructive trusts. A resulting trust is
one that arises by implication of law and presumed always to have been contemplated by the parties, the intention
as to which can be found in the nature of their transaction although not expressed in a deed or instrument of
conveyance. Resulting trusts are based on the equitable doctrine that it is the more valuable consideration that
the legal title that determines the equitable interest in property.

Upon the other hand, a constructive trust is a trust not created by any word or phrase, either expressly or impliedly,
evincing a direct intention to create a trust, but one that arises in order to satisfy the demands of justice. It does not
come about by agreement or intention but in main by operation of law8 construed 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.

One basic distinction between an implied trust and an express trust is that while the former may be established by
parol evidence, the latter cannot. Even then, in order to establish an implied trust in real property by parol
evidence, the proof should be as fully convincing as if the acts giving rise to the trust obligation are proven
by an authentic document. An implied trust, in fine, cannot be established upon vague and inconclusive
proof.

FACTS:

For misappropriating amounts equivalent to P5,500,000.00, petitioner was convicted of estafa by the RTC of Pasig
City and was sentenced to four years and two months of prision correctional, as minimum to eight years of prision
mayor as maximum, "in addition to one (1) year for each additional P10,000.00 in excess of P22,000.00 but in no
case shall it exceed twenty (20) years."2 He filed a notice of appeal, and moved to be allowed provisional liberty
under the cash bond he had filed earlier in the proceedings. The motion was denied by the trial court in an order
dated February 17,1999 The CA granted the Bail. A motion for reconsideration was filed, seeking the reduction of
the amount of bail fixed by respondent court, but was denied in a resolution issued on November 25, 1999 Thus the
petition.

118

ISSUE:

Whether or not there is a grave abuse of discretion (NO)

RULING: Petitioner is unmeritorious and is denied. Decision of the CA affirmed.

Unfortunately for petitioners, the issues they submit in the case at bar boil down to the appreciation of the evidence
presented. The CA, sustaining the court a quo, has found the evidence submitted by petitioners to be utterly
wanting, consisting mainly of the self-serving testimony of Sally Yap. She herself admitted that the business
establishment of her husband Lorenzo was razed by fire in 1964 that would somehow place to doubt the claim that he
indeed had the means to purchase the subject land about two years later from the Nery spouses. Upon the other hand,
Ramon Yap was by then an accountant with apparent means to buy the property himself. At all events, findings of fact
by the CA, particularly when consistent with those made by the trial court, should deserve utmost regard when not
devoid of evidentiary support. No cogent reason had been shown by petitioners for the Court to now hold otherwise.

Not to be dismissed, furthermore, is the long standing and broad doctrine of clean hands that will not allow the
creation or the use of a juridical relation, a trust whether express or implied included, to perpetrate fraud or
tolerate bad faith nor to subvert, directly or indirectly, the law. The trust agreement between Ramon and Lorenzo,
if indeed extant, would have been in contravention of, in fact the fundamental law.

Then Section 5, Article XIII, of the 1935 Constitution has provided that: Save in cases of hereditary succession, no
private agricultural land shall be transferred or assigned except to individuals, corporations, or associations, qualified
to acquire or hold lands of the public domain in the Philippines.

The mandate has also been adopted in Section 14, Article XIV, of the 1973 Constitution and now reiterated under
Section 7, Article XII, of the 1987 Constitution. A trust or a provision in the terms of a trust would be invalid if
the enforcement of the trust or provision is against the law even though its performance does not involve the
commission of a criminal or tortuous act. It likewise must follow that what the parties are not allowed to do
expressly is one that they also may not do impliedly as, for instance, in the guise of a resulting trust.

The foregoing disquisition renders unnecessary the resolution of the incidental issues raised in the petition.

119

C. LAW ON TRUST
Tala Realty Services v. Banco Filipino

TALA REALTY SERVICES CORPORATION, petitioners, vs.

BANCO FILIPINO SAVINGS AND MORTGAGE BANK, respondents.

G.R. No. 137533 November 22, 2002

DOCTRINES:

FACTS:

ISSUE:

RULING:

RATIONALE:

120

C. LAW ON TRUST
Buan Vda. De Esconde v. Court of Appeals

CATALINA BUAN VDA. DE ESCONDE, CONSTANCIA ESCONDE VDA. DE PERALTA, ELENITA ESCONDE and
BENJAMIN ESCONDE, petitioners, vs.
CATALINA BUAN VDA. DE ESCONDE, CONSTANCIA ESCONDE VDA. DE PERALTA, ELENITA ESCONDE and
BENJAMIN ESCONDE, respondents.

G.R. No. 103635 February 1, 1996

DOCTRINES:

FACTS:

ISSUE:

RULING:

RATIONALE:

121

C. LAW ON TRUST
Lopez v. Court of Appeals

RICHARD B. LOPEZ, in his capacity as Trustee of the Trust Estate of the Late JULIANA LOPEZ-MANZANO,
petitioners, vs.
COURT OF APPEALS, CORAZON LOPEZ, FERNANDO LOPEZ, ROBERTO LOPEZ, represented by LUZVIMINDA
LOPEZ, MARIA ROLINDA MANZANO, MARIA ROSARIO MANZANO SANTOS, JOSE MANZANO, JR., NARCISO
MANZANO (all represented by Attorney-in-fact, MODESTO RUBIO), MARIA CRISTINA MANZANO RUBIO,
IRENE MONZON and ELENA MANZANO, respondents.

G.R. No. 157784 December 16, 2008

DOCTRINES:

The provision on implied trust governing the factual milieu of this case is provided in Article 1456 of the Civil Code,
which states: 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.

A resulting trust is presumed to have been contemplated by the parties, the intention as to which is to be found in
the nature of their transaction but not expressed in the deed itself. Specific examples of resulting trusts may be found
in the Civil Code, particularly Arts. 1448, 11 1449, 12 1451, 13 1452 14 and 1453.

A constructive trust is created, not by any word evincing a direct intention to create a trust, but by operation of law
in order to satisfy the demands of justice and to prevent unjust enrichment. It is raised by equity in respect of
property, which has been acquired by fraud, or where although acquired originally without fraud, it is against equity
that it should be retained by the person holding it. Constructive trusts are illustrated in Arts. 1450, 18 1454, 19 1455
20 and 1456.

FACTS:

The instant petition stemmed from an action for reconveyance instituted by petitioner Richard B. Lopez in his
capacity as trustee of the estate of the late Juliana Lopez Manzano (Juliana) to recover from respondents several
large tracts of lands allegedly belonging to the trust estate of Juliana.

Decedent Juliana, was married to Jose Lopez Manzano (Jose). Their union did not bear any children. Juliana was the
owner of several properties, among them, the properties subject of this dispute. The disputed properties totaling
more than 1,500 hectares consist of six parcels of land in Batangas, a parcel of land in Mindoro and a fractional
interest of residential land in Batangas.

On 23 March 1968, Juliana executed a notarial will, whereby she expressed that she wished to constitute a trust fund
for her paraphernal properties, denominated as Fideicomiso de Juliana Lopez Manzano (Fideicomiso), to be
administered by her husband. If her husband were to die or renounce the obligation, her nephew, Enrique Lopez,
was to become administrator and executor of the Fideicomiso. Two-thirds (2/3) of the income from rentals over
these properties were to answer for the education of deserving but needy honor students, while one-third 1/3 was
to shoulder the expenses and fees of the administrator. As to her conjugal properties, Juliana bequeathed the portion
that she could legally dispose to her husband, and after his death, said properties were to pass to her biznietos or
great grandchildren.

122

Juliana initiated the probate of her will five (5) days after its execution, but she died on 12 August 1968, before the
petition for probate could be heard. The petition was pursued instead in Special Proceedings (S.P.) No. 706 by her
husband. Thereafter, Jose then submitted an inventory of Juliana's real properties with their appraised values, which
was approved by the probate court.

Jose then proposed a project of partition, claiming that as the only heir of Juliana, he was entitled to 1⁄2 of the
paraphernal properties as his legitime, while the other one-half (1/2) was to be constituted into the Fideicomiso. He
added that he and Juliana had outstanding debts totaling P816,000.00 excluding interests, and that these debts were
secured by real estate mortgages. He noted that if these debts were liquidated, the "residuary estate available for
distribution would, value-wise, be very small".

Probate Court thereafter issued an order approving the project of partition.

Jose died on 22 July 1980, leaving a holographic will disposing of the disputed properties to respondents. The will
was allowed probate on 20 December 1983 in S.P. No. 2675 before the RTC of Pasay City. Pursuant to Jose's will, the
RTC ordered on 20 December 1983 the transfer of the disputed properties to the respondents as the heirs of Jose.
Consequently, the certificates of title of the disputed properties were cancelled and new ones issued in the names of
respondents.

Petitioner's father, Enrique Lopez, also assumed the trusteeship of Juliana's estate. On 30 August 1984, the RTC of
Batangas, Branch 9 appointed petitioner as trustee of Juliana's estate in S.P. No. 706. On 11 December 1984,
petitioner instituted an action for reconveyance of parcels of land with sum of money before the RTC of Balayan,
Batangas against respondents. The complaint essentially alleged that Jose was able to register in his name the
disputed properties, which were the paraphernal properties of Juliana, either during their conjugal union or in the
course of the performance of his duties as executor of the testate estate of Juliana and that upon the death of Jose,
the disputed properties were included in the inventory as if they formed part of Jose's estate when in fact Jose was
holding them only in trust for the trust estate of Juliana.

Respondents Maria Rolinda Manzano, Maria Rosario Santos, Jose Manzano, Jr., Narciso Manzano, Maria Cristina
Manzano Rubio and Irene Monzon filed a joint answer with counterclaim for damages. Respondents Corazon,
Fernando and Roberto, all surnamed Lopez, who were minors at that time and represented by their mother, filed a
motion to dismiss, the resolution of which was deferred until trial on the merits. The RTC scheduled several pre-trial
conferences and ordered the parties to submit pre-trial briefs and copies of the exhibits.

On 10 September 1990, the RTC rendered a summary judgment, dismissing the action on the ground of prescription
of action. The RTC also denied respondents' motion to set date of hearing on the counterclaim.

Both petitioner and respondents elevated the matter to the Court of Appeals, who rendered the assailed decision
denying the appeals filed by both petitioner and respondents. CA also denied petitioner's motion for reconsideration
for lack of merit.

ISSUE:

Whether or not an implied trust was constituted over the disputed properties when Jose, the trustee, registered
them in his name. (NO)

RULING:

123

Juliana's testamentary intent was to constitute an express trust over her paraphernal properties which was carried
out when the Fideicomiso was established in S.P. No. 706. 5 However, the disputed properties were expressly
excluded from the Fideicomiso. The probate court adjudicated the disputed properties to Jose as the sole heir of
Juliana. If a mistake was made in excluding the disputed properties from the Fideicomiso and adjudicating the same
to Jose as sole heir, the mistake was not rectified as no party appeared to oppose or appeal the exclusion of the
disputed properties from the Fideicomiso. Moreover, the exclusion of the disputed properties from the Fideicomiso
bore the approval of the probate court. The issuance of the probate court's order adjudicating the disputed
properties to Jose as the sole heir of Juliana enjoys the presumption of regularity.

On the premise that the disputed properties were the paraphernal properties of Juliana which should have been
included in the Fideicomiso, their registration in the name of Jose would be erroneous and Jose's possession would
be that of a trustee in an implied trust. Implied trusts are those which, without being expressed, are deducible from
the nature of the transaction as matters of intent or which are superinduced on the transaction by operation of law
as matters of equity, independently of the particular intention of the parties.

The disputed properties were excluded from the Fideicomiso at the outset. Jose registered the disputed properties
in his name partly as his conjugal share and partly as his inheritance from his wife Juliana, which is the complete
reverse of the claim of the petitioner, as the new trustee, that the properties are intended for the beneficiaries of the
Fideicomiso. Furthermore, the exclusion of the disputed properties from the Fideicomiso was approved by the
probate court and, subsequently, by the trial court having jurisdiction over the Fideicomiso. The registration of the
disputed properties in the name of Jose was actually pursuant to a court order. The apparent mistake in the
adjudication of the disputed properties to Jose created a mere implied trust of the constructive variety in favor of
the beneficiaries of the Fideicomiso.
124

C. LAW ON TRUST
Heirs of Labsite v. Heirs of Labsite

HEIRS OF TRANQUILINO LABISTE (also known as Tranquilino Laviste) represented by:

(1) GERARDO LABISTE, representing the Heirs of Gregorio Labiste;
(2) OBDULLIA LABISTE GABUAN, representing the heirs of Juan Labiste;
(3) VICTORIA G. CHIONG, representing the Heirs of Eulalia Labiste;
(4) APOLINARIA LABISTE YLAYA, representing the Heirs of Nicolasa Labiste;
(5) DEMOSTHENES LABISTE, representing the Heirs of Gervacio Labiste;
(6) ALEJANDRA LABISTE; representing the Heirs of SINFROCIO LABISTE, and
(7) CLOTILDE LABISTE CARTA, representing the Heirs of Andres Labiste, petitioners,
vs.
HEIRS OF JOSE LABISTE, survived by his children,
(1) ZACARIAS LABISTE, deceased and survived by his children, namely: CRESENCIA LABISTE and EUFRONIO
LABISTE;
(2) BERNARDINO LABISTE, deceased and survived by his children, namely: POLICARPIO LABISTE,
BONIFACIO LABISTE, FELIX LABISTE, GABINA LABISTE, CAYETANA LABISTE and ISABEL LABISTE;
(3) LUCIA LABISTE, deceased and survived by her children, namely: ISAAC LABISTE,
GENARO LABISTE, BRAULIA LABISTE, BRAULIO LABISTE, ASUNCION LABISTE, ALFONSO LABISTE and
CLAUDIA LABISTE;
(4) EPIFANIO LABISTE and CLAUDIA LABISTE; deceased and survived by his children, namely SILVESTRE
LABISTE, PAULA LABISTE and GERARDA LABISTE;
(5) ANA LABISTE, deceased and survived by her children, namely: MAXIMO LABISTE, MOISES LABISTE,
GERVACIO LABISTE, SATURNINA LABISTE and QUIRINO LABISTE;
(6) SEVERO LABISTE, deceased and survived by his children, Namely: FELIX LABISTE, RUFINA LABISTE,
SIMPLICIO LABISTE, VICENTE LABISTE and PATRICIO LABISTE, respondents.

G.R. No. 162033 May 8, 2009

DOCTRINES:

FACTS:

Epifanio is an heir of Jose Labiste, purchased a land. Before the execution of the deed of conveyance, Epifanio
executed an affidavit affirming that he and his uncle Tranquilino co-owned the lot because the money came from
them both. Later on it was divided and the heirs of Tranquilino bought half interest. After the World War, the
properties were destroyed and squatters lived on the land. Petitioner learned that an heir of the respondent filed
for reconstitution.

ISSUE:

Whether the petitioner's cause of action prescribed (NO)

RULING:

The CA erred in applying the principle of Laches because was is involved in this case is an express trust. The affidavit
of Epifanio is in the nature of a trust agreement. The only act that can be construed as repudiation was when the
respondent filed the petition for reconstitution in 1993 and since petitioners files their complaint in 1995, their
cause has not yet prescribed. However, to recover half of the property covered by a private document to execute a
public deed of sale.
125

C. LAW ON TRUST
Ringor v. Ringor

PROSPERO RINGOR, SATURNINO RINGOR, ANDRES RINGOR, substituted by SHAKUNTALA DEBIE, CLARO
ALEJO, GERONIMA and SANDIE LOUR, all surnamed RINGOR, RAYMUNDA RINGOR, LUISA R. RIMANDO,
EMILIANA R. TIU and HEIRS OF JOSE M. RINGOR, INC., petitioners, vs.
CONCORDIA, FELIPA, EMETERIA, all surnamed RINGOR, MARCELINA RINGOR, in behalf of her deceased
father, AGAPITO RINGOR, AVELINA, CRESENCIA, and FELIMON, all surnamed ALMASEN, in behalf of their
deceased mother, ESPIRITA RINGOR, and TEOFILO M. ABALOS, in behalf of his deceased mother,
GENOVEVA RINGOR, respondents.

G.R. No. 147863 August 13, 2004

DOCTRINES:

Express trusts, sometimes referred to as direct trusts, are intentionally created by the direct and positive acts of
the settlor or the trustor – by some writing, deed, or will, or oral declaration. It is created not necessarily by some
written words, but by the direct and positive acts of the parties. No particular words are required, it being
sufficient that a trust was clearly intended. Unless required by a statutory provision, such as the Statute of
Frauds, a writing is not a requisite for the creation of a trust. Such a statute providing that no instruments
concerning lands shall be "created" or declared unless by written instruments signed by the party creating the trust,
or by his attorney, is not to be construed as precluding a creation of a trust by oral agreement, but merely as
rendering such a trust unenforceable.

However, an inference of the intention to create a trust, made from language, conduct or circumstances, must be
made with reasonable certainty. It cannot rest on vague, uncertain or indefinite declarations. An inference of
intention to create a trust, predicated only on circumstances, can be made only where they admit of no other
interpretation.

Under the doctrine of partial performance recognized in this jurisdiction, the objection to the oral character of a
trust may be overcome or removed where there has been partial performance of the terms of the trust as to raise an
equity in the promisee. A trustee may perform the provisions of the trust, and if he does, the beneficiary is protected
in benefits that he has received from such performance. Thus, when a verbal contract has been completed, executed
or partially consummated, its enforceability will not be barred by the Statute of Frauds, which applies only to an
executory agreement.

FACTS:

The controversy involves lands in San Fabian, Pangasinan, owned by the late Jacobo Ringor. By his first wife, Gavina
Laranang, he had two children, Juan and Catalina. He did not have off springs by his second and third wives. Catalina
predeceased her father Jacobo who died sometime in 1935, leaving Juan his lone heir of 3lots owned by Jacobo. Juan
married Gavina and had 7 children with her. One of the children was Jose (the father and predecessors-in-interest
of herein petitioners). Jacobo applied for the registration of his lands under the Torrens system. He filed three land
registration cases alone, with his son Juan, or his grandson Jose, applying jointly with him. Subsequently, in a
Compraventa dated November 3, 1928, Jacobo allegedly sold and transferred to Jose his one-half undivided interest
in Parcel 1 covered by OCT No. 25885. Jacobo's thumbmark appeared on the Compraventa. During trial, witnesses
attested that even after the decisions in the three land registration cases and the Compraventas, Jacobo remained in
possession of the lands and continued administering them as he did prior to their registration. According to witness
126

Julio Monsis, Jacobo did not partition the lands since the latter said that he still needed them. When Jacobo died on
June 7, 1935, the land sunder the three land registration applications, including those which petitioners sought to
partition in their counterclaim before the trial court, remained undivided. Jose continued to function as
administrator over said land and promised to divide it equally/ When he died sometime on 1971, Respondents
demanded from Jose's children, herein petitioners, the partition and delivery of their share in the estate left by
Jacobo and under Jose's administration. The petitioners refused and attempts at amicable settlement failed. On
March 27, 1973, respondents filed a Complaint for partition and reconveyance.

RTC decided in favor of respondents, concluding that Jacobo created an express trust over his entire property
in favor of his grandchildren. CA affirmed the lower court’s decision.

ISSUE:

Whether or not Jacobo only created an express trust. (YES)

RULING:

Contrary to the claim of petitioners, oral testimony is allowed to prove that a trust exists. It is not error for the
court to rely on parol evidence (i.e., the oral testimonies of witnesses Emeteria Ringor, Julio Monsis and Teofilo
Abalos) which the appellate court also relied on to arrive at the conclusion that an express trust exists. What is
crucial is the intention to create a trust. While oftentimes the intention is manifested by the trustor in express or
explicit language, such intention may be manifested by inference from what the trustor has said or done, from the
nature of the transaction, or from the circumstances surrounding the creation of the purported trust.

In the present case, credible witnesses testified that
(1) the lands subject of Expedientes 241 and 4449 were made and transferred in the name of Jose merely for
convenience since Juan predeceased Jacobo;
(2) despite the Compraventas, transferring all the lands in Jose's name, Jacobo continued to perform all the acts
of ownership including possession, use and administration of the lands;
(3) Jacobo did not want to partition the lands because he was still using them;
(4) when Jacobo died, Jose took over the administration of the lands and conscientiously and unfailingly gave
his siblings their share in the produce of the lands, in recognition of their share as co-owners; and
(5) Jose did not repudiate the claim of his siblings and only explained upon their expression of the desire for
partitioning, that it was not going to be an easy task.

From all these premises and the fact that Jose did not repudiate the claim of his co-heirs, it can be concluded that as
far as the lands covered by Expediente Nos. 241 and 4449 are concerned, when Jacobo transferred these lands to
Jose, in what the lower court said were simulated or falsified sales, Jacobo's intention impressed upon the titles of
Jose a trust in favor of the true party-beneficiaries, including herein respondents.

Despite the compraventas transferring the lands in his name, Jose unfailingly gave his siblings their share of the
produce of the lands. Furthermore, not only did he fail to repudiate the trust, he also assured his co-heirs that it was
the inconvenience of partitioning that kept him from transferring the shares of his siblings to them. Accordingly,
with respect to the lands covered by Expediente Nos. 241 and 4449, an express trust exists with Jose Ringor
as trustee in favor of all the heirs of Jacobo Ringor. As far as prescription or laches are concerned, they pose
no hindrance or limitation to the enforcement of an express trust.

127

C. LAW ON TRUST
Ty v. Court of Appeals

THE INTESTATE ESTATE OF ALEXANDER T. TY, represented by the Administratrix, SYLVIA S. TY,
petitioners, vs.
COURT OF APPEALS, HON. ILDEFONSO E. GASCON, and ALEJANDRO B. TY, respondents.

G.R. No. 112872 April 19, 2001

DOCTRINES:

FACTS:

ISSUE:

RULING:

RATIONALE:

128

C. LAW ON TRUST
GSIS v. Santiago

GOVERNMENT SERVICE INSURANCE SYSTEM, petitioners, vs.

EDUARDO M. SANTIAGO, substituted by his widow ROSARIO ENRIQUEZ VDA. DE SANTIAGO, respondents.

G.R. No. 155206 October 28, 2003

DOCTRINES:

FACTS:

Deceased spouses Jose Zulueta and Soledad Ramos obtained various loans from GSIS from 1956 to 1957 in the total
amount of P3,117,000.00 secured by real estate mortgages over their parcels of land. The Zuluetas failed to pay their
loans to defendant GSIS and the latter foreclosed the real estate mortgages. On August 1974, the mortgaged
properties were sold at public auction with defendant GSIS being the highest bidder. Not all lots covered by the
mortgaged titles, however, were sold. Ninety-one (91) lots were expressly excluded from the auction since the lots
were sufficient to pay for all the mortgage debts. A Certificate of Sale was issued later on and an Affidavit of
Consolidation of Ownership was executed by defendant GSIS over Zulueta’s lots, including the lots, which as earlier
stated, were already excluded from the foreclosure. On March 1980, GSIS sold the foreclosed properties to
Yorkstown Development Corporation which sale was disapproved by the Office of the President. The sold properties
were returned to GSIS and the land titles issued in favor of Yorkstown were subsequently cancelled. Thereafter, GSIS
began disposing the foreclosed lots including the excluded ones.

On April 7, 1990, Representative Eduardo Santiago and then plaintiff Antonio Vic Zulueta executed an agreement
whereby Zulueta transferred all his rights and interests over the excluded lots. Plaintiff Santiago’s lawyer wrote a
demand letter dated May 11, 1989 to defendant GSIS asking for the return of the eighty-one (81) excluded lots.

On May 7, 1990, Antonio Vic Zulueta, represented by Eduardo M. Santiago, filed with the Regional Trial Court (RTC)
of Pasig City, Branch 71, and a complaint for reconveyance of real estate against the GSIS. Spouses Alfeo and Nenita
Escasa, Manuel III and Sylvia G. Urbano, and Marciana P. Gonzales and the heirs of Mamerto Gonzales moved to be
included as intervenors and filed their respective answers in intervention. Subsequently, the petitioner, as
defendant therein, filed its answer alleging inter alia that the action was barred by the statute of limitations and/or
laches and that the complaint stated no cause of action. Subsequently, Zulueta was substituted by Santiago as the
plaintiff in the complaint a quo. Upon the death of Santiago in 1996, he was substituted by his widow as the plaintiff.
After due trial, the RTC rendered judgment against the petitioner ordering it to reconvey to the respondent, Rosario
Enriquez Vda. De Santiago, in substitution of her deceased husband Eduardo, the seventy-eight lots excluded from
the foreclosure sale.

ISSUE:

Whether or not Petitioner’s defense on prescription is tenable. (NO)

RULING:

On the issue of prescription, generally, an action for reconveyance of real property based on fraud prescribes in four
years from the discovery of fraud; such discovery is deemed to have taken place upon the issuance of the certificate
129

of title over the property. Registration of real property is a constructive notice to all persons and, thus, the four-year
period shall be counted therefrom. On the other hand, 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.

An action for reconveyance based on implied or constructive trust prescribes in ten years from the alleged
fraudulent registration or date of issuance of the certificate of title over the property.

The petitioner’s defense of prescription is untenable. As held by the CA, 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.

Contrary to its claim, the petitioner unarguably had the legal duty to return the subject lots to the Zuluetas. The
petitioner’s attempts to justify its omission by insisting that it had no such duty under the mortgage contract is
obviously clutching at straw. Article 22 of the Civil Code explicitly provides that “every person who, through an act
of performance by another, or any other means, acquires or comes into possession of something at the expense of
the latter without just or legal ground, shall return the same to him.”

130

C. LAW ON TRUST
Aniceto Uy v. Court of Appeals

ANICETO UY, petitioners, vs.

COURT OF APPEALS, MINDANAO STATION, CAGAYAN DE ORO CITY, CARMENCITA NAVAL-SAI, REP. BY HER
ATTORNEY-INFACT RODOLFO FLORENTINO, respondents.

G.R. No. 173186 September 16, 2015

DOCTRINES:

FACTS:

ISSUE:

RULING:

RATIONALE:

131

C. LAW ON TRUST
Mercedes S. Gatmaytan v. Misibis Land

MERCEDES S. GATMAYTAN AND ERLINDA V. VALDELLON, petitioners, vs.

MISIBIS LANG INC., respondent.

G.R. No. 222166 June 10, 2020

DOCTRINES:

FACTS:

ISSUE:

RULING:

RATIONALE:

132

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