Agency (Arteche Digests)

1
Agency for Atty. Cochingyan by Jason Arteche
Rallos vs Felix Corp.

Facts
Concepcion Rallos and Gerundia Rallos are sisters and registered co-owner of Land X. The sisters
executed a special power of attorney in their brothers favor, Simeon Rallos. When Concepcion died,
Simeon Rallos sold Concepcions share in Land X to Felix Corp. Ramon Rallos (complainant) as
administrator of Concepcions estate filed a complaint to declare Simeons sale of Concepcions share
unenforceable and to recover said share.
Issue
Was the sale of Concepcions share valid despite the agent executing it after his principals death?
Held
No.
In an agency the principal (mandante), authorizes another called the agent (mandatario) to act for and
in his behalf in transactions with 3rd persons. The agencys essential elements are:
1. There is consent, express or implied of the parties to establish the relationship
2. Object is to execute a juridical act in relation to a 3rd person
3. The agent acts as a representative and not for himself
4. The agent acts within the scope of his authority.
Agency is basically personal representative and derivative in nature. The agents authority to act
emanates from the powers granted to him by his principal, his act is the principals act if done within
the scope of his authority.
Agency is extinguished by the principals or agents death among others. The general rule is: The
principals death effects instantaneous and absolute revocation of the agents authority by operation of
law. The agents act after the principals death is void ab initio. The principals heirs dont event need
to notify the agent of the principals death. There are exceptions to this general rule in Art. 1930 and
Art. 1931. No exception applies because:
1. The agency wasnt coupled with an interest
2. Simeon knew of Concepcions death at the time he sold the shares in Land X.
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Urban Bank vs Pena

Facts
ISCI Corp. owns Property X that it leased to tenants. The tenants leased Property X to Subtenants in
contravention of the lease agreement. ISCI Corp. eventually moved to sell Property X Urban Bank.
Urban Bank agreed on the condition that payment will be in installments and the final install will be
paid only when the Subtenants have been removed from Property X and Urban Bank can take
possession. ISCI Corp. then authorized its corporate secretary Pena to clear Property X of the
Subtenants. Pena stationed guards around the property and filed a case in court to keep the Subtenants
out. The court issued a TRO in Penas favor when the lease agreement with the tenants expired; ISCI
Corp. then executed a deed of sale in Urban Banks favor.
Without authority from Urban Bank, the court revoked the TRO in Penas favor. Pena then contacted
Urban Bank and the latter agreed to authorize Pena to clear Property X of the Subtenants, such
authority was written. Urban Bank also promised to pay Pena compensation if he clears Property X
within a certain time period but such promise was made over the telephone. Eventually, Pena
managed to force the Subtenants out after paying them. Urban Bank was able to take possession of
Property X. Pena demanded compensation but Urban Bank refused.
Issue
Is Pena entitled to compensation?
Held
Yes.
Pena should be paid for services rendered under the agency relationship that existed between him and
Urban Bank based on the civil law principle against unjust enrichment and quantum merit. Also, Pena
is still ISCIs principal and the latter is also liable to pay Pena compensation.
Whether or not an agency has been created is determined by the fact that one is representing and
acting for another. The law makes no presumption of agency; proving its existence, nature and extent
is incumbent upon the person alleging it.
In this case, the evidence shows Urban Bank constituted Pena as its agent to secure possession of
Property X. Union Bank gave Pena a specific and special authority to act on its behalf with respect to
the latters claims of ownership over the property against the tenants. Further, Urban Banks actions
ratified Penas authority as its agent, such as in the court actions and security guards.
Agency is presumed to be for compensation. Unless the contrary intent is shown, a person who acts as
an agent does so with the expectation of payment according to the agreement and to the services
rendered or results effected.
Loadmaster Customs vs Glodel Brokerage Corp.

Facts
R&B Insurance (respondent) insured Columbias shipment of its products against all risks. The
products were shipped by sea and arrived at the pier. From there, Columbia contracted Glodel
(respondent) to deliver the products to its warehouse. Glodel in turn contracted Loadmaster to use its
delivery trucks in transporting the products. Out of 12 trucks used, only 11 reached the warehouse.
Columbia sought reimbursement from R&B Insurance and the latter paid. R&B Insurance then went
after Loadmaster and Glodel.
Issue
Is there a principal-agent relationship between Glodel and Loadmasters?
Held
No.
Loadmasters never represented Glodel because it was never authorized to make such representation.
The settled rule is the basis for agency is representation, 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 principals part, 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. In this case, theres no mutual intent.
Bordador vs Luz
Facts
Bordador is engaged in the business of purchase and sale of jewelry. Luz is their regular customer. On
several occasions, Deganos (respondent) received jewelry from Bordador with the responsibility to
sell the items at a profit and remit the proceeds and return the unsold items to Bordador. The jewerly
and prices were indicated in receipts stating they were received for Deganos niece and Luz. Deganos
never returned the sales proceeds or the unsold items. Luz appeared on Deganos behalf and obligated
himself to pay the amount due to Bordador on an installment basis. Luz failed to comply with his
obligation.
Issue
Is Deganos an agent of Luz?
Held
No.
The basis for agency is representation. In this case, theres no evidence to show Luz consented to
Deganos acts or authorized him to act on her behalf with respect to the particular transactions
involved. In fact, Bordador was grossly and inexcusably negligent to entrust Deganos with the jewelry
without requiring a written authorization for his alleged principal. A person dealing with an agent is
put on inquiry and must discover upon his peril the agents authority. Theres no express or implied
agency between Deganos and Luz.
Eurotech Industrial vs Cuizon

Facts
Eurotech is in the business of importing and distributing various European industrial equipment for
customers in the Philippines. Eurotech has Impact Systems (represented by Sales Manager Cuizon) as
one of its customers. Impact Systems bought equipment from Eurotech. When the equipment arrived
in the Philippines Eurotech refused to give it to Impact Systems until it fully pays their indebtedness.
Impact Systems paid by way of a deed of assignment transferring the receivables due it from Toledo
Power in Eurotechs favor.
However, Impact Systems still collected on the receivables due from Toledo Power. When Eurotech
discovered Impact Systems actions, Eurotech demanded payment from Impact Systems that it failed
to do so.
Issue
Did Cuizon exceed his authority when he signed the Deed of Assignment thereby making him
personally liable to Eurotech?
Held
No.
The basis of agency is representation, the agents 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 the principal personally
executed them. As a general rule an agent is not personally liable to the party with whom he contracts.
The exception is if the agent binds himself to the obligation and if the agent exceeds his authority. If
the agent exceeds his authority, the 3rd person affected cant recover from both agent and principal.
In this case, Cuizon is the agent while Erwin Cuizon (Impact Systems owner) is the principal. Cuizon
signed the deed of assignment in his capacity as Impact Systems Sales Manager. An agents powers
are particularly broad in the case of one acting as a general agent or manager. A high degree of
confidence and liberal powers are invested in such agent. Such agent may enter into any contract he
deems reasonably necessary or requisite to protect the principals interest. Here, Cuizon acted within
his authority because Impact Systems had great need for the equipment and negotiations were being
held up.
Orient Air Services vs CA

Facts
American Airlines (respondent) is an air carrier offering passenger and air cargo transportation in the
Philippines. American Airlines and Orient Air entered into a General Sales Agency Agreement where
American Airlines authorizes Orient Air to act as its exclusive general sales agent within the
Philippines for the sale of air passenger transportation. American Air lines terminated the Agreement
alleging Orient Air failed to remit the net proceeds of sales for certain months in accordance with the
Agreement. American Airlines further filed a complaint for accounting. The lower courts ruled that
American Airlines should reinstate Orient Air as its general sales agent in accordance with the
Agreement.
Issue
Can American Airlines be compelled to reinstate Orient Air as its agent?
Held
No.
Such order in effect compels American Air to extend its personality to Orient Air. It violates the
principles and essence of agency that requires that agency be constituted with the consent or authority
of the principal. In an agent-principal relationship, the principals personality is extended through the
agents facility. The agent, by legal fiction, becomes the principal authorized to perform all acts which
the principal would have him do. Such relationship can be effected only with the principals consent
which mustnt in any way be compelled by any law or court.
Domingo vs Domingo
Facts
Vicente Domingo (complainant) granted Gregorio Domingo (respondent) the exclusive agency to sell
Vicentes Property X. Gregorio would receive a 5% commission if Property X is sold to a purchaser
Gregorio introduces. Gregorio authorized Purisima to look for a buyer promising the latter a share of
the commission. Purisima introduced Oscar, a potential buyer to Gregorio. Negotiations took place
between Oscar and Vicente with Gregorio managing to persuade Vicente to sell Property X at a lower
price. Oscar gave Gregorio a P1,000.00 gift for Gregorios success in lowering the price. Gregorio
didnt disclose to Vicente the gift.
After some time, Oscar told Gregorio he was no longer buying the property and didnt meet Gregorio
anymore. Gregorio sensed something fishy and discovered that Vicente had actually sold Property X
to Oscars wife. When Gregorio demanded his commission, Vicente refused arguing Property X was
sold not to Gregorios buyer, but to another buyer namely Oscars wife.
Issue
Is Gregorio still entitled to his commission?
Held
No.
The Civil code demands the utmost good faith, fidelity, honesty, candor and fairness on the agents
part to his principal. The agent has an absolute obligation to make a full disclosure to his principal of
all his transactions and facts relevant to the agency. An agent who takes a secret profit from the
vendee without revealing the same to his principal is guilty of a breach of his loyalty to the principal
and forfeits his right to collect the commission from the principal.
In this case, Gregorio received a gift from Oscar but failed to disclose it to Vicente. The gift corrupted
Gregorios duty to serve his principals interest by persuading Vicente to sell Property X at a much
lower price than he intended. Art. 1891 doesnt apply if the agent acted only as middleman with the
task of bringing together the vendor and vendee. The article also wont apply if the agent had
informed his principal of the gift he received from the purchaser and the principal didnt object to it.
Here, Gregorio wasnt merely a middleman because he served as Vicentes broker and agent.
Gregorio also didnt disclose Oscars gift to Vicente. As a consequence of such breach of trust,
Gregorio has forfeited his right to the commission.
Schmid Inc. vs RJL Corp.

Facts
RJL needed 12 electric generators and while canvassing for generators, Schmid sent RJL its quotation
for 12 Nagata-brand electric generators. Schmid stipulated RJL would pay by opening a letter of
credit in Nagata Corps favor. Nagata sent the electric generators to RJL and Schmid got its
commission.
Afterwards, the 12 generators broke down and it turns out they were faulty. Some of the generators
were repaired but most were neither repaired nor replaced. RJL demanded Schmid refund it but the
latter refused arguing it wasnt the vendor of the Nagata-brand generators.
Issue
Is Schmid Inc. liable for the faulty electric generators?
Held
No.
Schmid was merely an indentor, and not a vendor. Being an indentor, Schmid cant be held liable for
the implied warranty for hidden defects under the Civil Code. Further, Schmid never expressly bound
itself to warrant the 12 generators as free of any hidden defects.
An indentor is similar to a broker and in effecting a sale, theyre merely middlemen and act in a
certain sense as the agent of both parties to the transaction.
A broker is generally defined as one who is engaged, for others, on a commission, negotiating
contracts relative to property with the custody of which he has no concern; the negotiator between
other parties, never acting in his own name but in the name of those who employed him; he is strictly
a middleman and for some purpose the agent of both parties.
Tan vs Gullas
Facts
Gullas owns Property X that he wants to sell. Gullas authorized Tan, a real estate broker, to negotiate
for the sale of the land with a commission if Tan does sell it. Tan found a buyer in the Sisters of Mary
Banneaux. After negotiations, Gullas agreed to sell Property X to Sisters of Mary Banneaux. Gullas
authorized his attorney to sell, transfer, and convey Property X. The transaction went smoothly and
title was issued in Sisters of Mary Banneauxs favor. Afterwards, Tan went to Gullas to collect his
commission but Gullas refused reasoning another broker introduced Sisters of Mary Banneaux to
Gullas.
Issue
Is Tan entitled to the commission?
Held
Yes.
An agent receives a commission upon the sale's successful conclusion. Meanwhile, a broker earns his
commission by merely bringing the buyer and seller together, even if no sale is eventually made.
In this case, it was Tan who first introduced Sisters of Mary Banneaux to Gullas. Gullas allegation
that he hired another broker who first introduced Sisters of Mary Banneaux to him is untenable
because he failed to provide evidence proving it. Gullas is merely avoiding paying Tan his
commission for Tans role in the transaction. Further, Tan wasn't able to participate in the
negotiations because of Gullas actions.
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Medrano vs CA
Facts
Vice-Chairman Medrano of Ibaan Rural Bank was looking for a buyer of a foreclosed bank asset.
Medrano asked Flor (complainant) to look for a buyer. Borbon, Flors associate and a real estate
broker, knew of Lee, who might be interested in the property. Medrano gave Flor and Borbon written
authority to negotiate the propertys sale. The defendants arranged for the propertys ocular inspection
with Lee but were delayed for one reason or another. After a few weeks, defendants discovered
Medrano had already sold the property to Lee. With the sale consummated, defendants asked
Medrano for their commission but Medrano refused to pay.
Issue
Are defendants entitled to their commission?
Held
Yes.
Procuring cause is meant to be the proximate cause. Procuring cause, in a brokers activity, refers to a
cause originating a series of events which, without break in their continuity, result in accomplishment
of prime object of the brokers employment - producing a purchaser ready, willing and able to buy
real estate in the owners terms. A broker will be regarded as the sales procuring cause if his efforts
are the foundation on which the negotiations resulting in sale are begun. The means he employs and
his efforts must result in the sale. He must find the purchaser and the sale must proceed from his
efforts acting as broker.
In this case, defendants are the sales procuring cause because they were the ones who informed
Buyer A leading him to its consummation. Even if defendants didnt take part in the negotiations, they
are still entitled to the commission. A brokers conventional employment is merely to find a willing
and able buyer to purchase the property. There is no agreement to the contrary that defendants also
had to negotiate the sale to get paid their commission.
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Litonjua vs Eternit Corp.

Facts
Eternit Corp. owns Property X in the Philippines. ESAC Corp, a majority shareholder in Eternit Corp.
grew concerned about the Philippines political situation and wanted to stop operations. ESAC Corp
moved to sell Property X. ESAC Corp, through Glanville and Delsaux engaged the services of
realtor/broker Lauro G. Marquez. Marquez later showed Property X to Litonjua. Litonjua wanted to
buy Property X and negotiations went underway. Litonjua deposited the necessary fees in the bank.
Meanwhile, the Philippines political situation improved with Cory Aquinos assumption to
Presidency. ESAC Corp changed its mind and wanted to continue operations. ESAC Corp decided no
longer to sell Property X. Litonjua demanded payment for damages from Eternit Corp. but the latter
refused.
Issue
Did Marquez, Glanville, and Delsaux bind Eternit Corp. to sell Property X?
Held
No.
Litonjua failed to prove Eternit Corp. allowed Glanville, Delsaux, and Marquez to sell its property.
Litonjua filed to establish the agency by clear, certain, and specific proof. Glanville, Delsaux, and
Marquez had no authority to bind Eternit Corp. in the transaction with Litonjua.
A corporation may act only through its board of directors or, when authorized either by its by-laws or
by its board resolution, through its officers or agents in the normal course of business. While a
corporation may appoint agents to negotiate for the sale of its real properties, the final say will have to
be with the board of directors through its officers and agents as authorized by a board resolution or by
its by-laws. An unauthorized act of an officer of the corporation isnt binding on it unless the latter
ratifies the same expressly or impliedly by its board of directors. Any sale of real property of a
corporation by a person purporting to be an agent thereof but without written authority from the
corporation is null and void.
In creating or conveying real rights over immovable property, a special power of attorney is
necessary. In a sale of a piece of land or any portion thereof through an agent, the latters authority
shall be in writing, otherwise the sale is void. Here, complainants failed to provide in evidence the
Board resolution of Eternit Corp. empowering Marquez, Glanville, or Delsaux as its agents to sell, let
alone offer for sale, Property X. ESACs authorization is not equal to Eternits authorization.
A real estate broker is one who negotiates the sale of real properties. His business, generally speaking,
is only to find a purchaser who is willing to buy the land upon terms fixed by the owner. He has no
authority to bind the principal by signing a contract of sale. Indeed, an authority to find a purchaser of
real property does not include an authority to sell.
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Spouses Viloria vs Continental Airlines

Facts
The Spouses Viloria purchased 2 tickets on board Continental Airlines from Holiday Travel.
However, the Spouses Viloria found out Holiday Travel misled them into buying the tickets and
decided to refund the tickets instead. Continental refused and advised them they can apply for a reissuance of new tickets within 2 years from the date the original tickets were issued. The Spouses
Viloria then had the original tickets replaced by a single round trip ticket.
However, Continental informed the Spouses Viloria that the tickets were non-transferrable and so
both tickets cant be used to purchase the single round trip ticket. Also, they will have to pay
additional fees because a single original ticket cant cover the entire price of the single round trip
ticket. The Spouses Viloria then demanded for a refund of the original tickets but Continental refused.
Spouses Viloria then filed a civil case to refund the money plus damages.
Issue
Is there a principal-agent relationship between Continental and Holiday Travel?
Held
Yes.
All the elements of agency are present. Continental doesnt deny that it concluded an agreement with
Holiday Travel, where Holiday Travel would enter into contracts of carriage with 3rd persons on
Continentals behalf. Further, Holiday Travel merely acted in a representative capacity and its
Continental, not Holiday Travel, whos bound by the contracts of carriage entered into by Holiday
Travel on its behalf. Also, Continental hasnt made any allegation Holiday Travel exceeded its scope
of authority.
In an agency, the principal retains ownership and control over the property and the agent merely acts
on the principals behalf and under his instructions in furtherance of the agency. On the other hand,
theres a sale if the delivery of property will effect a relinquishment of title, control, and ownership in
such a way the recipient can do with the property as he pleases.
In this case, Continental recognized the validity of the contracts of carriage that Holiday Travel
entered into with Spouses Viloria and considered itself bound by the terms and conditions thereof.
13
Rallos vs Yangco
Facts
Yangco sent Rallos a letter informing Rallos that he has a shipping and commission department for
buying and selling tobacco. The letter also states Collantes is Yangcos agent. Rallos did business
with Yangco through Collantes.
After some time, Rallos sent Collantes, as Yangcos agent, tobacco to be sold on commission.
Collantes didnt turn the commission over but rather appropriated it for his own use. It turns out
Yangco had already removed Collantes as his agent before Rallos sent the tobacco leaf. Rallos didnt
know Collantes was no longer Yangcos agent and Yangco never gave any notice of the terminations
agency. Rallos demanded payment from Yangco but the latter refused arguing Collantes acted in his
personal capacity.
Issue
Is Yangco liable?
Held
Yes.
Yangco advertised the fact Collantes was his agent and it was Yangcos duty to give due notice to
Rallos of the agencys termination. Failing to give notice, Yangco is responsible for any goods
delivered in good faith to Collantes as Yangcos agent without knowledge of the agencys
termination.
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Litonjua vs Fernandez
Facts
2 brokers offered to sell to Litonjua Property X. Respondents Fernandez and Eleosida represented
Property Xs owners. The respondents authorized the brokers to offer the property for sale.
Afterwards, Litonjua met with Fernandez and the 2 brokers where they agreed Litonjua would buy
Property X and set a date to finalize the sale. The date for the sale passed and Litonjua asked
Fernandez to execute the deed of sale and Property X be turned over to him. Fernandez refused saying
the sale will no longer push through because of alleged tenants that appeared on Property X and
causing problems. Litonjua filed a case for specific performance and damages against Fernandez and
Property Xs owners.
Issue
Does Fernandez have authority to sell Property X?
Held
No.
The Civil Code provides that a special power of attorney is necessary to enter into any contract
involving immovable property or real rights. Any sale of real property by one purporting to be the
registered owners agent must show his authority in writing otherwise the sale is null and void. The
agents declarations alone are generally insufficient to establish his authority.
In this case, theres no documentary evidence to show Property Xs owners specifically authorized
Fernandez to sell Property X to Litonjua. Fernandez specifically denied authority to sell Property X.
The purported letter Fernandez sent Litonjua representing herself to have authority do so is signed by
Fernandez alone. Further, Property Xs owners never ratified any of Fernandezs actions.
15
Spouses Aggabao vs Parulan Jr.

Facts
Real Estate Broker Atanacio offered to sell Land X and Land Y, owned by Elena and Parulan Jr, to
the Spouses Aggabao. The Spouses Aggabao met with Elena, the properties co-owner, where they
discussed the sale and payment terms. Elena presented a document to the spouses stating Elena was
authorized to sell on her husband's behalf.
Afterwards, Spouses Aggabao paid Elena as promised and received a TCT for Land X. Elena failed to
turn over the duplicate owners copy of the TCT over Land Y. It turns out the duplicate copy was with
Parulan, Parulan Jrs brother. Parulan demanded money in exchange for the duplicate copy over Land
Y. Spouses Aggabao refused and when Parulan again demanded payment the Spouses Aggabao
explained they already fully paid Elena. Parulan Jr then filed a case to declare the sale void.
Issue
Is the sale valid?
Held
No.
The power of administration doesnt include acts of disposition or encumbrance, which are acts of
strict ownership. An authority to dispose cant proceed from an authority to administer, and vice
versa, for the 2 powers many only be exercised by an agent following the provisions of agency in the
Civil Code.
In this case, Parulans authority, as special agency, was limited to selling the property, which didnt
include the power of administration. The sale is void because Parulan Jr, as co-owner in a conjugal
property, never gave his consent. If the Spouses had taken the time to verify the document Elena
based her authority on, they would've found out the same was fake and Elena and her husband were
already estranged.
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Dominion Insurance Corp. vs CA

Facts
Respondent Guevarra, Dominion Insurance Corps manager, filed a case to recover money which he
claimed to have advanced in his capacity as manager to satisfy claims filed by Dominion Insurances
clients.
Issue
Did Guevarra act within his authority as Dominion Insurance Corps agent?
Held
No.
A general power of agency permits the agent to do all acts for which the law doesnt require a special
power. One such instance where a special power of attorney is required is to make such payments as
are not usually considered as acts of administration,
In this case, Dominion Insurance and Guevarra entered into a principal-agent relationship evidenced
by the document Special Power of Attorney. However, despite the word Special in the documents
title, the contents reveal a general agency. The agency comprises all the principals business but is
couched in general terms limited only to acts of administration. Payment of insurance claims isnt an
act of administration and consequently requires a special power of attorney. Guevarra had authority to
pay only very specific insurance claims and even then from a specific fund in his possession.
Guevarra acted outside the scope of his authority and therefore the principal isnt liable.
17
Veloso vs CA
Facts
Veloso owns Land X with title registered in his name. Afterwards, Velosos wife sold Land X to
respondent Escario, supported by a general power-of-attorney and deed of absolute sale without
Velosos knowledge. Veloso found out when he discovered his title was cancelled and a new one
issued in Escarios name. Veloso filed a case to recover Land X. Veloso alleged in court that hes the
absolute owner of Land X and he never authorized anybody, not even his wife, to sell it. Veloso
denied ever having executed a power-of-attorney in his wifes favor.
Issue
Was there a valid sale of Land X?
Held
Yes.
A special power-of-attorney can be included in the general power when the act or transaction for
which the special power is required is specified therein.
In this case, the records show the assailed power-of-attorney was valid and regular on its face. It was
notarized and therefore carries evidentiary weight. Further, there was no need to execute a separate
and special power-of-attorney because the general power-of-attorney expressly authorized the agent
to sell Land X.
18
Pineda vs CA
Facts
PMSI availed of life insurance from Insular Life for its employees. Afterwards, some of PMSIs
employees died at sea when its ship sank. Pineda, one of the dead employees relative, sought death
benefits from the Government and PMSI assisted him. PMSI made Pineda execute a special powerof-attorney authorizing PMSI Capt. Nuval to follow up, ask, demand, collect and receive on
Pinedas behalf money due him relative to the ships sinking.
Afterwards, PMSI claimed from Insular Life on Pinedas behalf. Among the documents PMSI
submitted to Insular Life to process the claim included the special power-of-attorney Pineda executed.
Insular Life released money pursuant to the insurance on the basis of these documents. PMSI then
deposited the money in Nuvals account. Afterwards, Pineda discovered he was entitled to benefits
under Insular Life and demanded these benefits but Insular Life refused arguing the money was
already released to PMSI.
Issue
Did the special power-of-attorney authorize Nuval to claim benefits from Insular Life in Pinedas
behalf?
Held
No.
The special power-of-attorney doesnt contain in unequivocal and clear terms authority to Nuval to
obtain from Insular Life insurance proceeds arising from the insureds death. A special-power-ofattorney must be strictly construed. The document is couched in terms which would easily arouse an
ordinary man suspicion because it deviated from Insular Lifes standard practice. Further, it cant
even be considered a general power-of-attorney because theres no intent to grant such power or
constitute a universal agency.
In a group insurance policy, the employer acts as the insurance companys agent. In this case, PMSI,
through Nuval, was Insular Lifes agent.
19
Home Insurance Co. vs USL

Facts
A USL-owned ship arrived in Manila discharging its cargo to the custody of the Bureau of Customs
as arrastre operator. The cargo was consigned to Burroughs Limited but when Burroughs received the
cargo some parts of the cargo were damaged. Home Insurance paid Burroughs the cost of damages
and demanded payment from USL and the Bureau of Customs. Both refused to pay. Home Insurance
filed a case in court but the latter dismissed because only Home Insurances attorney appeared at the
pre-trial.
Issue
Was the dismissal proper?
Held
Yes.
The Rules of Court provide the court can direct the parties and their attorneys to appear before it for a
conference (pre-trial). The rules purpose is to possibly reach a compromise among the parties. The
court has the discretion to dismiss the case if the plaintiff fails to appear at the pre-trial.
In this case, Home Insurance failed to appear at the pre-trial. True, Home Insurances attorney
asserted he was given verbal authority to enter into a compromise. However, the rules require a
special authority for an attorney to compromise on his clients behalf. Such authority doesnt need to
be in writing but must be duly established by evidence. Authority to compromise cant be presumed.
The attorneys self-serving assertion doesnt prove such authority.
20
Estate of Lina Olaguer vs Ongjoco

Facts
When Lino Olaguer died, Olivia and Eduardo became administrators. Olivia and Eduardo sold the
properties to Bacani. Bacani then sold the properties back to Olivia and Eduardo. Olivia and Eduardo
then sold the properties to Estanislao. Estanislao then sold them to Jose Olaguer. Jose then sold them
to his son, Virgilio. Under an alleged general power of attorney, Jose sold the lots 1 & 2 to Ongjoco.
Jose sold the other lots to Ongoco as well, also through an alleged general power of attorney. The lots
were sold twice evidenced by 2 deeds of sale but still to Ongjoco. The heirs of the estate of Lina
Olaguer are claiming the sale is void and the properties should be returned to the estate.
Issue
Was Ongjoco an innocent purchaser for value?
Held
Partly.
When the sale of a piece of land or any interest therein is made through an agent, the latters authority
shall be in writing, otherwise the sale is void. A special power-of-attorney is necessary in order for an
agent to enter into a contract where ownership of an immovable property is transmitted or acquired,
either gratuitously or for valuable consideration. Even if a document is designated as a general powerof-attorney, the requirement of a special power-of-attorney is met provided the act that requires the
special power-of-attorney is specified therein.
In this case, as to Property X and Y the Torrens title for these properties were in Virgilios name.
Ongjoco failed to produce the power-of-attorney Virgilio purportedly issued in Jose Olaguers favor
on the sale of said properties. However, as to the rest of the properties Ongjoco was able to present a
general power-of-attorney Virgilio executed. While the law requires a special power-of-attorney, the
general power-of-attorney was sufficient because it expressly authorized Jose Olaguer to sell said
properties.
21
City Lite Realty Inc. vs CA

Facts
F.P. Holdings is the registered owner of the Violago Property and offered it for sale to the general
public. F.P. Holdings sought respondent Roy of Metro Drugs help in finding buyers. Roy sent the
sales brochure and pertinent documents to real estate broker Mamaril who in turn passed them to City
Lite. City Lite met with Roy to tell him it wanted to purchase the front lot of Violago Property. City
Lite, Mamaril, and Roy met together to negotiate the sale and finally reached an agreement. Roy
agreed to sell the Violago Propertys front portion to City Lite after City Lite submits its formal
acceptance of the sale and its terms, which City Lite did so.
However, F.P. Holding refused to execute the deed of sale despite repeated demands from City Lite.
City Lite had an adverse claim annotated on Violago Propertys certificate of title. Then, City Lite
instituted a complaint against F.P. Holdings. During the complaints pendency, the property was
transferred to defendant Viewmaster Corp.
Issue
Can F.P. Holdings be forced to sell the Violago Propertys front portion?
Held
No.
The Civil Code provides that when a sale of a piece of land or any interest therein is through an agent,
the latters authority shall be in writing otherwise the sale is void.
In this case, Metro Drugs assistance was limited to looking for buyers for the Violago Property and
endorsing such buyers to F.P. Holdings. The final evaluation, appraisal, and acceptance of any sale
remained with F.P. Holdings. Roy and Metro drug were mere contact persons with no authority to sell
the Violago Property. For lack of written authority, the sale City Lite concluded with Roy is void.
22
Pineda vs CA
Facts
Pineda owns Property X in California while respondent Banez owns Property Y in White Plains.
Pineda and Banez agreed to exchange properties after the parties have cleared the mortgages on their
respective properties. The exchange agreement failed because Pineda failed to clear the mortgage on
the California property.
Afterwards, Banez found out his title to the White Plains property was cancelled and a new one issued
in Pinedas favor. There was also a deed of sale in Pinedas favor. Pineda then sold the property to
Duque.
Issue
Did Duque validly acquire the White Plains property?
Held
No.
The Civil Code provides that in a sale of a parcel of land or any interest therein made through an
agent, a special power of attorney is essential. The authority must be in writing otherwise the sale is
void. A special power of attorney is necessary to enter into any contract where ownership of an
immovable is transmitted or acquired for valuable consideration.
In this case, Banez never authorized Pineda to sell the White Plains property to Duque. Without
authority in writing, Pinedas sale of the property is void.
23
Cosmic Lumber vs CA
Facts
Cosmic Lumber executed a Special Power of Attorney in Paz Vilamil-Estradas favor. Paz, as Cosmic
Lumbers attorney-in-fact, then filed an ejectment suit against respondent Perez to recover Property
X. Afterwards, Paz and Perez entered into a compromise agreement where Perez would just buy
Property X. The court approved the compromise agreement but it was never executed because Cosmic
Lumber failed to produce the needed owners duplicate copy of title over Property X. Perez then filed
a case to revive judgement.
Issue
Is the compromise agreement valid?
Held
No.
When the sale of a piece of land or any interest thereon is through an agent, the agents authority shall
be in writing; otherwise the sale shall be void.
In this case, Pazs special power-of-attorney was explicit and exclusionary and she was never granted
authority to sell Property X or any portion thereof. Such power cant be implied from her authority to
enter into a compromise agreement because such agreement should protect Cosmic Lumbers right to
physically possess Property X. Pazs alienation of Property X cant be considered protecting Cosmic
Lumbers rights, more so when Paz sold it at a loss. Without authority from Cosmic Lumber, Pazs
sale of Property X is void.
Further, the general rule the principal is charged with knowledge of his agents actions doesnt apply
here. Cosmic Lumber cant be expected to know of Pazs actions because she was acting fraudulently.
Its contrary to common sense to expect Paz to inform Cosmic Lumber of her fraudulent actions.
Excerpt from the special power-of-attorney
To initiate, institute and file any court action for the ejectment of third persons and/or squatters of
the entire lot 9127 and 443 and covered by TCT Nos. 37648 and 37649, for the said squatters to
remove their houses and vacate the premises in order that the corporation may take material
possession of the entire lot, and for this purpose, to appear at the pre-trial conference and enter into
any stipulation of facts and/or compromise agreement so far as it shall protect the rights and interest
of the corporation in the aforementioned lots.
24
Gutierrez Hermanos vs Orense

Facts
Orense owns Property X. Jose Duran, Orenses nephew, sold Property X to Gutierrez by means of a
public instrument executed before a notary. The instrument allowed the vendor to redeem Property X
within 4 years from the time of sale. Orense was allowed to occupy Property X through a contract of
lease. The redemption period expired but Orense refused to convey Property X and furthermore
stopped paying rent. Orense argues he never gave Durant authority to sell Property X. Gutierrez then
filed a civil case against Duran and Orense to get Property X. Gutierrez also filed a criminal case
against Duran for estafa. In both criminal and civil trial Orense testified he consented to Durans
selling of Property X to Gutierrez.
Issue
Was Durans sale valid?
Held
Yes.
Orenses testimony in both the criminal and civil cases proved Orense gave his consent to Durans
sale of Property X. It follows Orense conferred verbal, or at least implied, power of agency to Duran
who accepted it by selling Property X. Even if Durans authority to sell wasnt in writing, Orenses
testimony affirming he gave consent to the sale legally excuses the lack of written authority, amounts
to full ratification of Durans acts, and produces the effects of an express power of agency.
Further, even if such consent was granted subsequent to the sale, Orense ratified the sale through his
testimony. Such sale would have been void but Orenses testimony cured it of the defect of nullity.1
Under the Old Civil Code, a contract entered into in the name of another without authority from the latter is
void, unless ratified by the person in whose name it was executed before the other contracting party revokes it.
Under the New Civil Code, the contract wouldve been unenforceable and not void.
25
Shoppers Paradise Realty vs Roque

Facts
Shoppers Paradise entered into a 25-year lease contract with Felipe over Property X. Property X was
covered by a TCT in Felipes name. Simultaneously, both parties likewise entered into an agreement
to construct and operate a commercial building complex on Property X.
Afterwards, Felipe died forcing Shoppers Paradise to negotiate with his heir, respondent Roque.
Negotiations broke down and Roque filed a case to annul the contracts. Roque alleges hes Property
Xs absolute owner when Felipe donated it to him but the TCT remained in Felipes name. The
donation happened years before Felipe entered into the contracts with Shoppers Paradise. Further
alleged, Felipe had no authority to enter in such contracts involving Property X because he only had
administration over it.
Issue
Are the contracts Felipe entered into valid?
Held
No.
An agent requires a special power of attorney to lease any real property to another person for more
than 1 year. A lease of property for more than 1 year is considered an act of dominion, not merely
administration.
In this case, Felipe wasnt Roques authorized agent to lease Property X because he had no special
power of attorney. Further, Shoppers Paradise knew Felipe wasnt Property Xs true owner because
the latter informed it of the same.
26
Vda. De Chua vs IAC

Facts
Defendant Herrera executed a 10-year lease contract renewable for another 5 years over Property X in
Ons favor. The lease contract gave the lessee an option to buy the leased property. On built a house
on Property X and resided there. 4 years into the lease contract, On sold the house to plaintiff Chua
with Chua replacing On as lessee with Herreras consent. The lease contract expired but Herreras
alleged attorney-in-fact renewed it for another 5 years with Chua.
Afterwards, Herrera sold Property X to respondent Sps. Go. Chua filed a case to annul the sale
alleging it violated her right of option to buy Property X as provided in the contract of lease and the
Sps. Go were in bad faith because they knew Chuas right to buy Property X.
Issue
Is the renewed contract of lease valid?
Held
No.
The agent must be armed with a special power-of-attorney when leasing real property to another
person for more than 1 year.
In this case, Herreras attorney-in-fact was never armed with a special power-of-attorney. True,
Herrera herself allowed Chua to occupy Property X after the original lease contract expired and a tacit
renewal is deemed to have taken place. However, the tacit renewal is limited only to the contracts
terms that are germane to the lessees right to continued enjoyment of the property and doesnt extend
to alien matters, like option to buy the leased premises.
27
BA Finance vs CA
Facts
Respondent Sps. Cuady obtained from Supercars a credit of P40 thousand to cover the cost of Car X.
The obligation was evidenced by a promissory note and to secure compliance with the promissory
note a chattel mortgage was also constituted on Car X. Supercars then assigned the promissory note
and chattel mortgage to BA Finance. BA Finance also renewed Car Xs insurance coverage when the
Sps. Cuady failed to do so and under the terms and conditions of said insurance coverage, the
proceeds shall be payable to BA Finance.
Afterwards, Car X got into an accident. Cuady wanted the car be declared a total loss under the
insurance coverage but BA Finance forced him to repair it. Not long after, the car bogged down and
Cuady again requested to have BA Finance declare Car X as a total loss. BA Finance didnt respond
favorable and Cuady stopped paying the promissory note. BA Finance filed a case to recover the
amount of the note.
Issue
Has BA Finance waived its right collect on the note by failing to enforce the total loss provision in the
insurance coverage?
Held
Yes.
BA Finance is bound by the terms and conditions of the chattel mortgage when it accepted Supercars
assignment. Under the deed of chattel mortgage, BA Finance was made attorney-in-fact with full
authority and power to follow-up, prosecute, compromise or settle insurance claims, to sign, execute
and deliver documents to the Insurance Company as may be necessary to prove the claim, and to
collect the insurance proceeds if Car X suffers any loss or damage. Cuady in fact created in BA
Finances favor an agency that BA Finance was bound by its acceptance to carry out. Consequently,
BA Finance is liable for damages that Cuady may suffer through its non-performance.
In this case, Cuady suffered loss when BA Finance stubbornly refused to enforce the insurance
coverages total loss provision.
28
British Airways vs CA
Facts
Respondent Mahtani purchased a ticket from British Airways going to India. Mahtani would board
PAL going to Hong Kong, and then British Airways going to India. When Mahtani finally arrived in
India, he discovered his luggage was missing. Mahtani waited a week for his lugge until British
Airways advised him to file a claim.
Afterwards, back in the Philippines Mahtani filed a complaint for damages against British Airways.
British Airways claims it is PAL who should be liable because the PAL plane arrived late resulting in
the missing luggage.
Issue
Is British Airways liable to Mahtani? Is PAL liable to British Airways?
Held
Yes & Yes.
Carriage by plane although performed by successive carriers is regarded as a single operation and the
carrier issuing the passengers ticker is considered the principal party and the other carriers merely
agents.
In this case, the contract of air transportation was exclusively between Mahtani and British Airways
with PAL acting as British Airways agent. PAL acted as British Airways agent in transporting
Mahtani from Manila to Hong Kong. British Airways is liable to Mahtani but PAL is liable to British
Airways for its negligence in the performance of its function and is liable for damages that the
principal may suffer by reason of such negligence. PAL was negligent in failing to arrive in Hong
Kong on time and transfer Mahtanis luggage to his flight going to India.
29
Pacific Rehouse Corp. vs EIB Securities Inc.

Facts
Pacific Corp bought KPP and DMCI shares from the PSE through its broker, EIB Securities.
Afterwards, Pacific Corp and EIB Securities agreed to sell the KPP shares without a buy back option.
Afterwards, EIB Securities sold the DMCI shares at a substantial loss without Pacific Corps
knowledge and consent and used the proceeds to buy back the KPP shares. EIB bought back the KPP
shares because it made an unauthorized promise to buy back said KPP shares. Upon finding out,
Pacific Corp. demanded EIB Securities return the DMCI shares but the latter couldnt comply because
it already sold said DMCI shares.
Issue
Did EIB Securities have authority to sell the DMCI shares and use the proceeds to buy back the KPP
shares?
Held
No.
An agent must act within the scope of his authority. The agent is granted the right to affect his
principals legal relations by performing acts done in accordance with the principals consent.
In this case, Pacific Corp never consented to EIBs sale of the DMCI shares. EIBs right as Pacific
Corps agent to sell or dispose Pacific Corps properties is confined to paying the obligations and
liabilities Pacific Corp may have to EIB and none other. Thus, when EIB sold the DMCI shares to buy
back the KKP shares, it paid Pacific Corps obligation to a 3rd party and hence was beyond EIBs
authority. Consequently such sale is void.
30
Cervantes vs CA
Facts
Respondent Philippine Air Lines issued to Cervantes a round trip ticket for Manila-Honolulu-Los
Angeles-Honolulu-Manila pursuant to a compromise agreement between the 2 parties in another case.
The ticket would expire 1-year from its issuance. Cervantes used the ticket 4 days before it expired
and arrived in Los Angeles. Cervantes then booked his return flight, which was already past the 1year expiration period. Cervantes later learned his return PAL plane would stopover in San Francisco
and he made arrangements with PAL to board his flight in San Francisco instead of Los Angeles. At
San Francisco, Cervantes wasnt allowed to board and PAL marked his ticket as expired. Cervantes
then filed a complaint against PAL.
Issue
Did the PAL agents in confirming the ticket extend its period of validity?
Held
No.
An agent who acts beyond the scope of his authority doesnt bind the principal, unless the latter
ratifies the same expressly or impliedly. Further, when the 3rd person knows the agent was acting
beyond his authority, the principal cant be held liable for the agents acts. The 3rd person is to blame
and is not entitled to recover damages from the agent, unless the latter undertook to secure the
principals ratification.
In this case, Cervantes knew his ticket would expire before he returned to the Philippines. Also, he
knew beforehand that he needed to file a written request for extension to PAL to extend the validity of
his ticket. The PAL agents didnt know about the compromise agreement and acted without authority
when they confirmed Cervantes return flight.
31
Borja Sr. vs Sulyap Inc.

Facts
Borja leased Property X to Sulyap Inc. Pursuant to the lease contract; Sulyap Inc. paid advance
rentals, dues, and deposits. When the lease contract expired, Sulyap demanded the return of the
advance payments it made. Borja refused causing Sulyap to file a case in court. Afterwards, the
parties entered into a Compromise Agreement that the court approved.
However, Borja failed to fulfill his duty under the Agreement and Sulyap filed a motion to enforce the
Agreements penalty clause. Borja challenged the motion twice and in his 2nd challenge he argued
there was fraud in the Agreements execution. Borja argued 3 sets of Compromise Agreements were
submitted for his approval. He signed the Agreement without the penalty clause but his former
counsel removed the page containing his signature and attached it to another Agreement.
Issue
Is Borja bound by the penalty clause in the Agreement?
Held
Yes.
Borja had several opportunities to raise the issue of the penalty clauses fraudulent inclusion. The 1st
was when the court rendered judgement dismissing the case pursuant to the Agreement which was
reproduced in full in said judgement. The second was when he 1st opposed Sulyaps motion to
enforce the penalty clause.
In this case, even assuming Borjas counsel exceeded his authority in inserting the penalty clause, the
status of said clause was voidable, not void. Borjas failure to question the penalty clauses inclusion
despite several opportunities to do so was tantamount to ratification.
32
Gozun vs Mercado
Facts
Gozun owns a printing shop. Mercado ran for governor in Pampanga and Gozun submitted to
Mercado sample campaign materials. Mercados wife told Gozun Mercado already approved the
samples and Gozun should start printing the campaign materials. Gozun printed and delivered the
campaign materials to Mercado. Afterwards, Lilian, Mercados sister-in-law, obtained a loan from
Gozun allegedly for the poll-watchers allowance. Later, Gozun demanded payment from Mercado but
the latter failed to pay in full. Gozun then filed a case to enforce payment.
Issue
Was Lilian authorized to obtain a loan from Gozun?
Held
No.
A special power of attorney is necessary for agent to borrow money unless it is urgent and
indispensable for the preservation of the things that are under administration. The special power-ofattorney refers to the authorizations nature and not to its form. A special power-of-attorney doesnt
need to be in writing provided its duly established by evidence.
In this case, Gozuns testimony failed to establish Lilian obtained the loan on Mercados behalf.
Further, Gozuns receipt of the loan indicates Lilian received the money but it neither specified what
reason the loan was obtained nor in what capacity Lilian received the money. Also, Lilian alone
signed the receipt.
33
Sazon vs Vasquez-Menancio
Facts
Respondent Vasquez-Menancio is a resident of the US and she entrusted the management,
administration, care and preservation of her properties to Sazon. Vasquez avers the properties are
productive and Sazon as administrator collected and received all the fruits and income accruing
therefrom. She further alleges Sazon never rendered a full accounting of such fruits and income
derived from the properties but instead applied them for her own use and benefit.
Consequently, Vasquez revoked Sazons authority as administrator and demanded the latter return the
possession and administration of the properties. Vasquez also made repeated demands upon Sazon to
render and accounting and remit the fruits. Sazon denied all of Vasquez allegations forcing Vasquez
to file a case before the RTC.
Issue
Did Sazon fail to render accounting and return the fruits and incomes of the property under her
administration?
Held
Yes.
First, Sazon cant turn over possession of all the properties because some have been leased.
Meanwhile, other properties have already been sold to 3rd persons. Both the lease agreements and
sales are valid because Sazon was acting within her authority as Vasquez agent. However, Sazon can
still return administration over the remaining properties including the leased ones.
On the accounting issue, the reason behind Sazons failure to render accounting is immaterial. Whats
important is Sazon failed to fulfill her duty to render accounting of the transactions she entered into as
Vasquez agent. Sazons claims she sent letters to Vasquez to comply with her obligation to render
accounting. Such claim is insufficient because Sazon was administrator for 18 years and 4 letters
within 18 years can hardly be considered as sufficient to keep Vasquez informed and updated of her
properties condition.
As to the fruits and incomes, the Civil Code states every agent is bound to deliver the principal
whatever the former may have received by virtue of the agency, even though the amount may not be
owed to the principal. In this case, the evidence shows the properties under Sazons administration
generated fruits and income but Sazon failed to turn them over. However, theres insufficient
evidence to show how much income the properties actually generated and how much expenses Sazon
incurred administering said properties. The Court now orders both parties to present evidence as to:
1. The total income generated by the properties
2. The total expenses Sazon incurred that should be borne by Vasquez as owner of the
properties.
34
Hernandez vs Hernandez
Facts
Cornelia Hernandez (petitioner) is a co-owner of a piece of property the DPWH wants to buy. DPWH
negotiated with the 3 co-owners but it broke down and DPWH was forced to file an expropriation
case. Later, the co-owners executed a letter appointing Cecilio Hernandez (respondent) as their
representative and fixing his compensation for such job. The expropriation proceedings continued
with the judge appointing Cecilio as one of the commissioners to determine just compensation.
Afterwards, the co-owner executed an irrevocable special power of attorney appointing Cecilio as
their true and lawful attorney with respect to the expropriation of the property. The expropriation
proceedings concluded with the co-owners being entitled to P21 million in just compensation. Later,
Cornelia revoked Cecilios SPA and moved to withdraw her share in the just compensation worth P7
million. The judge granted Cornelias motion and released the entire P21 million to Cecilio.
Afterwards, Cecilio sent Cornelia a check for P1.1 million accompanied by a Receipt and Quitclaim
document. The Quitclaim documents states
1. The check represents Cornelias share of the just compensation
2. Cecilio is forever discharged from any action, damages, claims, or demands
3. Cornelia wont institute any action and pursue her opposition to release of the P21 million to
Cecilio.
Cornelia accepted the check because she badly needed the money. A few days later, Cornelia got hold
of the judges decision and found out she was entitled to P7 million and demanded an accounting of
the proceeds from Cecilio. Cecilio didnt reply and so Cornelia filed a case to annul the Quitclaim and
recover her share in the just compensation.
Issue
Is Cecilio entitled to his share of the compensation in the just compensation?
Held
No.
In this case, under the compensation scheme that the co-owners approved, Cecilio would obtain 83%
of the just compensation due to Cornelia as co-owner. This is because Cecilio is allowed to obtain the
excess of anything beyond P300 per square meter. The judge pegged just compensation at P1500 per
square meter, the reason being the propertys value skyrocketed during the proceedings. Cornelia
asked for an accounting of the just compensation from Cecilio several times, but the request remained
unheeded. Until that point, Cecilio violated the fiduciary relationship of an agent and a principal.
Instead of an accounting, Cornelia received a receipt and quitclaim document ready for signing.
Cecilio didnt disclose the truth as to Cornelias share in the just compensation and consequently the
Quitclaim document is fraudulent. Further, the compensation scheme that the co-owners approved is
also vitiated by mistake.
Further, Cecilio cant claim any authority to collect payment from the just compensation based on the
SPA the co-owners executed. Because Cecilio was appointed as commissioner and proceeded to
perform the duties of a commissioner until he completed his mandate. He created a barrier that
preventing him from performing his duties under the SPA. Cecilio couldnt have been a hearing
officer as commissioner and defendant as agent for the co-owners at the same time.
Cecilio is entitled only to be compensated for his services as commissioner.
35
Escueta vs Lim
Facts
Respondent Rufina Lim filed an action to quiet title to real property with preliminary injunction and
issuance of an HDO against petitioner Rubio. Rufina alleges she bought land from Rubio and heirs of
Luz Baloloy. That she made a downpayment as earnest money with an agreement the remaining
balance of the purchase price would be paid once the sellers turn over the Certificate of Title.
However, both Ignacio and the heirs refused to deliver the Certificate of Title even if she was willing
to pay. Further, Ignacio made a simulate sale in Escuetas favor despite the former knowing of the
sale to Rufina.
For Ignacio, he denies the allegations arguing he never entered into a contract of sale with Rufina. He
argues he appointed his daughter, Llamas, as his attorney-in-fact and not Virginia Lim who was the
one who represented him in the sale with Rufina. Further, he alleges the downpayment was actually a
loan with Rufina.
Issue
Is the Contract of Sale between Rufina and Ignacio valid?
Held
Yes.
The Civil Code allows an agent to appoint a substitute if the principal hasnt prohibited him from
doing so; but he shall be responsible for the substitutes acts if he wasnt given the power to appoint
one.
In this case, Ignacio executed a special power of attorney in Llamas favor who in turn appointed
Virginia as her substitute. Llamas was acting within her authority in appointing Virginia but she will
be responsible for Virginias acts. Among these is Virginias sale of the property to Rufina.
Further, even if Virginia had no authority to sell the property, the contract she executed was
unenforceable and not void pursuant to Art. 1317. Ignacios acceptance of part of the purchase price
constitutes ratification of the contract of sale. Similarly, the heirs have also ratified the sale in
accepting part of the purchase price.2
If Virginia had no authority, it would be void and not subject to ratification because in the sale of real property
or any interest therein through an agent, the latters authority shall be in writing otherwise the sale is void.
36
Serona vs CA
Facts
Quilatan delivered jewelry to Serona to be sold on commission basis. The parties agreed Serona will
remit payment or return the unsold jewelry within 30 days from receipt of the item. Serona failed to
pay
or return the jewelry after 30 days. Quilatan then required Serona to execute an
acknowledgement receipt indicating their previous agreement and the amount due. Serona and a
witness, Navarette, signed the receipt. Unknown to Quilatan, Serona entrusted the jewelry to Labrador
to sell on commission basis. Serona failed to collect from Labrador causing the former to fail to pay
her obligation to Quilatan. Quilatan then filed a case for estafa against Serona.
Issue
Is Serona guilty of estafa?
Held
No.
Missing is the element of misappropriation or conversion of such money or property by the offender
or denial on his part of such receipt. Serano didnt ipso facto commit the crime of estafa by delivering
the jewelry to a sub-agent for sale on commission basis.
An agent is allowed to appoint a sub-agent in the absence of an express agreement to the contrary
between the agent and principal. In this case, Serano was neither expressly prohibited from appointing
Labrador as her sub-agent nor passing on the jewelry to a 3rd person.
Serano passed along the jewelry to Labrador for the very same purpose she received it. Consequently,
there was no conversion because the jewelry wasnt devoted to a purpose different from that agreed
upon. Also, Serano didnt dispose of the jewelry without right because she was within her rights to
appoint a sub-agent and to give the jewelry to the sub-agent for selling.
However, Serano is responsible for Labradors actions as her sub-agent and consequently is civilly
liable to Quilatan for the value of the jewelry.
37
Municipal Council of Iloilo vs Evangelista

Facts
Toco owns a piece of land that the Municipality of Iloilo took to widen a public street. Toco then filed
a civil case against the Municipality of Iloilo to recover the value of land. The Iloilo CFI ordered the
Municipality to pay Toco P42 thousand.
At the hearing for the claims the following persons appeared: Evangelista, Soriano, PNB, and
Mauricio Cruz & Co. Evangelista is claiming professional fees for services he rendered in the civil
case. Soriano is claiming on the strength of Tiongs assignment to him of part of Tocos rights to the
judgement in the case, Tiong was Tocos attorney-in-fact. PNB is claiming the amount of the
judgement because the disputed land was actually mortgaged to it.
The municipality then paid P6 thousand each to Soriano and Evangelista. The rest of the amount was
turned over to PNB.
Issue
Was Tiongs assignment of credits, rights, and interests due to Toco in the civil case valid?
Held
Yes.
In this case, Tiong was authorized to employ the services of lawyers upon such conditions as he may
deem convenient to take charge of any actions necessary for his principals interest, and to defend
suits brought against her. This power necessarily implies the authority to pay for the professional
services thus engaged. Tiong assignment in Sorianos favor was payment for professional services
rendered in other cases in Tocos interests, such assignment taken from the judgement amount due in
the instant civil case.
Concerning the failure of Tocos other attorney-in-fact, Montano, to consent to the assignment in
Sorianos favor, the same doesnt affect the assignment. Montano was also authorized to pay, in the
principals name and behalf, all her debts, claims, and encumbrances on her property. The very fact
that different letters of attorney were given to each of them shows it wasnt the principals intention
they should act jointly in order to make their acts valid. Further, Toco knew of such assignment but
continued employing Soriano to represent her.
Consequently, an agent empowered to pay the principals debt, and to employ lawyers to defend the
latters interests, is impliedly empowered to pay the lawyers fees for services rendered in the
principals interests, and may satisfy them by assigning judgement rendered in the principals favor.
Further, when a person appoints 2 attorneys-in-fact independently, the consent of one wont be
required to validate the others acts unless that appears positively to have been the principals
intention.
38
Smith Bell vs CA
Facts
Chua bought and imported to the Philippines 50 metric tons of Dicalcium Phospate. These were
shipped from Taiwan on board the ship S.S. Golden Wealth bound for Manila. First Insurance Co
insured the shipment against all risks at port of departure. Smith Bell was stamped at the lower left
side of the policy as Claim Agent. The cargo arrived in Manila and the cargo was discharged to the
local arrastre operator, Metroport Services Inc. Some of the cargo was in bad condition with some
damaged and contents partly empty. Chua then filed before Smith Bell a formal claim for the value of
the loss. Smith Bell conveyed the claim to First Insurance Co. but the latter offered only 50% of the
claim. Chua didnt accept the offer and filed a case to enforce payment. Smith Bell denied any
liability arguing its a mere claim agent of First Insurance Co. and as agent; it isnt personally liable
under the policy.
Issue
Can a claim agent of a disclosed principal be held solidarily liable with said principal under the
principals marine cargo insurance policy given the agent isnt a party to the insurance contract?
Held
No.
An adjustment and settlement agents function doesnt include personal liability. His function is
merely to settle and adjust claims in his principals behalf if those claims are proven and undisputed.
If the principal disapproves the claim, the agent doesnt assume any personal liability.
Further, Smith Bells only participation in the contract is limited to having its name stamped at the
bottom left portion of the policy as Claim Agent. Smith Bell isnt a real party-in-interest being a
mere agent. Also, theres no proof Smith Bell is First Insurances resident agent. Even if theres proof,
a resident agent is tasked only to receive legal processes on its principals behalf and not to answer
personally for insurance claims.
39
Chemphil Export vs CA
Facts
Dynetics and Antonio Garcia filed a complaint before the RTC against the consortium (a collection of
banks) regarding a surety agreement Dynetics and Garcia entered into with the consortium. The
complaint seeks to prevent the consortium from enforcing any obligation Dynetics and Garcia may
have under the surety agreement. Meanwhile, Dynetics and Garcia also filed a similar complaint
before the RTC against Security Bank.
The RTC in both cases issued a writ of garnishment against Garcias Chemphil shares, but the writ
was issued first in the Security Bank case. Later, the consortium and Garcia entered into a
compromise agreement with the former agreeing to limit Garcias debt to P145 million immediately
demandable. Later, Garcia sold his Chemphil shares to Ferro Chemicals with the understanding part
of the purchase price will be paid to Security Bank. Ferro Chemicals then assigned the shares to
CEIC.
Meanwhile, Garcia failed to comply with the Compromise Agreement and so the consortium filed a
motion for execution that the RTC granted. Among Garcias properties levied upon on execution were
his Chemphil shares. The consortium acquired Garcias shares at the public auction. The RTC ordered
Chemphil to register the shares in the consortiums name. This caused CEIC to intervene in the case
on the grounds its the shares rightful owner. The trial court then revoked its earlier order transferring
the shares to the consortium. Later, the consortium, except for PCIB, assigned all its rights and
interest to the shares to Gonzales. The case now centers on who is the shares rightful owner; CEIC or
PCIB and Gonzales?
Issue
Was CEIC subrogated to the rights of Security Bank against Garcia and acquired the latters
attachment to the disputed shares?
Held
No.
CEIC traces its claim over the disputed shares to the attachment claim the RTC issued in Security
Banks favor against Garcia. It argues that when FCI paid Security Bank the obligations due to
Garcia, FCI was subrogated to Security Banks rights. In turn, CEIC was subrogated to FCIs rights
by virtue of FCIs assignment in its favor. Further, Security Banks attachment is superior to the
consortiums because it was issued first and duly recorded in Chemphils books, unlike the
consortiums.
However, the facts show FCI is a mere agent because it paid Security Bank with Garcias own money.
Payment was to be taken from the purchase price that FCI owed Garcia by virtue of the sale over the
Chemphil shares. Its as if Garcia paid Security Bank himself but through an agent, namely FCI. FCI
then cant be considered a 3rd party payor for purposes of legal subrogation. Further, FCI isnt a
disinterested party as required by legal subrogation because the benefits of the extinguishment would
redound to its benefit. Payment would result in Security Bank no longer having any claim to the
Chemphil shares; FCI would then have a clean slate to the titles.
Consequently, CEIC wasnt subrogated to Security Banks rights against Garcia and didnt acquire
the latters attachment over the disputed shares.
40
Uy vs CA
Facts
Petitioners Uy and Roxas are agents authorized to sell 8 parcels of land by the owners thereof. The
petitioners then offered to sell the lands to the NHA to be used for a housing project. The NHA agreed
to buy the 8 parcels of land. However, NHA only paid for 5 out of 8 parcels of lands because the
DENR reported the 3 unpaid lands were at an active landslide area and not suitable for a housing
project. The NHA then cancelled the sale over the 3 parcels of land and offered P1 million to the
landowners as danos perjuicios. The petitioners then filed before the RTC a complaint for damages
against NHA and its general manager.
Issue
Do petitioners possess the right to seek damages?
Held
No.
Every action must be prosecuted and defended in the name of the real party-in-interest. The real
party-in-interest is the party who stands to be benefited or injured by the judgement or the party
entitled to the avails of the suit. The party, who by substantive law, has the right sought to be
enforced.
In this case, petitioners arent parties to the contract of sale between the principals and the NHA. They
are mere agents and their rendering of service didnt make them parties to the contracts of sale
executed in the principals behalf. The real parties-in-interest in an action upon the contract are the
parties to the contract.
Further, petitioners arent assignees to the rights under the contract of sale. The petitioners havent
established any agreement granting them the right to receive payment and out of the proceeds to
reimburse themselves for advances and commissions before turning the balance over to the
principals. Otherwise, the agents couldve brought an action on the contract as assignee of such
contract. Also, theres no stipulation pour autrui benefitting petitioners.
Consequently, petitioners arent real parties-in-interest.
41
Angeles vs PNR
Facts
PNR informed Romualdez that it has accepted the latters offer to buy on an As is, Where is basis
the PNRs scrap rails located in Del Carmen and Lubao respectively for a total amount of P96
thousand. Romualdez then addressed a letter authorizing Angeles to withdraw the scrap rails to PNRs
acting purchasing agent.
Later, Angeles requested PNR to transfer the location of withdrawal because the scrap rails located in
the original areas werent ready for hauling. The PNR granted the request and chose another location.
However, the PNR subsequently suspended the withdrawal because of documentary discrepancies
coupled by pilferages in the new locations.
Consequently, Angeles demanded a refund in the amount of P96 thousand but PNR refused to pay
alleging the Angeles already withdrew scrap rails worth P114 thousand. Angeles then filed suit
against PNR for specific performance and damages.
Issue
Did the letter Romualdez sent to PNR designate Angeles as mere agent or as assignee of Romualdezs
interest in the scrap rails?
Held
Agent.
Normally, an agent has neither rights nor liabilities against 3rd parties to a contract because only the
parties to the contract may violate a contract; the real party-in-interest is generally a contracting party.
However, the legal situation is different where an agent is constituted as an assignee. In such case, the
agent may in his own behalf sue on a contract made for his principal as an assignee of such contract.
A person who has a right assigned to him is a real party-in-interest and can maintain an action upon
such right.
In this case, Angeles was constituted as a mere agent and not assignee. The mere fact the letter
doesnt contain the words agent or attorney-infact doesnt matter because other terms are used to
designate the parties in an agency, such as representative. Further, the letter used the verb authorized
indicating Romualdez intention to limit Angeles role as agent. Also, the letters 2nd paragraph was
qualified by the phrase For this reason which reinforces the idea that Angeles is a mere agent.
Further, Angles own actions after the letter was sent confirm the agency. She referred to herself as an
authorized representative and signed receipts indicating she was doing so in a representative capacity.
Consequently, the letter is a power of attorney that merely authorized Angeles to withdraw the scrap
rails and didnt allow her to sue in her own name in the contract.
Excerpt from the letter:
This is to inform you as President of San Juanico Enterprises, that I have authorized the bearer,
LIZETTE R. WIJANCO of No. 1606 Aragon St., Sta. Cruz, Manila, to be my lawful representative in
the withdrawal of the scrap/unserviceable rails awarded to me.
For this reason, I have given her the ORIGINAL COPY of the AWARD, dated May 5, 1980 and O.R.
No. 8706855 dated May 20, 1980 which will indicate my waiver of rights, interests and participation
in favor of LIZETTE R. WIJANCO.
42
National Power Corporation vs NAMARCO

Facts
NPC and NAMARCO, as representative of International Commodities Corp (IC), based in New York,
executed in Manila a contract with NPC purchasing from IC sulfur for a total price of P450 thousand.
Domestic Insurance executed a performance bond worth P90 thousand in NPCs favor to guarantee
ICs obligation. NPC paid way of opening a letter of credit and duly informed NAMARCo of such
act. IC however wasnt able to deliver the sulfur because there was no available ship causing NPC to
shut down its fertilizer plant. NPC rescinded the sale and filed suit against IC, NAMARCO, and
Domestic Insurance to recover stipulated damages worth P360 thousand.
Issue
Is NAMARCO liable for damages?
Held
Yes.
In this case, NPCs invitation to bid clearly stipulated that nonavailability of a steamer to transport
sulfur isnt a ground for non-payment of liquidated damages in case of the sellers non-performance.
NAMARCOs bid is even more explicit because it guaranteed the availability of a steamer to ship the
sulfur. True, IC notified NAMARCO the sale was subject to a steamers availability buy the latter
didnt disclose such information to NPC and, contrary to the principals instructions, agreed that nonavailability of a steamer wouldnt be an justification for non-payment of damages. NAMARCO was
even aware IC was having trouble booking a steamer, and yet continued with the contract.
Consequently, NAMARCO acted beyond the scope of its authority by violating ICs explicit
instructions namely the sale being subject to a steamers availability. In effect, NAMARCO was
acting in its own name and could be held liable as such.
Further, NAMARCO is liable for damages because the agent who exceeds the scope of his authority
without giving the party he contracts with sufficient notice of his powers is personally liable to such
party. The rule that a person dealing with an agent must inquire into the scope of the latters authority
if the principal is to be held liable doesnt apply in this case. Here, its the agent to be held liable and
such stipulation for damages is being enforced against the agent.
43
BA Finance vs CA
Facts
Gebbs International applied for and was granted a loan from respondent Traders Royal Bank in the
amount of P60 thousand. As security, Gaytano became a surety promising to pay jointly and severally
to Traders Royal Bank the loan. BA Finances credit administrator, Wong, sent a letter to Traders
Royal Bank binding BA Finance as guarantor to the loan. Later, Gaytano failed to pay the loan
causing Traders Royal Bank to filed a case to recover the loan against Gaytano and BA Finance. BA
Finance argues its credit administrator had no authority to bind it as guarantor.
Issue
Is BA Finance liable as guarantor?
Held
No.
A person dealing with an agent is bound at his peril, if they would hold the principal liable, to
ascertain not only the fact of agency but also the agents authority. The burden of proof is on the
person claiming an agency exists and the agent acted within his authority.
In this case, Traders Royal only presented Wong to prove the agency that in turn testified that he
acted within his authority based on a memorandum BA Finance gave to him on his lending authority.
Granting Wong was authorized to approve loans up to P350 thousand without any security
requirement, nothing in the memorandum authorizes Wong to issue guarantees. The word contingent
commitment in the memorandum cant be held to mean guarantees. A power of attorney shouldnt be
inferred from vague or general words. Guaranty isnt presumed; it must be express and cant extend
beyond its specified limits.
Wong sole testimony he acted within his authority in the absence of other proof shouldnt be given
weight. More likely, Wong is testifying to save himself from personal liability for damages to Traders
Royal considering he exceeded his authority. An agent who exceeds his authority is personally liable
for damages.
44
DBP vs CA
Facts
Respondent Dans applied for a P500 thousand loan with DBP. DBP advised Dans, then 76 years old,
to obtain a mortgage redemption insurance with the DBP MRI pool. Later, DBP approved a P300
thousand loan in Dans favor from which it deducted P1.5 thousand as insurance premium. Dans
accomplished the MRI application for Insurance and Health Statement for DBP MRI pool.
Later, DBP credited the DBP MRI pool with Dans MRI premium. Dans then died of cardiac arrest
and DBP notified the DBP MRI pool. The DBP MRI pool then informed DBP that Dans wasnt
eligible for MRI coverage because he was over the accepted age limit of 60 when he applied. DBP
then apprised Dans family of Dans disapproved MRI application. DBP offered to pay back the P1.5
thousand premium plus P30 thousand as ex gratia settlement. Dans family refused DBPs offer
demanding the MRIs face value or an amount equivalent to the loan. Later, Dans family filed a case
before the RTC to collect the amount demanded.
Issue
Is DBP liable to the Dans family?
Held
Yes,
An agent isnt personally liable to the party with whom he contracts unless he expressly binds himself
or exceeds the limit of his authority without giving such party sufficient notice of his powers. An
agents liability who exceeds the scope of his authority depends if the 3rd person is aware of the limits
of the agents powers.
In dealing with Dans, DBP was acting both as lender and as insurance agent. DBP compelled Dans to
secure a DBP MRI pool coverage instead of allowing Dans to look for his own insurer. DBP released
the loan deducting already the MRI premium and 4 days later made Dans complete an MRI
application form as well as a health statement. The DBP then submitted both forms to the DBP MRI
pool. DBP made Dans believe he had already fulfilled all the requirements for an MRI and the
insurance policy was forthcoming.
Further, DBP had full knowledge Dans application would be denied because they knew of the age
limit and Dans age. DBP isnt authorized to accept MRI applications when the application is over 60.
Consequently, DBP exceeded the scope of its authority in accepting Dans MRI application. Also,
theres no showing Dans knew of the limitation on DBPs authority to accept MRI applications.
DBP is liable to Dans for damages in making the latter believe the former had authority to accept his
MRI application.
45
Eugenio vs CA
Facts
Eugenio was a dealer of soft drink products of respondent Pepsi-Cola corp. She had a regular charge
account in both the Quezon City plant and Muntinlupa plant. Meanwhile, her husband and copetitioner used to be a route manager of Pepsi-Cola corp. in the Quezon City plant. Later,
Pepsi-Cola filed a complaint for a sum of money against Eugenio and her husband for various
products and empties totaling P96 thousand because they failed to pay despite repeated demands.
In their defense, the petitioners presented 4 trade provisional receipts (TPR) allegedly issued to them
from Pepsi-Colas route manager Estrada showing payments totaling P80.5 thousand. The TPRs
shouldve been credited in their favor. However, Estrada denied issuing the TPRs.
Issue
Should the amounts in the TPRs be credited in Eugenios favor?
Held
Yes.
Payment shall be made to the person in whose favor the obligation has been constituted, or his
successor-in-interest or any person authorized to receive it. As far as third persons are concerned, an
act is deemed to have been performed within the scope of the agent's authority, if such is within the
terms of the power of attorney, as written, even if the agent has in fact exceeded the limits of his
authority according to an understanding between the principal and his agent.
In this case, Pepsi-Cola failed to prove that Estrada, its duly authorized agent with respect to Eugenio,
didnt receive the amounts reflected in the TPRs from Eugenio. So long as Pepsi-Colas customers
are concerned, for as long as they pay their obligations to Pepsi-Colas sales representative using the
official receipt, said payment extinguishes their obligations. Pepsi-Cola itself admitted its the
collectors, in this case Estrada, responsibility to turn over the collection.
Simply put, Eugenio paid the right person, Pepsi-Colas agent, and if Pepsi-Cola received the
payment is no longer Eugenios problem. Payment should be credited.
46
Toyota Shaw vs CA
Facts
Respondent Sosa and his son, Gilbert, went to Toyota Shaw to purchase a car. They met Bernardo,
Toyotas sales representative, who talked to them. Sosa emphasized that he needed the car not later
than 17 June 1989. Bernardo assured Sosa the car would be ready by the assigned date. The parties
signed an Agreement stipulating:
1. Sosa will make a downpayment of P100 thousand and
2. The car will be delivered on 17 June 1989. The rest of the balance will be paid by credit
financing through BA Finance.
On the assigned date, Bernardo told Sosa the car cant be delivered. Toyota denied the sale because
Sosas credit finance application in BA Finance was denied and required Sosa to pay the full purchase
price in cash. Sosa refused and demanded a refund that Toyota granted, with Sosa reserving his right
to damages. Later, Sosa made repeated demands against Toyota for a sum of money for damages but
the latter refused.
Issue
Did Bernardo have authority to bind Toyota Shaw?
Held
No.
A person dealing with an agent is put upon inquiry and must discover upon his peril the agents
authority.
In this case, the Agreement explicitly states Agreements between Mr. Sosa & Popong Bernardo of
Toyota Shaw, Inc. Sosa knew he wasnt dealing with Toyota but with Bernardo, who was merely
Toyotas sales representative and hence agent. Sosa shouldve acted with ordinary prudence and
reasonable diligence to know the extent of Bernardos authority as Toyotas agent in selling cars.
Normal business practice doesnt warrant a sales representative to have power to enter into a valid and
binding contract of sale for the company.
Consequently, Bernardo had no authority to enter into a contract of sale in Toyotas behalf.
47
Bacaltos Coal Mines vs CA

Facts
Bacaltos Coal Mines duly authorized Savellon, under an Authorization to:
Use the coal operating contract of Bacaltos Coal Mines...for any legitimate purpose that it may
serve. Namely, but not by way of limitation, as follows:
1. To acquire purchase orders for an in behalf of Bacaltos Coal Mines
2. To engage in trading under the style of Bacaltos Coal Mines
3. To collect all receivables due or in arrears from people or companies having dealings under
Bacaltos Coal Mines
4. To extend to any person or company by substitution the same extent of authority thats
granted to Savellon
In connection with the preceding paragraphs to execute and sign documents, contracts, and other
pertinent papers.
...full authority to do and perform all and every lawful act requisite or necessary to carry into effect
the foregoing stipulations...
Pursuant to such Authorization, Savellon executed a Trip Charter Party between Bacaltos Coal
Mines, represented by its COO Savellon, and respondent San Miguel Corp. Thereunder, Savellon
claims Bacaltos Coal Mines owns the vessel M/V Premship II and for P650 thousand it lets, demises
the vessel to San Miguel for 3 round trips to Davao. The vessel was able to make only 1 trip and San
Miguels demands for Bacaltos Coal Mines to comply with the contract went unheeded. San Miguel
then filed suit against Bacaltos Coal Mines and Savellon.
Issue
Did Bacaltos Coal Mines authorize Savellon to enter into the Trip Charter Party under the
Authorization?
Held
No.
Every person dealing with an agent is put upon inquiry and discover upon his peril the agents
authority. If he doesnt make such inquiry, hes chargeable with knowledge of the agents authority,
and his ignorance of that authority wont be any excuse.
In this case, Savellons agency is based on a written document, the Authorization. The Authorization
grants Savellon only 1 express power, namely to use the coal operating contract for any legitimate
purpose it may serve. All other powers contained within the Authorization are subsumed under this
express power. Further, such Authorization is a special power of attorney because it refers to a clear
mandate specifically authorizing the performance of a specific power and express acts subsumed
therein.
If San Miguel had only exercised due diligence and prudence, it shouldve know in no time theres
absolutely nothing on the Authorization that confers Savellon with authority to enter into any Trip
Charter Party. San Miguel shouldve required Savellon to present the coal-operating contract to
determine what it is and how Savellon may use it. Such determination is necessary to know the scope
of Savellons authority and what activities are related to the power to use it. Also, San Miguels
negligence is compounded by its failure to verify if Bacaltos Coal Mines even owned a vessel. San
Miguel satisfied itself with Savellons claim Bacaltos Coal Mines owned the vessel to be used. This
happened considering Bacaltos Coal Mines is a coal mining business, not a shipping business, which
shouldve put San Miguel on guard.
Consequently, San Miguel was negligent in failing to inquire into Savellons authority and must
suffer for any loss incurred.
48
Yu Eng Cho vs PANAM

Facts
Cho purchased plane tickets from defendant Tagunicar who represented herself as defendant Tourist
World Services (TWSI) agent. The destinations are Hong Kong, Tokyo, then San Francisco USA.
The trips purpose is for Cho to buy equipment for its business from the USA. Tagunicar told Cho his
flight was confirmed all the way to the US. When Cho reached Tokyo, he discovered his name wasnt
in the manifest and he was constrained to reroute to Taipei instead. In Taipei, he could find no flight
going to the US and he was forced to go back to Manila. It turned out Tagunicar was never able to
confirm the flight from Tokyo to San Francisco. She attached validation stickers on the ticket but she
did so without authority and knowing the flight wasnt confirmed yet.
Due to Chos failure to get to the US, the US Company selling the equipment cancelled the sale
costing Cho profits. Cho then filed suit against Tagunicar as TWSIs agent, TWSI as Pan Ams agent,
and Pan Am itself.
Issue
Was Tagunicar an agent of TWSI?
Held
No.
A person dealing with an assumed agent is bound at his peril, if he would hold the principal liable, to
ascertain not only the fact of agency but also the nature and extent of authority. In case agency is
denied, the burden is upon the person to establish it.
In this case, Cho relied on as evidence Tagunicars affidavit that shes TWSIs agent. However, such
affidavit has weak probative value. First, Tagunicar herself contradicted the affidavit in her testimony
in open court when she stated she was in fact an independent travel agent. Second, Chos lawyer
prepared the affidavit making it doubtful she executed it voluntarily. More likely, Cho and his lawyer
prevailed upon Tagunicar to state in the affidavit shes TWSIs agent.
Further, Tagunicar doesnt receive commission from TWSI because she simply buys tickets from
TWSI and sells them at a premium, a simple contract of sale.
Consequently, Cho failed to establish an agency between TWSI and Pan Am in simply relying on his
bare allegations. Tagunicar isnt TWSIs agent and neither is TWSI an agent of Pan Am.
49
Manila Memorial Park Cemetery Inc. vs Linsangan

Facts
Baluyot offered to sell to Atty. Linsangan a lot called Garden State that Manila Cemetery owns for
P95 thousand. Baluyot told Linsangan a 3rd person was no longer interest in acquiring Garden State
and opted to sell his rights subject to reimbursement of the amount he already paid. Once
reimbursement was made, the 3rd person would transfer the contract to Linsangan. Linsangan agreed
and made the corresponding payments.
After making the payments, Baluyot delivered the new contract to Linsangan but the latter protested
because the new contract had a price of P132 thousand. Linsangan signed the new contract only when
Baluyot executed a document stipulating Linsangan will only pay P95 thousand. Later, Baluyot
informed Linsangan the new contract was cancelled and presented another proposal to purchase an
equivalent property. Linsangan refused the new proposal and insisted Baluyot and Manila Cemetery
honor the undertaking. Linsangan then filed suit to compel Baluyot and Manila Cemetery to honor the
agreement.
It turns out, the contract was cancelled because as to Manila Cemetery the purchase price was still
P132 thousand, with Baluyot secretly undertaking to pay the difference. However, Baluyot failed to
pay and because of insufficient payment, Manila Cemetery cancelled the contract.
Issue
Was Baluyot Manila Cemeterys agent? Did the contract Baluyot enter into bind Manila Cemetery?
Held
Agent: Yes || Bind: No
Under the Agency Manager Agreement, an agency manager, such as Baluyot, is considered an
independent contractor and not an agent. However, the same contract also states Baluyot is authorized
to solicit and remit to Manila Cemetery offers to purchase interment spaces belonging to and sold by
the latter. Consequently, Baluyot is an agent because she was authorized to solicit solely for and in
behalf of Manila Cemetery.
However, Manila Cemetery isnt bound by the contract because Baluyots authority was limited to
soliciting and remitting to Manila Cemetery offers to purchase interment spaces obtained on forms
Manila Cemetery provided. She had no authority to alter the terms of the written contract Manila
Cemetery provided, as in this case when the price was reduced from P132 thousand to P95 thousand.
The document confirming the Baluyots private agreement with Linsangan cant bind Manila
Cemetery.
Further, Linsangan never even bothered to inquire if Baluyot was authorized to agree to terms
contrary to those indicated in the written contract, much less bind Manila Cemetery with her
commitment to such agreements. Linsangan didnt even inquire from Manila Cemetery the contracts
real status. He shouldve been put on guard when the written contract didnt reflect the real
agreement. Being a lawyer, Linsangan shouldve been more circumspect and cautious in dealing with
Baluyot.
Also, Manila Cemetery never ratified the contract. Manila Cemetery never had knowledge of
Baluyots private arrangement with Linsangan. As far as it was concerned, the price was still P132
thousand. If Manila Cemetery was aware of such agreement, it would have refused Linsangans check
payment for being insufficient. It didnt perform any action to make Linsangan believe Baluyot had
authority to alter the terms of its standard contracts. It wasnt also Manila Cemeterys usual practice
or habit to allow agents to alter the written contracts terms.
Consequently, Linsangan cant enforce the P95 purchase price against Manila Cemetery and he cant
even go after Baluyot in his capacity as agent because Baluyot didnt undertake to secure the
50
principals ratification. Baluyot is liable for damages but is mitigated because Linsangan himself was
negligent.
51
Green Valley vs IAC

Facts
Squibb & Sons Corp. and Green Valley entered into a latter agreement with the former appointing the
latter as a non-exclusive distributor for Squibb veterinary products. Green Valley is obligated to
return payment for purchases of Squibb products to Squibb. For goods delivered to Green Valley but
unpaid, Squibb filed suit to collect.
Issue
Was the contract a mere agency to sell? Or a sale?
Held
Doesnt matter.
In this case, theres no need to categorize the contract. Whether viewed as an agency to sell or as a
contract of sale, Green Valleys liability is clear. Treating the contract as one of agency to sell, Green
Valley is liable because it sold on credit without the principals authority. Art. 1905 applies to this
case.
52
Panlilio vs Citibank, N.A.

Facts
Panlilio deposited P1 million in Citibanks Cithi account, a fixed-term savings account with a higher
than average interest. She also opened a checking account where interest from the Cithi account
would go. Lee, Citibanks employee, personally transacted with Panlilio to handle the accounts.
Later, Panlilio called Citibank wanting to invest an addition P3 million where she talked with Lee.
Panlilio brought the money to Citibank where P2 million was invested in a Long-Term Commercial
Paper or LTCP while the rest into Peso Repriceable Promissory Note or PRPN accounts. A day after
the investment, Amalia signed a Directional Investment Management Agreement (DIMA, Term
Investment Application (TIA), and Directional Letter/Specific Instructions. These documents
essentially clear Citibank of any obligation to guarantee the principal and interest of the investment,
absent fraud or negligence on the latters part. Further, the investor assumes all risks.
The investment instruction is where the differing allegations lie. Lee claims she was instructed to
deposit in LTCP the P2 million while the rest in PRPN accounts. Panlilio however claims she wanted
the entire amount invested in PRPN and demanded the investment in the LTCP withdrawn. Citibank
informed Panlilio the investment could only be withdrawn if theres a willing buyer and even then it
would be lower than her original investment. Amelia made repeated demands to no avail causing her
to file suit to recover her investment.
Issue
Can Panlilio withdraw the investment?
Held
No.
In this case, the DIMA, Directional Letter, TIA, and Certificate of Investments, read together,
establish the agreement between the parties as an investment management agreement, which created a
principal-agent relationship between Panlilio and Citibank as agent for investment purposes. The
agreement isnt a trust or ordinary bank deposit. Hence, no trustor-trustee-beneficiary or even
borrower-lender relationship existed here with respect to DIMA.
Citibank purchased the LTCP only as Panlilios agent, thus Panlilio assumed all the obligations or
inherent risks entailed by the transaction under the Civil Code Art. 1910. Being the principal, Panlilio
is obliged to observe the solemnity of the transaction Citibank entered into on her behalf, absent proof
Citibank acted beyond its authority.
53
Air France vs CA
Facts
Respondent Gana and his family purchased from Air France through Imperial Travels, a duly
authorized travel agent, air tickers for the Manila/Osaka/Tokyo/Manila route. The tickets were valid
until 8 May 1971 and werent valid anymore after said date. The Ganas booked a flight on 8 May
1970 but didnt depart on said date. Later, Gana sought to extend the validity of the tickets with help
from Teresita and Ella, Ella being manager of the Philippine Travel Bureau.
However, both of them discovered its impossible to extend the validity without paying more. The
Ganas still booked their flight on 7 May 1971 but Ella warned Teresita the tickets could be used to
leave Manila but would no longer be valid for the rest of the flight. Teresita assured Ella the Ganas
would make arrangements and on this assurance Ella, on his own, attached to the tickets validating
stickers for the Osaka/Tokyo flight. Despite the warning, the Ganas still left on 7 May 1971 and were
forced to purchase new tickets for the Osaka/Tokyo flight and the return trip. Gana then filed suit
against Air France.
Issue
Is Air France liable to Gana?
Held
No.
In this case, the Gana cant claim ignorance to the non-extension of the tickets because the evidence
shows Ella informed Teresita the tickets cant be extended without making additional payments. Here,
Teresita was Ganas agent and notice to her of the rejection of the requests extension of the tickets
validity is notice to Gana as well.
Further, there was no implied ratification when Air France personnel at the ticket counter allowed the
Ganas to leave on 7 May 1971. At the time, the tickets were still valid.
The Ganas brought this predicament upon them and consequently cant hold Air France liable for
validly refusing the tickets past 8 May 1971.
54
Cuison vs CA
Facts
Cuison is engaged in the purchase and sale of newsprint, bond paper, and scrap. During a certain
period, respondent Valiant Investment delivered various kinds of paper products amounting to P297
thousand to Tan of LT Trading. Valiant Investment made the deliveries pursuant to orders Tiac,
Cuisons employee, gave. Tiac paid Valiant Investment with checks as payment for the paper
products but said checks were dishonored. Valiant Investment then made several demands to Cuison
to pay the delivered paper products. Cuison refused claiming no involvement in Tiacs transaction.
Valiant Investment then filed suit to recover the P297 thousand.
Issue
Did Cuison authorize Tian to execute the disputed transaction?
Held
Yes.
A person who clothes another with apparent authority as his agent and holds him out to the public as
such cant be permitted to deny such persons authority to act as his agent, to the prejudice of
innocent 3rd parties dealing with such person in good faith and in honest belief that hes what he
appears to be.
In this case, Cuison held out Tiac to the public as his store manager. More particuarly, Cuison
explicitly introduced Tiac to Villanueva, Valiant Investments manager, as his branch manager.
Further, Tan also testified she knew Tiac to be Cuisons manager. This general perception is made
more manifest by the fact Tiac is known as Cuisons godbrother and the close relationship between
the two.
Consequently, there was no reason for anybody, especially those transacting business with Cuison, to
doubt Tiacs authority as Cuisons store manager. Cuison is now estopped from disclaiming liability
for the transaction Tiac entered into on his behalf.
55
Pleasantville Dev. vs CA
Facts
Pleasantville sold Lot 9 to Robillo who in turn sold it to respondent Jardinico which at the time, Lot 9
was vacant. Jardinico then secured a TCT over Lot 9 when he later discovered Kee already introduced
improvements to Lot 9 and possessed it.
It appears Kee bought Lot 8 from Torres Enterprises, Pleasantvilles exclusive real estate agent.
Unfortunately, Torres Enterprises mistakenly pointed Lot 9 to Kee instead of Lot 8. Jardinico then
confronted Kee but the parties couldnt reach an amicable settlement. Jardinico demanded Kee
remove all improvement on Lot 9 and vacate the same but Kee refused to do so. Jardinico then filed a
complaint for ejectment with damages against Kee before the MTC. Kee then filed a 3rd party
complaint against Pleasantville and Torres Enterprises.
Issue
Is Pleasantville liable for Torres Enterprises delivering the wrong lot to Kee?
Held
Yes.
The rule is the principle is responsible for the agents act done within the scope of his authority, and
should bear the damage causes to 3rd persons. On the other hand, the agent who exceeds his authority
is personally liable for the damage.
In this case, Torres Enterprises was acting within its authority as Pleasantvilles sole real estate agent
when it delivered Lot 9 to Kee. However, Torres Enterprises was negligent and this negligence is the
basis of Pleasantvilles liability, as the principal.
Further, despite the fact Jardinico sold Lot 9 to Kee pending the cases resolution, Pleasantville is still
liable because its liability is grounded on its agents negligence.
56
Rural Bank of Milaor vs Ocfemia

Facts
Ocfemia and co-respondents mortgaged 7 parcels of land to Rural Bank of Milaor. However, they
failed to redeem the mortgaged lands and so Rural Bank foreclosed the mortgage and ownership was
transferred to Rural Bank. Later, Rural Bank sold 5 out of the 7 lands back to respondents evidenced
by a deed of sale.
However, the 5 lands werent transferred in the respondents name because the deed of sale needed to
be registered in the Register of Deeds. In turn, the Register of Deeds required a Rural Bank board
resolution. Respondents then notified Rural Bank of said requirement and presented the pertinent
documents to it. Rural Bank however refused on the ground it had not record of the sale. Stubbornly,
Rural Bank refused to provide the necessary board resolution despite numerous demands and
documentary proof from respondents.
Issue
Was Tena, the Rural Bank manager who executed the deed of sale with respondents, valid?
Held
Yes.
A corporation who knowingly permits its officer or any other agent to act within the scope of an
apparent authority, it holds the agent out to the public as possessing the power to do those acts; thus,
the corporation will, as against anyone who has in good faith dealt with it though such agent, be
estopped from denying the agents authority.
In this case, the deed of sale shows Bank Manager Tena entered into the transaction with respondents.
Rural Bank however failed to specifically deny under oath the deed of sale, and consequently
admitted the contracts due execution. Such admission meant it acknowledges Tenas authority to sign
the deed of sale on its behalf.
Further, after the deed of sale was executed, respondents occupied the 5 properties and paid real estate
taxes thereon. If Rural Bank truly believed it had title to the 5 properties it would have done
something to prevent the respondents from possessing the lands. Rural Bank even failed to present
evidence controverting Tenas authority to transact with respondents.
Also, Tena had previously transacted business on Rural Banks behalf, and the latter acknowledged
her authority. A bank is liable to innocent 3rd persons where an agent like Tena makes representation
in the course of its normal business, even though such agent is abusing her authority. Clearly, persons
dealing with her couldnt be blamed for believing she was authorized to transact business on Rural
Banks behalf.
Consequently, Rural Bank is estopped from questioning Tenas authority as Bank Manager, to enter
into the contract of sale. Its under a legal duty to provide the necessary board resolution.
57
Filipinas Life Assurance Co. vs Pedroso

Facts
Pedroso is a policyholder of a 20-year endowment life insurance Filipinas Life issued. Valle is
Pedrosos insurance agent and the former collect the latters monthly premiums. Later, Valle
introduced Pedroso to Filipinas Lifes promotional investment program for policyholders. Pedroso
invested in such program and in return Valle issued Pedroso his personal check representing the
interest and a Filipinas Life Agents receipt. Pedroso called Filipinas Life and talked to Alcantara,
the administrative assistant, and Apetrior, the bank manager, who both confirmed the promotion.
Relying on Apetrior and Alcantaras representations, and the fact she knew Valle for a long time,
Pedroso waited for her initial investment to mature. Later, her initial investment was returned and
thereafter she made more investments in the promotion. Afterwards, Pedroso informed respondent
Palacio, a fellow policyholder, about the promotion and the latter also invested. Both investments
were made through Valle. However, when Pedroso and Palacio tried to withdraw their investments,
Valle refused to return all of it and Filipinas Life refused to return the money.
Issue
Is Filipinas Life liable to respondents?
Held
Yes.
A person dealing with an agent is put upon inquiry and must discover at his own peril the agents
authority; unless the person exercises due diligence. Further, the principal isnt liable for the agent
who exceeded his authority. However, the principal is solidarily liable with the agent if the former
allowed the latter to act as though he had full powers; In other words, the principal ratifies the agents
acts, expressly or impliedly. Innocent 3rd persons shouldnt be prejudiced if the principal failed to
prevent misrepresentation, more so if the the principal ratified the agents act beyond the latters
authority.
In this case, Valles authority to solicit and remit investments is undisputed. Further, the respondents
exercised due diligence in confirming Valles authority when they called Alcantara and Apetrior to
confirm Valles authority.
Here, Filipinas Life, as principal, is liable for obligations Valle, its agent, contracted. It cant allege
ignorance of Valles acts because it, through Alcantara and Apetrior, expressly and knowingly ratified
Valles acts. Consequently, Filipinas Life clothed Valle with apparent authority and is now estopped
to deny said authority.
58
Professional Services Inc. vs CA

Facts
Agana went to Medical City because of pain in her anal region. Dr. Ampil diagnosed her with cancer
and recommended surgery. Dr. Ampil then, with assistance from Medical City staff, performed
surgery. During surgery, a hysterectomy operation was required. Dr. Fuentes performed the
hysterectomy after which Ampil took over and finished surgery. After a few days Agana experienced
excruciating pain in her anal region. She consulted Ampil and Fuentes but both of them assured her
that was a natural consequence of surgery. Both doctors advised her to seek further treatment to
completely remove the cancer. Agana then went to the US to completely remove the cancer.
Later, Agana returned to the Philippines still experiencing pain when it was discovered she had a
gauze protruding from her vagina. Agana then went to Polymedic General where Dr. Gutierrez
discovered more gauzes in her vagina. Another surgery was performed to remove the gauzes. Agana
then filed suit before the RTC against PSI (Medical City's owner), Ampil, and Fuentes.
Issue
Is Medical City liable for Dr. Ampil's negligence?
Held
Yes.
Under the doctrine of apparent authority, the question in every case is if the principal has by his
voluntary act placed the agent in such a situation that a person of ordinary prudence, conversant with
business usages and the nature of the particular business, is justified in presuming that such agent has
authority to perform the particular act in question.
The doctrine of apparent authority applies in this case because Medical City made it appear to the
public that Dr. Ampil was a member of its hospital staff. There's no need for it to make an express
representation to the patient that the treating physician is a hospital employee, such representation
may be general and implied. Simply displaying his name in the lobby's public directory is enough.
Consequently, Medical City is vicariously liable for Ampil's negligence under the doctrine of
apparent authority.
59
Professional Services Inc. vs CA

Facts
See above
Issue
See above
Held
Yes.
In this case, there's evidence Medical City held out Dr. Ampil to Agana as its agent. The 2 factors
determining apparent authority are present namely
1. Hospital manifestation
2. Patients reliance.
Hospital manifestation refers to the hospitals conduct that led the patient to conclude the physician
was the hospitals agent. Meanwhile, patients reliance refers to such reliance upon the hospital and
doctors conduct consistent with ordinary care and prudence.
Agana chose Medical City on the impression Dr. Ampil was a staff member of said hospital and it
was known and prominent. Further, Medical City required Agana to sign hospital documents that
reinforced the idea Ampil was a physician of its hospital. Such document included the Consent for
hospital case that stipulated 'as may be deemed necessary or advisable by the hospital's physicians'.
Consequently, Medical City is still liable under the doctrine of ostensible agency for Dr. Ampils
negligence.
60
Sargasso Construction & Dev. Corp. vs Philippine Ports Authority

Facts
The PPA awarded Sargasso Construction with a contract after a public bidding the former conducted.
Beside the construction site was an area intended for a reclamation project. Sargasso offered to
perform the reclamation for P36 million. PPA replied with a counter-offer to lower the price to P30
million and the additional condition such award was still subject to approval of higher authority.
Later, PPA General Manager Dayan sent Sargasso a Notice of Award for the reclamation project
worth P30 million.
Meanwhile PPA General Manager Agustin presented to the PPA Board of Directors the proposal for
the reclamation project. The Board denied the proposal and PPA didnt formally advise Sargasso
Construction of the Boards action. Sargasso Construction then filed suit for specific performance and
damages against PPA before the RTC.
Issue
Did the General Manager bind PPA to the contract?
Held
No.
In contracts negotiated by GOCCs, the law requires the governing boards approval and such
contracts are perfected only upon approval by competent authority. Under the pertinent law, unless
the PPA Board validly authorizes its general manager, the latter cant bind PPA to a contract. Here,
Sargasso Construction failed to present any evidence to prove PPAs general manager possessed the
necessary authority to bind PPA to the contract.
Further, the doctrine of apparent authority has no application to this case. In terms of government
contracts, this doctrine has been restated to mean the government isnt bound by its agents
unauthorized acts, even though within the apparent scope of their authority.
While under the law on agency, apparent authority is defined as the power to affect the principals
legal relations with a 3rd person because of the principals manifestations to the 3rd person. The
principals liability extends to the agents acts within the apparent scope of his authority, although no
such authority exists.
The doctrine of apparent authority, or ostensible agency, imposes liability because the principals
actions mislead the public into believing the authority exists. The apparent authoritys existence may
be ascertained through
1. The apparent authority to act in general which the principal clothes the agent
2. The acquiescence in his acts, with actual or constructive knowledge thereof, whether within
or without the scope of his authority.
Consequently, apparent authority is determined from the principals acts, and not the agents.
Here, the Board didnt act in any way as to clothe its general manager with apparent authority to
execute the contract with Sargasso Construction.
61
Benate vs Philippine Countryside Rural Bank

Facts
The Sps Maglasang obtained multiple loans from PCRB mortgaged by certain properties, including
Property X. The Sps Cortel own Property X, who are daughter and son-in-law to the Sps Maglasang.
Later, Maglasang and Cortel asked PCRBs permission to sell Property X and to release it from
mortgage. Petitioners claim PCRB, through its Branch manager, Mondigo, verbally agreed to the
request.
The petitioners then sold Property X to petitioner Banate, the proceeds of which were used to pay the
PCRB loan. PCRB then gave the owners duplicate certificate of title over Property X to Banate.
However, the title carried PCRBs mortgage claim, prompting petitioners to request PCRB to release
the mortgage. PCRB refused causing petitioners to file suit before the RTC for specific performance
against PCRB.
Issue
Is PCRB bound by Mondigos verbal agreement to sell Property X and release it from the mortgage?
Held
No.
A corporate officer or agents authority to deal with 3rd persons may be actual or apparent. Actual
authority is either express or implied. Express refers to the agents delegated power while implied
refers to his prior acts that the principal ratified or the benefits accepted. Meanwhile, apparent refers
to the agents apparent authority.
The doctrine of apparent authority means if the agents act is within the apparent scope of authority
conferred on him, although no such authority exists, the principle is liable. However, such liability is
limited to 3rd persons who believed such authority exists because of the principals conduct. Only the
principals acts, and not the agents, determine apparent authority.
In this case, there was no evidence presented to show PCRB clothed Mondigo with apparent authority
to verbally alter the terms of mortgage contracts, or that it ratified Mondigos act. Further, the power
to modify or nullify corporate contracts generally remains in the board of directors. Being a mere
branch manager alone is insufficient to support the conclusion Mondigo was clothed with apparent
authority to verbally alter the mortgage contracts terms.
Consequently, because Mondigo had no authority or apparent authority to verbally alter the mortgage
contracts terms, Mondigos act cant prejudice PCRB.
62
Manila Remnants vs CA
Facts
Manila Remnant owns Property X and entered into a Confirmation of Land Development and Sales
Contract with Valencia Inc. Valencia was to develop Property X and had authority to manage the
sales thereof, execute contracts to sell to lot buyers, and issue official receipts. The President of both
corporations is Artemio Valencia. Artemio, thru Manila Remnant, executed a contract to sell covering
Lot 1 in Property X in respondent Ventanillas and Diazs favor (VD).
Later, Artemio again sold Lot 1 to Crisostomo without consideration and VDs knowledge. Valencia
transmitted Crisostomos fictitious contract to Manila Remnant while retaining VDs contract. All this
time, VD regularly paid the installment on Lot 1 to Valencia Inc.
However, Valencia credited the VD payments to Crisostomo. Later, Manila Remnant removed
Valencia as its President and stopped the collection agreement with Valencia Inc. Valencia Inc. then
sued Manila Remnant. The court ordered Valencia Inc. to submit a list of lot buyers that the latter did
but said list excluded VD.
Meanwhile, VD went directly to Manila Remnant to pay the rest of the balance on Lot 1 when to their
shock they discovered Manila Remnant had no records of them as lot buyers. Here they discovered
Crisostomos contract. VD then filed suit for specific performance against Crisostomo, Manila
Remnant, and Valencia Inc.
Issue
Should Manila Remnant be held solidarily liable with Valencia Inc. and Crisostomo in paying
damages to VD?
Held
Yes.
In this case, it is undisputed Valencia Inc. had exceeded its authority and even the law when it
undertook the double sale of Lot 1 to VD and Crisostomo. Ordinarily, Manila Remnant would be in
the clear because the principal is not liable for the agent who acts outside of his authority. However,
the unique circumstances of this case make for an exception. It must noted at the time Artemio
perpetrated his scam, he was President of both Manila Remnant and Valencia Inc.
Manila Remnant is estopped to raise the defense Valencia Inc exceeded its authority by allowing its
agent to act as though it had plenary powers. Manila Remnants negligence allowed Valencia Inc to
exercise powers not granted to it. First, Manila Remnant gave Valencia Inc. carte blance authority in
the sale and disposition of lots in Property X. Second, Manila Remnant wast prudent in conducting
its business as subdivision owner. When it revoked the agency contract with Valencia Inc, the former
published the cancelled contracts to sell only 3 years after the agency agreement was revoked.
Further, it failed to check its agents records immediately after revoking the agency despite the fact
the reason for revoking such agency was anomalies in Valencia Inc. collection.
All in all, Manila Remnant was negligent in managing its business and monitoring its agents actions
thereby allowing its agent to deceive unsuspecting 3rd persons.
63
Country Bankers Insurance Corp. vs Keppel Cebu Shipyard

Facts
Unimarine contracted the services of Keppel to repair the formers ship. Later, Keppel billed
Unimarine for P4 million but after negotiation it was reduced to P3.5 million. The agreement
stipulated the bill will be payable in 2 installments and requires Unimarine to procure surety bonds
equal to the credit extended.
Pursuant to the agreement, Unimarine secured from Country Bankers, through the latters agent,
Quinain, a Surety Bond worth P3 million. Later, Unimarine obtained another Surety Bond from
Plaridel Surety worth P500 thousand.
However, Unimarine failed to pay the 1st installment when it became due. Keppel made repeated
demands but Unimarine still failed to pay. Keppel then notified the sureties of Unimarines default
and required them to fulfill their obligations as sureties. The sureties likewise failed to pay causing
Keppel to file suit against Unimarine and the sureties.
Issue
Is Country Bankers liable on the surety bond Quinain issued to Unimarine in Keppels favor?
Held
No.
In this case, Quinain as Country Bankers agent is undisputed. The issue centers on Quinains
authority, or at least the apparent authority, Country Bankers extended to Quinain to transact
insurance business for and in its behalf.
Here, Quinain had a special power of attorney to obligate Country Bankers as surety in the form of an
SPA. The SPA stipulates Quinain can issue Surety Bonds only in favor of DPWH, NPC, and other
government agencies. Further, the surety bond is limited to P500 thousand. Consequently, Quinain
exceeded his authority in granting a surety bond worth P3 million to Unimarine, a non-government
agency.
Granting Quinain exceeded his authority did Country Bankers ratify Quinains action? Country
Bankers never even knew of the surety bond. It didnt even receive the premiums Unimarine paid to
Quinain pursuant to the Surety Bond. Consequently, there was no ratification.
Now, is Country Bankers estopped from claiming Quinain has no authority? Here, Country Bankers
clearly stated the limits of Quinains authority in the SPA, even stamping its surety bonds with the
restrictions to alert concerned parties. Country Bankers cant be faulted for Quinains deliberate
failure to notify the former of the latters transactions. Further, Country Bankers never let the public,
especially Unimarine, believe Quinain had authority to issue the disputed surety bond.
In fact, it was Unimarine who was negligent because it didnt even bother to inquire if Quinain was
authorized to issue surety bonds beyond the limits established in the SPA. Unimarine didnt even
check the SPA or ask Country Bankers if Quinain had authority to issue the surety bond. Unimarine
merely relied on Quinains assurances and must now suffer for it.
64
Manotok Bros. Inc. vs CA

Facts
Manotok Inc. owns Property X that was leased to the City of Manila. Later, Manotok authorized
respondent Saligumba to negotiate with City of Manila for the sale of Property X at a certain price
with a 5% commission. Saligumbas authority allowed it to finalize and consummate the sale of
Property X to the City of Manila for not less than P410 thousand, said authority to last for 180 days.
The City of Manila then passed an ordinance to purchase Property X but said ordinance was signed
only 183 days after the authorization was given to Saligumba.
Nevertheless, Saligumba executed the deed of sale and full payment was made. However, Manotok
refused to give Saligumba his commission because the former didnt recognize the latters role as
agent in the transaction. Saligumba then filed suit against Manotok.
Issue
Is Saligumba entitled to the 5% commission?
Held
Yes.
In this case, at first glance it seems Salimbuga isnt entitled to its commission because the deed of sale
was executed after its authority had already expired. It seems this case would fall under the general
rule that a broker or agent isnt entitled to commission until he has successfully done the job given to
him.
However, the exception applies in this case, the all-encompassing exception of equity. Here, the
exception should apply because Salimbuga was the efficient procuring cause in bringing about the
sale. When the agent is the efficient procuring cause in bringing about the sale, such agent is entitled
to commission.
Further, the City of Manila approved the ordinance while Salimbugas authority was still subsisting
but was signed after a measly 3 days after such authority already expired. Also, only Salimbuga had
authority to negotiate the sale of Property X. Also, Manotok intervened in the sale only when the
ordinance was already passed and all that was left to do was for the Mayor to sign it.
65
Hahn vs CA
Facts
Hahn and respondent BMW entered into a Deed of Assignment with Special Power of Attorney
with the latter constituting Hahn as its exclusive dealer of BMW cars and parts in the Philippines.
Later, BMW notified Hahn the former was arranging to grant the exclusive dealership of BMW cards
and products to Columbia Motors. Hahn protested and BMW offered to make Hahn a standard BMW
importer otherwise it would simply terminate Hahns dealership. Hahn rejected such offer and BMW
terminated the exclusive dealership agreement with Hahn.
Later, BMW proposed Hahn and Columbia Motors jointly import and distribute BMW cars and parts
but Hahn still refused. Hahn then filed suit for specific performance against BMW to compel the latter
to execute the exclusive dealership. The lower courts dismissed the case on the ground it has no
jurisdiction because BMW isnt considered doing business in the Philippines.
Issue
Is Hahn BMWs agent?
Held
Yes.
In this case, a corporation is considered doing business in the Philippines if it appoints representatives
or distributors in the Philippines provided said representative or distributor transacts business in the
corporations name.
The question now is if Hahn can be considered BMW agent.
Here, Hahn claimed he took orders for BMW cars and transmitted the same to BWM. BMW would
fix the downpayment and pricing charges, notifying Hahn of the scheduled production month for the
orders, and reconfirmed orders by signing and returning to Hahn the acceptance sheets. Further, the
buyer paid directly to BMW and Hahn simply received a commission upon the sales successful
conclusion. Any after-sale and warranty service Hahn performed were on BMW invoices and forms.
Further, the fact Hahn used his own money to set up service centers and showrooms dont necessarily
mean he isnt BMWs agent. BMW exercised control over Hahns activities by making regular
inspections on Hahns premises to see if they complied with BMW standards.
Also, BMW held out Hahn as its exclusive distributor in the Philippines announcing in the Asian
Region that Hahn was the official BMW agent in the Philippines.
66
Albaladejo y Cia vs PRC

Facts
Albaladejo is a corporation location in Legaspi engaged in producing copra. Later, Albaladejo and
PRC entered into a contract with PRC binding itself to buy Albaladejos copra. Further, PRC would
neither appoint any other agent to purchase copra nor buy copra from any vendor in Legaspi. The
contract also stipulated PRC would provide transportation for the copra Albaladejo collected and
deposited for shipment. The agreement was satisfactory to both parties and due to PRCs large
requirements of copra, Albaladejo established numerous agencies in various ports and places. The
agreement ended when after a few years PRC closed down its factory and withdrew from the copra
market.
After such closure, PRC gradually shipped out the copra already purchased and the accounts between
the 2 parties were liquidated. However, Albalaedjo filed suit against PRC on the ground the latter
failed to transport copra ready for shipment resulting in the copra diminishing in value.
Issue
Is PRC liable to Albaladejo for the expenses the latter incurred in keeping its organization intact to
support the formers copra requirements?
Held
No.
In this case, Albaladejo argues there was a principal-agent relationship created and PRC is liable to
indemnify it for damages incurred in carrying out the agency.
However, no such agency was created. Its undisputed PRC made Albaladejo one of its many
instrumentalities to collect copra, but its also clear that Albaladejo purchased the copra on its own
account. When Albaladejo turned the copra over to PRC, there was in effect a second sale.
Further, the mere fact PRC was prohibited from appointing any other agent in the Legaspi area during
the continuance of the agreement doesnt mean Albaladejo was considered its agent for buying copra.
This single clause in the contract cant dominate the real nature of the agreement between the parties.
Other letters PRC sent to various instrumentalities used to buy copra are also referred to as agents but
such term was simply used for the sake of convenience.
Its clear that Albaladejo was acting in its own name in buying the copra for PRC. Ownership over the
copra remained with Albaladejo until it was subsequently sold to PRC.
Simply put, this is just a case of sale.
67
De Castro vs CA
Facts
De Castro co-owns 4 lots and he, representing the other co-owners authorized respondent Artigo to
sell these lots as their real estate broker with a 5% commission. Artigo then found Times Transit
Corp, a prospective buyer who desired to buy 2 lots only. Eventually, the 2 lots were sold to Times.
Artigo received his commission worth P50 thousand.
Later, Artigo complained apparently feeling short-changed demanding he deserves more than P50
thousand as commission. He argues he was the one to first introduced Times to De Castro and
facilitated the negotiations between the 2.
However, De Castro argues Artigo was just one many agents authorized to sell the lots. True. Artigo
first introduced Times to De Castro but his 1st negotiation failed and it was other agents who
successfully brokered. the sale. De Castro simply gave Artigo the P50 thousand commission out of
gratuity. Artigo then filed suit against De Castro alone.
Issue
Should Artigos complaint be dismissed for failing to include the other co-owners in the complaint?
Held
No.
In this case, its undisputed De Castro appointed Artigo as his agent to sell the 4 lots with a 5%
commission and such authority was on a first-come first-serve basis. De Castro admits he was
authorized by the other co-owners to appoint Artigo as their agent. Further, De Castro admits the
other co-owners are solidarily liable under the contract of agency because when 2 or more persons
have appointed an agent for a common transaction, they shall be solidarily liable to the agent for the
agencys consequences. The solidarity arises from the principals common interest and not from the
act of constituting the agency. Solidarity may arise even if the principals constituted the agencies in
separate acts provided they are all for the same transaction.
However, this admission of solidarily liability actually prejudices De Castro because in a solidarily
liability, a solidary obligor isnt an indispensable party in a suit the creditor filed. The agent, Artigo in
this case, can go after any 1 of the principals.
68
Petron Corp. vs Spouses Cesar Jovero & Erma F. Cudilla

Facts
Rubin Uy operates a gas station on Property X. Rubin entered into a Retail Dealer Contract with
Petron and under the contract, Petron obliges itself to deliver petroleum products to Rubins gas
station. Pursuant to the Contract, Petron hired the Villaruzs services to deliver the products to
Rubins gas station by truck.
One faithful day, while Villaruzs truck was unloading petroleum from the trucks tank into the gas
stations underground tank, a fire started in the fill pipe and spread to the truck itself. When the fire
started, the truck driver was nowhere to be found. When the truck driver did come back, he
immediately drove the truck in reverse further spreading the fire and causing damage to the
defendants properties. Defendants then filed suit for damages against Rubin, Petron, and Villaruz.
Issue
Is Petron liable to defendants for damages the fire caused?
Held
Yes.
In this case, the accident occurred while the petroleum was being unloaded from the truck into the fill
pipe that led to the gas stations underground tank. Petron is responsible under the Retail Dealer
Contract to both supply the petroleum and deliver the same to Rubins gas station. Pursuant to this,
Petron hired Villaruz as its agent with the latter agreeing to deliver petroleum products on Petrons
behalf.
Therefore, at the time the accident occurred, Villaruz was acting as Petrons agent. As far as Rubin
was concerned, Villaruzs acts were also Petrons acts.
Now, whats the importance of establishing this agency relationship?
Importantly, Villaruz failed to rebut the presumption that he wasnt negligent in supervising his truck
driver who caused the fire damaging defendants properties. Consequently, Petron is liable as
principal for Villaruzs fault or negligence under the law on agency.
Consequently, Petron is solidarily liable with Rubin Uy for damages caused to the defendants. Both
had the responsibility to maintain the equipment used in the gas station and make sure the unloading
and storage of the petroleum products are without incident. Both were equally negligent in this
responsibility.
69
Garcia vs De Manzano
Facts
Narciso Manzano gave a general power-of-attorney to his son, Angel, on 9 Feb. and a second general
power-of-attorney to his wife, Josefa on 25 March. Narciso later died in May and Josefa was
appointed administratix of Narcisos estate.
Before Narciso died, he owned 1/2 interest in a steamer with the other half owned by Ocejo, Perez &
Co. Narciso and Ocejo had a partnership agreement and when the agreement expired, Ocejo
demanded Narciso either buy Ocejos share or sell his share. Narciso neither had funds to buy nor
wanted to sell at the price Ocejo offered. Instead, Garcia bought Ocejos interest.
Later, Angel sold Narcisos interest in the steamer to Garcia under the power-of-attorney. Angel, also
by virtue of the power-of-attorney, executed a contract with Garcia. Under the contract, Garcia agreed
to extend a credit to Narciso secured by a mortgage on some of Narcisos properties.
Afterwards, Garcia filed suit to foreclose Narcisos properties but Josefa resisted the foreclosure.
Issue
Did Josefas power-of-attorney revoke Narcisos power-of-attorney?
Held
No.
Its necessary under the law for the appointment of a new agent for the same business to revoke the
previous agency for the former agent to be notified.
In this case, theres no proof Angel even knew of Josefas second power-of-attorney. Consequently,
Angel was validly acting under the 1st power-of-attorney when he sold Narcisos share in the steamer.
70
CMS Logging vs CA
Facts
CMS Logging and Dracor entered into a contract of agency with the former appointing the latter as its
exclusive export and sales agent for all logs the former may produce for 5 years. Pursuant to the
agreement, CMS sold through Dracor logs in Japan.
Later, CMS discovered that Dracor had actually used Shinko Corp. as agent in selling the logs.
Further, Shinko received a commission from such sale of the logs. CMS claims the commission paid
to Shinko violated the agency agreement and the Shinko commission rightfully belonged to it.
Further, Dracor in effect received a double commission.
CMS then sold its logs in Japans without Dracors intervention any longer. CMS also filed suit to
recover the Shinko commission but Draco counter-sued saying its entitled to commissions when
CMS sold the logs directly without its intervention.
Issue
Is Dracor entitled to its commission from sales CMS made to Japan directly without the formers
intervention?
Held
No.
The principal can revoke the agency at will, either expressly or impliedly. The revocation may be
made even if the contract of agency hasnt expired yet. The agent cant object to such revocation and
he cant claim damages arising from such revocation unless it was done to evade the payment of the
agents commission.
In this case, it is undisputed Dracor is CMS agent in selling logs to Japan. Further, Dracor admits
CMS sold logs directly to Japanese firms without the formers intervention. Such constituted an
implied revocation of the agency. An agency is revoked if the principal directly manages the business
entrusted to the agent, dealing directly with 3rd persons.
Consequently, CMS revoked Dracors agency and the latter is no longer entitled to commission for
the sale. Dracor cant even claim damages because the case doesnt fall under the exception, evading
paying the agents commission.
71
Dy Buncio and Co. vs Ong Guan Ca

Facts
This is a suit over a rice mill and camarin. Buncio claims the property belongs to its judgement
debtor, Ong Guan. While defendants Tong and Eng claims as owner and lessee respectively the
property through a deed from Ong Guan Jr.
The deed states Ong Guan Jr, as Ong Guans agent through a power-of-attorney dated 1928, sold the
property to defendants.
Issue
Did Ong Guan Jr validly sell the property?
Held
No.
In this case, the power of attorney referred to in this case isnt a general power of attorney but a
limited one, and doesnt give the express power to alienate the property in question.
Further, the previous power-of-attorney dated 1920 given to Ong Guan Jr. was revoked by the 1928
power-of-attorney. The making and accepting of a new power of attorney, whether it enlarges or
decreases the agents power under a previous power-of-attorney, revokes the latter when the 2 are
inconsistent.
Consequently, Ong Guan never lost his property and are subject to attachment and execution.
72
Republic vs Evangelista
Facts
Respondent Legaspi owns Property X. Later, the RP entered into a MOA with a certain Reyes. the
MOA granted Retes a permit to hunt for treasure in Property X. Reyes then started digging, tunneling,
and blasting on Property X.
Legaspi then executed an SPA appointing respondent Gutierrez as his attorney-in-fact. The SPA gave
Gutierrez the power to deal with the treasure-hunting activities on Property X and to file suit against
those who enter the same without authority. Further, Gutierrezs compensation is 40% of the treasure
on Property X.
Afterwards, Gutierrez filed suit against petitioners and hired the legal services of Atty. Adaza. Atty.
Adazas compensation is 30% of Legaspis share in the treasure on Property X. However, Legaspi
unilaterally executed a Deed of Revocation.
Issue
Has Legaspi revoked the contract of agency between him and Gutierrez?
Held
No.
General rule:
An agency can be revoked at the sole will of the principal
Exception:
1. A bilateral contract depends upon the agency
2. Means of fulfilling...
3. A partner is appointed...
In this case, the agency contract between Legaspi and Gutierrez is coupled with interest as a bilateral
contract depends on it. Here, Gutierrez and Azada have an interest in the agencys subject matter,
namely the treasure on Property X.
When an agency is constituted as a clause in a bilateral contract, that is when the agency is inserted in
another agreement, the agency follows the conditions of the bilateral agreement.
Consequently, Legaspis unilateral revocation of the agency is ineffective.
73
Sevilla vs CA
Facts
Respondent Noguera and Tourist World Service entered into a contract with the former leasing her
property to the latter. Petitioner Sevilla bound her solidarily liable for the payment of monthly rentals.
Shel also ran the office in the leased premises and she received a commission for every ticket she
sold.
Later, Tourist World was informed that Sevilla was connected to a rival company and because
Sevillas brach was losing, it considered closing down its office. Tourist World then terminated the
lease contract and padlocked the premises. Sevilla, unable to enter the locked premises, filed suit
against petitioners.
Issue
What is the relationship between Sevilla and Tourist World?
Held
Agency.
In this case, Sevilla solicited airline fares on Tourist Worlds behalf, her principal. And as
compensation, Sevilla received a commission for every ticket she sold. Sevilla herself concedes the
principals authority as owner of the business undertaking.
However, the agency in this case cant be revoked at the principals will. The agency here is coupled
with interest, it having been created for mutual interest of the agent and principal. Sevilla is a bona
fide travel agent and as such, acquired an interest in the business entrusted to her. Moreover, she
assumed a personal obligation for the operation thereof, holding herself solidarily liable to pay rentals.
Her interest isnt the commissions she earned as a result of the business transactions, but one that
extends to the very subject matter of the power of management delegated to her.
Further, Tourist World itself padlocked the premises and deprived Sevilla of her business maliciously.
Tourist World performed these acts after learning Sevilla allegedly was moonlighting for a rival firm.
Consequently, there was an unwarranted revocation of the agency and Sevilla is entitled to damages.
74
Valenzuela vs CA
Facts
Valenzuela is a general agent of respondent Philamgen. As such, Valenzuela was authorized to solicit
and sell in Philamgen behalf insurance and in return was entitled to receive commission. Valenzuela
solicited insurance from Delta Motors for which he was entitled to commission. However, Valenzuela
didnt receive his full commission and also those for the following years.
Later, Philamgen wanted to share in Valenzuelas commission on a 50-50 basis but Valenzuela
refused. Because of Valenzuelas refusal, Philamgen cancelled his General Agency Agreement.
Valenzuela then filed suit.
Issue
Can Philamgen unilaterally revoke the agency with Valenzuela?
Held
No.
In this case, the evidence shows Philamgen terminated the agency because Valenzuela refused to
share his Delta commission. Further, the agency involved here is one coupled with interest and
therefore not revocable at the principals will.
Here, Valenzuela was able to build up his Agency from scratch to a highly productive enterprise in
over 13 years of work. With the agencys termination, Philamgen appropriated for itself the entirety
of Valenzuelas insurance business. Valenzuela would no longer receive commission on the renewal
of insurance policies of clients sourced from him. Further, Valenzuela continues to be solidarily liable
with the insured for unpaid premiums even with the agencys termination. Clearly, Valenzuela has an
interest in the agencys continuation.
Further, Philamgen is liable for damages to Valenzuela because the agencys termination was tainted
with bad faith. The principal who acts in bad faith and with abuse of right in terminating an agency is
liable for damages.
75
National Sugar Trading vs PNB

Doctrine
Also, the relationship between NASUTRA/SRA and PNB when the former constituted the latter as its
attorney-in-fact is not a simple agency. NASUTRA/SRA has assigned and practically surrendered its
rights in favor of PNB for a substantial consideration. To reiterate, NASUTRA/SRA executed
promissory notes in favor of PNB every time it availed of the credit line. The agency established
between the parties is one coupled with interest that cannot be revoked or cancelled at will by any of
the parties.
76
Ching vs Bantolo
Facts
Bantolo owns Property X and he executed in Chings favor an SPA authorizing the latter to obtain a
loan using Property X as collateral. Later and without notice to Ching, Bantolo executed a revocation
of power of attorney effective at the end of business hours, July 17. On July 18, PVB approved
Chings loan application and Ching later informed Bantolo of the loans approval.
Later, Ching learned of the SPAs revocation and demanded Bantolo annul the SPAs revocation, but
Bantolo refused. Ching then filed suit to do just that.
Issue
Is the agency one coupled with interest?
Held
Yes.
In this case, its undisputed the contract of agency is one coupled with interest because the bilateral
contract depends on the agency. Ching agreed to defray the costs and expenses involved in processing
the loan because Bantolo promised Ching would have an equal share of the proceeds of the loan or the
subject properties.
Further, Ching isnt entitled to exemplary damages because although the agency was revoked in bad
faith, Bantolo didnt act in a wanton, fraudulent, reckless, oppressive, or malevolent manner. The SPA
was revoked because Bantolo wasnt satisfied with the amount of the loan approved.
77
Bacaling vs Muya
Facts
Bacaling owns Property X. Later, Bacaling took out a loan from GSIS secured by Property X.
However, Bacaling failed to pay the amortizations on the loan and GSIS foreclosed Property X. Later,
a judicial decision restored Bacaling ownership of Property X.
In the meantime, Muya took advantage of the problematic peace and order situation during martial
law and the fiasco with GSIS to occupy Property X. Later, petitioner Tong bought Property X from
Bacaling. To secure the performance of the contract of sale and facilitate transfer of title to Tong,
Bacaling appointed Tong as her attorney-in-fact under an irrevocable SPA.
Tong then filed suit against Muya. During pendency of the case, Bacaling revoked the SPA in Tongs
favor.
Issue
Can Bacaling unilaterally revoke the SPA in Tiongs favor?
Held
No.
In this case, Bacaling cant revoke at her pleasure the irrevocable SPA duly executed in Tongs favor.
The agency is one coupled with interest because the agency was constituted with a view to completing
the contract of sale over Property X; a sale with Tong as buyer and Bacaling as seller. Its for this
reason the agencys mandate constituted Tong as the real party in interest to remove all clouds on
Bacalings title and once that is resolved, to use the SPA to ultimately transfer Property X and all
pertinent documents to Tong.
Here, the fiduciary relationship inherent in ordinary contracts of agency is replaced by material
consideration and with this replacement the principal is barred from unilaterally revoking the agency.
Further, Bacalings allegation of fraud in the agencys performance to justify its revocation is
insufficient. Fraud must be proven and mere allegations arent enough, and such proof requires the
courts intervention. Bacaling cant vest in herself, like in ordinary contracts, the unilateral authority
to determine if theres sufficient ground to rescind the SPA.
78
Coleongco vs Claparols
Facts
Claparols operated a nail factory and he imported raw material from abroad to produce the nails.
Later, due to financial difficulty, he needed to find someone to finance the import of his raw
materials. He found Kho To who in turn introduced him to Coleongco. Coleongco agreed to finance
the funds for importation. Later, Claparols executed an SPA in Coleongcos favor at the latters
insistence.
Afterwards, Claparols was surprised when the PNB served upon him a writ of execution to enforce
judgement, despite the fact he settled his account with the latter. Claparols then learned the executed
was procured because of derogatory information Coleongco sent to PNB without his knowledge.
Further investigation revealed Coleongco was in connivance with Kho To to swindle Claparols, and
possible take his factory.
Fortunately, Claparols managed to settle the matter with PNB. Enraged, he revoked the SPA in
Coleongcos favor and demanded a full accounting at the same time. Coleongco protested and filed
suit against Claparols.
Issue
Can Claparols revoke the SPA in Coleongcos favor?
Held
Yes.
Granting arguendo the SPA in Coleongcos favor is one coupled with interest, the same simply means
Claparols cant revoke the same at his pleasure. However, coupled with interest or not, such agency
can be revoked for just cause, such as when the agent betrays the principals interest, as in this case.
An irrevocable SPA cant be used as a shield to perpetrate the agents fraudulent acts and betrayal of
trust.
Here, the evidence clearly shows Coleongco sabotaged Claparols with the ultimate goal of owning the
latters factory. Coleongco secretly diverted funds to his personal benefit, sold equipment without
Claparols knowledge, and sent letters to PNB to undermine Claparols credit.
79
Lustan vs CA
Facts
Lustan owns Property X and he leased the same to respondent Parangan. During the lease, Parangan
regularly extended small loans to Lustan. Later, Lustan executed in Parangans favor an SPA to
secure loans from PNB with Property X as collateral. Again Lustan executed another SPA by virtue
of which Parangan secured 4 additional loans. The last 3 were without Lustans knowledge and
Parangan used them to his benefit.
Lustan then entered into a deed of pacto de retro in Parangans favor over Property X. The deed was
superseded by a deed of definite sale that Lustan signed on Parangans representation the same was
merely evidences for the loans the latter extended to the former.
Lustan, fearing Property X may be prejudiced with Parangans continued borrowing, demanded its
return but Parangan refused. Lustan filed suit, hence this case.
Issue
Can the mortgage on Property X be enforced against Lustan?
Held
Yes.
An SPA is a continuing one and absent a valid revocation duly furnished to the 3rd person, the same
continues to have force and effect as against the 3rd persons who had no knowledge of such lack of
authority.
The SPA Lustan executed in Parangans favor clothed the latter with authority to deal with PNB on
the formers behalf. In the absence of proof PNB knew the last 3 loans were without Lustans express
authority, it cant be prejudiced thereby. As far as 3rd persons are concerned, an act is deemed to have
been performed within the scope of the agents authority if such authority is within the power-ofattorney as written, even if the agent did in fact exceed his authority.
80
Perez vs PNB
Facts
Vicente Perez owns Property X that was mortgaged to PNB to secure the formers loan. Later,
Vicente died and his estate was distributed accordingly. Later, Vicentes widow inquired from PNB
the status of her husbands account. The widow discovered of the outstanding mortgage and loan.
Pursuant to the mortgage, PNB foreclosed Property X and a new title was issued in PNBs name.
Later, the petitioners, heirs of Perez, filed suit against PNB to annul the foreclosure.
Issue
Is PNB barred from foreclosing Property X?
Held
No.
The argument that agency is extinguished by the principals death neglects to take into account the
fact the power to foreclose isnt an ordinary agency that contemplates exclusively the representation
of the principal by the agent. Rather, its primarily an authority conferred upon the mortgagee for the
latters own protection. In fact, its an ancillary stipulation supported by the same consideration for
the mortgage and forms an essential part of the bilateral agreement. The mortgagees power to
foreclose survived the mortgages death.
81
Terrado vs CA
Doctrine
The contract of management and administration between the Municipality and Lacuesta is one of
agency. In this case, Lacuesta bound himself as Manager-Administrator to render service in the
Municipalitys behalf. Consequently, Lacuestas death completely changes the legal controversy in
the instant case. Agency is extinguished by the agents death and his rights and obligations arising
from the contract are non-transmissible to his heirs.
82
Morales vs CA
Facts
Celso Avelino purchased Property X from Mendiola and Bartolome. Celso had tax declarations issued
in his name for Property X and built his residential house on it. He then took in his parents, Rosendo
and Juana, along with his sister, Aurea.
Celsos Niece, Morales, built a beauty parlor on Property X without Celsos knowledge. Later, Celso
sold Property X to respondent Sps. Ortiz. The Sps. Ortiz demanded Morales vacate Property X but the
latter refused demanding in turn reimbursement for the beauty parlor. Despite repeated demands,
Morales refused to vacate and so the Sps. Ortiz filed suit.
Issue
Was there an implied trust with Celso as trustor and Rosendo as beneficiary?
Held
No.
A trust is the legal relationship between 1 person having an equitable ownership in property and
another person owning the legal title to such property. The characteristics of a trust are
1. Its a relationship
2. Of fiduciary character
3. With respect to property, not one involving merely personal duties
4. Involving the existence of equitable duties imposed upon the holder of title to the property to
deal with it for anothers benefit
5. Arises as a result of a manifestation of intention to create the relationship.
A trust can be either express or implied. Express means created by the parties intention while Implied
means by operation of law. In turn, implied trusts are either resulting or constructive trusts. Resulting
trust is based on the equitable doctrine that valuable consideration and not legal title determines the
equitable title and the parties are presumed to always contemplate it. Meanwhile, constructive trusts
are created in order to satisfy the demands of justice and prevent unjust enrichment.
An example of implied trust is Art. 1448 Civil Code, also called purchase money resulting trust. It has
2 requisites namely
1. Actual payment or valuable consideration
2. Furnished by the alleged beneficiary of a resulting trust.
The 2 exceptions to establishing an implied trust here are
1. If title was vested in the child of the person paying the purchase price, a gift is presumed
2. The actual contrary intention is proved.
Here, Morales alleges Rosendo owned the purchase money and requested his son, Celso, to buy it in
trust for him. However, title was vested in Celso and this situations falls under the exception in Art.
1448 where title is conveyed to a child of the one paying the purchase price. Consequently, law
implies no trust.
Further, Celso treated the property as his exclusive property paying taxes on it and building his house
there. Also, the alleged trustee, Rosendo, never even demanded Celso return Property X and Celsos
siblings never demanded Property X be partitioned after Rosendo died. These omissions clearly show
Celsos family considered Celso as the absolute owner of Property X.
83
Penalber vs Ramos
Facts
This case involves 2 causes of actions but the Trust issue is discussed only in the 2nd cause of action
2nd cause of action
Penalber claims that for many years prior to 1984, she operated a hardware store in a building she
owned. Maria owned the lot on which the building stood, which Penalber rented. Later, Penalber
allowed Ramos to manage the hardware store. Afterwards, Maria put the lot for sale but Penalber
didnt have enough cash to buy the lot. Penalber then entered into a verbal agreement with Ramos
with the following terms:
1. Ramos would buy the lot in Penalbers behalf
2. Ramos would pay the purchase price using the hardware stores earnings
3. Ramos would appear as the buyer in the deed of sale and use the title issued in his name to
secure a loan to expand the hardware stores business
In accordance with the agreement, Ramos entered into a contract of sale with Mendoza over the lot.
Later, Penalber demanded Ramos reconvey the title to the lot to her but Ramos refused.
Issue
Was there a trust agreement between Penalber and Ramos?
Held
No.
A trust is defined as the right, enforceable solely in equity to the beneficial enjoyment of property, the
legal title of which is vested in another. A person who establishes a trust is called the trustor, the
person in whom confidence is reposed as trustee, and the person for whose benefit the trust has been
created the beneficiary.
Generally, no particular words are required to create an express trust, it being sufficient that a trust is
clearly intended. However, Art. 1443 declares that an express trust involving immovables or any
interest therein may not be proved by parol evidence. Art. 1443 requires the express trust to be in
writing for purposes of proof, and not for the trust agreements validity. The article is in the nature of
a statute of frauds and goes into the contracts enforceability.
Here, the alleged verbal trust agreement between Penalber and Ramos is an express trust. Generally,
Penalbers testimony shouldve been declared inadmissible being parol evidence. However, Ramos
waived his objection to the parol evidence in failing to timely object during trial.
Nevertheless, while Penalbers parol testimony is admissible, its weight as evidence is still subject to
judicial evaluation. Here, such parol evidence carries little weight in proving the alleged verbal trust
agreement. Penalber failed to prove that Ramos indeed used the earnings from the hardware store to
purchase the lot from Maria.
84
Torbela vs Spouses Rosario

Facts
Torbela owns a lot that he inherited from his parents upon their death. Later, Torbela executed a Deed
of Absolute Quitclaim (DAQ) in Rosarios favor and a Torrens title was issued in Rosarios name.
Later, Rosario executed a 2nd DAQ acknowledging he only borrowed the lot from Torbela and was
returning the same.
Meanwhile, Rosario successfully obtained a loan from DBP secured by a mortgage on the lot, the
proceeds of which he used to build a hospital on the lot. Later, Rosario acquired a 2nd and 3rd loan
from PNB and Banco Filipino respectively secured by a mortgage on the lot as well. Rosario failed to
pay the 3rd loan and Banco Filipino extrajudicially foreclosed the lot and subsequently acquired it in
the ensuing public auction.
During this time, Torbela filed suit to recover the lot from Rosario as the Torrens title was still in the
latters name.
Issue
Was there an express trust between Torbela and Dr. Rosario?
Held
Yes.
There was an implied trust under Art. 1451 CC created when Torbela executed a DAQ over the lot in
Rosarios favor. Such transfer being only to accommodate Rosario and allow him to use the lot to
secure a loan from DBP. The proceeds of the loan are to be used to build a hospital on the lot. The
implied trust was later converted into an express trust when Rosario executed another DAQ expressly
acknowledging that he only borrowed the lot from Torbela and was returning the same.
A trust may be implied in the beginning, but the trustees subsequent express acknowledgement of the
trust converts the same into an express trust. Here, the implied trust under the 1st DAQ was
subsequently converted into an express trust under the 2nd DAQ. The express trust continued despite
Rosarios declaration in the 2nd DAQ that he was returning the lot to Torbela because the lots
Torrent title remained registered under his name.
Next, Torbelas right to recover the lots hasnt prescribed because an unrepudiated written express
trust is imprescriptible. The 10-year prescriptive period which bars a trustors action to recover in an
express trust applies only when the trustee repudiated the trust, such repudiation is known to the
trustor, and the evidence is clear and convincing.
Here, Rosarios mere registration of the lot in his name under a Torrens title doesnt amount to
repudiation of the trust. The repudiation of the express trust occurred when Rosario applied for a 2nd
loan from PNB and mortgaged the lot as security without Torbelas knowledge. However, the 10-year
prescriptive period started only from the time the loan and mortgage was annotated on the Torrens
title because only then can it be said Torbela had knowledge of the repudiation. Such annotation
happened in 1981 while Torbelas suit was instituted in 1986. Only 5 years have lapsed and therefore
the action isnt barred by prescription.
85
Julio vs Dalandan
Facts
Clemente, Dalandans deceased father, executed an affidavit stating the following:
1. Clemente acknowledges that Land X, belonging to Victoria, was made security for an
obligation that Clemente failed to fulfill. As a result, Land X was foreclosed.
2. As restitution, Clemente holds himself liable to Victoria and will replace Land X with another
piece of land.
3. However, Victoria cant demand neither the fruits nor possession of Land Y immediately.
At the time Clemente executed the affidavit, he only possessed Land Y that Dalandan inherited. Julio,
Victorias heir, demanded delivery of Land Y but Dalandan refused arguing possession cant be
demanded immediately according to Clementes affidavit. Julio required Dalandan to fix a date for
delivery but Dalandan refused. Julio then filed suit to claim Land Y.
Issue
Was there a trust created between Clemente and Victoria?
Held
Yes.
The affidavit Clemente executed conveys the idea that naked ownership over Land Y was transferred
to Victoria. This is based on the affidavits provisions declaring the fruits and possession as not
immediately demandable. In effect, Clemente was made usufructuary over Land Y and in turn
Dalandan inherited only Clementes usufructuary rights.
Further, the affidavit itself creates the express trust. True, the deed didnt in definitive words institute
Dalandan as trustee, but a duty was imposed upon him to turn over both fruits and possession of the
property to Victoria when the time comes. No particular words are necessary to create an express
trust, its sufficient that a trust is clearly intended.
Next, the mere fact the affidavit itself doesnt clearly refer to Land Y doesnt prejudice Julio. Insofar
as the lands identity involved in a trust is concerned, writings are to be considered in their settings
and parol evidence is admissible to clarify the terms of a trust established by writing. Here, Julio
clarified the affidavit by declaring that at the time it was executed, Clementes only property was
Land Y.
86
Canezo vs Rojas
Facts
Canezo alleges she bought Land X from Crisogono, although the transaction wasnt reduced into
writing. Afterwards, Canezo took possession of Land X. Canezo entrusted Property X to her father,
Crispulo, who took possession of the same and cultivates it. About 40 years later, Canezo found out
that Roxas, her stepmother, possessed Land X and tax declarations over it were already in Crispulos
name. Canezo then filed suit to recover Land X.
Issue
Was there an express trust between Canezo and Crispulo?
Held
No.
For a trust relationship to be created the following elements must be proved:
1. A trustor who executed the instrument creating the trust
2. A trustee, who is the person expressly designated to carry out the trust
3. The trust res, consisting of duly identified and definite real properties
4. The cestui que trust, or beneficiaries whose identity must be clear
An express trust concerning real property cant be established by parol evidence. It must be proven by
some writing or deed. Here, the only evidence to support the existence of an express trust between
Canezo and Crispulo is Canezos self-serving testimony.
Further, an intention to create a trust cant be inferred from Canezos testimony and the attending
facts and circumstances. Canezo testified her agreement with Crispulo was Canezo will be given a
share in the produce of Land X. This allegation, standing alone, is inadequate to establish the
existence of a trust because profit sharing per se doesnt necessarily translate to a trust relation.
What distinguishes a trust from other relations is legal title is vested in the trustee while equitable
ownership in the beneficiaries. Here, Canezo made much of the fact that the tax declaration was in
Crispulos name. If Canezo truly did intend to create a trust this shouldnt have been an issue because
its expected for such tax declaration to be in Crispulos name in a trust relationship.
Further, even if a trust was indeed created, the same ceased upon Crispulos death. And when Land X
was transferred to Rojas, the latter had no right to retain the same and hence a constructive trust was
created. But in a constructive trust, prescription may supervene even if the trustee doesnt repudiate
the trust relationship because such trust isnt based on a fiduciary relationship and the holding of the
thing object of the trust is always adverse.
87
PNB vs Aznar
Facts
RISCO ceased operations due to business reverses. Aznar, RISCO stockholder and desiring to
rehabilitate RISCO, contributed P212 thousand to it so the latter can purchase 3 parcels of land
(Lands). Titles over the Lands were issued in RISCOs name with Aznars contribution annotated as
liens and encumbrances on the Titles over the Lands. The annotations were made pursuant to the
Minutes of the RISCO Board of Directors meetings. Afterwards, various subsequent annotations were
made on the titles, including a Notice of Attachment and Writ of Execution, in PNBs favor.
Consequently, the Lands were sold in auction with PNB as the highest bidder. Titles over the Lands
were then issued in PNBs name. This caused Aznar to file suit to recover the Lands arguing PNBs
subsequent annotations are subject to his prior annotation.
Issue
Was there an express trust between Aznar and RISCO?
Held
No.
Here, the Minutes of the meeting doesnt offer any indication the parties intended Aznar to be a
beneficiary under an express trust and RISCO to serve as trustor. The creation of an express trust must
be manifested with reasonable certainty and cant be inferred from loose and vague declarations or
from ambiguous circumstances susceptible of other interpretations.
Aznars contribution is actually just a loan to RISCO and the annotations on the Titles serve only as
collateral and doesnt in any way vest ownership over the Lands to Aznar.
88
Heirs of Tranquilino Labiste vs Heirs of Jose Labiste

Facts
In 1919, the late Epifanio Labiste, on his own and on his siblings behalf, who were the heirs of Jose
Labiste, purchased Land X from the Bureau of Lands. The Bureau executed a Deed of Conveyance
ceding Land X to Epifanio and Heirs of Jose.
After full payment of the purchase price but prior to issuing the Deed of Conveyance, Epifanio
executed an affidavit affirming that he, as one of the Heirs of Jose, and Tranquilino Labiste, co-owned
Land X because the money paid came from the both of them. Tranquilino and the Heirs of Jose
continued to hold Land X jointly.
When WWII broke out, the Heirs of Tranquilino left Land X and the pertinent records of Land X
destroyed. In 1993, the Heirs of Jose then filed a petition to reconstitute title over Land X only in their
name that the Heirs of Tranquilino opposed. Both parties arrived at a compromise agreement and title
was issued in the name of the Heirs of Jose. However, the Heirs of Jose reneged on the compromise
agreement causing the Heirs of Tranquilino to file suit.
Issue
Was there an express trust?
Held
Yes.
Here, Epifanios affidavit is in the nature of a trust agreement. Epifanio affirmed that he, as one of the
Heirs of Jose, together with Tranquilino co-owned Land X. Consequently, prescription and laches will
run only from the time the express trust was repudiated.
The Heirs of Jose cant rely on the fact a Torrents title was issued in Epifanios name and the other
Heirs of Jose. A trustee who obtains a Torrents title over the property held in trust cant repudiate the
trust by relying on the registration. There must be a clear repudiation of the trust duly communicated
to the beneficiary. The only act that can be construed as repudiation of the trust is when the Heirs of
Jose filed a petition to reconstitute the Torrens title. The petition was filed in 1993 and the instant
complaint failed in 1995, clearly the action hasnt prescribed yet.
89
Pacheco vs Arro
Facts
Arro filed an answer in a cadastral case claiming certain lots as his property and began to present
evidence for that purpose. However, Yulo declared in open court that he promises to convey the lots
Arro is claiming to Arro. Relying on this promise, Arro withdrew his claim and the cadastral court
confirmed Title to the lots in Yulos name.
This instant case involves Pacheco, as guardian of the Heirs of Yulo, challenging the CA decision
ordering him to execute deeds of assignment for the lands Arro claimed in the cadastral case.
Issue
Was there an express trust between Yulo and Arro?
Held
Yes.
Here, when Arro withdrew his claim to Land X in the cadastral case relying upon Yulos promise, a
trust or fiduciary relationship was created.
The trustee cant invoke the statute of limitations to bar the action and defeat the right of the
beneficiary. Pachecos argument that Yulos promise cant prevail over the cadastral courts final
decree declaring the Heirs of Yulo as the owners of Land X cant be sustained because it would
prevent Arro from claiming his rightful share to Land X.
90
Goyanko vs UCPB
Facts
Goyanko invested P2 million with Philippine Asia Lending Investors Inc. Later, Goyankos family
and illegitimate family presented conflicting claims to Asia Lending for the investments release.
Pending investigation of the conflicting claims, Asian Lending deposited the investment with UCPB
under the name Phil Asia: In Trust For the Heirs of Goyanko.
Afterwards, UCPB allowed Asia Lending to withdraw the investment. Petitioner demanded UCPB
restore the amount plus interest but the latter refused.
Issue
Is UCPB liable for the amount withdrawn because a trust agreement existed between Asia Lending
and UCBP, in favor of the Heirs of Goyanko?
Held
No.
An express trust requires the following namely:
1. A competent trustor and trustee
2. An ascertainable trust res
3. Sufficiently certain beneficiaries.
Even if any one of them is missing, its fatal to the trust. Further, there must be a present and
complete disposition of the trust property, notwithstanding the beneficiarys enjoyment will take place
in the future. There must also be some power of administration other than a mere duty to perform a
contract although the contract is for a 3rd party beneficiary. A declaration of terms is essential and
these must be stated with reasonable certainty in order that the trustee may administer.
Here, there was no express trust created between UCBP and Asia Lending in favor of Goyankos
heirs. First, while an ascertainable trust res and sufficiently certain beneficiaries exist, a competent
trustor and trustee dont. Second, UCPB, as the accounts trustee, was never under any equitable duty
to administer the account. Third, Asia Lending, as trustor, didnt have the right to the accounts
beneficial enjoyment. Finally, the terms by which UCPB is to administer the account isnt shown with
reasonable certainty.
Next, the evidence shows UCPB was merely a depository and the account a mere ordinary savings
account. The mere fact the account used the words in trust for didnt immediately convert the
account into a trust. Further, the mere act of opening an account with a bank doesnt create a trust
relationship between the depositor and bank. The relationship created is only one of simple loan with
the bank required to exercise extraordinary diligence in performing the loan.
Consequently, UCBP was merely performing its contractual obligation under the simple loan in
allowing Asia Lending to withdraw from the account.
91
Petrona Gamboa vs Modesto Gamboa

Facts
Juan Gamboa sold the disputed properties under a contract of sale with pacto de retro for 2 years to a
certain Felipe. The vendors however remained in possession of the properties as Felipes tenants. The
redemption period expired and title was consolidated in Felipe.
Later, Felipe conveyed the properties to the sisters Feliciana and Modesta Gamboa. Feliciana and
Modesta then entered into a written partition of the properties. Petrona intervened in the partition
claiming to be co-owners with Modesta and Feliciana.
Issue
Was there a trust between the Sister Gamboa and Felipe?
Held
No.
Here, Petronas argument that the sale between the Sisters Gamboa and Javier was actually a
redemption of the earlier sale between Juan Gamboa and Felipe is untenable. The 2nd sale is an
unconditional transfer of title to the Sisters. If the Sisters were actually purchasing the properties in a
trust character, such agreement may have been enforced, but the nature by which the Sisters held the
properties refute the trust theory. The Sisters held the property in the concept of an owner and
exercised all the rights of ownership.
92
Alejandro Ty vs Sylvia Ty
Facts
Alexander Ty died and was survived by his wife and daughter, Sylvia and Krizia respectively. Sylvia
then filed a petition to settle Alexanders intestate estate. Alexanders estate contained the following
real estate properties:
1. EDSA property
2. Meridien Property
3. Wack-Wack property.
Later, Sylvia asked the intestate Court to sell or mortgage the estates properties to pay the estate
taxes.
However, this action didnt sit well with her father-in-law, Alejandro, because he filed suit to recover
the properties. Alejandro alleges that he was the one who provided the purchase money and simply
placed the Titles in Alexanders name so in case Alejandro dies, Alexander can divide the properties
among his siblings. Simply put, Alejandro alleges a trust was created between him and Alexander.
Issue
Was there a trust between Alejandro and Alexander?
Held
No.
Here, no express trust can be invoked because nothing in writing was presented to prove such trust
and the case involves real property. Art. 1448 cant apply to save Alejandro because the very same
article provides for an exception if the Titleholder is the child of the person paying the purchase price.
Consequently, even assuming Alejandro truly paid the purchase price, the law only presumes a gift in
Alexanders favor.
EDSA Property
Applying Art. 1448 of the CC, there can be no implied trust presumed because the person to whom
Title was conveyed is the child of the person paying the purchase price. Instead of an implied trust,
the law presumes a gift in the childs favor.
Meridien Condominium and Wack-Wack property
Theres no implied trust because theres no evidence to show Alejandro paid part of the purchase
price. Instead, evidence shows that Alexander had the means to pay for the properties.
93
Tan Sen Guan and Co. vs Phil Trust Co

Facts
Tan Sen Guan secured a money judgement against Mindoro Sugar Co. Phil Trust is a trustee of
Mindoro Sugar. In accordance with an agreement, Tan Sen agreed to assign the money judgement
against Mindoro Sugar to Phil Trust for valuable consideration. Valuable consideration being if ever
Mindoro Sugar is sold Phil Trust will pay Tan Sen a sum certain in money.
Later, Mindoro Sugar and all its properties was sold at public auction. Tan Sen then demanded
payment in accordance with the agreement but Phil Trust refused.
Issue
Who is liable for the contract? Phil Trust or Mindoro Sugar?
Held
Phil Trust.
Here, the condition in the agreement between Tan Sen and phil Trust happened because all the
properties of Mindoro Sugar were already sold at public auction.
Next, while the Deed of Trust between Mindoro Sugar and Phil Trust referred to Phil Trust as trustee,
nowhere in the said deed was any authority given to Phil Trust to enter into a contract with Tan Sen.
Phil Trust held legal title to Mindoro Sugars properties to protect the bond holders. Consequently,
Phil Trust wasnt authorized to manage Mindoro Sugars affairs or enter into contracts on its behalf.
Further, even if the Deed of Trust authorized Phil Trust to enter into a contract with Tan Sen, Phil
Trust would still be solely responsible for the contract as there is no stipulation that the trustor, and
not the trustee, should be held liable for the contract.
94
Government vs Abadilla
Facts
Luis Palad owns Land X. He executed a holographic will and later died without any descendants,
leaving only his widow Dorotea Lopez. Luis also has collateral heirs namely Leopoldo and
Policarpio. His will contains a clause which provides that when Dorotea dies or remarries, Land X
will be donated to the Secondary College to be erected in Tayabas and for this purpose delivered to
the Ayuntamiento or the Civil Governor of the province.
Later, Doroteo remarried and the collateral heirs demanded Land X be partitioned arguing her 2nd
marriage terminated her right to Land X. In the same action, the Municipality intervened claiming
Land X pursuant to Luis will. During the action, the parties reached an agreement where the
Municipality would inherit part of Land X while the remainder would be left with Doroteo. Such
partition however is without prejudice to the collateral heirs to bring another action. Pursuant to this
agreement, the court dismissed the action.
Issue
Was there an effective trust created in the will?
Held
Yes.
In private trust, it isnt always necessary for be beneficiary to be named, or even exist at the time the
trust is created in his favor.
Here, its argued there are no trustee and beneficiary because theres no Ayuntamiento, Civil
Governor, or even the purported Secondary College. An Ayuntamiento is the equivalent of a
municipal corporation and it can be conceded that theres no such equivalent in the Philippines.
However, the Provincial Governor can be considered the equivalent of the Civil Governor being the
legal successor of the latter.
Next, even if the purported Secondary College hasnt been created yet, the same isnt fatal to the trust
because a beneficiary doesnt need to actually exist at the time the trust is created.
95
Paulina Cristobal vs Gomez

Facts
Epifanio Cristobal owns Land X. In dire financial straits, Epifanio decided to sell Land X to Yangco
under a contract of sale with right of repurchase.
Later, Epifanio wanted to redeem Land X but he didnt have any money so he approached Bibiano for
a loan. Bibiano refused unless Epifanio manages to get the latters brother and sister to act as
guarantors of the loan. Epifanios brother and sister, Marcelino and Telesfora respectively, agreed but
on the condition the Title to Land X should be placed in their names. Bibianio granted the loan and
Epifanio was able to redeem Land X albeit not in his name. Marcelino and Telesfora executed a
private partnership in participation agreement (Agreement) to share the cost of the loan. The
Agreement required Marcelino and Telesfora to return Land X to Epifanio once the capital employed
shall have been covered.
Later, Telesfora decided to convey her claim to land X to Marcelino in exchange for Marcelino
assuming her obligation under the loan to Bibiano. Marcelino agreed and around this time he entered
into an equitable mortgage over Land X with Bibiano to secure the loan used to buy Land X from
Yangco. Afterwards, Marcelino was able to pay the loan and Land X was now free from
encumbrances.
Later, Paulina, Epifanios her, then filed suit to recover Land X.
Issue
Can Paulina, Epifanios heir, recover Land X?
Held
Yes.
A person who, before consolidation of the property in the purchase under a contract of sale with a
right to repurchase, agrees with the vendors to buy the property and administer it till all debts
constituting an encumbrance thereon shall be paid, after which the property shall be returned to the
original owner, is bound by such agreement, and upon buying the property under these circumstances,
the buyer in effect becomes a trustee.
Here, the Agreement between the parties effectively created a trust for the purpose of rescuing Land
X. Now the purpose has been accomplished, the property should be returned to Epifanios heirs
pursuant to the agreement. Further, Telesforas abdication from the Agreement didnt destroy the trust
but merely clothe Marcelino alone with the obligation of returning Land X to Epifanio.3
Also, the Agreement stipulates as a condition for returning Land X that Epifanio must exhibit good
behavior. However, Epifanios alleged bad behaviour during the trust cant be taken against him
because Marcelino never took any steps to defeat Epifanios rights to the trust on account of his bad
behaviour.
Prescription also wont run in Marcelinos favor because he didnt hold it in the concept on an
adverse owner. He held it merely in the concept of a trustee and prescription cant run in such
capacity.
This is an Express Trust due to the Agreement, with Marcelino and Telesfora expressly recognizing their
obligation to return Land X.
96
DBP vs COA
Facts
DBP created the DBP Gratuity Plan that provides for a retirement fund to cover the benefits due to
DBP retiring officials. Later, a Trust Indenture was entered into between DBP and the Board of
Trustees of the Gratuity Plan Fund, vesting in the latter the administration of the fund. The trustee
then appointed the DBP Trust Services Department (TSD) as investment manager through an
investment manager agreement (Agreement).
The DBP then established a Special Loan Program (SLP) availed thru the DBP Provident Fund and
Gratuity Plan Fund. Under the SLP, a prospective retiree has the option to utilize in the form of a loan
a portion of his outstanding equity in the Gratuity Fund and invest the same in a profitable investment.
Pursuant to the investment scheme, TSD paid the investors a total of P11 million representing the
investment earnings. However, the COA disallowed the payments arguing the distribution of the
income of the Gratuity Fund to future retirees is irregular and constituted the use of public funds for
private purposes, which is prohibited.
Issue
Is the Gratuity Fund a trust fund?
Held
Yes.
Here, the Gratuity Plan Fund is an express trust, specifically an employees trust. An employees trust
is a trust maintained by an employer to provide retirement, pension, or other benefits to its employees.
The DBP intended to establish a trust fund to cover the employees retirement benefits, such fund
being separate and distinct from DBP funds.
The Trust in this case constitutes DBP as Trustor, the Funds trustees as the Trustee, the prospective
retirees as beneficiary, and the Fund + Funds income as the res. The DBP vested the trustees with
legal title over the Fund as well as administration over the same under the Agreement.
The Agreement clearly transferred legal title over the Fund to the Funds trustees. Consequently, the
COAs directive to record the Funds income in DBPs books is wrong because such income from the
Fund doesnt form part of DBPs revenues; such income of the Funds constituting the subject matter
of the trust.
Further, COA is correct in claiming the employees right to claim retirement benefits is still inchoate,
due to the simple fact the employees havent retired yet. However, a beneficiary in a trust doesnt
need to be named or even exist at the time the trust is created. Its sufficient the beneficiarys are
sufficiently certain or identifiable.
97
Emiliano Ramos vs Gregoria Ramos

Facts
The Sps. Martin Ramos died and was survived by their children, 3 legitimate and 7 natural, which
includes Emiliano. Later, a special proceeding was instituted to settle the intestate estate of the Sps.
Ramos. A project of partition was submitted which the court approved. Martin had plenty of real
property but the most valuable were 2 Hacienda, one called Hacienda Calaza that is the subject of this
case. Administration over the Hacienda Calaza was given to Jose.
Later, a cadastral court ordered the lands covering Hacienda Calaza be surveyed. Emiliano didnt file
any claim anymore in the cadastral case, relying instead on Jose who promised to have Titles issued in
his and the other co-heirs name.
Afterwards, Emiliano discovered that Jose in fact had the Title issued in his wifes name instead,
Gregoria. Further, Emiliano discovered there was in fact an earlier partition of her fathers estate and
the fact she didnt receive her rightful share. Emiliano then filed suit to recover Hacienda Calaza and
their share in the partition.
Issue
Can Emiliano still recover her share in the partition and Hacienda Calaza?
Held
No.
Here, there was no express trust created. The partition of Martin Ramos estate negates the existence
of an express trust considering adjudication were made to his children. A trust must be proven by
clear, satisfactory, and convincing evidence. It cant rest on vague and uncertain evidence.
Theres also no implied trust. In the cadastral proceedings that supervened after the intestate
proceeding, Jose and Gregoria Ramos claimed the eight lots herein involved to the exclusion of
Emiliano Ramos and the other heirs. When Jose Died, Gregoria leased the lots to Yulo who in turn
transferred his lease rights to 3rd persons. These transactions prove the Heirs of Jose Ramos
repudiated any trust which was supposedly constituted over Hacienda Calaza in Emilianos favor.
Consequently, because any alleged trust was already repudiated, the statute of limitations applies to
this case. The instant case was brought only 40 years after the right accrued. The delay is inexcusable
and such action is barred both by prescription and laches.
98
Diaz vs Gorricho
Facts
Francisco and Maria are married and part of their conjugal properties is Lots 1 and 2. Later, Francisco
died and was survived by Maria and Diaz. Gorricho then filed suit against Maria causing a writ of
attachment be issued upon Marias shares in Lots 1 and 2. Both lots were sold at public auction with
Gorricho emerging as the winning bidder. Maria failed to redeem within the redemption period
causing the sheriff to execute a Final Deed of Sale in Gorrichos name. However, the sheriff
mistakenly conveyed the entire Lots 1 and 2, instead of just Marias 1/2 interest in each. Gorricho
obtained TCTs for both Lots 1 and 2 as a result.
Later, Maria died and her child, Diaz, filed suit to recover the 1/2 interest in Lots 1 and 2 on the basis
of an implied constructive trust. The suit was instituted 15 years after both Lots were conveyed to
Gorricho.
Issue
Assuming a constructive trust exists, can Diaz still recover the Lots?
Held
No.
Unlike an Express trust, Constructive trust is subject to both prescription & laches.
The reason for the difference is as follows:
1. Express trust - the beneficiarys delay is directly attributable to the trustee who holds the res
for the beneficiary. The trust is fiduciary and the trustees possession isnt adverse. It
becomes adverse only when the trustee repudiates the same and the beneficiary becomes
aware of such repudiation.
2. Constructive trust- theres no fiduciary relationship. The trustee neither recognizes any trust
nor intends to hold the res for the beneficiary. The trustees possession is adverse.
Consequently, Diaz is barred from recovering both Lots because his action has already prescribed.
99
Vda. de Ouano vs Republic of the Philippines

Facts
The Mactan Cebu International Airport Authority (MCIAA) pursued a program to expand the Cebu
Lahug Airport. MCIAA negotiated with the owners of the properties situated around the airport. The
owners claim MCIAA sweetened the deal by assuring the owners they can buy back their properties if
the expansion project doesnt push through. Some owners, relying on this assurance, allowed MCIAA
to buy their lands. Others however still refused causing MCIAA to file expropriation cases.
Eventually, MCIAA won in the expropriation cases and acquired the necessary properties.
However, sometime later Lahug Airport ceased operations and the expansion project was abandoned.
This caused the owners to demand MCIAA sell back their properties to them. MCIAA refused
causing the owners to file suit..
Issue
Can the owners still buy back their properties from MCIAA?
Held
Yes.
Constructive trusts are fictions of equity that courts use as devices to remedy any situation where the
holder of legal title may not in good conscience retain the beneficial interest.
Among other reasons, the Petitioners can recover on the basis of a constructive trust. Undisputedly,
the Petitioners sold their properties to MCIAA with the latter obliging itself to use the properties for
the Lahug Airports expansion. In effect, MCIAA held the properties in trust until the proposed use
for which the properties were acquired has been consummated.
MCIAA failed to do fulfill the purpose and therefore the Petitioners can compel MCIAA to sell back
the properties.
100
Lopez vs CA
Facts
Juliana and Jose are married with no children. Juliana exclusively owned the disputed properties in
this case as her paraphernal properties. Later, Juliana executed a will expressing her wish to constitute
a trust fund over her paraphernal properties with Jose as administrator. Once Jose dies or renounces
the obligation, then Lopez would become the administrator. As to Julianas share in the conjugal
properties, she bequeath the same to Jose.
Juliana initiated the probate of her will but before the probate court can hear the petition, she died.
Instead, Jose pursued the petition and submitted to the probate court a proposed project of partition of
the properties. In said partition, Jose made it appear that some of Julianas paraphernal properties
were registered in both their names. The probate court approved the partition.
In 1969, the probate court ordered that the Titles for properties under the Trust be cancelled and new
ones issued to Jose as trustee. The rest of the properties not under the Trust were adjudicated to Jose
as Julianas heir. Some of Julianas paraphernal properties werent made part of the trust. Afterwards,
Jose died disposing his properties to his Heirs.
In 1984, Lopez then assumed the trusteeship of Julianas estate and later filed suit in his capacity as
trustee to recover Julianas paraphernal properties included in Joses estate.
Issue
Has Lopezs action to recover Julianas paraphernal properties prescribed?
Held
Yes.
Here, there was no express trust created because the disputed properties were expressly excluded from
the trust. Instead, these properties were adjudicated to Jose as his exclusive share. Further, such
partition bore the probate courts approval.
However, an implied constructive trust was created because the disputed properties were mistakenly
excluded from the trust and adjudicated to Jose. The provision on implied trust governing this case is
CC Art. 1456. This is the opposite of what Lopez claims that the disputed properties were intended
for the trust.
Now that a constructive trust has been established, can prescription apply?
A constructive trust is subject to extinctive prescription that is 10 years. In this case, the prescriptive
period must begin in 1969, when the disputed properties were registered in Joses name. At that point
there was already constructive notice of the mistake to Lopez or any other interested party.
Considering the instant case was filed in 1984, obviously the same is beyond the 10-year prescriptive
period.
101
Benita Salao vs Juan Salao

Facts
Whats clear is Benita Salao is Valentins heir and he alleges the Calunuran fishpond was assigned to
Valentin through an oral partition. Juan opposes on the ground he and Ambrosia exclusively owns the
same.4
Issue
Did Juan and Ambrosia hold in trust the Calunuran fishpond for Valentin?
Held
No.
Here, theres no evidence to provide there was an express trust over the Calunuran fishpond in
Valentins favor. Only parol evidence was presented to prove the alleged trust claiming there was an
oral partition assigning the Calunuran fishpond to Valentin. An express trust concerning an
immovable cant be proved by parol evidence.
But is the parol evidence presented sufficient to prove an implied trust?
On this point, the evidence also fails. Its incredible to believe the 47 hectare Calunuran fishpond
would be assigned to Valentin by mere word of mouth. In contrast, for a mere 17 hectare of land
Valentina left, the Heirs had to execute an elaborate 22 page document. Further, the Calunuran
fishpond is registered land but Benita Salao failed to present the registrable deed over the same,
despite the lapse of 40 years.
Consequently, Benita failed to prove the existence of a trust by clear, satisfactory, and convincing
evidence. A trust cant rest on vague and uncertain evidence or loose, equivocal, or indefinite
declarations. If the trust is to be proven by parol evidence, such parol evidence must be trustworthy.
There was no resulting trust in this case because there was never any intention on the part of the
parties to create a trust. Further, theres no constructive trust because the registration of the Calunuran
fishpond in the names of Juan and Ambrosia wasnt vitiated by fraud or mistake.
Lastly, even assuming there was a constructive trust, the action would still be barred by prescription
or laches. The reason being the Calunuran fishpond was registered in 1911 but the action for
reconveyance was file din 1952, way after the 10-year prescriptive period.
The facts are so distorted and some of it is even in Spanish
102
Municipality of Victorias vs CA
Facts
Gonzalo Ditching owns Land X. Gonzalo died and was survived by his widow, Simeona, and
daughter, Isabel. Later, Isabel likewise died leaving her child, respondent Norma. When Simeona
died, Norma inherited Land X from her.
Norma then donated a portion of Land X to the Municipality to be used for a certain high school and
had the remaining portion be surveyed. In the survey, she discovered that a portion of Land the
Municipality uses as a cemetery formed part of Land X. She then demanded from the Municipality
payment for past rentals and delivery of the portion allegedly illegally occupied. The Municipality
refused causing Norma to file suit. The Municipality alleges it bought the disputed Land from
Simeona.
Issue
Can Norma recover the disputed portion from the Municipality?
Held
No.
Here, the evidence shows the Municipality actually bought the disputed Land from Simeona.
However, the Municipality failed to register the Deed of Sale and when Simeona died, Norma
claimed to have inherited the whole of Land X, including the disputed Land, and successfully
registered the same under the Torrens system.
Further, Norma herself admitted she inherited Land X from Simeona, who already sold the disputed
portion to the Municipality beforehand. Consequently, Norma had no legal right to register the
disputed portion in her name because Simeona, and therefore her as well, never owned it.
When Land is decreed in a persons name through fraud or mistake, such person is by operation of
law considered a trustee of an implied trust for the benefit of the propertys true owner. The
beneficiary has the right to enforce the trust and recover the res even if the trustee has a Torrens title
in his name.
Consequently, Norma merely held the disputed portion in trust for the Municipality and the latter can
neither be deprived of possession nor made to pay rentals simply because Norma possessed a Torrens
title in her name.
In fact, the Municipality can demand Norma to convey the disputed portion in its name pursuant to
the Implied Trust.
103
PNB vs CA
Facts
Mata & Co. Inc. (Mata) is a private corporation engaged in providing goods and services to shipping
companies. One of Matas customers is Star Krist Foods, Inc. (StarKrist). As part of an agreement,
Mata would advance StarKrists shipping expenses and StarKrist would later reimburse Mata by
sending a telegraphic transfer through banks for credit to Matas account.
This is the set-up when Security Pacific National Bank (SEPAC), PNBs agent, transmitted a cable to
PNB to pay $14k to Mata by crediting Matas account with the Insular bank of Asia and America
(IBAA) per StarKirsts order. However, PNB noticed an error and found out the amount should only
be $1.4k and not $14k. Afterwards, PNB issued a check worth $1.4k.
14 days later, PNB issued another check worth $14k in Matas favor purporting to be another
transmittal of reimbursement from StarKrist. PNB discovered the error 7 years later and requested
Mata return the $14k after discovering the error but the latter refused. PNB then filed suit.
Issue
Is Matas obligation to return the 14k governed by implied constructive trust or solutio indebiti?
Held
Both || But barred by Laches
Here, Mata received the $14k with no intention of holding the same in trust for PNB as the
beneficiary. Consequently, an implied constructive trust was created.
However, the instant case also fulfills the requirements of solutio indebiti, so which is which?
Undoubtedly, the $14k was paid by mistake and Mata had no right to receive the same.
The instant case is both a constructive trust and solutio indebiti. PNB had the choice of the 2 initially
but the remedy of solutio indebiti is already barred by prescription. However, it cant seek remedy
through implied trust because the same is already barred by laches.5
Its important to distinguish between the 2 because the prescriptive periods are different for each. Trust: 10
years || Solutio Indebiti = 6 years.
104
Sps. Felipe and Josefa Paringit vs Bajit

Facts
Julian Paringit and Aurelia Paringit are married and they have 5 children, including Felipe and
Marciana. The couple leased Lot X from Terocel Realty and lived there. Aurelia died and afterwards
Terocel decided to sell Lot X and offered it to Julian. However, Julian didnt have enough money to
purchase Lot X and turned to his children for help. Among his children, only Felipe had enough
money to purchase Lot X. Julian then assigned his leasehold right to Felipe and the latter bought Lot
X.
Afterwards, there was a dispute among the children as to Lot Xs true nature causing Julian to execute
an affidavit stating Lot X was to be inherited by his children after the latter have reimbursed Felipe
for the purchase price. The children, including Felipe through his wife, signed the affidavit. Later,
Felipe registered Lot X but it was who Marciano lived in Lot X. Years later, Felipe demanded
Marciana pay rent for living in Lot X but the latter refused, believing she had the right to occupy Lot
X. Felipe then filed an ejectment suit and successfully managed to eject Marciana.
Marciana then filed suit to annul Felipes tile and reconveyance.
Issue
Did Felipe purchase Lot X under an implied trust with Julians children as beneficiary?
Held
Yes.
The instant case is an implied resulting trust falling under the CC Art. 1450.
Here, the circumstances clearly show an implied trust. True, there was no express agreement that
Felipe bought Lot X for his siblings and father. However, such agreement came about by operation of
law.
These circumstances are:
1. At the time Tercol offered to sell Lot X, Julian and his children co-owned the leasehold right.
All the co-owners shouldve agreed to any sale of the leasehold right. However, only Julian
agreed to the sale. If the intention was really for Felipe to solely own Lot X, the conformity of
the co-owners shouldve been secured.
2. Julians affidavit stipulates Felipe merely advanced payment because none of the other coowners had sufficient money to purchase Lot X. Further, the co-owners were to later
reimburse Felipe. Notable, Felipe, acting through his wife, signed the affidavit.
3. After buying Lot X, Felipe moved out of the same and allowed Marciano to live there. Such
act doesnt make sense if Felipe truly believes hes the absolute owner.
4. Felipe demanded rent from Marciano only 10 years after he bought Lot X. During those 10
years, Felipe respected Marcianos right to occupy Lot X.
Lastly, the instant case is neither barred by prescription nor laches. Even assuming Felipes
registration of title over Lot X in 1987 is a repudiation of the trust, which in reality isnt, the instant
action is still within the 10-year prescriptive period, being filed in 1996.
105
Heirs of Emilio Candelaria vs Romero

Facts
Lucas Candelaria bought Lot X on installment basis. He paid the 1st two installments but was
financially unable to pay the subsequent installments. Unable to pay, Lucas sold his interest to Lot X
to his brother, Emilio Candelaria. Emilio reimbursed Lucas for the 1st two installments and continued
paying the subsequent installments. However, payments were still made in Lucas name with the
understanding that the necessary transfer documents would be made later. A TCT was issued over Lot
X in Lucas name. Lucas held Lot X in trust for Emilio with the former and his Heirs acknowledging
the same. Later both Emilio and Lucas died with the latter survived by Romero.
Afterwards, the Heirs of Emilio demanded Romero convey the property to them but the latter refused,
hence this case.
Issue
Was there an implied trust between the Heirs of Emilio and Romero?
Held
Yes.
This is a case of implied resulting trust falling under Art. 1453 with Emilio as beneficiary and Lucas
as trustee. This is a trust where a person takes property under an agreement to hold it for another.
Here, it is undisputed Emilio paid for Lot X but Lucas held Title over the same.
The Petitioners allegation itself shows there was an understanding between Emilio and Lucas that the
necessary transfer documents would be later executed. Clearly, Emilio intended to obtain a beneficial
interest in Lot X, having paid for the same.
Next, an implied resulting trust isnt subject to prescription unless the trust was expressly repudiated
and the same was made known to the beneficiary. Consequently, the beneficiary isnt prejudiced by
the trustees continued possession of the res no matter how long.
106
Horacio Adaza vs CA
Facts
Victor and Rosario are married with 6 children, including Horacio, Homero, and Violeta. Later Victor
donated Land X to Violeta that the latter accepted. Land X was originally alienable disposable land
and Violate filed a homestead application over the same. The application was approved and an OCT
issued in Violetas name. Later Violeta took out a loan from PNB secured by Land X. Currently
Homero administers Land X.
Later, Horacio invited the Family, including Violeta, for a gathering. At said gather, Horacio asked
Violeta to sign a Deed of Waiver concerning Land X. The Deed stipulates Land X was co-owned by
Horacio and Violate even through the OCT was only in Violetas name. The Deed also provides for
Violetas transfer of 1/2 interest in Land X and improvements existing thereon on Horacios favor.
Violata signed the Deed.
Later, Violata filed suit to annul the Deed.
Issue
Does Horacio have any interest in Land X?
Held
Yes.
Here, the Deed of Donation contains a provision that was crossed out stipulating that:
The donee shall share 1/2 of Land X with one of her siblings after the donors death
The next succeeding provision reads:
The donee receives Land X, not subject to any condition...
Horacios testimony shows Victors intention was to donate Land X to him and Violeta as shown by
the crossed-out provision. The provision was crossed out in order to facilitate the issuance of title,
Land X at the time being alienable disposable public land. However, Horacio was still to have 1/2
interest in Land X despite the provision being crossed out.
Is Horacio telling the truth? There are circumstances that indicate so
1. The Deed of Waiver which Violeta voluntarily signed in full view of her siblings and other
family members
2. Its the parents practice to Title Lands they acquire in the name of only 1 child.
3. Violeta sent Horacio 2 letters acknowledging the latters 1/2 interest in Land X. The letter
contained a request for Horacio to not be hasty in dividing Land X to get his share.
4. Horacio was relaxed in the fact Violeta solely had Title to Land X, and it was only when
Violetas husband started showing undue interest in Land X that he filed suit.
Consequently, the Deed of Donation created an implied trust in Horacios favor with respect to half of
Land X. Such Trust falls under the CC Art. 1449.
Lastly, an implied resulting trust isnt subject to prescription. Further, the same isnt barred by laches
because of the existence of a confidential relationship, namely, consanguinity, in this case. The parties
in the instant case are brother and sister and the same excuses the long delay.
107
Sing Juco and Sing Bengco vs Sunyantong and Llorante

Facts
Sing Juco and Sing Bengco (Sings) obtained from Maria Gay a written option to purchase the San
Antonio Estate (Estate). The option expired but the Sings had it verbally extended. Around this time,
Sunyantong was the Sings employee and the latter reposed confidence in him and didnt mind
disclosing their plans to him concerning the Estate and negotiations with Maria.
Sunyantong advised the Sings to let some days pass before accepting Marias terms of purchase to
give the image the Sings arent coveting the Estate. Later, the Sings ordered Alipio Santos to examine
the Estate and Sunyantong accompanied Alipio. The Estate impressed Alipio but Sunyantong told
Alipio not to report his finding to the Sings allegedly because if the Estate failed the Sings would
blame Alipio.
On the options last day, Sunyantong called Maria and offered to buy the Estate on the same terms
offered to the Sings. Maria called Manuel Sotelo, the Sings broker, to know the Sings decision on the
matter. The Sings however just replied siya ang bahala which Maria took to mean the Sings have
waived their option to buy. Maria then sold the Estate to Sunyantongs wife, Llorante.
Issue
Did Sunyantong violate the trust the Sings reposed in him by buying the Estate?
Held
Yes.
Here, the evidence clearly shows Sunyantong is guilty of infidelity considering Sunyantong is a
trusted employee and the Sings revealed sensitive information to him concerning the Estate.
Sunyantongs disloyalty was the reason Maria didnt accept the terms the Sings proposed knowing
Sunyantong was willing to buy on her terms. If Sunyantong hadnt intervened and events took their
ordinary course, the Estate would have been sold to the Sings and on terms favorable to them.
Consequently, Sunyantongs infidelity that redounded to his own benefit and to the Sings detriment
cant pass without legal sanction. Sunyantong must sell the Estate to the Sings on the same terms
when he purchased the same from Maria.
108
Carolina Figuracion v Emilia Figuracion-Gerilla

Facts
Leandro died intestate and was survived by his spouse Carolina and his children, Emilia et. al. At the
time Leandro died, he owned 2 parcels of land, Land X & Land Y. Leandro executed a Deed of
Quitclaim over both Lands in his children's favor.
Another land, Land Z, is also involved in this controversy. Eulalio originally owned Land Z and he
had 2 daughters, Agripina & Carolina. Later, Agripina executed a Deed of Quitclaim over half of
Land Z in Emilias favor. Afterwards Carolina executed an Affidavit of Self-Adjudication
adjudicating to herself all of Land Z. Carolina then executed a Deed of Absolute Sale over Land Z in
Hilarias favor. The OCT over Land Z was cancelled and TCT issued in Hilarias name.
Emilia then went to the US and after a few years returned to the Philippines and occupied half of
Land Z, relying on the Deed of Quitclaim. Afterwards, Hilaria threatened to demolish Emilias house
on Land Z causing Emilia to file suit to partition Land Z.
Issue
Can Emilia compel Hilario to partition Land Z despite Land Z being registered in 1962 and the action
filed only in 1994?
Held
Yes.
Here, the evidence shows Agripina owned half of Land Z having inherited the same from Eulalio.
Later, Agripina executed a Deed of Quitclaim over her share making Emilia the new owner. Clearly,
there was a co-ownership over Land Z between Emilia and Carolina.
Consequently, the co-ownership having been established, Carolinas sale to Hilaria was valid only
insofar as that corresponding to Carolinas share.
Next, Emilias right to recover half of Land Z is neither barred by prescription nor laches.
When Hilaria registered Land Z in his name to Emilias exclusion, an implied trust was created by
operation of law. Hilaria became a trustee, Emilia the beneficiary, Emilias share in Land Z the res.
As trustee, Hilaria cant repudiate the trust by simply relying on the registration of Land Z.
A trustee who obtains a Torrens title over a property held in trust cant repudiate the trust by relying
on the registration. The Torrens system was never intended to facilitate betrayal of a trust and merely
confirms title already vested, it doesnt vest title.
The implied trust was expressly repudiated in 1994 when Hilaria threatened to demolish Emilias
house. Clearly, the action is neither barred prescription nor laches the action being filed the same year
when the trust was repudiated.6
Emilia physically possessed her half of Land Z, meaning her action is one to quiet title, which is
imprescriptible. Further, it seems the court treated the trust, as resulting, rather than constructive.
109
Pasino vs Monterroyo
Facts
Land Z is a 24-hectare parcel of land that Laureano Pasino cultivated and cleared. Land Z formed part
of the public domain and the Government later declared it alienable and disposable. Laureano then
filed a homestead application over Land Z that the Director of Lands granted.
Laureano died before the Director of Lands issued an order to have a homestead patent issued in the
formers name. Laureanos heirs didnt receive the order and therefore Land Z remained unregistered.
Later, a cadastral survey on Land Z revealed that a small creek divided it into 2 portions, Land X and
Land Y.
Later, Laureanos heirs executed a Deed of Quitclaim in favor of a co-heir, Jose, over Land Z. Jose
then alienated Land X in his childrens (Petitioners) favor that then filed a Free Patent application.
The Land Management Bureau granted the application and the Petitioners received their OCTs. After
some time, Monterroyo forcibly took possession of Land X.
Monterroyo alleges his predecessors-in-interest bought Land X from the previous owners. He traced
the sale from Larumbe-Petra-Vicente-Arturo-Monterroyo.
Issue
Can Monterroyo compel Pasino to reconvey Land X to him despite the fact Pasino already has a
Torrens title registered in his name?
Held
Yes.
Under the principle of constructive trust, registration of property by one person in his name, whether
by mistake or fraud, the real owner being another person, impresses upon the title so acquired the
character of a constructive trust for the real owner, which would justify an action for reconveyance.
If the registration of land is fraudulent, the person in whose name the land is registered holds it as
mere trustee, and the real owner is entitled to file an action for reconveyance.
Here, the evidence shows Monterroyo is Land Xs rightful owner having possessed Land X in the
concept of an owner by themselves or through their predecessors-in-interest since 1947.
Consequently, although Pasino has a Torrens title in his name, Monterroyo can still compel them to
reconvey Land X to him.
110
Rosario Gayondato vs Treasurer

Facts
Domingo Gayondato owns Land X that he inherited from his mother. Later, Domingo married
defendant Adela Gasataya and had a child with her, Rosario Gayondato. When Domingo died,
Adelas father, Gabino, took charge of Land X. Adela then remarried defendant Cuachon and Gabino
turned over Land X to Adela and her husband.
Afterwards, Land X became subject of a Cadastral case. During the hearing, Gabino filed a claim for
Land X declaring the same was the property of Adela and Rosario. However, the CFI erroneously
decreed registration in Adelas name alone. Later, Adela mortgaged Land X to the National Bank and
then sold it to defendant Rodriguez.
Rosario then filed suit to recover Land X. The CFI ruled in her favor ordering Adela and Cuacion to
indemnify Rosario but absolved the Insular Treasurer and Rodriguez.
Issue
Did the CFI err in absolving the Insular Treasurer from the complaint?
Held
Yes.
The Land Registration Act provides the assurance fund shall not be liable to pay for any
loss...occasioned by a breach of trust, whether express, implied, or constructive, by any registered
owner who is a trustee, or...
Here, there was a constructive trust created by operation of law when the CFI mistakenly decreed
registration only in Adelas name. However, does this automatically mean the assurance fund is
already exempt from liability to indemnify Rosario?
No, the exception provided in the Land Registration Act contemplates a trust in its technical and more
restricted sense. The trust contemplated is a right of property, real or personal, held by one party for
the benefit of another; in other words, an express or implied resulting trust.
In this case, there was no technical trust of any kind. Adela had no right of property or administration
over Land X and was nothing but a mere trespasser. Adela isnt a trustee in its technical sense.
111
Escobar vs Locsin
Facts
A cadastral proceeding was instituted over Land X. Escobal alleges hes the owner of Land X but he
was illiterate and so asked Sumangil to claim the same for her. However, Sumangil committed a
breach of trust by claiming Land X for himself causing the same to be adjudicated to him. Sumangil
died leaving Land X to Juana. Later, Juana died and Locsin now administers her estate.
The CFI found Escobar had equitable title and Juana only legal title but still dismissed the case on the
ground the period of 1-year to review a decree had elapsed.
Issue
Can the trust still be enforced despite the lapse of 1-year from the time the decree was entered?
Held
Yes.
Here, the complaint doesnt seek to review the decree issued over Land X but rather to enforce a trust.
Therefore, the 1-year period for reviewing a decree doesnt apply.
Juanas estate, as the trustees successor in interest, is in equity bound to execute a deed of
conveyance over Land X to Escobar, the beneficiary. A constructive trust was created with Escobar as
beneficiary, Juana as trustee, and Land X as the res.
The Land Registration Act was never intended to cut off, through the issuing of a decree of
registration, equitable rights or remedies. Further, the Torrens system was never intended to aid
betrayal in the performance of a trust.
112
Perfecta Cavile vs Litania-Hong

Facts
The Heirs of the Sps. Bernardo and Tranquilina (B&T) entered into a Deed of Partition. B&T had 3
children namely Susana, Castor, and Benedicta. Bernardo also had 3 children from previous
marriages. Pursuant to the Deed of Partition, B&T conjugal properties were divided among all the
children while Tranquilinas shares were divided only to her 3 natural children.
The Deed of Partition also states the co-heirs sold their shares over certain lots to Castor and Ulpiano.
Later, Castor and Susana executed a Confirmation of Extrajudicial partition where Castor recognized
and confirmed that Land X & Y were Susanas lawful shares in B&T properties.
In 1962, Perfecta, Castors daughter, filed a Free Patent application that the Bureau of Lands granted
resulting in an OCT over Lands X & Y in Perfectas name.
In 1974, Litania-Hong filed suit to reconvey Land X & Y alleging she inherited the same from her
mother, Susana. Litania alleges that after Susana died, Castor and Perfecta eventually entered upon
the Lands and excluded Litania from them.
Issue
Can Litania still recover Lands X & Y despite the lapse of 12 years from the time a Torrens title was
issued in Perfectas name over the same?
Held
No.
Here, the evidence shows Perfecta Cavile is the rightful owner of Lands X & Y.
As a general rule, a Torrens title issued based on Free Patents become indefeasible after 1-year has
elapsed from the date of issuance of the Free Patent. An exception is when the action for
reconveyance is one to enforce an implied or constructive trust, which prescribes 10 years from the
date the Torrens title was issued, provided the property isnt in the hands of a purchaser in good faith.
If the registered owner knew the the land described in the patent and Torrens title belongs to another,
and the true owner possessed the land while the registered owner had never been in possession, the
true owner may bring an action to recover ownership over the land.
In this case, Litania brought the action for reconveyance in 1974, or 12 years after the Torrens title
was already issued over Land X & Y in Perfectas name in 1962. Therefore, the remedy is already
time-barred, the same having a 10-year prescriptive period.
Further, even if Litania filed the action in time, she would still lose because her evidence fails to
prove her ownership over Lands X & Y.
113
Estrella Tiongco Yared vs Jose Tiongco

Facts
Atanacio and Maria Tiongco (A&M) had 4 children, namely Matilde, Jose, Vicente, and Felipe.
Together, the children were known as the Heirs of Maria. Later, A&M died leaving their properties to
their children. The present dispute involves 4 properties namely Land X,Y,Z,C. The Heirs of Maria
co-own all of these properties.
Jose had 2 children namely Estrella and Carmelo. Carmelo in turn also had a son named Jose
(Respondent). Later, Estrella built her house on Lot X and filed a case to have her adverse claim
annotated on the 4 properties. However, the annotation was made only on Land X & Y.
The controversy started when Jose (respondent) prohibited Estrella from collecting rentals from Land
X and filed suit to evict the tenants. However, Jose was never successful in possessing Land X. Later,
Estrella discovered Jose had executed an Affidavit of Adjudication declaring himself sole heir and
adjudicating to himself all the properties. Jose then had Torrens titles issued in his name. and sold the
properties to 3rd persons who eventually sold them back to him.
Estrella then filed suit to recover the properties.
Issue
Has Estrellas action for reconveyance based on a constructive trust prescribed considering the
complaint was filed in 1990 or 16 years after Jose registered the affidavit of adjudication?
Held
No.
As a general rule, an action for reconveyance based on implied or constructive trust prescribes in 10
years from the time a Torrens title is issued over the property. An exception to this rule is when the
equitable owner possesses the land to be reconveyed. The prescriptive period doesnt run because the
possessor has the right to wait until either his possession is disturbed or title questioned. before filing
suit. When the person filing the suit in an action for reconveyance possesses the disputed land, the
action is really one to quiet title.7
Here, Estrellas possession was disturbed only in 1983 when Jose filed suit to recover possession of
Land X. The RTC initially ruled in Joses favor but the CA reversed ruling in Estrellas favor.
Therefore, Estrella never lost possession of Land X. Consequently, only 7 have lapsed and the action
hasnt prescribed.
Further, Jose acquired the Torrens titles over the disputed properties in his name through fraud. Jose
lied when he declared he was the sole surviving heir knowing full well others heirs were still alive.
There was a constructive trust created between Jose and Estrella with Estrella as beneficiary, Jose as trustee,
and Land X as res. The trust was created from the moment Jose executed the Affidavit of Adjudication.
Further, the SC clarified the rule on prescription when the equitable owner has possession; the prescriptive
period runs from the moment the equitable owners possession is actually disturbed. Here, filing an ejectment
suit constitutes sufficient disturbance to start prescription.
114
PNB vs Ciriaco Jumamoy

Facts
Antonio Go owns Land X evidenced by an OCT issued in his name. Later, the RTC discovered Land
Y, part of Land X, actually belongs to Sesinado, Ciriacos predecessor in interest. Land Y was
mistakenly included in Antonios free patent application that became the basis for his OCT. The RTC
then ordered Antonios heirs to reconvey Land Y to Ciriaco,
The RTC decision became final and executory, however the Deed of Conveyance couldnt be
annotated on Antonios OCT because the same was already cancelled. Apparently, Antonio
mortgaged Land X to PNB as security for a loan. Antonio failed to pay the loan causing PNB to
foreclose the mortgage. PNB subsequently acquired title to Land X evidenced by a TCT in its name.
Further, the annotation couldnt be made on PNBs title because PNB wasnt impleaded as defendant
in the civil case.
Ciriaco then filed suit against PNB.
Issue
Is Ciriacos complaint barred by the 10-year prescriptive period for reconveyance based on implied
trust considering Antonios OCT was issued in 1971 while Ciriaco filed the action only 17 years after.
Held
No.
The evidence shows PNB isnt an innocent purchaser/mortgagee for value.
Next, Ciriacos action for reconveyance is imprescriptible. A constructive trust was created between
Sesinado, and by extension Ciriaco, as beneficiary and Antonio, and subsequently PNB, as trustee and
Land X as res. The trust was created because there was mistake in registering Title to Land X in
Sesinados name.
As a general rule, an implied trust prescribes in 10 years counted from the date the Torrens title is
issued over the property. The exception is when the person enforcing the trust, the beneficiary,
possesses the res. When the exception applies, the case isnt really an action for reconveyance but
rather an action to quiet title.
Here, Ciriaco has proven he has possessed Land X even before Antonio had the same registered in his
name. Consequently, the 10-year period hasnt even started because Ciriaco hasnt been disturbed in
his possession.8
The action for reconveyance when the beneficiary has possession is imprescriptible in the sense that unless his
possession is disturbed, the 10-year prescriptive period wont run. Once possession is disturbed, then the 10year period starts.
115
Yu vs NLRC
Facts
Jade Mountain Products Company Ltd. is a partnership originally organized with Lea and Rhodora
as general partners and Chin and Chen as limited partners. The partnership has its main office in
Makati. The Partnership through a Partnership Resolution hired Yu as Assistant General Manager
with a fixed salary. However, Yu only received half of his fixed salary with the understanding the
Partnership would pay the balance once it secures additional funds from abroad.
Afterwards, Lea and Rhodora, as well as some limited partners, sold their interest in the partnership to
respondent Willy and Emmanuel. Willy and Emmanuel now solely constitute the partnership and
moved the office from Makati to Mandaluyong.
Yu then reported for work in Mandaluyong but Willy dismissed him and refused to pay his unpaid
salaries. Yu then filed suit for illegal dismissal.
Issue
Has the partnership that hired Yu been extinguished and replaced by the partnership composed of
Willy and Emmanuel? If a new partnership had indeed come into existence, can Yu still assert his
rights under his employment contract with the previous partnership against the new partnership?
Held
Yes || Yes
Here, the CC Art. 1828 and 1830 govern on the 1st issue. Just about all the partners had sold their
partnership interest (amounting to 82% of the total partnership interest) to Willy and Emmanuel. Such
acquisition coupled with the retirement or withdrawal of the selling partners is enough to constitute a
new partnership.
However, simply because events occur which would legally result in the partnerships termination
doesnt automatically mean the old partnerships legal personality is terminated. The CC Art. 1829
declares the partnership isnt terminated but continues until the winding up of partnership affairs is
completed.
In this case, the new partnership didnt even bother to dissolve and wind up the old partnerships
affairs. The new partnership simply took over and continued the old partnerships business.
Important to underscore here is both the old and new partnership are liable for the old partnerships
debts. The old partnership is liable because it was the one who incurred the liability. The new
partnership is liable by express provision of CC Art. 1840 because the new partnership continued the
business of the old partnership without liquidating the old partnerships affairs. In fact, Yu is entitled
to priority against any claim of the previous partners in the partnership.
116
Eligio Estanislao Jr. vs CA

Facts
Eligio and Respondents are brothers and sisters who co-own Land X. Shell was currently leasing
Land X. The parties agreed to operate a gas station on Land X to be known as Estanislao Shell
Service Station. They executed a Joint Affidavit where they agreed to help Eligio by allowing him to
operate and manage the gasoline station. Further, the initial investment would be taken from advance
rentals due from Shell for Land X. The parties negotiated with Shell with Eligio alone applying for
the dealership.
Later, the parties entered into an Additional Cash Pledge Agreement (Agreement) with Shell
stipulating a different purpose for the advance rentals and said Agreement cancels and supersede the
Joint Affidavit. Eligio submitted financial statements concerning the gas station to Respondents but
after some time, Eligio failed to render accounting. Respondents then demanded Eligio to render
accounting but Eligio failed to comply. Respondents then filed suit.
Issue
Did the Joint Affidavit create a partnership? If so, did the Agreement cancel the partnership?
Held
Yes || No
The 2 documents stipulate different uses for the advance rentals. In the Joint Affidavit, the advance
rentals serve as capital investment. While in the Agreement, the advance rentals were assigned to
Shell to increase the parties credit limit as dealer. The Agreement prevails because of the stipulation
that it cancels and supersedes the Joint Affidavit.
However, the stipulation canceling and superseding the Joint Affidavit didnt dissolve the partnership.
Such stipulation was necessary because there was a conflict as to the advance rentals.
Further, the evidence shows there was in fact a partnership agreement between the parties. The
evidences are:
1. The testimonies of the Respondents and the Attorney who drew up the Joint Affidavit
2. Eligio submitted to Respondents periodic accounting of the business
3. Eligio gave written authority to Respondents to examine and audit the books of the business
4. Respondents also assisted in running the business
Clearly, the parties formed a partnership agreement and the mere fact Eligio was the only one who
applied for the dealership is negligible. Eligio applied alone because of Shells one-dealer policy.
117
Yulo vs Yang Chiao Seng

Facts
Yang wrote a letter to Yulo offering to form a partnership between them to operate a theater on Land
X, which at the time Yulo was leasing from Santa Marina. The partnerships principal conditions
include a provision that Yang guarantees Yulo would receive a monthly participation of P3k per
month. Further, both parties would furnish the capital investment while profits would be distributed in
proportion to their contribution to the capital investment. Yulo accepted the offer and the Yang &
Company, Ltd. was born.
The partnership continued smoothly for a few years until Santa Marina notified Yulo that it was
canceling the lease contract. Pursuant to such notice, Yulo then filed suit to enjoin the lease contracts
cancellation. However, the courts ruled in Santa Marinas favor and terminated the lease contract.
Later, Yulo demanded from Yang the formers share in the profits but Yang refused. Yang reasoned
his counsel advised him to suspend paying rentals because of the ejectment suit between Yulo and the
lessors. Yang alleges inasmuch as hes a sublessee and Yulo hasnt paid the lessors the rentals from
Aug. 1949 onwards, he was retaining Yulos share to make good on her payment to the landowners
the rent due.
Yulo then filed suit.
Issue
Was the relationship between Yulo and Yang one of lessee and sublessee or partnership?
Held
Lessee-Sublessee
The following are a partnerships requisites:
1. Two or more persons who bind themselves to contribute money, property, or industry to a
common fund
2. Intention on the part of the partners to divide the profits among themselves.
Here, the evidence shows:
1. Yulo never furnished her share in the capital investment
2. She never furnished any help or intervention in the theatres management.
3. She never demanded from Yang any accounting of the expenses and earnings of the business
If Yulo was really a partner, she wouldve been vigilant in monitoring the business, such as expenses
and earnings. On the contrary, she was absolutely silent on these matters which a partner wouldve
inspected. All Yulo ever did was to receive her P3k a month, which can only be interpreted as
payment for Yang leasing Land X.
Clearly, there was no partnership and this contract is an ordinary lease.9
The name the parties give to a contract isnt controlling, but rather what the law deems it to be.
118
Eufemia Evangelista vs CIR

Facts
Eufemia and co-petitioners, using their personal money and borrowed money, bought several real
properties and appointed her brother, Simeon, to manage the properties. She then rented or leased the
real properties to various tenants. Later, the CIR demanded payment of income tax on corporations,
real estate dealers fixed tax, and corporation residence tax, from Eufemia.
Eufemia filed suit to be absolved from paying the taxes.
Issue
Is the partnership referred to in the NIRC on corporations tax and corporation residence tax the
partnership contemplated in CC Art. 1767?
Held
No.
Here, a partnership exists because:
1. The Petitioners contributed money and property to a common fund
2. The Petitioners purpose was to engage in real estate transactions for monetary gain and then
divide the profits among themselves. The following circumstances, taken together, clearly
establish the intent to create a partnership:
a. The common fund was created purposely, going so far as to borrow a substantial
portion
b. They invested the same not merely in 1 transaction but in a series of transactions.
c. The lots werent devoted to personal uses but leased or rented to 3rd persons for profit
d. The properties have been under 1 persons management and handled as if the same
belonged to a corporation, business, or enterprise operated for profit
e. The above conditions have continued for more than 10 years
f. Petitioners never even offered an explanation for the foregoing setup
Next, when the NIRC includes partnerships among those subject to the tax on corporations. The
Code doesnt refer to partnerships in their technical sense. For the Codes purposes, a tax on
corporations includes partnerships, exempting only duly registered general copartnerships. In this
case, Petitioners constitute a partnership subject to tax on corporations.
Consequently, Petitioners are also subject to residence tax because said provision interprets
partnerships in the same manner as tax on corporations.
119
Lorenzo Ona vs CIR

Facts
Julia Bunales died leaving as surviving heirs her spouse, Lorenzo, and 5 children. A civil case was
instituted to settle her estate. Later, Lorenzo was appointed administrator of Julias estate and he
submitted a project of partition. The project of partition shows the heirs have a share in various
parcels of land, buildings, and money. The court approved the project of partition but no attempt was
made to divide the properties as listed.
Instead, Lorenzo kept managing the estate and leased or sold the properties, investing the proceeds in
real properties and securities. The investments bore fruit and Petitioners made a hefty profit. Lorenzo
would use the profit to make additional investments.
The CIR then decided Petitioners formed an unregistered partnership and subjected them to corporate
income tax. Petitioners filed suit to be absolved from the tax.
Issue
Are Petitioners an unregistered partnership even if the common fund used to engage in business and
derive profit is their undivided inheritance?
Held
Yes.
Here, the Petitioners didnt merely limit themselves to holding the properties they inherited. They
allowed Lorenzo to sell the properties at a profit and were in fact engaged in the purchase and sale of
corporate securities. Further, the profits were divided proportionately in accordance with their
respective shares in the inheritance.
Consequently, from the moment Petitioners allowed Lorenzo to use both the income of the properties
and the properties themselves as a common fund to engage in business, with intent to derive profit to
be shared proportionately, they formed an unregistered partnership.
True, before an inheritance is partitioned among the heirs, the heirs are considered co-owners of the
inheritance. However, from the moment the inheritance and incomes derived therefrom are used as a
common fund with intent to derive profits to be divided proportionately according to the project
partition, either extrajudicial or judicial, the co-ownership becomes a partnership.10
10
Theres a partnership because:

1. The common fund is the inheritance and its incomes
2. Petitioners intended to divide the profits among themselves.
120
Pascual vs CIR
Facts
Petitioners bought Land X from Santiago and Land Y from Juan. Later, Petitioners sold Land X to
Marenir Development Corp. and land Y to Erlinda and Maria. From these sales, Petitioners made a
hefty profit. Petitioners paid the corresponding capital gains tax.
However, the CIR required Petitioners to pay an additional corporate income tax. The CIR treated
Petitioners as an unregistered Partnership taxable as a corporation. Pascual filed suit to challenge the
CIRs tax assessment.
Issue
Have Petitioners become a partnership in buying and selling land they co-owned?
Held
No.
Here, theres no evidence to show Petitioners entered into an agreement to contribute money,
property, or industry to a common fund, and they intended to divide the profits among themselves. In
fact, the evidence shows a co-ownership between the Petitioners. The mere fact they purchased the 2
lands, co-owned them, and sold the same a few years later didnt make them partners.
Petitioners bought Land X in 1965 and neither sold the same nor made any improvements thereon. In
1966, Petitioners then bought Land Y and sold Land X in 1968 without buying other properties. Land
Y was eventually sold in 1970. The foregoing shows the transactions were isolated and cant be
treated as business transaction for purpose of gain.
An isolated transaction where 2 or more people contribute funds to buy certain real estate for profit
cant be considered a partnership in the absence of other circumstances showing a contrary intention.
Further, merely sharing in the profit of co-owned property sold doesnt form a partnership. A clear
intent to form a partnership must exist.11
11
This case is different from Evangelista due to the bevy of circumstances present in that case clearly showing
the intent was to engage in a business and derive profits.
121
Bastida vs Menzi and Co.

Facts
??
Issue
Is the relationship between Bastida and Menzi Co. a copartnership?
Held
No.
Here, the evidence shows Bastida was to receive 35% of the net profits of Menzi Cos fertilizer
business as compensation for Bastidas services in supervising the fertilizer mixing. There was no
partnership.
There was no common fund in this case, a fund belonging to the parties as joint owners or partners.
The business belonged to Menzi Co. and Bastida simply worked for Menzi Co. Instead of receiving a
fixed salary, Bastida received a percentage of the net profits. Importantly, the mere fact the parties
share profits doesnt mean a partnership was created.
The parties didnt establish a partnership and never intended to become partners. The mere fact some
of the pleadings and contracts contained words indicating a partnership isnt sufficient to actually
establish a partnership.12
12
There was provision on Bastida asking for leave, which is inconsistent with a partnership
122
Anton vs Oliva
Facts
Oliva entered into 3 Memoranda of Agreement (MOA) with Gladys and Jose, the Antons, to set up a
business partnership covering 3 fast food stores to be established in SM Malls. Under the MOA, Oliva
would get 20%-30% of the profit depending on the Mall. Oliva would give 3 loans to the Antons.
Initially, the Antons gave Oliva her share in the profits for 2 branches but not for the 3rd. Further, the
Antons didnt giver her any accounting of the operations of the 3 stores until finally, the Antons
stopped giving Oliva her share in the profits altogether.
Oliva then demander her share in the profits and accounting but the Antons refused. Olive then filed
suit.
The CA found there was no partnership agreement between Oliva and the Antons, but the Antons
were still liable to pay Oliva her share of the profits.
Issue
Is the CA correct?
Held
Yes.
Here, the relationship between Oliva and the Antons was of creditor-debtor, not of partnership. True,
the MOA refers to Oliva as partner, but the amount Oliva gave wasnt capital contribution to establish
the business. In fact, the business had to pay Oliva back with interest. Further, the MOA forbade
Oliva from interfering with running the business.
Now, is Oliva still entitled to the profits despite the absence of a partnership? Yes, because the Antons
agreed to compensate Oliva for the risk she had taken. Oliva gave the loan with no security and she
was to be paid only if the stores made a profit. It doesnt matter the Antons already paid for 2 of the
loans because their obligation to share the profits with Oliva wasnt extinguished by such payment.
Next, as Oliva wasnt a partner, she had no right to demand an accounting. However, she does have
the right to know how many profits the stores are making in order to know her just share.
123
Tocao vs CA
Summary
This case is a MR involving a previous decision that declared a partnership existed between Petitioner
William and Respondent Nenita.
Here, William acted merely as guarantor of Geminesse Enterprise that Nenitas own witness,
Elizabeth, affirmed on cross-examination. Further, Elizabeth testified a certain Peter was the
companys financier.
The business relationship created between William and Nenita was an informal partnership, that
wasnt even recorded in the SEC. Therefore, its understandable for William, who was Marjories
good friend and confidante, to occasionally participate in the business affairs, although never in an
official capacity.
Next, no evidence shows William never even participated in the business profits.
Doctrine:
The essence of partnership is for the partners to share the profit and loss.
124
Ortega vs CA
Facts
The law firm of Ross, Lawrence, Selph and Carrascoso was duly registered in the Mercantile Registry
and reconstituted with the SEC. The SEC records show there were several amendments to the articles
of partnership to change the firm name. The law firm ended up with the name Bito, Misa & Lozada.
Later, Petitioner informed the Respondents of his intention to retire from the firm and have his
participation liquidated. Petitioner then filed with the SECs Securities Investigation and Clearing
Dept. (SICD) a petition for dissolution and liquidation of partnership.
Issue
Did Petitioners retirement from the Partnership dissolve the same?
Held
Yes.
A partnership that doesnt fix its term is a partnership at will. Such partnership is predicated on the
mutual desire and consent of the partners. Truly, one of the partners may, at his sole pleasure, dictate
dissolution of the partnership at will. He must however act in good faith, not that attendance of bad
faith can prevent the dissolution of the partnership liability for damages can result.
In fact, even if the partnership is one with a specific period or purpose, the partner by his act or will
can still dissolve the partnership. Among partners, mutual agency arises and the doctrine of delectus
personae allows them to have the power, although not necessarily the right, to dissolve the
partnership. An unjustified dissolution of the partnership can subject the guilty party to damages.
A partnerships dissolution is the change in relation of the parties caused by a partner ceasing to be
associated in carrying on the business. Meanwhile, winding up happens after the partnership is
dissolved but the partnership retains its legal personality until its affairs are finished.
Here, the law firm is a partnership at will. The term retirement as used in the Articles of Partnership
means the partners dissociation, inclusive of resignation or withdrawal, from the partnership that
thereby dissolves it.
Lastly, Petitioner wasnt in bad faith because he was justified, i.e. interpersonal conflict among
partners that caused him to retire.
125
Lyons vs Rosenstok
Facts
Respondent Elser is engaged in the buying, selling, and administering of real estate. In several of his
ventures, Lyons joined him with profits shared equally between the 2. Later, Lyons went on leave to
the US and at the time he co-owned with Elser, each with 1/2 share, 3 properties (A,B,C). Lyons
executed a general power of attorney in Elsers favor authorizing the latter to manage and dispose the
properties. During Lyons absence, Elser sold Property A & B.
Afterwards, Elser discovered Property X that represented a fine business opportunity. Elser was able
to gather, by his own means, and through loans from others, to acquire Property X. During his
borrowings, one of the lenders required Elser to mortgage Property C as security, which he did.
Eventually, Elser replaced Property C with his own property as security but eventually reverted the
security back to Property C with Lyons consent.
With enough money, Elser was able to purchase Property X. In order to develop the property, a
limited partnership was organized between Elser and 3 other associates, under the name of J.K.
Pickering & Company (Pickering). Elser offered Lyons to join him in developing Property X but the
latter refused.
Issue
In mortgaging Property C, was there a partnership created between Elser and Lyons?
Held
No.
Here, the mortgaging of Property C never resulted in damage to Lyons and any risk involved was
negligible. Further, no money derived from the mortgage was ever applied to purchasing Property X.
Elser bough Property X entirely upon his account.
Lyons alleges that when Elser mortgaged Property C, Lyons as co-owner at the time of 1/2, he
involuntarily became the owner of an undivided interest in Property X acquired partly by that money.
Consequently, Lyons demands a certain number of shares from Pickering.
The evidence shows Lyons consented to Property C being mortgaged because he thought the same
was done in order to buy another property, Property Z.
Further, Lyons allegations are untenable. No money belonging to Lyons was ever used to purchase
Property X. Further, theres no partnership between Lyons and Elser because Ester, in buying
Property X, wasnt acting for any partnership composed of himself and Lyons.13
13
This case involves a limited partnership because it involved only Property X. Further, there was no
partnership between Lyons and Ester because there was no:
1. Common fund
2. Sharing of profits and loss.
126
Fernandez vs Dela Rosa

Facts
Fernandez alleges that he entered into a verbal agreement with Dela Rosa (Dela) to form a partnership
to purchase cascoes and the business of letting the same for hire. Both parties were to furnish such
amount of money to buy the cascoes. The profits were to be divided proportionately according to the
contribution. Dela then purchased 2 cascoes but took title in his own name. Later, the parties
undertook to draw up the articles of partnership but Dela proposed terms materially different from the
verbal agreements terms. Both parties were unable to come to an understanding and no written
agreement was executed.
In the meantime, Dela had control and management of the 2 cascoes, Fernandez demanded an
accounting from Dela but the latter refused, denying the partnership altogether. Fernandez then filed
suit.
After negotiations failed, Dela gave Fernandez money representing the purchase price of the cascoes
which the latter accepted.
Issue
Was there a verbal contract of partnership? Did Fernandezs act of accepting the purchase price from
Dela terminate the formers interest in the partnership?
Held
Yes || No.
The essential points upon which the minds of the Parties must meet in a contract of partnership are (1)
mutual contribution to a common stock (2) a join interest in the profits.
Here, both Parties contributed to the cascoes purchase satisfying the 1st requisite. As to the 2nd
requisite, the same can be inferred from the fact the cascoes were purchased in common. Further,
prior to the purchase of the cascoes, forming a partnership was being negotiated between the Parties.
A joint ownership might have resulted if the Parties had no interest in profits. Such as if the purchase
was made to avail of a favorable bargain and divide the property equally once bought,.
Executing a written agreement isnt necessary to give efficacy to a verbal contract of partnership
considering the contribution didnt consist of immovables or rights in immovables.
Now, did Fernandezs act of accepting from Dela the purchase price of the cascoes result in
terminating the partnership?
No. First, the amount accepted fell short of what Fernandez contributed to the partnership. It didnt
include the profits + repairs on the cascoes that Fernandez made. Further, in accepting the money,
Fernandez had no intention to relinquish his rights as partner. In fact, Fernandez notified Dela that he
was waiving none of his rights in the partnership. Such acceptance on Fernandezs part isnt
inconsistent with the partnerships continuance.
127
Woodhouse vs Halili
Facts
Woodhouse and Halili entered into a written agreement containing, among others, the following
stipulations:
1. They shall organize a partnership with Woodhouse to act as industrial partner and Halili as
capitalist
2. Woodhouse would receive 30% of the profits from the business.
The parties signed the contract and went to the US to meet up with Mission Dry Corp. Mission Dry
Corp. then granted them the exclusive right to distribute Mission beverages in the Philippines.
Simply put, Woodhouse and Halili agreed to enter into a partnership to sell Mission Soft drinks, a USbased brand, in the Philippines.
When the bottling plant was already operating, Woodhouse demanded Halili to execute the
partnership papers. Halili kept on putting the matter off causing Woodhouse to file suit to compel
Halili to execute the partnership papers.
Issue
Can Woodhouse compel Halili to execute the agreement despite the fact the same may not be declared
null and void?
Held
No.
Here, the evidence shows that no partnership existed at the time the bottling plant was operating. In
fact, the agreement shows the parties intended to execute the partnership at a later date. Woodhouse
himself, after they obtained the Franchise from Mission Corp, demanded Halili to execute the
partnership.
However, Woodhouse can't compel Halili to execute the partnership because the same is an obligation
to do, not to give. The law recognizes the individual's freedom or liberty to do an act he has promised
to do, or not to do it, as he pleases. It's a personal act of which courts may not compel compliance.
Consequently, granting Woodhouse relief would amount to involuntary servitude against Halili. But
Halili is liable for damages to Woodhouse.
128
Angeles vs Secretary of Justice

Facts
The Sps. Angeles filed a criminal complaint for estafa against Respondent Mercado, their brother-inlaw. The Sps. Angeles claim that Mercado convinced them to enter into a contract of antichresis
covering Land X with Mercado administering the lands and completing the necessary paperwork.
After 3 years, the Sps. Angeles asked for an accounting from Mercado where they found out that
Mercado put the antichresis contract under Mercado and his wife's name.
Mercado defended himself claiming an industrial partnership existed between him and his wife as
industrial partners and the Sps. Angeles as financiers. He claims the industrial partnership existed
even before the antichresis contract with capital coming from the Sps. Angeles and profit would be
divided evenly between Mercado and the Sps. Angeles.
Issue
Did a partnership exist between the Sps. Angeles and Mercado despite the lack of a public instrument
and non-registration with SEC?
Held
Yes.
The Sps. Angeles allege there's no partnership because of the lack of a public instrument indicating
the same and the lack of registration with the SEC. The argument is untenable.
First, the Sps. Angeles contributed money to the partnership and not immovable property. Second,
Mere failure to register the partnership with the SEC doesn't invalidate a contract that has the essential
requisites of partnership. The registration's purpose is to give notice to 3rd persons. Failing to register
the partnership doesn't affect the liability of the partnership and of the partners to 3rd persons. Neither
will such failure to register affect the partnership's juridical personality.
A partnership may exist even if the partners don't use the words 'partner' or 'partnership' so long as all
the essential requisites of partnership are present. Here, the Sps. Angeles admit the existence of a
partnership: a contract showing an industrial partnership, contribution of money and industry to a
common fund, and division of profits between the Sps. Angeles and Mercado.
129
Ma vs Fernandez Jr.
Doctrine
In a contract of partnership, we said that registration's purpose is to give notice to 3rd parties; that
failure to register the contract doesn't affect the liability of the partnership and of the partners to 3rd
persons; and that neither does such failure to affect the partnership's juridical personality. An
unregistered contract of partnership is valid as among the partners, so long as it has the essential
requisites, because the main purpose of registration is to give notice to 3rd persons, and it can be
assumed that members themselves knew of the contents of their contract.
Registration isn't a requirement for a contract's validity as between the parties, for the effect of
registration serves chiefly to bind 3rd persons.
Registration then is the confirmation of the existence of a fact.
130
Torres vs CA
Facts
The Sisters Antonia Torres and Emeteria Baring (Petitioners) entered into a JVA with Manuel Torres
(Respondent) to develop Land X into a subdivision. Pursuant to the contract, the parties executed a
Deed of Sale in Manuels favor registering Land X in Manuels name. Manuel then mortgaged Land
X to Equitable Bank as security for a loan, which under the JVA was to be used to develop the
subdivision. Further, the parties agreed to share the proceeds from the sale of Land X under the JVA
under a 60-40 share with Petitioners getting 60%.
However, the project didnt push through and Land X was subsequently foreclosed. Petitioners filed a
criminal case against Respondent but the latter was acquitted. Petitioners then filed a civil case against
Respondent.
Issue
Did a Partnership exist? Was the same valid despite the fact the immovable property werent
inventoried in a public instrument? How much of the loss should Petitioner & Respondent bear?
Held
Yes || Yes || Petitioner 60% and Respondent 40%
A reading of the JVA clearly shows the partnerships existence as provided in the CC Art. 1767.
Under the JVA, Petitioners would contribute property to the partnership in the form of land that was
to be developed into a subdivision. Meanwhile, Respondent would give the amount needed for
general expenses and other cost in addition to his industry. Further, the income from said project
would be divided according to the stipulated percentage.
Here, Respondent contributed to the partnership by developing the roads, curbs, gutters, and entering
into a contract to construct low-cost housing units on Land X.
Next, the Petitioners contend the partnership is void under the CC Art. 1773. However, this
contention is wrong in 2 ways. First, Art. 1773 was intended primarily to protect 3rd persons but the
instant case doesnt involve 3rd persons. Second, Petitioners themselves declare the contract as void
but at the same time use it as their basis for making Respondent pay 60% of the value of Land X.
Petitioners cant deny or uphold the contract depending on what suits them.14
Lastly, Petitioners must bear 60% of the loss because CC Art. 1797 applies.
14
It seems Art. 1773 applies only when 3rd persons will be prejudiced.
131
Benigna Secuya vs Vda. de Selma

Facts
Maximo owns Land X and he later entered into an Agreement of Partition adjudicating 1/3 of Land X
to Paciencia. Paciencia then sold 3,000 sq. meter portion of Land X to Dalmacio. Dalmacio then took
possession of his share of Land X and later allowed his niece and husband to possess the same.
Later, Gerarda Selma bought a 1,000 sq. meter portion of Land X and later bought a bigger portion of
Land X amounting to 9,000 sq. meters. Gerarda then filed suit against Dalmacios predecessor-ininterest, Benigna, asserting ownership over the portion Benigna inherited from Dalmacio.
Issue
Has Benigna proved the alleged sale between Paciencia and Dalmacio?
Held
No.
Benigna insists that Paciencia sold the disputed property to Dalmacio and the sale was embodied in a
private document. However, such private document, that wouldve been the best evidence of the
transaction, was never presented in court allegedly because it had been lost.
While a sale of a piece of land appearing in a private deed is binding between the parties, the sale
cant be considered binding on 3rd persons, if the sale isnt embodied in a public instrument and
recorded in the Registry of Property.
132
Aurelio Litonjua Jr. vs Eduardo Litonjua Sr.

Facts
Aurelio and Eduardo are brothers and they entered into a joint venture/partnership agreement in the
Odeon Theater business through investment from various corporations. The agreement was contained
in a private memorandum. Later, the brothers relationship soured causing Aurelio to demand an
accounting and liquidation of his share in the partnership. However, this demand went unheeded.
Further, Aurelio believed Eduardo and co-respondents were transferring the partnerships real
properties to other parties in fraud of Aurelio.
Aurelio then filed suit against Eduardo and Respondent Yang as well as several corporations for
specific performance and accounting. Yang was named as partner in the complaint. Aurelio sought to
prove the existence of the joint venture/partnership in a memorandum.
Issue
Whether or not the unsigned and undated memorandum is sufficient to establish the partnerships
existence.
Held
The memorndum is insufficient.
A joint venture is a form of partnership because their elements are similar and is generally governed
by the law on partnership.
The memorandum supposedly evidencing the partnership violates the CC provisions determining the
existence as well as formal requisites of a partnership provided in Art. 1771, 1772, and 1773.
Art. 1771 - Aurelio admitted contributing immovable property and real rights to the partnership in the
form of his share in the Litonjua family business (shipping, movie theaters, etc.) but the memorandum
is unsigned and undated. Therefore, the memorandum isnt a public instrument.
Art. 1772 - The partnership involves capital of more than P3k but the memorandum cant be
presented for notarization, let alone registered with the SEC.
Art. 1773 - This applies as long as real property or real rights are initially brought into the partnership.
Considering Aurelio initially contributed real property and real rights, an inventory was required and
attached to the public instrument. However, no such inventory was made, let alone attached to a
public instrument, which in this case was also non-existent.
Consequently, in the absence of a public instrument and inventory of immovable property the parties
duly signed, the memorandum is void for the purpose of establishing a partnership. No rights can be
derived from the memorandum.
133
Rojas vs Maglana
Facts
Rojas and Maglana executed their Articles of Co-Partnership (Articles) called Eastcoast Development
Enterprises (EDE) with only 2 of them as partners. EDE had an indefinite term of existence and was
duly registered with the SEC. EDE was constituted to secure timber licenses. Under the Articles,
Maglana was to manage EDEs business affairs while Rojas would be the logging superintendent and
manage EDEs logging operations. The profits and losses would be divided share and share alike
between the partners.
EDE secured a timber of license from the Bureau of Forestry but EDE encountered difficulties forcing
it to avail of Pahamotangs services as industrial partner. The 3 parties then executed a 2nd Articles,
practically the same in all respects with the 1st Articles, for a 2nd partnership also called EDE. EDE
then operated and realized profits. Later, Rojas and Maglana bought Pahamotangs shares in the
partnership and the equipment Pahamotang contributed, and dissolved the 2nd EDE. After
Pahamotangs withdrawal, Rojas and Maglana continued the partnership without any written
agreement or reconstitution of the Articles.
Afterwards, Rojas entered into a management contract with CMS Estate and abandoned EDE.
Maglana reminded Rojas of the latters obligation to the partnership but Rojas replied saying he wont
continue his obligations anymore. Rojas also withdrew his equipment from EDE. Further, Rojas took
funds from the partnership worth more than his contribution causing Maglana to dissolve the
partnership. Rojas then filed suit against Maglana.
Issue
Did the 2nd partnership dissolve the 1st partnership?
Held
No.
The evidence shows the partners never intended to dissolve the 1st partnership upon constitution of
the 2nd partnership. The 1st and 2nd partnership are the same except for the fact that:
1. Pahamotang was added as an industrial partner
2. Pahamotang had an equal share in the profits
3. The 2nd partnerships term was fixed at 30 years.
Both partnerships had the same name, purpose and capital contributions from Rojas and Maglana.
Further, all subsequent renewals of Timber licenses were secured in the 1st partnerships name.
Practically speaking, the 2nd Articles only amended the 1st Articles and all business transactions were
carried out under the 1st Articles.
Next, its undisputed the 2nd partnership was dissolved by common consent but such dissolution
didnt affect the 1st partnership that continued to exist. The partners actions subsequent to the 2nd
partnerships dissolution (Maglanas reminder and Rojas reply) leave no room for doubt that both
parties considered themselves governed by the 1st Articles.
Lastly, Maglana can unilaterally dissolve the 1st partnership despite the same being one with a period.
There were only 2 parties and Maglanas notice of dissolution can be considered a notice of
withdrawal. Maglana can dissolve the partnership with or without just cause and the Articles will
guide such dissolution. But if without just case, Maglana is liable for damages. Here, Maglanas
dissolution was justified because of Rojas actions (abandoning the partnership, withdrawing
equipment, etc.)
134
Pioneer Insurance vs CA
Facts
Jacob Lim is engaged in the airline business as owner-operator of Southern Air Lines, a single
proprietorship. Later, Lim and Japan Domestic Airlines (JDA) entered into a sales contract with the
former purchasing from the latter airplanes and spare parts. Pioneer Insurance executed a surety bond
in JDAs favor on Lims behalf to cover the purchase price.
Border Machinery and Heavy Equipment Company (Bormaheco), Cervantes, and Maglana also
contributed funds to purchase the goods. The funds were supposedly part of their contributions to a
new corporation Lim proposed to expand his airline business. Bormaheco, Cervantes and Maglana
also executed indemnity agreements in Pioneers favor. Lim also executed a chattel mortgage over the
purchased airplanes in Pioneers favor..
Later, Lim defaulted in paying JDA forcing the latter to demand from Pioneer. Pioneer paid JDA then
filed suit to foreclose the chattel mortgage. The lower courts found only Lim liable to Pioneer and
absolved Bormaheco, Cervantes, and Maglana. Further, Lim was ordered to reimburse Bormaheco,
Cervantes, and Maglana for the losses the latter incurred.
Issue
Did Respondents failure to incorporate result in a de facto partnership among them and as a
consequence, all must share in the loss and/or gains of the venture in proportion to their contribution?
Held
No.
The evidence shows Jacob never had the intention to form a corporation with Respondents despite his
representations to them. This gives credence to Respondents claims that Jacob induced them to
contribute to a proposed corporation that was never formed because Jacob reneged on the agreement.
Its also undisputed that Jacob received from Respondents a sum certain in money to purchase the
airplanes and spare parts. Respondents believing the same would be their contribution to the proposed
corporation.
Generally, when persons attempt but fail to form a corporation and carry on the business under the
corporate name occupy the position of partners. A general partnership is formed, as a punitive
measure. However, such partnership is implied only when necessary to do justice among the parties
because persons cant be treated as partners to each other when no intent to form a partnership exists.
Consequently, no de facto partnership resulted among the parties that entitled Jacob to reimbursement
of supposed losses from the proposed corporation. Jacob was acting on his own and not in behalf of
his would-be incorporators in transacting the sale of airplanes and spare parts.15
15
There was never any intention on Jacobs part to form a corporation and to imply a partnership would result in
injustice to Respondents.
135
Lim Tong Lim vs Philippine Fishing Gear Industries

Facts
Antonio Chua and Peter Yao, on behalf of Ocean Quest Fishing Corp. purchased fishing nets and
floats from Philippine Fishing Gear Industries. Antonio and Peter claim they were engaged in a
business venture with Lim, who however wasnt a signatory to the purchase.
However, the buyers failed to pay for the fishing nets and floats causing Philippine Fishing to file a
collection suit with a prayer for a writ of preliminary attachment against Antonio, Peter, and Lim. The
suit was brought against the 3 of them in their capacities as general partners, on the allegation that
Ocean Quest was a nonexistent corporation.
The lower court ruled that a partnership existed among Antonio, Peter, and Lim based on a
Compromise Agreement they executed in a prior civil case Antonio and Peter brought against Lim.
The Compromise Agreement stipulated that the parties agreed to sell boats as payment to a 3rd
company. Further, the parties agreed to divide or shoulder the excess or deficiency from the sale
equally among them.
Issue
Is Lim liable to Philippine Fishing as a general partner?
Held
Yes.
Here, the evidence shows a partnership existed among Antonio, Chua, and Lim.
The parties decided to engage in the fishing business and they started buying boats for the purpose
financed by a loan secured from Jesus Lim, Lims brother. The Compromise Agreement revealed the
parties intention to pay the loan with the proceeds of the sale of the boats and to divide equally
among themselves the excess or loss. These boats, the purchase and repair of which were financed
with borrowed money, fall under the term common fund. Further, the parties agreed that any loss or
profit from the sale and operating the boats would be divided equally among them shows the
partnerships existence.
Next, the partnership also extended to purchasing the nets and floats. The nets and floats are essential
to fishing and were acquired to further the partnerships business.
Lastly, Lims argument that he was the lessor of the boats, the same being registered in his name, is
absurd. Why would Lim sell his own boats to pay for another persons debt and divide the excess or
deficiency from the sale equally between him and the debtor? Most likely, the boats were registered in
Lims name because Jesus trusted him, but such registration doesnt detract from the fact the boats
constituted the partnerships assets.
Consequently, the Petitioners formed a partnership engaged in the fishing business and they
purchased boats, nets, and floats constituting the partnerships main assets, with the profits and loss to
be divided equally among them.
136
Litton vs Hill & Ceron

Facts
Litton sold and delivered to Carlos Ceron, one of the managing partners of Hill & Ceron, a certain
number of mining shares, and by virtue of said transaction, Ceron paid Litton a sum certain leaving an
unpaid balance. Litton was unable to collect the unpaid balance either from Hill & Ceron or from its
surety Visayan Surety & Insurance Corp.
Liton then filed suit.
Issue
Is Cerons transaction with Litton binding upon Hill & Ceron despite the fact Ceron didnt alegedly
obtain the consent of his co-managing partner, Hill?
Held
Yes.
True, Ceron individually entered into the transaction with Litton but said transaction must be
understood in law as effected by Hill & Ceron, therefore binding upon it.16
Robert Hill and Carlos Ceron, during the partnership, had the same power to buy and sell and were
equal partners. Further, the partnership was subsisting on the date of transaction with Litton. The
management of the partnerships business has been entrusted to both partners but it isnt necessary for
the partner to acquire the consent of the other partner in order to bind the partnership. 3rd persons,
like Litton, in entering into a contract with any of the 2 partners, isnt bound to ascertain if the partner
hes dealing with has the other partners consent. The public doesnt need to make inquiries as to the
agreements between the partners. Its enough for the 3rd person to know that hes contracting with the
partnership represented by one of the managing partners.
Next, theres a stipulation in the articles of partnership that any of the 2 managing partners may
contract and sign in the partnerships name with the others consent. Such stipulation creates an
obligation, as between the partners, to ask the others consent before contracting for the partnership.
But this stipulation doesnt impose the obligation upon 3rd persons to determine if the contracting
partner indeed has the consent of the other partner. The 3rd person has the right to presume that the
contracting partner has the consent of his co-partner.
Such presumption will prevail if theres no evidence to show that the contracting partner didnt have
the co-partners consent and the 3rd person knew of such lack of consent.
Here, the presumption applies because both Hill & Ceron failed to show evidence proving lack of
consent and that Litton knew of such fact. In fact, even if Ceron enters into the transaction against
Hills will, the same is still valid provided:
1. Litton didnt know of Hills lack of consent
2. The transaction was part of the partnerships ordinary business.
16
Hill & Ceron is engaged in the business of brokerage in general and Littons transaction involved the sale of
mining shares, part of the partnerships ordinary business.
137
Goquiolay vs Sycip
Facts
Tan Sin An and Antonio C. Goquiolay entered into a general commercial partnership to deal in real
estate. Both Tan and Antonio contributed to the partnerships capital. The agreement lodged in Tan
the sole management of the partnerships affairs and Antonio executed a general power of attorney to
this effect. Further, if a partner dies, the partnership will continue but the heirs of the deceased partner
will represent him in the partnership.
Later, the partnership purchased Land X and assumed the mortgage, payable to La
Urbana..Prestamos. Tan also purchased Land Y but in his individual capacity and assumed the
mortgage thereon. The 2 mortgage obligations were consolidated in an instrument executed by the
partnership and Tan where they agreed to bind themselves solidarily to pay the mortgage.
Tan then died leaving his Heirs. Meanwhile, La Urbana demanded payment from the partnership and
Tan. Respondent Sing Yee and Cuan Co. instead paid the mortgage. Sing Yee then filed their claims
in the intestate proceedings of Tan arising from the partnerships obligations and the mortgage.
Tans Heirs, namely his widow Kong Chai Pin, then sold Land X & Y to Sycip and Lee to settle
Tans debts. Sycip and Lee in turn sold Land X & Y to Insular Development Co. Antonio, learning
about the sale, moved to annul the sale to the extent of his interest in both Lands.
Issue
Was Kongs sale of Land X & Y valid despite Antonios lack of consent to the sale?
Held
Yes.
Upon Tans death, Kong, by her affirmative actions, manifested her intent to be bound by the
partnership agreement not only as a limited partner, but as a general partner. She managed and
retained the possession of the partnership properties and was deriving income from the same. In
selling Land X & Y in the partnerships name, she was acting as a managing partner.
Now, was Kongs sale valid despite the lack of Antonios consent? Yes.
Strangers dealing with a partnership have the right to assume, in the absence of restrictive clauses in
the co-partnership agreement, that every general partner has power to bind the partnership, specially
those partners acting with ostensible authority.
The provisions of Art. 129 of the Code of Commerce (agreement among all the members) imposes
such obligations only among the partners, and doesnt necessarily affect a partners acts, acting within
the scope of the ordinary business of the partnership, as regards 3rd persons without notice. A 3rd
person may rightfully assume that the contracting partner was duly authorized to contract on the
partnerships behalf. Such 3rd person isnt required to inquire the partners authority or if the other
partners gave their consent.
Here, the presumption prevails because Sycip & Lee bought Land X & Y from Kong without notice
that Antonio didnt gave his consent.
138
US vs Clarin
Facts
Pedro Larin delivered to Pedro Tarug P172, in order for the latter, in company with Eusebio Clarin
and Carlos de Guzman, might buy and sell mangoes. Larin made an agreement with the other 3 by
which the profits were to be divided equally between him and them.
Clarin, Guzman, and Tarud traded the mangoes earning a profit but they didnt comply with the
agreement by neither delivering to Larin his share of the profits nor rendering any account of the
capital.
Larin then filed suit for estafa against them.
Issue
Is a criminal action for estafa the proper remedy in case a co-partner fails to give the other co-partners
their shares in the profits and capital?
Held
No.
Here, a partnership was formed among the parties. Larin invested his P172 in the partnership, but his
partners didnt have the duty to return to him his capital. That duty devolves upon the partnership of
which he himself formed part, or if it were to be done by one of the 3 other partners specifically, it
would be Tarug, who according to the evidence was the person who received the money directly from
Larin.
The partnership having received Larins P172, the business commenced and profits accrued, the
action that lies with the partner who furnished the capital to recover his money isnt a criminal action
for estafa, but a civil one arising from the partnership contract for a liquidation of the partnership and
a levy on its assets if there should be any.
Estafa doesnt include as its object money received for a partnership.
139
Goquiolay vs Sycip - Reconsideration

Facts
Tan Sin An and Antonio C. Goquiolay entered into a general commercial partnership to deal in real
estate. Both Tan and Antonio contributed to the partnerships capital. The agreement lodged in Tan
the sole management of the partnerships affairs and Antonio executed a general power of attorney to
this effect. Further, if a partner dies, the partnership will continue but the heirs of the deceased partner
will represent him in the partnership.
Later, the partnership purchased Land X and assumed the mortgage, payable to La
Urbana..Prestamos. Tan also purchased Land Y but in his individual capacity and assumed the
mortgage thereon. The 2 mortgage obligations were consolidated in an instrument executed by the
partnership and Tan where they agreed to bind themselves solidarily to pay the mortgage.
Tan then died leaving his Heirs. Meanwhile, La Urbana demanded payment from the partnership and
Tan. Respondent Sing Yee and Cuan Co. instead paid the mortgage. Sing Yee then filed their claims
in the intestate proceedings of Tan arising from the partnerships obligations and the mortgage.
Tans Heirs, namely his widow Kong Chai Pin, then sold Land X & Y to Sycip and Lee to settle
Tans debts. Sycip and Lee in turn sold Land X & Y to Insular Development Co. Antonio, learning
about the sale, moved to annul the sale to the extent of his interest in both Lands.
Issue
Was Kongs sale of Land X & Y valid despite Antonios lack of consent to the sale?
Held
Yes.
Now, was Kongs authority limited to managing the property, and didnt include the power to
alienate? No.
Kong wasnt a mere agent, because she had become a partner upon Tans death, as expressly provided
in the articles of co-partnership. More so, granting Kong is only a limited partner, Goquilays
authorization to her to manage partnership was proof that he considered her as a general partner.
Because a limited partner cant be empowered to administer the partnerships properties, even as mere
agent.
Next, Kong had authority to sell the partnerships real estate because the partnership was precisely
organized to deal with real estate mortgage. Therefore, the sale of Land X & Y is within the
partnerships normal business and the partners ordinary powers. Here, such sale is within the
partnerships express objective.
140
Moran Jr. vs CA
Facts
Pecson and Moran entered into an agreement where both would contribute P15k each to print 95k
posters with Moran actually supervising the work. Pecson would receive a commission of P1k a
month starting from April up to December. On December, a liquidation of the accounts in the
distribution and printing of the posters would be made.
Pecson gave Moran P10k and only a few posters were printed. Later, Moran executed in Pecsons
favor a promissory note promising to pay Pecson P20k in 2 equal installments with the whole sum
becoming due upon failure to pay the 1st installment.
Later, Pecson filed suit to recover his contribution in the partnership + profits, as well as the value of
the promissory note. The lower court awarded Pecson P47k representing his share in the partnerships
unrealized profits.
Issue
Is such award proper despite being highly speculative and without taking into account the risks
involved in the business undertaking?
Held
No. The award is speculative and has no basis in fact and law.
Here, its undisputed that a partnership exists between Pecson and Moran. Further, both parties
committed a breach of their partnership obligations, Pecson giving only P10k out of 15k, while Moran
printed only P2k posters out of P95k posters.
In a partnership, each partner must share in the profits and losses of the venture, thats the
partnerships essence. And even with an assurance made by one of the partners that they would earn a
huge amount of profits, in the absence of fraud, the other partner cant claim a right to recover the
highly speculative profits. Here, Pecson was promised P1k a month and P142k on the posters
themselves. However, various factors and hidden risks must be considered in tempering such
expectation of profits.
But it doesnt follow that Pecson isnt entitled to recover anything from Moran. Pecson is still entitled
to his share in the profits.
Next, Pecson isnt entitled to his P1k monthly commission because the basis of the same was the
extravagant profits. Considering the partnership was a failure, there are no profits to get the P1k a
month from.17
17
Simply put, Moran promised too much but the partnership fell flat on its face. But such promise doesnt
justify awarding Pecson the expected extravagant profits.
141
Evangelista vs Abad Santos

Facts
A co-partnership was formed under the name of Evangelista & Co. Later the Articles of copartnership was amended to include Estrella Abad Santos as industrial partner with Evangelista,
Atienza, and Navarro, the original capitalist partners remaining in that capacity with a contribution of
17k each. The amended Articles provided that Abad Santos contribution consist of her industry
being an industrial partner. Further, profits and losses shall be divided among the partners with 70%
in favor of the original capitalist partners, divided equally, and 30% to the industrial partner.
Later, Abad Santos filed suit against the other partners because she wasnt receiving her share in the
profits and was refused despite demand access to the partnership books and information on the
partnership affairs.
Issue
Is Abad Santos an industrial partner or merely entitled to 30% of the profits?
Held
Industrial partner.18
Evangelista argues the parties never intended to make Abad Santos an industrial partner because at
the time, Abad Santos was a judge devoting all her time to performing her duties in public office. This
fact shows Abad Santos isnt an industrial partner because she couldnt lawfully contribute her full
time and industry to performing her obligations as industrial partner.
Such argument is untenable.
Abad Santos rendered services to the partnership without which the same wouldnt have operated.
The CC Art. 1767 doesnt specify the kind of industry that a partner may contribute, hence Abad
Santos services to the partnership can be considered her contribution to the common fund.
As to CC Art. 1789, said provision seeks to prevent any conflict of interest between the industrial
partner and the partnership. Here, theres no showing Abad Santos is engaged in a business
antagonistic to the partnership. Being a judge can hardly be considered a business.
Further, the partnership knew beforehand of Abad Santos occupation as judge and excluded her from
the partnership only after 9 years from the time Abad Santos was admitted.
18
The CA based its decision on 2 grounds:

1. Being a judge isnt a business antagonistic to the partnership
2. Partnership took 9 years after admitting Abad Santos as industrial partner to exclude her.
142
Island Sales, Inc. vs United Pioneers General Construction Co.

Facts
United Pioneers General Construction Co. (United), a general partnership, purchased from Island
Sales a motor vehicle on installment basis and for this purpose executed a promissory note with an
acceleration clause.
United failed to pay causing Island Sales to sue for payment of the remaining balance. Daco, Guizona,
Sim, Lumauig, and Palisoc were included as co-defendants in their capacity as general partners of
United.
During trial, Island Sales moved to dismiss the complaint against Lumauig.
Issue
Did the complaints dismissal in favor of one of the general partners increase the joint liability of the
remaining partners for the partnerships obligations? (from 1/5 to 1/4)
Held
No.
According to the CC Art. 1816, the liability of partners, including industrial ones, is pro rata. Here,
there are 5 general partners when the partnership executed the promissory note. Because liability is
pro rata, the liability of each general partner is limited to 1/5 of the obligation. The fact the complaint
against Lumauig was dismissed didnt unmake his status as general partner. In dismissing the
complaint, Island Sales merely condoned Lumauigs individual liability to it.
143
Idos vs CA
Facts
Complainant Eddie supplied chemicals and rawhide to Idos for use in the latter's business of
manufacturing leather. Later, he formed a partnership with Idos. But the partnership was short-lived
because soon after, the partners agreed to terminate the partnership. The partnership's assets were
liquidated and Idos gave Eddie 4 checks representing his share in the partnership. But upon deposit,
only 3 out of 4 checks were honored.
Eddie then filed a complaint for BP 22.
Issue
Were the checks issued as payment for Eddie's share in the partnership?
Held
No.
The evidence shows the parties agreed to dissolve the partnership but such agreement didn't
automatically end the partnership, because they still had to sell the goods on hand and collect the
receivables from debtors. In short, the partnership was still in the process of 'winding up' its affairs,
when the check in question was issued. Because the partnership hasn't been terminated, Eddie and
Idos remained as co-partner. The checks were therefore issued as from a partner to another, not as
payment from a debtor to creditor.
The 3 final stages of a partnership are:
1. Dissolution;
2. Winding-up;
3. Termination.
Dissolution is defined in the CC Art. 1828. Winding up is the process of settling business affairs of
dissolution. Termination is the point in time after all the partnership affairs have been wound up.
These final stages in the life of a partnership are recognized under the Civil Code that explicitly
declares that upon dissolution, the partnership is not terminated, as provided in Art. 1828 & 1829.
Here, the checks were issued merely to evidence the complainant's share in the partnership property,
or to assure the latter that he would receive in time his due share therein. The check wasn't intended to
apply on account or for value; rather it should be deemed as having been drawn without consideration
at the time of issue. Payment of the share in the partnership, using the checks, was conditioned on the
subsequent realization of profits from the unsold goods and collection of the receivables of the firm.
This situation would hold true until after the winding up, and subsequent termination of the
partnership. For only then, when the goods were already sold and receivables paid the erstwhile
partners could avail of that cash money.19
19
Idos was acquitted of Estafa because the checks were never issued as payment, but rather to evidence Eddie's
interest in the partnership.
144
Villereal vs Ramirez
Facts
Villereal, Carmelito Jose and Jesus Jose formed a partnership with a capital of P750k to operate a
restaurant business under the name Aquarius Food House and Catering Services. Villareal was
appointed general manager and Carmelito, operations manager.
Respondent Donaldo Ramirez later joined as a partner in the business. His parents, respondent Sps.
Ramirez, paid his capital contribution of P250k. Meanwhile Jesus withdrew from the partnership and
his capital contribution was refunded to him. Further, the restaurant was closed down and its contents
stored in the Sps. Ramirez storage house.
Later, the Sps. Ramirez informed Villereal and the other partners that they were no longer interested
in continuing the partnership and reopening the restaurant, and they were accepting the latters offer
to return their capital contribution. Afterwards, the Sps. Ramirez made another demand, reiterating
the request for the return of their share in the partnership. The demands however were unheeded
causing the Sps. Ramirez to file suit.
Issues
Are the other partners liable to refund the Sps. Ramirez their share in the partnership?
Held
No.
The evidence shows a partnership existed but was subsequently dissolved when the Sps. Ramirez
informed the other partners of their intent to discontinue the partnership. Further, the Sps. Ramirez
demanded from the other partners their share in the partnership.
However, the Sps. Ramirez have no right to demand from the partners the return of their share.
Except as managers of the partnership, the other partners didn't personally hold its assets. The
partnership has a juridical personality separate and distinct from each of the partners. Because the
capital was contributed to the partnership, not to the partners, it's the partnership that must refund the
share of the Sps. Ramirez.
And because it's the partnership that is liable to return the Sps. Ramirez's shares, the amount to be
refunded is necessarily limited to its total resources. In other words, it can only pay out what it has in
its coffers, which consists of all its assets. However, before the partners can be paid their shares, the
creditors of the partnership must first be compensated. After all the creditors have been paid,
whatever is left of the partnership assets becomes available for the payment of the partners shares.
Here, the exact amount of the Sps. Ramirez share in the assets can't be determined until all the
partnership's assets have been liquidated and the creditors have been paid. The basis of such share
can't be the initial capital because in pursuit of a business, the capital is either increased by profits or
decreased by losses.
145
Claudio vs Zandueta
Facts
This dispute is a civil case Zandueta and co-respondents instituted asking, among others, for:
1. The dissolution of the association named Cotabato & Cagayan Mining Association
2. Accounting from Claudio and co-petitioners, as members of the associations executive
committee
3. Appointment of a receiver to take charge of the associations properties.
The Judge issued an order appointing the receiver causing Claudio to appeal such order.
Issue
Did the Judge act with grave abuse of discretion in appointing a receiver despite the absence of other
interested parties to the case, such as the Cotabato & Cagayan Mining Assocation?
Held
Yes.
In order that a receiver may be appointed in a case, an application under oath to that effect must be
filed, alleging all the facts necessary to convince the court to grant the same, for the purpose of
preserving the property which is the subject of litigation and protecting thereby the rights of all the
parties interested therein. Before a receiver is appointed, the consequences or effects thereof should be
considered or, at least, estimated in order to avoid causing irreparable injustice to others who are
entitled to as much consideration as those seeking it.
In the complaint itself, it has been emphatically alleged that the "Cotabato & Cagayan Mining
Association" is composed of 279 members; but in spite thereof, Zandueta failed to include them as
parties in said case, except only Claudio and co-petitioners, in both their personal and official
capacity, despite bringing the action not only for their own benefit but also for the benefit of the other
members. Neither did they include said association, in spite of the fact that their principal purpose is
to obtain the dissolution of the same. The association, as a party affected thereby, is undoubtedly as
much entitled, if not more entitled than the plaintiffs and defendants, to be heard in the case, in
matters affecting its existence as well as the appointment of a receiver applied for.
Here, the defendants acted for the benefit of the "Cotabato & Cagayan Mining Association" or all the
members thereof, much less that the plaintiffs, in turn, sued not only for their own benefit but also for
the benefit of all the other members.
It necessarily follows from the foregoing that in order that the respondents judge could exercise his
authority to appoint a receiver, he should have required the inclusion therein, as necessary parties, of
the Cotabato & Cagayan Mining Association or of the other members not included as such parties;
or at least, the plaintiffs should have brought the action for themselves and in the name of the
association in question, or for the benefit of the other members. Not having done so, and it appearing
clearly that the persons who might be affected by the remedy applied for were not parties to the case,
the respondents judge undoubtedly acted in excess of his jurisdiction and abused his discretion.
146
Elmo Munasque vs CA
Facts
Elmo, on behalf of the partnership Galan and Munasque, entered into a contract with Respondent
Tropical to remodel a portion of the latters Cebu branch building with the partnership being paid in
installments. Later, Tropical made its 1st payment through a check in Elmos name. Elmo indorsed
the same to Galan so the latter can deposit it and use the amount to pay their suppliers. However,
Galan misused the money for his personal affairs. When Tropical made its 2nd payment, Elmo
refused to indorse the check. Galan then informed Tropical that there was a misunderstanding
between him and Elmo causing Tropical to change the payee from Elmo to Galan and Associates.
Galan and Associates is the partnerships duly registered name. Galan was then able to deposit the
2nd check.
Due to Galans mischief, Elmo experienced financial difficulty as the money from the 2nd check was
supposed to be paid to the suppliers and workers. Elmo managed to finish the contract but at great
expense to himself and by borrowing from 3rd party creditors. Elmo then filed suit to recover the
value of the check and make Galan solely liable to the 3rd party creditors.
Issue
Can Tropicals payment to Galan be considered as good payment as to the partnership? Who is liable
to the 3rd party creditors?
Held
Yes || The partnership, Elmo, and Galan are liable solidarily - But Galan must reimburse Elmo
Here, the evidence shows that the partnership between Galan and Munasque was a genuine one. If
there was a falling out or misunderstanding between the partners, such doesnt convert the partnership
into a sham organization.
When Elmo received the 1st check with him as payee, he indorsed the check in Galans favor.
Therefore, Tropical had every right to presume that Elmo and Galan were true partners. If they
werent partners as Elmo claims, then he has only himself to blame for making the relationship appear
otherwise, not only to Tropical but to their other creditors as well. The payment Tropical made to the
partnership was good payment which binds both Galan and Elmo. Further, because the two were
partners when the debts were incurred, they are also both liable to the partnerships 3rd party
creditors.
Next, while its true that under Article 1816 of the Civil Code, the partners liability is pro rata, this
provision should be construed together with Article 1824. Meaning, while the liability of the partners
are merely joint in transactions entered into by the partnership, a 3rd person who transacted with said
partnership can hold the partners and partnership itself solidarily liable for the whole obligation if the
case falls under Articles 1822 or 1823.
Here, Tropical had every reason to believe that a partnership existed between Elmo and Galan and
cant be faulted for paying "Galan and Associates" and delivering the same to Galan because as far as
it was concerned, Galan was a true partner with real authority to transact on the partnerships begalf.
This is also true for the partnerships 3rd party creditors. However. Galan should reimburse Munasque
for the latters payments on the partnerships behalf because the former acted in bad faith in dealing
with Munasque.
147
Tocao vs CA
Facts
Respondent Nenita Anay, Petitioner William Belo and Marjorie Tocao entered into a joint venture for
importing and distributing kitchenware. Belo acted as capitalist, Marjorie as President and General
Manager, and Nenita as head of marketing and Vice-President. Nenita was responsible for marketing
the product considering her experience and established relationship with West Bend Company, a USbased manufacturer of kitchenware. Further, the parties agreed on Nenitas compensation, consisting
of commissions, and that Belos name shouldnt appear on any document concerning transactions
with West Bend. The agreement wasnt reduced in writing because Belo assured the parties he was an
honest man in his financial commitments.
Nenita secured the distributorship from West Bend and the business was successful. They operated
under the name Geminesse Enterprise, a sole proprietorship registered in Marjories name. Nenita
continued doing her job well until one day, Marjorie removed Nenita as Vice-President barred her
from holding office. Nenita then demanded from Belo her commission but such demand went
unanswered.
Nenita then filed suit.
Issue
Was there a partnership among the parties? And was such partnership dissolved upon Nenitas
removal as Vice-President?
Held
Yes || Yes
Here, the evidence shows the parties established a business partnership despite the fact the same was
only oral. An oral contract of partnership is as good as a written one provided no immovable property
or real rights are involved. The fact theres no record in the SEC of a public instrument embodying
the partnership agreement pursuant to the CC Article 1772 didnt nullify the partnership.
Next, Nenita is an industrial or managing partner because she contributed her expertise in marketing
to the partnership. It was through her relationship with West Bend Company, to secure the
distributorship, and her marketing skills that the business was propelled to financial success. Further,
by the business set-up, 3rd persons were made to believe that a partnership had indeed been forged
between petitioners and private respondents. Both Belo and Marjorie merged their respective capital
and infused the amount into the partnership of distributing cookware, with Nenita as the managing
partner.
The business venture operating under Geminesse Enterprise didnt result in an employer-employee
relationship between Nenita and Petitioners. First, Nenita had a voice in the management of the affairs
of the business. Second, Marjorie admitted that like her, who was President, Nenita received only
commissions and not a fixed salary.
Undoubtedly, Marjorie unilaterally excluded Nenita from the partnership to reap for herself and Belo
the financial gains resulting from Nenitas efforts in making the business venture a success. Marjorie
believed that Nenita was no longer necessary in the business operation and resulted in a falling out
between the two. However, a mere falling out or misunderstanding between partners doesnt 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.
Here, Tocao unilaterally excluding Nenita from the partnership resulted in her own withdrawal from
the partnership. Nevertheless, the partnership was not terminated thereby; it continues until the
148
winding up of the business. The partnership hasnt yet undertaken the winding up of partnership
affairs.
149
Realubit vs Jaso
Facts
Realubit entered into a Joint Venture Agreement with Biondo, a French National, to operate an ice
manufacturing business. The parties agreed on the sharing of profits and manner of acquiring the
machines.
Later, Biondo executed a Deed of Assignment transferring all his rights in the business in Jasos
favor. With Biondos departure from the Philippines, Jaso informed Realubit of the assignment and
demanded an accounting as well as their portion of the profits.
The demand however went unheeded causing Jaso to file suit.
Issue
Whether or not Jaso become a partner when Biondo transferred his interest in the partnership to the
former.
Whether or not the partnership was properly dissolved upon Jasos motion pursuant to the CC Art.
1831.
Held
Jaso didn't become a partner || The partnership was dissolved
Generally understood to mean an organization formed for some temporary purpose, a joint venture is
likened to a particular partnership or one that 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 the law
on partnerships governs joint ventures, and partnerships in turn are based on mutual agency or
delectus personae. Insofar as a partners conveyance of the entirety of his interest in the partnership is
concerned, the CC Article 1813 governs.
From the foregoing provision, it is evident that the transfer by a partner of his partnership interest
doesnt 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 assignees profits. The
assignment doesnt purport to 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. Since a partners interest in the partnership includes his share in
the profits, Jaso is entitled to Biondos share in the profits, despite Realubits lack of consent to the
assignment of Biondos interest in the joint venture.
Although Jaso didnt, moreover, become a partner as a consequence of the assignment and/or acquire
the right to require an accounting of the partnership business, her prayer for dissolution of the joint
venture conformably with the right granted to the purchaser of a partners interest under Article 1831
of the Civil Code is proper.
150
Singson vs Isabela Sawmill

Facts
Respondents Garibay, Saldejeno, and Tubungbanua entered into a partnership under the name Isabela
Sawmill. Later, Saldejeno filed a civil case against the partnership and the other partners. The parties
then entered into a Memorandum Agreement stipulating that Saldejeno was withdrawing from the
partnership but she would allow the remaining partners to continue the business. Pursuant to the
Memorandum Agreement, the remaining partners continued the business still under the same name.
The partnership then executed a chattel mortgage over its assets in Saldejenos favor. Later, purusant
to the civil case, the assets over which a chattel mortgage was executed was sold at public auction
with Saldejeno as the highest bidder.
Plaintiffs in this case are the partnerships creditors and they filed suit to collect the amount owing
them.
Issue
Can Saldejeno be held liable for the partnerships liabilities despite the fact she already withdrew
from the partnership?
Held
Yes.
A partnerships dissolution is caused by any partner ceasing to be associated in the carrying on of the
business. However, on dissolution, the partnership isnt immediately terminated but continuous until
the winding up to the business. Here, the remaining partners didnt terminate the business of the
partnership "Isabela Sawmill". Instead of winding up the business of the partnership, they continued
the business still in the same name. There was no liquidation of the partnerships assets but in fact, the
remaining partners continued using such assets.
Further, the properties the remaining partners mortgaged to Saldajeno belonged to the partnership.
Saldejeno is liable because she purchased at public auction the partnerships assets which were
mortgaged to her. The judicial foreclosure of the chattel mortgage executed in Saldajenos favor
didnt relieve her from liability to the creditors of the partnership.
Further, Saldajenos withdrawal from the partnership wasnt published in the newspapers. The
Plaintiffs and the public in general had a right to expect that whatever credit they extended to the
partnership could be enforced against the partnerships assets. Also, Saldajeno is partly to blame for
not insisting on the liquidation of the partnerships assets. She even agreed to let the remaining
partners continue doing the business of the partnership as evidenced by the Memorandum Agreement.
Although it may be presumed that Saldajeno acted in good faith, the Plaintiffs also acted in good faith
in extending credit to the partnership. Where one of two innocent persons must suffer, that person
who gave occasion for the damages to be caused must bear the consequences. Had Saldajeno not
entered into the Memorandum Agreement allowing the remaining partners to continue doing the
business of the partnership, the Plaintiffs wouldnt have been misled into thinking they were still
dealing with the partnership Isabela Sawmill.
151
Ames vs Downing
Excerpt:
The system of limited partnerships, which was introduced by statute into this state, and subsequently
very generally adopted in many other states of the Union, was borrowed from the French Code. 3
Kent, 36; Code de Commerce. It has existed in France from the time of the Middle Ages; mention
being made of it in the most ancient commercial records and in the early mercantile regulations of
Marseilles and Montpellier. In the vulgar Latinity of the middle ages it was styled commenda, and in
Italy acommenda. In the statute of Pisa and Florence, it is recognized as far back as the year 1160;
also in the ordinance of Louis-le-Huton, of 1315; the statutes of Marseilles, 1253; of Geneva of 1588.
In the middle ages it was one of the most frequent combinations of trade and was the basis of the
active and widely extended commerce of the opulent maritime cities of Italy. It contributed largely to
the support of the great and prosperous trace carried along the shores of the Mediterranean; was
known in Languedoc, Provence, and Lombardy, entered into most of the industrial occupations and
pursuits of the age and even traveled under the protection of the arms of the Crusaders to the City of
Jerusalem. At a period when capital was in the hands of nobles and clergy, who from pride or caste, or
canonical regulations, could not engage directly in commercial enterprises and reaping the profits of
such lucrative pursuits without personal risks, and thus the vast wealth, which otherwise would have
lain dormant in the coffers or the rich, became the foundation by means of this ingenious idea of that
great commerce which made princes of the merchants, elevated the trading classes and brought the
commons into position as an influential estate of the common wealth.
152
Commissioner of Internal Revenue vs Suter

Facts
Suter, as general partner, and Spirig and Carlson, as limited partners, formed a limited partnership
named William J. Suter Morcoin Co. Each of the partners contributed various sums of money. The
limited partnership was registered with the SEC and the firm engaged in importing, marketing,
distributing, and operating various products. The partnership had an office and held itself out as a
limited partnership.
Later, Suter and Spirig got married and Carlson sold his share to the newly wed couple. The sale was
duly registered with SEC. During this time, the partnership had been filings its ITR as a corporation
without objection from the CIR. However, recently, in an assessment report consolidating the incomes
of the partnership and individual partners, slapped Suter with a deficiency income tax.
Suter protested the assessment and requested its cancellation.
Issue
When Suter married Spirig, and the couple eventually bought Carlsons interest in the partnership,
thereby becoming the only partners, did the limited partnership become a prohibited partnership?
Held
No.
The thesis that the limited partnership has been dissolved by operation of law because of the marriage
of the only general partner, William J. Suter to the originally limited partner, Julia Spirig one year
after the partnership was organized is untenable.
A husband and a wife may not enter into a contract of general copartnership, because under the Civil
Code, 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.
However, The CIR failed to observe the fact that the disputed partnership wasnt a universal
partnership but a particular one. The contributions of the partners were fixed sums of money and no
one was an industrial partner. A universal partnership may be either all the present property or all the
profits.
It follows that the limited partnership wasnt a partnership that spouses were forbidden to enter by.
Nor could the subsequent marriage of the partners operate to dissolve it, such marriage not being one
of the causes provided for that purpose in law.
As to the tax issue, the limited partnership has a separate juridical personality, distinct from its
partners. Based on this, the partnerships income cant be equated with the income of its partners.
Further, the Tax Code itself distinguished between general partnerships and limited partnerships. The
law merging the personality of individual parters with the general partnership for income tax
purposes, but not so for limited partnerships.
153
Jo Chung Cang vs Pacific Commercial Co.

Facts
Following the presentation of an application to be adjudged an insolvent by the "Sociedad Mercantil,
Teck Seing & Co., Ltd.," the creditors, the Pacific Commercial Company, Piol & Company, Riu
Hermanos, and W. H. Anderson & Company, filed a motion in which the Court was prayed to enter
an order:
1. Declaring the individual partners as parties to this proceeding;
2. To require each of said partners to file an inventory of his property and
3. That each of said partners be adjudicated insolvent debtors in this proceeding.
Issue
Is the disputed partnership a limited or general partnership?
Held
General partnership.20
To establish a limited partnership there must be, at least, one general partner and the name of at least
one of the general partners must appear in the firm name. But neither of these requirements has been
fulfilled. The general rule is, that those who seek to avail themselves of the protection of laws
permitting the creation of limited partnerships must show a substantially full compliance with such
laws. A limited partnership that has not complied with the law of its creation isnt considered a
limited partnership at all, but a general partnership in which all the members are liable.
Article 125 of the Code of Commerce provides that the articles of general copartnership must comply
with certain requirements. Turning to the document before us, it will be noted that all of the
requirements of the Code have been met, with the sole exception of that relating to the composition of
the firm name.
The supreme court of Spain has repeatedly held that notwithstanding the obligation of the members to
register the articles of association in the commercial registry, agreements containing all the essential
requisites are valid as between the contracting parties, whatever the form adopted, and that, while the
failure to register in the commercial registry necessarily precludes the members from enforcing rights
acquired by them against third persons, such failure cannot prejudice the rights of third persons. The
same reasoning would be applicable to the less formal requisite pertaining to the firm name.
The one object of the act is manifestly to protect the public against imposition and fraud, prohibiting
persons from concealing their identity by doing business under an assumed name, making it unlawful
to use other than their real names in transacting business without a public record of who they are,
available for use in courts, and to punish those who violate the prohibition. As this act involves purely
business transactions, and affects only money interests, we think it should be construed as rendering
contracts made in violation of it unlawful and unenforceable at the instance of the offending party
only, but not as designed to take away the rights of innocent parties who may have dealt with the
offenders in ignorance of their having violated the statute.
Consequently, the contract of partnership found in the document established a general partnership or,
to be more exact, a partnership as this word is used in the Insolvency Law.
20
Most of the case is a discussion on the requirements of the Code of Commerce on partnerships, a law that has
already been repealed.
154
Kilosbayan, Inc. vs Guingona

Facts
The PCSO was interested in operating an on-line lottery system. The Berjaya Group Berhad was
interested in offering such services to PCSO and the former organized with Filipino Investors a
corporation known as Philippine Gaming Management Corporation (PGMC) to mediate with PCSO.
Later, PCSO issued its Request for Proposal for the Lease Contract of an on-line lottery system and
PGMC submitted its bid. The Office of the President awarded the contract to PGMC. The set-up
would comprise of PCSO operating the lottery and PGMC as lessor. Kilosbayan opposed such
contract on moral and legal grounds but the Office of the President denied the protest. Kilosbayan
then filed suit in court.
Issue
Whether or not the Contract of Lease is in truth a clever disguise for a Joint Venture Agreement.
Held
The Contract of Lease is a JVA.
The law is clear that the PCSO cant share its franchise with another by way of collaboration,
association or joint venture. Neither can it assign, transfer, or lease such franchise. Does the
challenged Contract of Lease violate such prohibition? Yes.
True, the Contract is termed a Contract of Lease, but the contract shouldn't be determined solely on
the basis of designation of the contract but by the intent of the parties, which may be gathered from
the provisions of the contract itself.
The evidence shows the contract isnt in reality a contract of lease under which the PGMC is merely
an independent contractor for a piece of work, but one where the statutorily proscribed collaboration
or association, in the least, or joint venture, at the most, exists between the contracting parties. A Joint
venture is defined 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
duty, which may be altered by agreement to share both in profit and losses.
Under the Contract, PCSOs only contribution would be its franchise or authority to operate the online lottery system; with the rest, including the risks of the business, being borne by the proponent or
bidder. Undoubtedly, then, the Berjaya Group Berhad knew all along that in connection with an online lottery system, the PCSO had nothing but its franchise. Howsoever viewed then, from the very
inception, the PCSO and the PGMC mutually understood that any arrangement between them would
necessarily leave to the PGMC the technical, operations, and management aspects of the on-line
lottery system while the PCSO would, primarily, provide the franchise. The true intention of the
parties is to have a joint venture for a period of eight years in the operation and maintenance of the
on-line lottery system.
All of the foregoing unmistakably confirms the indispensable role of the PGMC in the pursuit,
operation, conduct, and management of the On-Line Lottery System. They exhibit and demonstrate
the parties' indivisible community of interest in the conception, birth and growth of the on-line lottery,
and, above all, in its profits, with each having a right in the formulation and implementation of
policies related to the business and sharing, as well, in the losses with the PGMC bearing the
greatest burden because of its assumption of expenses and risks, and the PCSO the least, because of
its confessed unwillingness to bear expenses and risks.
155
Information Technology Foundation of the Philippines vs Comelec

Facts
Congress passed a law authorizing Comelec to implement an Automated Election System for the
national and local elections. The Comelec started a bidding for the automated election machines
comprised of a 2-step process. The 1st step determined if the bidder is eligibly by checking if the
bidder has the qualifications laid down in the Request for Proposal (RFP). The 2nd step consisted of
the bidding itself.
After the 1st step, Comelec found 2 companies eligible namely, Information Management
Corporation (IMC) and Mega Pacific Consortium (MPC). Comelec awarded the contract to MPC
causing the loser, IMC, to file suit to protest the award.
Issue
Whether or not MPC is really a Consortium.
Held
MPC isn't a Consortium.
Here, no instrument was submitted to Comelec showing the JVA, consortium agreement,
memorandum agreement, or any instrument of similar import establishing the existence of the
consortium.
But despite the absence of proof as to the existence of the alleged consortium (MPC), its capacity to
deliver on the Contract, and the members joint and several liabilities 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 formers own bidding
rules and procedures contained in its RFP.
A joint venture is 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
duty, which may be altered by agreement to share both in profit and losses.
Here, 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.
It will be noted that Agreements between the alleged Consortium neither contain any specifics or
details as to the exact nature and scope of the parties respective undertakings, liabilities,
performances and deliverables under the Agreement with respect to the automation project. Likewise,
the two Agreements are quite bereft of the amount of investments each party contributes, its
respective share in the revenues and/or profit from the Contract with Comelec, and so forth -- all of
which are normal for agreements of this nature.
The strange and beguiling arrangement of MPEI with the other companies doesnt qualify them to be
treated as a consortium or joint venture, at least of the type that government agencies like the Comelec
should be dealing with. With more reason is it unable to agree to the proposal to evaluate the
members of MPC on a collective basis.
156
Mendoza vs Paule
Facts
Paule, the proprietor of E.M. Paule Construction and Trading (EMPCT) executed an SPA in
Mendozas favor authorizing the latter to participate as his representative in the bidding of an NIA
project. Mendoza won the bidding and NIA awarded the contract to EMPCT. Later, Cruz learned that
Mendoza needed heavy equipment to use in the NIA project. Mendoza and Cruz then signed a Job
Order/Agreement to lease the latters heavy equipment to EMPCT.
Later, Paule revoked Mendozas SPA causing NIA to stop paying Mendoza. As a result, Mendoza
also couldnt pay Cruz for the lease. Cruz demanded payment from NIA but the latter refused
reasoning payment would be made only to EMPCT. Cruz then demanded payment from Mendoza and
EMPCT but both refused to pay.
Cruz then filed suit.
Issue
Did Paule validly revoke Mendozas SPA? If no, is Paule liable for damages to Mendoza?
Held
Yes || Yes
The evidence shows that EMPCT and Mendoza entered into a partnership concerning the NIA
project. EMPCTs contribution is the contractors license and expertise, while Mendoza would
provide and secure the needed funds for labor, materials and services and in general oversee the
projects effective implementation. EMPCT would receive as its share 3% of the project cost while
the rest of the profits go to Mendoza.
Next, there was no valid reason for Paule to revoke Mendozas SPA. The SPA was necessary for
Mendoza to properly perform her role in the partnership, and to discharge the obligations she had
already contracted prior to revocation. Without the SPA, she couldnt collect from NIA, because as
far as it is concerned, EMPCT and not the partnership is the entity it had contracted with. Without
these payments from NIA, there would be no source of funds to complete the project and to pay off
obligations incurred. 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.
Paules revocation of the SPA was done in evident bad faith. He knew full well that 97% of the
amount collected from NIA went to Mendoza and used to pay the suppliers and laborers. Yet, he
deliberately revoked Mendozas authority preventing the latter from collecting from NIA and
continuing with the project. From the way he conducted himself, Paule committed a willful and
deliberate breach of his contractual duty to his partner and those with whom the partnership had
contracted. Paule effectively cut off Mendozas source of funds and left the latter to fend for her own.
157
Philex Mining Corp. vs Commissioner of Internal Revenue

Facts
Philex Mining Corp. entered into an agreement with Baguio Gold Mining Company for the former to
manage and operate the latters mining claim in a certain province. The agreement was called a
Power of Attorney. While managing the project, Philex made several cash advances but the mine
suffered continuing yearly losses resulting in Philexs withdrawal as manager from the mine.
Later, both parties executed a Compromise with Dation in Payment with Baguio Gold admitting
indebtedness in Philexs favor and to pay the same. Philex then, in its annual income tax return,
deducted from its gross income Baguios indebtedness writing off the same as a bad debt. However,
the Bureau of Internal Revenue (BIR) disallowed the amount as deduction for bad debt and assessed
Philex a deficiency income tax of P62,811,161.39.
Philex filed suit against the taxation.
Issue
Whether or not the Power of Attorney is in fact an Agreement to enter into partnership or joint
venture, and not an ordinary agency.
Held
The 'Power of Attorney' is for a partnership/joint venture and not an ordinary agency.
An examination of the Power of Attorney reveals that a partnership or joint venture was indeed
intended by the parties. While a corporation, like Philex, cant generally enter into a contract of
partnership unless authorized by law or its charter, it has been held that it may enter into a joint
venture that is akin to a particular partnership. The parties intended to create a partnership and
establish a common fund for the purpose. They had a joint interest in the profits of the business as
shown by a 50-50 sharing in the income of the mine. Philex contribution consisted of its expertise in
managing and operating mines as well as money, while Baguios would be money.
The main object of the Power of Attorney wasnt to confer a power in favor of Philex to contract
with third persons on behalf of Baguio Gold but to create a business relationship between Philex and
Baguio Gold. The agreement provided for a distribution of assets of the Sto. Nio mine upon
termination, a provision that is more consistent with a partnership than a creditor-debtor relationship.
The strongest indication that petitioner was a partner in the Sto Nio mine is the fact that it would
receive 50% of the net profits as compensation under paragraph 12 of the agreement. The entirety
of the parties contractual stipulations simply leads to no other conclusion than that petitioners
compensation is actually its share in the income of the joint venture.
Finally, Philex advances are actually investments in a partnership known as the Sto. Nino mine. The
advances were not debts of Baguio Gold to petitioner inasmuch as the latter was under no
unconditional obligation to return the same to the former under the Power of Attorney.
158
Marsman Drysdale Land, Inc. vs Philippine Geoanalytics, Inc.

Facts
Marsman Drysdale Land, Inc. and Gotesco Properties, Inc. entered into a JVA to construct and
develop an office building on land owned by Marsman. The parties hired Philippine Geoanalytics Inc.
to provide subsurface soil exploration and geotechnical engineering for the project. PGI billed the
joint venture a sum certain of money representing the cost of the study but the joint venture failed to
pay.
Meanwhile, due to unfavorable economic conditions, the joint venture was cut short and the planned
building shelved.
PGI then filed suit.
Issue
Whether or not Marsman or Gotesco should bear liability.
Held
Jointly liable.
Here, its undisputed the joint venture is liable to PGI for the cost of the seismic study.
The question now is who should bear the liability? Joint liability
PGI executed a technical service contract with the joint venture and was never a party to the
JVA. While the JVA clearly spelled out, inter alia, the capital contributions of Marsman Drysdale
(land) and Gotesco (cash) as well as the funding and financing mechanism for the project, the same
cant be used to defeat the lawful claim of PGI against the two joint venturers-partners.
The TSC clearly listed the joint venturers Marsman Drysdale and Gotesco as the beneficial owner of
the project, and all billing invoices indicated the consortium therein as the client.
The CC Articles 1207 and 1208 provide the presumption that the obligation owing to PGI is joint
between Marsman Drysdale and Gotesco.
The only time that the JVA may be made to apply in the present petitions is when the liability of the
joint venturers to each other would set in. A joint venture being a form of partnership, it is to be
governed by the laws on partnership. The CC Article 1797 applies here.
In the JVA, Marsman Drysdale and Gotesco agreed on a 50-50 ratio on the proceeds of the project.
They did not provide for the splitting of losses, however. Applying Article 1797 then, the same ratio
applies in splitting the obligation-loss of the joint venture.
Further, Marsman Drysdale and Gotesco being jointly liable, there is no need for Gotesco to
reimburse Marsman Drysdale for 50% of the aggregate sum due to PGI. Allowing Marsman
Drysdale to recover from Gotesco what it paid to PGI would not only be contrary to the law on
partnership on division of losses but would partake of a clear case of unjust enrichment at Gotescos
expense.
159
J. Tiosejo Investment Corp. vs Sps. Ang

Facts
J. Tiosejo Investment entered into a JVA with Primetown Property Group to develop a residential
condominium project, The Meditel, on the formers property. Tiosejo would contribute the property
while Primetown would develop the condominium under the JVA. The JVA also provided for a 17%83% share in the condominium units between Tiosejo and Primetown respectively.
Later, the Housing and Land Use Regulatory Board issued the parties a license to sell. Through said
license, Primetown executed a Contract to Sell with the Sps. Ang for a unit and parking lot.
Afterwards, the Sps. Ang filed suit to rescind the Contract to Sell because the unit and parking space
werent complete yet and therefore couldnt be turned over to them on the agreed date in the contract.
Issue
Whether or not Tiosejo is liable alongside Primetown to the Sps. Ang despite not being a party to the
contract.
Held
Tiosejo is jointly liable with Primetown.
By the JVAs express terms, Tiosejo not only retained ownership of the property pending completion
of the condominium project but had also bound itself to answer liabilities proceeding from contracts
Primetown entered into with third parties. The JVA expressly provides:
...In any case, the Owner shall respect and strictly comply with any covenant entered into by the
Developer and third parties with respect to any of its units in the Condominium Project. To enable
the owner to comply with this contingent liability, the Developer shall furnish the Owner with a copy
of its contracts with the said buyers on a month-to-month basis.
Viewed in the light of the foregoing provision of the JVA, Tiosejo cant avoid liability by claiming
that it wasnt in any way privy to the Contracts to Sell executed between Primetown and the Sps. Ang.
A joint venture is considered in this jurisdiction as a form of partnership and is, accordingly, governed
by the law of partnerships. Under the Civil Code Article 1824, all partners are solidarily liable with
the partnership for everything chargeable to the partnership, including loss or injury caused to a third
person or penalties incurred due to any wrongful act or omission of any partner acting in the ordinary
course of the business of the partnership or with the authority of his co-partners. Whether innocent or
guilty, all the partners are solidarily liable with the partnership itself.
160
Aurbach vs. Sanitary Wares Mnfg. Corp.

Facts
Saniwares is a corporation incorporated to manufacture and market sanitary wares. Later, one of its
incorporators, Young, went abroad to look for foreign partners and met with ASI, a foreign
corporation domiciled in the US. The parties entered into an Agreement concerning ownership over
the enterprise. Such Agreement contained provisions intended to protect ASIs status as minority
group such as veto powers and the right to designate officers. Under the set-up, ASI would have 3
members in the Executive Committee while the Filipino Investors would have 6 members.
The business prospered but along with this came the deterioration of the relationship between ASI and
the Filipino Investors.
At a stockholders meeting, the trouble started. At the meeting for election of directors, the
stockholders nominated 11 persons for the 9-member board. However, the chairman, Young, refused
to recognize the nomination of the 10th and 11th director reasoning company practice for the past
annual meetings was to nominate only 9 members. The ASI representatives and the 10th and 11th
nominees protested Young's decision resulting in the ASI faction and the Young faction electing their
own set of directors.
Issue
Whether or not the parties established a joint venture or a corporation.
Held
Joint venture.
The evidence shows the parties intended to form 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.
The provisions in the Agreement requiring a 7 out of 9 votes of the board of directors for certain
actions, in effect gave ASI (which designates 3 directors under the Agreement) an effective veto
power. Furthermore, the grant to ASI of the right to designate certain officers of the corporation; the
super-majority voting requirements for amendments of the articles and by-laws, the provision that
ASI shall designate 3 out of the 9 directors and the other stockholders shall designate the other 6,
clearly indicate that there are two distinct groups in Saniwares, namely ASI, which owns 40% of the
capital stock and the Philippine National stockholders who own the balance of 60%
Next, the Agreement relating to the designation or nomination of directors restricting the right of the
Agreement's signatories to vote for directors, such contractual provision, as correctly held by the SEC,
is valid and binding upon the signatories thereto, which include ASI.
Further, the agreement that ASI and the Filipino Investors would each choose their own 3 and 6
nominees respectively is valid. Also valid is the agreement that in case the Filipino Investors cant
agree on their own 6 nominees, then only the Filipino Investors would have cumulative voting,
excluding ASI.
161
JG Summit Holdings, Inc. vs Court of Appeals

Facts
The National Investment and Development Corp. a government corporation, entered into a JVA with
Kawasaki Industries to construct, operate, and manage the Subic National Shipyard, now the
Philippine Shipyard and Engineering Corp. (Philseco) Under the JVA, both parties would contribute
capital to the undertaking on a 60-40 basis. Also, the JVA granted both parties a right of first refusal
should either decide to sell, assign, or transfer its interest in the joint venture.
Later, the Government decided to sell its share in the Philippine Shipyard to private entities. The
Government and Kawasaki decided to exchange the latters right of first refusal with a right to top.
Kawasaki, under the right to top, can top the highest bid by 5% and designate the company entitled to
exercise the right to top. Kawasaki chose Philyard Holdings to exercise the right to top. At the public
bidding, JG Summit Holdings Inc. was the highest bidder but Philyard exercised its right to top.
JG Summit protested Philyards right to top but such protest was denied. JG Summit then filed suit.
Issue
Whether or not the right of first refusal granted to Kawasaki is valid despite the possibility Kawasaki
can acquire more than 40% of the shares in Philseco.
Held
The right of first refusal is illegal.
A careful reading of the Joint Venture Agreement reveals that theres nothing to prevent Kawasaki
from acquiring more than 40% of Philsecos total capitalization. Such Agreement is in danger of
contravening the Constitution providing for a 40% limit to foreign ownership in Corporations. The
phrase maintaining a proportion of 60%-40% refers to their respective share of the burden each
time the Board of Directors decides to increase the subscription to reach the target paid-up capital of
P312 million. It doesnt bind the parties to maintain the sharing scheme all throughout the existence
of their partnership.
The joint venture between the Government and Kawasaki is in the nature of a partnership that, unlike
an ordinary corporation, is based on delectus personae. No one can become a member of the
partnership association without the consent of all the other associates. The right of first refusal thus
ensures that the parties are given control over who may become a new partner in substitution of or in
addition to the original partners. Should the selling partner decide to dispose all its shares, the nonselling partner may acquire all these shares and terminate the partnership. No person or corporation
can be compelled to remain or to continue the partnership.
Of course, this presupposes that there are no other restrictions in the maximum allowable share that
the non-selling partner may acquire such as the constitutional restriction on foreign ownership in
public utility. The partners cant, by mere agreement, avoid the constitutional proscription. But as
afore-discussed, Philseco isnt a public utility and no other restriction is present that would limit
Kawasais right to purchase the Governments share to 40% of Philsecos total capitalization.

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