Agency Book - CLV

A1LNLC LAW SCnCCL
7S
1n
DIAMCND ANNIVLkSAk
06 IUNL 2011
1hls book ls publlshed as parL of Lhe celebraLlons of Lhe
A1LNLC LAW SCnCCL'S 7S1n DIAMCND ANNIVLkSAk, and Lhe
royalLles shall be devoLed Lo fundlng Lhe auLhor's
scholarshlp endowmenL fund for scholarly sLudenLs of
Lhe ALeneo Law School.

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h|||pp|ne Copyr|ght, 2011
MN
CLSAk

IS8N 978-971-23-S934-7
no porLlon of Lhls book may be copled or
reproduced ln books, pamphleLs, ouLllnes or
noLes, wheLher prlnLed, mlmeographed,
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offlclal proceedlngs wlLh proper clLaLlon.
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correspondlng number and Lhe slgnaLure of Lhe
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llleglLlmaLe source or ls ln possesslon of one
who has no auLhorlLy Lo dlspose of Lhe same.
ALL 8lCP1S 8LSL8vLu
8? 1PL Au1PC8
no. 0 4 9 3
IS8N 978-971-23-S934-7
03-S-00013
9
12#&3(4 56

1ypography & Creat|ve
L|thography
84 . llorenllno SL., Cuezon
Clly 1el no. 837-77-77
8Lxp8ln1lnpmpflnpc.
9789712339347
03-S-00013
ALCN ICUNDA1ICN ICk LLGAL S1UDILS,
kLSLAkCn AND kCGkAMS, INC.
1h|s pub||cat|on |s part of the ser|es of pub||cat|ons
under the ausp|ces of the Aeon Ioundat|on, an assoc|at|on of
|ega| scho|ars and pract|t|oners |n var|ous f|e|ds of d|sc|p||ne
and |ega| endeavors, ded|cated to promot|ng |ega| stud|es,
research and programs, geared towards the progress|ve
deve|opment of the |ega| system of the h|||pp|nes and the
evo|ut|on of |ega| |ntegrat|on and cooperat|on w|th|n the
As|an reg|on.
v
ACkNCWLLDGMLN1
I w|sh to acknow|edge the support of Atty. Iose U. Coch|ngyan,
who over the |ast coup|e of years, has worked w|th me |n com|ng out
w|th a more dynam|c and respons|ve course out||ne for our c|asses |n
OB+7-P%/ !(8)*)/ K,(*-7()5'6) Q J"'-* 27-*8(7)" |n the Ateneo Law
Schoo|. Spec|a| thanks are a|so extended to my |aw partner, Atty.
A|exander C. Dy, a fe||ow Ateneo facu|ty, who through the years has
supported me |n many of my pro[ects.
My spec|a| "thank you" to a|| my students |n the Ateneo Law
Schoo|, who have and cont|nue to |nsp|re me to be the best student of
the Law.
Most of a||, I aga|n to acknow|edge the |ove and pat|ence of my
fam||y, for the|r |ove and pat|ence, and who a|ways const|tute my most
|oya| fans.
CLSAk L. VILLANULVA
May, 2011
KG D L B < D
1h|s book came from the author's des|re to teach to h|s
studentsfuture pract|t|oners and professors of the need to treat the
course "artnersh|p & Agency" more as commerc|a| veh|c|es of pursu|ng
bus|ness, rather than as mere c|v|| |aw sub[ects of the C|v|| Code of the
h|||pp|nes. Cver the years that the author has been teach|ng h|||pp|ne
Corporate Law, he came to the rea||zat|on that the background of h|s
students |n "artnersh|p & Agency" d|d not we||-comp|ement the|r
des|re to become conversant w|th a common-|aw based commerc|a|
sub[ect as Corporat|on Law. 1herefore, the author fe|t the need to
vo|unteer h|mse|f to hand|e a sect|on |n "artnersh|p & Agency," |n order
to deve|op a course out||ne that wou|d |ook at noncorporate med|a of
do|ng bus|ness as hav|ng the same dynam|c and progress|ve stance as
that of h|||pp|ne Corporate Law to teach "Agency & artnersh|ps" as
cornerstones of h|||pp|ne Commerc|a| Laws |n the pursu|t of nat|ona|
deve|opment.
1he obsess|on resu|ted |n overhau||ng the course to p|ace together
|nto a more pract|ce-or|ented group|ng of the "Non-Corporate Med|a of
Do|ng 8us|ness" |n compar|son w|th h|||pp|ne Corporate Law from
where |t has |mported much of |ts concepts, doctr|nes and structures. It
meant study|ng f|rst the Law on Agency and the Law on 1rusts before
go|ng |nto artnersh|p Law, to have a better understand|ng of two of the
great features of every partnersh|p arrangement $8*8,R ,+7-P% and
R'$'*7. R',S'R'*%3 h|||pp|ne artnersh|p Law |s stud|ed on the bas|s of |t
be|ng a product of the ama|gam of c|v|| |aw prov|s|ons |n the o|d C|v||
Code, the Span|sh Code of Commerce and Amer|can |aws on
partnersh|p, |nc|ud|ng ||m|ted partnersh|ps. More |mportant|y, the book
d|scusses |n-depth the spec|a| features of the partnersh|p arrangement
as a bus|ness veh|c|e super|or |n the f|e|d |n wh|ch
v||
|t |s meant to operate essent|a||y sma|| and med|um s|zed bus|ness
enterpr|ses, where persona| |nvo|vement |s essent|a|.
W|th the announcement by res|dent 8en|gno S. Aqu|no, Ir., that
the "ub||c-r|vate artnersh|p" system or "" wou|d be the
cornerstone of h|s adm|n|strat|on |n ach|ev|ng acce|erated econom|c
deve|opment |n our country, |t |s but f|tt|ng that the book presents the
Law and ract|ce on Io|nt Ventures, that treats of [o|nt venture as who|e
system by wh|ch |arge |nfrastructura| pro[ects, usua||y |nvo|v|ng
|nternat|ona| partners, can be pursued. A|though there |s word that the
-Noy Aqu|no Adm|n|strat|on |s prepar|ng a new set of ru|es govern|ng
Io|nt Venture arrangements, |nc|uded |n th|s f|rst ed|t|on of the book are
the CGCC ku|es on Io|nt Ventures wh|ch have been |ssued pr|mar||y |n
support of schemes.
L|ke the other |ega| pub||cat|ons of the author, th|s work recogn|zes
what has been |mp||c|t |n the h|||pp|ne |ega| system: that our hybr|d
|ega| system adheres to both the trad|t|ons of the c|v|| |aw and the
common |aw systems, and a|though our system recogn|zes the pr|macy
of statutory prov|s|ons, |t a|so p|aces pract|ca||y the same va|ue to po||cy
cons|derat|ons as they evb|Ve |n actua| sett|ement of d|sputes |n bur
soc|ety as expressed |n dec|s|ons of the Supreme Court. Necessar||y, the
comp|ex|on of var|ous |ega| pr|nc|p|es and doctr|nes cont|nue to evo|ve,
|f not a|tered or d|scarded, as po||cy cons|derat|ons are made to ad[ust
to evo|v|ng contemporary sett|ngs.
<D;BG @3 2F@@B9ED2B
v|||

1A8LL CI CnA1LkS
AGLNC
CnA1Lk 1 - NA1UkL, C8ILC1IVL, AND kINDS CI AGLNC .............................. 1
CnA1Lk 2 - ICkMALI1ILS CI AGLNC ........................................................ 71
CnA1Lk 3 - CWLk & AU1nCkI1, DU1ILS & C8LIGA1ICNS,
AND 1nL kIGn1S CI 1nL AGLN1 .......................... 138
CnA1Lk 4 - C8LIGA1ICNS CI 1nL kINCIAL .............................................. 199
CnA1Lk S - Lk1INGUISnMLN1 CI AGLNC ................................................. 221
1kUS1S
CnA1Lk 1 - IN1kCDUC1ICN ........................................................................ 2S8
CnA1Lk 2 - LkkLSS 1kUS1S ...................................................................... 273
CnA1Lk 3 - IMLILD 1kUS1S ....................................................................... 327
CnA1Lk 4 - kLSCkI1ICN kULLS ICk 1kUS1S ................................................ 397
Ak1NLkSnIS
CnA1Lk 1 - nIS1CkICAL 8ACkGkCUND CI nILIINL
Ak1NLkSnI LAW ............................................. 430
CnA1Lk 2 - 1kI-LLVLL LkIS1LNCL CI 1nL Ak1NLkSnI ................................ 442
CnA1Lk 3 - A11kI8U1LS CI 1nL Ak1NLkSnI ............................................ 469
CnA1Lk 4 - 1nL CCN1kAC1 CI Ak1NLkSnI .............................................. 484
CnA1Lk S - ICkMAL kLUIkLMLN1S ICk Ak1NLkSnIS ............................. S17
CnA1Lk 6 - CLASSLS CI Ak1NLkS AND Ak1NLkSnIS ................................ SS2
CnA1Lk 7 - kIGn1S, CWLk AND AU1nCkI1 CI Ak1NLkS .. S94
CnA1Lk 8 - DU1ILS AND C8LIGA1ICNS CI Ak1NLkS ................................... 637
CnA1Lk 9 - DISSCLU1ICN, WINDING-U AND 1LkMINA1ICN............................ 664
CnA1Lk 10 - LIMI1LD Ak1NLkSnIS ........................................................ 714
ICIN1 VLN1UkLS .............................................................................. 771
|x

1A8LL CI CCN1LN1S
AGLNC
CnA1Lk 1 NA1UkL, C8ILC1IVL, AND kINDS CI AGLNC
Def|n|t|on and Cb[ect|ves of Agency ............................................. 1
art|es to a Contract of Agency..................................................... S
L|ements of the Contract of Agency
1he L|ement of Consent ...................................................... 7
Capac|ty of the art|es ................................................ 9
1he L|ement of Cb[ect or Sub[ect Matter ............................ 10
1he L|ement of Cons|derat|on or Comm|ss|on .................... 11
Agent's Lnt|t|ement to Comm|ss|on Anchored
on the kender|ng of Serv|ce ............................... 13
Lssent|a| Character|st|cs of Agency
Nom|nate and r|nc|pa| ....................................................... 16
Consensua| .......................................................................... 17
Un||atera| and r|mar||y Cnerous ........................................ 18
ersona|, kepresentat|ve and Der|vat|ve ............................ 18
r|nc|p|es I|ow|ng from Agency Character|st|cs of
"ersona| kepresentat|ve and Der|vat|ve" ......... 20
I|duc|ary and kevocab|e ..................................................... 22
reparatory and rogress|ve ............................................... 24
k|nds of Agency
8ased on the 8us|ness or 1ransact|ons Covered .................. 2S
Whether It Covers L|t|gat|on Matters ................................. 28
Whether It Covers Acts of Adm|n|strat|on or Acts
of Cwnersh|p ............................................................. 29
Agency D|st|ngu|shed from S|m||ar Contracts
Irom an Lmp|oyment Contract ........................................... 31
Irom a Contract for a |ece-of-Work ................................... 32
Irom a Management Agreement ........................................ 33
x|

Irom a Contract of Sa|e ..................................................... 34
Irom a Contract of 8rokerage ........................................... 42
now D|fferent Are the Dut|es and kespons|b|||t|es of the
Agent and the 8roker to
1he|r C||ents? ........................................................ 48
8roker Is Not Lega||y Incapac|tated to urchase
roperty of the r|nc|pa| ...................................... S2
8roker's Lnt|t|ement to Comm|ss|on .......................... S2
ku|es on Compensat|on for 8rokers App||es
A|so to Comm|ss|on Agents ................................... 62
Aberrant ku||ngs on Comm|ss|on Issues...................... 6S
8roker of a Sa|e D|st|ngu|shed from 8roker
n|mse|f urchas|ng ................................................ 69
CnA1Lk 2 ICkMALI1ILS CI AGLNC
now Agency May 8e Const|tuted ....................................................... 71
erfect|on from the S|de of the r|nc|pa| ............................................ 73
erfect|on from the S|de of the Agent ................................................ 74
Instances When 1here Is Deemed to 8e Meet|ng
of M|nds 8etween the r|nc|pa| and the Agent ........... 76
erfect|on of the Contract of Agency as It Affects
1h|rd ersons .................................................................... 78
ku|es on the Lx|stence of Agency, as to 1h|rd art|es ........ 80
Agency by Lstoppe| .................................................... 82
Iorma| kequ|rements on Grant of owers to the Agent ..................... 86
Genera| r|nc|p|es on Contracts Lntered Into by Agents ... 86
Genera| owers of Attorney .............................................. 87
Must owers of Attorney 8e |n Wr|t|ng for the Iud|c|a| Acts
Lxecuted ursuant 1hereto to
8e Va||d and Lnforceab|e? .................................... 90
Spec|a| owers of Attorney ............................................... 98
What Makes an Agency a "Spec|a| ower
of Attorney"? ...................................................... 99
Must Spec|a| owers of Attorney 8e |n Wr|t|ng? ....... 100
Spec|f|c Instances Where the Law kequ|res
a Spec|a| ower of Attorney ................................ 101
1o Make ayments as Are Not Usua||y
Cons|dered as Acts of Adm|n|strat|on ................. 101
1o Lffect Novat|on Wh|ch ut an Lnd to Cb||gat|ons
A|ready |n Lx|stence at the 1|me the Agency Was
Const|tuted .................................................. 102
x||

Spec|a| ower of Attorney W|th kespect
to
r|nc|pa|'s Causes of Act|on ................... 102
1o Wa|ve Any Cb||gat|on Gratu|tous|y ...................... 10S
1o Lnter Into Any Contract by Wh|ch the
Cwnersh|p of an Immovab|e Is
1ransm|tted or Acqu|red ....................... 106
Does the Grant of the Spec|a| ower to
Se|| Inc|ude the owers to
Mortgage, and 2'P7 27(),?.................... 109
Sa|e of a |ece of Land 1hrough an Agent ............ 110
Does Art|c|e 1874 Cover Agency to urchase
Land or Any Interest
1here|n? ........................................... 110
Is an Cra| Contract of Agency to Se||
a arce| of Land Not Itse|f Vo|d? ............ 111
Is the Sa|e of a |ece of Land Made ursuant to an
Cra| Spec|a| ower to Se|| kea||y Vo|d or Actua||y
Unenforceab|e? ....................... 111
now Deta||ed Must the Spec|a| ower of
Attorney to Se|| 8e? ........................ 117
Agent Cannot Va||d|y urchase roperty
of r|nc|pa| ............................................ 120
1o Make G|fts ........................................................... 121
1o Loan or 8orrow Money ........................................ 122
What nappens When Money Is 8orrowed |n the
Name of the r|nc|p|e When 1here Was No
Spec|a| ower or
Attorney to Do So? ................................ 124
When the Agent nas 8een Lxpress|y
Lmpowered to 8orrow Money Can ne
n|mse|f 8e the Lender W|thout 8e|ng
|n 8reach of 1rust? ................................ 12S
1o Lease kea| roperty for More 1han
Cne ear ............................................... 12S
1o 8|nd the r|nc|pa| to kender Some Serv|ce
W|thout Compensat|on ......................... 127
1o 8|nd the r|nc|pa| |n a Contract of
artnersh|p ............................................ 128
1o Cb||gate the r|nc|pa| as a Guarantor
or Surety ................................................ 128
1o Create or Convey kea| k|ghts Cver
Immovab|e ............................................ 130
x|||

1o Accept or kepud|ate an Inher|tance ..................... 131
1o kat|fy or kecogn|ze Cb||gat|ons Contracted
8efore the Agency ......................................... 132
Any Cther Act of Str|ct Dom|n|on ............................. 133
Doctr|ne of Imp||ed owers I|ow|ng from Lxpress
owers ............................................................................ 13S
Spec|a| ower of Attorney Lxc|udes Genera|
ower of Attorney Cver the Matter Covered
by the Spec|a| ower of Attorney .............................. 136
CnA1Lk 3
CWLk & AU1nCkI1, DU1ILS & C8LIGA1ICNS, AND kIGn1S CI 1nL AGLN1
Genera| Cb||gat|on of Agent Who Accepts the Agency ..................... 138
Measure of Damage for Agent's Non-erformance
of Cb||gat|on .................................................................. 140
Cb||gat|on of Agent Who Dec||nes Agency ........................................ 141
Genera| ku|e on Agent's ower and Author|ty ................................. 142
Statutory Measures of Comp||ance by the Agent of
n|s I|duc|ary Dut|es of Cbed|ence and D|||gence ............ 143
Duty of Cbed|ence ............................................................................ 143
Duty of D|||gence ............................................................................. 14S
Measure of L|ab|||ty to 8reach of Duty of D|||gence ............. 147
When Agent Is Gu||ty of Iraud or Neg||gence ...................... 148
Duty of Loya|ty ................................................................................. 1S1
Duty of Loya|ty |n Genera| .................................................. 1S1
Measure of Damages Due to the r|nc|pa| When
an Agent V|o|ates n|s Duty of Loya|ty .............................. 1S2
When Agent Contracts |n n|s Cwn
Name on a Matter that Ia||s W|th|n the Scope
of the Agency .................................................... 1S3
art|cu|ar ku|es on Conf||ct-of-|nterests
S|tuat|ons ................................................................. 1SS
urchase of r|nc|pa|s roperty ............................... 1SS
When Agent Lmpowered to 8orrow or
Lend Money ...................................................... 1S7
What nappens When Agent V|o|ates n|s
Cb||gat|ons under Art|c|e 1890? ......................... 1S7
Cb||gat|on to 1urn-Cver to the r|nc|pa| Whatever kece|ved by V|rtue
of the Agency . ........ ........................................ 1S8
Cb||gat|on of Agent to kender Account ........................... 1S8
x|v

When Agent May Lega||y
W|thho|d from the r|nc|pa| .......................... 163
Spec|f|c Cb||gat|on ku|es for Agents
Cb||gat|on to Advance Iunds .............................................. 164
L|ab|||ty of Agent for Interest .............................................. 164
ower of Agent to Appo|nt a Subst|tute ....................................... 16S
Lffects When Agent Appo|nts a Subst|tute When the Sub-Agent
Appo|nted
ursuant to the Instruct|ons of the r|nc|pa| ....... 168
When the Sub-Agent Not roh|b|ted
by the r|nc|pa| .................................................... 168
When the Sub-Agent Appo|nted Aga|nst
the r|nc|pa|'s roh|b|t|on ................................... 169
Cons|derat|on of the I|duc|ary Dut|es of the Agent as
to 1h|rd art|es ......................................................................... 169
Lffects on the Agent of Contracts Lntered Into W|th|n
the Scope of n|s Author|ty ............................................... 173
Genera| ku|e: Agent Is Not ersona||y L|ab|e
to 1h|rd art|es ......................................................... 174
Lxcept|on: When the Agent Lxpress|y Makes
n|mse|f ersona||y L|ab|e .................................... 177
Lxcept|on: When Agent Is Gu||ty of Iraud
or Neg||gence ............................................................ 178
Agent nas No Author|ty to 8r|ng Su|t |n Contracts
Lntered Into |n the Name of the r|nc|pa| ................. 181
Lffects of Acts Done by Agent W|thout Author|ty or |n
Lxcess of n|s Author|ty .................................................... 182
Genera| ku|e: 1he r|nc|pa| Is Not L|ab|e, Agent
May 8e L|ab|e ........................................................... 182
Lxcept|ons When the r|nc|pa| May 8e 8ound ........... 187
Consequences When Agent Acts |n n|s Cwn Name ................. 188
Lxcept|on: When the roperty Invo|ved |n the
Contract 8e|ongs to the r|nc|pa| ............................. 190
kemedy of the r|nc|pa| |s to kecover Damages
from the Agent ......................................................... 192
When 1wo or More Agents Appo|nted
by the Same r|nc|pa| ...................................................... 194
When 1h|rd arty L|ab|e to the Agent n|mse|f .......................... 194
Spec|f|c Cb||gat|on ku|es for Comm|ss|on Agents
Nature of Iactor or Comm|ss|on Agent .................................... 19S
Spec|f|c Cb||gat|ons of a Comm|ss|on Agent
1ake Custody of Goods .................................................... 19S
Not to Comm|ng|e S|m||ar Goods 8e|ong|ng
to D|fferent r|nc|pa| ................................................ 19S
xv

Cannot Se|| on Cred|t W|thout r|nc|pa|'s
Author|zat|on ................................. ......................... 196
1o Inform the r|nc|pa| of Lvery re-Author|zed
Sa|e on Cred|t ............................................................ 196
Sha|| 8ear the k|sk of Co||ect|on under 47R
<(7.7(7 Comm|ss|on Set-up ............................... 196
1o Co||ect Cred|ts of the r|nc|pa| .................................... 196
kespons|b|||ty for Iraud and Neg||gence ......................... 197
CnA1Lk 4
C8LIGA1ICNS CI 1nL kINCIAL
8|nd|ng Lffect of the 1erms of the Contract of Agency ...................... 199
r|nc|pa| 8ound by the Contracts Made by the Agent
|n n|s 8eha|f ............................................................................. 200
r|nc|pa| Not 8ound by Contracts Made W|thout
Author|ty or Cuts|de the Scope of Author|ty.................... 203
When r|nc|pa| Is 8ound by the Acts of Done
Cuts|de the Scope of Author|ty ...................................... 20S '
L|ab|||ty of the r|nc|pa| for Agent's 1ort... ......................................... 212
Cb||gat|ons of the r|nc|pa| to the Agent
1o ay Agent's Compensat|on .................................................. 212
1o Advance Sums kequested for Lxecut|on
of the Agency .................................................................. 214
When r|nc|pa| Not L|ab|e to ke|mburse Agent
for n|s Lxpenses ........................................................ 214
1o Indemn|fy Agent for the Damages Susta|ned ....................... 216
k|ght of Agent to keta|n Cb[ect of Agency |n
|edge for Advances and Damages ........................... 217
Cb||gat|on of 1wo or More r|nc|pa|s to Agent Appo|nted
for Common 1ransact|ons ........................................................ 218
k|ghts of ersons When Iaced W|th Conf||ct|ng Contracts ................ 220
CnA1Lk S
Lk1INGUISnMLN1 CI AGLNC
now and When Agency Lxt|ngu|shed ................................................ 221
r|nc|pa|'s kevocat|on of the Agency ........................................... 222
k

Lxpress kevocat|on ........................ .................................... - 224
Imp||ed kevocat|on ..................... :L, ........................................ 22S
Appo|ntment of New Agent for Same 8us|ness ............... 22S
When r|nc|pa| D|rect|y Manages the 8us|ness ........... 227 ^
xv|

Spec|a| ower of Attorney kevokes a Genera|
ower of Attorney .............................................. 230
kevocat|on on the 8ases of 8reach of 1rust ........................ 231
Lffects of kevocat|on on 1h|rd art|es ................................. 232
When It Affects Dea||ngs w|th Spec|f|ed 1h|rd
art|es .................................................................. 232
kevocat|on of Genera| owers of Attorney ................. 23S
kevocat|on of Spec|a| owers of Attorney .................. 23S
Irrevocab|e Agenc|es .......................................................... 236
W|thdrawa| of the Agent from the Agency ................................... 247
Death, Incapac|ty or Inso|vency of the r|nc|pa| ........................... 249
When the Agency Cont|nues Desp|te Death of r|nc|pa|... 2S1
Lffect of Acts Done by Agent W|thout know|edge
of r|nc|pa|'s Death ..................................................... 2S2
Death, Incapac|ty or Inso|vency of the Agent ............................... 2SS
In Case of Mu|t|p|e Agents .................................................. 2S6
D|sso|ut|on of a Corporat|on ........................................................ 2S6
Cb||gat|ons of the Agent Lven When the Agency
Is Lxt|ngu|shed ................................................................... 2S7
1kUS1S
CnA1Lk 1
IN1kCDUC1ICN
1rusts under the New C|v|| Code ....................................................... 2S8
h|||pp|ne 1rusts kooted on Amer|can Law on 1rusts .............. 2S9
1he "Lqu|ty" Lssence of Imp||ed 1rusts ............................................. 260
1he Nature of 1rusts ......................................................................... 263
1rusts Do Not Create Separate Iur|d|ca| Lnt|t|es ...................... 263
1rusts D|vorces Naked 1|t|e of the 1rustee from the
kest of the 1rustee's Lstate ............................................. 264
1rust Is Anchored on Sp||tt|ng or Intent|on
to Sp||t the Naked 1|t|e and 8enef|c|a| 1|t|e of the
G7) .................................................................................. 266
k|nds of 1rusts ................................................................................. 268
CnA1Lk 2
LkkLSS
1kUS1S
Def|n|t|on and Nature of Lxpress 1rusts ........ ................................... 273
Lssent|a| Character|st|cs of Lxpress 1rusts ........................................ 27S
Lxpress 1rusts Are Lssent|a||y Contractua| |n Character .. 276
xv||

Lssent|a| L|ements of Lxpress 1rusts ............................... 279
Lxpress 1rusts Lstab||sh Contractua| ke|at|onsh|ps
8u||t Around roperty ke|at|on ................................. 280
Nom|nate and r|nc|pa|, et Governed by Lqu|ty
r|nc|p|es ......................................................................... 283
Un||atera| and Gratu|tous ................................................ 283
Lxpress 1rust as a reparatory Contract .......................... 284
1rust Const|tutes I|duc|ary Dut|es on the 1rustee ............ 28S
Acqu|s|t|ve rescr|pt|on on the Corpus Unava|||ng
to the 1rustee ........ .................................................. 286
ku|es of Lnforceab|||ty of Lxpress 1rusts .................................. 287
Lxpress 1rust |s Lssent|a||y a kea| Contract, Not Mere|y
Consensua| ...................................................................... 288
Lxpress 1rust Must Neverthe|ess 8e C|ear|y Shown
to nave 8een Intended .................................................... 293
Lssence of the ke|at|onsh|p 8etween 1rustor and 1rustee r|or to
the Conveyance of the G7) to
the 1rustee ...................................................................... 294
Lxpress 1rusts over Immovab|es Must 8e |n Wr|t|ng ....... 29S
D|st|ngu|sh|ng Lxpress 1rusts from Cther S|m||ar Arrangements Sp||tt|ng
of Iu|| Dom|n|on |nto Naked or Lega| 1|t|e
and 8enef|c|a| or Lqu|tab|e 1|t|e ...................................... 300
Compared w|th Usufruct ................................................. 300
Compared w|th Lease ...................................................... 300
Compared w|th Sa|e ........................................................ 301
Cn be|ng 8ound to I|duc|ary Dut|es and Cb||gat|ons
Compared w|th Agency ................................................... 301
k|nds of Lxpress 1rusts ............................................................ 303
Contractua| 1rusts ........................................................... 306
F-*7( 2'T") 1rusts ............................................................. 307
1estamentary 1rusts ....................................................... 308
L|eemosynary or Char|tab|e 1rusts .................................. 309
ub||c|y-kegu|ated 1rusts ................................................ 309
Capac|t|es, k|ghts, Dut|es and Cb||gat|ons of the art|es to the Lxpress
1rust 1he 1rustor
1rustor as the Creator of the 1rust .................................. 310
1rustor Must nave Lega| Capac|ty to Convey
1rust roperty........................................................... 311
1he 1rustee
1rustee Is the arty r|mar||y 8ound ............................... 312
1rustee Must nave Lega| Capac|ty to Accept
the 1rust ................................................................... 312
When 1rustee Dec||nes the Des|gnat|on .......................... 312
xv|||

Cb||gat|ons of the 1rustee
Contractua||y Stated Dut|es and Cb||gat|ons
of the 1rustee .................................................... 313
Common Law Dut|es of the 1rustee ........................... 313
1rustee |s roh|b|ted from Donat|ng 1rust
roperty ............................................................. 31S
1rustee Cannot Use Iunds of the 1rust to
Acqu|re roperty for n|mse|f .............................. 31S
Dut|es and kespons|b|||t|es of the 1rustees
under the ku|es of Court ..................................... 31S
roper roceed|ngs for Sa|e or Lncumbrance
of 1rust Lstate ..................................................... 319
1rustee Does Not Assume Genera||y ersona|
L|ab|||ty on the 1rust ........................................... 319
1rustee |s Lnt|t|ed to Compensat|on for
Management of the 1rust Lstate ........................ 320
kemova| or kes|gnat|on of 1rustee ............................ 320
1he 8enef|c|ary
8enef|c|ary Is the ass|ve kec|p|ent of 8enef|ts
I|ow|ng from the 1rust ............................................... 321
8enef|c|ary Need Not nave Lega| Capac|ty....................... 322
now Lxpress 1rust Lxt|ngu|shed or 1erm|nated
Destruct|on of the Corpus ........................................................ 323
kevocat|on by the 1rustor ........................................................ 323
Ach|evement of the Cb[ect|ve, or nappen|ng of the
Cond|t|on, rov|ded for |n the 1rust Instrument .............. 324
Death or Lega| Incapac|ty of the 1rustee .................................. 324
Confus|on or Merger of Lega| 1|t|e and 8enef|c|a|
1|t|e |n the Same erson ................................................. 32S
8reach of 1rust ........................................................................ 326
CnA1Lk 3
IMLILD
1kUS1S
Nature and 1ypes of Imp||ed 1rusts .............................................. 327
1he 1wo 1ypes of Imp||ed 1rusts .......................................... 328
Imp||ed 1rusts D|st|ngu|shed from Lxpress 1rusts ............... 329
Nature of Lv|dence kequ|red to rove Imp||ed 1rusts .................. 330
kesu|t|ng 1rusts ............................................................................
33S

8urden of roof |n kesu|t|ng 1rusts ......................................
33
6
8|urr|ng of the D|st|nct|ons 8etween Lxpress 1rusts
and kesu|t|ng 1rusts ....................................................
33
6
ku|es of rescr|pt|b|||ty of kesu|t|ng 1rusts ................. 34S
Construct|ve 1rusts ...................................................................... 34S
x|x

D|st|ngu|sh|ng from kesu|t|ng 1rusts .................................. 346
Construct|ve 1rusts S|m||ar |n urpose to the U8,)'V
Contracts of ;"R8*'" F-.7S'*' ....... ............................... 349
Imp||ed 1rusts art|cu|ar|y Const|tuted by Law ................................. 3S2
urchase of roperty Where 1|t|e |aced |n Cne erson,
8ut r|ce a|d by Another erson ............................... 3S2
When 1|t|e Is |aced |n the Name of a Ch||d ................ 3SS
When It Is the Ch||d that Supp||es the
urchase r|ce ......................................................... 3S7
When a Contrary Intent|on Is roved ......................... 3S8
When urchase r|ce Lxtended as a Loan .................. 3S9
When the urchase Is Made |n V|o|at|on of
an Lx|st|ng Statute .................................................... 3S9
urchase of roperty Where 1|t|e Is |aced |n the Name
of erson Who Loaned the urchase r|ce ................. 360
S|m||ar|y to an Lqu|tab|e Mortgage Arrangement ....... 361
When Abso|ute Conveyance of roperty Lffected
as a Means to Secure erformance of Cb||gat|on .... 363 1wo
or More ersons urchase roperty Io|nt|y,
8ut |ace 1|t|e |n Cne of 1hem .................................... 36S
roperty Conveyed to erson Mere|y as
no|der 1hereof ........................................................... 367
Donat|on of roperty to a Donee Who Sha|| nave
No 8enef|c|a| 1|t|e ...................................................... 370
Land asses 8y Success|on 8ut ne|r |aces 1|t|e
|nto a 1rustee ............................................................. 372
When 1rust Iund Used to urchase roperty
Wh|ch Is keg|stered |n 1rustee's Name ...................... 376
When roperty Is Acqu|red 1hrough M|stake
or Iraud ...................................................................... 382
App||cat|on of r|nc|p|e under the C|d C|v|| Code ........ 384
App||cat|on under the New C|v|| Code ........................ 388
kecent App||cat|ons of Art|c|e 14S6 ........................... 394
CnA1Lk 4 kLSCkI1ICN kULLS ICk 1kUS1S
ku|es of rescr|pt|on for Lxpress 1rusts
Genera| ku|e: Lxpress 1rusts Not Suscept|b|e to
Acqu|s|t|ve rescr|pt|on .............................................. 397
Lxcept|on: When Acqu|s|t|ve rescr|pt|on May Ar|se
|n Lxpress 1rusts ............ ............................................ 399
2,R'.OG768.',*'"-O '- DW6(7)) !(8)*) ......................... 400
xx

ku|es of rescr|pt|on for Imp||ed 1rusts ............................................. 401
C|d C|v|| Code Iur|sprudence .................................................... 402
Cont|nu|ng ke|evant Iur|sprudence under the
C|d C|v|| Code keg|me .............................................. 40S
Iur|sprudence under the New C|v|| Code .................................. 407
When rescr|pt|on Is A||owed What |s the er|od
App||cab|e?....................................................................... 411
When Does the 10-ear rescr|pt|ve er|od 8eg|n
to kun? ............................................................................. 416
When keg|strat|on |n the Name of 1rustee Was
Integra| art of the 1rust Arrangement............. ............... 416
When <7)*8' U87 1rust Is |n ossess|on of the G7) .................... 417
When reva|||ng C|rcumstances D|d Not Grant
<7)*8' U87 1rust Suff|c|ent 1|me to D|scover the
Iraud ............................................................................... 417
Ior Land, W|thout keg|strat|on the 10-year er|od
Does Not Lven 8eg|n to kun ............................................. 421
When keg|strat|on Covers a Vo|d 1|t|e ...................................... 422
ku|es on rescr|pt|on on kesu|t|ng 1rusts Io||ow
1hose of Lxpress 1rusts ............................................ 423
When G7) nas assed-on to a 8uyer |n Good Ia|th
and for Va|ue ................................................................... 42S
kec|ass|f|cat|on of 1rusts ................................................................... 42S
Ak1NLkSnIS
CnA1Lk 1
nIS1CkICAL 8ACkGkCUND CI nILIINL
Ak1NLkSnI LAW
n|stor|ca| 8ackground and Sources of h|||pp|ne Law
on artnersh|p .................................................................... 430
Not|on of artnersh|p Is of Anc|ent Cr|g|ns .................................. 430
C|v|| and Common Law 8ases of artnersh|p Laws ............... 431
art|cu|ar 8ases of the h|||pp|ne Law on artnersh|ps .... 432
S|gn|f|cance of know|ng the n|stor|ca| 8ackground
of h|||pp|ne artnersh|p Law ...................................... 433
C|d 8ranches of h|||pp|ne artnersh|p Law ................................. 434
D|st|ngu|sh|ng 8etween C|v|| and Commerc|a|
artnersh|ps ............................................................... 434
S|gn|f|cance of know|ng the n|stor|ca| D|st|nct|ons
8etween C|v|| and Commerc|a| artnersh|ps ............... 440
xx|

CnA1Lk 2
1kI-LLVLL LkIS1LNCL CI 1nL Ak1NLkSnI
Interp|ay of the 1r|-Leve| Lx|stence of the artnersh|p ................ 442
artnersh|p Is r|mar||y a Contractua| ke|at|onsh|p ..................... 4S0
artnersh|p as a Means of Do|ng 8us|ness, 1hrough the
artnersh|p Iur|d|ca| erson ............................................... 4S3
Lega| 8ases of the artnersh|p Iur|d|ca| ersona||ty ............ 4S4
Under|y|ng 8us|ness Lnds of the artnersh|p
Iur|d|ca| erson .......................................................... 4S4
1he Case for "Secret Assoc|at|ons" ............................ ......... 4SS
Iur|sprudent|a| App||cat|on of the Doctr|ne of Separate
Iur|d|ca| ersona||ty of the artnersh|p ....................... 4S6
App||cab|||ty of the Doctr|ne of |erc|ng the Ve||
of Separate Iur|d|ca| I|ct|on ....................................... 4S8
Lnt|t|ement to Const|tut|ona| k|ghts and Guarantees .......... 461
artnersh|p as a 8us|ness Lnterpr|se ............................................ 46S
CnA1Lk 3 A11kI8U1LS CI 1nL Ak1NLkSnI
Non-So|emn or Consensua| Iur|d|ca| ersona||ty ......................... 470
Lxcept|ons to Informa| or Consensua| Nature
of Iur|d|ca| ersona||ty ................................................ 472
Weak Iur|d|ca| ersona||ty ................................................... 474
Mutua| Agency ........................................................................... 476
47R7P*8) K7()"-,7 ........................................................................ 478
artners 8ound to Un||m|ted L|ab|||ty .......................................... 481
CnA1Lk 4 1nL CCN1kAC1 CI Ak1NLkSnI
Lssent|a| L|ements of the Contract of artnersh|p ....................... 484
L|ement of Consent ............................................................. 48S
Consent to ursue a 8us|ness Io|nt|y Is the Nexus
of the artnersh|p ke|at|onsh|p ........................... 486
Lega| Capac|ty to Contract .......................................... 487
Adm|ss|on of New artner |nto an Lx|st|ng
artnersh|p ......................................................... 487
Sub[ect Matter: ursu|t of a 8us|ness Lnterpr|se ................. 488
Co-Cwnersh|p or Co-ossess|on Does Not
Necessar||y Const|tute a artnersh|p ................... 490
kece|pt 8y a erson of a Share of the Net rof|t ......... 491
xx||

Meet|ng of M|nds on the Lstab||sh|ng a Common Iund Is the
Lssence of a artnersh|p
Contract .................................................................... 493
roof of the Lx|stence of the 8us|ness Lnterpr|se
May Support the Lx|stence of a artnersh|p ............ 499
Doctr|ne of "Attr|butes of ropr|etorsh|p" as a Means to
rove the Lx|stence
of a artnersh|p ....................................................... S00
When Sub[ect Matter (the 8us|ness Venture) Is
Un|awfu| or Aga|nst ub||c o||cy .............................. S04
Cause or Cons|derat|on: rom|sed Contr|but|ons ..................... S0S
Cther Lssent|a| L|ements of artnersh|p................................... S07
Lssent|a| Character|st|cs of the artnersh|p Contract
Nom|nate and r|nc|pa| ............................................................ S09
Consensua| ............................................................................... S09
Cnerous and 8||atera| ....................................................................... S14
reparatory and rogress|ve ............................................................. S1S
CnA1Lk S
ICkMAL kLUIkLMLN1S ICk Ak1NLkSnIS
artnersh|p Lssent|a||y Consensua| |n Character .......................... S17
kequ|rements 1|ed to Cap|ta| Contr|but|ons ................................. S18
When Cap|ta| Contr|but|ons 1ota| 3,000.00 or More ......... S18
kat|ona|e for Art|c|e 1772 of the New C|v|| Code ........ S19
keg|stered artnersh|p Deemed Conc|us|ve as to the
artnersh|p Set-up Among the
artners ............................................................... S20
When Immovab|e roperty Contr|buted ............................. S24
n|stor|ca| 8ackground of Art|c|e 1773 ........................ S24
Importance of Immovab|e roperty |n the
artnersh|p Scheme ............................................. S24
When Immovab|e roperty Deemed Contr|buted ..... S2S
kat|ona|e 8eh|nd the Iorma| kequ|rements
under Art|c|e 1773 .............................................. S26
Suggested Adverse Lffect of Ia||ure to Comp|y
keg|strat|on kequ|rements of Art|c|e 1773 .......... S28
Art|c|e 1773 Shou|d 8e Cons|dered w|th r|or|ty ku|es for
C|a|ms of artnersh|p Cred|tors
and Separate Debtors of the artners .................. S33
kequ|rements 1|ed to artnersh|p Name .................................... S34
n|stor|ca| 8as|s of Art|c|e 181S ............................................ S3S
SLC ku|es on artnersh|p Name .......................................... S39
xx|||

keg|strat|on of L|tt|e Usefu|ness |n artnersh|p Law:
A Summat|on ..................................................................... S43
Intra-artnersh|p ke|at|onsh|p ................ ........................... S44
Dea||ngs w|th 1h|rd art|es .................................................. S4S
Va|ue of the Statutory kequ|rements on Iorm
and keg|strat|on ......................................................... S48
CnA1Lk 6
CLASSLS CI Ak1NLkSnIS AND Ak1NLkS
k|nds of artnersh|ps ............. ................................................... SS2
As to Cb[ect: Un|versa| artnersh|p T7()8) art|cu|ar
artnersh|p ................................................................ SS3
As to Durat|on ......................................................... .......... SS7
As to Lxtent of artners'L|ab|||t|es ...................................... S60
k|nds of artners .......................................................................... S61
Spec|a| Issues of Who May Va||d|y 8ecome artners
May Spouses Va||d|y Lnter |nto a artnersh|p ke|at|on? Spouses
Cannot Lnter |nto a Un|versa|
artnersh|p ......................................................... S63
Spouses Are Not ua||f|ed to Lnter |nto Cther
Iorms of artnersh|p for Ga|n ............................. S66
Spouses Governed by the Abso|ute
Commun|ty of roperty keg|me .................... S67
Spouses Governed by the Con[uga|
artnersh|p of Ga|ns ..................................... S68
Spouses Governed by the Comp|ete
Separat|on of roperty keg|me ..................... S69
Contract of artnersh|p May Cffend Aga|nst the
rov|s|ons of the Iam||y Code .............................. S69
Issue on Contro| and 8|nd|ng Lffects
of Acts of artners......................................... S70
Charges to artnersh|p ropert|es ....................... S71
rofess|ona| artnersh|ps ........................................... S72
May Corporat|ons Va||d|y ua||fy to 8ecome artners? ....S73
Iur|sprudent|a| ku|e ................................................... S73
SLC ku|es .................................................................... S74
artnersh|p D|st|ngu|shed from Cther 8us|ness Med|a ................ S78
D|st|ngu|shed from "Io|nt Venture" .................................... S78
D|st|ngu|shed from Co-Cwnersh|p ...................................... S80
D|st|ngu|shed from Io|nt Account (;"P'7.,. .7 <87-*,)
7- K,(*'P'6,*'"-H ......................................................... S81
D|st|ngu|shed from Agency ................................................. S81
xx|v

D|st|ngu|sh|ng Agency r|nc|p|es from the Doctr|ne
of Mutua| Agency |n the artnersh|p Sett|ng ........ S82
D|st|ngu|shed from the 8us|ness 1rust ................................ S83
D|st|ngu|shed from the Corporat|on ................................... S84
Does a Defect|ve Incorporat|on rocess kesu|t
|nto a artnersh|p? .............................................. S8S
D|st|ngu|shed from Cooperat|ves ........................................ S91
CnA1Lk 7
kIGn1S, CWLk AND AU1nCkI1 CI Ak1NLkS
1he roperty k|ghts of Lvery artner ............................................ S94
artner's k|ght to Manage the artnersh|p
Genera| ku|e on artnersh|p Management ......................... S9S
Defau|t ku|e: Lvery artner nas a k|ght
to Manage ........................................................... S98
Cverturn|ng of the ku||ng |n <"8-P'R "& G7. 07- ........ 600
Lffect of Interna| and Non-ub||c Arrangement of
artnersh|p Management .................................... 601
1ransact|ons Not |n the Crd|nary Course of artnersh|p
8us|ness ..................................................................... 60S
Spec|f|c Mod|f|cat|ons on the ower of Management ......... 607
Spec|f|c ku|es on Dea||ngs w|th Immovab|e ropert|es
of the artnersh|p ........................................................ 610
artner's k|ght to Spec|f|c artnersh|p roperty ........................... 613
artners' Spec|f|c k|ght to artnersh|p roperty L|m|ted to
ursu|ng the artnersh|p 8us|ness ............................. 614
artners' Contr|buted roperty to the artnersh|p Can
8e Dea|t W|th Cn|y for artnersh|p urposes ............ 617
Lqu|ty k|ghts of artners .............................................................. 618
Ass|gnment of a artner's Lqu|ty k|ght ................................ 620
k|ght to art|c|pate |n rof|ts, Cb||gat|on to art|c|pate
|n Losses .................................................................... 624
No Guarantee as to rof|ts ......................................... 626
When the k|ght to rof|ts Accrues ............................. 627
Cther k|ghts of a artner .............................................................. 628
k|ght to 8e ke|mbursed for Lxpenses Incurred
on 8eha|f of the artnersh|p ....................................... 628
k|ght to Inspect ................................................................... 629
k|ght to Demand 1rue and Iu|| Informat|on ........................ 630
k|ght to Demand Account|ng .............................................. 630
k|ght to D|sso|ve the artnersh|p ........................................ 632
Cb||gat|ons of the artnersh|p to 1h|rd art|es ............................. 633
xxv

L|ab|||ty Ar|s|ng from the I|rm Name ........................................ 63S
L|ab|||ty Ar|s|ng from the Acts of the Agent .............................. 63S
CnA1Lk 8 DU1ILS AND C8LIGA1ICNS CI Ak1NLkS
Cb||gat|on to Contr|bute to the Common Iund ............................ 637
When rom|sed Contr|but|on Is a Sum of Money ............... 640
When rom|sed Contr|but|on Is ropertyIn Genera| ........ 641
When Contr|but|on |n Goods .............................................. 643
When Contr|but|on |n kea| roperty ................................... 644
Contr|but|on of Serv|ce or Industry, the Industr|a|
artner ....................................................................... 64S
Cb||gat|on for "Add|t|ona| Contr|but|on" ............................ 648
kemed|es When 1here Is Defau|t |n Cb||gat|on
to Contr|bute .............................................................. 648
ersona| Cb||gat|ons for artnersh|p Debts, Doctr|ne
of Un||m|ted L|ab|||ty Un||m|ted L|ab|||ty of Lx|st|ng
artners ............................................................................. 6S0
Cb||gat|on of Subsequent|y Adm|tted artners ................... 6S1
Cb||gat|ons of Non-artners ............................................... 6S2
I|duc|ary Dut|es of artners ......................................................... 6S3
Duty of D|||gence ................................................................. 6SS
Duty of Loya|ty .................................... .............................. 6S6
Duty to Account .................................................................. 6S8
Spec|f|c I|duc|ary Dut|es of Industr|a| artner ..................... 6S9
Spec|f|c Duty of Loya|ty of Cap|ta||st artners ..................... 662
CnA1Lk 9
DISSCLU1ICN, WINDING-U AND 1LkMINA1ICN CI 1nL Ak1NLkSnI
Introduct|on and Def|n|t|on of 1erms ................................................ 664
D|sso|ut|on ....................................................................................... 666
D|sso|ut|on |n the L|ght of the artnersh|p 8e|ng r|mar||y
a Contractua| ke|at|onsh|p ............................................. 670
D|sso|ut|on Lffected w|th No V|o|at|on of the
artnersh|p Contract ................................................ 672
D|sso|ut|on Lffected |n V|o|at|on of the artnersh|p
Contract ................................................................... 673
L"(P7 0,X78(7 and Cther S|m||ar Causes ......................... 67S
Causes Lqu|va|ent to kesc|ss|on of the Contract of
artnersh|p .............................................................. 676
xxv|

Lega| Lffects of D|sso|ut|on In Genera| ............................ 680
Lffect of D|sso|ut|on on the artnersh|p Contract
and Iur|d|ca| ersona||ty ....................................... 68S
Lffect on the artnersh|p 8us|ness Lnterpr|se ............. 686
Lffects on Contracts Lntered |nto w|th 1h|rd
art|es ....................................................................... 687
Lffects on Determ|n|ng L|ab|||ty of artners for
Damages to Cne Another .......................................... 689
Lffects of D|sso|ut|on Among the artners F-*7( ;7 .............. 689
When D|sso|ut|on Is Caused not |n
Contravent|on of the artnersh|p Agreement ...... 689
When D|sso|ut|on Is Caused by the :"-, L'.7
Lxpu|s|on of a artner .......................................... 690
When D|sso|ut|on Is Caused |n Contravent|on
of the artnersh|p Agreement .............................. 690
When D|sso|ut|on Caused by kesc|ss|on of the
artnersh|p Agreement Due to Iraud or
M|srepresentat|on ='373/ 8y Iud|c|a| Decree) ............... 692
Lffects of D|sso|ut|on on artnersh|p L|ab|||t|es Lx|st|ng
or Accrued at the that 1|me .............................................. 692
Genera| ku|e on Lx|st|ng artnersh|p L|ab|||t|es ......... 693
D|scharge of a artner from Lx|st|ng artnersh|p
L|ab|||t|es ................................................................... 693
Lffects of D|sso|ut|on on artnersh|p L|ab|||t|es
Contracted or Incurred After D|sso|ut|on .......................... 693
L|ab|||t|es Incurred ursuant to W|nd|ng-up
roceed|ngs .......................................................... 694
Where artnersh|p Not 8ound Lven for
W|nd|ng-Up L|ab|||t|es .................................... 694
L|ab|||t|es Incurred Const|tut|ng "New 8us|ness"
Dur|ng the W|nd|ng-Up rocess .......................... 69S
When D|sso|ut|on Is by the Act, Inso|vency
or Death of a artner .......................................... 696
When D|sso|ut|on Is NC1 by the Act, Inso|vency
or Death of a artner .......................................... 696
As 1o 1h|rd arty Cred|tors ........................................ 696
art|cu|ar ku|e of "L|m|ted L|ab|||ty" ........ 698
When Cred|tors Not Deemed to 8e |n
Good Ia|th ............................................. 698
art|cu|ar ku|e on artner by Lstoppe|.... 699
W|nd|ng-Up of artnersh|p Affa|rs
Who nas Author|ty to W|nd-up? .............................................. 699
ku|es and rocedures for W|nd|ng-up and L|qu|dat|on
of artnersh|p Affa|rs ...................................................... 699
xxv||

Lnforc|ng Contr|but|ons from artners to Cover
artnersh|p Debts ................................................ 702
r|or|ty ku|es 8etween artners' Cred|tors and
artnersh|p Cred|tors ................................................ 702
r|or|ty ku|es When artner Is Inso|vent ................... 702
artner May Demand Share |n Net Assets Cn|y After L|qu|dat|on and
Sett|ement
of C|a|ms of artnersh|p Cred|tors ........................ 703
Cont|nuance of artnersh|p 8us|ness Instead of W|nd|ng-Up ....70S Who
May Cont|nue artnersh|p 8us|ness and
Cb||gat|ons Assumed? ............................. .................. 707
D|spos|t|on of L|ab|||t|es When artnersh|p 8us|ness
Cont|nued .................................................................. 708
D|spos|t|on of L|ab|||t|es When D|sso|ut|on Is Caused
by the ket|rement or Death of a artner ......................... 710
artner's k|ght to Demand an Account|ng ............................... 712
CnA1Lk 10 LIMI1LD Ak1NLkSnIS
Nature, Iormat|on and keg|strat|on ........................................ 714
Lssence of the Med|um of L|m|ted artnersh|p ........................ 716
kequ|rements for the Iormat|on of a L|m|ted artnersh|p . 718
Ia|se Statement |n the SLC Cert|f|cate ................................ 724
Name of L|m|ted artnersh|p .............................................. 72S
Surname of L|m|ted artner ........................................ 726
1he Inc|us|on of the 1erm "L|m|ted"............................ 727
No I|rm Name rov|ded |n the Cert|f|cate ....................... 728
Contr|but|ons to the L|m|ted artnersh|p............................ 728
Contr|but|on of Serv|ce .............................................. 729
Ind|cat|on of the Amount Contr|buted ....................... 729
When Cert|f|cate Cance||ed or Amended ............................. 730
When Cert|f|cate Must 8e Cance||ed .......................... 732
When Cert|f|cate Must 8e Amended .......................... 733
rocedure to Amend Cert|f|cate ................................. 734
Genera| and L|m|ted artners ....................................................... 73S
1he Genera| artners
Who Is a Genera| artner |n a L|m|ted
artnersh|p? ........................................................ 736
k|ghts and owers of Genera| artners ....................... 736
Dut|es and Cb||gat|ons of Genera| artners ............... 740
1he L|m|ted artners
Who Is a L|m|ted artner? ........................................... 742
xxv|||

Lrroneous 8ut |n Good Ia|th L|m|ted artner .............. 742
When L|m|ted and Genera| artner at the
Same 1|me ........................................................... 743
1he k|ghts and owers of the L|m|ted artner ..................... 744
k|ght to L|m|ted L|ab|||ty ............................................ 74S
k|ght to keturn of Contr|but|ons ................................. 747
k|ght to rof|t or Compensat|on by Way of Income .. 7S1
k|ght to Ass|gn L|m|ted artner's Interest ................... 7S2
ne|rs of Deceased Genera| artner Succeed
Genera||y as L|m|ted artners ............................. 7S6
L|m|ted k|ght as to artnersh|p Affa|rs ....................... 7S8
L|m|ted artner May Loan Money to the
artnersh|p ......................................................... 7S9
k|ght to D|sso|ve the L|m|ted artnersh|p ................... 760
Cb||gat|ons of L|m|ted artners............................................ 762
Cn Cr|g|na| Contr|but|ons to the artnersh|p ............. 762
Cn Add|t|ona| Contr|but|ons ....................................... 763
Cn keturned Contr|but|ons ........................................ 764
L|ab|e as 1rustee of the artnersh|p ........................... 764
I|duc|ary Dut|es of L|m|ted artners ........................... 76S
Genera| Lack of Stand|ng |n artnersh|p Su|ts ............ 76S
D|sso|ut|on and W|nd|ng up of L|m|ted artnersh|p ...................... 766
Causes of D|sso|ut|on ......................................................... 768
Sett||ng of Accounts ............................................................ 769
ICIN1 VLN1UkLS
Introduct|on ................................................................................ 771
Nature of Io|nt Ventures |n h|||pp|ne Sett|ng
Io|nt Venture Arrangements r|mar||y Governed by
Contract Law r|nc|p|es............................................... 772
Io|nt Ventures Are Spec|es of artnersh|p ........................... 773
artnersh|p Character|st|cs of the Io|nt Venture .................. 777
Spec|a| 1reatments G|ven to Io|nt Ventures ......................... 778
SLC ku||ngs ................................................................. 779
A|ternat|ve Iorms |n Structur|ng a Io|nt Venture .......................... 781
Account|ng for Io|nts Ventures ........................................... 782
Io|nt|y Contro||ed Cperat|ons (ICC) ........................... 783
Io|nt|y Contro||ed Assets (ICA) .................................... 783
Io|nt|y Contro||ed Lnt|t|es (ICL) ................................... 784
Informa| or Contractua| Io|nt Venture Arrangement ............ 78S
xx|x

SLC kecogn|t|on of the Informa| Io|nt Venture
Arrangement ....................................................... 786
Iur|sprudent|a| Lxamp|e of an Informa| Io|nt
Venture Arrangement .......................................... 787
Io|nt Venture Arrangement n|dden 1hrough
Another Iorm of Contract . ................................. 789
Io|nt Venture ursued under Iorma| artnersh|p
Arrangement .............................................................. 793
Io|nt Venture ursued under a Io|nt Venture
Corporat|on ................................................................ 79S
Corporate r|nc|p|es 27()8) IVA rov|s|ons ................ 79S
IV Company Crgan|zed as a C|ose Corporat|on ........... 800
k|ght of I|rst kefusa| a 47R7P*8) K7()"-,7
Ieature |n a IV Company Scheme.............................. 802
Aspects Wh|ch Inf|uence Cho|ce of IV Scheme .................................. 804
Def|n|ng Io|nt Ventures Scope of 8us|ness Act|v|ty .............. 804
L|m|ted L|ab|||ty Ieatures ......................................................... 804
Lxc|us|ons of New art|es, Non-D||ut|on of Lqu|ty ................... 80S
1ax Issues ert|nent to Io|nt Ventures L|ke a
artnersh|p, a Io|nt Venture Is
Cons|dered a Corporate 1axpayer ............................. 80S
Io|nt Ventures Lxempt from Income 1axat|on ................. 806
Informa| Io|nt Venture May Ln[oy 1ax Advantages ... 806
2ero-kated D|v|dends for IV Corporat|on .................... 807
Gu|de||nes and rocedure for Lnter|ng Into Io|nt Venture
(IV) Agreements 8etween Government and r|vate Lnt|t|es ........ 808
Lega| 8as|s for the Gu|de||nes .............................................. 808
Io|nt Venture Arrangements Covered by the Gu|de||nes ... 809
Nature of IV Covered by the Gu|de||nes ............................. 811
Cb[ect|ves and r|nc|p|es Underp|nn|ng the Gu|de||nes ....814 Gene
Agreements arameters for IV Agreements ............... 81S
IV Company As referred Mode of Imp|ement|ng
IV Agreement ...................................................... 816
rocess for Lnter|ng |nto IV Agreements ............................. 819
Approva| |n r|nc|p|e by nead of GL............................ 819
Modes of Se|ect|ng a IV artner
Compet|t|ve Se|ect|on .......................................... 820
Negot|ated Agreements ....................................... 821
Dev|at|on and Amendment of the IV Agreement ....... 822
keport|ng kequ|rements
Annua| keport to the DCI .......................................... 823
Subm|ss|on of Sa||ent Ieatures and Copy of IV
Agreement to NLDA ............................................. 823
xxx

nILIINL LAW AND kAC1ICL CN:
AGLNC
CnA1Lk 1
NA1UkL, C8ILC1IVL, AND kINDS
CI AGLNC
DLIINI1ICN AND C8ILC1IVLS CI AGLNC
Ak1. 1317. No one may contract |n the name of another
w|thout be|ng author|zed by the |atter, or un|ess he has by
|aw a r|ght to represent h|m.
A contract entered |nto |n the name of another by one
who has no author|ty or |ega| representat|on, or who has
acted beyond powers, sha|| be unenforceab|e, un|ess |t |s
rat|f|ed, express|y or |mp||ed|y, by the person on whose beha|f
|t has been executed before |t |s revoked by the other
contract|ng party. (12S9a)
Ak1. 1403. 1he fo||ow|ng contracts are unenforceab|e,
un|ess they are rat|f|ed:
1

1 o
(1) 1hose entered |nto |n the name of another
person by one who has been g|ven no author|ty or
|ega| representat|on, or who has acted beyond h|s
powers,
W W W
Ak1. 1868. 8y the contract of agency a person
b|nds h|mse|f to render some serv|ce or to do
someth|ng |n representat|on or on beha|f of an-
other, w|th the consent or author|ty of the |atter.
(1709a)
1he genera| ru|e embod|ed |n Art|c|e 1317 of the New C|v|| Code |s
that "No one may contract |n the name of another w|thout be|ng
author|zed by the |atter, or un|ess he has by |aw a r|ght to represent
h|m." 1he consequence of one enter|ng |nto a contract on beha|f of
another person w|thout the |atter's consent or author|ty, |s to render
the contract "unenforceab|e," as mandated under Art|c|e 1403(1) of the
Code.
In K5''6"**) T3 K5'R'66'-7 0,-8&,P*8('-+ Co.,
1
the Supreme Court
expressed the counter-part pr|nc|p|e that, as a genera| ru|e, what a
person may do persona||y, he may do through another. Consequent|y,
Art|c|e 1868 of the New C|v|| Code def|nes the"P"-*(,P* "& ,+7-P& as
one whereby "a person b|nds h|mse|f to render some serv|ce or to do
someth|ng |n representat|on or on beha|f of another, w|th the consent
or author|ty of the |atter." 1he statutory def|n|t|on of the "contract of
agency" |s g|ven from the v|ewpo|nt of the agent who b|nds h|mse|f to
enter |nto [ur|d|ca| acts |n the name of the pr|nc|pa|, and thereby
emphas|zes the character|st|c of the contract as that of be|ng 8-'R,*7(,'3
1he |ega| framework wh|ch necess|tates the need on certa|n
occas|ons for the forma| estab||shment of the agency re|at|onsh|p has
been apt|y d|scussed by the Court |n G,*'") T3 L7R'W C" <5,- Q ;"-)
G7,R*% <"(63/
Y
where |t he|d
1
40 h||. 471
( 9 9)
2
81 SCkA2S1
( 9 8)

NA1UkL, C8ILC1IVL, AND kINDS CI AGLNC 3
It |s a bas|c ax|om |n c|v|| |aw embod|ed |n our C|v|| Code
that no one may contract |n the name of another w|thout
be|ng author|zed by the |atter, or un|ess he has by |aw a
r|ght to represent h|m. A contract entered |nto |n the name
of
another by one who has no author|ty or |ega|
representat|on,
or who has acted beyond h|s powers, sha|| be
8-7-&"(P7,SR7/
un|ess |t |s rat|f|ed, express|y or |mp||ed|y, by the person on
whose beha|f |t has been executed, before |t |s revoked by
the other contract|ng party...
Cut of the above g|ven pr|nc|p|es, sprung the creat|on
and acceptance of the (7R,*'"-)5'6 "& ,+7-P% whereby one
party, ca||ed the pr|nc|pa| =$,-.,-*7H/ author|zes another,
ca|| the agent =$,-.,*,('"H/ to act for and |n h|s beha|f |n
transact|ons w|th th|rd persons.
3

When an agency re|at|onsh|p |s estab||shed, and the agent
acts |n the name of the pr|nc|pa|, the agent |s, |nsofar as the wor|d
|s concerned, essent|a||y the pr|nc|pa| act|ng |n the part|cu|ar
contract or transact|on on hand. Consequent|y, the acts of the
agent on beha|f of the pr|nc|pa| w|th|n the scope of the author|ty
g|ven have the same |ega| effects and consequences as though
the pr|nc|pa| had been the one so act|ng |n the g|ven s|tuat|on.
1h|s pr|nc|p|e |s referred to as the"."P*('-7 "& (76(7)7-*,*'"-3O
In ?('7-* B'( ;7(T'P7 Q >"*7R G76(7)7-*,*'T7) T3 <"8(* "&
B667,R),
4
the Court he|d that the 68(6")7 of every contract of
agency |s the ab|||ty, by |ega| f|ct|on, to extend the persona||ty of
the pr|nc|pa| through the fac|||ty of the agent, but that the same
can on|y be effected w|th the consent of the pr|nc|pa|.
In @'*"-X8,/ J(3 T3 D*7(-'* <"(63/
Z
the Court he|d that
It bears stress|ng that |n an agent-pr|nc|pa| re|at|onsh|p,
the persona||ty of the pr|nc|pa| |s extended through the
fac|||ty
of the agent In so do|ng the agent by |ega| f|ct|on becomes

[
RS'./ at pp. 2S8-2S9, 7$65,)')
R' .
4
197 SCkA64S (1991).
S
490 SCkA 204 (2006).

1 o NCN-CCkCkA1L MLDIA CI DCING 8USINLSS
w|th the consent of the pr|nc|pa|, wh|ch must not, |n
anyway, be compe||ed by |aw or by any court.
6

In 4"R7) T3 B-+7R7),
7
|n response to the |ega| argument that there
cou|d not have been an agency re|at|onsh|p because the pr|nc|pa| never
conf|rmed persona||y to the th|rd part|es the estab||shment of the
agency, the Court he|d
1he CA |s |ncorrect when |t cons|dered the fact that the
"supposed fr|ends of [pet|t|oners], the actua| borrowers, d|d
not present themse|ves to [respondent]" as ev|dence that
negates the agency re|at|onsh|p |t |s suff|c|ent that
pet|t|oner d|sc|osed to respondent that the former was
act|ng |n beha|f of her pr|nc|pa|s, her fr|ends whom she
referred to respondent. Ior an agency to ar|se, |t |s not
necessary that the pr|nc|pa| persona||y encounter the th|rd
person w|th whom the agent |nteracts. 1he |aw |n fact
contemp|ates, and to a great degree, |mpersona| dea||ngs
where the pr|nc|pa| need not persona||y know or meet the
th|rd person w|th whom her agent transacts, prec|se|y, the
purpose of agency |s to extend the persona||ty of the
pr|nc|pa| through the fac|||ty of the agent.
8

In D8("*7P5 F-.8)*(',R !7P5-"R"+'7)/ F-P3 T3 <8'\"-] the Court he|d
that "1he under|y|ng pr|nc|p|e of the contract of agency |s to accomp||sh
resu|ts by us|ng the serv|ces of others - to do a great var|ety of th|ngs ||ke
se|||ng, buy|ng, manufactur|ng, and transport|ng. Its purpose |s to extend
the persona||ty of the pr|nc|pa| or the party for whom another acts and
from whom he or she der|ves the author|ty to act."
10

Late|y, K5'R7W 0'-'-+ <"(63 T3 <"$$'))'"-7( "& F-*7(-,R G7T7-87/O
re|terated the pr|nc|p|e that the essence of an agency, even one that |s
coup|ed w|th |nterest, |s the agent's ab|||ty to
9S'./ at p. 223.
7
492SCkA 607
]RS'./ at p. 622.
9
S21 SCkAS84
O
F
S

NA1UkL, C8ILC1IVL, AND kINDS CI AGLNC
S
represent h|s pr|nc|pa| and br|ng about bus|ness re|at|ons between the
|atter and th|rd persons.
Ak1ILS 1C A CCN1kAC1 CI AGLNC
1he part|es to a contract of agency are:
the kINCIAL - the person represented
=$,-.,-*7H
the AGLN1 - the person who acts for and |n
representat|on of another ($,-.,*,('"H
1he other terms used for the pos|t|on of agent are "attorney-
|n-fact," "proxy," "de|egate," or "representat|ve."
A|though Art|c|e 1868 of the New C|v|| Code def|nes agency |n terms
of be|ng a contract, |t shou|d a|so be cons|dered as creat|ng between the
pr|nc|pa| and an agent ,- "-V+"'-+ R7+,R (7R,*'"-)5'6 wh|ch |mposes
persona| ob||gat|ons on both part|es. 1h|s |s |n consonance w|th the
O67()"-,R -,*8(7O of every contract of agency. 1hus, G,RR") he|d that out
of the pr|nc|p|e that no one may contract |n the name of another
w|thout be|ng author|zed by the |atter, "sprung the creat|on and
acceptance of the (7R,*'"-)5'6 "& ,+7-P% whereby one party, ca||ed the
pr|nc|pa| =$,-.,-*7H/ author|zes another, ca||ed the agent
($,-.,*,('"H/ to act for and |n h|s beha|f |n transact|ons w|th th|rd
persons."
12

LLLMLN1S CI 1nL CCN1kAC1 CI AGLNC
L|ke any other contract, agency |s const|tuted of the essent|a|
e|ements of (a) P"-)7-*/ (b) "SX7P* or )8SX7P* $,**7(/ and (c) P,8)7 or
P"-)'.7(,*'"-3
In G,RR") T3 L7R'W C" <5,- Q ;"-) G7,R*% <"(63/^
[
the Court he|d that
the fo||ow|ng are the essent|a| e|ements of the contract of agency:
OFS'./ at p. 2S9.
"81 SCkA2S1 (1978).

1 o
(a) Consent, express or |mp||ed, of the part|es to estab||sh
the re|at|onsh|p,
(b) Cb[ect, wh|ch |s the execut|on of a [ur|d|ca| act |n
re|at|on to th|rd part|es,
(c) Agent acts as a representat|ve and not for h|mse|f, and
(d) Agent acts w|th|n the scope of h|s author|ty.
14

1he e|ement not |nc|uded |n the G,RR") enumerat|on |s the P,8)7 or
P"-)'.7(,*'"- of every contract of agency.
1he |ast two e|ements |nc|uded |n the G,RR") enumerat|on shou|d
not be understood to be essent|a| e|ements for the perfect|on and
va||d|ty of the contract of agency, for |ndeed they are matters that do
not go |nto perfect|on, but rather |nto the performance stage of the
agency re|at|onsh|p. 1he non-ex|stence of the two purported essent|a|
e|ements _'373/ that the agent acted for herse|f and]or the agent acted
beyond the scope of her author|ty), does not affect the va||d|ty of the
ex|st|ng agency re|at|onsh|p, but rather the enforceab|||ty of the
contracts entered |nto by the agent on beha|f of the pr|nc|pa|.
1hus, under Art|c|e 1883 of the New C|v|| Code, "If an agent acts |n
h|s own name, the pr|nc|pa| has no r|ght of act|on aga|nst the person
w|th whom the agent has contracted, ne|ther have such persons aga|nst
the pr|nc|pa|." Under Art|c|e 1898 of the New C|v|| Code, "If the agent
contracts |n the name of the pr|nc|pa|, exceed|ng the scope of h|s
author|ty, and the pr|nc|pa| does not rat|fy the contract, |t sha|| be vo|d"
as to the pr|nc|pa|.
1he |ast two "e|ements" added by G,RR")/ wh|ch are based on
spec|f|c prov|s|ons of |aw, are meant to emphas|ze that the O(7R,*'"-)5'6
"& ,+7-P& |s set-up essent|a||y to comp|y w|th the "bas|c ax|om
embod|ed |n our C|v|| Code that no one may contract |n the name of
another w|thout be|ng author|zed by the |at
à
G7'*7(,*7. '- A8D-+ <5" T3 K,- B$7('P,- I"(R. B'(b,%)/ F-P3/
328 SCkA 717 (2000), 0,-'R, 07$"(',R K,(1 <7$7*7(%/ F-P3 T3
@'-),-+,-/ 443 SCkA 377 (2004), D8("*7P5 F-.8)*(',R !7P5-"R"+'7)/ F-P3
< ' S21 SCkA S84 (2007)

ter, . .. A contract entered |nto |n the name of another by one who has
no author|ty or |ega| representat|on ... sha|| be unenforceab|e, un|ess |t |s
rat|f|ed, express|y or |mp||ed, by the person on whose beha|f |t has been
executed."
1S

1. 1he L|ement of CCNSLN1
1he essent|a| e|ement of consent |s man|fest from the pr|nc|p|e
embod|ed |n Art|c|e 1317 of the New C|v|| Code that "No person may be
represented by another w|thout h|s w|||, and that no person can be
compe||ed aga|nst h|s w||| to represent another."
In :"(.,."( T3 @8\,
18
|n determ|n|ng whether the purported
pr|nc|pa| (8r|g|da) can be he|d ||ab|e so||dar||y w|th her a||eged agent
(Deganos) for fa||ure of the |atter to return [ewe|r|es rece|ved a||eged|y
on beha|f of the purported pr|nc|pa| (8r|g|da), the Supreme Court he|d
that "1he bas|s for agency |s representat|on. nere, there |s no show|ng
that 8r|g|da consented to the acts of Deganos or author|zed h|m to act
on her beha|f, much |ess w|th respect to the part|cu|ar transact|ons
|nvo|ved."
17
In add|t|on, the Court he|d -
8es|des, |t was gross|y and |nexcusab|y neg||gent of
pet|t|oners to entrust to Deganos, not once or tw|ce but on at
|east s|x occas|ons as ev|denced by s|x rece|pts, severa| p|eces
of [ewe|ry of substant|a| va|ue w|thout requ|r|ng a wr|tten
author|zat|on from h|s a||eged pr|nc|pa| [8r|g|da]. A person
dea||ng w|th an agent |s put upon |nqu|ry and must d|scover
upon h|s per|| the author|ty of the agent.
18

In 4'\"- T3 <"8(* "& B667,R)/O the Court he|d that [ust because
severa| persons are const|tuted as co-owners of the same property does
not make them agents to one another. In
1S
81 SCkA 2S1,

"283 SCkA 374
OFS'./ at p. 382.
`:
RS'./ at p. 382.
19
302 SCkA 288
( )

effect, the Court he|d that a co-owner does not become an agent of the
other co-owners, and that any exerc|se of an opt|on to buy a p|ece of
|and transacted w|th one co-owner does not b|nd the other co-owners
of the |and.
In 2'P*"(',) 0'RR'-+ <"3/ F-P3 T3 <"8(* "& B667,R)/
[c
the Court he|d
It |s c|ear from Art|c|e 1868 that the bas|s of agency |s
representat|on. Cn the part of the pr|nc|pa|, there must be
an actua| |ntent|on to appo|nt or an |ntent|on natura||y
|nferab|e from h|s words or act|ons, and on the part of the
agent, there must be an |ntent|on to accept the
appo|ntment and act on |t, and |n the absence of such
|ntent, there |s genera||y no agency.
21

In @'*"-X8,/ J(3 T3 D*7(-'* <"(63/
[Y
the Court he|d that consent ='373/
the meet|ng of m|nds) of both the pr|nc|pa| and the agent |s necessary to
create an agency: 1he pr|nc|pa| must |ntend that the agent sha|| act for
h|m, the agent must |ntend to accept the author|ty and act on |t, and the
|ntent|on of the part|es must f|nd express|on e|ther |n words or conduct
between them.
In the same manner, 4"$'-'"- F-)8(,-P7 <"(63 T3 <"8(* "&
B667,R)/
Y[
he|d that s|nce the S,)') &"( ,+7-P% ') (76(7)7-*,*'"-/ then
there must be, on the part of the pr|nc|pa|, an actua| |ntent|on to
appo|nt or an |ntent|on natura||y |nferab|e from h|s words or act|ons, on
the part of the agent, there must be an |ntent|on to accept the
appo|ntment and act on |t, and |n the absence of such |ntent, there |s
genera||y no agency.
erhaps the on|y except|on to th|s ru|e |s the pr|nc|p|e of O,+7-P%
S% 7)*"667RdO but even then |t |s by the separate acts of the purported
pr|nc|pa| and purported agent, by wh|ch they are brought |nto the
re|at|onsh|p |nsofar as th|rd part|es act|ng |n good fa|th are concerned.
More d|scuss|ons on the essent|a|
M
333 SCkA663
(2000)
21
]b]d, at p. 67S.
*?490 SCkA 204

23
376 SCkA 239
(2002)

e|ement of consent sha|| take p|ace |n the sect|on on essent|a|
P5,(,P*7(')*'P "& P"-)7-)8,R'*% of contracts of agency.
a. Capac|ty of the art|es
Ior the va||d|ty of a contract of agency, |t |s requ|red that the
pr|nc|pa| must have capac|ty to contract,
24
and pr|nc|pa| may e|ther be a
natura| or [ur|d|ca| person.
2S

1here |s |ega| ||terature ho|d|ng that s|nce the agent assumes no
persona| ||ab|||ty, the agent does not have to possess fu|| capac|ty to act
|nsofar as th|rd persons are concerned.
26

S|nce a contract of agency |s f|rst and foremost a contract |n |tse|f,
the part|es (both pr|nc|pa| and agent) must have |ega| capac|t|es to
va||d|y enter |nto an agency. nowever, |f one of the part|es has no |ega|
capac|ty to contract, then the contract of agency |s not vo|d, but mere|y
vo|dab|e by reason of v|t|at|on |n consent, wh|ch means that |t |s va||d
unt|| annu||ed.
A vo|dab|e contract of agency w||| produce |ega| consequences,
when |t |s pursued to enter |nto [ur|d|ca| re|at|ons w|th th|rd part|es. If
the pr|nc|pa| |s the one who has no |ega| capac|ty to contract, and h|s
agent enters |nto a contractua| re|at|onsh|p |n the pr|nc|pa|'s name w|th
a th|rd party, the resu|t|ng contract |s vo|dab|e and sub[ect to
annu|ment. Cn the other hand, |f the pr|nc|pa| has |ega| capac|ty, and |t |s
the agent that has no |ega| capac|ty to contract, the under|y|ng agency
re|at|onsh|p |s vo|dab|e, and when the |ncapac|tated agent enters |nto a
contract w|th a th|rd party, the resu|t|ng contract wou|d be va||d, not
vo|dab|e, for the agent's |ncapac|ty |s |rre|evant, the contract hav|ng
been entered |nto, for and |n beha|f of the pr|nc|pa|, who has fu|| |ega|
capac|ty.
1he forego|ng d|scuss|ons support the fact that as a genera|
propos|t|on the |ack of |ega| capac|ty of the agent does not affect the
const|tut|on of the agency re|at|onsh|p. et, |t |s c|ear under
24
Arts. 1327 and 1329, New C|v|| Code.
2S
Art. 1919(4), New C|v|| Code.
^DL LLCN AND DL LLCN, CCMMLN1 AND CASLS CN Ak1NLkSnI AGLNC
AND 1kUS1S, 200S ed., at p. 3S6, 57(7'-,&*7( (7&7((7. *" ,) "DL LLCNS."
Art|c|e 1919(3) of the New C|v|| Code that |f dur|ng the term of the
agency, the pr|nc|pa| or agent |s p|aced under c|v|| |nterd|ct|on, or
becomes |nsane or |nso|vent, the agency |s '6)" X8(7 ext|ngu|shed.
It |s therefore on|y |og|ca| to conc|ude that |f the |oss of |ega|
capac|ty of the agent ext|ngu|shes the agency, then necessar||y
any of those cause that have the effect of remov|ng |ega| capac|ty
on e|ther or both the pr|nc|pa| and agent at the t|me of perfect|on
wou|d not br|ng about a contract of agency.
Cbv|ous|y, there seems to be an |ncongru|ty when |t comes
to pr|nc|p|es |nvo|v|ng the |ega| capac|t|es of the part|es to a
contract of agency. 1he reason be|ng that the pr|nc|p|es actua||y
occupy two d|fferent |ega| |eve|s. When |t comes to creat|ng and
ext|ngu|sh|ng the contractua| re|at|onsh|p of pr|nc|pa| and agent,
the prov|s|ons of |aw take |nto cons|derat|on pure|y |ntramura|
matters perta|n|ng to the part|es thereto under the 6('-P'6R7 "&
(7R,*'T'*%3 S|nce agency |s essent|a||y a persona| re|at|onsh|p
based on the purpose of representat|on, then when e|ther the
pr|nc|pa| or agent d|es or becomes |ega||y |ncapac|tated, then the
agency re|at|on shou|d '6)" X8(7 cease.
8ut a contract of agency |s mere|y a 6(76,(,*"(% P"-*(,P*/
where the ma|n purpose |s to effect, through the agent, contracts
and other [ur|d|ca| re|at|onsh|ps of the pr|nc|pa| w|th th|rd part|es.
1he pub||c po||cy |s that th|rd part|es who act |n good fa|th w|th
an agent have a r|ght to expect that the|r contracts wou|d be
va||d and b|nd|ng on the pr|nc|pa|. 1herefore, even when by
|ega| cause an agency re|at|onsh|p has term|nated, say w|th the
|nsan|ty of the pr|nc|pa|, |f the agent and a th|rd party enter |nto
contract unaware of the s|tuat|on, then the var|ous prov|s|ons on
the Law on Agency wou|d aff|rm the va||d|ty of the contract. More
on th|s po|nt w||| be covered under the sect|on on the essent|a|
character|st|cs of agency, as we|| as on the f|na| chapter on
ext|ngu|shment of agency.
2. 1he L|ement of C8ILC1 or SU8ILC1 MA11Lk
1he "SX7P* of every contract of agency |s )7(T'P7/ wh|ch
part|cu|ar|y |s the |ega| undertak|ng of the agent to enter |nto
[ur|d|ca| acts w|th th|rd persons on beha|f of the pr|nc|pa|.

1herefore, the ob||gat|on created by the perfect|on of the contract of
agency |s essent|a||y an un||atera| persona| ob||gat|on "to do." More
spec|f|ca||y, G,RR") ru|ed that the ob[ect of every contract of agency "|s
the execut|on of a [ur|d|ca| act |n re|at|on to a th|rd person."
27

Items (b), (c) and (d) |n the enumerated e|ements of G,RR") can
actua||y be summar|zed |nto the ob[ect or ob[ect|ve of every contract of
agency to be that of )7(T'P7/ '373/ "the undertak|ng (ob||gat|on) of the
agent to enter |nto a [ur|d|ca| act w|th th|rd part|es on beha|f of the
pr|nc|pa| and w|th|n the scope of h|s author|ty."
3. 1he L|ement of CCNSIDLkA1ICN or CCMMISSICN
Ak1. 187S. Agency |s presumed to be for a compensat|on,
un|ess there |s proof to the contrary, (n)
1he P,8)7 "( P"-)'.7(,*'"- |n agency |s the compensat|on or
comm|ss|on that the pr|nc|pa| agreed or comm|tted to pay the agent for
the |atter's serv|ces. Under Art|c|e 187S of the New C|v|| Code, every
agency |s presumed to be for compensat|on, un|ess there |s proof to the
contrary. In other words, |t |s c|ear that there can be a va||d agency
contract wh|ch |s supported by cons|derat|on of ||bera||ty on the part of
the agent, that a|though agency contracts are 6('$,('R% "-7("8)/ they
may a|so be const|tuted as gratu|tous contracts.
1he va|ue that Art|c|e 187S br|ngs |nto the Law on Agency |s the
presumpt|on that every agency contract entered |nto |s for va|uab|e
cons|derat|on that the agency serves for the benef|t of the pr|nc|pa|
expect|ng to be compensated for h|s efforts. It |s the party who avers
that the agency was gratu|tous that
YN
FS'., at p. 2S9.

the agent agreed to serve gratu|tous|y who has the burden of prov|ng
such arrangement.
1he o|d dec|s|on |n B+8-, T3 @,(7-,/
Ye
d|d not ref|ect the pr|nc|p|e
that genera||y agency |s for compensat|on, wh|ch |s now embod|ed |n
Art|c|e 187S of the New C|v|| Code. In B+8-,/ a|though the agent had
rendered serv|ce to the pr|nc|pa| cover|ng co||ect|on of renta|s from the
var|ous tenants of the pr|nc|pa|, and |n sp|te of the agreement that the
pr|nc|pa| wou|d pay for the agent's serv|ce, neverthe|ess, the pr|nc|pa|
a||owed the agent to occupy one of h|s parce|s of |and and to bu||d h|s
house thereon. 1he Court he|d that the serv|ce rendered by the agent
was deemed to be gratu|tous, apart from the occupat|on of some of the
house of the deceased by the p|a|nt|ff and h|s fam||y, "for |f |t were true
that the agent and the deceased pr|nc|pa| had an understand|ng to the
effect that the agent was to rece|ve compensat|on as|de from the use
and occupat|on of the houses of the deceased, |t cannot be exp|a|ned
how the agent cou|d have rendered serv|ces as he d|d for e|ght years
w|thout rece|v|ng and c|a|m|ng any compensat|on from the deceased."
29

If B+8-, were dec|ded under the New C|v|| Code, then under
Art|c|e 187S, wh|ch mandates that every contract of agency |s deemed
to be for compensat|on, the resu|t wou|d have been qu|te the oppos|te.
kecent|y, |n De <,)*(" T3 <"8(* "& B667,R)/
[c
the Court uphe|d the
ob||gatory force of a compensat|on c|ause agreed upon |n a contract of
agency, thus
A contract of agency wh|ch |s not contrary to |aw, pub||c
order, pub||c po||cy, mora|s or good custom |s a va||d
contract, and const|tutes the |aw between the part|es. 1he
contract of agency entered |nto by Constante w|th Art|go |s
the |aw between them and both are bound to comp|y w|th
|ts terms and cond|t|ons |n good fa|th.
]fZN h||. 630
( )
m|d, at p. 632.
30
384 SCkA607
( )

1he mere fact that "other agents" |ntervened |n the con-
summat|on of the sa|e and were pa|d the|r respect|ve com-
m|ss|ons cou|d not vary the terms of the contract of agency
w|th grant|ng Art|go a S percent comm|ss|on based on the
se|||ng pr|ce.
31

1he forego|ng d|scuss|ons emphas|ze the tru|sm that as a
commerc|a| contract, agency exh|b|ts one of the three character|st|cs
common to a|| commerc|a| contracts, wh|ch |s that of be|ng OP8)*"$,(%
and "7g8'*,SR7." Crd|nar||y |n C|v|| Law, the quest|on of compensat|on
must be an |ntegra| part of the meet|ng of the m|nds of the part|es to a
contract of serv|ce, and that part|es to a c|v|| contract cannot be he|d
||ab|e for compensat|on to wh|ch they never express|y or |mp||ed|y
agreed to.
In the rea|m of commerc|a| contracts, customary ru|e or pract|ce
|mputes that part|es enter |nto commerc|a| transact|ons or re|at|onsh|p
for prof|t or for remunerat|on. 1hus, |n agency, the fact that such
re|at|onsh|p has been estab||shed puts |nto app||cat|on customary |aw
wh|ch presumes that both part|es knew that the serv|ces of the agent
were for compensat|on. It |s not even cr|t|ca| that the amount and
nature of the compensat|on had not been prev|ous|y agreed upon (as
wou|d have been cr|t|ca| for "ob||gatory force" to come |nto p|ay for c|v||
or pr|vate contracts of serv|ce), s|nce the courts are empowered to app|y
customs to determ|ne what compensat|on the agent |s ent|t|ed to
that wh|ch the market customar||y pays for the serv|ces rendered by the
agent.
a. Agent's Lnt|t|ement to Comm|ss|on Anchored on the
kender|ng of Serv|ce
1he compensat|on that the pr|nc|pa| agrees to pay to the agent |s
part of the terms of the contract of agency upon wh|ch the|r m|nds have
met. !57(7&"(7/ *57 7W*7-* ,-. $,--7( S% b5'P5 *57 ,+7-* b"8R. S7
7-*'*R7. *" (7P7'T7 P"$67-),*'"- "( P"$$'))'"- ') S,)7. "- *57 *7($) "&
*57 P"-*(,P*/ or the meet|ng of m|nds between the pr|nc|pa| and the
agent.
[
ES'./ at pp. 616-617.

1 o
Somet|mes, the terms of the contract of agency on the agent's
ent|t|ement to compensat|on are not c|ear, and dec|s|ons have had to
dea| w|th the |ssue of when an agent has mer|ted the r|ght to rece|ve
the compensat|on e|ther st|pu|ated or |mp||ed from the terms of the
contract. 1he doctr|ne that may be der|ved from the var|ous dec|s|ons
on the matter are anchored on the nature of the contract of agency as a
spec|es of contracts of serv|ces |n genera|.
When the render|ng of serv|ce a|one, and not the resu|ts, |s the
pr|mord|a| bas|s for wh|ch the compensat|on |s g|ven, then the proof
that serv|ces have been rendered shou|d ent|t|e the agent to the
compensat|on agreed upon.
Cn the other hand, |f the nature of the serv|ce to be compensated
|s understood to be based on the resu|ts to be ach|eved, e.g., that a
part|cu|ar contract w|th a th|rd party |s entered |nto |n beha|f of the
pr|nc|pa|, then mere render|ng of serv|ce w|thout ach|evement of the
resu|ts agreed upon wou|d not ent|t|e the agent to the compensat|on
agreed upon.
In F-R,-. G7,R*% T3 <"8(* "& B667,R)] a|though the u|t|mate buyer
was |ntroduced forma||y by the broker to the pr|nc|pa|, nonethe|ess the
Court he|d that
. . . et|t|oners d|d not succeed |n outr|ght|y se|||ng sa|d
shares under the predeterm|ned terms and cond|t|ons set
out by Araneta, Inc., e.g., that the pr|ce per share |s
1,S00.00. 1hey adm|t that they cou|d not d|ssuade
Standford from hagg||ng for the pr|ce of 1,000.00 per share
w|th the ba|ance of S0 of the tota| purchase pr|ce payab|e
|n f|ve years at 12 per annum. . . the |apse of the per|od of
more than one (1) year and f|ve (S) months between the
exp|rat|on of pet|t|oners' author|ty to se|| and the
consummat|on of the sa|e to Standford, to be a s|gn|f|cant
|ndex of pet|t|oners' non-part|c|pat|on |n the rea||y cr|t|ca|
events |ead|ng to the consummat|on of sa|d sa|e, '373/ the
negot|at|ons to conv|nce Standford to se|| at Araneta, Inc.'s
32
273 SCkA 70 (1997).

NA1UkL, C8ILC1IVL, AND kINDS CI AGLNC 1S
ask|ng pr|ce, the f|na||zat|on of the terms and cond|t|ons of
the sa|e, the draft|ng of the deed of sa|e, the process|ng of
pert|nent documents, and the de||very of the shares of stock
to Standford . . . et|t|oners were not the eff|c|ent procur|ng
cause |n br|ng|ng about the sa| e .. . and are, therefore, not
ent|t|ed to the st|pu|ated broker's comm|ss|on... "
33

In contrast, |n 0,-"*"1 :(")3/ F-P3 T3 <"8(* "& B667,R)/
[
] the Court
he|d that a|though the sa|e of the ob[ect of the agency to se|| was
perfected three days after the exp|rat|on of the agency per|od, the
agent was st||| ent|t|ed to rece|ve the comm|ss|on st|pu|ated based on
the doctr|ne he|d |n K(,*) T3 <"8(* "& B667,R)/
[Z
that when the agent was
the O7&&'P'7-* 6("P8('-+ P,8)7 '- S('-+'-+ ,S"8* *57 ),R7/O then the
agent |s ent|t|ed to compensat|on. In essence, the Court ru|ed that
when there |s a c|ose, prox|mate and causa| connect|on between the
agent's efforts and |abor and the pr|nc|pa|'s sa|e of h|s property, the
agent |s ent|t|ed to a comm|ss|on. It ought to be noted though that even
under the K(,*) doctr|ne, the u|t|mate ob[ect|ve of actua| sa|e be|ng
effected, must be present for the agent or broker to earned h|s
comm|ss|on.
1he matter perta|n|ng to ent|t|ement to comm|ss|on w||| be
d|scussed |n greater deta||s |n the sect|on be|ow that d|st|ngu|shes a
contract of agency from that of a broker's contract.
LSSLN1IAL CnAkAC1LkIS1ICS CI AGLNC
As|de from be|ng a -"$'-,*7/ 6('-P'6,R and P"-)7-)8,R contract,
G,RR") T3 L7R'W C" <5,- Q ;"-) G7,R*% <"(63] character|zes a contract of
agency as be|ng"67()"-,R/ (76(7)7-*,*'T7/ and .7('T,*'T7 |n nature."
37

m|d, at pp. 77-78.
"221 SCkA 224
( )
*
8
1

1 o
1. Nom|nate and r|nc|pa|
Not on|y |s the contract of agency )67P'&'P,RR% -,$7. as such
under the New C|v|| Code, |t |s a 6('-P'6,R P"-*(,P* because |t can stand
on |ts own w|thout need of another contract to va||date |t.
1he rea| va|ue of the contract of agency be|ng a O-"$'-,*7 ,-.
6('-P'6,( contract |s that |t has been so set apart by |aw and prov|ded
w|th |ts own set of ru|es and |ega| consequences, that any other
arrangement that essent|a||y fa||s w|th|n |ts terms sha|| be cons|dered
as an agency arrangement and sha|| be governed by the Law on
Agency, notw|thstand|ng any |ntent|on of the part|es to the contrary.
After a||, a contract |s what the |aw says |t |s, and not what the part|es
ca|| |t.
In 4"R7) T3 B-+7R7)|t was he|d that |f an act done by one person |n
beha|f of another |s |n |ts essent|a| nature one of agency, the former |s
the agent of the |atter notw|thstand|ng he or she |s not so ca||ed - |t w|||
be an agency whether the part|es understood the exact nature of the
re|at|on or not.
kecent|y, |n 0,-'R, 07$"(',R K,(1 <7$7*7(%/ F-P3 T3 @'-),-+,-the
Court re|terated the pr|nc|p|e that whatever the part|es name the
contractua| re|at|onsh|p, when |t has the essent|a| e|ements of a
contract of agency, then |t wou|d be governed by the Law on Agency,
thus
In an attempt to prove that 8a|uyot was not |ts agent,
MMCI po|nted out that under |ts Agency Manager
Agreement, an agency manager such as 8a|uyot |s
cons|dered an |ndependent contractor and not an agent.
nowever, |n the same contract, 8a|uyot as agency manager
was author|zed to so||c|t and rem|t to MMCI offers to
purchase |nterment spaces be|ong to and so|d by the |atter.
Notw|thstand|ng the c|a|m of MMCI that 8a|uyot was an
|ndependent contractor, the fact rema|ns that she was
author|zed to so||c|t so|e|y for and |n beha|f of MMCI. As
proper found both by the tr|a| court and the Court of
Appea|s,
38
492 SCkA 607
( )
39
443 SCkA 377
( )

8a|uyot was an agent of MMCI, hav|ng represented the
|nterest of the |atter, and hav|ng been a||owed by MMCI
to represent |t |n her dea||ngs w|th |ts c||ents]prospect|ve
buyers.
40

2. Consensua|
Ak1. 1869. Agency may be express, or |mp||ed from the
acts of the pr|nc|pa|, from h|s s||ence or |ack of act|on, or h|s
fa||ure to repud|ate the agency, know|ng that another person
|s act|ng on h|s beha|f w|thout author|ty.
Agency may be ora|, un|ess the |aw requ|res a spec|f|c
form. (1710a)
Ak1. 1870. Acceptance by the agent may a|so be express,
or |mp||ed from h|s acts wh|ch carry out the agency, or from
h|s s||ence or |nact|on, accord|ng to the c|rcumstances, (n)
1he contract of agency |s perfected by mere consent, and |s
therefore a P"-)7-)8,R P"-*(,P* Under Art|c|e 1869 of the New C|v||
Code, an agency may be express or |mp||ed from the act of the pr|nc|pa|,
from h|s s||ence or |ack of act|on, or fa||ure to repud|ate the agency,
agency may be ora|, un|ess the |aw requ|res a spec|f|c form.
41

Under Art|c|e 1870 of the New C|v|| Code, acceptance by the agent
may a|so be express, or |mp||ed from h|s acts wh|ch carry out the agency,
or from h|s s||ence or |nact|on accord|ng to the c|rcumstances.
In other words, the contract of agency |s essent|a||y a consensua|
contract, and that as a genera| ru|e no form or so|emn|ty |s requ|red |n
order to make |t va||d, b|nd|ng and enforceab|e.
]hRS'./ at p. 390.
41
See ,R)" @'*"-X8,/ J(3 T3 D*7$'* <"(63/ 490 SCkA204
(2006)

1 o
3. Un||atera| and r|mar||y Cnerous
Crd|nar||y, an agency |s onerous |n nature, where the agent
expects compensat|on for h|s serv|ces |n the form of comm|ss|ons.
nowever, Art|c|e 187S of the New C|v|| Code recogn|zes that an agency
may be supported by pure ||bera||ty, and thus wou|d be gratu|tous, but
the burden of proof wou|d be to show that the agency was const|tuted
gratu|tous|y.
When |t |s gratu|tous, the contract of agency |s undoubted|y a
un||atera| contract because |t on|y creates an ob||gat|on on the part of
the agent. 8ut even when |t |s supported by a va|uab|e cons|derat|on
='373/ compensated or onerous agency), |t wou|d st||| be character|zed as
a un||atera| contract, because |t |s on|y the fu|f|||ment of the pr|mary
ob||gat|ons of the agent to render some serv|ce upon wh|ch the
subord|nate ob||gat|on of the pr|nc|pa| to pay the compensat|on agreed
upon ar|ses.
When an agent accepts the agency pos|t|on w|thout com-
pensat|on, he assumes the same respons|b|||ty to carry out the agency
and sha|| |ncur the same ||ab|||ty when he fa||s to fu|f||| h|s ob||gat|ons to
the pr|nc|pa|. It |s therefore rather strange that Art|c|e 1909 of the New
C|v|| Code prov|des that "1he agent |s respons|b|e not on|y for fraud, but
a|so for neg||gence, wh|ch sha|| be [udged w|th more or |ess r|gor by the
courts, accord|ng to whether the agency was or was not for a
compensat|on."
4. ersona|, kepresentat|ve and Der|vat|ve
Ak1. 1897. 1he agent who acts as such |s not persona||y
||ab|e to the party w|th whom he contracts, un|ess he
express|y b|nds h|mse|f or exceeds the ||m|ts of h|s author|ty
w|thout g|v|ng such party suff|c|ent not|ce of h|s powers.
(172S)
1here |s no doubt that agency |s a spec|es of the broad group|ng of
what we ca|| the "serv|ce contracts," wh|ch |nc|udes emp|oyment
contract, management contract, contract for a p|ece- of-work, and a
brokerage arrangement. 1here are a|so spec|a|

serv|ce contracts wh|ch |nc|ude the render|ng of profess|ona| serv|ce
(e.g., doctors and |awyers), and consu|tancy work. 8ut |t |s the
character|st|c o f " (76(7)7-*,*'"-" that |s the most d|st|ngu|sh|ng mark
of agency when compared w|th other serv|ce contracts, |n that the ma|n
purpose |s to a||ow the agent to enter |nto contracts w|th th|rd part|es on
beha|f of, and wh|ch wou|d be b|nd|ng on, the pr|nc|pa|.
G,RR") ho|ds that the 67()"-,R/ (76(7)7-*,*'T7 and .7('T,*'T7
nature of the contract of agency spr|ngs from the bas|c fact that "1he
author|ty of the agent to act emanates from the powers granted to h|m
by h|s pr|nc|pa|, h|s act |s the act of the pr|nc|pa| |f done w|th|n the scope
of the author|ty. U8' &,P'* 67( ,R'$ &,P'* 67( )73 'ne who acts through
another acts h|mse|f.'"
42

In B$"- !(,.'-+ <"(63 T3 <"8(* "& B667,R)/
a[
the Court decreed
that "In a bevy of cases as the avuncu|ar case of 2'P*"(',) 0'RR'-+ <"3/ F-P3
T3 <"8(* B667,R)/ the Court decreed from Art|c|e 1868 that the bas|s of
agency |s representat|on,"
44
and that consequent|y one of the strongest
feature of a true contract of agency |s that of "contro|" that the agent
|s under the contro| and |nstruct|on of the pr|nc|pa|. 1hus, |n 2'P*"(',)
0'RR'-+ <"3/ F-P3 T3 <"8(* "& B667,R)/]
Z
|t was ru|ed
representat|on. Cn the part of the pr|nc|pa|, there must be an
actua| |ntent|on to appo|nt or an |ntent|on natura||y |nferab|e
from h|s words or act|ons, and on the part of the agent, there
must be an |ntent|on to accept the appo|ntment and act on |t,
and |n the absence of such |ntent, there |s genera||y no
agency. ?-7 &,P*"( b5'P5 $")* PR7,(R% .')*'-+8')57) ,+7-P%
&("$ "*57( R7+,R P"-P76*) ') P"-*("Rd "-7 67()"- V *57 ,+7-* V
,+(77) *" ,P* 8-.7( *57 P"-*("R "( .'(7P*'"- "& ,-"*57( V *57
6('-P'6,R3 F-.77./ *57 T7(% b"(. O,+7-P%O 5,) P"$7 *"
P"--"*7 P"-*("R S% *57 6('-P'6,R3 !57 P"-*("R &,P*"(/ $"(7
*5,- ,-% "*57(/ 5,) P,8)7. *57 P"8(*) *" 68* P"-*(,P*)
S7*b77- 6('-P'6,R ,-. ,+7-* '- , )76,(,*7 P,*7+"(%3333
42
81 SCkA2S1,

43
477 SCkA SS2
O
F
S

k k k
In the |nstant case, |t appears p|a|n to us that pr|vate
respondent CSC was a buyer of the SLDIk form, and not
an agent of S1M. r|vate respondent CSC was not sub[ect
to S1M's contro|. 1he quest|on of whether a contract |s one
of sa|e or agency depends on the |ntent|on of the part|es as
gathered from the who|e scope and effect of the |anguage
emp|oyed. 1hat the author|zat|on g|ven to CSC conta|ned
the phrase "for and |n our (S1M's) beha|f d|d not estab||sh
an agency. U|t|mate|y, what |s dec|s|ve |s the |ntent|on of the
part|es. 1hat no agency was meant to be estab||shed by the
CSC and S1M |s c|ear|y shown by CSC's commun|cat|on
to pet|t|oner that SLDk No. 1214M had been "so|d and
endorsed" to |t. 1he use of the words "so|d and endorsed"
means that S1M and CSC |ntended a contract of sa|e, and
not an agency.
46

In D8("*7P5 F-.8)*(',R !7P5-"R"+'7)/ F-P3 T3 <8'\"-/]
N
the
Court he|d
It |s sa|d that the bas|s of agency |s representat|on, that
|s, the agent acts for and on beha|f of the pr|nc|pa| on
matters
w|th|n the scope of h|s author|ty and sa|d acts have the
same |ega| effect as |f they were persona||y executed by the
pr|nc|pa|. 8y th|s |ega| f|ct|on, the actua| or rea| absence of
the pr|nc|pa| |s converted |nto h|s |ega| or [ur|d|ca| presence
i g8' &,P'* 67( ,R'8$ &,P'* 67( se.
48

a. r|nc|p|es I|ow|ng from Agency Character|st|cs
of OK7()"-,R/ G76(7)7-*,*'T7 ,-. 47('T,*'T7O
1he fo||ow|ng pr|nc|p|es f|ow from the app||cat|on of the
essent|a| character|st|cs of an agency of be|ng a O67()"-,R/ (76V
(7)7-*,*'T7 ,-. .7('T,*'T7O contract, thus:
(a) 1he contract entered |nto w|th th|rd persons per-
ta|ns to the pr|nc|pa| and not to the agent, the
]
e
R
S

]
:
RS'./ at p. S93.

agent |s a stranger to sa|d contract, a|though he
phys|ca||y was the one who entered |nto |t |n a
representat|ve capac|ty,
- 1he ||ab|||t|es |ncurred sha|| perta|n to the pr|nc|pa|
and not the agent,
1he agent has ne|ther r|ghts or ob||gat|ons from
the resu|t|ng contract,
1he agent has no |ega| stand|ng to sue upon sa|d
contract,
- 1he agent who acts as such |s not persona||y ||ab|e to
the party w|th whom he contracts, un|ess he
express|y b|nds h|mse|f or exceeds the ||m|ts of h|s
author|ty w|thout g|v|ng such party suff|c|ent
not|ce of h|s powers,
49

When an agent purchases the property |n bad
fa|th, the pr|nc|pa| |s deemed to be a purchaser |n
bad fa|th.
S0

(b) Genera||y, a|| acts that the pr|nc|pa| can do |n person, he
may do through an agent, except those wh|ch under
pub||c po||cy are str|ct|y persona| to the person of the
pr|nc|pa|.
(c) A su|t aga|nst an agent |n h|s persona| capac|ty cannot,
w|thout compe|||ng reasons, be cons|dered a su|t
aga|nst the pr|nc|pa|.
S1

(d) Not|ce to the agent shou|d a|ways be construed as
not|ce b|nd|ng on the pr|nc|pa|, even when |n fact the
pr|nc|pa| never became aware thereof.
S2

(e) know|edge of the agent |s equ|va|ent to know|edge of
the pr|nc|pa|.
49
Art. 1897, New C|v|| Code, D8("*7P5 F-.8)*(',R !7P5-"R"+'7)/ F-P3 T3
<8'\"-/ S21 SCkAS84 (2007).
Zc
<,(,$/ J(3 v. @,8(7*,/ 103 SCkA7 (1981).
j`
K5'R'66'-7 9,*'"-,R :,-1 T3 G'*(,**" C("86)/ F-P3/ 362 SCkA216

ZY
B'( L(,-P7 T3 <"8(* "& B667,R)/ 126 SCkA448 (1983).

1 o
LkCL1 WnLkL:
(1) Agent's |nterests are adverse to those of the pr|nc|pa|,
(2) Agent's duty |s not to d|sc|ose the |nformat|on, as
where he |s |nformed by way of conf|dent|a|
|nformat|on, and
(3) 1he person c|a|m|ng the benef|t of the ru|e co||udes
w|th the agent to defraud the pr|nc|pa|.
S3

1hus, |n D8("*7P5 F-.8)*(',R !7P5-"R"+'7)/ F-P3 T3 <8'\"-] the Court
he|d
Art|c|e 1897 re|nforces the fam|||ar doctr|ne that an
agent, who acts as such, |s not persona||y ||ab|e to the party
w|th whom he contracts. 1he same prov|s|on, however,
presents two |nstances when an agent becomes persona||y
||ab|e to a th|rd person. 1he f|rst |s when he express|y b|nds
h|mse|f to the ob||gat|on and the second |s when he exceeds
h|s author|ty. In the |ast |nstance, the agent can be he|d
||ab|e |f he does not g|ve the th|rd party suff|c|ent not|ce of
h|s powers.
SS

In K5'R6"**) T3 K5'R3 0&+3 Co.,
S6
the Court he|d that the r|ght of
|nspect|on g|ven to a stockho|der under the |aw can be exerc|sed e|ther
by h|mse|f or by any proper representat|ve or attorney |n fact, and
e|ther w|th or w|thout the attendance of the stockho|der. 1h|s |s |n
conform|ty w|th the genera| ru|e that what a man may do |n person he
may do through another.
S. I|duc|ary and kevocab|e
A contract of agency creates a |ega| re|at|onsh|p of representat|on
by the agent on beha|f of the pr|nc|pa|, where the
S3
DL LLCNS, at p. 367, P'*'-+ 1LLLLk, at
0
"S21 SCkA S84 (2007).
ZZ
RS'./ at p. S93.
]ac h||. 471 (1919).

powers of the agent are essent|a||y der|ved from the pr|nc|pa|, and
consequent|y, |t |s essent|a||y &'.8P',(% '- P5,(,P*7(3 Cne of the |ega|
consequences of the f|duc|ary nature of the contract of agency |s that |t |s
(7T"P,SR7k character the pr|nc|pa| nor the agent can be |ega||y made to
rema|n |n the re|at|onsh|p when they choose to have |t term|nated.
;7T7('-" T3 ;7T7('-",
S7
he|d that the re|at|ons of an agent to h|s
pr|nc|pa| are f|duc|ary |n character because they are based on trust and
conf|dence, wh|ch must f|ow from the essent|a| nature a contract of
agency that makes the agent the representat|ve of the pr|nc|pa|.
Consequent|y:
(a) As regards property form|ng the sub[ect matter of the
agency, the agent |s estopped from assert|ng or
acqu|r|ng a t|t|e adverse to that of the pr|nc|pa|,
S8

(b) In a conf||ct-of-|nterest s|tuat|on, the agent cannot
choose a course that favors h|mse|f to the detr|ment of
the pr|nc|pa|, he must choose to the best advantage of
the pr|nc|pa|,
S9

(c) 1he agent cannot purchase for herse|f the property of
the pr|nc|pa| wh|ch has been g|ven to her management
for sa|e or d|spos|t|on,
60

UNLLSS:
(i) 1here |s an express consent on the part of the
pr|nc|pa|,
61
or
(ii) If the agent purchases after the agency |s
term|nated.
62

C1
44 h||. 343 (1923).
"Art. 143S, New C|v|| Code.
Zl
!5"$,) T3 K'-7.,/ 89 h||. 312 (19S1), K,R$, T3 <(')*"S,R/ 77 h||.
712

Ârt. 1491(2), New C|v|| Code.
e`
<8' T3 <8'/ 100 h||. 913 (19S7).
O2,R7(, T3 27R,)P"/ S1 h||. 69S (1928).

In G768SR'P T3 DT,-+7R')*)/
e[
the Court he|d that genera||y, the
agency may be revoked by the pr|nc|pa| at w|||, s|nce |t |s a persona|
contract of representat|on based on trust and conf|dence reposed by
the pr|nc|pa| on h|s agent. As the power of the agent to act depends on
the w||| and ||cense of the pr|nc|pa| he represents, the power of the
agent ceases when the w||| or perm|ss|on |s w|thdrawn by the pr|nc|pa|.
In ?('7-* B'( ;7(T'P7) T3 <"8(* "& B667,R),
M
|t was he|d that the
dec|s|on of the |ower court order|ng the pr|nc|pa| a|r||ne company to
"re|nstate defendant as |ts genera| sa|es agent for passenger
transportat|on |n the h|||pp|nes |n accordance w|th sa|d GSA
Agreement," was un|awfu| s|nce courts have no author|ty to compe|
the pr|nc|pa| to re|nstate a contract of agency |t has term|nated w|th
the agent, thus:
Such wou|d be v|o|at|ve of the pr|nc|p|es and essence of
agency, def|ned by |aw as a contract whereby "a person
b|nds h|mse|f to render some serv|ce or to do someth|ng |n
representat|on or on beha|f of another, WI1n 1nL CCNSLN1
Ck AU1nCkI1 CI 1nL LA11Lk." In an agent-pr|nc|pa|
re|at|onsh|p, the persona||ty of the pr|nc|pa| |s extended
through the fac|||ty of the agent. In so do|ng, the agent, by
|ega| f|ct|on, becomes the pr|nc|pa|, author|zed to perform
a|| acts wh|ch the |atter wou|d have h|m do. Such a
re|at|onsh|p can on|y be effected w|th the consent of the
pr|nc|pa|, wh|ch must not, |n any way, be compe||ed by |aw
or by any court. 1he Agreement |tse|f between the part|es
states that "e|ther party may term|nate the Agreement
w|thout cause by g|v|ng the other 30 days not|ce by |etter,
te|egram or cab|e."
6S

6. reparatory and rogress|ve
A contract of agency does not ex|st for |ts own purpose, |t |s a
6(76,(,*"(% P"-*(,P* entered |nto for other purposes that dea| w|th the
pub||c |n a part|cu|ar manner: for the agent to enter |nto [ur|d|ca| acts
w|th the pub||c |n the name of the pr|nc|pa|.
<3466 SCkAS44
( )
M
197 SCkA64S
mFS'./ at p. 6S6.

1h|s character|st|c of an agency |s ref|ected |n var|ous prov|s|ons
|n the Law on Agency and |n case-|aw, that seek to protect the
va||d|ty and enforceab|||ty of contracts entered |nto pursuant to
the agency arrangement, even when to do so wou|d contravene
str|ct|y agency pr|nc|p|es.
In another way of putt|ng |t, an agency contract |s mere|y a
*""R or $7.'8$ resorted to ach|eve a greater ob[ect|ve of be|ng
ab|e to enter |nto [ur|d|ca| re|at|ons on beha|f of the pr|nc|pa|,
cons|derat|ons that perta|n mere|y to the too| or med|um certa|n|y
cannot outwe|gh cons|derat|ons that perta|n to the ma|n ob[ect|ve
of the agency. S|nce under the G,*'") ru||ng "the ob[ect [of every
re|at|onsh|p of agency] |s the execut|on of a [ur|d|ca| act |n re|at|on
to a th|rd person,"
66
then cons|derat|ons that seek to protect the
|nterests of th|rd part|es dea||ng |n good fa|th w|th an agent
must, |n case of conf||ct, preva|| over pr|nc|p|es perta|n|ng to the
|ntramura| re|at|onsh|p between the pr|nc|pa| and h|s agent.
kINDS CI AGLNC
1. 8ased on the 8us|ness or 1ransact|ons Covered
1here are two types of agenc|es based on the bus|ness or
transact|ons covered, name|y:
(a) C7-7(,R B+7-P%/ and
(b) E-'T7(),R B+7-P%3
Under Art|c|e 1876 of the New C|v|| Code, an agency |s
termed to be a"+7-7(,R ,+7-P%O when |t encompasses a|| of the
bus|ness of the pr|nc|pa|. As demonstrated |n the d|scuss|ons
hereunder, the better term for such an agency wou|d be a
O8-'T7(),R ,+7-P%/O for the term "genera| agency" |s one that
|s addressed to the genera| pub||c, and not [ust a part|cu|ar
person or group of persons wh|ch whom the agent |s to transact.
(8es|des, the term "un|versa| agency" |s more cons|stent w| th.
a s|m||ar coverage of "un|versa| partnersh|p" under the Law on
artnersh|ps.)
81 SCkA 2S1, 2S9.

1 o
Cn the other hand, Art|c|e 1876 of the New C|v|| Code def|nes a
O)67P',R ,+7-P%O as one wh|ch covers on|y one or more spec|f|c
transact|ons. 1he better term for such an agency |s "6,(*'P8R,( ,+7-P%/O
for |ndeed, the term ")67P',R ,+7-P% has been used |n dec|s|ons of the
Supreme Court to refer to one wh|ch |s addressed to a part|cu|ar person
or group of persons w|th whom the agent |s to transact. (Aga|n, the use
of the term "part|cu|ar agency" |s more cons|stent w|th a s|m||ar
coverage of "part|cu|ar partnersh|p" under the Law on artnersh|ps.)
In ;',),*T3 F-*7($7.',*7 B667RR,*7 <"8(*] the Court he|d that a
power of attorney wh|ch prov|des that - '1h|s |s to forma||ze our
agreement for you to represent Un|ted I|ag Industry to dea| w|th any
ent|ty or organ|zat|on, pr|vate or government, |n connect|on w|th the
market|ng of our productsf|ags and a|| |ts accessor|es. Ior your
serv|ces, you w||| be ent|t|ed to a comm|ss|on of 30," - was construed
to author|ze the agent to enter |nto a contract of sa|e over the products
covered and for wh|ch he wou|d be ent|t|ed to rece|ve comm|ss|ons
st|pu|ated. ;',),* d|st|ngu|shed three types of agency, name|y 8-'T7(),R/
+7-7(,R/ and )67P',R/ |n the fo||ow|ng manner:
An agent may be (1) un|versa|, (2) genera|, or (3) spec|a|.
A un|versa| agent |s one author|zed to do a|| acts for h|s
pr|nc|pa| wh|ch can |awfu||y be de|egated to an agent. So far
as such a cond|t|on |s poss|b|e, such an agent may be sa|d to
have un|versa| author|ty...
A genera| agent |s one author|zed to do a|| acts
perta|n|ng to a bus|ness of a certa|n k|nd or at a part|cu|ar
p|ace, or a|| acts perta|n|ng to a bus|ness of a part|cu|ar c|ass
or ser|es. ne has usua||y author|ty e|ther express|y conferred
|n genera| terms or |n effect made genera| by the usages,
customs or nature of the bus|ness wh|ch he |s author|zed to
transact.
An agent, therefore, who |s empowered to transact a||
the bus|ness of h|s pr|nc|pa| of a part|cu|ar k|nd or |n a
part|cu|ar p|ace, wou|d for th|s reason, be ord|nar||y deemed
a genera| agent...
67
139 SCkA 238 (198S).

A spec|a| agent |s one author|zed to do some part|cu|ar
act or to act upon some part|cu|ar occas|on. ne acts usua||y
|n accordance w|th spec|f|c |nstruct|ons or under ||m|tat|ons
necessar||y |mp||ed from the nature of the act to be done..
>
Accord|ng to ;',),*/ the express author|ty g|ven to the agent shou|d
be that |t was a genera| agency and the transact|ons entered |nto |n
beha|f of the pr|nc|pa| wh|ch pursued the sa|e of the pr|nc|pa|'s products,
were va||d and b|nd|ng and [ust|f|ed the agent's r|ght to rece|ve the
comm|ss|on prom|sed her, thus
Cne does not have to undertake a c|ose scrut|ny of the
document embody|ng the agreement between the
pet|t|oners and the respondent to deduce the |atter was
|nst|tuted as a genera| agent. Indeed, |t can eas||y be seen by
the way genera| words were emp|oyed |n the agreement
that no restr|ct|ons were |ntended as to the manner the
agency was to be carr|ed out or |n the p|ace where |t was to
be executed. 1he power granted to the respondent was so
broad that |t pract|ca||y covers the negot|at|ons |ead|ng to,
and the execut|on of, a contract of sa|e of pet|t|oner's
merchand|se w|th any ent|ty or organ|zat|on.
69

A good |||ustrat|on of the pr|nc|p|e perta|n|ng to a "spec|a| or
part|cu|ar agency" wou|d be the dec|s|on |n F-)8R,( 4(8+ T3 K9:/
-
where
the Court he|d that the on|y power g|ven to an agent |s to |ndorse
commerc|a| paper (checks), then such power |s a very respons|b|e power
and w||| not be ||ght|y |nferred, and consequent|y a sa|esman w|th
author|ty to co||ect money be|ong|ng to h|s pr|nc|pa| does not have the
|mp||ed author|ty to |ndorse checks rece|ved |n payment, and that any
person tak|ng checks made payab|e to a corporat|on wh|ch can act on|y
by agents does so at h|s per||, and must ab|de by the consequence |f the
agent who |ndorses the same |s w|thout author|ty.
0MS'./ at p. 24S, g8"*'-+ &("$ ADILLA, CIVIL LAW, 1nL NLW CIVIL CCDL
ANNC-
| d
el
nS'./ at p. 24S.
kC
S8 h||. 684 (1933).

1he c|ass|f|cat|ons under Art|c|e 1876 of the New C|v|| Code are
more academ|c than pract|ca|, s|nce outs|de of guard|ansh|p
proceed|ngs, hard|y anybody |n the modern wor|d empowers an agent
to cover every bus|ness aspect owned by the pr|nc|pa|. 8es|des, as
shown by the d|scuss|ons hereunder on "genera| powers of attorney,"
and "spec|a| powers of attorney," such a c|ass|f|cat|on |s not rea||y usefu|
because a"+7-7(,R "( 8-'T7(),R agency can by |aw on|y cover genera|
powers of attorney cover|ng mere|y acts of adm|n|strat|on, and cannot,
w|thout express or deta||ed descr|pt|on, cover spec|a| powers of
attorney, cover|ng part|cu|ar acts of str|ct ownersh|p. 1herefore, a
genera| agency |s better ach|eved by other contractua| forms such as a
contract of emp|oyment, or a un|versa| partnersh|p.
2. Whether It Covers L|t|gat|on Matters
A|though not spec|f|ca||y treated |n the New C|v|| Code, we shou|d
d|st|ngu|sh between these two types of agency:
(a) B**"(-7%V,*V@,b/ and
(b) B**"(-7%V'-VL,P*3
We can beg|n the d|scuss|ons w|th the ru||ng |n JVK5'R 0,('-7/ F-P3
T3 A]LkC,
71
where the Court he|d that the re|at|on of attorney and c||ent
|s |n many respects one of agency, and that the genera| ru|es of agency
app|y to such re|at|on. 1h|s |s not necessar||y a stra|ght forward
propos|t|on, for |ndeed both a regu|ar agency-pr|nc|pa| and
attorney-c||ent re|at|onsh|p are f|duc|ary |n character, and yet the
f|duc|ary character under the agency-pr|nc|pa| re|at|onsh|p |s based on
the doctr|ne of representat|on for purpose of enter|ng |nto [ur|d|ca| acts
that b|nd the pr|nc|pa|, wh||e that |n an attorney-c||ent re|at|onsh|p |s
based on the need to re|y upon the competence and |ntegr|ty of the
|awyer |n the d|spos|t|on of certa|n matters re|at|ng to |aw that have a
d|rect effect on the property, ||berty or ||fe of the c||ent.
"S61 SCkA 67S (2008).
An attomey-at-|aw, necessar||y means the appo|ntment of an
agent to represent the pr|nc|pa| on |ega| matters, part|cu|ar|y on matters
perta|n|ng to ||t|gat|on or court matters. 8ut not every attorney-c||ent
re|at|onsh|p |s a contract of agency, such as where the essent|a| ob[ect|ve
|s not representat|on, such as when an attorney |s reta|ned to draw-up
|ega| documents. 8ut when |t comes to ||t|gat|on, the reta|n|ng of an
attorney |s tru|y |n representat|on of the c||ent-pr|nc|pa| before the
courts, such that the acts of the attorney for and |n beha|f of the c||ent,
that not|ce to the attorney, and serv|ce of [ud|c|a| process to the
attorney, are equ|va|ent to serv|ce to the c||ent-pr|nc|pa|. Under ex|st|ng
ru|es and [ur|sprudence, such an agent wou|d be pract|c|ng |aw and
wou|d have to be a ||censed |awyer. 1he re|at|onsh|p |s one that |s
f|duc|ary and profess|ona| |n character, and |s governed by separate
ru|es, |nc|ud|ng the |ega| profess|ona| code and the ru|es promu|gated by
the Supreme Court cover|ng the pract|ce of |aw.
Consequent|y, the term ",**"(-7%V'-V&,P& |s |ntended to descr|be a||
agents appo|nted by a pr|nc|pa| to act on [ur|d|ca| re|at|ons that have
noth|ng to do w|th |ega| matters and do not const|tute a pract|ce of |aw
on the part of the agent. 1h|s |s the c|ass|f|cat|on that covers the
"contract of agency" governed by the New C|v|| Code.
It shou|d be noted, however, that even |n the case of an
attorney-at-|aw represent|ng a c||ent |n a court case, there are certa|n
powers wh|ch are not |nherent |n the pos|t|on of an attorney-at-|aw to
|ega||y b|nd the c||ent, such as the power to comprom|se, to arb|trate,
7*P3 Whether an attorney-at-|aw has power to b|nd the c||ent pr|nc|pa| |n
such matters are governed by the ru|es of the New C|v|| Code on spec|a|
agency or spec|a| powers of attorney.
3. Whether It Covers Acts of Adm|n|strat|on or Acts of
Cwnersh|p
It |s |n the rea|m o f " ,**"(-7%V'-V&,P& that we wou|d more
appropr|ate|y use the c|ass|f|cat|ons of:
(a) C7-7(,R K"b7( "& B**"(-7%d and
(b) ;67P',R K"b7( "& B**"(-7%3

S|mp|y stated, a +7-7(,R 6"b7( "& ,**"(-7% covers on|y O,P*) "&
,.$'-')*(,*'"-," or expressed |n commerc|a| terms, |t on|y covers power
O*" 68()87 *57 "(.'-,(% "( (7+8R,( P"8()7 "& S8)'-7))O Cn the other
hand, a )67P',R 6"b7( "& ,**"(-7% covers O,P*) "& ."$'-'"- "( )*('P*
"b-7()5'6/O or represents a s|tuat|on that |s descr|bed as O7W*(,"(.'-,(%
P"-.'*'"-) "( *5")7 68()87. -"* '- *57 "(.'-,(% P"8()7 "& S8)'-7))3O
Whether a power of attorney |s genera| or spec|a|, rea||y depends
on the nature of the bus|ness to wh|ch |t |s d|rected at. 1o |||ustrate,
a|though on the|r own the power "to se||," |s cons|dered acts of str|ct
ownersh|p, neverthe|ess, when they perta|n to the ord|nary pursu|t of
the bus|ness to wh|ch the agent has been des|gnated to manage, say a
merchand|s|ng store, the sa|e of the goods |n the ord|nary course of
bus|ness wou|d be part of the genera| power of attorney g|ven to h|m to
"adm|n|ster and manage the store," and such sa|es contracts are mere |n
the ord|nary pursu|t of the bus|ness.
Art|c|e 1877 of the New C|v|| Code prov|des that "An agency
couched |n genera| terms compr|ses on|y acts of adm|n|strat|on, even |f
the pr|nc|pa| shou|d state that he w|thho|ds no power or that the agent
may execute such acts as he may cons|der appropr|ate, or even though
the agency shou|d author|ze a genera| and un||m|ted management."
1he genera| ru|e |s that un|ess so express|y stated, when an agency
|s const|tuted _'373/ when a person |s des|gnated as an agent), |t on|y
covers the powers to execute acts of adm|n|strat|on |n re|at|on to the
bus|ness, venture or transact|on referred to |n the comm|ss|on. In other
words, whenever |t |s c|ear that an agent has been du|y des|gnated or
appo|nted by the pr|nc|pa|, |n the absence of ||m|t|ng cond|t|ons or
prov|s|on, then such agent |s deemed to have fu|| powers to pursue any
act |n the name of the pr|nc|pa| wh|ch are |n the "ord|nary course of
bus|ness."
In 0,P17 T3 <,$6)/
NY
the Court he|d
It seems easy to answer that acts of adm|n|strat|on are
those wh|ch do not |mp|y the author|ty to a||enate for the
-
N h||. SS3 (1907).

exerc|se of wh|ch an express power |s necessary. et what
are acts of adm|n|strat|on w||| a|ways be a quest|on of fact,
rather than of |aw, because there can be no doubt that
sound management w||| somet|mes requ|re the
performance of an act of ownersh|p. (12 Manresa 468) 8ut,
un|ess the contrary appears, the author|ty of an agent |s
presumed to |nc|ude a|| the necessary and usua| means to
carry out the agency |nto effect.
73

D|st|nct|ons between genera| power of attorney and spec|a| power
of attorney sha|| be covered |n the succeed|ng chapter on the OK"b7(
,-. B8*5"('*%/ 48*'7) ,-. ?SR'+,*'"-)/ "& *57 B+7-*3O
arenthet|ca||y, |t has been he|d |n !7"."(" T3 07*("6"R'*,- :,-1
,-. !(8)* Co.,
74
that a spec|a| power of attorney executed |n a fore|gn
country |s genera||y not adm|ss|b|e |n ev|dence as a pub||c documents |n
our |oca| courts.
AGLNC DIS1INGUISnLD IkCM SIMILAk CCN1kAC1S 1. Irom an
Lmp|oyment Contract
Un||ke an agency re|at|onsh|p wh|ch |s essent|a||y contractua| |n
nature, an emp|oyment contract under Art|c|e 1700 of the New C|v||
Code |s "1he re|at|onsh|p between cap|ta| and |abor [wh|ch] are not
mere|y contractua|. 1hey are so |mpressed w|th pub||c |nterest that |abor
contracts must y|e|d to the common good. 1herefore, such contracts are
sub[ect to the spec|a| |aws on |abor un|ons, co||ect|ve barga|n|ng, str|kes
and |ockouts, c|osed shop, wages, work|ng cond|t|ons, hours of |abor
and s|m||ar sub[ects."
More spec|f|ca||y, the purpose of an emp|oyer-emp|oyee
re|at|onsh|p |s for the emp|oyee to render serv|ce for the d|rect benef|t
of the emp|oyer or of the bus|ness of the emp|oyer, wh||e agency
re|at|onsh|p |s entered |nto to enter |nto [ur|d|ca| re|at|onsh|p on beha|f
of the pr|nc|pa| w|th th|rd part|es. 1here |s, therefore, no e|ement of
"representat|on" |n a contract of
-
RS'./ at p. SSS.
74
S7S SCkA 82
( )

1 o
emp|oyment, the emp|oyee does not have the power to enter |nto
[ur|d|ca| re|at|ons on beha|f of the emp|oyer.
In 47R, <(8\ T3 9"(*57(- !57,*('P,R D-*7(6(')7)/
NZ
the Court he|d
that the re|at|onsh|p between the corporat|on wh|ch owns and operates
a theatre, and the |nd|v|dua| |t h|res as a secur|ty guard to ma|nta|n the
peace and order at the entrance of the theatre was not that of pr|nc|pa|
and agent, because the pr|nc|p|e of representat|on was |n no way
|nvo|ved. 1he secur|ty guard was not emp|oyed to represent the
defendant corporat|on |n |ts dea||ngs w|th th|rd part|es, he was a mere
emp|oyee h|red to perform a certa|n spec|f|c duty or task, that of act|ng
as spec|a| guard and stay|ng at the ma|n entrance of the mov|e house to
stop gate crashers and to ma|nta|n peace and order w|th|n the prem|ses.
2. Irom a Contract for a |ece-of-Work
Under Art|c|e 1713 of the New C|v|| Code, "8y the contract for a
p|ece of work the contractor b|nds h|mse|f to execute a p|ece of work for
the emp|oyer, |n cons|derat|on of a certa|n pr|ce or compensat|on. 1he
contractor may e|ther emp|oy on|y h|s |abor or sk|||, or a|so furn|sh the
mater|a|."
Under a contract for a p|ece-of-work, the contractor |s not an
agent of the "pr|nc|pa|" ='373/ *57 PR'7-*H/ and the contractor has no
author|ty to represent the pr|nc|pa| |n enter|ng |nto [ur|d|ca| acts w|th
th|rd part|es. 1he essence of every contract for a p|ece-of-work |s that
the serv|ces rendered must g|ve r|se to the manufacture or product|on of
the ob[ect agreed upon. A|though the descr|pt|on of the sub[ect matter
to be manufactured or produced |s agreed upon by the part|es |n a
contract-for-a-p|ece-of-work, there |s no e|ement of "contro|" s|nce the
contractor cannot be d|ctated upon by the c||ent on how to go about
accomp||sh|ng the ob[ect|ve of the contract.
In L(7))7R T3 0,(',-" E% <5,P" ;"-) Q <"3/
Ne
|t was he|d that
where the contract entered |nto |s one where the |nd|v|dua|
7S
9S h||. 739
( )
76
34 h||. 122
( )

undertook and agreed to bu||d for the other party a cost|y ed|f|ce, the
under|y|ng contract |s one for a contract for a p|ece-of- work, and not a
pr|nc|pa| and agency re|at|on. Consequent|y, the contract |s author|zed to
do the work accord|ng to h|s own method and w|thout be|ng sub[ect to
the c||ent's contro|, except as to the resu|t of the work, he cou|d purchase
h|s mater|a|s and supp||es from whom he p|eased and at such pr|ces as
he des|red to pay. 1he Court he|d that the mere fact that |t was
st|pu|ated |n the contract that the c||ent cou|d take possess|on of the
work s|te upon the happen|ng of spec|f|ed cont|ngenc|es d|d not make
the re|at|on |nto that of an agency. Consequent|y, |t was ru|ed that when
the c||ent d|d take over the unf|n|shed works, he d|d not assume any
d|rect ||ab|||ty to the supp||ers of the contractor.
3. Irom a Management Agreement
In 9'7R)"- Q Co., F-P3 T3 @76,-*" <"-)"R'.,*7. 0'-'-+ Co.,
77
the
Court he|d that |n both agency and |ease of serv|ces ='373/ management
contract), one of the part|es b|nds h|mse|f to render some serv|ce to the
other party, thus:
Agency, however, |s d|st|ngu|shed from |ease of work or
serv|ces |n that the bas|s of agency |s representat|on, wh||e |n
the |ease of work or serv|ces the bas|s |s emp|oyment. 1he
|essor of serv|ces does not represent h|s emp|oyer, wh||e the
agent represents h|s pr|nc|pa|, x x x . 1here |s another
obv|ous d|st|nct|on between agency and |ease of serv|ces.
Agency |s a preparatory contract, as agency "does not stop
w|th the agency because the purpose |s to enter |nto other
contracts." 1he most character|st|c feature of an agency
re|at|onsh|p |s the agent's power to br|ng about bus|ness
re|at|ons between h|s pr|nc|pa| and th|rd persons. "1he agent
|s dest|ned to execute [ur|d|ca| acts (creat|on, mod|f|cat|on or
ext|nct|on of re|at|ons w|th th|rd part|es). Lease of serv|ces
contemp|ate on|y mater|a| (non-[ur|d|ca|) acts."
78

"26 SCkAS40 (1968).
oRS'./ at pp. S46-S47, g8"*'-+ &("$ kLLS AND UNC, AN CU1LINL CI
nILIINL CIVIL LAW, Vo|. V, p. 277.

1 o
63 NCN-CCkCkA1L MLDIA CI DCING 8USINLSS
9'7R)"- Q <"3 a|so he|d that where the pr|nc|pa| and paramount
undertak|ng of the "manager" under a Management Contract was the
operat|on and deve|opment of the m|ne and the operat|on of the m|||,
and a|| other undertak|ngs ment|oned |n the contract are necessary or
|nc|denta| to the pr|nc|pa| undertak|ng these other undertak|ngs
be|ng dependent upon the work on the deve|opment of the m|ne and
the operat|on of the m|||. In the performance of th|s pr|nc|pa|
undertak|ng the manager was not |n any way execut|ng [ur|d|ca| acts for
the pr|nc|pa|, dest|ned to create, mod|fy or ext|ngu|sh bus|ness re|at|ons
between the pr|nc|pa| and th|rd person. In other words, |n perform|ng |ts
pr|nc|pa| undertak|ng the manager was not act|ng as an agent of the
pr|nc|pa|, |n the sense that the term agent |s |nterpreted under the |aw
of agency, but as one who was perform|ng mater|a| acts for an
emp|oyer, for compensat|on. Consequent|y, the management contract
not be|ng an agency cannot be revoked at w||| and was b|nd|ng to |ts fu||
contracted per|od.
In ;57RR <"3 T3 L'(7$7-^) F-)8(,-P7 "& 97b,(1/
Nl
|n ru||ng that the
operator was an agent of the She|| company, the Court took |nto
cons|derat|on the fo||ow|ng facts: (a) that the operator owed h|s pos|t|on
to the company and the |atter cou|d remove h|m or term|nate h|s
serv|ces at w|||, (b) that the serv|ce stat|on be|onged to the company and
bore |ts tradename and the operator so|d on|y the products of the
company, that the equ|pment used by the operator be|onged to the
company and were [ust |oaned to the operator and the company took
charge of the|r repa|r and ma|ntenance, (c) that an emp|oyee of the
company superv|sed the operator and conducted per|od|c |nspect|on of
the company's gaso||ne and serv|ce stat|on, and (d) that the pr|ce of the
products so|d by the operator was f|xed by the company and not by the
operator.
4. Irom a Contract of Sa|e
Ak1. 1466. In constru|ng a contract conta|n|ng prov|s|ons
character|st|c of both the contract
79
10 h||. 7S7 (19S7).

of sa|e and of the contract of agency to se||, the essent|a|
c|auses of the who|e |nstrument sha|| be cons|dered, (n)
Under Art|c|e 1466 of the New C|v|| Code, "In constru|ng a contract
conta|n|ng prov|s|ons character|st|c of both the contract of sa|e and of
the contract of agency to se||, the essent|a| c|auses of the who|e
|nstrument sha|| be cons|dered." Iur|sprudence has |nd|cated what the
"essent|a| c|auses" that shou|d |nd|cate whether |t |s one of sa|e or
agency to se||]purchase, refers to st|pu|at|ons |n the contract wh|ch
p|aces ob||gat|ons on the part of the purported "agent" hav|ng to do
w|th what shou|d be a se||er's ob||gat|on to transfer ownersh|p and
de||ver possess|on of the sub[ect matter, or the buyer's ob||gat|on on the
payment of the pr|ce.
In U8'("+, T3 K,()"-)/
jc
a|though the part|es des|gnated the
arrangement as an agency agreement, the Court found the arrangement
to be one of sa|e s|nce the essent|a| c|ause prov|ded that "ayment was
to be made at the end of s|xty days, or before, at the [pr|nc|pa|'s]
request, or |n cash, |f the [agent] so preferred, and |n these |ast two cases
an add|t|ona| d|scount was to be a||owed for prompt payment."
81
1hese
cond|t|ons to the Court were "prec|se|y the essent|a| features of a
contract of purchase and sa|e" because there was the ob||gat|on on the
part of the purported pr|nc|pa| to supp|y the beds, and, on the part of
the purported agent, to pay the|r pr|ce, thus
1hese features exc|ude the |ega| concept|on of an agency
or order to se|| whereby the mandatory or agent rece|ved
the th|ng to se|| |t, and does not pay |ts pr|ce, but de||vers to
the pr|nc|pa| the pr|ce he obta|ns from the sa|e of the th|ng
to a th|rd person, and |f he does not succeed |n se|||ng |t, he
returns |t. 8y v|rtue of the contract between the p|a|nt|ff and
the defendant, the |atter, on rece|v|ng the beds, was
necessar||y ob||ged to pay the|r pr|ce w|th|n the term
"38 h||. S01
( )
oRS'./ at p.

f|xed, w|thout any other cons|derat|on and regard|ess as to
whether he had or had not so|d the beds.
82

As a consequence, the "revocat|on" sought to be made by the
pr|nc|pa| on the purported agency arrangement was den|ed by the
Court, the re|at|onsh|p be|ng one of sa|e, and the power to resc|nd |s
ava||ab|e on|y when the purported pr|nc|pa| |s ab|e to show substant|a|
breach on the part of the purported agent.
U8'("+, further ru|ed that when the terms of the agreement
compe|s the purported agent to pay for the products rece|ved from the
purported pr|nc|pa| w|th|n the st|pu|ated per|od, even when there has
been no sa|e thereof to the pub||c, the under|y|ng re|at|onsh|p |s not one
of contract of agency to se||, but one of actua| sa|e. A true agent does
not assume persona| respons|b|||ty for the payment of the pr|ce of the
ob[ect of the agency, h|s ob||gat|on |s mere|y to turn-over to the
pr|nc|pa| the proceeds of the sa|e once he rece|ves them from the buyer.
Consequent|y, s|nce the under|y|ng agreement was ru|ed not an agency
agreement, |t cou|d not be revoked except for cause.
In C"-\,R"K8%,*Q;"-)/ F-P3 T3 B(P" B$8)7$7-* <"$6,-%] wh|ch
covered a purported agency contract to purchase, the Court |ooked |nto
the prov|s|ons of the|r contract, and found that the |etters between the
part|es c|ear|y st|pu|ated for f|xed pr|ces on the equ|pment ordered,
wh|ch "adm|tted no other |nterpretat|on than that the [pr|nc|pa|] agreed
to purchase from the [agent] the equ|pment |n quest|on at the pr|ces
|nd|cated wh|ch are f|xed and determ|nate."
84
1he Court he|d that
"whatever unforeseen events m|ght have taken p|ace unfavorab|e to
the [agent], such as change |n pr|ces, m|stake |n the|r quotat|on, |oss of
the goods not covered by |nsurance or fa||ure of the Starr |ano
Company to proper|y f||| the orders as per spec|f|cat|ons, the [pr|nc|pa|]
m|ght st||| |ega||y ho|d the [agent] to the pr|ces f|xed."
8S
It was ru|ed that
the true re|at|onsh|p between the part|es was |n effect a contract
7Y
RS'.3
M
72 h||.
402(1941).
fRS'./ at p. 407.
mFS'. at p 407

of sa|e. Consequent|y, the demand by the purported pr|nc|pa| of a||
d|scounts and benef|ts obta|ned by the purported agent from the
Amer|can supp||ers under the theory that a|| benef|ts rece|ved by the
agent under the transact|ons were to be accounted for the benef|t of the
pr|nc|pa|, was den|ed by the Court.
C"-\,R" K8%,* a|so ru|ed that when under the terms of the
agreement, the purported agent becomes respons|b|e for any changes |n
the acqu|s|t|on cost of the ob[ect he has been author|zed to purchase
from a supp||er |n the Un|ted States, the under|y|ng agreement |s not an
contract of agency to buy, s|nce an agent does not bear any r|sk re|at|ng
to the sub[ect matter or the pr|ce. 8e|ng tru|y a contract of sa|e, any
prof|ts rea||zed by the purported agent from d|scounts rece|ved from the
Amer|can supp||er, perta|n to |t w|th no ob||gat|on to account for |t,
much |ess to turn |t over, to the purported pr|nc|pa|.
86

In <58, 9+" T3 E-'T7(),R !(,.'-+ <"3/ F-P3] where a |oca|
|mport|ng company was contracted to purchase from the Un|ted States
severa| boxes of oranges, most of wh|ch were |ost |n trans|t, the
purchaser sought to recover the advance purchased pr|ce pa|d, wh|ch
were refused by the |oca| |mport|ng company on the ground that |t
mere|y |mported the oranges as agent of the purchaser for wh|ch |t cou|d
not be he|d ||ab|e for the|r |oss |n trans|t. 1he Court, |n rev|ew|ng the
terms and cond|t|ons of the agreement between the part|es, he|d that
the arrangement was a sa|e rather than a contract of agency to purchase
on the fo||ow|ng grounds: (a) no comm|ss|on waspa|d by the purchaser
to the |oca| |mport|ng company, (b) the |oca| |mport|ng company was
g|ven the opt|on to "rese||" the oranges |f the ba|ance of the purchase
pr|ce was not pa|d w|th|n 48 hours from not|f|cat|on, wh|ch c|ear|y
|mp||es that the |oca| |mport|ng company d|d |n fact "se||" the oranges to
the purchaser, (c) the |oca| |mport|ng company p|aced order for the
oranges a |ower the pr|ce agreed upon w|th the purchaser wh|ch "|t
cou|d not proper|y do" |f
je
G7'*7(,*7. '- L,( D,)*7(- DW6"(* Q F$6"(* <"3 T3 @'$ !7P5 ;8,-/
97 h||. 171 (19SS).
87
87 h||. 331 (19S0).

|ndeed |t were mere|y act|ng as an agent, (d) the |oca| |mport|ng
company charged the purchaser w|th a sa|es tax, show|ng that the
arrangement was |ndeed a sa|e, and (e) when the |osses occurred, the
|oca| |mport|ng company made c|a|ms aga|nst the |nsurance company |n
|ts own name, |nd|cat|ng that he |mported the oranges as h|s own
products, and not mere|y as agent of the |oca| purchaser.
In K7,(R F)R,-. <"$$7(P',R <"(63 T3 @'$ !,- !"-+]
[
the Supreme
Court was unsure of |ts foot|ng when |t tr|ed to character|ze a contract of
sa|e ("Contract of urchase and Sa|e") between the manufacturer of
wax and |ts appo|nted d|str|butor |n the V|sayan area, as st||| be|ng
w|th|n a contract of agency |n that "wh||e prov|d|ng for sa|e of 8ee Wax
from the p|a|nt|ff to 1ong and purchase of the same by 1ong from the
p|a|nt|ff, a|so des|gnates 1ong as the so|e d|str|butor of the art|c|e w|th|n
a certa|n terr|tory."
89
Such reason|ng |n K7,(R F)R,-. |s not sound, s|nce
as ear|y as |n U8'("+, T3 K,()"-/ the Court had a|ready ru|ed that
appo|nt|ng one as "agent" or "d|str|butor," when |n fact such appo|ntee
assumes the respons|b|||t|es of a buyer of the goods, does not make the
re|at|onsh|p one of agency, but that of sa|e. erhaps the best way to
understand the ru||ng |n K7,(R F)R,-. was that the su|t was not between
the buyer and se||er, but by the se||er aga|nst the surety of the buyer
who had secured the sh|pment of the wax to the buyer, and the true
character|zat|on of the contract between the buyer and se||er was not
the essent|a| cr|ter|a by wh|ch to f|x the ||ab|||ty of the surety, thus:
1rue, the contract (Lxh|b|t A) |s not ent|re|y c|ear. It |s |n
some respects, even confus|ng. Wh||e |t speaks of sa|e of 8ee
Wax to 1ong and h|s respons|b|||ty for the payment of the
va|ue of every sh|pment so purchased, at the same t|me |t
appo|nts h|m so|e d|str|butor w|th|n a certa|n area, the
p|a|nt|ff undertak|ng |s not to appo|nt any other agent or
d|str|butor w|th|n the same area. Anyway, |t seems to have
been the so|e concern and |nterest of the p|a|nt|ff to be sure
that |t was pa|d the va|ue of a|| sh|pments of 8ee Wax to
88101 h||. 789
( )
$'./ at p. 792.

1ong and the Surety Company by |ts bond, guaranteed |n the
f|na| ana|ys|s sa|d payment by 1ong, e|ther as purchaser or as
agent.
90

In p7( Q Co., @*.3 T3 @'-+ ,./cover|ng a contract of d|str|butorsh|p, |t
was spec|f|ca||y st|pu|ated |n the contract that "a|| goods on cons|gnment
sha|| rema|n the property of the Company unt|| so|d by the D|str|butor to
the purchaser or purchasers, but a|| sa|es made by the D|str|butor sha||
be |n h|s name," and that the Company "at |ts own expense, was to keep
the cons|gned stock fu||y |nsured aga|nst |oss or damage by f|re or as a
resu|t of f|re, the po||cy of such |nsurance to be payab|e to |t |n the event
of |oss." It was further st|pu|ated that the contract "does not const|tute
the D|str|butor the agent or |ega| representat|ve of the Company for any
purpose whatsoever. D|str|butor |s not granted any r|ght or author|ty to
assume or to create any ob||gat|on or respons|b|||ty, express or |mp||ed
|n beha|f of or |n the name of the Company, or to b|nd the Company |n
any manner or th|ng whatsoever." In sp|te of such st|pu|at|ons, the Court
d|d f|nd the re|at|onsh|p to be one of agency, because |t d|d not transfer
ownersh|p of the merchand|se to the purported d|str|butor, even though
|t was supposed to enter |nto sa|es agreements |n the h|||pp|nes |n |ts
own name, thus
1he transfer of t|t|e or agreement to transfer |t for a
pr|ce pa|d or prom|sed |s the essence of sa|e. If such transfer
puts the transferee |n the att|tude or pos|t|on of an owner
and makes h|m ||ab|e to the transferor as a debtor for the
agreed pr|ce, and not mere|y as an agent who must account
for the proceeds of a resa|e, the transact|on |s a sa|e, wh||e
the essence of an agency to se|| |s the de||very to an agent,
not as h|s property, but as the property of the pr|nc|pa|, who
rema|ns the owner and has the r|ght to contro| the sa|e, f|x
the pr|ce, and terms, demand and rece|ve the proceeds |ess
the agent's comm|ss|on upon sa|es made.
92

]qRS'./ at p. 793.
91
38 SCkA S24
]RS'./ at p. S30.

In @'$ T3 <"8(* "& B667,R)/
j[
|t was he|d that as a genera| ru|e, an
agency to se|| on comm|ss|on bas|s does not be|ong to any of the
contracts covered by Art|c|es 13S7 and 13S8 of the New C|v|| Code
requ|r|ng them to be |n a part|cu|ar form, and not one enumerated
under the Statutes of Irauds |n Art|c|e 1403. nence, un||ke a sa|e
contract wh|ch must comp|y w|th the Statute of Irauds for
enforceab|||ty, a contract of agency to se|| |s va||d and enforceab|e |n
whatever form |t may be entered |nto.
In 2'P*"(', 0'RR'-+ <"3/ F-P3 T3 <"8(* "& B667,R)/O the Court he|d
that an author|zat|on g|ven to the buyer of goods to obta|n them from
the ba||ee "for and |n beha|f of the ba||or-se||er does not necessar||y
estab||sh an agency, s|nce the |ntent|on of the part|es was for the buyer
to take possess|on and ownersh|p over the goods w|th the dec|s|ve
|anguage |n the author|zat|on be|ng "so|d and endorsed."
1he o|d dec|s|on |n 9,*'"-,R G'P7 ,-. <"(- <"(63 T3 <"8(* "&
B667,R)/
lZ
presents an |nterest|ng s|tuat|on where |t |s poss|b|e for a
party to enter |nto an arrangement, where a port|on thereof |s as agent,
and the other port|on wou|d be as buyer, and st||| be ab|e to d|st|ngu|sh
and set apart to the two transact|ons to determ|ne the r|ghts and
||ab|||t|es of the part|es.
In 9,*'"-,R G'P7 a forma| contract was entered |nto between the
Nat|ona| k|ce & Corn Corp. (NAkIC) and the Davao Merchand|s|ng Corp.
(DAMLkCC), where they agreed that DAMLkCC wou|d act as an agent
of NAkIC "|n export|ng the quant|ty and k|nd of corn and r|ce"
ment|oned |n the contract (Lxh|b|t "A"), "as we|| as |n |mport|ng the
co||atera| goods that w||| be |mported thru barter on a back to back
|etter of cred|t or no-do||ar rem|ttance bas|s," and w|th DAMLkCC
agree|ng "to buy the aforement|oned co||atera| goods." A|though the
corn gra|ns were du|y exported, the Government had |ssued ru|es
bann|ng the barter of goods from abroad. NAkIC then brought su|t
aga|nst DAMLkCC seek|ng recovery of the pr|ce of the
M
2S4 SCkA 170
(1996).
M
333 SCkA
663 (2000). "91 SCkA
437 (1979)

exported gra|ns. 1he Court ru|ed that |nsofar as the export|ng of the
gra|ns was concerned, DAMLkCC acted mere|y as agent of NAkIC for
wh|ch |t cannot be he|d persona||y ||ab|e for the shortfa|| cons|der|ng that
|t had acted w|th|n the scope of |ts author|ty. 1he Court had agreed that
|ndeed the other ha|f of the agreement whereby DAMLkCC bound |tse|f
"as the purchaser of the co||atera| goods to be |mported from the
proceeds of the sa|e of the corn and r|ce," was a va||d and b|nd|ng
contract of sa|e, but for wh|ch DAMLkCC cou|d not be made to pay the
purchase pr|ce, because NAkIC |tse|f was no |onger |n a pos|t|on to
|mport any of such goods |nto the country, by reason of &"(P7 $,X78(7/
thus
It |s c|ear that |f after DAMLkCC had spent b|g sums
|nc|dent to carry|ng out the purpose of the contract, the
|mportat|on of the rema|n|ng co||atera| goods worth about
US5480,000.00 cou|d not be effected due to suspens|on by
the government under a new adm|n|strat|on of barter
transact|ons, the NAkIC (now k|ce and Corn Adm|n|strat|on)
ought to make the necessary representat|ons w|th the
government to enab|e DAMLkCC to |mport the sa|d
rema|n|ng co||atera| goods. !57 P"-*(,P*/ DW5'S'* OB/O 5,)
(7P'6("P,R )*'68R,*'"-) b5'P5 $8)* S7 +'T7- &"(P7 ,-. 7&&7P*
]
A|though |t |s c|ear from the dec|s|on that DAMLkCC had assumed
a|so the pos|t|on of be|ng a buyer of goods from NAkIC, the Court |n
9,*'"-,R G'P7 was ab|e to segregate h|s ro|e as mere|y an agent of NAkIC
|nsofar as the export of the gra|ns was concerned, and app|y the doctr|ne
that an agent does not assume any persona| ob||gat|on w|th respect to
the sub[ect matter of the agency nor of the proceeds thereof, h|s
ob||gat|on be|ng mere|y to turn-over the proceeds to the pr|nc|pa|
whenever he rece|ves them. 9,*'"-,R G'P7 a|so demonstrated
the"6("+(7))'T7 -,*8(7O of every contract of agency, |n that |t presents a
p||ab|e |ega| re|at|onsh|p wh|ch may be adopted |nto other re|at|onsh|ps,
such a contract of sa|e, to be ab|e to ach|eve commerc|a| ends.
OFS'./ at p. 449.

42
S. Irom a Contract of 8rokerage
In the ear|y dec|s|on |n :75-/ 07%7( ,-. <"3/ @*.3 T3 9"R*'-+
,-. C,(P',] dec|ded under the o|d C|v|| Code the Supreme
Court def|ned "broker" to mean as fo||ows
. . . A broker |s genera||y def|ned as one who |s engaged,
for others, on a comm|ss|on, negot|at|ng contracts re|at|ve
to property w|th the custody of wh|ch he has no concern,
the negot|ator between other part|es, never act|ng |n h|s
own name, but |n the name of those who emp|oyed h|m, he
|s str|ct|y a m|dd|eman and for some purpose the agent of
both part|es. (19 Cyc., 186, nenderson vs. 1he State, S0 Ind.,
234, 8|ack's Law D|ct|onary.) A broker |s one whose
occupat|on |t |s to br|ng part|es together to barga|n, or to
barga|n for them, |n matters of trade, commerce or
nav|gat|on. (Mechem on Agency, sec. 13, Wharton on
Agency, sec. 69S). Iudge Storey, |n h|s work on Agency,
def|nes a broker as an agent emp|oyed to make barga|ns
and contracts between other persons, |n matters of trade,
commerce or nav|gat|on, for compensat|on common|y ca||ed
brokerage. (Storey on Agency, sec. 28)"
:75-/ 07%7( ,-. <"3/ was a tax case where the Court
needed to def|ne the coverage of the term "broker" to
determ|ne the ||ab|||ty of a commerc|a| enterpr|se for taxes
and ||censes as a broker. 1he commerc|a| enterpr|se |tse|f
was engaged "|n the bus|ness ... of buy|ng and se|||ng copra,
hemp, and other nat|ve products of the Is|ands, and |n such
bus|ness the aforesa|d p|a|nt|ff advanced money for the
future de||very of copra and hemp, and took as secur|ty for
the future de||very of such copra and hemp so contracted for
a mortgage on the |and upon wh|ch sa|d copra or hemp was
produced, and charg|ng a d|scount on the future de||ver|es
of sa|d copra or hemp, wh|ch was |n compensat|on for the
money so advanced."
99
8ased on the def|n|t|on of a broker
(quoted above), the Court he|d that "A rea|-estate broker
negot|ates the purchase or sa|e of rea| property. ne may
97
3S h||. 274
( )
mFS'./ at p.
OFS'./ at p. 277.

a|so procure |oans on mortgaged secur|ty, co||ect rents, and
attend to the |ett|ng and |eas|ng of houses and |ands.
(8ouv|er's Law D|ct|onary.) A broker acts for another. In the
present case the p|a|nt|ff was act|ng for |tse|f. Whatever was
done w|th reference to the tak|ng of the mortgages |n
quest|on was done as an |nc|dent of |ts own bus|ness. 8y the
contract of brokerage a person b|nds h|mse|f to render some
serv|ce or to do someth|ng |n beha|f of or at the request of
another person (Art. 1209, C|v|| Code.)."
100

Note therefore that the term "broker" |s cons|dered to be a
commerc|a| term for a person or ent|ty engaged as a m|dd|eman to
br|ng part|es together |n matters perta|n|ng to trade, commerce or
nav|gat|on. If the person has not been g|ven the power to enter |nto the
contract or commerce |n beha|f of the part|es, then he |s a "broker" |n
the sense that h|s [ob ma|n|y |s "to br|ng part|es together to barga|n,"
and |n th|s sense, the broker does not assume the ro|e of an agent
because he has no power to enter |nto a contract |n beha|f of any of the
part|es. ne a|so assumes no f|duc|ary ob||gat|ons to e|ther or both
part|es, s|nce they are expected to use the|r own [udgment |n dec|d|ng
whether or not to b|nd themse|ves to a contract.
Cn the other hand, a broker may a|so be appo|nted w|th powers
to enter |nto [ur|d|ca| acts on beha|f of the pr|nc|pa|, |n wh|ch case, he |s
tru|y an agent. 1hus, :75-/ 07%7( Q <"3 c|tes a|so the def|n|t|on of an
agent under Art|c|e 1209 of the New C|v|| Code |n order to def|ne a
broker.
In K,P'&'P <"$$7(P',R <"3 T3 A,*P"/
$
wh|ch was a|so a tax case,
presented a more spec|f|c d|scuss|on of d|st|ngu|sh|ng between a
spec|f|c type agency, wh|ch |s that of a comm|ss|on agent or then known
as "comm|ss|on merchant" from that of commerc|a| broker, as one who
does not execute [ur|d|ca| acts |n beha|f of the pr|nc|pa|. In that dec|s|on,
ac|f|c Commerc|a| Company |ooked for purchasers of the sugar
products of V|ctor|as M||||ng, "and once the correspond|ng purchase
order |s obta|ned from them, the same |s sent to the off|ce of V|ctor|as
M||||ng Co., |n
100
]f>]d, at p.

101
68 h||.
( )

Man||a, wh|ch, |n turn, endorsed the order to |ts off|ce |n Negros, w|th
|nstruct|ons to sh|p the sugar thus ordered to Man||a, Cebu or ||o||o, as
the case may be. At t|mes, the purchase |s made for the de||very of the
sugar ex-warehouse of p|a|nt|ff [ac|f|c] and at other t|mes for de||very
ex-sh|p. In a|| cases, the b||| of |ad|ng |s sent to the p|a|nt|ff [ac|f|c]. If
the sugar was to be de||vered ex-sh|p, a|| that the p|a|nt|ff d|d was to
hand over the b||| of |ad|ng to the purchaser and co||ect the pr|ce. If |t
was for de||very ex- warehouse, the sugar |s f|rst depos|ted |n the
warehouse of the p|a|nt|ff before de||very to the purchaser."
102

Cn the |ssue of whether ac|f|c Commerc|a| Company acted as a
comm|ss|on merchant, as to the sugar de||ved ex- warehouse, the Court
he|d
1he quest|on of whether the appe||ant [ac|f|c], |n
connect|on w|th the sugar de||vered ex-warehouse and
thereafter so|d to the purchasers, acted as a comm|ss|on
merchant, present no doubt. A comm|ss|on merchant |s one
engaged |n the purchase or sa|e for another of persona|
property wh|ch, for th|s purpose, |s p|aced |n h|s possess|on
and at h|s d|sposa|. ne ma|nta|ns a re|at|on not on|y w|th h|s
pr|nc|pa| and the purchasers or vendors, but a|so w|th the
property wh|ch |s the sub[ect matter of the transact|on. In
the present case, the sugar was sh|pped by V|ctor|as M||||ng
Co., and upon arr|va| at the port of dest|nat|on, the p|a|nt|ff
rece|ved and transferred |t for depos|t |n |ts warehouses
unt|| the purchaser ca||ed for |t. 1he depos|t of the sugar |n
the warehouses of the p|a|nt|ff was made upon |ts own
account and at |ts own r|sk unt|| |t was so|d and taken by the
purchaser. 1here |s, therefore, no doubt that the p|a|nt|ff,
after tak|ng the sugar on board unt|| |t was so|d, had |t |n |ts
possess|on and at |ts own r|sk, c|rcumstances determ|nat|ve
of |ts status as a comm|ss|oner merchant |n connect|on w|th
the sa|e of sugar under these cond|t|ons.
103

1he not|on of a comm|ss|on merchant |s st||| ma|nta|ned |n the
New C|v|| Code |n Art|c|es 1902 to 1909 on the dut|es and
respons|b|||t|es of a "comm|ss|on agent."
'cY
RS'./ at p. 400.
103
]b]d, at pp.
0 02

Cn the |ssue of whether ac|f|c Commerc|a| Company acted as a
commerc|a| broker as to the sugar de||vered ex-sh|p, the Court he|d
1here |s a|so no doubt on the quest|on of whether the
p|a|nt|ff mere|y acted as a commerc|a| broker as to the sa|e
of the sugar de||vered to the purchaser ex-sh|p. 1he broker,
un||ke the comm|ss|on merchant, has no re|at|on w|th the
th|ng he se||s or buy. ne |s mere|y an |ntermed|ary between
the purchaser and the vendor. ne acqu|res ne|ther the
possess|on nor the custody of the th|ngs so|d. n|s on|y off|ce
|s to br|ng together the part|es to the transact|on. 1hese
c|rcumstances are present |n connect|on w|th the p|a|nt|ff's
sa|e of the sugar wh|ch was de||very to the purchaser ex-
sh|p. 1he sugar so|d under these cond|t|ons was sh|pped by
the p|a|nt|ff at |ts expense and r|sk ex-sh|p by the purchaser.
1he p|a|nt|ff never had possess|on of the sugar at any t|me.
1he c|rcumstance that the b||| of |ad|ng was sent to the
p|a|nt|ff does not a|ter |ts character of be|ng mere|y a broker,
or const|tute possess|on by |t of the sugar sh|pped, |nasmuch
as the same was sent to |t for the so|e purpose of turn|ng |t
over to the purchaser for the co||ect|on of the pr|ce. 1he
sugar d|d not come to |ts possess|on |n any sense.
104

S|nce K,P'&'P <"$$7(P',R <"$6,-%/ the Court had began to
recogn|ze that un|ess otherw|se so |nd|cated the term "broker" |s meant
to cover a commerc|a| broker act|ng not as an agent, but mere|y a
m|dd|eman, who bears no re|at|on w|th the th|ng he has been reta|ned
to buy or to se||, that he |s mere|y an |ntermed|ary between the
purchaser and the vendor. ne acqu|res ne|ther the custody nor the
possess|on of the th|ng he se||s, h|s on|y off|ce |s to br|ng together the
part|es to the transact|on.
In G7%7) T3 0")g87.,,
10S
the Court he|d that when a person has
been engaged to negot|ate w|th the owner of a parce| of |and on|y the
|owest purchase pr|ce that cou|d be barga|ned for and |n turn the owner
set a f|na| pr|ce and engaged the same person
b
RS'./ at p. 402.
10S
99 h||. 241
( 9 6)

to f|nd a buyer who wou|d buy at such a pr|ce, such engagement was
"on|y as a broker, then |n order to earn her comm|ss|on, |t was not
suff|c|ent for her to f|nd a prospect|ve buyer but to f|nd one who w|||
actua||y buy the property on the terms and cond|t|ons |mposed by the
owner."
108

1he a||-encompass|ve def|n|t|on of "broker" (wh|ch may |nc|ude
that of a comm|ss|on agent) |n :75-/ 07%7( Q <"3 was re|terated under
the new C|v|| Code |n ;P5$'. ,-. ?S7(R%/ F-P3 T3 GJ@ 0,(*'-7\/^
cN
as "one
who |s engaged, for others, on a comm|ss|on, negot|at|ng contracts
re|at|ve to property w|th the custody of wh|ch he has no concern, the
negot|ator between other part|es, never act|ng |n h|s own name but |n
the name of those who emp|oyed h| m. . . . a broker |s one whose
occupat|on |s to br|ng the part|es together, |n matters of trade,
commerce or nav|gat|on."
108

It shou|d be noted, however, that ;P5$'. Q ?S7(R%/ F-P3 |nvo|ved
the |ssue of whether the breach of the |mp||ed warrant|es of the se||er
|n a contract of sa|e under an |ndent arrangement, wh|ch |nc|udes a
recovery of the purchase pr|ce, cou|d be pursued aga|nst the agent who
effected the sa|e on beha|f of the fore|gn pr|nc|pa|-se||er. It shou|d
therefore be c|ear that |ega||y speak|ng, whether the |ntermed|ary was
act|ng as a comm|ss|on merchant] agent or a pure commerc|a| broker,
the genera| pr|nc|pa| |s ne|ther of them wou|d be ||ab|e persona||y for
the breach of warranty of the pr|nc|pa|-se||er. A comm|ss|on agent who
acts |n the name of the pr|nc|pa| and w|th|n the scope of h|s author|ty |s
protected by the pr|nc|p|e |n Agency Law that he does not therefore
become persona||y ||ab|e for the contracts he entered |nto |n the name
of the pr|nc|pa|. A commerc|a| broker, who mere|y |ntermed|ates
between the se||er and the buyer and for whom he has not executed
any [ur|d|ca| act, |s a comp|ete stranger to the resu|t|ng contract of sa|e
and certa|n|y cannot be he|d ||ab|e thereon for |ack of pr|v|ty. After
quot|ng from both :75-/ 07%7( Q <"3 and K,P'&'P <"$$7(P',R <"3/ the
Court he|d that
b
RS'./ at p. 24S.
107
166 SCkA 493

108
to]d, at p. S01.

1hus, the ch|ef features of a commerc|a| broker and a
commerc|a| merchant |s that |n effect|ng a sa|e, they are
mere|y |ntermed|ar|es or m|dd|emen, and act |n a certa|n
sense as the agent of both part|es to the transact|on.
Webster def|nes an '-.7-* as "a purchase order for
goods espec|a||y when sent from a fore|gn county." [Webs-
ter's N|nth New Co||eg|ate D|ct|onary 612 (1986). ] . . . An
|ndentor may therefore be best descr|bed as one who, for
compensat|on, acts as a m|dd|eman |n br|ng|ng about a pur-
chase and sa|e of goods between a fore|gn supp||er and a
|oca| purchaser."
109

In ;P5$'. Q ?S7(R%/ F-P3 |t was not cr|t|ca| for the reso|ut|on of the
ma|n |ssue to d|st|ngu|sh between a comm|ss|on agent or a true broker,
s|nce |n e|ther case, the |ntermed|ary wou|d not be ||ab|e for the
warrant|es of the pr|nc|pa|-se||er. Were the d|st|nct|on between agent
and a broker has been most cr|t|ca| |s on the |ssue of ent|t|ement to the
comm|ss|on or compensat|on prom|sed by the pr|nc|pa|.
Irom a|| the forego|ng, |t may be conc|uded that as d|st|ngu|shed
from an agent who |s du|y author|zed to enter |nto [ur|d|ca| acts |n
beha|f of the pr|nc|pa|, the serv|ces of a broker |s to f|nd th|rd part|es
who may be |nterested |n enter|ng |nto contracts w|th other part|es
over part|cu|ar matter, ,-. $,% '-PR8.7 negot|at|ng |n beha|f of both
part|es the perfect|on of a contract, but that the actua| perfect|on must
st||| be done by the part|es represented. A broker essent|a||y |s not a
|ega| extens|on of the persons of the part|es he |s negot|at|ng for s|nce
he has no |ega| power to enter |nto [ur|d|ca| acts |n the name of the
party he represents.
97T7(*57R7))/ '* $8)* S7 -"*7. *5"8+5 *5,* , S("17( $,% ,* *57
),$7 *'$7 S7 ,- ,+7-*/ '- b5'P5 P,)7 57 (7,RR% S7P"$7) , P"$$'))'"-
,+7-* '& *57 )8SX7P* $,**7( '-T"RT7) +"".), when he acts |s du|y
author|zed to enter |nto [ur|d|ca| acts |n the name of the c||ent.
109
Ab]d, at p. S02.

A good |||ustrat|on of a s|tuat|on where a rea| estate broker had
been granted powers of an agent |s |n the dec|s|on |n J303 !8,)"- Q <"3
T3 <"RR7P*"( "& F-*7(-,R G7T7-87/o where the rea| estate broker was
pa|d "adm|n|strat|on fees" for oversee|ng the deve|opment of parce|s
of |and of the owners |nto a subd|v|s|on pro[ect. In add|t|on, the rea|
estate broker was granted the powers "such as recommend|ng sa|es
pr|ces of | ots. . . , s|gn|ng contracts of sa|e or |ease, or contracts to se||,
re|eases of mortgage . . ., co||ect|ng sa|es pr|ces or other accounts due
the Cwner. . ., organ|z|ng off|ces and personne| to attend to the work
re|at|ng to a|| the above."
111
In that dec|s|on, the Court he|d that under
the 1ax Code a broker can be he|d ||ab|e for a|| compensat|on rece|ved
under the contract appo|nt|ng h|m as broker
A broker engaged |n the sa|e of rea| estate |s not ||m|ted
to br|ng|ng vendor and vendee together and arrang|ng the
terms and cond|t|ons of a sa|e of rea| estate. As sa|es of rea|
estate must be |n wr|t|ng the preparat|on of the documents
|s part of the funct|ons of the broker. So the on|y funct|on
entrusted to pet|t|oner under the contract Lxh|b|t "A" wh|ch
may not be embraced |n those of a broker, |s that of
construct|ng the subd|v|s|on, as above exp|a|ned and
deta||ed out. It fo||ows, therefor, that the part|es have
agreed on g|v|ng compensat|on denom|nated adm|n|strat|on
fees for serv|ces wh|ch may we|| be |nc|uded |n the dut|es of
a broker.
112

a. now D|fferent Are the Dut|es and kespons|b|||t|es of the
Agent and the 8roker to 1he|r C||ents?
A true broker, one who mere|y acts as a negot|at|ng m|dd|eman,
and who |s not author|zed to execute [ur|d|ca| acts |n beha|f of the
c||ents, does not owe f|duc|ary dut|es to h|s c||ents, a|though ||ke any
ord|nary profess|ona| or bus|nessman, he |s supposed to act w|th due
d|||gence |n carry|ng out the affa|rs of h|s c||ents. If h|s neg||gence causes
damage to a c||ent, h|s
110
108 h||. 700
( )
$
RS'./ at p. 70S.
112
]b]d, at p.

||ab|||ty |s based on tort or g|]as]-de||ct, rather than that ar|s|ng from
breach of the duty of d|||gence. nowever, |f the broker has been |n
add|t|on author|zed to enter |nto [ur|d|ca| acts |n the name of the c||ent,
then he has |n add|t|on assumed the ro|e of an agent, and |n that case
has assumed the f|duc|ary dut|es of the agent, |nc|ud|ng the dut|es of
d|||gence and |oya|ty to the c||ent's cause or |nterest. Such broker, who
has assumed the dut|es of an agent, wou|d be proh|b|ted from tak|ng
secret prof|ts on the transact|on, and |s bound to account to the c||ent
a|| sums rece|ved on the transact|ons even those wh|ch were g|ven to
h|m by the other party for h|s own account as broker.
1h|s d|st|nct|on between the dut|es and respons|b|||t|es between a
true broker and a broker-agent were borne out c|ear|y |n the dec|s|on |n
4"$'-+" T3 4"$'-+"/o wh|ch reso|ved the |ssue on whether the
broker des|gnated by the owner of a parce| of |and to offer the property
for sa|e to the pub||c, cou|d be he|d to have forfe|ted h|s comm|ss|on
when he rece|ved from the buyer a 6("6'-, or compensat|on for hav|ng
conv|nced the se||er to accept a |ower pr|ce, and wh|ch amount was
never revea|ed to the se||er. In the dec|s|on, the Court d|d |ay out the
pr|nc|p|e that a true broker, who mere|y acts as a m|dd|eman, wou|d
have no f|duc|ary dut|es to the se||er-c||ent, not even the duty to
account under Art|c|e 1891 of the New C|v|| Code, thus
1he duty embod|ed |n Art|c|e 1891 of the New C|v|| Code
w||| not app|y |f the agent or broker acted on|y as a
m|dd|eman w|th the task of mere|y br|ng|ng together the
vendor and vendee, who themse|ves thereafter w|||
negot|ate on the terms and cond|t|ons of the transact|on."
114

8ut the Court d|d f|nd that the rea| estate broker appo|nted by the
|and owner was not mere|y a broker, but accepted the ro|e of an agent:
"nere|n defendant-appe||ee Gregor|o Dom|ngo was not mere|y a
m|dd|eman of the pet|t|oner-appe||ant V|cente Dom|ngo and the buyer
Cscar de Leon. ne was the broker and
113
42 SCkA131
( )
O]RS'./ at p. 140.

S0
agent of sa|d pet|t|oner-appe||ant on|y."
11S
Consequent|y, the Court |a|d
down the ru||ng that "1he dut|es and ||ab|||t|es of a broker to h|s
emp|oyer are essent|a||y those wh|ch an agent owes to h|s pr|nc|pa|.
Consequent|y, the dec|s|ve |ega| prov|s|ons [on the duty to account and
the ob||gat|on ar|s|ng from fraud and neg||gence] are found |n Art|c|es
1891 and 1909 of the New C|v|| Code.""
6
1he Court he|d that |n such a
s|tuat|on, the dec|s|ve |ega| prov|s|ons to determ|ne whether a broker
has v|o|ated h|s duty or ob||gat|on are found |n Art|c|es 1891 and 1909
of the New C|v|| Code, whereby every agent |s bound to render an
account of h|s transact|ons and to de||ver to the pr|nc|pa| whatever he
may have rece|ved by v|rtue of the agency, even though |t may not be
own|ng to the pr|nc|pa|, and that an agent |s respons|b|e not on|y for
fraud, but a|so for neg||gence. 4"$'-+" thus he|d that
1he aforesa|d prov|s|ons [Art|c|es 1891 and 1909 of the
New C|v|| Code] demand the utmost good fa|th, f|de||ty,
honesty, candor and fa|rness on the part of the agent, *57
(7,R 7)*,*7 S("17( '- *5') P,)7/ to h|s pr|nc|pa|, the vendor.
1he |aw |mposes upon the agent the abso|ute ob||gat|on to
make a fu|| d|sc|osure or comp|ete account to h|s pr|nc|pa| of
a|| h|s transact|ons and other mater|a| facts re|evant to the
agency, so much so that the |aw as amended does not
countenance any st|pu|at|on exempt|ng the agent from such
an ob||gat|on and cons|ders such an exempt|on as vo|d. 1he
duty of an agent |s ||kened to that of a trustee. 1h|s |s not a
techn|ca| or arb|trary ru|e but a ru|e founded on the h|ghest
and truest pr|nc|p|e of mora||ty as we|| as of the str|ctest
[ust|ce.
117

1he forego|ng ru||ng |s on|y app||cab|e to a s|tuat|on where a
broker has accepted the ro|e of an agent, and thereby bound h|mse|f to
the f|duc|ary dut|es of the |atter. 4"$'-+" shou|d not be quoted or
c|ted out of context to support a propos|t|on that a true broker who
mere|y accepts the ro|e of a m|dd|eman |s then bound to the f|duc|ary
dut|es and ||ab|||t|es of a commerc|a| agent.
$
RS'./ at p. 141.
O
e
RS'./ at p. 136.
$
RS'./ at p. 137, 7$65,)')
R' .

NA1UkL, C8ILC1IVL, AND kINDS CI AGLNC S1
More recent|y, |n @'*"-X8,/ J(3 T3 D*7(-'* <"(63/o where the serv|ces
of a rea| estate broker (Marquez) were reta|ned by a corporat|on "so
that the propert|es [e|ght parce|s of |and] cou|d be offered for sa|e to
prospect|ve buyers,"
119
resu|ted |n the str|k|ng of negot|at|ons w|th the
L|ton[uas who gave a f|rm offer therefore, wh|ch were accepted by the
off|cers of the corporat|on and conveyed through Marquez. Later on the
corporat|on, act|ng forma||y through |ts board of d|rectors, backed-out of
the dea|. When the L|ton[uas sued the corporat|on for spec|f|c
performance under a contract of sa|e that was perfected, |t was argued
that the prov|s|ons of Art|c|ed 1874 of the New C|v|| Code wh|ch
rendered vo|d a sa|e of a p|ece of |and effected through an agent where
the |atter's author|ty was not |n wr|t|ng, was not app||cab|e s|nce
Marquez was not an agent but mere|y a broker who mere|y conveyed
the consent of the corporat|on to the sa|e effected through |ts pr|nc|pa|
off|cers. Apart from the ma|n ru||ng of the Court |n @'*"-X8,/ J(3 that the
sa|e of the parce|s of |and done w|thout the consent or author|ty of the
board of d|rectors does not b|nd the corporat|on, |t a|so d|st|ngu|shed the
powers of a broker from an agent when |t comes to b|nd|ng the pr|nc|pa|
|n the sa|e of |mmovab|es, thus
It appears that Marquez acted not on|y as rea| estate
broker for the pet|t|oners but a|so as the|r agent. As g|eaned
from the |etter of Marquez to G|anv|||e, on Iebruary 26,
1987, he conf|rmed, for and |n beha|f of the pet|t|oners, that
the |atter had accepted such offer to se|| the |and and the
|mprovements thereon. nowever, we agree w|th the ru||ng
of the appe||ate court that Marquez had no author|ty to b|nd
respondent LC to se|| the sub[ect propert|es. B (7,R 7)*,*7
S("17( ') "-7 b5" -7+"*',*7) *57 ),R7 "& (7,R 6("67(*'7)3 >')
S8)'-7))/ +7-7(,RR% )67,1'-+/ ') "-R% *" &'-. , 68(P5,)7( b5"
') b'RR'-+ *" S8% *57 R,-. 86"- *7($) &'W7. S% *57 "b-7(3 >7
5,) -" ,8*5"('*% *" S'-. *57 6('-P'6,R S% )'+-'-+ , P"-*(,P*
"& ),R73 F-.77./ ,- ,8*5"('*% *" &'-. , 68(P5,)7( "& (7,R
6("67(*% ."7) -"* '-PR8.7 ,- ,8*5"('*% *" se]].
120

118
490 SCkA 204 (2006).
$
RS'./ at p. 208.
$
RS'./ at p. 224, 7$65,)')
R' .

S2
b. 8roker Is Not Lega||y Incapac|tated to urchase
roperty of the r|nc|pa|
1he d|st|nct|on between a broker and an agent becomes a|so
cr|t|ca| when |t comes to the |ega| capac|ty of an agent to purchase the
property of the pr|nc|pa| as proh|b|ted under Art|c|e 1491 of the New
C|v|| Code.
In B(,-7*,/ F-P3 T3 47R K,*7(-"/o |t was he|d that the proh|b|t|on |n
the o|d C|v|| Code of the counterpart of Art|c|e 1491(2) of the New C|v||
Code wh|ch renders an agent |ega||y |ncapab|e of buy|ng the propert|es
of h|s pr|nc|pa| connotes the |dea of trust and "conf|dence, and so where
the re|at|onsh|p does not |nvo|ve cons|derat|ons of good fa|th and
|ntegr|ty the proh|b|t|on shou|d not and does not app|y. 1o come under
the proh|b|t|on, the agent must be |n a f|duc|ary re|at|on w|th h|s
pr|nc|pa|."
122

1he Court he|d that a broker does not come w|th|n the mean|ng of
Art|c|e 1491 of the New C|v|| Code, because he |s "noth|ng more than a
go-between or m|dd|eman between the defendant and the purchaser,
br|ng|ng them together to make the contract themse|ves. 1here |s no
conf|dence to be betrayed ... [s|nce the broker] was not author|zed to
make a b|nd|ng contract for the [purported pr|nc|pa|]. ne was not to se||
and he d|d not se|| t he . . . property. ne was to |ook for a buyer and the
owner herse|f was to make, and d|d make, the sa|e, ne was not to f|x the
pr|ce of the sa|e because the pr|ce had to be a|ready f|xed |n h|s
comm|ss|on, ne was not to make the terms of payment because these,
too, wou|d be c|ear|y spec|f|ed |n h|s comm|ss|on. In f|ne, [the broker]
was |eft no power or d|scret|on whatsoever, wh|ch he cou|d abuse to h|s
advantage and to the owner's pre[ud|ce."
123

c. 8roker's Lnt|t|ement to Comm|ss|on
In qu|te a number of dec|s|ons, the Supreme Court has he|d that
the determ|nat|on of whether one |s an agent or a broker
121
91 h||. 786
(19S2)
$
RS'./ at p. 804.
123
]Wof, at pp.
804 80S

const|tutes a cr|t|ca| factor of whether he wou|d be ent|t|ed to the
comm|ss|on st|pu|ated |n the contract.
1he very terms "broker" or "broker|ng" are commerc|a| terms
where the essence of the act|v|ty or occupat|on undertaken |s to earn a
comm|ss|on. 1hus, |n G7%7) T3 G8(,R :,-1 "& ;,- 0'+87R/
`Ya
the Court
he|d that "broker|ng" c|ear|y |nd|cates the performance of certa|n acts
"for monetary cons|derat|on or compensat|on," wh|ch |t conc|uded from
the fo||ow|ng def|n|t|ons of "broker|ng" and "broker," thus
. . . Case |aw def|nes a "broker" as "one who |s
engaged, for others, "- , P"$$'))'"-, negot|at|ng contracts
re|at|ve to property w|th custody of wh|ch he has no
concern, the negot|at|on between other part|es, never
act|ng |n h|s own name but |n the name of those who
emp|oyed h| m. . . a broker |s one whose occupat|on |s to
br|ng the part|es together, |n mattrs of trade, commerce or
nav|gat|on." Accord|ng to :"8T'7(^) @,b 4'P*'"-,(%/
"brokerage" refers to "the trade or occupat|on of a broker,
the comm|sons pa|d to a broker for h|s serv|ces," wh||e
"brokers" are "those who are engaged for others on the
negot|at|on of contracts re|at|ve to property, w|th the
custody of wh|ch they have no concern."
12S

1he other pr|nc|p|e that shou|d be kept |n m|nd when determ|n|ng
the proper ru|es on the ent|t|ement of a broker to the comm|ss|on
prom|sed by the c||ent |s what was he|d |n BS,P8) ;7P8('*'7) <"(63 T3
B$6'R,
126
that "S|nce a brokerage re|at|onsh|p |s essent|a||y a contract for
the emp|oyment of an agent, pr|nc|p|es of contract |aw a|so govern the
broker-pr|nc|pa| re|at|onsh|p." In other words, whether the re|at|onsh|p
|s a pure broker-m|dd|eman one, or a broker-agency, the r|ght of the
broker to the comm|ss|on prom|sed by the c||ent-pr|nc|p|e |s pr|mar||y
governed by the terms and cond|t|ons agreed upon them at the t|me of
the perfect|on of the contract.
124
424 SCkA 13S
(200 )
12S
]b]d, at p. 144.
126
483 SCkA 31S
( )

S4
In the absence of c|ear prov|s|ons |n the contract of brokerage,
4,-"- T3 B-*"-'" B3 :('$" Q Co.,
127
estab||shed the fo||ow|ng ru|es on
the r|ght of the broker to rece|ve the comm|ss|on or compensat|on
agreed upon w|th the c||ent, and us|ng Amer|can [ur|sprudence, p|anted
|nto h|||pp|ne [ur|sprudence the O7&&'P'7-* ,+7-* "( *57 6("P8('-+ P,8)7
"& *57 ),R7O doctr|ne, thus
O!57 S("17( $8)* S7 *57 7&&'P'7-* ,+7-* "( *57 6("P8('-+
P,8)7 "& *57 ),R73 !57 $7,-) 7$6R"%7. S% 5'$ ,-. 5')
7&&"(*) $8)* (7)8R* '- *57 ),R73 >7 $8)* &'-. *57 68(P5,)7(/
,-. *57 ),R7 $8)* 6("P77. &("$ 5') 7&&"(*) ,P*'-+ ,)
S("17(3O
`Y:

A |ead|ng case on the sub[ect |s that of S|bba|d vs.
8eth|ehem Iron Co. (83 N.., 378, 38 Am. kep., 441). In that
case, after an exhaust|ve rev|ew of var|ous cases, the Court
of Appea|s of New ork stated the ru|e as fo||ows:
In a|| the cases, under a|| and vary|ng forms of
express|on, the fundamenta| and correct doctr|ne |s, that *57
.8*% ,))8$7. S% *57 S("17( ') *" S('-+ *57 $'-.) "& *57
S8%7( ,-. )7RR7( *" ,- ,+(77$7-* &"( , ),R7/ ,-. *57 6('P7
,-. *7($) "- b5'P5 '* ') *" S7 $,.7/ ,-. 8-*'R *5,* ') ."-7
5') ('+5* *" P"$$'))'"-) ."7) -"* ,PP(873^
Yl

F* &"RR"b)/ ,) , -7P7)),(% .7.8P*'"- &("$ *57 7)*,SV
R')57. (8R7/ *5,* , S("17( ') -7T7( 7-*'*R7. *" P"$$'))'"-)
&"( 8-)8PP7))&8R 7&&"(*)3 !57 (')1 "& , &,'R8(7 ') b5"RR% 5')3
!57 (7b,(. P"$7) "-R% b'*5 5') )8PP7))3 1hat |s the p|a|n
contract and contemp|at|on of the part|es. 1he broker may
devote h|s t|me and |abor, and expend h|s money w|th ever
so much of devot|on to the |nterest of h|s emp|oyer, and yet
|f he fa||s, |f w|thout effect|ng an agreement or
accomp||sh|ng a barga|n, he abandons the effort, or h|s
author|ty |s fa|r|y and |n good fa|th term|nated, he ga|ns no
| ht t | | n
127
42 h||. 133 (1921).
oI%R'7 T3 0,('-7 9,*'"-,R :,-1/ 61 N.., 41S, 416, P'*'-+k 0P<R8(7
T3 K,'-7/ 49 N.., S61, @R"%. T3 0,*57b)/ S1 |d., 124, @%"- T3 0'*P57RR/
36 |d., 23S, :('++) T3 G"b7/ 4 keyes, 424, 08((,% T3 <8(('7/ 7 Carr. &
ayne, S84, I'R1'-)"- T3 0,(*'-/ 8 |d., S.
o<'*'-+ 0PC,T"P1 T3 I"".R'7&/ 20 now., 221, :,(-7) T3 G"S7(*)/ S
8osw., 73, >"RR% T3 C")R'-+/ 3 L. D. Sm|th, 262, J,P"S) T3 p"R&&/ 2 n||t.,
133, p"P1 T3 D$$7(R'-+/ 22 now., 72, <"(-'-+ T3 <,RT7(*/ Y n||t., S6,
!(8-.% T3 93A3 Q >,(*&3 ;*7,$S",* <"3/ 6 kobt., 312, 2,- @'7- T3 :8(-)/
1 n||t 134

|oses the |abor and effort wh|ch was staked upon success.
And |n such event |t matters not that after h|s fa||ure, and
the term|nat|on of h|s agency, what he has done proves of
use and benef|t to the pr|nc|pa|. In a mu|t|tude of cases that
must necessar||y resu|t. ne may have |ntroduced to each
other part|es who otherw|se wou|d have never met, he may
have created |mpress|ons, wh|ch under |ater and more
favorab|e c|rcumstances natura||y |ead to and mater|a||y
ass|st |n the consummat|on of a sa|e, he may have p|anted
the very seed from wh|ch others reap the harvest, but a||
that g|ves h|m no c|a|m. It was part of h|s r|sk that fa|||ng
h|mse|f, not successfu| |n fu|f||||ng h|s ob||gat|on, others
m|ght be |eft to some extent to ava|| themse|ves of the fru|t
of h|s |abors. As was sa|d |n Wy||e vs. Mar|ne Nat|ona| 8ank
(61 N. ., 416), |n such a case the pr|nc|pa| v|o|ates no r|ght of
the broker by se|||ng to the f|rst party who offers the pr|ce
asked, and |t matters not that sa|e |s to the very party w|th
whom the broker had been negot|at|ng. ne fa||ed to f|nd or
produce a purchaser upon the terms prescr|bed |n h|s
emp|oyment, and the pr|nc|pa| was under no ob||gat|on to
wa|t |onger that he m|ght make further efforts. 1he fa||ure
therefore and |ts consequences were the r|sk of the broker
on|y. 1h|s however must be taken w|th one |mportant and
necessary ||m|tat|on. If the efforts of the broker are
rendered a fa||ure by the fau|t of the emp|oyer, |f
P,6('P'"8)R% he changes h|s m|nd after the purchaser, ready
and w||||ng, and P"-)7-*'-+ *" *57 6(7)P('S7. *7($)/ |s
produced, or |f the |atter dec||nes to comp|ete the contract
because of some defect of t|t|e |n the ownersh|p of the
se||er, some unremoved encumbrance, some defect wh|ch |s
the fau|t of the |atter, then the broker does not |ose h|s
comm|ss|ons. And that upon the fam|||ar pr|nc|p|e that no
one can ava|| h|mse|f of the nonperformance of a cond|t|on
precedent, who has h|mse|f occas|oned |ts nonperformance.
8ut th|s ||m|tat|on |s not even an except|on to the genera|
ru|e affect|ng the broker's r|ght for |t goes on the ground
that the broker has done h|s duty, that he has brought buyer
and se||er to an agreement, but that the contract |s not
consummated and fa||s though the after-fau|t of the se||er.
1he cases are un|form |n th|s respect. (Moses 147, Van L|en
vs. 8urns, 1 n||t., 134.)
130

,30
42 h||. 133,139-141, 7$65,)') )866R'7.3
S6 NCN-CCkCkA1L MLDIA CI DCING 8USINLSS
In other words, there |s on|y one form of "serv|ce" for wh|ch the
broker |s ent|t|ed to h|s agreed compensat|on (un|ess otherw|se
st|pu|ated of course): that h|s serv|ces procured the buyer and wh|ch
eventua||y resu|ted |nto a perfected and consummated contract of sa|e.
Where the serv|ces and efforts expended by the broker were of such
suff|c|ent amount that they wou|d have brought about the sa|e, but
that the pr|nc|pa| term|nated h|s serv|ces |n bad fa|th w|th every
|ntent|on to proceed w|th the sa|e to the person procured by the
broker, then the |atter wou|d st||| be ent|t|ed to h|s compensat|on
under the pr|nc|p|e of "eff|c|ent or procur|ng cause."
Cn the other hand, 4,-"- a|so d|scussed the Amer|can |aw
pr|nc|p|e that he|d that every c||ent has the power to term|nate the
brokerage re|at|onsh|p, thus
"Cne other pr|nc|p|e app||cab|e to such a contract as
ex|sted |n the present case needs to be kept |n v|ew. I57(7
-" *'$7 &"( *57 P"-*'-8,-P7 "& *57 P"-*(,P* ') &'W7. S% '*)
*7($) 7'*57( 6,(*% ') ,* R'S7(*% *" *7($'-,*7 '* ,* b'RR/ sub[ect
on|y to the ord|nary requ|rements of good fa|th. Usua||y the
broker |s ent|t|ed to a fa|r and reasonab|e opportun|ty to
perform h|s ob||gat|on, sub[ect of course to the r|ght of the
se||er to se|| |ndependent|y. 8ut hav|ng been granted h|m,
the r|ght of the pr|nc|pa| to term|nate h|s author|ty |s
,S)"R8*7 and 8-(7)*('P*7., except on|y that he may not do |t
|n bad fa|th, and as a mere dev|ce to escape the payment of
the broker's comm|ss|ons. 1hus, |f |n the m|dst of
negot|at|ons |nst|tuted by the broker, and wh|ch were
p|a|n|y and ev|dent|y approach|ng success, the se||er shou|d
revoke the author|ty of the broker, b'*5 *57 T'7b "&
P"-PR8.'-+ *57 S,(+,'- b'*5"8* 5') ,'./ ,-. ,T"'.'-+ *57
6,%$7-* "& P"$$'))'"- about to be earned, |t m|ght be we||
sa|d that the due performance h|s ob||gat|on by the broker
was purpose|y prevented by the pr|nc|pa|. 8ut |f the |atter
acts |n good fa|th, not seek|ng to escape the payment of
comm|ss|ons, but $"T7. &,'(R% S% , T'7b "& 5') "b- '-*7(7)*/
57 5,) *57 ,S)"R8*7 ('+5* before a barga|n |s made wh||e
negot|at|ons rema|n unsuccessfu|, before comm|ss|ons are
earned, *" (7T"17 *57 S("17(^) ,8*5"('*%/ and the |atter
cannot thereafter c|a|m compensat|on for a sa|e made by
the pr|nc|pa|, even though |t be to a customer w|th whom
the broker unsuccessfu||y negot|ated,

ar|d even though, to some extent, the se||er m|ght [ust|y be
sa|d to have ava||ed h|mse|f of the fru|ts of the broker's
|abor." _FS'./ pp. 444-446.)"
1

1h|s |s |n fact a re|terat|on of the pr|nc|p|e f|rst d|scussed |n
0,P"-.(,% Q <"3 T3 ;7RR-7(/o where the Court he|d that a broker |s
ent|t|ed to the usua| comm|ss|on whenever he br|ngs to h|s pr|nc|pa| a
party who |s ab|e and w||||ng to take the property and enter |nto a va||d
contract upon the terms then named by the pr|nc|pa|, a|though the
part|cu|ars may be arranged and the matter negot|ated and
consummated between the pr|nc|pa| and the purchaser d|rect|y. 1he
Court he|d that |t wou|d be the he|ght of |n[ust|ce to perm|t the pr|nc|pa|
then to w|thdraw the author|ty as aga|nst an express prov|s|on of the
contract, and reap the benef|ts of the agent's |abors, w|thout be|ng ||ab|e
to h|m for h|s comm|ss|on.
Succ|nct|y, when the otherw|se p|enary power of the pr|nc|pa|]
c||ent to term|nate the brokerage re|at|onsh|p |s exerc|sed |n bad fa|th
_'373/ meant to frustrate the ab|||ty of the broker to rece|ve the
comm|ss|on to wh|ch h|s efforts wou|d have |ed to |ts rea||zat|on), then
the fundamenta| pr|nc|p|e embod|ed |n the "eff|c|ent and procur|ng
cause" doctr|ne wou|d st||| be app||cab|e to a||ow the broker to recover
h|s comm|ss|on from the pr|nc|pa|.
1he forego|ng pr|nc|p|es were we||-art|cu|ated |n G7%7) T3
0")g87.,/
$
wh|ch |nvo|ved the c|a|m of a true broker ='373/ no author|ty
to enter |nto [ur|d|ca| acts |n the name of the owner of a parce| of |and),
where the Supreme Court then he|d that
. . . If as found by the Court of Appea|s p|a|nt|ff keyes
was engaged on|y as a broker, then |n order to earn her
comm|ss|on, |t was not suff|c|ent for her to f|nd a
prospect|ve buyer but to f|nd one who w||| actua||y buy the
property on the terms and cond|t|ons |mposed by the
owner. In the case of 4,-"- T3 :('$" Q Co., 42 h||. 133, we
sa|d:
131
][b]d, at pp.
2
132
33 h||. 370

133
99 h||. 241
( 9 6)

S8
"1he broker must be the eff|c|ent agent or the procur|ng
cause of the sa|e. 1he means emp|oyed by h|m and h|s
efforts must resu|t |n the sa|e. ne must f|nd the purchaser,
and the sa|e must proceed from h|s efforts act|ng as a
broker, n (Cases c|ted.)
8es|des, accord|ng to the f|nds of the Court of Appea|s,
the actua| sa|e was perfected and consummated w|thout
the |ntervent|on of p|a|nt|ff keyes, and what |s more, before
that, her author|ty to se|| the property had been w|thdrawn,
at a t|me when there was st||| no meet|ng of the m|nds of
buyer and se||er.
134

1he Court noted |n G7%7) that "there are t|mes when the owner of
a property for sa|e may not |ega||y cance| or revoke the author|ty g|ven
by h|m to a broker when the negot|at|ons through the broker's efforts
have reached such a stage that |t wou|d be unfa|r to deny the
comm|ss|on earned, espec|a||y when the property owner acts |n bad
fa|th and cance|s the author|ty on|y to evade the payment of sa|d
comm|ss|on."
13S
8ut |t he|d that the doctr|ne wou|d not be app||cab|e |n
the case because "there |s noth|ng to show that bad fa|th was |nvo|ved
|n the cance||at|on of the author|ty of p|a|nt|ff keyes before the
consummat|on of the sa|e."
136

More |mportant|y, the Court found |n G7%7) that "the actuat|ons of
p|a|nt|ff keyes are not ent|re|y above susp|c|on," mean|ng that the
under|y|ng facts do not show that he was the "eff|c|ent or procur|ng
cause" for the sa|e between the se||er- owner (Mosqueda) and the
eventua| buyer (L|m) because |t was the |nterested buyer-L|m that f|rst
d|spatched broker keyes to go to owner-Mosqueda to barga|n for a
|ower pr|ce, thus
. . . As observed by the Court of Appea|s she d|d not
exp|a|n how she came to know that defendant Mosqueda
was |nterested |n se|||ng h|s |and and was |ook|ng for a buyer
thereof. It |s h|gh|y poss|b|e that after keyes was
comm|ss|oned by her emp|oyer L|m to approached =)'PH
oRS'./ at p.
24S
13S
]b]d, at

'[e
RS'./ at
2 6

NA1UkL, C8ILC1IVL, AND kINDS CI AGLNC
S9
Mosqueda w|th a v|ew to reduc|ng the pr|ce of 8 per square
meter, |t was then and on|y then that keyes came to know
about the des|re of Mosqueda to se|| h|s |and to cover h|s
ob||gat|ons w|th the bank |nasmcuh as he fa||ed to secure a
|oan from the Insurance Company, and as sa|d by the Court
of Appea|s
"* * *, erhaps, when she was requested by L|m to
|ntercede |n h|s beha|f w|th respect to the sa|e of
Mosgueda's |and, V|centa keyes grabbed th|s opportun|ty to
make spare money as a s|de||ne."
137

In other words, the broker cou|d not even c|a|m w|th mer|t |n
G7%7) that h|s serv|ces were the "eff|c|ent or procur|ng cause" that
became the bas|s of the eventua| sa|e between Mosqueda and her
emp|oyer L|m. She [ust took advantage of Mosqueda who then d|d not
know that she was represent|ng L|m w|th whom Mosqueda had
prev|ous|y negot|ated the sa|e of the |and.
In G,$") T3 <"8(* "& B667,R)/o the Court re|terated the ru||ng |n
4,-"- that a broker |s not ent|t|ed to any comm|ss|on unt|| he has
)8PP7))&8RR% done the [ob g|ven h|m, ar|d that a broker |s never ent|t|ed
to comm|ss|on for unsuccessfu| efforts.
In K(,*) v. <"8(* "& B667,R)/o where the Court found |tse|f bound
by the f|nd|ngs of the tr|a| court that the broker "was not the eff|c|ent
procur|ng cause |n br|ng|ng about the sa|e (presc|nd|ng from the fact of
exp|rat|on of h|s exc|us|ve author|ty) wh|ch are adm|tted|y f|na| for
purposes of the present pet|t|on, prov|de no bas|s |n R,b *" grant re||ef
to the pet|t|oner [broker].
1
*
0
Neverthe|ess, the broker was awarded a
token 100,000 (of the or|g|na| c|a|m for comm|ss|on of 1,380,000.00)
on the ground that "In 7g8'*%/ however, the Court notes that pet|t|oner
[broker] had d|||gent|y taken steps to br|ng back together respondent
Doron||a and the SSS.
141
x x x Under the c|rcumstances, the Court grants
|n equ|ty
`[N
FS'./ at p. 246.
138
63 SCkA 331

139
81 SCkA 360

140
]6]d, at p. 381.
141
]b]d, at p. 383.

the sum of Cne nundred 1housand esos (100,000.00) by way of
compensat|on for h|s efforts and ass|stance |n the transact|on, wh|ch
however was f|na||zed and consummated after the exp|rat|on of h|s
exc|us|ve author|ty."
142

1he rea| |esson that K(,*) teaches |s that as a ru|e the serv|ces for
wh|ch the broker or agent can c|a|m compensat|on for as the bas|s for
the app||cat|on of the "eff|c|ent or procur|ng cause" doctr|ne was be
those rendered when the brokerage or agency re|at|onsh|p ex|sted, and
that after the term|nat|on of the per|od of the contractua| re|at|onsh|p
there |s no bas|s by wh|ch to be pa|d for serv|ces that were not
contracted for.
1he most recent ru||ng of the Supreme Court app|y|ng the
"eff|c|ent or procur|ng cause" doctr|ne |s |n the dec|s|on |n 07.(,-" T3
<"8(* "& B667,R),
143
where |t was equated to the ."P*('-7 "& O6("W'$,*7
P,8)73O In 07.(,-"/ the brokers were g|ven wr|tten author|ty "to
negot|ate w|th any prospect|ve buyer for the sa|e of a certa|n rea| estate
property more spec|f|ca||y a mango p|antat|on wh|ch |s descr|bed more
part|cu|ar|y there|n be|ow." A|though severa| tr|ps were schedu|ed to be
made to the property by the brokers w|th the|r c||ent, due to force
ma[eure the same d|d not take p|ace, and that |n fact one t|me when the
c||ent was |n the area he had rece|ved te|ephone d|rect|on from one of
the brokers to |ocate the property and essent|a||y at that v|s|t purchased
the same. When the brokers sought to recover the|r st|pu|ated
comm|ss|on, the se||ers refused on the ground that they were not the
procur|ng cause for the sa|e that was effected |n the|r absence: "1he
pet|t|oners po|nted out that the respondents [brokers] (1) d|d not ver|fy
the rea| owners of the property [wh|ch was reg|stered |n the name of
the bank owned by the pet|t|oners], (2) never saw the property |n
quest|on, (3) never got |n touch w|th the reg|stered owner of the
property, and (4) ne|ther d|d they perform any act of ass|st|ng the|r
buyer |n hav|ng the property |nspected and ver|f|ed."
144

8Y
RS'./ at pp.
38 38
143
4S2 SCkA 77

$
RS'./ at p. 86.

In brush|ng as|de the content|on of the se||ers that the brokers d|d
not perform the serv|ce demanded of them under the |etter-author|ty of
negot|at|on, the Court character|zed the [ur|sprudent|a| mean|ng of the
"eff|c|ent or procur|ng cause" doctr|ne, thus
"rocur|ng cause" |s meant to be the prox|mate cause.
1he term "procur|ng cause," |n descr|b|ng a broker's act|v|ty,
refers to a cause "('+'-,*'-+ a ser|es of events wh|ch,
w|thout break |n the|r cont|nu|ty, resu|t |n accomp||shment
of pr|me ob[ect|ve of the emp|oyment of the broker
produc|ng a purchaser ready, w||||ng and ab|e to buy rea|
estate on the owner's terms. A broker w||| be regarded as
the "procur|ng cause" of a sa|e, so as to be ent|t|ed to
comm|ss|on, |f h|s efforts are the foundat|on on wh|ch the
negot|at|ons resu|t|ng |n a sa|e are begun. 1he broker must
be the eff|c|ent agent or the procur|ng cause of the sa|e. 1he
means emp|oyed by h|m and h|s efforts must resu|t |n the
sa|e. ne must f|nd the purchaser, and the sa|e must proceed
from h|s efforts act|ng as broker.
14S

Lva|uat|ng the proven facts, the Court he|d: "It can thus be read||y
|nferred that the respondents [brokers] were the on|y ones who knew
about the property for sa|e and were respons|b|e for |ead|ng a buyer to
|ts consummat|on. A|| these c|rcumstances |ead us to the |nescapab|e
conc|us|on that the respondents [brokers] were the procur|ng cause of
the sa|e. I57- *57(7 ') , PR")7/ 6("W'$,*7 ,-. P,8),R P"--7P*'"-
S7*b77- *57 S("17(^) 7&&"(*) ,-. *57 6('-P'6,R^) ),R7 "& 5') 6("67(*%/ *57
S("17( ') 7-*'*R7. *" , P"$$'))'"-Oo
It shou|d be emphas|zed that the "eff|c|ent or procur|ng cause"
doctr|ne cannot overcome express st|pu|at|ons |n the agreement
prov|d|ng when exact|y the broker |s ent|t|ed to have earned h|s
comm|ss|on. 1hus, |n L'7+7 ,-. :("b- T3 ;$'*5/ :7RR & Co.,
147
wh|ch was
dec|ded a year after 4,-"-/ the Court he|d that when under the terms of
the agreement the brokers were ent|t|ed to "one-ha|f of the prof|ts
earned from the sa|e," then the
8Z
RS'./ at p. 88.
148
]]w'd, at pp. 91-92, 7$65,)')

147
43 h||. 113 (1922).

brokers wou|d not be ent|t|ed to have earned the|r comm|ss|on from
the var|ous dea|s that were perfected through the|r efforts unt|| they are
ab|e to show the prof|ts earned from such dea|s.
d. ku|es on Compensat|on for 8rokers App||es A|so to
Comm|ss|on Agents
1here |s noth|ng |n the nature and essence of a contract of agency,
or |n the s|tuat|on of a rea| estate broker who has been des|gnated a|so
w|th power to enter |nto [ur|d|ca| acts |n the name of the pr|nc|pa|, that
prevents the same pr|nc|p|es d|scussed from be|ng app||cab|e to a
comm|ss|on agency re|at|onsh|p. In fact, the essence of any
compensat|on or comm|ss|on formu|a that ent|t|es an |ntermed|ary to a
f|xed percentage of the se|||ng pr|ce or to any amount above a f|xed
pr|ce ='373/ overpr|ce arrangement) wou|d make the "eff|c|ent or
procur|ng cause" doctr|ne app||cab|e, whether the |ntermed|ary |s on|y a
broker-m|dd|eman or a broker-agent. In other words, s|nce both a pure
brokerage and commerc|a| agency arrangement have "serv|ce" as the|r
very sub[ect matter, there |s noth|ng |n the app||cab|||ty of the "eff|c|ent
or procur|ng cause" doctr|ne |n a g|ven s|tuat|on determ|nat|ve of
whether |t |s a broker-m|dd|eman or a broker-agency s|tuat|on.
1h|s state of th|ngs |s best |||ustrated |n the dec|s|on |n C8,(.7W T3
9@G</
'B;
where the c|a|m for unpa|d comm|ss|on of an a||eged agent was
f||ed w|th the NLkC. In dec|d|ng whether there was proper [ur|sd|ct|on
assumed by the arb|ter and the NLkC on the c|a|m, the Court had to
determ|ne what the |ega| re|at|onsh|p was estab||shed between the
purported pr|nc|pa| who express|y author|zed a free|ance sa|esman "to
|ook after (fo||ow-up) the [purported pr|nc|pa|'s] pend|ng proposa| to se||
a f|re truck to kubberwor|d, and asked for 2S0.00 as representat|on
expenses. [urported p|a|nt|ff] agreed and gave h|m [purported agent]
the money."
149
1he purported agent never fo||owed up on the matter
and after the purported pr|nc|pa| had conc|uded the sa|e of the f|retruck
to kubberwor|d, the purported agent reappeared and demand the
payment of h|s comm|ss|on.
148
191 SCkA 487
( )
El
RS'./ at p. 489.

1he Court he|d |n effect that whether the re|at|onsh|p estab||shed
between purported pr|nc|pa| and purported agent was a mere
brokerage (to represent or fo||ow-up) or an agency re|at|ons wou|d not
make a d|fference on the c|a|m for comm|ss|on: "Lven a f|nd|ng that
under these c|rcumstances, an agency had |ndeed been const|tuted w|||
not save the day for [the purported agent], because noth|ng |n the
record tends to prove that he succeeded |n carry|ng out |ts terms or even
as much as attempted to do so. 1he ev|dence |n fact c|ear|y |nd|cates
otherw|se. 1he terms of [purported pr|nc|pa|'s] |etter. . ., assum|ng that |t
was |ndeed an "author|ty to s e| | , ". . . are to the effect that ent|t|ement
to the 1S,000 comm|ss|on |s cont|ngent on the purchase by a customer
of a f|re truck, the |mp||c|t cond|t|on be|ng that the agent wou|d earn the
comm|ss|on |f he was |nstrumenta| |n br|ng the sa|e about. [urported
agent] certa|n|y had noth|ng to do w|th the sa|e of the f|re truck and |s
not therefore ent|t|ed to any comm|ss|on at a||."
1S0

In 0,-"*"1 :("*57()/ F-P3 T3 <"8(* "& B667,R)/o the Court c|ted
G,$") to state matter-of-fact|y, what seemed then to be the
estab||shed pr|nc|p|e that ru|es on ent|t|ement to comm|ss|on were
bas|ca||y the same whether the contract |s one of brokerage or agency,
that "the estab||shed pr|nc|p|e [|s] that a S("17( "( ,+7-* |s not ent|t|ed
to any comm|ss|on unt|| he has successfu||y done the [ob g|ven to
h|m."
1S2

What |s further of |nterest to us |n 0,-"*"1 :("*57()/ F-P3 |s that
the re|at|onsh|p started mere|y as one of brokerage, where the owner of
the parce| of |and rented by the C|ty of Man||a mere|y author|zed the
broker "to negot|ate w|th the C|ty of Man||a the sa|e of the
aforement|oned property for not |ess than 42S,000.00. In the same
wr|t|ng, [reg|stered owner] agreed to pay [broker] a f|ve percent (S)
comm|ss|on |n the event the sa|e |s f|na||y consummated and pa|d."
1S3

1he arrangement was extended severa| t|mes because of what was then
perce|ved to be successfu| negot|at|ons be|ng undertaken by the broker
w|th the
1S0
]fc]d, at pp.
90 9
1S1
221 SCkA 224

1S2
to]d, at p. 231.
';[
RS'./ at pp.
226 22

c|ty off|cers. 1he f|na| |etter author|ty g|ven to the broker actua||y
reconst|tuted the broker |nto an agent s|nce |t "author|zed pr|vate
respondent [agent] to f|na||ze and consummate the sa|e of the property
to the C|ty of Man||a for not |ess than 410,000.00. W|th th|s |etter came
another extens|on of 180 days." 1he C|ty of Man||a eventua||y
forma||zed the purchase and pa|d the purchase pr|ce, but on|y after the
180-day extens|on per|od had exp|red. When the pr|nc|pa| refused to
pay the comm|ss|on demanded by the agent on the ground that the sa|e
was consummated on|y after the per|od of agency had term|nated, an
act|on was brought to seek co||ect|on of the comm|ss|on. 8oth the tr|a|
court and the Court of Appea|s found that s|nce the sa|e was perfected
and consummated after the per|od of agency, under the express terms
cover|ng the comm|ss|on r|ght, the broker-agent was no |onger ent|t|ed
to the same. Cn appea|, the Court he|d
At f|rst s|ght, |t wou|d seem that pr|vate res-pondent |s
not ent|t|ed to any comm|ss|on as he was not successfu| |n
consummat|ng the sa|e between the part|es, for the so|e
reason that when the Deed of Sa|e was f|na||y executed, h|s
extended author|ty had a|ready exp|red. 8y th|s a|one, one
m|ght be m|s|ed to be||eve that th|s case square|y fa||s w|th|n
the amb|t of the estab||shed pr|nc|p|e that a broker or agent
|s ent|t|ed to any comm|ss|on unt|| he has successfu||y done
the [ob g|ven to h|m.
Go|ng deeper however |nto the case wou|d revea| that |t
|s w|th|n the coverage of the except|on rather than of the
genera| ru|e, the except|on be|ng that enunc|ated |n the case
of K(,*) T)3 <"8(* "& B667,R)3 In the sa|d case, th|s Court
ru|ed |n favor of c|a|mant-agent, desp|te the exp|rat|on of h|s
author|ty, when a sa|e was f|na||y consummated.
In |ts dec|s|on |n the abovec|ted case, th|s Court sa|d,
that wh||e |t was respondent court's (referr|ng to the Court
of Appea|s) factua| f|nd|ngs that pet|t|oner rats (c|a|mant-
agent) was not the eff|c|ent procur|ng cause |n br|ng|ng
about the sa|e (presc|nd|ng from the fact of exp|rat|on of h|s
exc|us|ve author|ty), st||| pet|t|oner was awarded
compensat|on for h|s serv|ces.
1S4

1S4
]Wof, at pp. 230-231.

Note that |n 0,-"*"1 :("*57()/ F-P3/ |n sp|te of the c|ear word|ngs
|n the cover|ng |etter-contract on the manner of ent|t|ement of the
broker-agent to h|s S comm|ss|on, and there be|ng no |nd|cat|on that
there was |n fact ma||ce on the part of the pr|nc|pa| |andowner (s|nce the
per|od s|mp|y |apsed w|thout the sa|e be|ng consummated), the Court
app||ed neverthe|ess the under|y|ng rat|ona|e (or perhaps the equ|ty
pr|nc|p|e) of the "eff|c|ent or procur|ng cause" doctr|ne to a||ow the
broker-agent to rece|ve the comm|ss|on he had earned by the nature of
the serv|ces he had extended to the pr|nc|pa|'s cause.
e. Aberrant ku||ngs on Comm|ss|on Issues
Desp|te the we||-estab||shed pr|nc|p|e that what d|fferent|ates a
broker-m|dd|eman from a commerc|a| agent |s the nature of the power
g|ven or granted to the |ntermed|ary by the pr|nc|pa|-c||ent, the Supreme
Court had evo|ved a ||ne of dec|s|ons where they based the
determ|nat|on of when an |ntermed|ary |s a broker or a commerc|a|
agent, s|mp|y from the manner by wh|ch he |s to earn h|s comm|ss|on.
>,5- T3 <"8(* "& B667,R)/o where the |ssue was whether a fore|gn
corporat|on was deemed do|ng bus|ness |n the h|||pp|nes through the
appo|ntment of a |oca| d|str|butor, and the reso|ut|on thereof dependent
on whether the |oca| d|str|butor acted mere|y as agent of the fore|gn
corporat|on or was se|||ng the fore|gn corporat|on's products for |ts own
account and not |n the name of the fore|gn corporat|on. A|though the
Court was ab|e to conc|ude that the |oca| d|str|butor was act|ng as an
agent of the fore|gn corporat|on s|nce |t was enter|ng |nto |oca|
transact|ons of the products under the contro| of the fore|gn
corporat|on, nonethe|ess, the Court he|d |n add|t|on: "Contrary to the
appe||ate court's conc|us|on, th|s arrangement shows an agency. An
agent rece|ves a comm|ss|on upon the successfu| conc|us|on of a sa|e. Cn
the other hand, a broker earns h|s pay mere|y by br|ng|ng the buyer and
the se||er together, even |f no
1SS
266 SCkAS37 (1997).

sa|e |s eventua||y made."
1S6
1he quoted port|on of the dec|s|on does not
c|te author|ty for such conc|us|on, and essent|a||y was not cons|stent
w|th the estab||shed [ur|sprudence start|ng w|th 4,-"- that un|ess
otherw|se st|pu|ated by the part|es, a broker earns h|s comm|ss|on on|y
when through h|s serv|ces there |s eventua||y a contract that |s perfected
and consummated.
In !,- T3 C8RR,)/o where a rea| estate broker was granted a spec|a|
power of attorney to negot|ate on|y the sa|e of a parce| of |and at certa|n
rate (wh|ch meant that there was no author|ty to enter |nto [ur|d|ca| acts
|n beha|f of the owner of the |and), the broker had |ntroduced a
|nterested buyer, but eventua||y the owner appo|nted another person to
consummate the sa|e w|th the same buyer. 1he Court quoted from
;P5$'. Q ?S7(R%/ F-P3 T3 GJ@ 0,(*'-7\ L')5'-+ Co]p.,
1S8
|t def|ned a
"broker" as "one who |s engaged, for others, on a comm|ss|on,
negot|at|ng contracts re|at|ve to property w|th the custody of wh|ch he
has no concern, the negot|ator between other part|es, never act|ng |n
h|s own name but |n the name of those who emp|oyed h|m. x x x a
broker |s one whose occupat|on |s to S('-+ *57 6,(*'7) *"+7*57(, |n
matters of trade, commerce or nav|gat|on."
1S9
A|though the Court never
used the "eff|c|ent or procur|ng cause" doctr|ne, |t went carefu||y
through the ev|dence to susta|n the propos|t|on that the broker had
actua||y earned h|s r|ght to the comm|ss|on. Nonethe|ess, |t quoted from
>,-5 that "An ,+7-* rece|ves a comm|ss|on upon the successfu|
conc|us|on of a sa|e. Cn the other hand, a S("17( earns h|s pay $7(7R%
S% S('-+'-+ *57 S8%7( ,-. *57 )7RR7( *"+7*57(, even |f no sa|e |s
eventua||y made."
160
C|t|ng no other author|ty for such perp|ex|ng
doctr|ne, !,- T3 C8RR,) began to perpetuate the myth started |n >,-5
that a broker earns h|s comm|ss|on mere|y by br|ng|ng the buyer and the
se||er together, even |f no sa|e |s eventua||y made.
o'S'./ at p. S49.
1S7
393 SCkA334

1S8
166 SCkA 493

$
RS'./ at p. 339.
oRS'./ at p. 341.

In @'$ T3 ;,S,-,
181
the Court |nvoked the compensat|on ru|es
cover|ng brokers to be app||cab|e to contracts of agency, thus
1o depr|ve Saban of h|s comm|ss|on subsequent to the
sa|e wh|ch was consummated through h|s efforts wou|d be a
breach of h|s contract of agency w|th banez wh|ch express|y
states that Saban wou|d be ent|t|ed to any excess |n the
purchase pr|ce after deduct|ng the 200,000.00 due to
banez and the transfer taxes and other |nc|denta| expenses
of the sa|e.
In 0,P"-.(,% Q <"3 T3 ;7RR-7( [33 h||. 370 (1916).], the
Court recogn|zed the r|ght of a broker to h|s comm|ss|on for
f|nd|ng a su|tab|e buyer for the se||er's property even though
the se||er h|mse|f consummated the sa|e w|th the buyer. !57
<"8(* 57R. *5,* '* b"8R. S7 '- *57 57'+5* "& '-X8)*'P7 *"
67($'* *57 6('-P'6,R *" *7($'-,*7 *57 P"-*(,P* "& ,+7-P% *"
*57 6(7X8.'P7 "& *57 S("17( b57- 57 5,. ,R(7,.% (7,67. *57
S7-7&'*) "& *57 S("17(^) 7&&"(*)3
In F-&,-*7 T3 <8-,-,-/ 7* ,R3 [93 h||. 692 (19S3).], the
Court uphe|d the r|ght of the brokers to the|r comm|ss|ons
a|though the se||er revoked the|r author|ty to act |n h|s
beha|f after they had found a buyer for h|s propert|es and
negot|ated the sa|e d|rect|y w|th the buyer whom he met
through the broker's efforts. 1he Court ru|ed that the se||er's
w|thdrawa| |n bad fa|th of the brokers' author|ty cannot
un[ust|y depr|ve the brokers of the|r comm|ss|ons as the
se||er's duty const|tuted agents.
162

Iortunate|y, |n the more recent dec|s|on |n K5'R3 >7,R*5V<,(7
K("T'.7() =0,W'P,(7H T3 D)*(,.,,
163
the Court he|d f|rm that the
contro|||ng pr|nc|p|e |n a broker's ent|t|ed to the comm|ss|on agreed
upon wou|d by the "procur|ng cause" doctr|ne. A|though presaged w|th
quotat|ons from >,5- and !,- T3 C8RR,)/ the Court d|d def|ne the
|mportance of and the mean|ng of the "eff|c|ent or procur|ng cause"
doctr|ne, thus:
161
447 SCkA 232 (2004).
162
]b]d, at pp. 239-240, 7$65,)')
)866R'7.
163
S42 SCkA 616 (2008).

68
In re|at|on thereto, we have he|d that the term O6("P8(V
'-+ P,8)7O |n descr|b|ng a broker's act|v|ty, refers to a cause
"('+'-,*'-+ a ser|es of events wh|ch, w|thout break |n the|r
cont|nu|ty, resu|t |n the accomp||shment of the pr|me ob[ec-
t|ve of the emp|oyment of the broker produc|ng a pur-
chaser ready, w||||ng and ab|e to buy on the owner's terms.
1o be regarded as the "procur|ng cause" of a sa|e as to be
ent|t|ed to a comm|ss|on, a broker's efforts must have been
the foundat|on on wh|ch the negot|at|ons resu|t|ng |n a sa|e
began.
164

In K5'R'66'-7 >7,R*5V<,(7 K("T'.7()/ F-P3 =0,W'P,(7H/ the "eff|c|ent
or procur|ng cause" doctr|ne was made to app|y and even overcome
prov|s|ons |n the brokerage agreement wh|ch prov|ded that to be
ent|t|ed to the comm|ss|on, the broker (Lstrada) must be the one to
co||ect the prem|um and contemporaneous|y rem|t them to Max|care.
1he Court he|d -
Max|care's content|on that Lstrade may on|y c|a|m com-
m|ss|ons from membersh|p dues wh|ch she has co||ected
and rem|tted to Max|care as express|y prov|ded for |n the
|etter-agreement does not conv|nce us. It |s read||y apparent
that Max|care |s attempt|ng to evade payment of the com-
m|ss|on wh|ch r|ghtfu||y be|ongs to Lstrada as the broker
who brought the part|es together. In fact, Max|care's former
Cha|rman koberto k. Macasaet test|f|ed that Max|care had
been try|ng to |and the Mera|co account for two (2) years
pr|oer to Lstrada's entry |n 1990. . .
x x x
At the very |east, Lstrada penetrated the Mera|co
market, |n|t|a||y c|osed to Max|care, and |a|d the ground-
work for a bus|ness re|at|onsh|p. 1he on|y reason Lstrada
was not ab|e to part|c|pate |n the co||ect|on and rem|ttance
of prem|um dues to Max|care was because she was
prevented from do|ng so by the acts of Max|care, |ts off|cers,
and emp|oyees.
16S

164
]b]d, at

oRS'./ at p.

1he aforequoted ru||ng has the same effect as that |n 0,-"*"1
:("*57()/ F-P3/ where the Court uphe|d that even terms and cond|t|ons
agreed upon |n the brokerage or agency contract that underm|ne the
"eff|c|ent or procur|ng cause" doctr|ne wou|d be brushed as|de to a||ow
under equ|ty pr|nc|p|es a broker or an agent to co||ect the comm|ss|ons
he has |n fact earned.
f. 8roker of a Sa|e D|st|ngu|shed from 8roker
n|mse|f urchas|ng
Iust as an agency to se|| or agency to buy |s somet|mes confused
w|th a contract of sa|e, the same confus|on can happen |n the case of a
brokerage. 1h|s |s best |||ustrated |n <"RR7P*"( "& F-*7(-,R G7T7-87 T3 !,-
D-+ >"-+/o where the 8ureau of Interna| kevenue |mposed a broker's
tax on the proceeds of an |mporter who had won and serv|ced the b|d
of the h|||pp|ne Counc|| Ior Un|ted States A|d (nILCUSA) for the
supp|y of certa|n mater|a| wh|ch |t |ntended to g|ve as a|d to the
h|||pp|nes.
1he Co||ector he|d that 1an Lng nong "was act|ng as a commerc|a|
broker |n supp|y|ng the goods" to nILCUSA under the prov|s|ons of the
then 1ax Code wh|ch def|ned a "commerc|a| broker" as |nc|ud|ng "a||
persons, other than |mporters, manufacturers, producers, or S"-, &'.7
emp|oyees, who, for compensat|on or prof|t, se|| or br|ng about sa|es or
purchases of merchand|se for other persons, or br|ng proposed buyers
and se||ers together, or negot|ate fre|ghts or other bus|ness of owners
of vesse|s, or other means of transportat|on, for the shoppers, or
cons|gnors or cons|gnees of fre|ght carr|ed by vesse|s or other means of
transportat|on. 1he term |nc|udes comm|ss|on merchants."
187

1he Court ru|ed that 1an Lng nong was not, |n w|nn|ng and
serv|c|ng the b|d of nILCUSA, act|ng as a commerc|a| broker, for |n
effect|ng the |mportat|on of the goods, "he was d|scharg|ng h|s own,
persona| ob||gat|on as the w|nner |n the b|dd|ng ca||ed by nILCUSA. ne
|mported the commod|t|es not because nILCUSA has asked h|m to but
because had ob||gated h|mse|f
166
18 SCkA 431
( )
167
to]of, at p.

to de||ver the same to nILCUSA when he part|c|pated and won |n the
pub||c b|dd|ng ca||ed by the sa|d agency. 1an Lng nong wou|d have
been ||ab|e |n damages to nILCUSA |f he had fa||ed to |mport the sa|d
goods so that when he carr|ed out the |mportat|on, he was, f|rst and
foremost, serv|ng h|s own |nterest and no one e|se's."
168

Moreover, the Court ru|ed that 1an Lng nong had contracted
d|rect|y w|th nILCUSA's fore|gn supp||er, and that "1he fore|gn
supp||er and nILCUSA had no pr|v|ty of contractua| re|at|ons
whatsoever to the end that ne|ther of them cou|d have had any c|a|m
aga|nst each other for whatever fau|t or breach 1an Lng nong m|ght
have comm|tted re|evant to the transact|ons |n d|spute. It wou|d
|ndeed be qu|te d|ff|cu|t to susta|n any assert|on that 1an Lng nong was
act|ng for and |n beha|f of nILCUSA or h|s fore|gn supp||er or both."
189

1he Court then re|terated the essence of the ro|e of a broker, thus
1he broker must be the eff|c|ent agent or the procur|ng
cause the sa|e. 1he means emp|oyed by h|m and h|s efforts
must resu|t |n the sa|e. ne must f|nd the purchaser, and the
sa|e must proceed from h|s efforts act|ng as a broker. . . .1h|s
cond|t|on may not be sa|d to obta|n |n the case on hand. 1an
Lng nong d|d not mere|y br|ng nILCUSA and h|s fore|gn
supp||er to come to an agreement for the sa|e of certa|n
commod|t|es. It was he h|mse|f who contracted w|th h|s
fore|gn supp||er for the purchase of the sa|d goods. If, for
one reason or another nILCUSA had refused to accept the
de||very of the sa|d goods to |t by 1an Lng nong, the fore|gn
supp||er cou|d not have compe||ed nILCUSA otherw|se.
S|m||ar|y, |f somehow the fore|gn supp||er had defau|ted |n
the performance of |ts ob||gat|ons to 1an Lng nong,
nILCUSA cou|d not have had any act|on or remedy aga|nst
the sa|d fore|gn supp||er. A|| these |nd|cate the d|st|nct and
|ndependent persona||ty of 1an Lng nong as an |mporter
and not a commerc|a| broker."
170

0C0
168
]b]d, at p.
43S
oRS'./ at p. 43S.
oRS'./ at pp.
3 36

CnA1Lk 2
ICkMALI1ILS CI AGLNC
now AGLNC MA 8L CCNS1I1U1LD
Ak1. 1869. Agency may be express, or |mp||ed from the
acts of the pr|nc|pa|, from h|s s||ence or |ack of act|on, or h|s
fa||ure to repud|ate the agency, know|ng that another person
|s act|ng on h|s beha|f w|thout author|ty.
Agency may be ora|, un|ess the |aw requ|res a spec|f|c
form. (1710a)
Ak1. 1870. Acceptance by the agent may a|so be express,
or |mp||ed from h|s acts wh|ch carry out the agency, or from
h|s s||ence or |nact|on accord|ng to the c|rcumstances, (n)
1he contract of agency, be|ng a consensua| contract, |s perfected
by mere consent, or mere|y by the meet|ng of the m|nds on the ob[ect
=)7(T'P7k *" 7-*7( '-*" X8('.'P,R ,P*) "- S75,R& "& *57 6('-P'6,RH and upon
the cons|derat|on agreed upon, wh|ch pr|mar||y |s a va|uab|e
cons|derat|on or may be pure ||bera||ty on the part of the agent. Art|c|e
1869 of the New C|v|| Code emphas|zes the P"-)7-)8,R -,*8(7 of the
contract of agency, as |t prov|des that "Agency may be express, or
| mp| | ed . . . may be ora|, un|ess the |aw requ|res a spec|f|c form."
In @'$ T3 <"8(* "& B667,R)/^ the Court noted that there are some
prov|s|ons of |aw wh|ch requ|re certa|n forma||t|es for
'2S4 SCkA 170 (1996).
71

part|cu|ar contracts: the f|rst |s when the form |s requ|red for the va||d|ty
of the contract, the second |s when |t |s requ|red to make the contract
effect|ve as aga|nst th|rd part|es such as those ment|oned |n Art|c|es
13S7 and 13S8 of the New C|v|| Code, and the th|rd |s when the form |s
requ|red for the purpose of prov|ng the ex|stence of the contract, such
as those prov|de |n the Statute of Irauds |n Art|c|e 1403. @'$ he|d that
s|nce a contract of agency to se|| p|eces of [ewe|ry on comm|ss|on does
not fa|| |nto any of the three categor|es, |t was cons|dered va||d and
enforceab|e |n whatever form |t may have been entered |nto. @'$ a|so
ru|ed that when the agent s|gns her s|gnature on any face of the rece|pt
show|ng that she rece|ves the [ewe|ry for her to se|| on comm|ss|on, she
|s bound to the ob||gat|ons of an agent. 1he exact pos|t|on of the agent's
s|gnature |n the rece|pt (|n th|s case near the descr|pt|on of the goods
and not on top of her pr|nted name) was ru|ed |mmater|a|.
In contrast, |n :"(.,."( T3 @8\
Y
where absence of the s|gnature of
the purported pr|nc|p|e on the rece|pts cover|ng the de||very of [ewe|r|es
to the purported agent was one c|ear |nd|cat|on to show that the
purported pr|nc|p|es never appo|nted the rec|p|ent as the|r agent, and
that no agency re|at|onsh|p arose between them. 1he Court he|d
1he bas|s for agency |s representat|on. nere, there |s no
show|ng that 8r|g|da consented to the acts of Deganos or
author|zed h|m to act on her beha|f, much |ess w|th respect
to the part|cu|ar transact|ons |nvo|ved. et|t|oners' attempt
to fo|st ||ab|||ty on respondent spouses through the supposed
agency re|at|on w|th Deganos |s ground|ess and |||-adv|sed.
pet|t|oners to entrust to DeganoS, not once or tw|ce but on
at |east s|x occas|ons as ev|denced by s|x rece|pts, severa|
p|eces of [ewe|ry of substant|a| va|ue w|thout requ|r|ng a
wr|tten author|zat|on from h|s a||eged pr|nc|pa|. A person
dea||ng w|th an agent |s put upon |nqu|ry and must d|scover
upon h|s per|| the author|ty of the agent.
3

2
283 SCkA374 (1997).
]RS'./ at p. 382.

73
1. erfect|on from the S|de of the r|nc|pa|
Cn the s|de of the pr|nc|pa|, Art|c|e 1869 of the New C|v|| Code
prov|des that an agency |s const|tuted ='373/ pr|nc|pa| has g|ven h|s
consent to the agency arrangement) from h|s acts forma||y adopt|ng |t,
or from h|s s||ence or |nact|on, or part|cu|ar|y from h|s fa||ure to
repud|ate the agency know|ng someone |s act|ng |n h|s name.
Certa|n|y, the |dea| form by wh|ch the pr|nc|pa| |s deemed to have
entered |nto a contract of agency |s when he |ssues a wr|tten power of
attorney to the person des|gnated as agent, nonethe|ess, there |s no
requ|rement that for agency to ar|se the same must be |n wr|t|ng, for |n
fact Art|c|e 1869 says |t may be ora| or may be deduced from the act of
the pr|nc|p|e.
Dg8'*,SR7 K<FV:,-1 T3 p8,
4
he|d that an agency may be express but
|t may a|so be |mp||ed from the acts of the pr|nc|pa|, from h|s s||ence, or
|ack of act|on or h|s fa||ure to repud|ate the agency know|ng that
another person |s act|ng on h|s beha|f w|thout author|ty. In that case, the
Court ru|ed that where the |aw f|rm a||owed the emp|oyee of |ts c||ent to
occas|ona||y rece|ve |ts ma||, and not hav|ng forma||y ob[ected to the
rece|pt by sa|d emp|oyee of a court process, or taken any steps to put a
stop to |t, |t was construed to mean that an agency re|at|onsh|p had
been estab||shed, to wh|ch rece|pt of the court process by sa|d emp|oyee
was |ega||y deemed to be serv|ce to the |aw f|rm.
In <"-.7 T3 <"8(* "& B667,R)/
Z
the Court he|d that when the
buyersV,V(7*(" fa||ed for severa| years to c|ear the|r t|t|e to the property
purchased and a||owed the se||erV,V(7*(" to rema|n |n possess|on |n sp|te
of the exp|rat|on of the per|od of redempt|on, then the execut|on of the
memorandum of repurchase by the buyers' son-|n-|aw, wh|ch stood
unrepud|ated for many years, const|tuted an |mp||ed agency under
Art|c|e 1869 of the New C|v|| Code, from the|r s||ence or |ack of act|on, or
the|r fa||ure to repud|ate the agency.
4
3SS SCkA309
(200 )
S
119SCkA 24S
( )

74
2. erfect|on from the S|de of the Agent
Cn the s|de of the agent, Art|c|e 1870 of the New C|v|| Code
prov|des that h|s acceptance of the agency _'373/ agent has g|ven h|s
consent to the agency arrangement) may be express, or |mp||ed from h|s
acts wh|ch carry out the agency, or from h|s s||ence or |nact|on accord|ng
to the c|rcumstances.
Dg8'*,SR7 K<FV:,-1 T3 p8/h re|terated the pr|nc|p|e that acceptance
by the agent may a|so be express, a|though |t may a|so be |mp||ed from
h|s acts wh|ch carry out the agency, or from h|s s||ence or |nact|on
accord|ng to the c|rcumstances.
Cne w||| note that Art|c|e 1870 of the New C|v|| Code has no
counterpart |n the o|d C|v|| Code, and based on the po|nts ra|sed be|ow,
|t may be cons|dered a surp|usage at best, and m|s|ead|ng at worse.
L'()*R%/ there seems to be an |nd|cat|on that there |s such a th|ng as
|mp||ed acceptance of the appo|ntment on the part of the agent "from
acts wh|ch carry out the agency." Irom a pure|y transact|ona| po|nt of
v|ew, every act of the agent |n pursuance of the agency |s never |mp||ed,
but a|ways express, because the requ|rement |s that he must enter |nto
a contract "|n the name of the pr|nc|pa|." 1hus, whenever any agent
enters |nto any contract |n pursuance of the agency, h|s acceptance of
h|s des|gnat|on as an agent |s never "|mp||ed" nor "presumed," for
prec|se|y he enters |nto such contract c|ear|y |n the name of the
pr|nc|pa|. In fact, under Art|c|e 1898 of the New C|v|| Code, |f an agent
enters |nto a contract pursuant to the terms of the agency but |n h|s own
name, the contract |s deemed to be, |nsofar as th|rd part|es are
concerned, that of the agent |n h|s persona| capac|ty, as the pr|nc|pa| |s
not deemed a party to the contract.
It may |n fact be wrong to presume that the agent has accepted
the appo|ntment, and bound h|mse|f to f|duc|ary dut|es of d|||gence and
f|de||ty, when hav|ng not accepted |t express|y, he pursues the
transact|on |n h|s own name and prec|se|y for h|s own beha|f. 1here can
be no contract of agency un|ess both the purported pr|nc|pa| and the
purported agent g|ve the|r consent.
6
3SS SCkA 309 (2001).
7S
;7P"-.R%/ there seems to be an |nd|cat|on |n Art|c|e 1870 that there
|s such a th|ng as |mp||ed acceptance of the appo|ntment on the part of
the agent "from h|s s||ence or |nact|on accord|ng to the c|rcumstances."
S|nce a contract of agency |s essent|a||y a preparatory contract, wh|ch
has no commerc|a| s|gn|f|cance of |ts own w|thout [ur|d|ca| acts be|ng
pursued |n the name of the pr|nc|pa|, |t |s hard to |mag|ne that there |s
const|tuted a contract of agency by the mere s||ence or |nact|on of the
agent. In fact, the proper |nterpretat|on of the s||ence or |nact|on of the
des|gnated agent |s that he has not accepted the appo|ntment, and that
|s the reason why he has not acted one way or the other |n pursuance of
the terms of the purported agency. 8ut |f an agent says noth|ng at the
t|me he |s appo|nted, and subsequent|y goes out |nto the wor|d and
pursues the agency |n the name of the pr|nc|pa|, then rather than be|ng
an |mp||ed acceptance, the [ur|d|ca| act entered |nto |n the name of the
pr|nc|pa| |s an express acceptance.
nowever, the usefu|ness of prov|d|ng presumpt|ve ru|es of |mp||ed
acceptance on the part of the agent do serve some commerc|a| end |n
the sense that one who accepts an agency |s from that t|me on bound by
the f|duc|ary dut|es of d|||gence and f|de||ty, such that |f the fa||s to act
when the c|rcumstances requ|red that he shou|d have so acted to
protect the |nterests of the pr|nc|pa|, he can be made ||ab|e for breach of
duty, and cannot c|a|m |ater on that he had not accepted the
des|gnat|on. In the same, manner, |t wou|d be wrong for an agent to
take advantage of conf|dent|a| |nformat|on or trade secrets re|ayed to
h|m by the pr|nc|pa|, and |n order to avo|d ||ab|||ty, he shou|d c|a|m that
he never accepted the appo|ntment s|nce he enter |nto the transact|on
|n h|s own name.
8ut such po||cy |s not we||-served under the broad and a||-
encompass|ng prov|s|ons of Art|c|e 1870, s|nce the better ru|e wou|d be
that a pr|nc|pa| shou|d never presume that a des|gnated person has
accepted the agency by mere s||ence so that he shou|d be v|g||ant |n
protect|ng h|s r|ghts. 1he subs|d|ary ru|es of |mp||ed acceptance on the
part of the agency are better |a|d out |n Art|c|es 1871 and 1872 of the
New C|v|| Code for, as d|scussed |mmed|ate|y hereunder, the s||ence or
|nact|on on the part of the agent from a commerc|a| sense wou|d tend to
|nd|cate that |ndeed such person has accepted h|s des|gnat|on as an
agent.

3. Instances When 1here Is Deemed to 8e Meet|ng of M|nds 8etween the
r|nc|pa| and the Agent
Ak1. 1871. 8etween persons who are present, the
acceptance of the agency may a|so be |mp||ed |f the pr|nc|pa|
|s de||vers h|s power of attorney to the agent and the |atter
rece|ves |t w|thout any ob[ect|on, (n)
Ak1. 1872. 8etween persons who are absent, the
acceptance of the agency cannot be |mp||ed from the s||ence
of the agent, except:
(1) When the pr|nc|pa| transm|ts h|s power of attorney
to the agent, who rece|ves |t w|thout any ob[ect|on,
(2) When the pr|nc|pa| entrusts to h|m by |etter or
te|egram a power of attorney w|th respect to the bus|ness |n
wh|ch he |s hab|tua||y engaged as an agent, and he d|d not
rep|y to the |etter or te|egram, (n)
Under Art|c|e 1871 of the New C|v|| Code, wh|ch descr|bes the most
|dea| form ev|denc|ng the perfect|on of the contract of agency, when the
const|tut|on of the agency |s made w|th both pr|nc|pa| and agent be|ng
phys|ca||y present at the t|me of perfect|on of the contract of agency
_'373/O:7*b77- 67()"-) b5" ,(7 6(7)7-&H/ the acceptance of the agency
may be |mp||ed |f the pr|nc|pa| O.7R'T7() 5') 6"b7( "& ,**"(-7%O to the
agent and the |atter"(7P7'T7) '* b'*5"8* "SX7P*'"-O
Cn the other hand, under Art|c|e 1872 of the New C|v|| Code, when
the const|tut|on of the agency |s made w|th the wou|d-be pr|nc|pa| and
the wou|d-be agent not be|ng phys|ca||y present |n one p|ace _'373/
O:7*b77- 67()"-) b5" ,(7 ,S)7-*^H/ then there can be no |mp||ed
acceptance of the agency from the s||ence or |nact|on of the agent,
except |n two |nstances:
ICkMALI1ILS CI AGLNC 77
(a) When the pr|nc|pa| "*(,-)$'* 5') 6"b7( "& ,**"(-7%O to
the agent ='373/ |t |s |n wr|t|ng or some other form),"b5"
(7P7'T7) '* b'*5"8* ,-% "SX7P*'"-," or
(b) When the pr|nc|pa| entrusts to the agent OS% R7**7( "(
*7R7+(,$ , 6"b7( "& ,**"(-7%O b'*5 (7)67P* *" *57
S8)'-7)) '- b5'P5 57 ') 5,S'*8,RR% 7-+,+7. ,) ,- ,+7-*/
and he d|d not rep|y to the |etter or te|egram.
1he genera| pr|nc|p|e |a|d out under Art|c|e 1872 |s that, other than
the two s|tuat|ons descr|bed there|n, there can be no |mp||ed acceptance
from the s||ence or |nact|on of the part of the purported agent. 1he
genera| ru|e under Art|c|e 1872 of no |mp||ed acceptance on the part of
the agent, |s actua||y contrary to the |mp||ed acceptance ru|e |a|d down
|n Art|c|e 1870 that "Acceptance by the agent may a|so be . . . |mp||ed
f r om . . . h|s s||ence or |nact|on accord|ng to the c|rcumstances."
Accord|ng to Art|c|e 1872, under than the two c|rcumstances |a|d out
there|n, courts shou|d not draw any conc|us|on of |mp||ed acceptance on
the part of the purported agent by h|s s||ence or |nact|on. As we stated
ear||er, |t wou|d be better that Art|c|e 1870 be de|eted ent|re|y, as Art|c|e
1872 prov|des for the better ru|e.
1he |anguage used |n Art|c|es 1871 and 1872 |nd|cate that the
"power of attorney" must const|tute a wr|tten |nstrument, because |n
both cases the art|c|es refer to s|tuat|ons where "the pr|nc|pa| .7R'T7()
h|s power of attorney to the agent," and when "the pr|nc|pa| *(,-)$'*)
h|s power of attorney to the agent," wh|ch requ|re that |t must be |n
wr|t|ng, wh|ch today wou|d |nc|ude e|ectron|c document and e|ectron|c
ma||, wh|ch are cons|dered to be equ|va|ent to a wr|tten |nstrument
under the L|ectron|c Commerce Law.
Consequent|y, when the other prov|s|ons of the Law on Agency
refer to "genera| power of attorney" and "spec|a| power of attorney,"
does the |aw mean that they conform to the rud|mentary requ|rement
that they be |n wr|t|ng and s|gned by the pr|nc|pa|? We w||| address th|s
|ssue |n the |nstances covered be|ow.

78
LkILC1ICN CI 1nL CCN1kAC1 CI AGLNC As I1 AIILC1S 1nIkD
LkSCNS
Ak1. 1873. If a person spec|a||y |nforms another or states
by pub||c advert|sement that he has g|ven a power of attorney
to a th|rd person, the |atter thereby becomes a du|y
author|zed agent, |n the former case w|th respect to the
person who rece|ved the spec|a| |nformat|on, and |n the |atter
case w|th regard to any person.
Ak1. 1922. If the agent had genera| powers, revocat|on of
the agency does not pre[ud|ce th|rd persons who acted |n
good fa|th and w|thout know|edge of the revocat|on. Not|ce
of the revocat|on |n a newspaper of genera| c|rcu|at|on |s a
suff|c|ent warn|ng to th|rd persons, (n)
1he power sha|| cont|nue to be |n fu|| force unt|| the
not|ce |s resc|nded |n the same manner |n wh|ch |t was g|ven,
(n)
Ak1. 1921. If the agency has been entrusted for the
purpose of contract|ng w|th spec|f|ed persons, |ts revocat|on
sha|| not pre[ud|ce the |atter |f they were not g|ven not|ce
thereof. (1734)
1he prev|ous ru|es on when a contract of agency |s deemed
const|tuted ='373/ perfected) are taken from the |ntramura| po|nt of v|ew:
as between the part|es to the contract of agency. nowever, a contract of
agency |s mere|y a preparatory contract, and |s meant to ach|eve goa|s
beyond "|ts own be|ng," consequent|y, the Law on Agency conta|ned |n
the New C|v|| Code prov|des for add|t|ona| ru|es that address most
essent|a||y the target of every contract of agency: the th|rd part|es
|ntended to be contracted w|th by the agent |n beha|f of the pr|nc|pa|.
Under Art|c|e 1873 of the New C|v|| Code, when the pr|nc|pa|
|nforms another person that he has g|ven a power of attorney

79
to a th|rd person (the agent), the |atter thereby becomes a du|y
author|zed agent w|th respect to the person who rece|ved the spec|a|
|nformat|on. 1he c|ear |mp||cat|on of the prov|s|on |s that even when |n
fact there has been no meet|ng of the m|nds between the purported
pr|nc|pa| and agent ='373/ there |s str|ct|y speak|ng no contract of agency),
there |s deemed to have ar|sen one w|th respect to the th|rd party who
has been so |nformed by the pr|nc|pa| |n a|| contracts entered |nto w|th
the purported agent |n the name of the pr|nc|pa|.
Cn the other hand, when the pr|nc|pa| states by pub||c
advert|sement that he has g|ven a power of attorney to a part|cu|ar
|nd|v|dua| (the agent), the |atter thereby becomes a du|y author|zed
agent w|th regard to any person. And |t |s spec|f|ca||y prov|ded |n sa|d
art|c|e that "1he power [of the agent] sha|| cont|nue to be |n fu|| force
unt|| the not|ce |s resc|nded |n the same manner |n wh|ch |t was g|ven."
8oth of the scenar|os |mmed|ate|y d|scussed above wou|d presume
that u|t|mate|y the agent wou|d have accepted the des|gnat|on of the
pr|nc|pa|, for |t must come to pass that he enters |nto contracts w|th such
th|rd part|es |n the name of the pr|nc|pa|.
A|so, the ru|es on const|tut|on of agency as regards th|rd part|es,
must be cons|stent w|th the ru|es prov|d|ng for the|r revocat|on. 1hus,
under Art|c|e 1921 of the New C|v|| Code, |f the agency has been
entrusted for the purpose of contract|ng w|th spec|f|c persons (referred
to as "spec|a| agency"), the revocat|on of the agency sha|| not pre[ud|ce
the |atter |f they were not g|ven not|ce thereof. Under Art|c|e 1922, |f the
agent had been granted genera| powers (referred to as "genera|
agency"), the revocat|on of the agency w||| not pre[ud|ce th|rd persons
who acted |n good fa|th and w|thout know|edge of the revocat|on,
however, not|ce of the revocat|on |n a newspaper of genera| c|rcu|at|on
const|tutes suff|c|ent not|ce to b|nd th|rd persons.
In G,RR") T3 A,-+P"/
N
the Court he|d that a |ong-stand|ng c||ent,
act|ng |n good fa|th and w|thout know|edge, hav|ng
7
20 h||. 269 (1911).

sent goods to se|| on comm|ss|on to the former agent of the defendant,
cou|d recover from the defendant, when no prev|ous not|ce of the
term|nat|on of agency was g|ven sa|d c||ent. 1he Court emphas|zed that
hav|ng advert|sed the fact that Co||antes was h|s agent and hav|ng g|ven
spec|a| not|ce to the p|a|nt|ff of that fact, and hav|ng g|ven them a
spec|a| |nv|tat|on to dea| w|th such agent, |t was the duty of the
defendant on the term|nat|on of the re|at|onsh|p of pr|nc|pa| and agent
to g|ve due and t|me|y not|ce thereof to the p|a|nt|ffs. Ia|||ng to do so,
the defendant was he|d respons|b|e to them for whatever goods may
have been |n good fa|th and w|thout neg||gence sent to the agent
w|thout know|edge, actua| or construct|ve, of the term|nat|on of such
re|at|onsh|p.
In <"-.7 T3 <"8(* "& B667,R)] the Court he|d that when the r|ght
of redempt|on by se||ers-a-refro |s exerc|sed by the|r son-|n- |aw who
was g|ven no express author|ty to do so, and the buyer- ,V(7*(" accepted
the exerc|se and done noth|ng for the next ten years to c|ear the|r t|t|e of
the annotated r|ght of repurchase on the|r t|t|e, and possess|on had
been g|ven to the se||ersV,V(7*(" dur|ng the same per|od, then "an
|mp||ed agency must be he|d to have been created from the|r s||ence or
|ack of act|on, or the|r fa||ure to repud|ate the agency."
1. ku|es on the Lx|stence of Agency, As to 1h|rd art|es
Are Concerned
A|though an agency contract |s consensua| |n nature and genera||y
requ|res no forma||ty to be perfected, va||d and b|nd|ng, the Supreme
Court has stressed |n @"67\ T3 !,- 7]oco,
9
that an agency arrangement |s
never presumed.
In K7"6R7 T3 A,S8*,
10
the Court he|d that a|though the perfect|on of
a contract of agency may take an |mp||ed form, the ex|stence of an
agency re|at|onsh|p |s never presumed. 1he re|at|onsh|p of pr|nc|pa| and
agent cannot be |nferred from mere fam||y re|at|onsh|p, for the re|at|on
to ex|st, there must be consent
a
119SCkA 24S
( )
9
8 h||. 693

10
76 SCkA 624
( )

81
by both part|es. 1he |aw makes no presumpt|on of agency, |t must ex|st
as a fact. 1h|s pr|nc|p|e was re|terated |n @'$ T3 <"8(* "& B667,R)3O
In >,((% D3 p77R7( DR7P*('P <"3 T3 G".('+87\,
12
the Court ru|ed that a
th|rd person must act w|th ord|nary prudence and reasonab|e d|||gence
to ascerta|n whether the agent |s act|ng and dea||ng w|th h|m w|th|n the
scope of h|s powers. Cbv|ous|y, |f he knows or has good reason to
be||eve that the agent |s exceed|ng h|s author|ty, he cannot c|a|m
protect|on. So, |f the character assumed by the agent |s of such a
susp|c|ous or unreasonab|e nature, or |f the author|ty wh|ch he seeks |s
of such an unusua| or |mprobab|e character, as wou|d suff|ce to put an
ord|nar||y prudent man upon h|s guard, the party dea||ng w|th h|m may
not shut h|s eyes to the rea| state of the case but shou|d w|tha| refuse to
dea| w|th the agent at a||, or shou|d ascerta|n from the pr|nc|pa| the true
cond|t|on of affa|rs.
In <"$6,-', 0,('*'$, T3 @'$)"-,
13
the Court he|d that the
dec|arat|on of one that he |s an agent of another |s never to be accepted
at face va|ue, except |n those cases where an agency ar|ses by express
prov|s|on of |aw.
In 4'\"- T3 <"8(* "& B667,R)/^
a
the Court he|d that a co-owner does
not become an agent of the other co-owners, and therefore, any
exerc|se of an opt|on to buy a p|ece of |and transacted w|th one
co-owner does not b|nd the other co-owners of the |and. 1he Court he|d
that the bas|s for agency |s representat|on and a person dea||ng w|th an
agent |s put upon |nqu|ry and must d|scover upon h|s per|| the author|ty
of the agent. S|nce there was no show|ng that the other co-owners
consented to the act of one co-owner nor author|zed her to act on the|r
beha|f w|th regard to her transact|on w|th purported buyer. 1he most
prudent th|ng the purported buyer shou|d have done was to ascerta|n
the extent of the author|ty sa|d co-owner, be|ng neg||gent |n th|s regard,
the
"2S1 SCkA 408
( )
12
44 h||.
"
1
4

purported buyer cannot seek re||ef on the bas|s of a supposed agency.
Cn the other hand, Art|c|e 1873 of the New C|v|| Code prov|des
that the dec|arat|on of a person that he has appo|nted another as h|s
agent |s deemed to have const|tuted the person a||uded to as an agent
(even when the des|gnated person |s at that po|nt unaware of h|s
des|gnat|on as agent), |nsofar as the person to whom such dec|arat|on
has been made. What |s c|ear therefore |s that th|rd part|es must never
take the words or representat|on of the purported agent at face va|ue,
they are mandated to appr|se themse|ves of the comm|ss|on and extent
of powers of the purported agent. Cn the other hand, th|rd part|es (to
the contract of agency) can take the word, dec|arat|on and
representat|on of the purported pr|nc|pa| w|th respect to the
appo|ntment and extent of powers of the purported agent. 1he
pr|nc|p|e |s se|f-ev|dent from the nature of agency as a re|at|on of
representat|on - that an agent acts as though he were the pr|nc|pa| - and
therefore |f the pr|nc|pa| h|mse|f says so, then |t |s taken at face va|ue as
a contractua| comm|tment.
a. Agency by Lstoppe|
Ak1. 1873. If a person spec|a||y |nforms another or states
by pub||c advert|sement that the has g|ven a power of
attorney to a th|rd person, the |atter thereby becomes a du|y
author|zed agent, |n the former case w|th respect to the
person who rece|ved the spec|a| |nformat|on, and |n the |atter
case w|th regard to any person.
1he power sha|| cont|nue to be |n fu|| force unt|| the
not|ce |s resc|nded |n the same manner |n wh|ch |t was g|ven,
(n)
Ak1. 1911. Lven when the agent has exceeded h|s
author|ty, the pr|nc|pa| |s so||dar||y ||ab|e w|th the agent |f the
former a||owed the |atter to act as though he had fu|| powers,
(n)

Under Art|c|e 1873 of the New C|v|| Code, |f a person spec|a||y
|nforms another or states by pub||c advert|sement that he has g|ven a
power of attorney to a th|rd person, the |atter thereby becomes a du|y
author|zed agent, even |f prev|ous|y there was never a meet|ng of m|nds
between them.
Under Art|c|e 1911 of the New C|v|| Code, even when the agent has
exceeded h|s author|ty ='373/ he acts w|thout author|ty from the
pr|nc|pa|), the pr|nc|pa| sha|| be he|d so||dar|ty ||ab|e w|th the agent |f he
a||owed the agent to act as though he had fu|| powers.
In 0,P17 T3 <,$6)] where the owner of a hote|]cafe bus|ness
a||owed a person to use the t|t|e "manag|ng agent" and dur|ng h|s
pro|onged absences a||owed such person to take charge of the bus|ness,
perform|ng the dut|es usua||y entrusted to manag|ng agent, then such
owner was he|d bound by the acts of such person. 1he Court he|d that:
Cne who c|othes another apparent author|ty as h|s
agent, and ho|ds h|m out to the pub||c as such, can not be
perm|tted to deny the author|ty of such person to act as h|s
agent, to the pre[ud|ce of |nnocent th|rd part|es dea||ng w|th
such person |n good fa|th and |n the fo||ow|ng
pre-assumpt|ons or deduct|ons, wh|ch the |aw express|y
d|rects to be made from part|cu|ar facts, are deemed
conc|us|ve.
16

1he hote| owner was deemed bound by the contracts entered |nto
by sa|d manag|ng agent that were w|th|n the scope of author|ty
pert|nent to such pos|t|on, |nc|ud|ng the purchas|ng such reasonab|e
quant|t|es of supp||es as m|ght from t|me to t|me be necessary |n
carry|ng on the bus|ness of hote| bar. 1h|s |s a|so cons|stent w|th the
pr|nc|pa| that an agent g|ven genera| power of attorney to manage a
part|cu|ar bus|ness, has fu|| powers to pursue any and a|| transact|ons
that are deemed to be |n the ord|nary course of that bus|ness.
1S
7 h||. SS3
( )
oRS'./ at p.

In 47 R, K7-, T3 >'.,R+"|t was he|d that when a person who took
charge of the adm|n|strat|on of property w|thout express author|zat|on
and w|thout a power of attorney executed by the owner thereof, and
performed the dut|es of h|s off|ce w|thout oppos|t|on or abso|ute
proh|b|t|on on the owner's part, express|y commun|cated to the sa|d
person, |s conc|uded to have adm|n|stered the sa|d property by v|rtue of
an |mp||ed agency, |n accordance w|th the prov|s|ons of Art|c|e 1710 of
the o|d C|v|| Code (now Art. 1869 of the New C|v|| Code), s|nce the sa|d
owner of the property, know|ng perfect|y we|| that the sa|d person took
charge of the adm|n|strat|on of the same, through des|gnat|on by such
owner's former agent who had to absent h|mse|f from the p|ace for
we||-founded reasons, rema|ned s||ent for near|y n|ne years. A|though
the owner d|d not send a new power of attorney to the sa|d person who
took charge of h|s property, the fact rema|ned that, dur|ng the per|od
stated, he ne|ther opposed nor proh|b|ted the new agent w|th respect
to the adm|n|strat|on, nor d|d he appo|nt another person |n h|s
conf|dence. Wherefore the Court he|d that |t must be conc|uded that
th|s new agent acted by v|rtue of an |mp||ed agency, equ|va|ent to a
|eg|t|mate agency, tac|t|y conferred by the owner of the property
adm|n|stered.
<7-*(,R ;8(7*% Q F-)8(,-P7 <"3 T3 <393 >".+7)/o he|d that by the
open|ng of branch off|ce w|th the appo|ntment of |ts branch manager
and honor|ng severa| surety bonds |ssued |n |ts beha|f, the |nsurance
company |nduced the pub||c to be||eve that |ts branch manager had
author|ty to |ssue such bonds. As a consequence, the |nsurance
company was estopped from p|ead|ng, part|cu|ar|y aga|nst a regu|ar
customer thereof, that the branch manager had no author|ty.
In 9,+8',* T3 <"8(* "& B667,R),
18
the Court app||ed the prov|s|ons
of Art|c|e 1873 of the New C|v|| Code to ru|e that |f by the |nteract|on
between a purported pr|nc|pa| and a purported agent |n the presence of
a th|rd person, the |atter was g|ven the |mpress|on of the ex|stence of a
pr|nc|pa|-agency re|at|on, and
"16 h||. 4S0 (1910).
"38 SCkA 1S9 (1971).
"412 SCkA S92
(2003)

ICkMALI1ILS CI AGLNC 8S
the purported pr|nc|pa| d|d noth|ng to correct the th|rd person's
|mpress|on, an "agency by estoppe| |s deemed to have been const|tuted,
and the ru|e |s c|ear: one who c|othes another w|th apparent author|ty as
h|s agent, and ho|ds h|m out to the pub||c as such, cannot be perm|tted
to deny the author|ty of such person to act as h|s agent, to the pre[ud|ce
of |nnocent th|rd part|es dea||ng w|th such person |n good fa|th, and |n
the honest be||ef that he |s what he appears to be."
20

In @'*"-X8,/ J(3 T3 D*7(-'* <"(63/
Y
^ the Court he|d that for an agency
by estoppe| to ex|st, the fo||ow|ng must be estab||shed:
(a) the pr|nc|pa| man|fested a representat|on of the
agent's author|ty or know|ng|y a||owed the agent
to assume such author|ty,
(b) the th|rd person, |n good fa|th, re||ed upon such
representat|on,
(c) re|y|ng upon such representat|on, such th|rd person
has changed h|s pos|t|on to h|s detr|ment.
An agency by estoppe|, wh|ch |s s|m||ar to the doctr|ne of apparent
author|ty, requ|res proof of re||ance upon the representat|ons, and that,
|n turn, needs proof that the representat|ons predated the act|on taken
|n re||ance.
Look|ng at both the statutory prov|s|ons and [ur|sprudence, one
beg|ns to wonder whether there |s |ndeed such a th|ng as an "agency by
estoppe|," for |n the end |t covers mere|y the format|on of an agency by
|mp||ed consent by e|ther or both the purported pr|nc|pa| and the
purported agent, |n that even when there was no prev|ous meet|ng of
m|nds between the two to forma||y const|tute an agency, the pursu|t of
[ur|d|ca| acts w|th th|rd part|es |n the name of the pr|nc|pa|, w|th
know|edge of the pr|nc|pa|, wou|d const|tute a meet|ng of the m|nds (not
a mere estoppe|) as consent |s def|ned under Art|c|es 1869 and 1870 of
the New C|v|| Code: that "Agency may be express, or |mp||ed,"
oRS'./ at p. S99.
21
490 SCkA 204
(2006)
86
from the acts of the pr|nc|pa| and]or the agent wh|ch carry out the
agency, or from the s||ence or |nact|on of the pr|nc|pa| "know|ng that
another person |s act|ng on h|s beha|f w|thout author|ty."
1he forego|ng d|scuss|ons emphas|ze the fact that the contract of
agency |s mere|y a preparatory contract, w|th the ma|n ob[ect|ve of the
agent be|ng ab|e to enter |nto va||d, b|nd|ng and enforceab|e contracts
w|th th|rd part|es |n the name of the pr|nc|pa| and w|th|n the scope of
author|ty, and that when such [ur|d|ca| acts are |ndeed entered |nto w|th
th|rd part|es who act |n good fa|th ='373/ due d|||gence), the contract of
agency |s deemed to have been du|y const|tuted ex 6")* &,P*"3
ICkMAL kLUIkLMLN1S CN GkAN1 CI CWLkS 1C 1nL
AGLN1
Wh||e the preced|ng sect|ons d|scussed the ru|es on how a contract
of agency |s const|tuted ='373/ perfected |nto a va||d and b|nd|ng |ega|
re|at|onsh|p), the succeed|ng sect|ons w||| d|scuss the ru|es that govern
the extent of power granted to the agent once the agency re|at|onsh|p |s
estab||shed. 1he d|scuss|ons are therefore based on the prem|se that
even when an agent has been du|y appo|nted by the pr|nc|pa|, such
agent must st||| act "w|th|n the scope of h|s author|ty" |n order to make
the resu|t|ng [ur|d|ca| acts entered |nto |n the name of the pr|nc|pa|, va||d
and b|nd|ng on the |atter. 1h|s |s cons|stent w|th the .8*% "& "S7.'7-P7
owed by the agent to the pr|nc|pa|.
1. Genera| r|nc|p|es on Contracts Lntered |nto by Agents
It shou|d be reca||ed that s|nce a contract of agency |s a
6(76,(,*"(% ,-. (76(7)7-*,*'T7 P"-*(,P*/ then |t g|ves r|se to a host of
[ur|d|ca| acts or contracts that are entered |nto |n representat|on of one
or both part|es to the contract (when both part|es are represented by
agents). 1he ru|es perta|n|ng to such contracts a|so de|ve on the
suff|c|ency or |nsuff|c|ency of author|ty of the representat|ve or that such
representat|ve acted beyond the scope of h|s author|ty. 1he |ssues fa||
w|th|n those types of
contracts that are "unenforceab|e," rather than vo|d, as prov|ded |n
Art|c|es 1317 and 1403 of the New C|v|| Code, thus:
Ak1. 1317. No one may contract |n the name of another
w|thout be|ng author|zed by the |atter, or un|ess he has by |aw
a r|ght to represent h|m.
A contract entered |nto |n the name of another by one
who has no author|ty or |ega| representat|on, or who has
acted beyond h|s powers, sha|| be unenforceab|e, un|ess |t |s
rat|f|ed, express|y or |mp||ed|y, by the person on whose beha|f
|t has been executed, before |t |s revoked by the other
contract|ng party. (12S9a)
Ak1. 1403. 1he fo||ow|ng contracts are unenforceab|e,
un|ess they are rat|f|ed:
(1) 1hose entered |nto |n the name of another person by
one who has been g|ven no author|ty or |ega| representat|on,
or who has acted beyond h|s powers,
W W W 3
A carefu| cons|derat|on of the forma| requ|rements perta|n|ng to
contracts of agency, and |ssues re|at|ng to the powers of agents to enter
|nto contracts |n the name of the pr|nc|p|e, go |nto |ssues of
"enforceab|||ty," and not |nto |ssues of "nu|||ty." Cf course from the
po|nt of v|ew of the pr|nc|pa| a contract that has been entered |n h|s
name by another w|thout consent or outs|de the scope of author|ty |s
non-ex|stent or vo|d (and the |aw uses such term when referr|ng to the
pr|nc|pa|), but from the po|nt of v|ew of the courts |ook|ng at the
contract, the same |s not vo|d but actua||y unenforceab|e.
2. Genera| owers of Attorney
Ak1. 1877. An agency couched |n genera| terms
compr|ses on|y acts of adm|n|strat|on, even |f
the pr|nc|pa| shou|d state that he w|thho|ds no

power or that the agent may execute such acts as he may
cons|der appropr|ate, or even though the agency shou|d
author|ze a genera| and un||m|ted management, (n)
As |ong as the agency re|at|onsh|p ex|sts, then |n the
absence of the grant of spec|a| power of attorney to the agent,
he |s deemed to have been extended on|y a +7-7(,R 6"b7(
"& ,**"(-7% by the pr|nc|pa|, ,-. 5') 6"b7() P"T7( "-R% ,P*) "&
,.$'-')*(,*'"-3 1hus, under Art|c|e 1877 of the New C|v|| Code, |t
|s prov|ded that every agency couched |n genera| terms can on|y
be construed as grant|ng to the agent the power to execute acts
of adm|n|strat|on, even |f the pr|nc|pa|:
(a) States that he w|thho|ds no power from the agent,
(b) States that the agent may execute acts he con-
s|ders appropr|ate, or
(c) Author|zes genera| and un||m|ted management:
1he term ",P*) "& ,.$'-')*(,*'"-O has the same commerc|a|
and |ega| s|gn|f|cance as "to ,P* '- *57 "(.'-,(% P"8()7 "&
S8)'-7))/O wh|ch |s a commerc|a| test of what can be expected to
confront the owner of the bus|ness ='373/ the pr|nc|pa|) on the day-
to-day runn|ng of the affa|rs of the bus|ness enterpr|se, and wh|ch
|s someth|ng that he wou|d |eave to an agent. What const|tutes
an act, transact|on or contract that |s w|th|n the "ord|nary course
of bus|ness," |s determ|ned by the nature of the bus|ness |tse|f
that has been g|ven under the adm|n|strat|on of the agent: If
the act, transact|on or contract |n quest|on |s a matter that from
the nature of the bus|ness |s expected to occur and for wh|ch
act|on |s expected w|thout much chang|ng the course of the
bus|ness, then |t |s a mere act of adm|n|strat|on. Cn the other
hand, |f the act, transact|on or contract |n contemp|at|on |s of a
nature, cons|der|ng the bus|ness be|ng managed, as someth|ng
that |s not expected to happen or dec|ded upon |n the day-to-
day affa|rs, then |t wou|d const|tute an act of ownersh|p or str|ct
dom|n|on, one wh|ch |s extraord|nary, not |n the ord|nary course
of bus|ness.

In one of the ear||est cases dec|ded by the h|||pp|ne Supreme
Court on the matter, C7($,-- Q <"3 T3 4"-,R.)"-/ ;'$ & Co.,
22
|t he|d
that when the agent |s g|ven a wr|tten power of attorney to be the
manager of the Man||a branch of the pr|nc|pa|s bus|ness, "w|th the
same genera| author|ty w|th reference to |ts conduct wh|ch h|s pr|nc|pa|
wou|d h|mse|f possess |f he were persona||y d|rect|ng |t," the powers
granted |nc|uded the power to br|ng su|t to recover sums due the
bus|ness, for "It cannot be reasonab|y supposed, |n the absence of very
c|ear |anguage to that effect, that |t was the |ntent|on of the pr|nc|pa| to
w|thho|d from h|s agent a power so essent|a| to the eff|c|ent
management of the bus|ness entrusted to h|s contro| as that to sue for
the co||ect|on of debts."
23
1he Court he|d
We shou|d not be |nc||ned to regard the |nst|tut|on of a
su|t ||ke the present, wh|ch appears to be brought to co||ect
a c|a|m accru|ng |n the ord|nary course of the p|a|nt|ffs
bus|ness, as proper|y be|ong|ng to the c|ass of acts descr|bed
|n Art|c|e 1713 [now Art. 1880] of the C|v|| Code as acts "of
str|ct ownersh|p." It seems rather to be someth|ng wh|ch |s
necessar||y a part of the mere adm|n|strat|on of such a
bus|ness as that descr|bed |n the |nstrument |n quest|on and
on|y |nc|denta||y, |f at a||, |nvo|v|ng a power to d|spose of the
t|t|e to property.
. . . 1he ma|n ob[ect of the |nstrument |s c|ear|y to make
kammerze|| the manager of the Man||a branch of the
p|a|nt|ffs bus|ness, w|th the same genera| author|ty w|th
reference to |ts conduct wh|ch h|s pr|nc|pa| wou|d h|mse|f
possess |f he were persona||y d|rect|ng |t. It can not be
reasonab|y supposed, |n the absence of very c|ear |anguage
to that effect, that |t was the |ntent|on of the pr|nc|pa| to
w|thho|d from h|s agent a power so essent|a| to the eff|c|ent
management of the bus|ness entrusted to h|s contro| as that
to sue for the co||ect|on of debts.
24

1he rat|ona|e for the afore-quoted ru||ng no |onger ho|ds true
under Art|c|e 1877 of the New C|v|| Code wh|ch prov|des
22
1 h||. 63
( )
Y[
RS'./ at pp.
OFS'./ at pp.

that "An agency couched |n genera| terms compr|ses on|y acts of
adm|n|strat|on, even |f the pr|nc|pa| shou|d state that he w|thho|ds no
power or that the agent may execute such acts as he may cons|der
appropr|ate, or even though the agency shou|d author|ze a genera| and
un||m|ted management." 1oday, the power to sue |s cons|dered a
power of "str|ct ownersh|p." In any event, the C7($,-- Q <"3 dec|s|on
d|d f|nd that the wr|tten |nstrument express|y author|zed the agent to
"exact the payment of sums of money by |ega| means," wh|ch was
construed to be an express power to sue.
2S

In A8 <58P1 T3 p"-+ @' o,
28
|t was he|d that an off|cer who has
contro| and management of the corporat|on's bus|ness, or a spec|f|c
part thereof, |s deemed to have power to emp|oy such agents and
emp|oyees as are usua| and necessary |n the conduct of the
corporat|on's bus|ness, except on|y where such author|ty |s express|y
vested |n the 8oard of D|rectors. 1herefore, the manager of the
bus|ness enterpr|se does not need a spec|a| power of attorney to va||d|y
emp|oy personne|.
3. Must owers of Attorney 8e In Wr|t|ng for the Iur|d|ca| Acts Lxecuted
ursuant 1hereto to 8e Va||d and Lnforceab|e?
1he d|scuss|ons hereunder are prem|sed on the fact that the
purported pr|nc|pa| |n the contracts that have been entered |nto |n h|s
name a||eges that the agent was never appo|nted or that such agent
acted beyond the scope of h|s author|ty. 1he |ssues re|at|ng to the
extent of the power and author|ty of the agent, and the nature of the
ev|dence requ|red to prove the same, shou|d ar|se on|y when the
purported pr|nc|pa| den|es be|ng bound by the contracts entered |nto
by the agent w|th th|rd part|es. Indeed, even |f |n fact the agent acted
w|thout or |n excess of author|ty, or there |s no reasonab|e to prove the
extent of h|s power and author|ty, |f the pr|nc|pa| accepts or rat|f|es the
contract, then there |s no |ssue to be reso|ved. Lvery unenforceab|e
contract |s
YZ
RS'./ pp.

28
46 h||. 608
( )

sub[ect to rat|f|cat|on, wh|ch c|eanses |t of a|| defects as though |t was
perfected w|thout f|aws.
We beg|n d|scuss|on on th|s sect|on by quot|ng from a port|on of
the dec|s|on |n :"(.,."( T3 @8\r where the Court he|d
1he bas|s for agency |s representat|on. nere, there |s no
show|ng that 8r|g|da consented to the acts of Deganos or
author|zed h|m to act on her beha|f, much |ess w|th respect
to the part|cu|ar transact|ons | nvo| ved . . .
pet|t|oners to entrust to Deganos, not once or tw|ce but on
at |east s|x occas|ons as ev|denced by s|x rece|pts, severa|
p|eces of [ewe|ry of substant|a| va|ue b'*5"8* (7g8'('-+ ,
b('**7- ,8*5"('\,*'"- &("$ 5') ,RR7+7. 6('-P'6,R3 B 67()"-
.7,R'-+ b'*5 ,- ,+7-* ') 68* 86"- '-g8'(% ,-. $8)* .')P"T7(
86"- 5') 67('R *57 ,8*5"('*% "& *57 ,+7-*3O
Y
]
:"(.,."( re|terates a pr|nc|p|e |n Agency Law, that every person
dea||ng w|th an agent |s duty bound to determ|ne the extent of such
agent's author|ty. In other words, a th|rd party |s bound to exerc|se due
d|||gence |n determ|n|ng the extent of author|ty of the agent to b|nd h|s
pr|nc|pa|. A th|rd party who does not exerc|se that mod|cum of d|||gence
|s deemed not to be dea||ng |n good fa|th and he cannot enforce the
contract aga|nst the pr|nc|pa| who has g|ven no such author|ty to the
agent. 1he f|rst except|on to th|s ru|e of course, as d|scussed prev|ous|y,
|s that every agent |s deemed granted w|th author|ty to b|nd the
pr|nc|pa| for acts of adm|n|strat|on.
In add|t|on, :"(.,."( puts forth the m|n|mum requ|rement on
how such th|rd party sha|| be deemed to have acted w|th due d|||gence:
he must demand a wr|tten author|ty com|ng from the pr|nc|pa|,
otherw|se, |t wou|d be "gross|y and |nexcusab|y neg||gent" for such
th|rd party to enter |nto a contract w|th such agent "w|thout a wr|tten
author|zat|on from h|s a||eged pr|nc|pa|."
"283 SCkA 374 (1997).
Ye
RS'./ at p. 382, '*,R'P)
R' .

1hat a power of attorney be |n wr|t|ng seems to be more cr|t|ca| to
the const|tut|on of a spec|a| power of attorney, than to a genera| power
of attorney. In both types of agenc|es, because of the absence of a
wr|tten ev|dence, the burden of proof to show that there was |ndeed a
contract of agency and the extent of the power and author|ty of the
agent |s on the part of the person who purports to act for and |n beha|f
of a pr|nc|pa|, and even then th|rd part|es are d|rected to ensure the
nature and extent of the agent's power.
When what was const|tuted was a genera| power of attorney, |t
covers mere|y acts of adm|n|strat|on, and therefore th|rd part|es wou|d
be |ess wary that the contract or transact|on they entered |nto |s not
w|th|n the powers of the agent, espec|a||y when |t |s one wh|ch |s |n the
ord|nary course of bus|ness. Cn the other hand, when what was
const|tuted was an ora| spec|a| power of attorney, then |ack|ng the
wr|tten ev|dence of what part|cu|ar power of ownersh|p has been
granted to the agent, the th|rd party may on|y reasonab|y presume that
the agent |s granted powers of adm|n|strat|on.
Art|c|e 1878 of the New C|v|| Code prov|des that a spec|a| power of
attorney |s necessary to confer power |n the agency that wou|d
const|tute acts of ownersh|p, |dea||y the agency contract must be |n
wr|t|ng. When therefore a spec|a| power of attorney, or the conferment
of powers to the agent to execute acts of str|ct ownersh|p on beha|f of
the pr|nc|pa|, |s done ora||y, the agency re|at|onsh|p may be va||d as
between the pr|nc|pa| and agent, but that th|rd part|es who dea| w|th
h|m must requ|re wr|tten ev|dence of h|s power to execute acts of str|ct
ownersh|p, otherw|se, they are bound to enter |nto the contract at the|r
own r|sk.
In >"$7 F-)8(,-P7 <"3 T3 E-'*7. ;*,*7) @'-7) Co.,
29
the Court he|d
that Art|c|e 1878 does not state that the spec|a| power of attorney be |n
wr|t|ng, be that as |t may, the same must be du|y estab||shed by
ev|dence other than the se|f-serv|ng assert|on of the party c|a|m|ng that
such author|ty was verba||y g|ven h|m.
M
21 SCkA 863 (1967).

93
In >"$7 F-)8(,-P7 <"3/ |n sp|te of counse|'s assurance that he had verba|
author|ty to enter |nto comprom|se for purpose of pre-tr|a| proceed|ngs,
the ku|es of Court requ|re for attorneys to comprom|se the ||t|gat|on of
the|r c||ents a "spec|a| author|ty" (then Sect|on 23, ku|e 138, ku|es of
Court):
And wh||e the same does not state that the spec|a|
author|ty must be |n wr|t|ng, the court has every reason to
expect that, |f not |n wr|t|ng, the same be du|y estab||shed by
ev|dence other than the se|f-serv|ng assert|on of counse|
h|mse|f that such author|ty was verba||y g|ven h| m. . . . Ior
author|ty to comprom|se cannot ||ght|y be presumed. And |f,
w|th good reason, the [udge |s not sat|sf|ed that sa|d
author|ty ex|sts, as |n th|s case, d|sm|ssa| of the su|t for
non-appearance of p|a|nt|ff |n pre-tr|a| |s sanct|oned by the
ku|es.
30

In 27R")" T3 <"8(* "& B667,R)/
[
^ the Court ru|ed that a|though |n
:,((7**" T3 !8,)"-/
[Y
|t was he|d that there |s no requ|rement that the
power of attorney to be va||d and b|nd|ng must be notar|zed or |n a
pub||c |nstrument, nonethe|ess, a notar|zed power of attorney carr|es
the ev|dent|ary we|ght conferred upon |t w|th respect to |ts due
execut|on.
1herefore, outs|de of Art|c|e 1874 wh|ch renders the sa|e of a p|ece
of |and vo|d |f the power of attorney |s not |n wr|t|ng, every contract
entered |nto by the agent on beha|f of the pr|nc|pa| cover|ng acts of
ownersh|p made pursuant to a verba| spec|a| power of attorney wou|d
not be vo|d, but rather unenforceab|e, for the pr|nc|pa| has every
author|ty to pursue the resu|t|ng contract, and the th|rd-party wou|d be
estopped from refus|ng to comp|y w|th a contract he w||||ng|y entered
|nto absent the wr|tten author|ty of the agent.
$'./ at p. 866.
31
260 SCkA S93

M
S9 h||. 84S
( )

94
In @'-,- T3 K8-"the Court |a|d down the genera| ru|es on
construct|on or |nterpretat|on of wr|tten contracts of agency, thus
Contracts of agency as we|| as genera| powers of
attorney must be |nterpreted |n accordance w|th the
|anguage used by the part|es. 1he rea| |ntent|on of the part|es
|s pr|mar||y to be determ|ned from the |anguage used. 1he
|ntent|on |s to be gathered from the who|e |nstrument. In
case of doubt resort must be had to the s|tuat|on,
surround|ngs and re|at|ons of the part|es. Whenever |t |s
poss|b|e, effect |s to be g|ven to every word and c|ause used
by the part|es. It |s to be presumed that the part|es sa|d what
they |ntended to say and that they used each word or c|ause
w|th some purpose and that purpose |s, |f poss|b|e, to be
ascerta|ned and enforced. 1he |ntent|on of the part|es must
be susta|ned rather than defeated. If the contract be open to
two construct|ons, one of wh|ch wou|d upho|d wh||e the
other wou|d overthrow |t, the former |s to be chosen. So, |f
by one construct|on the contract wou|d be |||ega|, and by
another equa||y perm|ss|b|e construct|on |t wou|d be |awfu|,
the |atter must be adopted. 1he acts of the part|es |n carry|ng
out the contract w||| be presumed to be done |n good fa|th.
1he acts of the part|es w||| be presumed to have been done
|n conform|ty w|th and not contrary to the |ntent of the
contract. 1he mean|ng of genera| words must be construed
w|th reference to the spec|f|c ob[ect to be accomp||shed and
||m|ted by the rec|ta|s made |n reference to such ob[ect.
34

In @'-,-/ the Court he|d that the wr|tten power of attorney
whereby the agent was appo|nted so that O57 $,% ,.$'-')*7( *57
'-*7(7)* I possess w|th|n th|s mun|c|pa||ty of 1ar|ac, 68(P5,)7/ )7RR/
P"RR7P* ,-. 6,%/ as we|| as sue and be sued before any author|ty, appear
before the courts of [ust|ce and adm|n|strat|ve off|cers |n any
proceed|ngs or bus|ness concern|ng the good adm|n|strat|on and
advancement my |nterest, and may, |n necessary cases, appo|nt
attorneys at |aw or attorneys |n fact to
"31 h||. 2S9
( )
OFS'./ at pp.

represent h|m,"
3S
was deemed to have author|zed the agent to va||d|y
se|| a p|ece of |and s|tuated |n the p|ace des|gnated by the pr|nc|pa|,
ho|d|ng that
. . . 1he words "adm|n|ster, purchase, se||," etc. seem to
be used coord|nate|y. Lach has equa| force w|th the other.
1here seems to be no good reason for say|ng that uno had
author|ty to adm|n|ster and not to se|| when "to se||" was an
advantageous to the p|a|nt|ff |n the adm|n|strat|on of h|s
affa|rs as "to adm|n|ster." 1o ho|d that the power was "to
adm|n|ster" on|y when the power "to se||" was equa||y
conferred wou|d be to g|ve effect to a port|on of the contract
on|y. 1hat wou|d g|ve to spec|a| powers of the contract a
spec|a| and ||m|ted mean|ng to the exc|us|on of other genera|
words of equa| |mport.
36

1he |esson |earned from @'-,- |s that |n a power of attorney where
the |ntent|on of the pr|nc|pa| |s on|y to confer powers of adm|n|strat|on,
|t wou|d be dangerous to use words that have a|ways been assoc|ated
w|th powers of str|ct dom|n|on, such as "to se||," "to purchase," "to
borrow," "to mortgage," 7*P3
Subsequent to the @'-,- dec|s|on, the ru|es of construct|on or
|nterpretat|on of contracts of agency have taken a str|cter route. 1oday,
the ru|e |s that whether what |s granted |s an author|ty to mere|y
adm|n|ster (genera| power of attorney), or to do an act of str|ct
ownersh|p (spec|a| power of attorney), |s not determ|ned from the t|t|e
g|ven to the |nstrument, but on the nature of the power g|ven under the
operat|ve prov|s|ons of such |nstrument. When what |s granted to the
agent |s ent|t|ed a "genera| power of attorney" or a "spec|a| power of
attorney," the ru|e of str|ct construct|on st||| preva||s, thus:
?R,+87( T3 K8(8++,-,-/ J(3
[N
Lven when a spec|a|
power of attorney |s granted by the pr|nc|pa| to h|s
agent, |t |s st||| the genera| ru|e that a power of
mFS'./ at p. 260, 7$65,)')
R' .
m|d, at p. 263.
37
S1S SCkA 460 (2007).

attorney must be str|ct|y construed, the |nstrument w|||
be he|d to grant on|y those powers that are spec|f|ed,
and the agent may ne|ther go beyond nor dev|ate from
the power of attorney.
I"".P5'R. >"R.'-+)/ F-P3 T3 G"W,) DR7P*('P Q
<"-)*(8P*'"- <"3/ F-P3k
[
] owers of attorney are
genera||y construed str|ct|y and courts w||| not |nfer or
presume broad powers from deeds wh|ch do not
suff|c|ent|y |nc|ude property or sub[ect under wh|ch the
agent |s to dea|. 1he act done must be |ega||y |dent|ca|
w|th that author|zed to be done.
@'*"-X8, T3 L7(-,-.7\P'*'-+ A8 D-+ <5" T3 K,- B$7('P,-
I"(R. B'(b,%)/ F-P3 k
ac
1he dec|arat|on of the agent
a|one |s genera||y |nsuff|c|ent to estab||sh the fact or
extent of her author|ty. 1he sett|ed ru|e |s that persons
dea||ng w|th an assumed agent are bound at the|r per||,
and |f they wou|d ho|d the pr|nc|pa| ||ab|e to ascerta|n
not on|y the fact of agency but a|so the nature and
extent of author|ty, and |n case e|ther |s controverted,
the burden of proof |s upon them to prove |t.
In K'-7., T3 <"8(* "& B667,R)]
`
where the benef|c|ar|es |n a group
|nsurance had executed a 6("V&"($, "Spec|a| ower of Attorney" |n
favor of Capt. Nuva| g|v|ng h|m the power "1o fo||ow- up, ask, demand,
co||ect and rece|pt for my benef|t |ndemn|t|es or sum of money due me
re|at|ve to the s|nk|ng of M.V. NLMCS, |n the v|c|n|ty of L| Iad|da,
Casab|ance, Morrocco on the even|ng of Iebruary 17,1986," |t was he|d
not suff|c|ent to have granted the agent the power to co||ect from the
|nsurance company the proceeds com|ng from the group |nsurance
taken out by the emp|oyer. 1he Court he|d the |nsurance company
gross|y neg||gent for hav|ng pa|d the proceeds of the group |nsurance
M
436 SCkA 23S
(200 )
39
427 SCkA 478
]h[Yj SCkA 717

41
226 SCkA 7S4
( )

Lo CapL. nuval, especlally when Lhe commerclal pracLlce for group
lnsurance, and Lhe Lerms of Lhe lnsurance pollcy, ls Lo Lhe effecL LhaL lL ls
Lhe employer who ls deemed Lhe agenL for Lhe beneflclarles, Lhus -
We agree w|th the Insurance Comm|ss|on that the
spec|a| powers of attorney "do not conta|n unequ|voca| and
c|ear terms author|ty to Capt. Nuva| to obta|n, rece|ve,
rece|pt from respondent company |nsurance proceeds
ar|s|ng from the death of the seaman-|nsured. Cn the
contrary, the sa|d powers of attorney are couched |n terms
wh|ch cou|d eas||y arouse susp|c|on of an ord|nary man." x x
x.
42

Certa|n|y, |t wou|d be h|gh|y |mprudent to read |nto the
spec|a| powers of attorney |n quest|on the power to co||ect
and rece|ve the |nsurance proceeds due to the pet|t|oners
from Group o||cy No. G-004694. Insu|ar L|fe knew that a
power of attorney |n favor of Capt. Nuva| for the co||ect|on
and rece|pt of such proceeds was a dev|at|on from |ts
pract|ce w|th respect to group po||c|es.. .
n43

1he Court he|d |n K'-7., that the |nstruments were denom|nated
as "Spec|a| ower of Attorney," and consequent|y "1he execut|on by the
pr|nc|pa|s of )67P',R 6"b7() "& ,**"(-7%/ wh|ch c|ear|y appeared to be |n
prepared forms and on|y had to be f|||ed up w|th the|r names,
res|dences, dates of execut|on, dates of acknow|edgment and others,
exc|udes any |ntent to grant a genera| power of attorney or to const|tute
a un|versa| agency. 8e|ng spec|a| powers of attorney, they must be
str|ct|y construed."
44

Cn|y recent|y, |n I77 T3 47 <,)*("/]
Z
the Court def|ned a "power of
attorney" to essent|a||y be an "|nstrument"
A power of attorney ') ,- '-)*(8$7-* '- b('*'-+ by wh|ch
one person, as pr|nc|pa|, appo|nts another as h|s
aY
FS'./ at p. 762.
OFS'./ at p. 763.
OFS'./ at pp.

4S
S62 SCkA 69S
( )

agent and confers upon h|m the author|ty to perform certa|n
spec|f|ed acts or k|nds of acts on beha|f of the pr|nc|pa|. 1he
wr|tten author|zat|on |tse|f |s the power of attorney, and th|s
|s c|ear|y |nd|cated by the fact that |t has a|so been ca||ed a
"|etter of attorney."
46

4. Spec|a| owers of Attorney
Ak1. 1878. Spec|a| powers of attorney are necessary |n the
fo||ow|ng cases:
(1) 1o make such payments as are not usua||y
cons|dered as acts of adm|n|strat|on,
(2) 1o effect novat|ons wh|ch put an end to ob||gat|ons
a|ready |n ex|stence at the t|me the agency was const|tuted,
(3) 1o comprom|se, to subm|t quest|ons to arb|trat|ons,
to renounce the r|ght to appea| from a [udgment, to wa|ve
ob[ect|ons to the venue of an act|on or to abandon a
prescr|pt|on a|ready acqu|red,
(4) 1o wa|ve any ob||gat|on gratu|tous|y,
(5) 1o enter |nto any contract by wh|ch the ownersh|p of
an |mmovab|e |s transm|tted or acqu|red e|ther gratu|tous|y or
for a va|uab|e cons|derat|on,
(6) 1o make g|fts, except customary ones for char|ty or
those made to emp|oyees |n the bus|ness managed by the
agent,
(7) 1o |oan or borrow money, un|ess the |atter act be
urgent and |nd|spensab|e for the preservat|on of the th|ngs
wh|ch are to under adm|n|strat|on,
(8) 1o |ease any rea| property to another person for more
than one year,
ae
FS'., at p. 712, 7$65,)') )866R'7.3

(9) 1o b|nd the pr|nc|pa| to render some serv|ce
w|thout compensat|on,
(10) 1o b|nd the pr|nc|pa| |n a contract of
partnersh|p,
(11) 1o ob||gate the pr|nc|pa| as guarantor or
surety,
(12) 1o create or convey rea| r|ghts over |mmo-
vab|e property,
(13) 1o accept or repud|ate an |nher|tance,
(14) 1o rat|fy or recogn|ze ob||gat|ons con-
tracted before the agency,
(15) Any other act of str|ct dom|n|on, (n)
Ak1. 1879. A spec|a| power to se|| exc|udes
the power to mortgage, and a spec|a| power to
mortgage does not |nc|ude the power to se||, (n)
Ak1. 1880. A spec|a| power to comprom|se does
not author|ze subm|ss|on to arb|trat|on. (1713a)
Art|c|e 1878 of the New C|v|| Code enumerates fourteen |nstances
wh|ch are descr|bed as "acts of str|ct dom|n|on," and wh|ch cannot be
deemed to be w|th|n the scope of author|ty of the agent un|ess express|y
granted (wh|ch then |s referred to as a "spec|a| power of attorney"). 1he
f|fteenth case enumerated |n Art|c|e 1878 actua||y covers the genera|
ru|e: B .8R% ,66"'-*7. ,+7-* 5,) -" 6"b7( *" 7W7(P')7 "- S75,R& "& *57
6('-P'6,R ,-% ,P* "& )*('P* ."$'-'"- 8-R7)) '* ') 8-.7( , )67P',R 6"b7( "&
,**"(-7%3
a. What Makes an Agency a "Spec|a| ower of
Attorney?"
It |s not the name or t|t|e g|ven |n the deed |ssued by the pr|nc|pa|
that determ|nes whether the agent can exerc|se acts of str|ct dom|n|on
for and |n beha|f of the pr|nc|pa|. An agent has spec|a| power of attorney
on|y when the act or contract enumerated spec|f|ca||y under Art|c|e 1878
has been ||tera||y

"named" |n the grant of comm|ss|on by the pr|nc|pa|, '373/ the term of
the power ("se||," "mortgage," etc.) must ||terar||y be wr|tten or
expressed for the comm|ss|on to const|tute a spec|a| power of attorney.
In ?(S7*, T3 ;7-.'"-+]
N
the Court, even as |t def|ned a "spec|a|
power of attorney [as]... a c|ear mandate spec|f|ca||y author|z|ng the
performance of a spec|f|c power and of express acts subsumed there|n,"
re|terated the we||-estab||shed pr|nc|p|e that even a document
capt|oned as"C7-7(,R K"b7( "& B**"(-7%O cannot m|||tate aga|nst |ts
be|ng construed to grant spec|f|c powers to the agent, "a genera| power
of attorney may |nc|ude a spec|a| power |f such spec|a| power |s
ment|oned or referred to |n the genera| power."
48

b. Must Spec|a| owers of Attorney 8e |n Wr|t|ng?
p87-\R7 ,-. ;*(7'&&T3 <"RR7P*"( "& <8)*"$)/O he|d that when no
part|cu|ar forma||ty |s requ|red by |aw, ru|es or regu|at|on, then the
pr|nc|pa| may appo|nt h|s agent |n any form wh|ch m|ght su|t h|s
conven|ence or that of the agent, |n th|s case a |etter addressed to the
agent request|ng h|m to f||e a protest |n beha|f of the pr|nc|pa| w|th the
Co||ector of Customs aga|nst the appra|sement of the merchand|se
|mported |nto the country by the pr|nc|pa|. nowever, such doctr|ne
perta|ns on|y to the const|tut|on of an agency re|at|onsh|p or the forma|
des|gnat|on of the pr|nc|pa| of the agent. 1he power or author|ty of the
agent |s deemed to be on|y to cover "acts of adm|n|strat|on" un|ess
there be spec|f|c grant|ng of acts of ownersh|p. And |t seems therefore,
that the c|earest manner by wh|ch there |s spec|f|c grant of power of
str|ct ownersh|p |s that |t be |n wr|t|ng, otherw|se, the presumpt|on
under Art|c|e 1877 of the C|v|| Code must preva||: that the agent can on|y
pursue acts of adm|n|strat|on.
47
463 SCkA 180 (200S).
]]RS'./ at p. 200, c|t|ng AkAS, V CIVIL CCDL CI 1nL nILIINLS ANNC1A1LD
(I|fth ed., 1990), at p. 67S.
49
31 h||. 646 (191S).

c. Spec|f|c Instances Where the Law kequ|res a Spec|a| ower of
Attorney
=`H !" 0,17 K,%$7-*) ,) B(7 9"* E)8,RR% <"-)'.7(7. ,) BP*)
"& B.$'-')*(,*'"-
ayments made |n the ord|nary course of bus|ness const|tute acts
of adm|n|strat|on, s|nce they go |nto mere acts of management, and they
are expected to occur on a day-to-day bas|s. Under Art|c|e 1877, an
agency couched |n genera| terms compr|ses acts of adm|n|strat|on wh|ch
wou|d |nc|ude "genera| and un||m|ted management."
A|| other forms of payment for and |n beha|f of the pr|nc|pa| wh|ch
are not w|th|n the ord|nary course of bus|ness, wou|d const|tute acts of
str|ct dom|n|on, wh|ch are not deemed w|th|n the power of even a du|y
appo|nted agent, un|ess granted spec|a||y or under a spec|a| power of
attorney.
In 4"$'-'"- F-)8(,-P7 T3 <"8(* "& B667,R)a|though a deed |ssued
by the |nsurance company to |ts area manager was denom|nated as a
"Spec|a| ower of Attorney," |ts word|ngs showed that |t sought on|y to
estab||sh an agency that compr|ses a|| the bus|ness of the pr|nc|pa| w|th
the des|gnated |oca||ty, but couched |n genera| terms, and consequent|y
was ||m|ted on|y to acts of adm|n|strat|on. 1he Court he|d that a genera|
power perm|ts the agent to do a|| acts for wh|ch the |aw does not
requ|re a spec|a| power. 1hus, the acts enumerated |n or s|m||ar to those
enumerated |n the "Spec|a| ower of Attorney" ='373/ rea||y a genera|
power of attorney) d|d not requ|re a spec|a| power of attorney, and
cou|d on|y cover acts of adm|n|strat|on.
4"$'-'"- F-)8(,-P7 he|d that the payment of |nsurance c|a|ms was
an act of str|ct dom|n|on and cannot be deemed w|th the powers of
adm|n|strat|on of the area. manager, and that s|nce the sett|ement of
c|a|ms was not |nc|uded among the acts enumerated |n the Spec|a|
ower of Attorney |ssued by the |nsurance company, nor |s of a
character s|m||ar to the acts enumerated there|n, then a spec|a| power of
attorney was
we SCkA329 (2002).

requ|red before such area manager cou|d sett|e the |nsurance c|a|ms of
the |nsured. Consequent|y, the amounts pa|d by the area manager to
sett|e such c|a|ms were not a||owed to be re|mbursed from the pr|nc|pa|
|nsurance company.
(2) !" D&&7P* 9"T,*'"- I5'P5 K8* ,- D-. *"
?SR'+,*'"-) BR(7,.% '- DW')*7-P7 ,* *57 !'$7 *57
B+7-P% I,) <"-)*'*8*7.
1he power of an agent to novate ob||gat|ons "a|ready |n ex|stence
at the t|me the agency was const|tuted," wh|ch must be covered by a
spec|a| power of attorney, wou|d |mp|y that |f the ob||gat|on was
created on|y dur|ng the agency re|at|onsh|p, the power to create such
ob||gat|on granted to the agent |nc|udes w|th |t the |mp||ed power to
novate |t.
I5,* 5,667-) '& *57 ,+7-* ') PR7,(R% 7$6"b7(7. 8-.7( , )67P',R
6"b7( "& ,**"(-7% *" '-P8( ,- "SR'+,*'"- '- S75,R& "& *57 6('-P'6,R/ ,-.
'- *57 6("P7)) "& ."'-+ )"/ *57 ,+7-* -"T,*7) ,- 6(7V7W')*'-+ "SR'+,*'"-r
In 2'RR, T3 C,(P', :")g87] |t was he|d that where the terms of power
granted to the subst|tuted attorney-|n-fact was to the end that the
pr|nc|pa|-se||er may be ab|e to co||ect the ba|ance of the se|||ng pr|ce of
the pr|nt|ng estab||shment so|d, such subst|tute agent had no power to
enter |nto new sa|es arrangements w|th the buyer, or to novate the
terms of the or|g|na| sa|e.
(3) ;67P',R K"b7( "& B**"(-7% I'*5 G7)67P* *"
K('-P'6,R^) <,8)7) "& BP*'"-
Art|c|e 1878(2) of the C|v|| Code spec|f|ca||y refers to the fo||ow|ng
matters re|ated to ||t|gat|on wh|ch cannot be entered |nto or exerc|sed
by the agent |n th| name of the pr|nc|pa| un|ess covered by a spec|a|
power of attorney, thus:
!" <"$6("$')7
!" ;8S$'* U87)*'"-) *" B(S'*(,*'"-
S1
49 h||. 126 (1926).

!" G7-"8-P7 *57 G'+5* *" B667,R &("$ ,
J8.+$7-*
!" I,'T7 ?SX7P*'"-) *" *57 27-87 "& ,- BP*'"-
!" BS,-."- , K(7)P('6*'"- BR(7,.% BPg8'(7.
Under Art|c|e 2028 of the C|v|| Code, OP"$6("$')7O |s a contract
whereby the part|es, by mak|ng rec|proca| concess|ons, avo|d a ||t|gat|on
or put an end to one a|ready commenced.
In BP7-7( T3 ;')"-the Supreme Court he|d that confess|on of
[udgment stands on the same foot|ng as a comprom|se, and may not be
entered |nto by counse| except w|th the know|edge and consent of the
c||ent, or upon h|s spec|a| empowerment.
Sect|on 3(d) of the A|ternat|ve D|spute keso|ut|on Act of 2004 (k.A.
No. 928S) def|nes ",(S'*(,*'"-" as "a vo|untary d|spute reso|ut|on
process |n wh|ch one or more arb|trators, appo|nted |n accordance w|th
the agreement of the part|es, or ru|es promu|gated pursuant to th|s Act,
reso|ve a d|spute by render|ng an award."
Under Art|c|e 1880 of the C|v|| Code, the power to comprom|se
exc|udes the power to subm|t to arb|trat|on. It wou|d a|so be reasonab|e
to conc|ude that the power to subm|t to arb|trat|on does not carry w|th
|t the power to comprom|se.
I'*5 )8P5 )67P',R 7WPR8)'"- (8R7 8-.7( B(*'PR7 `jjc ,) *" *57
6"b7() *" P"$6("$')7 ,-. ,(S'*(,*7/ b"8R. *5,* $7,- ,RR "*57( 6"b7()
P"T7(7. 8-.7( *57 6,(,+(,65 -8$S7(7. [ "& B(*'PR7 `jej ,(7 -"*
$8*8,RR% 7WPR8)'T7r In order words, the grant of the spec|a| power to
comprom|se wou|d mean that the |mp||ed power of the agent to
renounce the r|ght to appea| from a [udgment of a |ower court, |f that be
essent|a| |n arr|v|ng at a comprom|se reso|ut|on before the appe||ate
court. Same th|ng cou|d be sa|d of the spec|a| power to wa|ve ob[ect|ons
to the venue of an act|on,
M
8 SCkA 711 (1963).

or to wa|ve a prescr|pt|on a|ready acqu|red, T')V,VT') the spec|a| power
to comprom|se.
It was sett|ed |n BRT',( T3 <"8(* "& L'()* F-)*,-P7 "& @, E-'"-/
Z[
and
J,P'-*" T3 0"-*7),/
Z
] that a [udgment based on a comprom|se entered
|nto by an attorney w|thout spec|f|c author|ty from the c||ent |s vo|d, and
that such [udgment may be |mpugned and |ts execut|on restra|ned |n
any proceed|ng by the party aga|nst whom |t |s sought to be enforced.
In <")$'P @8$S7( T3 <"8(* "& B667,R)/
ZZ
the Court ru|ed that when
the attorney-|n-fact has been author|zed |n wr|t|ng to |nst|tute any
act|on |n court to e[ect a|| persons found |n a spec|f|ed parce| of |and
"and for th|s purpose, to appear at the pre-tr|a| and enter |nto any
st|pu|at|on of facts and]or comprom|se agreement but on|y |nsofar as
th|s was protect|ve of the r|ghts and |nterests of the pr|nc|pa| |n the
property," the same d|d not const|tute author|ty to enter |nto a
comprom|se agreement that prov|des for the sa|e of the property to the
defendant |n the case thus f||ed. 1he [udgment based on comprom|se
entered |nto by the attorney who has not shown spec|f|c author|ty to do
so was dec|ared vo|d.
Nonethe|ess, ear||er |n 48-+" T3 @"67-,the Court character|zed a
comprom|se entered |nto by the |awyer w|thout the spec|a| power of
attorney of c||ent not to be vo|d but mere|y unenforceab|e.
In the ear|y dec|s|on |n G"S'-)"- LR7$'-+ T3 <(8\d
S7
the Court ru|ed
that when an agent has been empowered to se|| hemp |n a fore|gn
country, that express power carr|es w|th |t the |mp||ed power to make
and enter |nto the usua| and customary contract for |ts sa|e, wh|ch sa|e
contract may prov|de for sett|ement of |ssues by arb|trat|on. Under the
present prov|s|ons of Art|c|e 1878 of the C|v|| Code, the power to enter
|nto arb|trat|on cannot be
S3
64 h||. 301
( 93 )
M
19 SCkAS13
SCkA168

S6
6 SCkA1007

S7
49 h||. 42
( 926)

(b) In a|| other |mmovab|es, other than |and or any |nterest
there|n, the fact that the spec|a| power of attorney to
se|| or to purchase |s not |n wr|t|ng, wou|d not render
the contract of sa|e or contract of purchase (depend|ng
on how one |ooks at |t) to be vo|d, but mere|y
unenforceab|e.
et, |t G".('+87\ T3 <"8(* "& B667,R)/o the Supreme Court he|d
that "Ne|ther. . . Art|c|es 1874 and 1878(S) and 12 of the C|v|| Code
re|evant, for they refer to sa|es made by an agent for a pr|nc|pa| and not
the sa|es made by the owner persona||y to another, b57*57( *5,* "*57(
s'373/ the buyer] be act|ng persona||y or through a representat|ve."
60
1he
|mp||cat|on of the G".('+87\ ru||ng |s to ||m|t the coverage of Art|c|e
1878(S) on|y to agency to se|| or d|spose of |mmovab|es, whereas the
|anguage of Art|c|e 1878(S) covers both a spec|a| power to attorney
refers to both "transm|t or acqu|re" ownersh|p of |mmovab|es.
Art|c|e 1878(S) prov|des for the "genera| ru|e" of spec|a| power of
attorney when |t comes to |mmovab|e property, and genera||y renders
the resu|t|ng contracts mere|y unenforceab|e, and not vo|d. When |t
comes to a part|cu|ar type of |mmovab|e property, -,$7R% R,-. "( ,-%
'-*7(7)* *57(7'-/ Art|c|e 1874 app||es spec|f|ca||y: not on|y must the
power be granted under a spec|a| power of attorney ='373/ express|y
g|ven), |t must be |n wr|t|ng, otherw|se, the resu|t|ng contract of sa|e |s
vo|d, not mere|y unenforceab|e. Cbv|ous|y, |n the purchase of a p|ece of
|and or any |nterest there|n through an agent, Art|c|e 1874 does not
app|y, and wou|d be covered by Art|c|e 1878. L|kew|se, donat|ons of
|mmovab|es through an agent are covered ent|re|y under paragraph S of
Art|c|e 1878.
Much ear||er, |n J'$7-7\ T3 G,S"*,
61
the Court he|d that a power of
attorney to convey rea| property need not be |n a pub||c document, |t
need on|y be |n wr|t|ng, s|nce a pr|vate document |s
M
2

61
38 h||. 378
( )

108
competent to create, transm|t, mod|fy, or ext|ngu|sh a r|ght |n rea|
property.
J'$7-7\ was qu|te |nstruct|ve of the |ega| requ|rements when |t
came to a spec|a| power of attorney to se|| |and under the aeg|s of the
o|d C|v|| Code. At that t|me, "Art|c|e 1713 of the [o|d] C|v|| Code
requ|re[d] that the author|ty to a||enate |and sha|| be conta|ned |n an
express mandate" and not necessar||y |n wr|t|ng, "wh||e [then]
subsect|on S of Sect|on 33S of the [o|d] Code of C|v|| rocedure says that
the author|ty of the agent must be |n wr|t|ng and subscr|bed by the
party to be charged."
62
So |t was then ru|ed |n J'$7-7\ that the express
author|ty to se|| |and conta|ned |n a |etter of the pr|nc|pa| to the agent
was suff|c|ent author|ty to va||d|y effect the sa|e of the |and |n quest|on.
1h|s was the same conc|us|on drawn by the Court under the
app||cab|e prov|s|on of the o|d C|v|| Code |n |ts dec|s|on |n G'" %
?R,SS,(('7*, T3 A8*7Pwhere |t he|d that an agreement for the |eas|ng for
a |onger per|od than one year, or for the sa|e of rea| property, or of an
|nterest there|n, and such agreement, |f made by the agent of the party
sought to be charged, |s |nva||d un|ess the author|ty of the agent be |n
wr|t|ng and subscr|bed by the party sought to be charged. G'" %
?R,SS,(('7*, quoted Sect|on 33S of the Code of C|v|| rocedure to read
as fo||ows:
OB+(77$7-*) F-T,R'. E-R7)) 0,.7 '- I('*'-+3 In the
fo||ow|ng cases an agreement hereafter made sha|| be
unenforceab|e by act|on un|ess the same, or some note or
memorandum thereof, be |n wr|t|ng, and subscr|bed by the
party charged, or by h|s agent, ev|dence, therefore, of the
agreement cannot be rece|ved w|thout the wr|t|ng or
secondary ev|dence of |ts contents:
"S. An agreement for the |eas|ng for a |onger per|od than
one year, or for the sa|e of rea| property, or of an |nterest
there|n, and such agreement, |f made by the agent of the
party sought to be charged, |s |nva||d un|ess the author|ty of
eY
RS'./ at p.

"49 h||. 276
( )

the agent be |n wr|t|ng and subscr|bed by the party sought
to be charged."
64

Under the New C|v|| Code, when |t comes to the sa|e of
|mmovab|es (other than |and), the prov|s|ons of Art|c|e 1878(S) mere|y
prov|des that a spec|a| power of attorney ='373/ an express power) must
cover the power "1o enter |nto any contract by wh|ch the ownersh|p of
an |mmovab|e |s transm|tted or acqu|red e|ther gratu|tous|y or for a
va|uab|e cons|derat|on." Wh||e the o|d Code of C|v|| rocedure prov|s|on
requ|r|ng that the author|ty of the agent to se|| |mmovab|es no |onger
app||es, and on|y the sa|e of |and or |nterest there|n |s requ|red to be |n
wr|t|ng under Art|c|e 1874 of the C|v|| Code, then |t may be conc|uded
that the sa|e of |mmovab|es other than |and need on|y be express, rather
than |n wr|t|ng, |n order to be va||d.
In K'-7., T3 <"8(* "& B667,R)/
ee
|t was he|d that when a house and
|ot was so|d by an agent who had no author|ty from the reg|stered
owner to do so, the resu|t|ng sa|e was dec|ared T"'.3 1he pr|nc|p|e has
been re|terated |n G,7* T3 <"8(* "& B667,R)/
ee
<'*%V@'*7 G7,R*% <"(63 T3
<"8(* "& B667,R)/
eN
and @'*"-X8, T3 L7(-,-.7\t
(|) 4"7) *57 C(,-* "& *57 ;67P',R K"b7( *" ;7RR F-PR8.7 *57
K"b7( *" 0"(*+,+7/ ,-. 2'P7 27(),r
Cbv|ous|y, the answer to th|s quest|on |s |n the negat|ve, s|nce
under Art|c|e 1879, "A spec|a| power to se|| exc|udes the power to
mortgage, and a spec|a| power to mortgage does not |nc|ude the power
to se||."
It shou|d be noted however that |n :'P" ;,T'-+) Q @",- B))-3 T3
<"8(* "& Appea|s,
69
the Court he|d that the sa|e proscr|bed
OFS'./ at p. 281.
6S
376 SCkA 222

66
29S SCkA 677

C1
32S SCkA 38S

6f|
427 SCkA 478
"171 SCkA630
( 989)

under Art|c|e 1879 refers to a vo|untary sa|e effected through the
agent, |t does not cover the pub||c sa|e that happens as part of
the forec|osure on the mortgage du|y const|tuted.
=ZVBH ;,R7 "& , K'7P7 "& @,-. !5("8+5 ,- B+7-*
Ak1. 1874. When a sa|e of a p|ece of |and or any |nterest
there|n |s through an agent, the author|ty of the |atter sha|| be
|n wr|t|ng, otherw|se, the sa|e sha|| be vo|d, (n)
1he d|scuss|ons |mmed|ate|y hereunder are |ntended to focus on
the |ssue of whether a "spec|a| power of attorney" must be |n wr|t|ng for
the [ur|d|ca| acts, transact|ons and contracts entered |nto pursuant to
such power can be cons|dered va||d ='373/ that |s they are vo|d, rather
than unenforceab|e). A|though agency |s a consensua| contract and may
thus be const|tuted by mere meet|ng of m|nds, |t seems that when the
|aw requ|res the agency to be |n the form of a "power of attorney," |t
means that |dea||y (but not necessar||y) '* $8)* S7 '- b('*'-+3 When the
agency |s not |n wr|t|ng, then |t does not necessar||y mean that the
contract of agency |s vo|d, but that fa||ure to comp|y w|th the form
requ|red wou|d have ser|ous |ega| consequences on the [ur|d|ca| acts
pursued under such ora| agency.
='H 4"7) B(*'PR7 `jNa <"T7( B+7-P% *" K8(P5,)7 @,-. "( B-%
F-*7(7)* !57(7'-r
1he answer |s |n the negat|ve. In G".('+87\ T3 <"8(* "& B667,R)/
Nc

the Court he|d "Ne|ther .. .Art|c|es 1874 and 1878(S) and 12 of the C|v||
Code re|evant, for they refer to sa|es made by an agent for a pr|nc|pa|
and not the sa|es made by the owner persona||y to another, whether
*5,* "*57( s'373/ the buyer] be act|ng persona||y or through a
representat|ve."
71

70
29 SCkA419 (1969).
OFS'./ at p. 433, 7$65,)')
)866R'7.

It seems c|ear therefore that Art|c|e 1874 does not cover an agency
to purchase a p|ece of |and or an |nterest there|n, and that |f the spec|a|
power of the agent who acts for the buyer |s not |n wr|t|ng, the resu|t|ng
sa|e wou|d be va||d.
=''H F) ,- ?(,R <"-*(,P* "& B+7-P% *" ;7RR , K,(P7R "& @,-. 9"*
F*)7R& 2"'.r
1he answer must be |n the negat|ve, for essent|a||y every contract
of agency |s consensua| |n character, even those spec|a| powers of
attorney covered by Art|c|e 1878, wh|ch need on|y be forma||y expressed
or "named" by the pr|nc|p|e for the powers to ar|se, and can never be
presumed from the fact of appo|ntment of the agent, or from the nature
of the bus|ness ass|gned under powers of adm|n|strat|on.
='RRH F) *57 ;,R7 "& , K'7P7 "& @,-. 0,.7 K8()8,-* *" ,- ?(,R
;67P',R K"b7( *" ;7RR G7,RR% 2"'. "( BP*8,RR%
E-7-&"(P7,SR7r
Art|c|e 1874 |tse|f prov|des that "When a sa|e of a p|ece of |and or
any |nterest there|n |s through an agent, the author|ty of the |atter sha||
be |n wr|t|ng, otherw|se, the sa|e sha|| be vo|d."
kecent dec|s|ons of the Supreme Court convey the c|ear
|mp||cat|on that a spec|a| power of attorney requ|red under Art|c|e 1878
|n the conveyance of |mmovab|e property must that wh|ch |s wr|t|ng as
mandated under Art|c|e 1874 for the sa|e of a p|ece of |and.
1h|s was the c|ear |mp||cat|on from the |anguage of the dec|s|on |n
K'-7., T3 <"8(* "& B667,R)/
NY
where |t ru|ed
3 3 3 !57 <'T'R <".7 6("T'.7) *5,* '- , ),R7 "& , 6,(P7R
"& R,-. "( ,-% '-*7(7)* *57(7'- $,.7 *5("8+5 ,- ,+7-*/ ,
)67P',R 6"b7( "& ,**"(-7% ') 7))7-*',R sP'*'-+ B(*'PR7 `jNju3
!5') ,8*5"('*% $8)* S7 '- b('*'-+/ "*57(b')7 *57 ),R7 )5,RR
S7 T"'./ sP'*'-+ B(*'PR7 `jNau In h|s test|mony, pet|t|oner
"376 SCkA 222 (2002).

Adeodato Duque conf|rmed that at the t|me he "purchased"
respondents' property from |neda, the |atter had no Spec|a|
ower of Attorney to se|| the property.
B )67P',R 6"b7( "& ,**"(-7% ') -7P7)),(% *" 7-*7( '-*"
,-% P"-*(,P* S% b5'P5 *57 "b-7()5'6 "& ,- '$$"T,SR7 ')
*(,-)$'**7. "( ,Pg8'(7. &"( , T,R8,SR7 P"-)'.7(,*'"-3
I'*5"8* ,- ,8*5"('*% '- b('*'-+/ pet|t|oner |neda cou|d not
va||d|y se|| the sub[ect property to pet|t|oners Dugue. nence,
any "sa|e" |n favor of pet|t|oners Duque |s vo|d.
73

In D)*,*7 "& @'-" ?R,+87( T3 ?-+X"P",
74
the Court seemed to take |t
for granted that the requ|rement under Art|c|e 1874 that the author|ty
of the agent to se|| a p|ece of |and must be |n wr|t|ng, had the same
requ|rement as that under Art|c|e 1878, thus
. . . Accord|ng to the prov|s|ons of Art|c|e 1874 of the
C|v|| Code on Agency, when the sa|e of a p|ece of |and or any
|nterest there|n |s made through an agent, the author|ty of
the |atter sha|| be |n wr|t|ng. Absent th|s requ|rement, the
sa|e sha|| be vo|d. A|so under Art|c|e 1878, a spec|a| power of
attorney |s necessary |n order for an agent to enter |nto a
contract by wh|ch the ownersh|p of an |mmovab|e property
|s transm|tted or acqu|red, e|ther gratu|tous|y or for a
va|uab|e cons|derat|on.
I7 -"*7 *5,* *57 (7)"R8*'"- "& *5') P,)7/ *57(7&"(7/
5'-+7) "- *57 7W')*7-P7 "& *57 b('**7- 6"b7( "& ,**"(-7%
upon wh|ch respondent Cng[oco bases h|s good fa|th.
7S

1he De Leons have op|ned that the status of such a sa|e effected
through an agent whose spec|a| power of attorney |s not |n wr|t|ng, |s
not rea||y vo|d, but mere|y T"'.,SR7 "s|nce the sa|e can be rat|f|ed by the
pr|nc|pa| (see Arts. 1901, 1910, par. 2) such as by ava|||ng h|mse|f, of the
benef|ts der|ved from the' contract."
76
1he author be||eves that the
more appropr|ate term
-
RS'./ at pp. 228-229, 7$65,)')
R' .
74
S63 SCkA 373 (2008).
N;
RS'./ at pp. 393-394, 7$65,)')

N
]RS'./ at p. 416.

wou|d be "unenforceab|e," s|nce rat|f|cat|on process |s a|so app||cab|e to
unenforceab|e contracts.
Lar||er, |n C8*'7((7\ >7($,-") T3 ?(7-)7/
NN
the Court he|d that
a|though the se||er had not prev|ous|y author|zed a person to se|| h|s
parce| of |and, but when such person subsequent|y approved the act|on
of the purported agent, th|s produced the effect of rat|f|cat|on
convert|ng the re|at|onsh|p |nto an express agency. nowever, *57 (8R'-+
'- C8'*'7((7\ >7($,-") P,--"* S7 (7R'7. 86"- to support the conc|us|on
that a sa|e of a p|ece of |and through an agent w|thout a wr|tten
author|ty wou|d mere|y be unenforceab|e |n sp|te of the c|ear |anguage
of Art|c|e 1874 s|nce the dec|s|on was rendered under the terms of the
o|d C|v|| Code, and Art|c|e 1874 |s an ent|re|y new prov|s|on |n the New
C|v|| Code. L|kew|se, apart from the deed of sa|e effected by the agent |n
C8*'7((7\ >7($,-")/ the reg|stered owner subsequent|y thereto
aff|rmed the sa|e under pub||c documentat|on. 1he procedure |s a|so
poss|b|e under Art|c|e 1874, wh|ch means that |f the agent enters |nto a
sa|e of a p|ece of |and w|thout wr|tten author|ty, |ndeed the sa|e wou|d
be vo|d, but that |f the pr|nc|pa| subsequent|y, enters d|rect|y aga|n w|th
the same buyer |nto a forma| deed of sa|e, then the second transact|ons
wou|d be va||d for |t |s no |onger covered under Art|c|e 1874.
1he Supreme Court's mood on the matter has changed and current
ru|e |s best expressed |n G,7* T3 <"8(* "& B667,R)/
Nc
where the Court he|d
that Art|c|e 1874 of the C|v|| Code requ|res for the va||d|ty of a sa|e
|nvo|v|ng |and that the agent shou|d have an author|zat|on |n wr|t|ng,
otherw|se any sa|e conc|uded on the |and |s vo|d. 1h|s pr|nc|p|e has been
re|terated |n @'*"-X8,/ J(3 T3 D*7(-'* <"(63/
Nl
A,)8$, T3 >7'() "& <7P'R'" ;3
47 2'RR,/
$
and C"\8- T3 07(P,."3
j`

"
2
8

h

114
Nonethe|ess, |n D)P87*, T3 @'$/^] the Court aff|rmed the ru||ng |n
C8*'7((7\ >7($,-")3 D)P87*, |nvo|ved the sa|e |s parce|s of |and effected
by the sub-agent appo|nted by the attorney-|n-fact of the owner, who
c|a|ms that that the sub-agent was not g|ven any spec|a| power of
attorney to se|| the parce|s of |and. 1he Court he|d
Lven assum|ng that [the sub-agent] has no author|ty to
se|| the sub[ect propert|es, the contract she executed |n favor
of the respondents |s not vo|d, but s|mp|y unenforceab|e,
under the second paragraph of Art|c|e 1317 of the C|v|| Code
wh|ch reads... a contract entered |nto |n the name of
another by one who has no author|ty or |ega|
representat|on, or who acted beyond h|s powers, sha|| be
unenforceab|e, un|ess |t |s rat|f|ed, express|y or |mp||ed|y, by
the persons on whose beha|f |t has been executed, before |t
|s revoked by the other contract|ng party.
83

1he Supreme Court's |atest word on the matter |s found |n |ts
recent dec|s|on |n K,58. T3 <"8(* "& B667,R)/
e
] where the |ssue was
ra|sed square|y of the status of a sa|e by one co-he|r of the property
owned 6("V'-.'T')" where the author|ty that was g|ven by the other
co-he|rs was mere|y verba| |n character. In d|rect answer to the |ssue,
and before d|scuss|ng the [ur|sprudence |nvo|ved, the Court d|rect|y
he|d: 1he foca| |ssue to be reso|ved |n the status of the sa|e of the
sub[ect property by Lufem|a and her co-he|rs to the ahuds. I7 &'-. *57
*(,-),P*'"- *" S7 T,R'. ,-. 7-&"(P7,SR7
1he Court noted that Art|c|e 1874 "p|a|n|y prov|des" that when the
sa|e of a p|ece of |and or any |nterest ther|n |s through an agent, the
author|ty of the |atter sha|| be |n wr|t|ng, otherw|se, the sa|e sha|| be
vo|d. In then referred to the s|m||ar prov|s|on conta|ned |n Art|c|e 1878
wh|ch prov|des that a spec|a| power of attorney |s necessary for an
agent to enter |nto a contract by
M
S12 SCkA411 (2007).
a3
]fa]'d, at p. 424.
M
S97 SCkA13 (2009).
mFS'./ at p. 21, 7$65,)')
R' .

wh|ch the ownersh|p of an |mmovab|e property |s transm|tted or
acqu|red, e|ther gratu|tous|y or for a va|uab|e cons|derat|on, and he|d
that "Such str|ngent statutory requ|rements has been exp|a|ned |n
<")$'P @8$S7( <"(6"(,*'"- T3 <"8(* "& B667,R)k 333 '[1]he author|ty of an
agent to execute a contract [of] sa|e of rea| estate must be conferred |n
wr|t|ng and must g|ve h|m spec|f|c author|ty, . . . A spec|a| power of
attorney |s necessary to enter |nto any contract by wh|ch the ownersh|p
of an |mmovab|e |s transm|tted or acqu|red e|ther gratu|tous|y or for a
va|uab|e cons|derat|on. 1he express mandate requ|red by |aw to enab|e
an appo|ntee of an agency (couched) |n genera| terms to se|| must be one
that express|y ment|ons a sa|e or that |nc|udes a sa|e as a necessary
|ngred|ent of the act ment|oned. Ior the pr|nc|pa| to convert the r|ght
upon an agent to se|| rea| estate, a power of attorney must so express
the powers of the agent |n c|ear and unm|stakab|e |anguage. When there
|s any reasonab|e doubt that the |anguage so used conveys such power,
no such construct|on sha|| be g|ven the document."
,8S
1hen |t
summar|zed the doctr|ne then preva|||ng:
In severa| cases, we have repeated he|d that the absence
of a wr|tten author|ty to se|| a p|ece of |and |s, |pso [ure, vo|d,
prec|se|y to protect the |nterest of an unsuspect|ng owner
from be|ng pre[ud|ced by the unwarranted act of another.
87

In other words, the |anguage of Art|c|e 1874 dec|ar|ng the sa|e
"vo|d," means that |t |s T"'. "-R% ,) *" *57 6('-P'6,R, "prec|se|y to protect
the |nterest of an unsuspect|ng owner from be|ng pre[ud|ced by the
unwarranted act of another." 1he net effect of the ru||ng cons|ders the
sa|e as be|ng unenforceab|e, sub[ect to rat|f|cat|on on the part of the
pr|nc|pa|, owner of the p|ece of |and sub[ect of the sa|e. nowever, the
Court |n K,58. approached |t from the ang|e of estoppe| on the part of
the pr|nc|pa|, thus
Wh||e the sa|e w|th respect to the 3]8 port|on |s vo|d by
express prov|s|on of |aw and not suscept|b|e to rat|f|cat|on,
we neverthe|ess upho|d |ts va||d|ty on the bas|s of the
b
RS'./ at p. 22, 7$65,)')
R' .
jN
FS'./ at p. 22.

common |aw pr|nc|p|e of estoppe|. . . [under] Art|c|e 1431 of
the C|v|| Code . . . "1hrough estoppe| an adm|ss|on or
representat|on |s rendered conc|us|ve upon the person
mak|ng |t, and cannot be den|ed or d|sproved as aga|nst the
person re|y|ng thereon."
1rue, at the t|me of sa|e to the ahuds, Lufem|a was not
armed w|th the requ|s|te spec|a| power of attorney to
d|spose of the 3]8 port|on of the property. . . . Dur|ng the
pre-tr|a| conference, however, they adm|tted that they had
|ndeed so|d 7]8 of the property to the ahuds somet|me |n
1992. 1hus, the prev|ous den|a| was superseded, |f not
accord|ng|y amended, by the|r subsequent adm|ss|on.
88

1he doctr|ne of estoppe| used |n the ma[or|ty dec|s|on was
cr|t|c|zed by Iust|ce Carp|o-Mora|es |n her concurr|ng and d|ssent|ng
op|n|on, s|nce a sa|e that offended the prov|s|on under Art|c|e 1874 |s
dec|ared vo|d there|n, then under Art|c|e 1409 on vo|d and |nex|stent
contracts, the same was not sub[ect to rat|f|cat|on, and that the
prov|s|ons of Art|c|e 1431 of the C|v|| Code on estoppe| |s governed by
the d|ctate of Art|c|e 1432 that prov|des that the pr|nc|p|es of estoppe|
are adopted "|nsofar as they are not |n conf||ct w|th the prov|s|ons of
th|s Code," and conc|uded "Indeed, estoppe|, be|ng a pr|nc|p|e |n equ|ty,
cannot be app||ed |n the presence of a |aw c|ear|y app||cab|e to the case.
1he Court |s f|rst and foremost a court of |aw. Wh||e equ|ty m|ght t||t on
the s|de of one party, the same cannot be enforced so as to overru|e
pos|t|ve prov|s|ons of |aw |n favor of the other."
89

erhaps the better pr|nc|p|e to app|y under Art|c|e 1874 |s to
cons|der contracts of sa|e over parce|s of |and or any |nterest there|n
effected through the agent of the se||er that offend the requ|rement of
be|ng supported by wr|tten spec|a| power of attorney, to be
unenforceab|e rather than vo|d, or to cons|der them "vo|d as to the
pr|nc|pa|," and therefore sub[ect to rat|f|cat|on on the part of the
pr|nc|pa| whose |nterest |n the f|rst p|ace |s the one sought to be
protected by the requ|rements under Art|c|e
]fRS'./ at p.
23
m|d, at pp.
30 3

117
1874. Such a construct|on of Art|c|e 1874 wou|d not be un|que nor
offens|ve to pr|nc|p|es |n the Law on Agency, for |ndeed |n the fo||ow|ng
art|c|es the |aw uses the term "vo|d" but actua||y means
"unenforceab|e" for |t a||ows rat|f|cat|on on the part of the pr|nc|pa|,
thus
Ak1. 1898. If the agent contracts |n the name of the
pr|nc|pa|, exceed|ng the scope of h|s author|ty, and the
pr|nc|pa| does not rat|fy the contract, |t sha|| be vo|d |f the party
w|th whom the agent contracted |s aware of the ||m|ts of the
powers granted by the pr|nc|pa|. In th|s case, however, the
agent |s ||ab|e |f he undertook to secure the pr|nc|pa|'s
rat|f|cat|on, (n)
Ak1. 1901. A th|rd person cannot set pup the fact that the
agent has exceeded h|s powers, |f the pr|nc|pa| has rat|f|ed, or
has s|gn|f|ed h|s w||||ngness to rat|fy the agent's acts, (n)
='TH >"b 47*,'R7. 08)* *57 ;67P',R K"b7( "& B**"(-7%
*" ;7RR :7r
Cther than the requ|rement be |n wr|t|ng, no other forma||ty |s
requ|red for the spec|a| power of attorney under Art|c|e 1874. 1hus,
J'$7-7\ T3 G,S"* he|d that a |etter conta|n|ng the spec|f|c author|ty to
se|| |s suff|c|ent.
In ;*("-+ T3 C8*'7((7\ kep]de,
91
the Court c|ar|f|ed that the express
mandate requ|red to what |s now the equ|va|ent of Art|c|e 1874 to
enab|e an appo|ntee of an agency couched |n genera| terms to se|| must
be one that express|y ment|ons a sa|e or that |nc|udes a sa|e as a
necessary |ngred|ent of the act ment|oned. 1he power of attorney need
not conta|n a spec|f|c descr|pt|on of the |and to be so|d, such that g|v|ng
the agent the power to se|| "any or a|| tracts, |ots, or parce|s" of |and
be|ong|ng to the pr|nc|pa| was deemed adequate.
*>38 h||. 387
(1918).
9,
6 h||.
680(1906)

118
In @'&',- T3 K8-", the Court he|d that when the power of attorney
conta|ns the power "to se|| the Interest I possess w|th|n th|s
mun|c|pa||ty of 1ar|ac," the |anguage was deemed suff|c|ent to construe
that a spec|a| power of attorney to se|| |and w|th|n sa|d mun|c|pa||ty
had been proper|y conferred on the agent. In other words, |t |s the
spec|f|cat|on of the "power to se||" that |s necessary, rather than a
spec|f|cat|on of the part|cu|ar p|ece of |and that contro|s comp||ance
w|th the requ|rement of the |aw.
In p,*'+S,1 T3 !,' >'-+ Co.,
93
|t was he|d that the author|ty to se||
any k|nd of rea|ty that "m|ght be|ong" to the pr|nc|pa| was he|d to
|nc|ude a|so such as the pr|nc|pa| m|ght afterwards have dur|ng the
t|me |t was |n force.
In K3 B$'P" ,-. J3 B$'+" T3 S. !7T7)/
Za
the Court he|d that where
the power of attorney says that the agent can enter |nto any contract
concern|ng a |and, or can se|| the |and under any term or cond|t|on and
covenant he may th|nk f|t, he |s certa|n|y granted power to dea| w|th
the |and, and se|| |t, |n the same manner and w|th the same breadth
and |at|tude as the pr|nc|pa| cou|d.
In 27R")"T3 <"8(* "& B667,R)/
lZ
where the document executed by
the owner of the |and was denom|nated as a "Genera| ower of
Attorney," the Court he|d neverthe|ess that |t was w|th respect to the
author|ty g|ven to se|| the |and a spec|a| power of attorney, for |t
proper|y descr|bed the t|t|e of the |and and the c|ear power to se|| |t.
1he Court ru|ed that there was no need to execute a separate and
spec|a| power of attorney for the agent to effect the sa|e of the |and |n
the name of the pr|nc|pa|: "1he spec|a| power of attorney can be
|nc|uded |n the genera| power when |t |s spec|f|ed there|n the act or
transact|on for wh|ch the spec|a| power |s requ|red."
96

"
3
1

]
Y
e

In <")$'P @8$S7( <"(63 T3 <"8(* "& B667,R)/]
N
the Court
summar|zed the ru|es perta|n|ng to the var|ous scenar|os |nvo|v|ng the
sa|e of a p|ece of |and through an agent, thus
When the sa|e of a p|ece of |and or any |nterest thereon
|s through an agent, the author|ty of the |atter sha|| be |n
wr|t|ng, otherw|se the sa|e sha|| be vo|d. 1hus the author|ty
of an agent to execute a contract for the sa|e of rea| estate
must be conferred |n wr|t|ng and must g|ve h|m spec|f|c
author|ty, e|ther to conduct the genera| bus|ness of the
pr|nc|pa| or to execute a b|nd|ng contract conta|n|ng terms
and cond|t|ons wh|ch are |n the contract he d|d execute. A
spec|a| power of attorney |s necessary to enter |nto any
contract by wh|ch the ownersh|p of an |mmovab|e |s
transm|tted or acqu|red e|ther gratu|tous|y or for a va|uab|e
cons|derat|on. 1he express mandate requ|red by |aw to
enab|e an appo|ntee of an agency (couched) |n genera| terms
to se|| must be one that express|y ment|ons a sa|e or that
|nc|ude a sa|e as a necessary |ngred|ent of the act
ment|oned. Ior the pr|nc|pa| to confer the r|ght upon an
agent to se|| rea| estate, a power of attorney must so express
the powers of the agent |n c|ear and unm|stakab|e |anguage.
When there |s any reasonab|e doubt that the |anguage so
used conveys such power, no such construct|on sha|| be
g|ven the document.
98

|n <'*% @'*7 G7,R*%/ F-P3 T3 <"8(* "& B667,R)/
ll
where wr|tten |etter
|ssued by a |andowner read: "We w||| apprec|ate Metro Drug's
ass|stance |n referr|ng to us buyers for property. |ease proceed to ho|d
pre||m|nary negot|at|ons w|th |nterested buyers and endorse forma|
offers to us for our f|na| eva|uat|on and appra|sa|," the Court he|d that
the |anguage of the |etter d|d not const|tute wr|tten author|ty to se|| the
|and, and the appo|nted |nd|v|dua| was on|y des|gnated as a contact
person or a broker w|th no author|ty to conc|ude a sa|e of the property.
It he|d that any sa|e on the parce| of |and conc|uded by such an
appo|ntee
97
26S SCkA168
( 996)
$
RS'./ at p. 176.
"32S SCkA 38S
(2000)

120
wou|d be vo|d, and the sa|e cou|d not produce any |ega| effect as to
transfer the sub[ect property from |ts |awfu| owner.
In @'*"-X8, T3 L7(-,-.7\,
100
the |etter by wh|ch the agent
(Iernandez) purported to have author|ty to se|| the rea| propert|es of
the purported pr|nc|p|e was s|gned on|y by Iernandez and conta|ned no
s|gnature of the reg|stered owners of the offered parce|s of |and. 1he
Court he|d
1he sett|ed ru|e |s that persons dea||ng w|th an assumed
agent are bound at the|r per||, and |f they wou|d ho|d the
pr|nc|pa| ||ab|e, to ascerta|n not on|y the facts of agency but
a|so the nature and extent of author|ty, and |n case e|ther |s
controverted, the burden of proof |s upon them to prove |t.
In th|s case, respondent Iernandez spec|f|ca||y den|ed that
she was author|zed by the respondents-owners to se|| the
propert|es, both n her answer to the comp|a|nt and when
she test|f|ed. 1he Letter dated Ianuary 16, 1996 re||ed upon
by the pet|t|oners was s|gned by respondent Iernandez
a|one, w|thout any author|ty from the respondents-owners.
1here |s no actuat|ons of respondent Iernandez |n
connect|on w|th her dea||ngs w|th the pet|t|oners. As such,
sa|d |etter |s not b|nd|ng on the respondents as owners of
the sub[ect propert|es.
101

@'*"-X8, ru||ng const|tutes the [ur|sprudent|a| bas|s of conc|ud|ng
that for spec|a| power of attorney to be va||d and g|ve r|se to acts,
transact|ons and contracts that are va||d and enforceab|e aga|nst the
pr|nc|p|e, |t must be |n wr|t|ng and s|gned by the pr|nc|pa|.
=ZV:H B+7-* <,--"* 2,R'.R% K8(P5,)7 K("67(*% "&
K('-P'6,R
Under Art|c|e 1491(2) of the C|v|| Code, un|ess so express|y
author|zed, an agent cannot purchase the property of h|s pr|nc|pa|, and
|f he does so, the sa|e wou|d be vo|d. Lven when
100
427 SCkA 478
(2004)
oRS'./ at p. 494.

121
the agent has been granted a spec|a| power of attorney to se|| a p|ece of
|and or any |nterest |n |t, such power does not |nc|ude by |mp||cat|on
the power to se|| to h|mse|f under the c|ear prov|s|ons of Art|c|e 1491(2)
of the C|v|| Code, un|ess there was such pr|or author|zat|on g|ven by the
pr|nc|pa|.
?R,+87(T3 K8(8++,-,-/ Ir.,
102
recogn|zed that the proh|b|t|on
aga|nst agents purchas|ng property |n the|r hands for sa|e or
management |s c|ear|y not abso|ute, when so author|zed by the
pr|nc|pa|, the agent |s not d|squa||f|ed from purchas|ng the property he
ho|ds under a contract of agency to se||.
=eH !" 0,17 C'&*)
A g|ft or a donat|on |s def|ned under Art|c|e 72S of the C|v|| Code
as an act of ||bera||ty whereby a person d|sposes gratu|tous|y of a th|ng
or r|ght |n favor of another person who accepts |t.
Under paragraph 6 of Art|c|e 1878, for an agent to have the power
to make g|fts or donat|ons on beha|f of the pr|nc|pa| |t wou|d requ|re
the same to be |n the form of a spec|a| power of attorney, 7WP76*3
(a) Customary ones for char|ty, or
(b) 1hose made to emp|oyees |n the bus|ness managed
by the agent.
When a g|ft or donat|on |s made by an agent on beha|f of the
pr|nc|pa| wh|ch |s not covered by a spec|a| power of attorney, |t does
not become vo|d for fa||ure to comp|y w|th these requ|rement |n
Agency Law (because such def|c|ency mere|y renders the contract
unenforceab|e), but rather |t |s vo|d or not depend|ng on whether |t
comp||es w|th the forma||t|es requ|red under the Law on Donat|on, for
every act of donat|on const|tutes a so|emn contract. 1he net effect of
comp||ance w|th the forma||t|es requ|red by the
102
S1S SCkA 460 (2007).

Law on Donat|on wou|d be to make the resu|t|ng g|ft or donat|on
unenforceab|e, when |t does not comp|y w|th the spec|a| power of
attorney requ|rement.
=NH !" @",- "( :"(("b 0"-7%
Under paragraph 7 of Art|c|e 1878, the power of an agent to
e|ther |oan or borrow money, |s an act of str|ct ownersh|p, and requ|res
the same to be |n the form of a spec|a| power of attorney. 1he
except|on wou|d be when the act "be urgent and |nd|spensab|e for the
preservat|on of the th|ngs wh|ch are under adm|n|strat|on."
In K5'R'66'-7 9,*'"-,R :,-1 T3 !,- ?-+ ;\7o the Court he|d that a
power of attorney, ||ke any other |nstrument, |s to be construed
accord|ng to the natura| |mport of |ts |anguage, and the author|ty wh|ch
the pr|nc|pa| has conferred upon h|s agent |s not to be extended by
|mp||cat|on beyond the natura| and ord|nary s|gn|f|cance of the terms |n
wh|ch that author|ty has been g|ven, and that an attorney-|n-fact has
on|y such author|ty as the pr|nc|pa| has chosen to confer upon h|m, and
one dea||ng w|th h|m must ascerta|n at h|s own r|sk whether h|s acts
w||| b|nd the pr|nc|pa|. 1hus, |n K9:/ the Court ru|ed that a power of
attorney wh|ch vested the agent w|th author|ty "for me and |n my
name to s|gn, sea| and execute, and as my act and deed, de||very any
|ease, any other deed for convey|ng any rea| or persona| property" or
"any other deed for the convey|ng of any rea| or persona| property"
does not carry w|th |t or |mp|y that the agent for and on beha|f of h|s
pr|nc|pa| has the power to execute a prom|ssory note or a mortgage to
secure |ts payment.
In >".+7) T3 ;,R,) ,-. ;,R,),
104
power granted to the agent was on|y to borrow money and mortgage
pr|nc|pa|'s property to secure the |oan, |t cannot be |nterpreted to
|nc|ude the author|ty to mortgage the propert|es to support the agent's
persona| |oans and use the proceeds thereof for h|s own benef|t. 1he
|ender who |ends money to
103
S3 h||. 4S1
( 929)
104
63 h||. S67
( 936)

the agent know|ng that |s was for persona| purpose and not for the
pr|nc|pa|'s account, |s a mortgagee |n bad fa|th and cannot forec|ose on
the mortgage thus const|tuted for the account of the agent. 1he Court
ru|ed:
1he pert|nent c|auses of the power of attorney for wh|ch
may be determ|ned the |ntent|on of the pr|nc|pa|s |n
author|z|ng the|r agent to obta|n a |oan, secure |t w|th the|r
rea| property, were quoted at the beg|nn|ng. 1he terms
thereof are ||m|ted, the agent was thereby author|zed on|y
to borrow any amount of money wh|ch he deemed
necessary. 1here |s noth|ng, however, to |nd|cate that the
defendants had ||kew|se author|zed h|m to convert the
money obta|ned by h|m to h|s persona| use. W|th respect to
a power of attorney of spec|a| character, |t cannot be
|nterpreted as a|so author|z|ng the agent to d|spose of the
money as he p|ease, part|cu|ar|y when |t does not appea|
that such was the |ntent|on of the pr|nc|pa|s, and |n app|y|ng
part of the funds to pay h|s persona| ob||gat|ons, he
exceeded h|s author|ty (Art. 1714, C|v|| Code, :,-1 "& *57
K5'R'66'-7 F)R,-.) T3 47 <")*7(/ 47 h||., S94 and 49 h||.,
S74). In cases ||ke the present one, |t shou|d be understood
that the agent was ob||gated to turn over the money to the
pr|nc|pa|s, or, at |east p|ace |t at the|r d|sposa|. In the case of
0,-'R, !(,.'-+ Q ;866R% Co. T3 E% !'76" (G.k. No. 30339,
March 2,1929, not reported), referr|ng to a power of
attorney to borrow any amount of money |n cash and to
guarantee the payment thereof, by the mortgage of certa|n
property be|ong|ng to the pr|nc|pa|s, th|s Court he|d that the
agent exceeded h|s author|ty |n guarantee|ng h|s persona|
account for automob||e parts by the mortgage, not hav|ng
spec|a||y author|zed to do so.
10S

47 2'RR, T3 L,S('P,-*7,
106
construed Art|c|e 1878(7) to cover on|y
the borrow|ng of money under $8*88$/ and does cover the purchas|ng
of goods on cred|t on beha|f of the pr|nc|pa|, espec|a||y when the same
|s |n the ord|nary course of bus|ness.
`c;
RS'./ at pp.

10e
10S h||. 672
( )

K5'R'66'-7 9,*'"-,R :,-1 T3 ;*,3 Mar|a,
107
he|d that the spec|a|
author|ty to borrow money for the pr|nc|pa| |s not to be |mp||ed from
the spec|a| power of attorney to mortgage rea| estate, espec|a||y when
the power was granted on|y to make the pr|nc|pa| an accommodat|on
or th|rd-party mortgagor.
S|nce the author|ty to borrow money |s rare|y |nferred, |n G8(,R
:,-1 "& <,R""P,-/ F-P3 T3 <"8(* "& B667,R)/o *57 Court ru|ed that a
cred|tor shou|d requ|re the execut|on of a power of attorney |n order
that one may be understood to have granted another the author|ty to
borrow on beha|f of the former. In other words, a|though Art|c|e 1878
does not requ|re the spec|a| powers of attorney to be |n wr|t|ng, both
pract|ce and [ur|sprudence conf|rm that |t |s the wr|tten form that |s
pract|ca||y the on|y conc|us|ve bas|s, |n the face of den|a| on the part of
the pr|nc|pa|, by wh|ch to aff|rm that the agent was granted a spec|a|
power of attorney.
='H I5,* >,667-) I57- 0"-7% F) :"(("b7. '- *57 9,$7 "&
*57 K('-P'6R7 I57- !57(7 I,) 9" ;67P',R K"b7( *"
B**"(-7% *" 4" ;"r
In C"\8- T3 07(P,.",
109
the Court he|d that a spec|a| power of
attorney |s necessary for an agent to borrow money, un|ess |t be urgent
and |nd|spensab|e for the preservat|on of the th|ngs wh|ch are under
adm|n|strat|on, and that such contract entered |nto |n the name of
another person by one who has been g|ven no author|ty or |ega|
representat|on or who has acted beyond h|s powers are c|ass|f|ed as
unauthor|zed contracts and are unenforceab|e, un|ess they are rat|f|ed.
In G8(,R :,-1 "& <,R""P,- T3 <"8(* "& B667,R)/o the Court he|d
that a|though |t |s the pr|nc|p|e that a person whose acts ho|d|ng
another person to be h|s agent and wou|d |ead a th|rd person to be||eve
such purported agent was author|zed to speak and b|nd h|m, cannot
now be perm|tted to deny the author|ty of
107
29 SCkA 303
( 969)
108
104 SCkA 1S1

109
S11 SCkA 30S
110104 SCkA 1S1
( 98 )

12S
the purported agent, but th|s |s on|y true when the purported agent was
c|othed w|th apparent author|ty. In th|s case, where the author|ty of the
purported agent was on|y to fo||ow up the pr|nc|pa|'s |oan app||cat|on
w|th the bank, |t cannot be presumed that he was a|so granted author|ty
to borrow on beha|f of the pr|nc|pa|, espec|a||y when the pr|nc|pa|
herse|f went to the bank to s|gn the prom|ssory note for the |oan
obta|ned from the bank. If the pr|nc|pa|'s act had been understood by
the bank to be a grant of an author|ty to the agent to borrow on beha|f
of the pr|nc|pa|, the bank shou|d have requ|red a spec|a| power of
attorney cover|ng such power to borrow.
=''H I57- *57 B+7-* >,) :77- DW6(7))R% D$6"b7(7. *"
:"(("b 0"-7%/ <,- >7 >'$)7R& :7 *57 @7-.7( !57(7"&
I'*5"8* :7'-+ '- :(7,P5 "& !(8)*r
Under Art|c|e 1890 of the C|v|| Code, |f the agent has been
empowered to borrow money, then he |s not d|squa||f|ed from be|ng
h|mse|f the |ender at the current rate of |nterest. Cn the other hand, the
art|c|e a|so prov|des that |f the agent has been empowered to |end
money at |nterest, he cannot borrow |t w|thout the consent of the
pr|nc|pa|.
=jH 1o @7,)7 G7,R K("67(*% &"( 0"(7 !5,- ?-7 A7,(
It seems c|ear from paragraph numbered 8 of Art|c|e 1878, that the
|ease of rea| property for more than one year |s an act of str|ct
ownersh|p, s|nce a |ease of more than one year creates a r|ght '- (7$v
whereas, the act of enter|ng |nto a contract of |ease for one year or |ess,
wou|d be cons|dered an act of adm|n|strat|on, and may be |n the form of
genera| power of attorney.
1hus, |n ;5"667(^) K,(,.')7 G7,'*% T3 G"g87,
111
the Court he|d that
|n a contract of agency, the agent acts |n representat|on or |n beha|f of
another w|th the consent of the |atter, and that Art|c|e 1878 of the C|v||
Code expresses that a spec|a| power
111
419 SCkA 93 (2004).

126
of attorney |s necessary to |ease any rea| property to another person for
more than one year. It re|terated the pr|nc|p|e that the |ease of rea|
property for more than one year |s cons|dered not mere|y an act of
adm|n|strat|on but an act of str|ct dom|n|on or of ownersh|p. A spec|a|
power of attorney |s thus necessary for |ts execut|on through an agent.
Art|c|e 1878(8) a|so does not cover |eases of persona| property,
wh|ch may then |ead to the conc|us|on that any power g|ven to the
agent to |ease persona| property, for whatever per|od, wou|d const|tute
mere|y a genera| power of attorney, and may be |mp||ed from the
express powers g|ven. 1he more reasonab|e conc|us|on to draw |s that
wh||e a |ease for more than one year of rea| property can never be
cons|dered to be acts of adm|n|strat|on, and wou|d requ|re a|ways a
spec|a| power of attorney, when |t comes to persona| property, a |ease
for more than one year may or may not be an act of adm|n|strat|on, or
may be |n the ord|nary course of bus|ness, depend|ng of the
c|rcumstances |nvo|ved, or the nature of the bus|ness g|ven to the agent
for adm|n|strat|on and management.
In th|s connect|on, |t shou|d be noted that under Art|c|e 1403(2) of
the C|v|| Code, an agreement for the |eas|ng of rea| property for a per|od
|onger than one year |s unenforceab|e un|ess made |n wr|t|ng. 1herefore,
even when the agency possess a spec|a| power of attorney to |ease rea|
property, when the |ease |tse|f for more than a year |s not |n wr|t|ng, the
resu|t|ng contract wou|d st||| be unenforceab|e.
In 2.,3 47 <58, T3 F-*7($7.',*7 B667RR,*7 <"8(*/O
Y
where the
|ssue was "the aff|rmance by the Court of Appea|s of e dec|s|on of the
tr|a| court, order|ng the|r e[ectment from the prem|ses |n quest|on and
the demo||t|on of the |mprovements |ntroduced thereon," the |essees
re||ed on the contract of |ease entered |nto by on beha|f of the
pr|nc|pa|-|essor, by her attorney |n fact who was not armed to |ease the
prem|ses for more than one year. nowever, the facts showed that the
|essees
112
229 SCkA99 (1994).

127
stayed |n the prem|ses dur|ng the term of the |ease, and wh|ch was
|mp||ed|y renewed through *,P'*, (7P"-.8PP'"-3 1he Court express|y
agreed w|th the Court of Appea|s reso|ut|on ".7PR,('-+ *57 P"-*(,P* "&
R7,)7 =DW5 ^<^H T"'.O on the ground that the agent "was not armed w|th
a spec|a| power of attorney to enter |nto a |ease contract for a per|od of
more than one year, thus:
We agree w|th the Court of Appea|s.
1he |ease contract (Lxh. "C"), the ||nchp|n of pet|t|oners'
cause of act|on, |nvo|ves the |ease of rea| property for a
per|od of more than one year. 1he contract was entered |nto
by the agent of the |essor and not the |essor herse|f. In such a
case, the |aw requ|res that the agent be armed w|th a spec|a|
power of attorney to |ease the prem|ses, x x x.
It |s true that respondent nerrera a||owed pet|t|oners to
occupy the |eased prem|ses after the exp|rat|on of the |ease
contract (Lxh. "C") and under Art|c|e 1670 of the C|v|| Code of
the h|||pp|nes, a tac|t renewa| of the |ease (tac|ta
reconducc|on) |s deemed to have taken p|ace. nowever, as
he|d |n 8ernardo M. D|zon v. Ambros|o Magsaysay,
113
a tac|t
renewa| |s ||m|ted on|y to the terms of the contract wh|ch are
germane to the |essee's r|ght of cont|nued en[oyment of the
property and does not extend to a||en matters, ||ke the
opt|on to buy the |eased prem|ses.
114

=lH !" :'-. *57 K('-P'6,R *" G7-.7( ;"$7 ;7(T'P7 I'*5"8*
<"$67-),*'"-
A|though the agent may b|nd h|mse|f to the contract of agency
w|thout compensat|on (Art|c|e 187S), |n order to b|nd the pr|nc|pa| to
enter |nto serv|ce w|thout compensat|on wou|d be unenforceab|e
w|thout a spec|a| power of attorney.
<,- b7 .(,b ,) , -7P7)),(% '$6R'P,*'"- 8-.7( 6,(,+(,65
-8$S7(7. l "& B(*'PR7 `jNj *5,* *" S'-. *57 6('-P'6,R *" (7-.7( )7(T'P7
&"( P"$67-),*'"- b"8R. S7 .77$7. , $7(7 ,P* "& ,.$'-')*(,*'"-/ ,-.
P"-)*'*8*7. '- , $7(7 +7-7(,R 6"b7( "&
1
S7 SCkA 2S0
( )
$
RS'./ at p. 106.
,**"(-7%/ "( $"(7 )67P'&'P,RR%/ *" S7 ,- '$6R'7. 6"b7( "& 7T7(% ,+7-*r
We pos|t that no such conc|us|on may be drawn from the |anguage of
Art|c|e 1878(9).
Any contract of serv|ce to be entered |nto on beha|f of the pr|nc|pa|
shou|d proper|y be cons|dered an act of str|ct ownersh|p, for |t ob||ges
the pr|nc|pa| to render a persona| ob||gat|on, wh|ch |f he refuses makes
h|m ||ab|e for damages. rec|se|y, a contract of agency |s entered |nto by
the pr|nc|p|e to a||ow h|m to part|c|pate |n [ur|d|ca| acts through an
agent, and w|thout need of h|s phys|ca| presence. 1herefore, |t does not
make sense that a contract of serv|ce, even when for compensat|on,
wou|d be deemed to be w|th|n |mp||ed powers of the agent to b|nd the
pr|nc|pa|.
(10) !" :'-. *57 K('-P'6,R '- , <"-*(,P* "& K,(*-7()5'6
Under Art|c|e 1878(10), every agreement by the agent on beha|f of
the pr|nc|pa| wh|ch has the effect of ob||g|ng the pr|nc|pa| to contr|bute
money or |ndustry to a common fund w|th the |ntent|on of der|v|ng
prof|ts therefrom wou|d be unenforceab|e w|thout a spec|a| power of
attorney hav|ng been prev|ous|y g|ven to the agent, for |t |n effect makes
the pr|nc|pa| a partner |n a partnersh|p, as def|ned under Art|c|e 1767 of
the New C|v|| Code.
Consequent|y, contracts of partnersh|p or [o|nt venture
arrangements cannot be entered |nto |n the name of the pr|nc|pa|
w|thout a cover|ng spec|a| power of attorney.
(11) !" ?SR'+,*7 *57 K('-P'6,R ,) ,
C8,(,-*"( "( ;8(7*%
Under Art|c|e 2047 of the C|v|| Code, by the contract of +8,(,-*%,
the guarantor b|nds h|mse|f to fu|f||| the ob||gat|on of the pr|nc|pa|
debtor |n case the |atter shou|d fa|| to do so, and |f the person b|nds
h|mse|f so||dar||y w|th the pr|nc|pa| debtor, he becomes a surety under a
contract of )8(7*%)5'63
1herefore, under paragraph numbered 11 of Art|c|e 1878, no
contract of guaranty or surety |s enforceab|e aga|nst the pr|nc|pa| when
|t has been entered |nto by an agent who possesses no spec|a| power of
attorney to do so.

:,-1 "& K3F3 T3 <")*7(/o he|d that a power of attorney to |oan
money does not |nc|ude the |mp||ed power to make the pr|nc|pa| a
surety for the payment of the debt a th|rd person.
In 4'(7P*"( "& K8SR'P I"(1) T3 ;'-+ J8P",
116
where a power of
attorney was executed pr|mar||y to enab|e the attorney-|n-fact, as
manager of a mercant||e bus|ness, to conduct |ts affa|rs for and on beha|f
of the owner of the bus|ness, and to th|s end the attorney-|n-fact was
author|zed to execute contracts re|at|ng to the pr|nc|pa|'s property ["act
and deed de||very, any |ease, or any other deed for the convey|ng any
rea| or persona| property" and "act and deed de||very, any |ease, re|ease,
barga|n, sa|e, ass|gnment, conveyance or assurance, or any other deed
for the convey|ng any rea| or persona| property"], the Court he|d that
such grant of power w||| not be |nterpreted as g|v|ng the attorney-|n-fact
power to b|nd the pr|nc|pa| by a contract of |ndependent guaranty or
surety unconnected w|th the conduct of the mercant||e bus|ness.
Genera| words conta|ned |n such power w||| not be so |nterpreted as to
extent the power to the mak|ng of a contract of suretysh|p, but w||| be
||m|ted, under the we||-know ru|e of construct|on |nd|cated |n the
express |on 7X8).7$ +7-7(')/ as app|y|ng to matters s|m||ar to those
part|cu|ar|y ment|oned.
;'-+ J8P" emphas|zed that "In Art|c|e 1827 of the C|v|| Code |t |s
dec|ared that guaranty sha|| not be presumed, |t must be expressed and
cannot be extended beyond |ts spec|f|ed ||m|ts. 8y ana|ogy a power of
attorney to execute a contract of guaranty shou|d not be |nferred from
vague or genera| words, espec|a||y when such words have the|r or|g|n
and exp|anat|on |n part|cu|ar powers of a who||y d|fferent nature."
117

:B L'-,-P7 <"(63 T3 <"8(* "& B667,R)/o he|d that a contract of
guaranty or surety cannot be |nferred from the use of vague or genera|
words of comm|tment. 1hus, the author|ty g|ven by the corporat|on to
|ts agent to approve a |oan up to ^3S0,000 w|thout
11S
47 h||. S94
( )
116
S3 h||. 20S
O
N
RS'./ at p. 213.
118
211 SCkA 112
( )

any secur|ty requ|rement does not |nc|ude the author|ty to |ssue
guarantees for any amount.
It shou|d be reca||ed that under Art|c|e 1403(2)(b) of the C|v|| Code,
a contract of guaranty |s unenforceab|e un|ess |t |s made |n wr|t|ng.
Consequent|y, even when the agent has the requ|s|te spec|a| power of
attorney to enter |nto a contract of guaranty |n beha|f of the pr|nc|pa|,
the resu|t contract wou|d be unenforceab|e |f not reduced |n wr|t|ng.
=`YH !" <(7,*7 "( <"-T7% G7,R G'+5*) ?T7( F$$"T,SR7
Under paragraph numbered 12 of Art|c|e 1878, an agent cannot, |n
the name of the pr|nc|pa|, create or convey rea| r|ghts over |mmovab|e
property w|thout be|ng possessed of a spec|a| power of attorney,
otherw|se, the resu|t|ng contract wou|d be unenforceab|e aga|nst the
pr|nc|pa|.
1he paragraph |ntends to cover dea||ngs on |mmovab|e property
outs|de of the sa|e of a p|ece of |and or any |nterest there|n covered
spec|f|ca||y under Art|c|e 1874, or contracts of d|spos|t|ons of
|mmovab|es by wh|ch ownersh|p |s conveyed, whether gratu|tous|y or
for va|uab|e cons|derat|on, under paragraph numbered S of Art|c|e 1878.
"kea| r|ghts" over |mmovab|e property wou|d cover such contracts
as mortgages, usufruct, easement, 7*P3 It obv|ous|y covers the enter|ng
|nto a |ease contract over an |mmovab|e w|th a per|od exceed|ng one
year (separate|y covered under paragraph numbered 8 of Art|c|e 1878).
Under Art|c|e 1879 of the New C|v|| Code, the power to se||
exc|udes the power to mortgage, and that the power to mortgage
exc|udes the power se||. 1h|s supports the propos|t|on he|d |n G".('+87\
T3 K,$'-*8,- ,-. 47 J7)8)/o that each of the powers enumerated
under Art|c|e 1878, are named "acts of str|ct dom|n|on," and cannot be
|mp||ed powers, and that one form of named spec|a| power cannot g|ve
the presumpt|on that |t |nc|udes
119
37 h||. 876 (1918).

under any form of construct|on or |nterpretat|on another spec|a| power
of attorney. 1hus, 2,R$"-*7 T3 <"8(* "& B667,R)/o he|d that the power
to mortgage does not carry the |mp||ed power to represent the pr|nc|pa|
|n ||t|gat|on.
In K5'R'66'-7 ;8+,( D)*,*7) 47T3 <"3 T3 K"'\,*,
121
the Court he|d that
|t |s a genera| ru|e |n the |aw of agency that, |n order to b|nd the pr|nc|pa|
by a mortgage on rea| property executed by an agent, |t must upon |ts
face purpose to be made, s|gned and sea|ed |n the name of the pr|nc|pa|,
otherw|se, |t w||| b|nd the agent on|y. It |s not enough mere|y that the
agent was |n fact author|zed to make the mortgage, |f he has not acted
|n the name of the pr|nc|pa|. Ne|ther |s |t ord|nar||y suff|c|ent that |n the
mortgage the agent descr|bed h|mse|f as act|ng by v|rtue of the power of
attorney, |f |n fact the agent has acted |n h|s own name and has set h|s
own hand and sea| to the mortgage. 1h|s |s espec|a||y true where the
agent h|mse|f |s a party to the |nstrument. nowever c|ear|y the body of
the mortgage may show and |ntend that |t sha|| be the act of the
pr|nc|pa|, yet, un|ess |n fact |t |s executed by the agent for and on beha|f
of h|s pr|nc|pa|, |t |s not va||d as to the pr|nc|pa|.
In G8(,R :,-1 "& :"$S"- T3 <"8(* "& B667,R)/^
YY
a|though the agent
was g|ven a spec|a| power of attorney to mortgage the property of the
pr|nc|pa|, nonethe|ess, when he s|gned the Deed of kea| Lstate
Mortgage |n h|s name a|one as mortgagor, w|thout any |nd|cat|on that
he was s|gn|ng for and |n beha|f of the property owner, the mortgage
was dec|ared vo|d for be|ng entered |nto by one who had no ownersh|p
over the property mortgaged, and the agent bound h|mse|f as the on|y
debtor of under the |oan obta|ned from the bank.
=`[H !" BPP76* "( G768.',*7 ,- F-57('*,-P7
Under Art|c|e 1044 of the C|v|| Code, any person "hav|ng the free
d|sposa| of h|s property may accept or repud|ate an
120
2S2 SCkA 92
( 996)
1
2
1

132
|nher|tance," wh|ch obv|ous|y under paragraph 13 of Art|c|e 1878
const|tute acts of str|ct dom|n|on.
Wh||e there |s no doubt that repud|at|on of an |nher|tance |s an act
that goes aga|nst the |nterest of the pr|nc|pa| and wou|d requ|re the
grant of a spec|a| power of attorney |f |t |s to be done through an agent,
the acceptance of |nher|tance has another bas|s upon wh|ch |t cannot be
an |mp||ed power of h|s agent: the acceptance of an |nher|tance |nvo|ves
an act of grat|tude on the part of the he|r, and therefore cannot be
presumed to be a "burden" that the pr|nc|pa| |s presume to accept as a
matter of course.
=àH !" G,*'&% "( G7P"+-'\7 ?SR'+,*'"-) <"-*(,P*7. :7&"(7 *57
B+7-P%
OG,*'&%O |s a |ega| term that |nvo|ves the acceptance of a contract,
wh|ch |s e|ther vo|dab|e or unenforceab|e, and has the effect c|eans|ng
such contract of |ts |ega| defects that retroacts to the date of |ts
perfect|on. Under Art|c|es 1392 and 1396, "kat|f|cat|on ext|ngu|shes the
act|on to annu| a vo|dab|e contract," and "c|eanses the contract from a||
|ts defects from the moment |t was const|tuted." When |t comes to
unenforceab|e contracts, under Art|c|e 1404, those contracts that are
governed by the Statutes of Irauds "are rat|f|ed by the fa||ure to ob[ect
to the presentat|on of ora| ev|dence to prove the same, or by the
acceptance of benef|ts under them."
aragraph numbered 14 of Art|c|e 1878 c|ear|y recogn|zes that the
act of rat|fy|ng or c|eans|ng a defect contract that therefore cou|d va||d|y
be enforced aga|nst the pr|nc|pa| |s an act of str|ct ownersh|p, and
cannot be effected by the agent w|thout spec|a| power of attorney.
OG7P"+-'*'"-O of an ob||gat|on refers to acknow|edg|ng what was a
natura| ob||gat|on wh|ch was not therefore the sub[ect of c|v||
enforcement, |t has the effect of mak|ng a former natura| ob||gat|on be
transformed |nto a c|v|| ob||gat|on that can be enforced aga|nst the
estate of the pr|nc|pa|. kecogn|t|on |s an act of str|ct ownersh|p wh|ch
can on|y be performed by an agent on beha|f of the pr|nc|pa| who
possesses a spec|a| power of attorney.

In :,-1 "& KF T3 47 <")*7(/o where |t appeared that a w|fe gave her
husband a power of attorney "to |oan and borrow money" and to
mortgage her property, the Court he|d that such fact d|d not carry w|th |t
or |mp|y that he had a |ega| r|ght to s|gn her name to a prom|ssory note
wh|ch wou|d make her ||ab|e for the payment of a pre-ex|st|ng debt of
the husband or that of h|s f|rm, for wh|ch she was not prev|ous|y ||ab|e,
or to mortgage her property to secure the pre-ex|st|ng debt.
=`ZH B-% ?*57( BP* "& ;*('P* 4"$'-'"-
Genera||y, the sa|e or purchase of even persona| propert|es shou|d
be treated as acts of str|ct dom|n|on and wou|d requ|re a spec|a| power
of attorney to be executed by the agent |n beha|f of the pr|nc|pa|. 8ut
under Art|c|e 1877, a sa|e or purchase made |n the ord|nary course of
management |s mere|y an act of adm|n|strat|on and, therefore, |nc|uded
|n agency couched |n genera| terms.
1he c|ear |mp||cat|on under paragraph numbered 1S of Art|c|e
1878, |s that those that may be const|tuted as acts of str|ct ownersh|p,
S8* -"* )" )67P'&'P,RR% -,$7. '- *57 &'()* &"8(*77- 6,(,+(,65)/ wou|d
a|ways need a spec|a| power of attorney to be executed |n beha|f of the
pr|nc|pa| by the agent, S8* -"* S7'-+ )67P'&'P,RR% 7-8$7(,*7. '- *57 &'()*
&"8(*77- 6,(,+(,65)/ |t |s poss|b|e that such acts wh|ch are nom|na||y
perce|ved as acts of str|ct ownersh|p may, depend|ng on c|rcumstances
preva|||ng |n each case, be shown to be mere acts of adm|n|strat|on, and
may be governed by a genera| power of attorney, or may be |mp||ed or
|nc|denta| from express powers or from the nature of the bus|ness
covered by the agency arrangement.
In C,(P', T3 47 0,-\,-"/o one of the |ssues to be reso|ved was
whether a power of attorney that granted the son the fo||ow|ng powers:
"1o enab|e h|m to buy or se||, abso|ute|y or under 6,P*" .7 (7*("/ any of
the rura| or urban estates that I now own and
1
2
3

134
may acqu|re |n the future, at such pr|ce as he may deem most
advantageous, wh|ch he sha|| co||ect |n cash or by |nsta||ments and
under such cond|t|ons as he may cons|der proper, and he sha|| set forth
the encumbrances on the propert|es and the|r or|g|n. I b|nd myse|f to
warrant and defend, |n accordance w|th |aw, the t|t|es to such
propert|es, and |f the propert|es a||enated by th|s agreement shou|d be
redeemed, he |s empowered to redeem them by pay|ng the pr|ce that
may have been f|xed, and, for th|s purpose, sha|| execute the proper
|nstrument," wou|d grant h|m author|ty to se|| the ha|f-|nterest that the
pr|nc|pa| had |n a boat. 1he court he|d |n the aff|rmat|ve, ru||ng as
fo||ows
1he power-of-attorney author|zes the sa|e of rea|
property, the buy|ng of rea| property and mortgag|ng the
same, the borrow|ng of money and |n fact |s genera| and
comp|ete.
1he power does not express|y state that the agent may
se|| the boat, but a power so fu|| and comp|ete and
author|z|ng the sa|e of rea| property, must necessar||y carry
w|th |t the r|ght to se|| a ha|f |nterest |n a sma|| boat. 1he
record further shows the sa|e was necessary |n order to get
money or a cred|t w|thout wh|ch |t wou|d be |mposs|b|e to
cont|nue the bus|ness wh|ch was be|ng conducted |n the
name of Narc|so L. Manzano and for h|s benef|t.
12S

47 0,-\,-" |s author|ty to show that a|though the power to se||
|mmovab|es must be conta|ned |n a spec|a| power of attorney, and
therefore a|ways const|tutes an act of str|ct ownersh|p, the sa|e or
encumbrance of movab|es may const|tute e|ther acts of adm|n|strat|on
or acts of str|ct ownersh|p, depend|ng on the preva|||ng c|rcumstances.
1hus, |n 47 0,-\,-"/ the grant of the express power to manage the
ent|re bus|ness affa|rs of the pr|nc|pa|, was deemed to |nc|ude the
power to se|| co-ownersh|p |nterest |n movab|e property, espec|a||y
when the sa|e was necessary to conduct the bus|ness of the pr|nc|pa|.
$
RS'./ at p. S8S.

d. Doctr|ne of Imp||ed owers I|ow|ng from
Lxpress owers
Lven when the ru|e In spec|a| powers of attorney |s that |n any of
the cases covered w|th|n the f|rst fourteen paragraphs of Art|c|e 1878 are
deemed to have been granted to the agent on|y when so "named" or
"express|y granted" by the pr|nc|pa|, there |s st||| app||cab|e the doctr|ne
of "|mp||ed powers" that the grant of express powers or spec|a|
power of attorney must necessar||y |nc|ude a|| power |mp||ed or
|nc|denta| to such express powers, even |f they amount to acts of
ownersh|p or str|ct dom|n|on.
Ior examp|e, an agent granted under a power of attorney the
author|ty to dea| w|th property wh|ch the pr|nc|pa| m|ght or cou|d have
done |f persona||y present, |s deemed author|zed to engage the serv|ces
of a |awyer to preserve the ownersh|p and possess of the propert|es of
the pr|nc|pa|.
1hus, |n C"T7(-$7-* "& KF T3 I,+-7(/o the Court he|d that a
co-owner who |s made an attorney-|n-fact, w|th the same power and
author|ty to dea| w|th the property wh|ch the pr|nc|pa| m|ght or cou|d
have had |f persona||y present, may adopt the usua| |ega| means to
accomp||sh the ob[ect, |nc|ud|ng acceptance of serv|ce and engag|ng of
|ega| counse| to preserve the ownersh|p and possess|on of the pr|nc|pa|'s
property.
In 08-'P'6,R <"8-P'R "&RR"'R" T3 DT,-+7R')*)/^
YN
|t was he|d that an
attorney-|n-fact empowered to pay the debts of the pr|nc|pa| and to
emp|oy |ega| counse| to defend the pr|nc|pa|'s |nterest, has certa|n|y the
|mp||ed power to pay on beha|f of the pr|nc|pa| the attorney's fees
charged by the |awyer.
In G"S'-)"- LR7$'-+ T3 <(8\/o |t was he|d that when an agent has
been du|y empower to se|| hemp |n a fore|gn country, such author|ty
necessar||y |nc|udes the power of the agent to mak|ng a contract of sa|e
|n beha|f of the pr|nc|pa|, s|nce h|s
126
S4 h||. 132
(1929)
|27
SS h||. 290

128
94 h||. 42
( 926)

power to se|| carr|es w|th |t the author|ty to make and enter |nto the
usua| and customary contract for |ts sa|e.
e. Spec|a| ower of Attorney Lxc|udes Genera| ower of
Attorney Cver the Matter Covered by the Spec|a| ower of
Attorney
Ak1. 1926. A genera| power of attorney |s revoked by a
spec|a| one granted to another agent, as regards the spec|a|
matter |nvo|ved |n the |atter, (n)
Under Art|c|e 1926 of the C|v|| Code, "A genera| power of attorney
|s revoked by a spec|a| one granted to another agent, as regards the
spec|a| matter |nvo|ved |n the |atter."
1he art|c|e does not rea||y cover "genera| power of attorneys" as
those wh|ch empowers an agent to executed on|y powers of
adm|n|strat|on, and a "spec|a| power of attorneys" as those wh|ch grants
to the agent the power to enter |nto acts of ownersh|p |n the name of
the pr|nc|pa|, for |ndeed the two types of powers of attorney cover
d|fferent aspects of the pr|nc|pa|'s affa|r and can ex|sts cons|stent|y
together |n two d|fferent agents.
1he powers of attorneys referred to |n Art|c|e 1926 are the ones
covered under Art|c|e 1876 where the genera| power of attorney |s rea||y
the "un|versa| agency" wh|ch "compr|ses a|| the bus|ness of the
pr|nc|pa|," whereas, the "spec|a| power of attorney" |s more proper|y
termed as the "part|cu|ar agency" wh|ch covers "one or more spec|f|c
transact|ons."
1he |ssues ra|sed under th|s sect|on are proper|y d|scussed |n deta||
|n Chapter S on DW*'-+8')5$7-* "& B+7-P%3
What seems more appropr|ate to address |s the propos|t|on: 4"7)
*57 +(,-* "& )67P'&'P 6"b7( "& ,**"(-7% =b57*57( +7-7(,R "( )67P',RH
7WPR8.7 *57 +(,-*77V,+7-* *57 6"b7( *" 7W7P8*7. ,RR "*57( ,P*) "&
,.$'-')*(,*'"-r 1he answer seems to be |n

the aff|rmat|ve under the pr|nc|p|e that |f the pr|nc|p|e dec|des to deta||
the powers he grants to the agent, then he means to exc|ude a|| other
powers of adm|n|strat|on other than those that are |nc|denta| to those
spec|f|ca||y granted.
1hus, K'-7., T3 <"8(* "& B667,R)/
`Yl
covered the pr|nc|p|e that
when an agent has been granted an express power of attorney, then the
agent cannot execute any other act, whether |t be an act of
adm|n|strat|on or an act of ownersh|p outs|de the |anguage of the power
of attorney.
K'-7., he|d that where the |nstrument wh|ch grants to the agent
the power "1o fo||ow-up, ask, demand, co||ect and rece|pt for my benef|t
|ndemn|t|es or sum due me re|at|ve to the s|nk|ng of M.V. NLMCS |n the
v|c|n|ty of L| Iad|da, Casab|anca, Morocco on the even|ng of Iebruary 17,
1986," wh|ch |s a spec|a| power of attorney ='373/ part|cu|ar agency),
exc|uded any |ntent to grant a genera| power of attorney or to const|tute
a un|versa| agency. 8e|ng spec|a| powers of attorney, they must be
str|ct|y construed. 1he |nstrument cannot be read to g|ve power to the
attorney- |n-fact "to obta|n, rece|ve, rece|pt from" the |nsurance
company the proceeds ar|s|ng from the death of the seaman-|nsured,
espec|a||y when the commerc|a| pract|ce for group |nsurance of th|s
nature |s that |t |s the emp|oyer-po||cyho|der who took out the po||cy
who |s empowered to co||ect the proceeds on beha|f of the covered
|nsured or the|r benef|c|ar|es.
oCo
129
226 SCkA 7S4 (1993).

CnA1Lk 3
CWLk & AU1nCkI1, DU1ILS &
C8LIGA1ICNS, AND kIGn1S
CI 1nL AGLN1
GLNLkAL C8LIGA1ICN CI AGLN1 WnC
ACCL1S 1nL AGLNC
Ak1. 1884. 1he agent |s bound by h|s acceptance
to carry out the agency and |s ||ab|e for the damages
wh|ch, through h|s non-performance, the pr|nc|pa|
may suffer.
ne must a|so f|n|sh the bus|ness a|ready begun
on the death of the pr|nc|pa|, shou|d de|ay enta||
any danger. (1718)
Under Art|c|e 1884 of the New C|v|| Code, when an agent accepts
the appo|ntment of the pr|nc|pa|, a contract of agency ar|ses, and at that
po|nt the agent |s |ega||y bound to carry out the terms of the agency,
otherw|se, |f he fa||s or refuses to carry on the agency, he sha|| be ||ab|e
for damages suffered by the pr|nc|pa| by reason of h|s nonfeasance or
non-performance. 1he art|c|e emphas|zes the pr|nc|p|e that once the
agent accepts the pr|nc|pa|'s appo|ntment, the agent |s bound to comp|y
w|th h|s .8*% "& .'R'+7-P7 "( P,(73
Art|c|e 1884 a|so expresses |n the rea|m of Agency Law the contract
|aw pr|nc|p|es of P"-)7-)8,R'*%/ $8*8,R'*% and "SR'+,*"(%
138
CWLk & AU1nCkI1, DU1ILS & C8LIGA1ICNS,
AND kIGn1S CI 1nL AGLN1
139
&"(P7 expressed |n Art|c|es 11S9 and 131S of the New C|v|| Code, wh|ch
prov|de that "Cb||gat|ons ar|s|ng from contracts have the force of |aw
between the contract|ng part|es and shou|d be comp||ed w|th |n good
fa|th," and that "Contracts are perfected by mere consent, and from that
moment the part|es are bound not on|y to the fu|f|||ment of what has
been express|y st|pu|ated but a|so to a|| the consequences wh|ch,
accord|ng to the|r nature, may be |n keep|ng w|th good fa|th, usage and
|aw." L|kew|se, Art|c|e 13S6 of the New C|v|| Code prov|des that
"Contracts sha|| be ob||gatory, |n whatever form they may have been
entered |nto, prov|ded a|| the essent|a| requ|s|tes for the|r va||d|ty are
present." I|na||y, Art|c|e 1308 prov|des that the "contract must b|nd both
contract|ng part|es, |ts va||d|ty or comp||ance cannot be |eft to the w||| of
one of them."
Desp|te the ob||gatory nature of every contract of agency, note
that Art|c|e 1884 emphas|zes the po|nt that when an agent refuses to
comp|y w|th h|s ob||gat|ons, the remedy of the pr|nc|pa| |s to sue h|m for
damages, s|nce an act|on for spec|f|c performance |s not ava||ab|e for
persona| ob||gat|ons to do. 1he ||ab|||ty of an agent for damages when he
fa||s to carry out h|s ob||gat|ons |s cons|stent w|th the terms of Art|c|e
1170 of the New C|v|| Code wh|ch prov|des that "1hose who |n the
performance of the|r ob||gat|ons are gu||ty of fraud, neg||gence, or de|ay,
and those who |n any manner contravene the tenor thereof, are ||ab|e
for damages." 1h|s same pr|nc|p|e |s expressed |n Art|c|e 1909 of the Law
on Agency, wh|ch prov|des that "1he agent |s respons|b|e not on|y for
fraud, but a|so for neg||gence, wh|ch sha|| be ad[udged w|th more or |ess
r|gor by the courts, accord|ng to whether the agency was or was not for
a compensat|on."
A|though a contract of agency |s term|nated '6)" X8(7 upon the
death of the pr|nc|pa|, nonethe|ess, Art|c|e 1884 of the New C|v|| Code
express|y prov|des that the agent must f|n|sh the bus|ness a|ready begun
upon death of pr|nc|pa| shou|d de|ay enta|| any danger. In other the
words, the ob||gatory force of the duty of the agent to act w|th d|||gence
exceeds the forma| term|nat|on of the agency re|at|onsh|p, wh|ch
automat|ca||y comes about by the death of the pr|nc|pa|. 1he prov|s|on
emphas|zes the character|st|c of agency as a 6(76,(,*"(% ,-.
6("+(7))'T7 P"-*(,P*: that |t |s

const|tuted not for |ts own sake, by pr|mar||y to be the bas|s by wh|ch
the agent may enter |nto [ur|d|ca| acts on beha|f of the pr|nc|pa| w|th
respect to th|rd part|es. Consequent|y, even when the agency re|at|on |s
term|nated upon the death of the pr|nc|pa|, the commenced but
unf|n|shed contracts and transact|ons then pend|ng must be fu|f|||ed by
the agent on beha|f of the decedent, when cont|nuat|on of
representat|on |s necessary.
1. Measure of Damage for Agent's Non-erformance of Cb||gat|on
We beg|n w|th the pr|nc|p|e enunc|ated ear|y on |n >7(7.', T3
;,R'-,) constru|ng the or|g|na| vers|on of Art|c|e 1884 (Art|c|e 1718 of the
o|d C|v|| Code), where the Supreme Court he|d that the burden |s on the
person who seeks to make an agent ||ab|e to show that the |osses and
damage caused were occas|oned by the fau|t or neg||gence of the agent,
mere a||egat|on w|thout substant|at|on |s not enough to make the agent
persona||y ||ab|e.
In K5'R'66'-7 9,*'"-,R :,-1 T3 0,-'R, ;8(7*%,
2
where the ho|der of
an exc|us|ve and |rrevocab|e power of attorney to make co||ect|ons,
fa||ed to co||ect the sums due to the pr|nc|pa| and thereby a||owed the
a||otted funds to be exhausted by other cred|tors, such agent was
ad[udged to have fa||ed to act w|th the care of a good father of a fam||y
requ|red under Art|c|e 1887 of the New C|v|| Code and became
persona||y ||ab|e for the damages wh|ch the pr|nc|pa| suffered through
h|s non-performance.
In :B L'-,-P7 T3 <"8(* "& B667,R)/
[
under the deed of chatte|
mortgage, the f|nance company was const|tuted as an attorney- |n-fact
for the mortgagors w|th fu|| power and author|ty to f||e, fo||ow-up,
prosecute, comprom|se or sett|e |nsurance c|a|ms, to s|gn execute and
de||ver the correspond|ng papers, rece|pts and documents to the
|nsurance company as may be necessary to prove the c|a|m, and to
co||ect from the |atter the proceeds
'10 h||. 1S7
( )
2
14 SCkA 776

3
201 SCkA 1S7
( 99 )

CWLk & AU1nCkI1, DU1ILS & C8LIGA1ICNS, 141
of |nsurance to the extent of |ts |nterests, |n the event that the
mortgaged car suffers any |oss or damage, the grant of power
const|tuted the f|nance company as the agent of the mortgagors.
When the mortgaged motor veh|c|e f|gured |n an acc|dent that
wou|d have a||owed recovery for tota| |oss on the |nsurance c|a|m, and
the mortgagors had |nstructed the f|nance company to make such c|a|m,
but |nstead |t opted to have the motor veh|c|e repa|red, the Court
decreed that the fa||ure and refusa| of the f|nance company to seek tota|
|oss c|a|ms on the veh|c|e mortgaged aga|nst the |nsurance company,
const|tuted neg||gence and not outr|ght refusa| to comp|y w|th the
|nstruct|ons of the pr|nc|pa|s, and rendered |t ||ab|e for damages. It he|d
that under Art|c|e 1884 of the New C|v|| Code, the f|nance company was
bound by |ts acceptance to carry out the agency, and |s ||ab|e for
damages wh|ch, through |ts non-performance, the pr|nc|pa|s-mortgagors
may suffer. Consequent|y, by reason of the |oss suffered by the
pr|nc|pa|s, the Court he|d that the f|nance company cou|d no |onger
co||ect on the unpa|d ba|ance of the prom|ssory note secured by the
chatte| mortgage.
C8LIGA1ICN CI AGLN1 WnC DLCLINLS AGLNC
Ak1. 188S. In case a person dec||nes an agency, he |s bound
to observe the d|||gence of a good father of a fam||y |n the
custody and preservat|on of the goods forwarded to h|m by
the owner unt|| the |atter shou|d appo|nt an agent. 1he owner
sha|| as soon as pract|cab|e e|ther appo|nt an agent or take
charge of the goods, (n)
When a person dec||nes the offer to make h|m an agent, genera||y
no contract of agency ar|ses and thereby no ob||gat|on |s assumed by
such person to the offeror based on the absence of pr|v|ty. nowever,
Art|c|e 188S of the New C|v|| Code prov|des for the fo||ow|ng except|ons
='373/ when the offeree, |n sp|te of h|s
142
refusa| to accept the appo|ntment, assumes certa|n ||ab|||t|es), thus: "he
|s bound to observe the d|||gence of a good father of a fam||y |n the
custody and preservat|on of the goods forwarded to h|m by the owner
unt|| the |atter shou|d appo|nt an agent." 1he duty of care over goods
g|ven to h|s custody can on|y cover a "reasonab|e per|od," because the
same art|c|e prov|des that "1he owner sha|| as soon as pract|cab|e e|ther
appo|nt an agent or take charge of the goods."
We shou|d compare the ob||gat|ons of a person who dec||nes an
agency, from one who w|thdraws from an agency he prev|ous|y
accepted. Under Art|c|e 1929, even |f an agent w|thdraws from the
agency for a va||d reason, "he must cont|nue to act unt|| the pr|nc|pa|
has had reasonab|e opportun|ty to take the necessary steps to meet the
s|tuat|on."
1he prov|s|ons of Art|c|es 188S and 1929 const|tute rare |nstances
where a duty of d|||gence |s owed by a person to another outs|de of an
ex|st|ng contractua| bond.
GLNLkAL kULL CN AGLN1'S CWLk AND AU1nCkI1
Ak1. 1881. 1he agent must act w|th|n the scope of h|s
author|ty. ne may do such acts as may be conduc|ve to the
accomp||shment of the purpose of the agency. (1714a)
Ak1. 1882. 1he ||m|ts of the agent's author|ty sha|| not be
cons|dered exceeded shou|d |t have been performed |n a
manner more advantageous to the pr|nc|pa| than that
spec|f|ed by h|m. (171S)
Ak1. 1887. In the execut|on of the agency, the agent sha||
act |n accordance w|th the |nstruct|ons of the pr|nc|pa|.
In defau|t thereof, he sha|| do a|| that a good father of a
fam||y wou|d do, as requ|red by the nature of the bus|ness.
(1719)

Ak1. 1888. An agent sha|| not carry out an agency |f |ts
execut|on wou|d man|fest|y resu|t |n |oss or damage to the
pr|nc|pa|, (n)
Ak1. 1889. 1he agent sha|| be ||ab|e for damages |f, there
be|ng a conf||ct between h|s |nterests and those of the
pr|nc|pa|, he shou|d prefer h|s own. (n)
1. Statutory Measures of Comp||ance by the Agent of n|s I|duc|ary Dut|es
of Cbed|ence and D|||gence
Art|c|e 1887 of the New C|v|| Code prov|des succ|nct|y the tw|n
measures of how an agent shou|d act "In the execut|on of the agency,"
wh|ch ought to be as fo||ows:
(a) Agent must act "|n accordance w|th the |nstruct|ons of
the pr|nc|pa|,"
(b) In defau|t of gu|d|ng |nstruct|ons, the agent "sha|| do a||
that a good father of a fam||y wou|d do, as requ|red by
the nature of the bus|ness."
1he tw|n dut|es of the agent |n the execut|on of the agency can be
summar|zed |n the Agency Law doctr|ne embod|ed |n Art|c|e 1881 of the
New C|v|| Code that "!57 ,+7-* $8)* ,P* b'*5'- *57 )P"67 "& 5')
,8*5"('*%O In Corporate Law par|ance, that same concept |n covered by
the terms O.8*% "& "S7.'7-P7O and O.8*% "& .'R'+7-P73O
DU1 CI C8LDILNCL
Cn the f|rst |eve|, the duty to act |n accordance w|th the
|nstruct|ons of the pr|nc|pa| ||es as the heart of the pr|nc|pa| agency
re|at|ons, and best encapsu||zed |n the term O.8*% "& "S7.'7-P7O S|nce
by def|n|t|on under Art|c|e 1868 of the New C|v|| Code, the agent
assumes the ob||gat|on to represent the pr|nc|pa|, then the foremost
duty of every agent so appo|nted must be to fo||ow the

|nstruct|ons of the pr|nc|pa|. 1hus, |n 2'P*"(',) 0'RR'-+ <"3 T3 <"8(* "&
B667,R)] |n try|ng to d|st||| the essence of what d|st|ngu|shes a contract
of agency from a contract of agency to se||, the Supreme Court he|d
representat|on. . . . Cne factor wh|ch most c|ear|y
d|st|ngu|shes agency from other |ega| concepts |s P"-*("R^/
one person - the agent - agrees to act under the contro| or
d|rect|on of another - the pr|nc|pa|. Indeed, the very word
"agency has come to connote contro| by the pr|nc|pa|.
S

Another way of |ook|ng at the same pr|nc|p|e |s to cons|der that
s|nce the essence of every contract of agency |s for the agent to enter
|nto contractua| or [ur|d|ca| re|at|onsh|ps |n the name of the pr|nc|pa|,
then |n orderforthe pr|nc|pa| to be bound by the contracts or
transact|ons entered |nto by h|s agent w|th th|rd part|es, |t |s essent|a|
under Contract Law 6('-P'6R7 "& P"-)7-)8,R'*%/ that |t |s the pr|nc|pa|'s
consent that |s g|ven by the agent to the contract or transact|on,
otherw|se, the pr|nc|pa| cannot be he|d ||ab|e for a contract or
transact|on to wh|ch he never gave h|s consent. Art|c|e 1881 of the New
C|v|| Code prov|des that the agent must act "w|th|n the scope of h|s
author|ty," wh|ch means that s|nce the agent acts |n representat|on of
the pr|nc|pa|, he must enter |nto [ur|d|ca| re|at|ons on beha|f of the
pr|nc|pa| and represent|ng the w||| or consent of the pr|nc|pa|, and not
h|s (agent's) own w|||.
Cne of the c|earest examp|es that the agent has g|ven the consent
of the pr|nc|pa| to a contract or a transact|on, |s when he acts |n
accordance w|th the |nstruct|ons of the pr|nc|pa|. 1here |s no doubt that
when an agent comp||es w|th the |nstruct|ons of h|s pr|nc|pa|, he |s
act|ng w|th|n the scope of h|s author|ty.
Nonethe|ess, the under|y|ng ob||gat|on of the agent to fo||ow the
|nstruct|ons of the pr|nc|pa|, |s st||| a persona| ob||gat|on "to do," and the
express|on of the pr|nc|pa|'s w||| depends much on how the agent obeys
h|s |nstruct|ons. In the event that the
<333 SCkA 663
( )
]RS'./ at pp.

CWLk & AU1nCkI1, DU1ILS & C8LIGA1ICNS, 14S
agent refuses to fo||ow the Instruct|ons of the pr|nc|pa|, then the
ob||gatory nature of the agency re|at|onsh|p |s preserved by two |ega|
consequences mandated by |aw:
L'()*/ the agent becomes persona||y ||ab|e for damages ar|s|ng from
a breach of h|s duty of obed|ence to the pr|nc|pa|.
;7P"-./ s|nce the agent had not g|ven the pr|nc|pa|'s consent to the
contract or transact|on entered |nto w|th a th|rd party, the pr|nc|pa| |s
not persona||y bound by the terms of such contract or transact|ons.
!5'(., |t wou|d then be the agent who may become persona||y
||ab|e for the contract or transact|on. 1hus, Art|c|e 1898 of the New C|v||
Code prov|des "If the agent contracts |n the name of the pr|nc|pa|,
exceed|ng the scope of h|s author|ty, and the pr|nc|pa| does not rat|fy
the contract, |t sha|| be vo|d |f the party w|th whom the agent contracted
|s aware of the ||m|ts of the powers granted by the pr|nc|pa|. In th|s case,
however, the agent |s ||ab|e |f he undertook to secure the pr|nc|pa|'s
rat|f|cat|on."
DU1 CI DILIGLNCL
Cften, agency re|at|on |s entered |nto ma|n|y for bus|ness or
commerc|a| ventures, and |t |s not expected that the pr|nc|pa| can cover
a|| cont|ngenc|es w|th spec|f|c |nstruct|ons, or that every act of the agent
must be based on deta||ed |nstruct|ons of the pr|nc|pa|. 1he agent |s
expected to use h|s bus|ness d|scret|on as the pr|nc|pa| wou|d or cou|d, |f
persona||y present. 1herefore, we shou|d cons|der the pr|nc|pa|'s
|nstruct|ons as the ||m|t of an agent's power, and that |n the absence of
||m|t|ng |nstruct|ons, |t |s expected that the agent uses h|s best [udgment
to stay w|th|n the scope of the pr|nc|pa|'s author|ty granted to h|m. 1h|s
|s part of the O.8*% "& .'R'+7-P7O of every agent who accepts an agency
des|gnat|on. 1hus, Art|c|e 1887 of the New C|v|| Code prov|des that |n
defau|t of the pr|nc|pa|'s |nstruct|ons, the agent "sha|| do a|| that a good
father of a fam||y wou|d do, as requ|red by the nature of the bus|ness."
1h|s |s not to say that when the pr|nc|pa| has g|ven deta||ed
|nstruct|ons to the agent, that the agent |s no |onger bound to

exerc|se due d|||gence, for |ndeed every agent |s a party to a contract of
agency, not a mere robot, who |s expected to exerc|se prudence |n
fo||ow|ng the |nstruct|ons of the pr|nc|pa|.
1h|s pr|nc|p|e |s a|so expressed under Art|c|e 1881 of the New C|v||
Code, wh|ch prov|des that the agent "may do such acts as may be
conduc|ve to the accomp||shment of the purpose of the agency."
L|kew|se, Art|c|e 1882 prov|des that "1he ||m|ts of the agent's author|ty
sha|| not be cons|dered exceeded shou|d |t have been performed |n a
manner more advantageous to the pr|nc|pa| than that spec|f|ed by h|m."
In other words, an agent not on|y has express powers, but a|so |mp||ed
powers emanat|ng from the express powers granted to h|m, as we|| as
|nc|denta| powers necessary |n order to ach|eve the purpose for wh|ch
the agency was const|tuted.
In !,- !'"-+ T3 SLC,
6
|t was he|d that the agent |s not deemed to
have exceeded h|s author|ty shou|d he perform the agency |n a manner
more advantageous to the pr|nc|pa| than that |nd|cated by the pr|nc|pa|.
1hus, when the agent so|d the car of the pr|nc|pa| for more than the
amount |nd|cated by the pr|nc|pa|, then he had not exceeded h|s
author|ty because a h|gher pr|ce was more advantageous to the
pr|nc|pa|.
1he pr|nc|p|e was re|terated |n the sy||abus of the pub||shed
dec|s|on |n ?R,+87( T3 K8(8++,-,-/ J(3/
N
where |t |s wr|tten that under
Art|c|e 1882 of the New C|v|| Code the ||m|ts of an agent's author|ty sha||
not be cons|dered exceeded shou|d |t have been performed |n a manner
advantageous to the pr|nc|pa| than that spec|f|ed by h|m. In that
dec|s|on, the manner by wh|ch the attorney-|n-fact pursued the sa|e of
the shares of the pr|nc|pa|, and the payment of the cons|derat|on so as
not to revea| that he owned such shares as requested by the pr|nc|pa|,
were a|| deemed to have been executed by the agent w|th|n the scope
of h|s author|ty.
In essence, the duty of d|||gence requ|res of the agent to act on
beha|f of the pr|nc|pa| exerc|s|ng the due d|||gence of a
"69 h||. 42S
( 9 0)
7
S1S SCkA460
(200 )
good father of a fam||y, and he |s |n breach of such f|duc|ary duty when
he acts |n fraud or |n neg||gence, even when he pursues the bus|ness of
the pr|nc|pa|. Art|c|es 1887 and 1909 of the New C|v|| Code conf|rm the
tru|sm that |n the pursu|t of the agency, |t |s expected that the agent
wou|d have to act based on h|s own assessment of what |s necessary
under the s|tuat|on when |t |s not covered by an express |nstruct|on from
the pr|nc|pa|. 1he agent |s supposed to exerc|se the bus|ness [udgment
expected from the pr|nc|pa| when enter|ng |nto [ur|d|ca| re|at|ons w|th
th|rd part|es or pursu|ng the bus|ness under h|s management.
As a matter of gu|de||ne of what |s w|th|n h|s power, Art|c|e 1888
prov|des that the agent "sha|| not carry out an agency |f |ts execut|on
wou|d man|fest|y resu|t |n |oss or damage to the pr|nc|pa|." Not|ce that
the art|c|e covers on|y acts that wou|d "man|fest|y" |ead to |osses, |n
other words, the agent cannot be a guarantor that the pr|nc|pa| wou|d
suffer no |oss or damage |n the pursu|t of the agency, human nature as |t
|s, the susta|n|ng of |osses due to human error |s part of the r|sk of every
owner or pr|nc|pa| assumes, even when he h|mse|f carr|es on the
bus|ness. 1he ob||gat|on of the agent |s to avo|d |osses wh|ch are c|ear|y
avo|dab|e from the exerc|se of due d|||gence of a good father of a fam||y.
1. Measure of L|ab|||ty for 8reach of Duty of D|||gence
When an agent v|o|ates h|s duty of d|||gence, he becomes
persona||y ||ab|e to the pr|nc|pa| for the damages caused to the pr|nc|pa|
by reason of h|s fraud or neg||gence.
It shou|d be emphas|zed however, that when the agent acts |n
accordance w|th the |nstruct|ons of the pr|nc|pa|, the agent cannot be
deemed to have acted |n fraud aga|nst the pr|nc|pa| or to have acted
neg||gent|y, even when damage was caused to the pr|nc|pa|. 1hus, Art|c|e
1899 prov|des that "If a du|y author|zed agent acts |n accordance w|th
the orders of the pr|nc|pa|, the [pr|nc|pa|] cannot set up the |gnorance of
the agent as to c|rcumstances whereof he h|mse|f was, or ought to have
been, aware."

2. When Agent Is Gu||ty of Iraud or Neg||gence
Ak1. 1909. 1he agent |s respons|b|e not on|y for fraud, but
a|so for neg||gence, wh|ch sha|| be [udged w|th more or |ess
r|gor by the courts, accord|ng to whether the agency was or
was not for a compensat|on. (1726)
Art|c|e 1909 of the New C|v|| Code prov|des that "1he agent |s
respons|b|e not on|y for fraud, but a|so for neg||gence, wh|ch sha|| be
[udged w|th more or |ess r|gor by the courts, accord|ng to whether the
agency was or was not for a compensat|on."
4"$'-+" T3 4"$'-+",
8
|n not|ng that "Art|c|e 1909 of the New C|v||
Code |s essent|a||y a re|nstatement of Art|c|e 1726 of the o|d Span|sh
C|v|| Code,"
9
he|d that the prov|s|ons of Art|c|e 1909 -
. . . demand the utmost good fa|th, f|de||ty, honesty,
candor and fa|rness on the part of the agent, the rea| estate
broker |n th|s case, to h|s pr|nc|pa|, the vendor. 1he |aw
|mposes upon the agent the abso|ute ob||gat|on to make a
fu|| d|sc|osure or comp|ete account to h|s pr|nc|pa| of a|| h|s
transact|ons and other mater|a| facts re|evant to the agency,
so much so that the |aw as amended does not countenance
any st|pu|at|on exempt|ng the agent from such an ob||gat|on
and cons|ders such an exempt|on as vo|d. 1he duty of an
agent |s ||kened to that of a trustee. 1h|s |s not a techn|ca| or
arb|trary ru|e but a ru|e founded on the h|ghest and truest
pr|nc|p|e of mora||ty as we|| as of the str|ctest [ust|ce.
10

1he prov|s|ons of Art|c|e 1909 are an |mp|ementat|on of the duty
of d|||gence expressed |n Art|c|e 1887 wh|ch prov|des that |n the
execut|on of the agency, the agent sha|| act |n accordance
8
42 SCkA 131
( )
h'S'./ at p. 137.
10
]b]d, at p. 137.

w|th the |nstruct|ons of the pr|nc|pa|, and |n defau|t of |nstruct|ons, the
agent "sha|| do a|| that a good father of a fam||y wou|d do, as requ|red by
the nature of the bus|ness," and Art|c|e 1888, wh|ch prov|des that an
agent "sha|| not carry out an agency |f |ts execut|on wou|d man|fest|y
resu|t |n |oss or damage to the pr|nc|pa|."
Cn the other hand, an agent cannot be he|d persona||y ||ab|e by
the pr|nc|pa| for damages caused where, as prov|ded under Art|c|e 1899,
the "agent acts |n accordance w|th the orders of the pr|nc|pa|, the
pr|nc|pa| cannot set-up the |gnorance of the agent as to c|rcumstances
whereof he h|mse|f was, or ought to have been, aware." 1h|s refers to
the ||ab|||ty |ncurred by the pr|nc|pa| as to th|rd part|es: hav|ng appo|nted
an |gnoramus for an agent, who acts |n accordance w|th the pr|nc|pa|'s
|nstruct|on ='373/ does not use good [udgment), the pr|nc|pa| cannot avo|d
h|s ob||gat|ons ar|s|ng from the contract.
Art|c|e 1909 |s a|so the |ega| bas|s by wh|ch an agent becomes
persona||y ||ab|e to th|rd part|es who are |n[ured by h|s act of fraud or
neg||gence.
In <,.b,RR,.7( T3 ;$'*5 :7RR/O where the agent by means of
m|srepresentat|on of the cond|t|on of the market |nduces h|s pr|nc|pa| to
se|| to h|m the property cons|gned to h|s custody, at a pr|ce |ess than that
for wh|ch he has a|ready contracted to se|| part of |t, and who thereafter
d|sposed of the who|e at an advance, was he|d ||ab|e to pr|nc|pa| for the
d|fference. 1he Court he|d that such conduct on the part of the agent
const|tuted fraud, ent|t||ng the pr|nc|pa| to annu| the contract of sa|e.
A|though comm|ss|on earned by the agent on the fraudu|ent sa|e may be
d|sa||owed, nonethe|ess comm|ss|on earned from other transact|ons
wh|ch were not ta|nted w|th fraud shou|d be a||owed the agent.
B8)*(', T3 <"8(* "& B667,R),
12
he|d that |n cons|gnment of
goodsforsa|e, as aform of agency, the cons|gnee-agent |s re||eved from
h|s ||ab|||ty to return the goods rece|ved from the cons|gnor- pr|nc|pa|
when |t |s shown by preponderance of ev|dence |n the
11
7 h||. 461
( )
12
39 SCkA S27
( )

1S0 NCN-CCkCkA1L MLDIA CI DCING 8USINLSS
c|v|| case brought that the goods were taken from the custody of the
cons|gnee by robbery, and no separate conv|ct|on of robbery |s
necessary to ava|| of the exempt|ng prov|s|ons under Art|c|e 1174 of the
New C|v|| Code for &"(P7 $,X78(73
In 07*("S,-1 T3 <"8(* "& B667,R)/^
[
the Court brushed as|de the
content|on that s|nce |t was mere|y act|ng as co||ect|ng bank, |t was the
drawee bank that shou|d be he|d ||ab|e for the |oss of a depos|tor: "In
stress|ng that |t was act|ng on|y as a co||ect|ng agent for Go|den Sav|ngs,
Metrobank seems to be suggest|ng that as a mere agent |t cannot be
||ab|e to the pr|nc|pa|. 1h|s |s not exact|y true. Cn the contrary, Art|c|e
1909 of the New C|v|| Code c|ear|y prov|des that" the agent |s
respons|b|e not on|y for fraud, but a|so for neg||gence.
In :('*')5 B'(b,%) T3 <"8(* "& B667,R)/^] |n overturn|ng the ru||ng of
the appe||ate court that a pr|nc|pa| a|r||ne company wh|ch |s made to
pay damages to one of |ts passengers, had no cause of act|on to recover
the amount pa|d from |ts agent a|r||ne company wh|ch |t accused of
caus|ng the neg||gent act, the Supreme Court he|d that
arenthet|ca||y, the Court of Appea|s shou|d have been
cogn|zant of the we||-sett|ed ru|e that an agent |s a|so
respons|b|e for any neg||gence |n the performance of |ts
funct|on [Art. 1909, C|v|| Code] and |s ||ab|e for the damages
wh|ch the pr|nc|pa| may suffer by reason of |ts neg||gent act
[Art. 1884, C|v|| Code]. nence, the Court of Appea|s erred
when |t op|ned that 8A, be|ng the pr|nc|pa|, had no cause of
act|on aga|nst AL, |ts agent or sub-contractor.
1S

1he Court a|so noted |n :('*')5 B'(b,%)/ that s|nce the passenger
was seek|ng damages for breach of contract of carr|age, |ts cause of
act|c>n was on|y aga|nst the pr|nc|pa| a|r||ne (8A), and not AL s|nce the
|atter was not a party to the contract, but that "th|s |s not to say that AL
|s re||eved from any ||ab|||ty
"
1
9
4

CWLk & AU1nCkI1, DU1ILS & C8LIGA1ICNS, 1S1
due to any of |ts neg||gent acts."
16
1he Court then aff|rmed that the
procedura| remedy that 8A took, that of f|||ng a th|rd-party comp|a|nt
aga|nst AL, was correct, "for the purpose of u|t|mate|y determ|n|ng who
was pr|mar||y at fau|t as between them."
DU1 CI LCAL1
1. Duty of Loya|ty |n Genera|
Ak1. 1889. 1he agent sha|| be ||ab|e for damages |f, there
be|ng a conf||ct between h|s |nterests and those of the
pr|nc|pa|, he shou|d prefer h|s own. (n)
Art|c|e 1889 of the New C|v|| Code sets-out what |n corporate
par|ance |s known as the ".8*% "& R"%,R*% as |t perta|ns to an agent: "1he
agent sha|| be ||ab|e for damages |f, there be|ng a conf||ct between h|s
|nterest and those of the pr|nc|pa|, he shou|d prefer h|s own." Agency
re|at|on |s essent|a||y f|duc|ary |n character, wh|ch requ|res of the agent
to observe utmost good fa|th and |oya|ty to the pr|nc|pa|.
When an agent v|o|ates h|s duty of |oya|ty, as where |n a
conf||ct-of-|nterests s|tuat|on he prefers h|s own |nterest to the
detr|ment of the pr|nc|pa|, Art|c|e 1899 does not dec|are the contract or
transact|on he entered |nto to be vo|d, but mere|y makes the agent
||ab|e for the damages suffered by the pr|nc|pa|. In Corporate Law, when
a d|rector or off|cer v|o|ates h|s duty of |oya|ty to the corporat|on, he |s
bound to d|sgorge to the corporat|on a|| the prof|ts and earn|ngs he
obta|n from h|s breach of duty, even when he used h|s own cap|ta| or
funds for the contract or transact|on.
17
1he OPR,bVS,P1 ."P*('-7O |s
app||cab|e |n Agency Law.
b
RS'./ at p. 464.
"Sees. 31 and 34, Corporat|on
Code

a. Measure of Damages Due to the r|nc|pa| When Agent
V|o|ates n|s Duty of Loya|ty
Art|c|e 1891 of the New C|v|| Code prov|des that the agent "|s
bound to render an account of h|s transact|ons and to de||ver to the
pr|nc|pa| whatever he may have rece|ved by v|rtue of the agency, even
though |t may not be ow|ng to the pr|nc|pa|." 1he pr|nc|pa| therefore has
the r|ght to demand that the agent shou|d turn-over to h|m whatever
contract, property or bus|ness has been acqu|red by the agent |n breach
of h|s duty of |oya|ty.
;'-+ J8P" ,-. ;'-+ :7-+P" T3 ;8-%,-*"-+ ,-. @R"(7-*7/
`j
he|d that
a conf|dent|a| emp|oyee who, know|ng that h|s pr|nc|pa| was negot|at|ng
w|th the owner of some |and for the purchase thereof, surrept|t|ous|y
succeeds |n buy|ng the |and |n the name of h|s w|fe, comm|tted an act of
d|s|oya|ty and |nf|de||ty to h|s pr|nc|pa|, whereby he becomes ||ab|e,
among other th|ngs, for the damages caused, wh|ch meant to transfer
the property back to the pr|nc|pa| under the terms and cond|t|ons
offered to the or|g|na| owner.
In ;7T7('-" T3 ;7T7('-",
19
the Court re|terated the ru|e that the
re|at|ons of an agent to h|s pr|nc|pa| are f|duc|ary and |n regard to the
property form|ng the sub[ect-matter of the agency, he |s estopped from
acqu|r|ng or assert|ng a t|t|e adverse to that of the pr|nc|pa|.
Consequent|y, an act|on '- 67()"-,$ w||| ||e aga|nst an agent to compe|
h|m to return or retransfer to h|s pr|nc|pa|, or the |atter's estate, the rea|
property comm|tted to h|s custody as such agent and a|so to execute the
necessary documents of conveyance to effect such retransfer.
BS"'*'\ T3 47 ;'RT,/
Yc
he|d that an agent cannot represent both
h|mse|f and h|s pr|nc|pa| |n a transact|on |nvo|v|ng the sh|ft|ng to another
person of the agent's ||ab|||ty for a debt to the pr|nc|pa|. 1he agent was
he|d to rema|n ||ab|e for the account to the pr|nc|pa|.
18
43 h||. S89
( )
1
0

In [ur|sprudence, a gu||ty agent |s made to forfe|t the comm|ss|on
that otherw|se shou|d be due to h|m, as pena|ty for v|o|at|on of h|s duty
of |oya|ty.
21

In Cr|m|na| Law, the agent who refuses or fa||s to return to the
pr|nc|pa| the funds or property rece|ved may be he|d ||ab|e for estafa.
22

b. When Agent Contracts |n n|s Cwn Name on a Matter that
Ia||s W|th|n the Scope of the Agency
Art|c|e 1883 of the New C|v|| Code prov|des that "If an agent acts |n
h|s own name, the pr|nc|pa| has no r|ght of act|on aga|nst the person
the pr|nc|pa|." In such a case, |t |s the agent who "|s the one d|rect|y
bound |n favor of the person w|th whom he has contracted, as |f the
transact|on were h|s own, except when the contract |nvo|ves th|ngs
be|ong|ng to the pr|nc|pa|."
If the matters entered |nto by the agent |n h|s own name are
matters that are w|th|n the scope of h|s author|ty or those perta|n|ng to
matters that shou|d perta|n to the bus|ness of the pr|nc|pa|, there wou|d
be no doubt that the agent has breached h|s f|duc|ary duty of |oya|ty, by
hav|ng preferred h|s own |nterests to that of the pr|nc|pa|'s. Whether the
agent has used h|s own funds or property, or those of the pr|nc|pa|'s, he
wou|d st||| be |n breach of th|s f|duc|ary duty, and under Art|c|e 1891 of
the New C|v|| Code, he "|s bound to render an account of h|s transact|ons
and to de||ver to the pr|nc|pa| whatever he may have rece|ved by v|rtue
of the agency, even though |t may not be ow|ng to the pr|nc|pa|." In
e|ther case, therefore, the pr|nc|pa| has the r|ght to demand that the
agent shou|d turn-over to h|m whatever contract, property or bus|ness
has been acqu|red by the agent |n breach of h|s duty of |oya|ty.
In ;*("-+ T3 C8'*7((7\ G76'.7,
23
the U.S. Supreme Court, |n
revers|ng a dec|s|on of the h|||pp|ne Supreme Court dur|ng
21
U.S. T3 G7%7), 36 h||. 792 (1917), 4"$'-+" T3 4"$'-+"/ 42 SCkA
131 (1971).
YY
E3;3 T3 p'7-7/ 7 h||. 736 (1907).
*41 h||. 947 (1909).

the Amer|can co|on|zat|on era, he|d that the d|rector and genera|
manager of the stock corporat|on, who a|so was the ma[or|ty
stockho|der, and was des|gnated to be the ma|n negot|ator for the
company w|th the Government for the sa|e of |ts |arge tract of |and,
hav|ng spec|a| know|edge of commerc|a| |nformat|on that wou|d
|ncrease the va|ue of the shares |n re|at|on to the sa|e of the parce|s of
|and to the Government, cou|d |ega||y be treated as be|ng an agent of
the stockho|ders of the company, w|th a f|duc|ary ob||gat|on to revea| to
the other stockho|ders such spec|a| |nformat|on before proceed|ng to
purchase from the other stockho|ders the|r shares of stock.
Consequent|y, s|nce such d|rector purchased the shares of a stockho|der
w|thout hav|ng d|sc|osed |mportant facts or to render the appropr|ate
report on the expected |ncrease |n va|ue of the company, there was
fraud comm|tted for wh|ch the d|rector was he|d ||ab|e for the earn|ngs
earned aga|nst the stockho|der on the sa|e of shares.
In 0'+87R T3 <"8(* "& B667,R)/
Ya
the Court he|d that
. . . a f|duc|ary re|at|on ar|ses where one man assumes
to act as agent for another and the other reposes conf|dence
|n h|m, a|though there |s no wr|tten contract or no contract at
a||. If the agent v|o|ates h|s duty as f|duc|ary, a construct|ve
trust ar|ses. It |s |mmater|a| that there was no antecedent
f|duc|ary re|at|on and that |t arose contemporaneous|y w|th
the part|cu|ar transact|on.
2S

If the agent had used the funds be|ong|ng to the pr|nc|pa|, under
Art|c|e 1896 of the New C|v|| Code he "owes |nterest on the sums he has
app||ed to h|s own use from the day on whteh he d|d so, and on those
wh|ch he st||| owes after the ext|ngu|shment of the agency." 1he
prov|s|ons of th|s art|c|e presumes that the property or bus|ness
acqu|red by the agent for h|s own |n v|o|at|on of h|s f|duc|ary duty |s one
that the pr|nc|pa| |s not demand|ng to be de||vered to h|m. 1h|s |s c|ear
from Art|c|e 1918
24
29 SCkA 760 (1969).
mFS'./ at p. 777, P'*'-+ Scott on 1rusts, 3rd ed., Vo|. V, p. 2S44, P'*'-+
>,(("6 T3 <"R7// 8S N.I. Lq. 32, 9S A. 378, affd 86 N.I. La. 2S0, 98 A.
108S

CWLk & AU1nCkI1, DU1ILS & C8LIGA1ICNS, 1SS
of the New C|v|| Code wh|ch prov|des that "1he pr|nc|pa| |s not ||ab|e for
the expenses |ncurred by the agent. . . [|]f the agent acted |n
contravent|on of the pr|nc|pa|'s |nstruct|ons, un|ess the |atter shou|d
w|sh to ava|| h|mse|f of the benef|ts der|ved from the contract." In other
words, |f the contract or bus|ness acqu|red by the agent |n breach of h|s
duty of |oya|ty |s demanded by the pr|nc|pa| to be turned over to h|m,
then the use of the pr|nc|pa|'s sum to acqu|re such bus|ness wou|d be
deemed to have been rat|f|ed, and the agent |s not persona||y ||ab|e for
the |nterests due on sa|d amount.
In add|t|on, Art|c|e 14SS of the New C|v|| Code (on |mp||ed trusts),
prov|des that "When any trustee, guard|an or other person ho|d|ng a
f|duc|ary re|at|onsh|p uses trust funds for the purchase of property and
causes the conveyance to be made to h|m or to a th|rd person, a trust |s
estab||shed by operat|on of |aw |n favor of the person to whom the
funds be|ong."
c. art|cu|ar ku|es on Conf||ct-of-|nterests S|tuat|ons
=`H K8(P5,)7 "& K('-P'6,R^) K("67(*%
Ak1. 1491. 1he fo||ow|ng persons cannot
acqu|re by purchase, even at a pub||c or [ud|c|a|
auct|on, e|ther |n person or through the med|at|on
of another:
W W W
(2) Agents, the property whose adm|n|strat|on
or sa|e may have been entrusted to them, un|ess
the consent of the pr|nc|pa| has been g|ven,
xxx (14S9a)
Ak1. 1492. 1he proh|b|t|ons |n the two preced|ng
art|c|es are app||cab|e to sa|es |n |ega| redempt|on,
comprom|ses and renunc|at|on, (n)

1S6
Art|c|e 1491(2) of the New C|v|| Code prov|des for any
conf||ct-of-|nterest s|tuat|on when |t prov|des that an agent |s proh|b|ted
from buy|ng property entrusted to h|m for adm|n|strat|on or
management, w|thout the pr|nc|pa|'s consent. Lven when an agent |s
author|zed to se|| the property, and he se||s |t to h|mse|f for va|uab|e
cons|derat|on but w|thout the consent of the pr|nc|pa|, the sa|e wou|d
be vo|d.
In :,(*"- T3 @7%*7 B)65,R*/
W
where the preva|||ng statutory ru|e
then was Art|c|e 267 of the Code of Commerce wh|ch dec|ared that no
agent sha|| purchase for h|mse|f or for another that wh|ch he has been
ordered to se||, the Court he|d that a sa|e by a broker to h|mse|f w|thout
the consent of the pr|nc|pa| wou|d be vo|d and |neffectua| whether the
broker has been gu||ty of fraudu|ent conduct or not. Consequent|y, such
broker |s not ent|t|ed to rece|ve any comm|ss|on under the contract,
much |ess any re|mbursement of expenses |ncurred |n pursu|ng and
c|os|ng such sa|es.
B(,-7*,/ F-P3 T3 47R K,*7(-"] he|d that the proh|b|t|on |n Art|c|e
1491(2) of the New C|v|| Code wh|ch renders an agent |ega||y |ncapab|e
of buy|ng the propert|es of h|s pr|nc|pa| connotes the |dea of trust and
"conf|dence, and so where the re|at|onsh|p does not |nvo|ve
cons|derat|ons of good fa|th and |ntegr|ty the proh|b|t|on shou|d not and
does not app|y. 1o come under the proh|b|t|on, the agent must be |n a
f|duc|ary re|at|on w|th h|s pr|nc|pa|."
28

?R,+87(T3 K8(8++,-,-/ J(3|,
29
recogn|zed that the proh|b|t|on
aga|nst agents purchas|ng property |n the|r hands for sa|e or
management |s c|ear|y not abso|ute, when so author|zed by the
pr|nc|pa|, the agent |s not d|squa||f|ed from purchas|ng the property he
ho|ds under a contract of agency to se||.
M
46 h||. 938
( )
27
91 h||. 786
(19S2).
Y:
RS'./ at p.
804.

=YH I57- B+7-* D$6"b7(7. *" :"(("b "( @7-. 0"-7%
Ak1. 1890. If the agent has been empowered to borrow
money, he may h|mse|f be the |ender at the current rate of
|nterest. If he has been author|zed to |end money at |nterest,
he cannot borrow |t w|thout the consent of the pr|nc|pa|, (n)
Art|c|e 1890 prov|des that when the agent |s empowered to
borrow or |end money by the pr|nc|pa|, then:
(a) If empowered to borrow money, he may be the
|ender at current |nterest, and
(b) If empowered to |end money at |nterest, he cannot
borrow w|thout pr|nc|pa|'s consent.
='H I5,* >,667-) I57- *57 B+7-* 2'"R,*7) >')
?SR'+,*'"-) 8-.7( B(*'PR7 `jlcr
In the case where the agent was the |ender to the pr|nc|pa| and
charged |nterest h|gher than the current rate, the d|fference wou|d have
to be returned to the pr|nc|pa|. If the agent borrows for h|mse|f w|thout
the pr|nc|pa|'s consent the money wh|ch the pr|nc|pa| has author|zed
h|m to |end out, he wou|d not on|y be ||ab|e for the current |nterest that
the pr|nc|pa| wou|d have earned had |t been |ent out to a th|rd party, he
wou|d a|so be ||ab|e for damages that the pr|nc|pa| may have suffered.
In >".+7) T3 ;,R,) ,-. ;,R,)/
[c
the Court he|d that when the power
granted to the agent was on|y to borrow money and mortgage
pr|nc|pa|'s property to secure the |oan, |t cannot be |nterpreted to
|nc|ude the author|ty to mortgage the propert|es to support the agent's
persona| |oans and use the proceeds
M
63 h||. S67 (1936).

thereof for h|s own benef|t. 1he |ender who |ends money to the agent
know|ng that |s was for persona| purpose and not for the pr|nc|pa|'s
account, |s a mortgagee |n bad fa|th and cannot forec|ose on the
mortgage thus const|tuted for the account of the agent. In add|t|on, the
Court ru|ed that "In cases ||ke the present one, |t shou|d be understood
that the agent was ob||gated to turn over the money to the pr|nc|pa|s,
or, at |east p|ace |t at the|r d|sposa|."
31

=[H ?SR'+,*'"- !" !8(-V?T7( *" *57 K('-P'6,R I5,*7T7(
G7P7'T7. S% 2'(*87 "& *57 B+7-P%
Under Art|c|e 1891 of the New C|v|| Code, every agent |s bound to
de||ver to the pr|nc|pa| whatever he may have rece|ved by v|rtue of the
agency, even though |t may not be ow|ng to the pr|nc|pa|, and even
when g|ven to h|m for h|s benef|t.
In ?X'-,+, T3 D)*,*7 "& K7(7\/
[Y
the Court he|d that |t matters not
how fa|r the conduct of the agent may have been |n a part|cu|ar case,
nor that the pr|nc|pa| wou|d have been no better of |f the agent had
str|ct|y pursued h|s power, nor that the pr|nc|pa| was not, |n fact, |n[ured
by the |ntervent|on of the agent for h|s own prof|t. 1he resu|t |n both
cases |s the same, the prof|ts sha|| st||| perta|n to the pr|nc|pa|.
1he matter sha|| be d|scussed |mmed|ate|y hereunder |n
con[unct|on w|th the duty of every agent to account.
d. Cb||gat|on of Agent to kender an Account
Ak1. 1891. Lvery agent |s bound to render an account of
h|s transact|ons and to de||ver to the pr|nc|pa| whatever he
may have rece|ved by v|rtue of the agency, even though |t may
not be ow|ng to the pr|nc|pa|.
['
RS'./ at p.
8
32
9 h||. 18S
( 90 )

Lvery st|pu|at|on exempt|ng the agent from the ob||gat|on
to render an account sha|| be vo|d. (1720a)
Under 1891 of the New C|v|| Code, "Lvery agent |s bound to render
an account of h|s transact|ons and to de||ver to the pr|nc|pa| whatever
he may have rece|ved by v|rtue of the agency, even though |t may not
be ow|ng to the pr|nc|pa|. Lvery st|pu|at|on exempt|ng the agent from
the ob||gat|on to render an account sha|| be vo|d." 1he duty to account
and to turn over to the pr|nc|pa| a|| prof|ts and ga|ns rece|ved |n the
pursu|t of the agency |s an |ntegra| part of the agent's f|duc|ary duty of
|oya|ty.
1he Supreme Court exp|a|ned |n 4"$'-+" T3 4"$'-+" the present
vers|on under Art|c|e 1891 was taken from Art|c|e 1720 of the o|d
Span|sh New C|v|| Code, w|th the f|rst paragraph cons|st|ng "|n chang|ng
the phrase 'to pay' to 'to de||ver,' wh|ch |atter term |s more
comprehens|ve than the former."
34

4"$'-+" a|so noted that the second paragraph of Art|c|e 1891
wh|ch dec|ared vo|d any st|pu|at|on seek|ng to exempt an agent from
the ob||gat|on to render an account, "|s a new add|t|on des|gned to
stress the h|ghest |oya|ty that |s requ|red to an agent condemn|ng as
vo|d any st|pu|at|on exempt|ng the agent from the duty and ||ab|||ty
|mposed on h|m |n paragraph one thereof."
3S

4"$'-+" d|scussed the |ega| consequences when the duty of
f|de||ty |s breached by an agent, thus
nence, an agent who takes a secret prof|t |n the nature
of a bonus, gratu|ty or persona| benef|t from the vendee,
w|thout revea||ng the same to h|s pr|nc|pa|, the vendor, |s
gu||ty of a breach of h|s |oya|ty to the pr|nc|pa| and forfe|ts
h|s r|ght to co||ect the comm|ss|on from h|s pr|nc|pa|, even |f
the pr|nc|pa| does not suffer any |n[ury by reason of such
breach of f|de||ty, or that he obta|ned better resu|ts or that
M
42 SCkA 131
(1971). OFS'./ at p.
137. ]RS'./ at p.
137

the agency |s a gratu|tous one, or that usage or customs
a||ows |t, because the ru|e |s to prevent the poss|b|||ty of any
wrong, not to remedy or repa|r an actua| damage. 8y tak|ng
such prof|t or bonus or g|ft or 6("6'-, from the vendee, the
agent thereby assumes a pos|t|on who||y |ncons|stent w|th
that of be|ng an agent for h|s pr|nc|pa|, who has a r|ght to
treat h|m, |nsofar as h|s comm|ss|on |s concerned, as |f no
agency had ex|sted. 1he fact that the pr|nc|pa| may have
been benef|ted by the va|uab|e serv|ces of the sa|d agent
does not excu|pate the agent who has on|y h|mse|f to b|ame
for such a resu|t by reason of h|s treachery or perf|dy.
38

1he Court then went on to c|te cases under the o|d Span|sh C|v||
Code where a r|gorous app||cat|on of Art|c|e 1720 was made:
In E3;3 T3 p'7-7 an |nsurance agent was conv|cted of
estafa for h|s fa||ure to de||ver sums of money pa|d to h|m
as an |nsurance agent for the account of h|s emp|oyer,
In In ?X'-,+, T3 D)*,*7 "& K7(7\ an adm|n|strator of an
estate was made ||ab|e under Art|c|e 1720 for fa||ure to
render an account of h|s adm|n|strat|on to the he|rs
un|ess the he|rs consented thereto or are estopped by
hav|ng accepted the correctness of h|s account prev|ous|y
rendered,
In E3;3 T3 keyes,
39
an agent was made ||ab|e for estate for
fa||ure to de||ver to h|s pr|nc|pa| the tota| amount
co||ected by h|m |n beha|f of h|s pr|nc|pa| and cou|d not
reta|n the comm|ss|on perta|n|ng to h|m by subtract|ng
the same from h|s co||ect|on.
In F- G7k :,$S7(+7(a |awyer was made ||ab|e under
Art|c|e 1720 when he fa||ed to de||ver to h|s
W
RS'./ at pp.
3 38
3
7
7

c||ent a|| the money and property rece|ved by h|m for
h|s c||ent desp|te h|s attorney's ||en, and
- In 485,(* T3 0,P',),
41
the duty of a comm|ss|on
agent to render a fu|| account of h|s operat|ons to h|s
pr|nc|pa| was re|terated.
4"$'-+" a|so c|ted Amer|can [ur|sprudence that app|y the
doctr|ne under Art|c|e 1891, thus:
1he Amer|can [ur|sprudence on th|s score |s we||-n|gh
unan|mous.
Where a pr|nc|pa| has pa|d an agent or broker a
comm|ss|on wh||e |gnorant of the fact that the |atter has
been
unfa|thfu|, the pr|nc|pa| may recover back the comm|ss|on
pa|d, s|nce an agent or broker who has been unfa|thfu| |s not
ent|t|ed to any compensat|on.
x x x
In d|scuss|ng the r|ght of the pr|nc|pa| to recover
comm|ss|ons reta|ned by an unfa|thfu| agent, the court |n
L|tt|e vs. h|pps (1911) 208 Mass. 33I, 94 NL 260, 34 LkA
(NS) 1046, sa|d: 'It |s we|| sett|ed that the agent |s bound
to exerc|se the utmost good fa|th |n h|s dea||ngs w|th h|s
pr|nc|pa|. As Lord Ca|rns sa|d, th|s ru|e "|s not a techn|ca| or
arb|trary ru|e. It |s a ru|e founded on the h|ghest and truest
pr|nc|p|es of mora||ty." arker vs. Mckenna (1874) Lk10 Ch
(Lng) 96, 118.. If the agent does not conduct h|mse|f w|th
ent|re f|de||ty towards h|s pr|nc|pa|, but |s gu||ty of tak|ng a
secret prof|t or comm|ss|on |n regard the matter |n wh|ch
he |s emp|oyed, he |oses h|s r|ght to compensat|on on the
ground that he has taken a pos|t|on who||y |ncons|stent
w|th that of agent for h|s emp|oyer, and wh|ch g|ves h|s
emp|oyer, upon d|scover|ng |t, the r|ght to treat h|m so far
as compensat|on, at |east, |s concerned as |f no agency had
ex|sted. 1h|s may operate to g|ve to the pr|nc|pa| the benef|t
of va|uab|e serv|ces rendered by the agent, but the agent
has on|y h|mse|f to b|ame for that resu|t.
x x x
"S4 h||. S13(1930).

1he |ntent w|th wh|ch the agent took a secret prof|t has
been he|d |mmater|a| where the agent has |n fact entered
|nto a re|at|onsh|p |ncons|stent w|th h|s agency, s|nce the |aw
condemns the corrupt|ng tendency of the |ncons|stent
re|at|onsh|p. L|tt|e vs. h|pps (1911), 94 NL 260.
As a genera| ru|e, |t |s a breach of good fa|th and |oya|ty
to h|s pr|nc|pa| for an agent, wh||e the agency ex|sts, so to
dea| w|th the sub[ect matter thereof, or w|th |nformat|on
acqu|red dur|ng the course of the agency, as to make a prof|t
out of |t for h|mse|f |n excess of h|s |awfu| compensat|on:
and |f he does so he may be he|d as a trustee ,-. $,% S7
P"$67RR7. *" ,PP"8-* *" 5') 6('-P'6,R &"( ,RR 6("&'*)/
,.T,-*,+7)/ ('+5*)/ "( 6('T'R7+7) ,Pg8'(7./ S% 5'$ '- )8P5
.7,R'-+)/ b57*57( '- 67(&"($,-P7 "( '- T'"R,*'"- "& 5') .8*'7)/
,-. S7 (7g8'(7. *" *(,-)&7( *57$ *" 5') 6('-P'6,R 86"- S7'-+
(7'$S8()7. &"( 5') 7W67-.'*8(7) &"( *57 ),$7/ 8-R7)) *57
6('-P'6,R 5,) P"-)7-*7. *" "( (,*'&'7. *57 *(,-),P*'"- 1-"b'-+
*5,* S7-7&'* "( 6("&'* b"8R. ,PP(87/ "( 5,. ,PP(87./ *" *57
,+7-*/ "( 8-R7)) b'*5 )8P5 1-"bR7.+7 57 5,) ,RR"b7. *57
,+7-* )" ,) *" P5,-+7 5') P"-.'*'"- *5,* 57 P,--"* S7 68* '-
)*,*8) g8"3 !57 ,66R'P,*'"- "& *5') (8R7 ') -"* ,&&7P*7. S% *57
&,P* *5,* *57 6('-P'6,R .'. -"* )8&&7( ,-% '-X8(% S% (7,)"- "&
*57 ,+7-*^) .7,R'-+)/ "( *5,* 57 '- &,P* "S*,'-7. S7**7( (7)8R*)d
-"( ') '* ,&&7P*7. S% *57 &,P* *5,* *57(7 ') , 8),+7 "( P8)*"$ *"
*57 P"-*(,(%/ "( *5,* *57 ,+7-P% ') , +(,*8'*"8) "-73
aY

nowever, 4"$'-+" a|so he|d that the duty embod|ed |n Art|c|e
1891 to account w||| not app|y "|f the agent or broker had |nformed the
pr|nc|pa| of the g|ft or bonus or prof|t he rece|ved from the purchaser
and h|s pr|nc|pa| d|d not ob[ect thereto."
43

1he Court a|so he|d |n 4"$'-+" that aragraph 2 of Art|c|e 1891
(wa|ver of duty to account |s vo|d) |s des|gned to stress the h|ghest
|oya|ty that |s requ|red of an agent. Art|c|e 1891 (and Art|c|e 1909)
|mposed upon the agent the abso|ute ob||gat|on to make a fu||
d|sc|osure or comp|ete account to h|s pr|nc|pa| of a|| h|s transact|ons and
other mater|a| facts re|evant to the agency, so much so that the |aw
does not countenance any st|pu|at|on
OFS'./ at pp.
138-140. tRS'./ at
140

exempt|ng the agent form such ob||gat|on and condemns as vo|d such
st|pu|at|on. 1he duty of an agent |s ||kened to that of a trustee. 1h|s |s
not a techn|ca| or arb|trary ru|e but a ru|e founded on the h|ghest and
truest pr|nc|p|e of mora||ty as we|| as of the str|ctest [ust|ce.
In 48$,+8'- T3 G7%-"R.)the Court he|d that |t |s |mmater|a|
whether such money or property |s the resu|t of the performance or
v|o|at|on of the agent's duty, |f |t be the fru|t of the agency, |t must be
accounted for and turned over to the pr|nc|pa|. If h|s duty |s str|ct|y
performed, the resu|t|ng prof|t accrues to the pr|nc|pa| as the |eg|t|mate
consequence of the re|at|on, |f prof|t accrues from h|s v|o|at|on of duty
wh||e execut|ng the agency, that ||kew|se be|ongs to the pr|nc|pa|, not
on|y because the pr|nc|pa| has to assume the respons|b|||ty of the
transact|on, but a|so because the agent cannot be perm|tted to der|ve
advantage from h|s own defau|t.
In C8\$,- T3 <"8(* "& B667,R)/ |t was he|d that an agent, un||ke a
servant or messenger, has both the phys|ca| and [ur|d|ca| possess|on of
the goods rece|ved |n agency, or the proceeds thereof, wh|ch take the
p|ace of the goods after the|r sa|e by the agent. n|s duty to turn over the
proceeds of the agency depends upon h|s d|scharge as we|| as the resu|t
of the account|ng between h|m and the pr|nc|pa|, and he may not set up
h|s r|ght of possess|on as aga|nst that of the pr|nc|pa| unt|| the agency |s
term|nated. 1herefore, when the agent enters |nto a contract that
shou|d perta|n to the pr|nc|pa|, but |n h|s own name, |t wou|d be a
v|o|at|on of h|s duty of |oya|ty to the pr|nc|pa|, and as between the
pr|nc|pa| and the agent, the |atter must account to the pr|nc|pa| for a||
prof|ts earned from the transact|on.
='H I57- B+7-* $,% @7+,RR% I'*55"R. K("67(*% &("$ *57
K('-P'6,R
Under Art|c|e 1914 of the New C|v|| Code, the agent may reta|n |n
p|edge the th|ngs wh|ch are the ob[ect of the agency unt||
"92 h||. 66
( )
4S
99 h||. 703
( )

164
the pr|nc|pa| effects the re|mbursement and pays the |ndemn|ty
prov|ded |n Art|c|es 1912 and 1913.
SLCIIIC C8LIGA1ICN kULLS ICk AGLN1S 1. Cb||gat|on to Advance Iunds
Ak1. 1886. Shou|d there be a st|pu|at|on that the agent
sha|| advance the necessary funds, he sha|| be bound to do so
except when the pr|nc|pa| |s |nso|vent, (n)
1here |s no common-|aw duty or ob||gat|on on the part of the
agent to advance h|s own funds |n beha|f of the pr|nc|pa|, for |ndeed,
one of the d|st|ngu|sh|ng character|st|c of every agency |s that the agent
does not persona||y become ||ab|e for the contracts and transact|ons
pursued |n beha|f of the pr|nc|pa|.
Under Art|c|e 1886 of the New C|v|| Code, the on|y t|me that an
agent |s |ega||y bound to advance persona| funds |n the pursu|t of the
agency |s when such ob||gat|on has been express|y agreed upon |n the
creat|on of the contract of agency. 8ut even |n such a case, the agent
may refuse to advance any persona| funds when the pr|nc|pa| |s
|nso|vent. Indeed, under Art|c|e 1919(3) of the New C|v|| Code,
|nso|vency of the pr|nc|pa| ext|ngu|shes the agency.
2. L|ab|||ty of Agent for Interest
Ak1. 1896. 1he agent owes |nterest on the sums he has
app||ed to h|s own use from the day on wh|ch he d|d so, and
on those wh|ch he st||| owes after the ext|ngu|shment of the
agency. (1724a)

Under Art|c|e 1896 of the New C|v|| Code, the agent wou|d owe
|nterest to the pr|nc|pa| on the fo||ow|ng |tems:
(a) Cn sums the agent app||ed to h|s own use from the
t|me he used them, and
(b) Cn sums ow|ng the pr|nc|pa| wh|ch rema|n outstand|ng
at the t|me of ext|ngu|shment of the agency, w|th
|nterest to run from the t|me of such ext|ngu|shment.
In ?X'-,+, T3 D)*,*7 "& K7(7\/]
e
07-.7\"-, T3 2.,3 47 C"'*',,
47
and
B3@3 B$$7- !(,-)6"(*,*'"- <"3 T3 47 0,(+,RR"/]
e
the Supreme Court
recogn|zed the two d|st|nct cases covered under Art|c|e 1896.
In :"(X, T3 47 :"*X,/]
l
the Court ru|ed that there |s no |nterest due
on sums owed by the agent to the pr|nc|pa| wh|ch have not been the
resu|t of agent's convers|on to h|s own use, such agent wou|d be ||ab|e
for |nterests to run from the date the agency |s ext|ngu|shed unt|| he
pays such sums.
CWLk CI AGLN1 1C ACIN1 A SU8S1I1U1L
Ak1. 1892. 1he agent may appo|nt a subst|tute |f the
pr|nc|pa| has not proh|b|ted h|m from do|ng so, but he sha|| be
respons|b|e for the acts of the subst|tute:
(1) When he was not g|ven the power to appo|nt one,
48
9 h||.
( )
47
S4 h||. SS7
"S4 h||. S70

49
S8 h||. 811
( 933)

(2) When he was g|ven such power, but w|thout
des|gnat|ng the person, and the person appo|nted was
notor|ous|y |ncompetent or |nso|vent.
A|| acts of the subst|tute appo|nted aga|nst the proh|b|t|on
of the pr|nc|pa| sha|| be vo|d. (1721)
Ak1. 1893. In the cases ment|oned |n Nos. 1 and 2 of the
preced|ng art|c|e, the pr|nc|pa| may furthermore br|ng an
act|on aga|nst the subst|tute w|th respect to the ob||gat|ons
wh|ch the |atter has contracted under the subst|tut|on.
(1722a)
Art|c|e 1892 of the New C|v|| Code sets the defau|t ru|e that the
agent may appo|nt a subst|tute |f the pr|nc|pa| has not proh|b|ted h|m
from do|ng so. 1h|s has reversed the ru|e under the o|d C|v|| Code that
w|thout express power to do so, an agent |s w|thout author|ty to
appo|nt a subst|tute.
In 47R G"),('" T3 @, :,.7-',,the pr|nc|pa| was he|d ||ab|e upon a
sub-agency contract entered |nto by |ts se|||ng agent |n the name of the
pr|nc|pa|, where |t appears that the genera| agent was c|othed w|th
such broad powers as to [ust|fy the |nterference that he was author|zed
to execute contracts of th|s k|nd, and |t not appear|ng from the record
what ||m|tat|ons, |f any, were p|aced upon h|s powers to act for h|s
pr|nc|pa|, and more so when the pr|nc|pa| had prev|ous|y acknow|edged
the transact|ons of the subagent.
1herefore, :,R*,\,(T3 ?$S8.)$,-
S1
erroneous|y expressed the
o|d ru|e when |t he|d that 1he |ega| max|m 6"*7)*,) .7R7+,*7 -"-
.7R7+,(7 6"*7)*d a power once de|egated cannot be re- de|egated, wh||e
app||ed pr|mar||y |n po||t|ca| |aw to the exerc|se of |eg|s|at|ve power, |s a
pr|nc|p|e of agency for another, a re- de|egat|on of the agency wou|d be
detr|menta| to the pr|nc|pa| as the second agent has no pr|v|ty of
contract w|th the former.
S2

33 h||. 316
(1916)
S1
S10 SCkA 74
OFS'./ at p. 8S.

1he preva|||ng ru|e |s better expressed |n D)P87*, T3 @'$/]
[
where
the father who had g|ven her daughter a spec|a| power of attorney to
se|| rea| propert|es, was he|d |ncapab|e of |ega||y seek|ng the dec|arat|on
of nu|||ty of the sa|e effected by the subst|tute agent appo|nt by the
daughter: "App|y|ng [Art|c|e 1892 of the New C|v|| Code] to the spec|a|
power of attorney executed by [the father] |n favor of h|s daughter..., |t
|s c|ear that she |s not proh|b|ted from appo|nt|ng a subst|tute. 8y
author|z|ng [the sub-agent] to se|| the sub[ect propert|es, [the daughter]
mere|y acted w|th|n the ||m|ts of the author|ty g|ven by her father, but
she w||| have to be 'respons|b|e for the acts of the sub-agent,' among
wh|ch |s prec|se|y the sa|e of the sub[ect propert|es |n favor of
respondents."
S4

A|though the |ast paragraph of Art|c|e 1892 prov|des that "A|| acts
of the subst|tute appo|nted aga|nst the proh|b|t|on of the pr|nc|pa| sha||
be vo|d," the contracts are rea||y unenforceab|e |nsofar as the pr|nc|pa| |s
concerned and sub[ect to h|s rat|f|cat|on. 1hus, |n D)P87*, T3 @'$/
ZZ
the
Court he|d that |n a s|tuat|on where the spec|a| power of attorney to se||
a p|ece of |and conta|ns a proh|b|t|on to appo|nt a subst|tute, but
neverthe|ess the agent appo|nts a subst|tute who executes the deed of
sa|e |n name of the pr|nc|pa|, wh||e |t may be true that the agent may
have acted outs|de the scope of h|s author|ty, that d|d not make the sa|e
vo|d, but mere|y unenforceab|e under the second paragraph of Art|c|e
1317 of the New C|v|| Code. And on|y the pr|nc|pa| den|ed the sa|e, h|s
acceptance of the proceeds thereof are tantamount to rat|f|cat|on
thereof.
F-*7(-,*'"-,R L'R$) =<5'-,H T3 @%('P L'R$/
Ze
he|d that a sub- agent
cannot be he|d at greater ||ab|||ty that the ma|n agent, and when the
subagent has not rece|ved any spec|a| |nstruct|ons from the agent to
|nsure the ob[ect of the agency, the subagent cannot be he|d ||ab|e for
the |oss of the th|ng from f|re, wh|ch was shown to be tru|y a &"(P7
$,X78(73
S12 SCkA 411
( )
O
F

"63 h||. 778
( 936)

168
1. Lffects When Agent Appo|nts a Subst|tute
a. When the Sub-agent Appo|nted ursuant to the
Instruct|ons of the r|nc|pa|
When the agent appo|nts a subst|tute agent |n accordance w|th
the |nstruct|ons of the pr|nc|pa|, c|ear|y the sub-agent |s rea||y an agent
of the pr|nc|pa| as we||, and pr|v|ty ex|sts between the pr|nc|pa| and the
sub-agent.
Any act done by the agent or the subst|tute |n beha|f of the
pr|nc|pa| |s deemed the act of the pr|nc|pa|.
In add|t|on, the agent does not bear persona| respons|b|||ty for the
fraud or neg||gence of the sub-agent, for the agent mere|y acted w|th|n
the scope of h|s author|ty or |n accordance w|th the |nstruct|ons of the
pr|nc|pa| when he appo|nted the sub-agent. 1he except|on to th|s ru|e of
course |s that prov|ded under Art|c|e 1892(2), "When [the agent] has
been g|ven the power, but w|thout [the pr|nc|pa|] des|gnat|ng the
person, and the person appo|nted was notor|ous|y |ncompetent or
|nso|vent."
b. When the Sub-agent Not roh|b|ted by r|nc|pa|
Under the terms of Art|c|e 1892, when there |s no proh|b|t|on on
the part of the pr|nc|pa| on the matter, then every agent has the power
to appo|nt a sub-agent, but |n such a case, the agent |s respons|b|e for
acts of subst|tute.
(a) he was not g|ven power to appo|nt one, or
(b) he was g|ven such power w|thout des|gnat|ng the
person and subst|tute |s notor|ous|y |ncom-petent or
|nso|vent.
In e|ther case, under Art|c|e 1893 of the New C|v|| Code, the
pr|nc|pa| may furthermore br|ng an act|on aga|nst the subst|tute w|th
respect to the ob||gat|ons wh|ch the |atter has contracted under the
subst|tut|on.
In 2'RR, T3 C,(P', C")g87/
ZN
a sub-agent appo|nted by the agent to
co||ect the deferred |nsta||ments from the sa|e of property
C1
49 h||. 126 (1920).

made by an attorney-|n-fact was he|d to be w|thout author|ty to enter
|nto a new contract w|th the transferee by mod|fy|ng the terms of the
sa|e and re|eas|ng the so||dary suret|es |n the or|g|na| contract. 1he
re|eases were deemed to be |nva||d |nsofar as the pr|nc|pa| was
concerned.
In ;7("-, T3 <"8(* "& B667,R)/
Ze
the Court he|d that |f the
appo|ntment of a sub-agent wh|ch was ne|ther proh|b|ted or author|zed,
has occas|oned the |ncurr|ng of damages by the pr|nc|pa|, the agent sha||
be pr|mar||y respons|b|e for the acts of the subst|tute, |n accordance
w|th the prov|s|ons of Art|c|e 1892(1).
c. When the Sub-Agent Appo|nted Aga|nst the r|nc|pa|'s
roh|b|t|on
1he c|ear |mp||cat|on under Art|c|e 1892, |s that when the pr|nc|pa|
has proh|b|ted the agent from appo|nt|ng a subst|tute, and yet the agent
goes ahead and appo|nts one, then the agent |s persona||y ||ab|e for the
acts of the subst|tute, as though the contracts of the subst|tute were h|s
own. In add|t|on, Art|c|e 1892 prov|des that |n such a case "A|| acts of the
subst|tute appo|nted aga|nst the proh|b|t|on of the pr|nc|pa| sha|| be
vo|d."
1he |mp||cat|on from the |anguage used |n Art|c|e 1893 spec|f|ca||y
referr|ng on|y to case covered under paragraphs (1) and (2) of Art|c|e
1892, |s that the pr|nc|pa| wou|d have no cause of act|on aga|nst the
subst|tute.
CCNSIDLkA1ICN CI 1nL IIDUCIAk DU1ILS CI 1nL AGLN1 AS 1C
1nIkD Ak1ILS
Ak1. 1900. So far as th|rd persons are concerned, an act |s
deemed to have been performed w|th|n the scope of the
agent's author|ty, |f such act |s w|th|n
*392 SCkA 3S (2002).

170
the terms of the power of attorney, as wr|tten, even |f the
agent has |n fact exceeded the ||m|ts of h|s author|ty, accord|ng
to an understand|ng between the pr|nc|pa| and the agent, (n)
Ak1. 1901. A th|rd person cannot set up the fact that the
agent has exceeded h|s powers, |f the pr|nc|pa| has rat|f|ed, or
has s|gn|f|ed h|s w||||ngness to rat|fy the agent's acts, (n)
Ak1. 1902. A th|rd person w|th whom the agent w|shes to
contract on beha|f of the pr|nc|pa| may requ|re the
presentat|on of the power of attorney, or the |nstruct|ons as
regards the agency. r|vate or secret orders and |nstruct|ons of
the pr|nc|pa| do not pre[ud|ce th|rd persons who have re||ed
upon the power of attorney or |nstruct|ons shown them, (n)
(n)
1he terms of Art|c|e 1887 of the New C|v|| Code wh|ch effect|ve|y
states that when an agent acts contrary to the |nstruct|ons of h|s
pr|nc|pa|, he |s deemed to have acted w|thout or |n excess of author|ty,
|s a ru|e that governs the re|at|onsh|p of the pr|nc|pa| and agent, |t |s not
a ru|e that essent|a||y addresses the |nterests of th|rd part|es w|th whom
the agent enters |nto [ur|d|ca| re|at|ons on beha|f of the pr|nc|pa|.
1hus, under Art|c|e 1911 of the New C|v|| Code, "Lven when the
agent has exceeded h|s author|ty, the pr|nc|pa| rema|ns so||dar||y ||ab|e
w|th the agent |f the [pr|nc|pa|] a||owed the [agent] to act as though he
had fu|| powers."
Under Art|c|e 1900 of the New C|v|| Code, |nsofar as th|rd persons
are concerned, "an act |s deemed to have been performed w|th|n the
scope of the agent's author|ty, |f such act |s w|th|n

the terms of the power of attorney, as wr|tten, even |f the agent has |n
fact exceeded the ||m|ts of h|s author|ty accord|ng to an understand|ng
between the pr|nc|pa| and agent." In other words, as to th|rd part|es
act|ng |n good fa|th, the b('**7- '-)*(8P*'"-) of the pr|nc|pa| are the
b|nd|ng powers of the agent, and cannot be overcome by non-wr|tten
|nstruct|ons of the pr|nc|pa| not made known to them.
1hus, under the o|d C|v|| Code, where there was no counterpart of
what |s now Art|c|e 1900, |n :,-1 "& K3R3 T3 47 <")*7(/
))
the Court he|d
that the powers and dut|es of an agent are conf|ned and ||m|ted to those
wh|ch are spec|f|ed and def|ned |n h|s wr|tten power of attorney, wh|ch
||m|tat|on |s a not|ce to, and |s b|nd|ng upon, the person dea||ng w|th
such agent.
In effect, when the power of attorney of the agent has been
reduced |n wr|t|ng by the pr|nc|pa|, |t const|tute, even as to th|rd part|es
dea||ng w|th the agent, the h|ghest form of express|on of the extent and
||m|tat|on of the powers of the agent, and th|rd part|es shou|d contract
on the bas|s of such wr|tten |nstrument. 1hus, Art|c|e 1902 of the New
C|v|| Code prov|des that "A th|rd person w|th whom the agent w|shes to
contract on beha|f of the pr|nc|pa| may requ|re the presentat|on of the
power of attorney, or the |nstruct|ons as regards the agency." In
add|t|on, |t prov|des that "r|vate or secret orders and |nstruct|ons of the
pr|nc|pa| do not pre[ud|ce th|rd persons who have re||ed upon the power
of attorney or |nstruct|on shown them."
In D8+7-'" T3 <"8(* "& B667,R) the Court he|d that as far as th|rd
persons are concerned, an act |s deemed to have been performed w|th|n
the scope of the agent's author|ty, |f such |s w|th|n the terms of the
power of attorney, as wr|tten, even |f the agent has |n fact exceeded the
||m|ts of h|s author|ty accord|ng to an understand|ng between the
pr|nc|pa| and h|s agent.
Cuts|de of the wr|tten power of attorney of an agent, th|rd part|es
who dea| w|th such agent are -"* supposed to presume that the agent |s
fu||y author|zed. 1he ru|e has a|ways been that
S9
47 h||. S94
( )
239 SCkA 207
( )

172
every person dea||ng w|th an assumed agent |s put upon an |nqu|ry and
must d|scover upon h|s per||, |f he wou|d ho|d the pr|nc|pa| ||ab|e, not
on|y the fact of the agency but the nature and extent of the author|ty of
the agent.
61

In :,P,R*") <",R 0'-7) T3 <"8(* "& B667,R)/
eY
the Court he|d that
every person dea||ng w|th an agent |s put upon |nqu|ry and must
d|scover upon h|s per|| the author|ty of the agent. If he does not make
such |nqu|ry, he |s chargeab|e w|th know|edge of the agent's author|ty,
and h|s |gnorance of that author|ty w||| not be any excuse. ersons
dea||ng w|th an assumed agent, whether the assumed agency be a
genera| or spec|a| one, are bound at the|r per||, |f they wou|d ho|d the
pr|nc|pa|, to ascerta|n not on|y the fact of the agency but a|so the
nature and extent of the author|ty, and |n case e|ther |s controverted,
the burden of proof |s upon them to estab||sh |t.
63

In @'*"-X8, T3 L7(-,-.7\the Court he|d that a person dea||ng w|th
a known agent |s not author|zed, under any c|rcumstances, b||nd|y to
trust the agents, statements as to the extent of h|s powers, such person
must not act neg||gent|y but must use reasonab|e d|||gence and
prudence to ascerta|n whether the agent acts w|th|n the scope of h|s
author|ty. 1he sett|ed ru|e |s that, persons dea||ng w|th an assumed
agent are bound at the|r per||, and |f they wou|d ho|d the pr|nc|pa|
||ab|e, to ascerta|n not on|y the fact of agency but a|so the nature and
extent of author|ty, and |n case e|ther |s controverted, the burden of
proof |s upon them to prove |t. 1h|s was re|terated |n @'*"-X8,/ J(3 T3
D*7(-'* <"(63
eZ

In A8 D-+ <5" T3 K,- B$7('P,- I"(R. B'(b,%)/ F-P3/
ee
the Court
he|d that the fact that one |s dea||ng w|th an agent, whether
e`
;*("-+ T3 C8*'7((7\ G76'.7/ 6 h||. 680 (1960), 477- T3 K,P'&'P
<"$$7(P',R <"3/ 42 h||. 738 (1922), 27R")" T3 @, E(S,-,/ S8 h||. 681
(1933), !"%"*, ;5,b/ F-P3 T3 <"8(* "& B667,R)/ 244 SCkA320 (199S).
62
24S SCkA460 (199S).
mG7'*7(,*7. '- D)P87*, T3 @'$/ S12 SCkA411,420 (2007).
M
427 SCkA478 (2004).
^490 SCkA 204 (2006).
66
328 SCkA717 (2000).

CWLk & AU1nCkI1, DU1ILS & C8LIGA1ICNS,
173
the agency be genera| or spec|a|, shou|d be a danger s|gna|. 1he mere
representat|on or dec|arat|on of one that he |s author|zed to act on
beha|f of another cannot of |tse|f serve as proof of h|s author|ty to act
as agent or of the extent of h|s author|ty as agent.
1he author|ty or extent of author|ty of an agent cannot be
estab||shed by h|s own representat|ons but upon the bas|s of the
man|festat|ons of the pr|nc|pa| h|mse|f. In case the fact of agency or the
extent of the author|ty of the agent |s controverted, the S8(.7- "& 6(""&
') 86"- *57 *5'(. 67()"- *" 7)*,SR')5 '*
eN

Nonethe|ess, |n sp|te of the fact that the purported agent acts
w|thout author|ty or |n excess of author|ty, under Art|c|e 1901 of the
New C|v|| Code, a th|rd person cannot set-up the fact that the agent has
exceeded h|s powers, |f the pr|nc|pa| has rat|f|ed, or has s|gn|f|ed h|s
w||||ngness to rat|fy the agent's acts.
kecent|y, |n 2'RR7+,) T3 @'-+,-/w] the Court he|d that s|nce, as a
ru|e, the agency, as a contract, |s b|nd|ng on|y between the
contrad|ct|ng part|es, then on|y the part|es, as we|| as the th|rd person
who transacts w|th the part|es themse|ves, may quest|on the va||d|ty of
the agency or the v|o|at|on of the terms and cond|t|ons found there|n.
1. Lffects on the Agent of Contracts Lntered Into W|th|n the Scope of
n|s Author|ty
||ab|e to the party w|th whom he contracts, un|ess he express|y
b|nds h|mse|f or exceeds the ||m|ts of h|s author|ty w|thout
g|v|ng such party suff|c|ent not|ce of h|s powers. (172S)
e`
27R,)P" T3 @, E(S,-,d :B L'-,-P7 <"(63 T3 <"8(* "& B667,R)d
:,P,R*") <",R 0'-7) T3 <"8(* "& B667,R)^/ ;,&'PBRP,- Q <'7 T3 F$67(',R
27+7*,SR7 ?'R <"3/ F-P3d ;"(',$"-* ;*7,$)5'6 B+7-P'7)/ F-P3 T3 ;6('-*
!(,-)6"(* ;7(T'P7)/ F-P3
M
S26 SCkA 63 (2007).

Ak1. 1910. 1he pr|nc|pa| must comp|y w|th a|| the
ob||gat|ons wh|ch the agent may have contracted w|th|n the
scope of h|s author|ty.
As for any ob||gat|on where|n the agent exceeded h|s
power, the pr|nc|pa| |s not bound except when he rat|f|es |t
express|y or tac|t|y. (1727)
a. Genera| ku|e: Agent Is Not ersona||y L|ab|e to 1h|rd art|es
Art|c|e 1897 of the New C|v|| Code express|y prov|des that "1he
agent who acts as such |s not persona||y ||ab|e to the party w|th whom
he contracts," and th|s |s supp|emented by Art|c|e 1910, wh|ch prov|des
that "1he pr|nc|pa| must comp|y w|th a|| the ob||gat|ons wh|ch the agent
may have contracted w|th|n the scope of h|s author|ty."
Accord|ng to the Court |n D8("*7P5 F-.8)*(',R !7P5-"R"+'7)/ F-P3 T3
<8'\"-Art|c|e 1897 of the New C|v|| Code re|nforces the we||-estab||shed
doctr|ne that an agent, who acts as such, |s not persona||y ||ab|e to the
party w|th whom he contracts.
1he bas|s of the ru|e set-out |n Art|c|e 1897 f|nds |ts roots |n the
6('-P'6R7 "& (7R,*'T'*% |n Contract Law wh|ch prov|des that a contract |s
b|nd|ng on|y as between the part|es and the|r successors-|n |nterest.
Consequent|y, a person act|ng as a mere representat|ve of another
acqu|res no r|ghts whatsoever, nor does he |ncur any ||ab|||t|es ar|s|ng
from the sa|d contract between h|s pr|nc|pa| and another party.
70

In B-+ T3 L8R*"- L'(7 F-)8(,-P7 Co.,
71
agent has acted w|th|n the scope of h|s author|ty, the act|on on the
contract must be brought aga|nst the pr|nc|pa| and
69
S21 SCkA S84 (2007).
Nc
B-+7R7) T3 K5'R'66'-7 9,*'"-,R G,'Rb,%) =K9GH/ S00 SCkA 444
<58, T3 !"*,R ?&&'P7 K(".8P*) ,-. ;7-M'P7) =!"6(")H/ F-P3/ 471 SCkA S00
(200S), !,- T3 D-+'-77('-+ ;7-M'P7)/ 498 SCkA 93 (2006), <5"-+ T3 <"8(*
"& B667,R)/ S27 SCkA 144 (2007).
7,
2 SCkA 94S (1961).

not aga|nst the agent, s|nce |n such an |nstance the agent |s not a party to
the contract sued upon, and the party su|ng has no cause of act|on
aga|nst the agent.
In 976"$8P7-" T3 >7(7.',/
NY
where pursuant to the |nstruct|ons
of the pr|nc|pa|s, the agent purchased a p|ece of |and |n the|r names and
|n the sums g|ven to h|m by the pr|nc|pa|, and that after the fact of
purchase the pr|nc|pa|s had rat|f|ed the transact|on and even rece|ved
prof|ts ar|s|ng from the |nvestment |n the |and, but that eventua||y a
defect |n the t|t|e to the |and arose, the Court ru|ed that the pr|nc|pa|s
cou|d recover the|r |ost |nvestment from the agent: "1here |s noth|ng |n
the record wh|ch wou|d |nd|cate that the defendant fa||ed to exerc|se
reasonab|e care and d|||gence |n the performance of h|s duty as such
agent, or that he undertook to guarantee the vendor's t|t|e to the |and
purchased by d|rect|on of the p|a|nt|ffs."
73

In the same manner, |n D)67(,-\, ,-. :8RR" T3 <,*'-.'+an act|on
brought |n the name of the agent and not |n the name of the pr|nc|pa|
who |s the rea| party |n |nterest, must be d|sm|ssed not upon the mer|ts,
but upon the ground that |t has not been proper|y |nst|tuted.
In :,% 2'7b >"*7R T3 p7( Q Co.,
7S
where adm|ss|ons were made |n a
case f||ed by an agent pr|or to the amendment of the pet|t|on wh|ch
forma||y |nc|uded the pr|nc|pa| as a party to the case, the Court den|ed
the argument that s|nce the |mp||ed adm|ss|on was made before the
amendment of |ts comp|a|nt, |t cannot work to the benef|t of the
pr|nc|pa|, thus
Moreover, s|nce an agent may do such acts as may be
conduc|ve to the accomp||shment of the purpose of the
agency, adm|ss|ons secured by the agent w|th|n the scope of
the agency ought to favor the pr|nc|pa|. 1h|s has to be the
ru|e, for the act or dec|arat|ons of an agent of the party
w|th|n the scope of the agency and dur|ng |ts ex|stence are
"7 h||. S63
(1907).
-
RS'./ at p.
66
74
27 h||. 397

7S
116 SCkA 327
( 982)

cons|dered and treated |n turn as dec|arat|ons, acts and
representat|ons of h|s pr|nc|pa| and may be g|ven |n
ev|dence aga|nst such party.
76

<,"'R7 T3 <"8(* "& B667,R)/
NN
he|d that one who s|gns a rece|pt as a
w|tness w|th the word agent typed be|ow h|s s|gnature, but never
rece|ved the a||eged amount or anyth|ng on account of the sub[ect
transact|on, |s not persona||y ||ab|e.
In E%T3 <"8(* "& B667,R)/
Nj
agents who have been author|zed to
se|| parce|s of |and cannot c|a|m persona| damages |n the nature of
unrea||zed comm|ss|on by reason of the act of the buyer |s refus|ng to
proceed w|th the sa|e: "et|t|oners [agents] are not part|es to the
contract of sa|e between the|r pr|nc|pa|s and NnA. 1hey are mere agents
of the owners of the |and sub[ect of the sa|e. As agents, they on|y render
some serv|ce or do someth|ng |n representat|on or on beha|f of the|r
pr|nc|pa|s. [Art|c|e 1868, New C|v|| Code.] 1he render|ng of such serv|ce
d|d not make them part|es to the contracts of sa|e executed |n beha|f of
the |atter. S|nce a contract may be v|o|ated on|y by the part|es thereto
as aga|nst each other, the rea| part|es-|n-|nterest, e|ther as p|a|nt|ff or
defendant, |n an act|on upon that contract must, genera||y, e|ther be
part|es to sa|d contract."
79

In !,- T3 D-+'-77('-+ ;7(T'P7)/O
c
the Court he|d that the essence of
agency be|ng the representat|on of another, |t |s ev|dent that the
ob||gat|ons contracted are for and on beha|f of the pr|nc|pa| as a
consequence of th|s representat|on |s the ||ab|||ty of the pr|nc|pa| for the
acts of h|s agent performed w|th|n the ||m|ts of h|s author|ty that |s
equ|va|ent to the performance by the pr|nc|pa| h|mse|f who shou|d
answer therefor.
An agent |s not persona||y ||ab|e to the party w|th whom he
contracts un|ess he express|y b|nds h|mse|f or he exceeds the
Ne
RS'./ at pp. 332-333.
"226 SCkA 6S8 (1993).
78
314 SCkA 69 (1999).
-
RS'./ at p. 77, P'*'-+ 0,('$67('" <"$6,-', 9,T'7(,/ ;3B3 T3 <"8(* "&
B667,R)/ 1S6 SCkA 368 (1987).
498 SCkA 93 (2006).

||m|ts of h|s author|ty w|thout g|v|ng such party suff|c|ent not|ce of h|s
powers.
8
'
Cn|y recent|y, |n ;"(',$"-* ;*7,$)5'6 B+7-P'7)/ F-P3 T3 ;6('-*
!(,-)6"(* ;7(T'P7)/ F-P3/]
Y
the Court he|d that the pr|nc|p|e embod|ed |n
Art|c|e 1897 wou|d requ|re that |f the pr|nc|pa| seeks to avo|d ||ab|||ty on
the pr|nc|p|e that the agent acted beyond the scope of h|s author|ty as
embod|ed |n the |nstrument, then the burden fa||s upon the pr|nc|pa| to
prove |ts aff|rmat|ve a||egat|ons.
b. Lxcept|on: When the Agent Lxpress|y Makes n|mse|f
ersona||y L|ab|e
Under Art|c|e 1897 of the New C|v|| Code, an agent can be he|d
persona||y ||ab|e on a contract entered |nto |n the name of the pr|nc|pa|
and w|th|n the scope of author|ty, when such agent "express|y b|nds
h|mse|f." 1hus, the persona| ||ab|||ty of the agent ar|ses from vo|untary
contractua| comm|tment. In such an |nstance, un|ess otherw|se |nd|cated
|n the contract, the ||ab|||ty of the agent w|th the pr|nc|pa| |s mere|y [o|nt,
and not so||dary.
Lar|y on, !8,)"- T3 ?("\P"he|d that when the agent express|y b|nd
h|mse|f, he thereby ob||gates h|mse|f persona||y by h|s own act, but that
does not re||eve the pr|nc|pa| from h|s ob||gat|on to pay the debt
|ncurred for h|s benef|t.
In D3 0,P',) ,-. <"3 T3 I,(-7( :,(-7)/
0
and |n ;,R"-+, T3 I,(-7(
:,(-7)the Court he|d that s|nce the scope and extent of the funct|ons of
an ad[ustment and sett|ement agent are mere|y to sett|e and ad[ust
c|a|ms |n beha|f of h|s pr|nc|pa|, and the same cannot be taken to mean
that |t |nc|udes the assumpt|on of persona| ||ab|||ty. 1hus, |f c|a|ms are
d|sapproved by the pr|nc|pa|, the agent does not assume any persona|
||ab|||ty,
j`
x',RP'*,VA8)7P" T3 ;'$$"-)/ 97 h||. 487 (19SS), :,-g87 C7-7(,*7
:7'+7 T3 I,R*7(/ :8RR Q <"3/ F-P3/ 84 h||. 164 (1949), ;,R$"- Q K,P'&'P
<"$$7(P',R <"3 T3 !,- <87P"/ 36 h||. SS6 (1917).
82
S92 SCkA 622 (2009).
"S h||. S96(1906).
M
43 h||. 1SS (1922).
"88 h||. 12S (19S1).

and the recourse of the |nsured |s to press h|s c|a|m aga|nst the pr|nc|pa|.
In ;$'*5 :7RR T3 <"8(* "& B667,R)/
ee
appo|ntment by a fore|gn |nsurance company of a |oca| sett||ng or c|a|m
agent, c|othed w|th power to sett|e a|| the |osses and c|a|ms that may
ar|se under the po||c|es that may be |ssued by or |n beha|f of the fore|gn
company, does not amount to a contractua| acceptance of persona|
||ab|||ty on the part of the |oca| sett||ng or c|a|m agent: "An ad[ustment
and sett|ement agent |s no d|fferent from any other agent from the
po|nt of v|ew of h|s respons|b|||t|es, for he a|so acts |n a representat|ve
capac|ty." In the same manner, a res|dent agent, as a representat|ve of
the fore|gn |nsurance company, |s tasked on|y to rece|ve |ega| processes
on beha|f of |ts pr|nc|pa| and not to answer persona||y for the any
|nsurance c|a|ms.
:7-+87* T3 :<F D$6R"%77)
eN
he|d that under Art|c|e 1897 of the
New C|v|| Code, when the agent express|y b|nds h|mse|f to the contract
entered |nto on beha|f of the pr|nc|pa|, then he becomes persona||y
bound thereto to the same extent as the pr|nc|pa|. 8ut the doctr|ne |s
not app||cab|e T'P7VT7(),/ s|nce everyth|ng agreed upon by the pr|nc|pa|
to be b|nd|ng on h|mse|f |s not |ega||y b|nd|ng persona||y on the agent.
1hus, when the prev|ous agent of the un|on bound |tse|f persona||y
||ab|e on the contracts of the un|on, the new agent |s need deemed
bound by the assumpt|on undertaken by the or|g|na| agent.
c. Lxcept|on: When Agent |s Gu||ty of Iraud or Neg||gence
Ak1. 1909. 1he agent |s respons|b|e not on|y for fraud, but
a|so for neg||gence, wh|ch sha|| be [udged w|th more or |ess
r|gor by the courts, accord|ng to whether the agency was or
was not for a compensat|on. (1726)
88
267 SCkA S30
( )
87
23 SCkA 46S
( )

When an agent, though act|ng w|th|n the scope of h|s author|ty,
acts w|th fraud or neg||gence, |t affects two |eve|s of |ega| re|at|onsh|ps:
(a) that between the pr|nc|pa| and the agent, and (b) |nsofar a th|rd
part|es are concerned, when they have entered |nto a contract w|th the
agent |n the name of the pr|nc|pa|. In other words, an agent's fraudu|ent
or neg||gent acts produces two sets of ||ab|||t|es for h|m, one |nsofar as
the pr|nc|pa| |s concerned, the other |nsofar as th|rd part|es are
concerned.
Art|c|e 1909 of the New C|v|| Code prov|des that "1he agent |s
respons|b|e not on|y for fraud, but a|so for neg||gence, wh|ch sha|| be
agency was or was not for a compensat|on." Art|c|e 1909 therefore set
forth the genera| pr|nc|pa| |n Agency Law that when an agent, |n
execut|ng the orders and comm|ss|ons of h|s pr|nc|pa|, carr|es out the
|nstruct|ons he has rece|ved from h|s pr|nc|pa|, and does not appear to
have exceeded h|s author|ty or to have acted w|th neg||gence, dece|t, or
fraud, he cannot be he|d respons|b|e for the fa||ure of h|s pr|nc|pa| to
accomp||sh the ob[ect of the agency.
88

In 9,*'"-,R :,-1 T3 I7RP5/ L,'(P5'R. Q Co.,
89
the Court he|d that
wh||e |t |s true that an agent who acts for a revea|ed pr|nc|pa| |n the
mak|ng of a contract does not become persona||y bound to the other
party |n the sense that an act|on can ord|nar||y be ma|nta|ned upon such
contract d|rect|y aga|nst the agent, yet that ru|e does not contro| when
the agent cannot |ntercept and appropr|ate the th|ng wh|ch the pr|nc|pa|
|s bound to de||ver, and thereby make the performance of the pr|nc|pa|
|mposs|b|e. 1he agent |n any event must be prec|uded from do|ng any
pos|t|ve act that cou|d prevent performance on the part of h|s pr|nc|pa|,
otherw|se the agent becomes ||ab|e a|so on the contract.
In the same manner, |n 9,*'"-,R K"b7( <"(63 T3 9,*'"-,R
07(P5,-.')'-+ <"(63/o the Court he|d that an agent becomes
jj
C8*'7((7\ >7($,-") T3 ?(', >7($,-")/ 30 h||. 491 (191S), G.
K8%,* Q ;"-)/ F-P3 T3 B(P" B$8)7$7-* <"$6,-%, 72 h||. 402 (1941).
89
44 h||. 780 (1923).
"117 SCkA 789
( )

persona||y ||ab|e when by h|s wrong or om|ss|on, he depr|ves the th|rd
person w|th whom he contracts of any remedy aga|nst the pr|nc|pa|,
otherw|se, the th|rd person wou|d be defrauded |f he wou|d not be
a||owed to recover from the agent.
It shou|d be noted that the prov|s|ons of Art|c|e 1909 shou|d not be
read to conc|ude that because the agent becomes ||ab|e persona||y on a
contract entered |nto or pursued |n the name of the pr|nc|pa| ta|nted
w|th fraud or neg||gence, the pr|nc|pa| |s therefore exempted from
||ab|||ty on the contract. Cn the contrary, Art|c|e 1909 presumes that the
fraudu|ent or neg||gent act of the agent were |n pursu|t of the bus|ness
or affa|rs of the pr|nc|pa|, and s|nce the acts of the agent are by |aw
those of the pr|nc|pa|, |t means that both the pr|nc|pa| and the agent are
deemed [o|nt torfeasors, and are deemed ||ab|e so||dar||y |nsofar as th|rd
part|es are concerned. 1he remedy of the pr|nc|pa| |s to sue the agent
for damages susta|ned due to agent's fradu|ent or neg||gent acts.
1hus, |n @"67\ T3 BRT7-.',,
91
the pet|t|oners had |ssued a check |n
payment of the [udgment debt and made arrangements w|th the bank
for the |atter to a||ow the encashment thereof, but the check was
d|shonored by the bank wh|ch |ncreased the amount of the [udgment
debt. When the pet|t|oners sought not to be made ||ab|e for the
|ncreased amount of the [udgment debt on the ground that the a||eged
"overs|ght" was on the part of the bank, the Court den|ed such defense
on the ground that "1he pr|nc|pa| |s respons|b|e for the acts of the agent,
done w|th|n the scope of h|s author|ty, and shou|d bear the damages
caused upon th|rd part|es."
02
1he Court a|so noted that |f |ndeed "the
fau|t (overs|ght) ||es on the agent bank, the pet|t|oners are free to sue
sa|d bank for damages occas|oned thereby."
93

L|kew|se, |n :('*')5 B'(b,%) T3 <"8(* "& B667,R)/
l
] |t was he|d that
when one a|r||ne company (8r|t|sh A|rways) subcontracts a |eg of the
|nternat|ona| tr|p of |ts passenger to another a|r||ne
91
12 SCkA 634
( 96 )
]
R
S
'

company (AL), the contract of a|r transportat|on was exc|us|ve|y
between passenger and 8A, w|th AL mere|y act|ng as |ts agent on the
Man||a to nong kong |eg of the [ourney. 1he we||-sett|ed ru|e |s that an
agent |s a|so respons|b|e for any neg||gence |n the performance of |ts
funct|on and |s ||ab|e for damages wh|ch the pr|nc|pa| may suffer by
reason of the agent's neg||gent act.
In 0,('*'$7 B+7-P'7) Q ;7P8('*'7)/ F-P3 T3 <"8(* "& B667,R)/
lZ
|n a
charter party where the charterer had express|y assumed respons|b|||ty
towards off-|oad|ng the cargo from the vesse| and damage was caused
thereto due to the acts of the charterer, |ts |oca| agent was sought to be
the ent|ty made ||ab|e for the damage caused. 1he Court he|d: "1he
d|ff|cu|ty |s that [the pr|nc|pa| charterer] has not been |mp|eaded |n
these cases and so |s beyond our [ur|sd|ct|on. 1he ||ab|||ty |mposab|e
upon |t cannot be borne by [|oca| counterpart] wh|ch, as a mere agent, |s
not answerab|e for |n[ury caused by |ts pr|nc|pa|. It |s a we||-sett|ed
pr|nc|p|e that the agent sha|| be ||ab|e for the act or om|ss|on of the
pr|nc|pa| on|y |f the |atter |s und|sc|osed."
96

d. Agent nas No Author|ty to 8r|ng Su|t |n Contracts Lntered
|nto |n the Name of the r|nc|pa|
In E% T3 <"8(* "& B667,R)/
lN
the Court he|d that the agents of the
part|es to a contract do not have the r|ght to br|ng an act|on based on
sa|d contract even |f they rendered some serv|ce on beha|f of the|r
pr|nc|pa|: "et|t|oners are not part|es to the contract of sa|e between
the|r pr|nc|pa|s and NnA. 1hey are mere agents of the owners of the |and
sub[ect of the sa|e. As Agents, they on|y render some serv|ce or do
someth|ng '- (76(7)7-*,*'"- or "- S75,R& "& the|r pr|nc|pa|s. 1he
render|ng of such serv|ce d|d not make them part|es to the contracts of
sa|e executed |n beha|f of the |atter. S|nce a contract may be v|o|ated
on|y by the part|es thereto as aga|nst each other, the rea|
part|es-|n-|nterest, e|ther
1
8

as p|a|nt|ff or defendant, |n an act|on upon that contract must, genera||y,
e|ther be part|es to sa|d contract."
98

2. Lffects of Acts Done by Agent W|thout Author|ty or |n Lxcess of
n|s Author|ty
Ak1. 1898. If the agent contracts |n the name of the
pr|nc|pa|, exceed|ng the scope of h|s author|ty, and the
pr|nc|pa| does not rat|fy the contract, |t sha|| be vo|d |f the
party w|th whom the agent contracted |s aware of the ||m|ts of
the powers granted by the pr|nc|pa|. In th|s case, however, the
agent |s ||ab|e |f he undertook to secure the pr|nc|pa|'s
rat|f|cat|on, (n)
a. Genera| ku|e: 1he r|nc|pa| Is Not L|ab|e, Agent May 8e L|ab|e
1he genera| ru|e |s set under Art|c|e 1317 of the New C|v|| Code
that "No one may contract |n the name of another w|thout be|ng
author|zed by the |atter, or un|ess he has by |aw a r|ght to represent
h|m. A contract entered |nto |n the name of another by one who has no
author|ty or |ega| representat|on, or who has acted beyond h|s powers,
sha|| be unenforceab|e, un|ess |t |s rat|f|ed, express|y or |mp||ed|y, by the
person on whose beha|f |t has been executed, before |t |s revoked by the
other party."
1he ru|es under Art|c|e 1317 are supported under Art|c|e 1403,
wh|ch |nc|udes among those c|ass|f|ed an "unenforceab|e contracts,"
"(1) 1hose entered |nto |n the name of another person by one who has
been g|ven no author|ty or |ega| representat|on, or who has acted
beyond h|s power."
-
RS'./ at p. 77. G7'*7(,*7. '- ?($"P ;8+,(P,-7 KR,-*7()^B))"P',*'"-/
F-P3 =?;KBH T3 <"8(* "& B667,R)/ S96 SCkA630 (2009).

Spec|f|ca||y, |n the Law on Agency, Art|c|e 1898 prov|des that "If the
agent contracts |n the name of the pr|nc|pa|, exceed|ng the scope of h|s
author|ty, and the pr|nc|pa| does not rat|fy the contract, |t sha|| be vo|d |f
the party w|th whom the agent contracted |s aware of the ||m|ts of the
powers granted by the pr|nc|pa|. In th|s case, however, the agent |s ||ab|e
|f he undertook to secure the pr|nc|pa|'s rat|f|cat|on." 1he fo||ow|ng
consequences sha|| f|ow |n s|tuat|ons where the agent has acted w|thout
or |n excess of h|s author|ty:
(a) 1he contract entered |nto |n the name of the pr|nc|pa|
sha|| be vo|d as to the pr|nc|pa| and the th|rd party, |f
such th|rd party w|th whom the agent contracted was
aware of the ||m|ts of the powers granted by the
pr|nc|pa|,
(b) In such case, the agent wou|d be ||ab|e per-sona||y to
such th|rd party, |f he undertook to secure the
pr|nc|pa|'s rat|f|cat|on,
(c) If the agent d|d not undertake to secure the pr|nc|pa|'s
rat|f|cat|on, the agent does not become ||ab|e on the
contract s|nce the th|rd party has no one to b|ame but
h|mse|f, know|ng fu||y we|| the ||m|ts to the agent's
author|ty.
1hus, |n ;,&'P BRP,- T3 F$67(',R 27+7*,SR7, and 4:K T3 <"8(* "&
B667,R)/^
cc
the Court he|d that the ||ab|||ty of an agent who exceeds the
scope of h|s author|ty depends upon whether the th|rd person was
aware of the ||m|ts of the agent's power. 1he agent |s not bound nor
||ab|e for damages |n case he gave not|ce of h|s power to the person w|th
whom he has contracted, nor |n case such person |s aware of the ||m|ts
of the agent's powers. 1he resu|t|ng contract wou|d be vo|d even as
between the agent and the th|rd person, and consequent|y not |ega||y
b|nd|ng as between them. nowever, |f the agent prom|sed or undertook
"3SS SCkA SS9
( )
100
231 SCkA 370
( )

to secure the pr|nc|pa|'s rat|f|cat|on and fa||ed, he |s persona||y ||ab|e. If
the rat|f|cat|on |s obta|ned, then the pr|nc|pa| becomes ||ab|e.
In D8("*7P5 F-.8)*(',R !7P5-"R"+'7)/ F-P3 T3 <8'\"-/o the Court
noted a c|a|m |nterposed under Art|c|e 1898 wou|d not a||ow the th|rd
party to recover aga|nst both the pr|nc|pa| and the agent, thus: "We
||kew|se take note of the fact that |n th|s case, pet|t|oner |s seek|ng to
recover both from respondents LkWIN, the pr|nc|pa|, and LDWIN, the
agent. It |s we|| to state here that Art|c|e 189[8] of the New C|v|| Code
upon wh|ch pet|t|oner anchors |ts c|a|m aga|nst respondent LDWIN does
not ho|d that |n case of excess of author|ty, both the agent and the
pr|nc|pa| are ||ab|e to the other contract|ng party."
102

A|though Art|c|e 1898 descr|bes the contract entered |nto by the
agent |n the name of the pr|nc|pa| w|thout or |n excess of author|ty as
be|ng "vo|d," |f the party w|th whom the agent contract |s unaware of
the ||m|ts of the powers granted by the pr|nc|pa|, the contract |s
unenforceab|e under Art|c|e 1403(1) of the New C|v|| Code.
In <7(T,-*7) T3 <"8(* "& B667,R)/
103
the Court he|d the effects
under Art|c|e 1898 of the New C|v|| Code when the agent acts beyond
the scope of h|s author|ty, thus:
Under Art|c|e 1898 of the New C|v|| Code, the acts of an
agent beyond the scope of h|s author|ty do not b|nd the
pr|nc|pa|, un|ess the |atter rat|f|es the same express|y or
|mp||ed|y. Iurthermore, when the th|rd person . . . knows
that the agent was act|ng beyond h|s power or author|ty, the
pr|nc|pa| cannot be he|d ||ab|e for the acts of the agent. If the
sa|d th|rd person |s aware of the ||m|ts of the author|ty, he |s
to b|ame, and |s not ent|t|ed to recover damages from the
agent, un|ess the |atter undertook to secure the pr|nc|pa|'s
rat|f|cat|on.
104

101
S21 SCkA S84
(200 )
$
RS'./ at p. S9S.
103
304 SCkA 2S

104
]b]d, at p. 31.

In :"(X,/ ;(3 T3 ;8R%,6/ ]nc.,
10S
the Court he|d that even when the
agent, |n th|s case the attorney-at-|aw who represented the c||ent |n
forg|ng a comprom|se agreement, had exceeded h|s author|ty |n
|nsert|ng pena|ty c|ause, the status of the sa|d c|ause was not vo|d but
mere|y vo|dab|e, '373/ capab|e of be|ng rat|f|ed. Indeed, the c||ent's fa||ure
to quest|on the |nc|us|on of the pena|ty |n the [ud|c|a| comprom|se
desp|te severa| opportun|t|es to do so and w|th the representat|on of
new counse|, was tantamount to rat|f|cat|on, hence, the c||ent was
stopped from assa|||ng the va||d|ty thereof.
In K'-7., T3 <"8(* "& B667,R)/^
ce
where |t was adm|tted by the
buyer of a parce| of |and that "at the t|me he 'purchased' respondents'
property from [the agent] |neda, the |atter had no Spec|a| ower of
Attorney to se|| the property, ru|ed the contract of sa|e to be vo|d for
|ack of consent, rather than unenforceab|e for hav|ng been entered |nto
the names of the reg|stered owner by one who was not du|y author|zed,
thus:
Iurther, Art|c|e 1318 of the New C|v|| Code ||sts the
requ|s|tes of a va||d and perfected contract, name|y: "(1)
consent of the contract|ng part|es, (2) ob[ect certa|n wh|ch |s
the sub[ect matter of the contract, (3) cause of the ob||gat|on
wh|ch |s estab||shed." |neda was not author|zed to enter
|nto a contract to se|| the property. As the consent of the rea|
owner of the property was not obta|ned, no contract was
perfect.
107

It may be true that the resu|t|ng sa|e was vo|d under the terms of
Art|c|e 1874 of the New C|v|| Code that dec|ares a sa|e vo|d the sa|e of a
p|ece of |and effected through an agent, when the author|ty of the agent
|s not |n wr|t|ng, but |t was wrong for the Court to reason out as
afore-quoted, that the sa|e |s vo|d when made |n the name of the rea|
owner whenever the purported agent had |n fact no author|ty, s|nce |t |s
c|ear under Art|c|e 1403
10S
399 SCkA 601
( )
376 SCkA 222

IN
RS'./ at p. 229.

of the New C|v|| Code, that such |ega| |nf|rm|ty does not render the sa|e
vo|d, but mere|y unenforceab|e.
In 9,*'"-,R :,-1 T3 I7R)5 L,'(P5'R./
$
the Court he|d that wh||e |t |s
true that an agent who acts for a revea|ed pr|nc|pa| |n the mak|ng of a
contract does not become persona||y bound to the other party |n the
sense that an act|on can ord|nar||y be ma|nta|ned upon such contract
d|rect|y aga|nst the agent, yet that ru|e does not contro| when the agent
cannot |ntercept and appropr|ate the th|ng wh|ch the pr|nc|pa| |s bound
to de||ver, and thereby make the performance of the pr|nc|pa|
|mposs|b|e. 1he agent |n any event must be prec|uded from do|ng any
pos|t|ve act that cou|d prevent performance on the part of h|s pr|nc|pa|,
otherw|se the agent becomes ||ab|e a|so on the contract.
In x,%P" T3 ;7((,/o |t was he|d that when the adm|n|strat|on enters
|nto a contract that |s outs|de of the scope of author|ty, the contract
wou|d neverthe|ess not be an abso|ute nu|||ty, but s|mp|y vo|dab|e at
the |nstance of the part|es who had been |mproper|y represented, and
on|y such part|es can assert the nu|||ty of sa|d contracts as to them.
9,*'"-,R K"b7( <"(63 T3 9,*'"-,R 07(P5,-.')'-+ <"(63/
``c
c|ar|f|ed
that the ru|e that a contract entered |nto by one who has acted beyond
h|s powers sha|| be unenforceab|e refers to the unenforceab|||ty of the
contract aga|nst the pr|nc|pa|, and does not app|y where the act|on |s
aga|nst the agent h|mse|f for contract|ng |n excess of the ||m|ts of h|s
author|ty.
In 4:K T3 <"8(* "& B667,R)/Ô the Court he|d that the ru|e that the
agent |s ||ab|e when he acts w|thout author|ty |s founded upon the
suppos|t|on that there has been some wrong or om|ss|on on h|s part
e|ther |n m|srepresent|ng, or |n aff|rm|ng, or concea||ng the author|ty
under wh|ch he assumes to act. Inasmuch as the nond|sc|osure of the
||m|ts of the agency carr|es w|th |t the |mp||cat|on that a decept|on was
perpetuated on the unsuspect|ng c||ent, the
108
44 h||. 780
(1923)
109
49 h||. 98S

110
117 SCkA 789

111
231 SCkA 370
( 99 )

prov|s|ons of Art|c|es 19, 20 and 21 of the New C|v|| Code come |nto p|ay.
Ctherw|se, the bas|s of the persona| ||ab|||ty on the part of the agent |s
tort.
b. Lxcept|ons: When the r|nc|pa| May 8e 8ound
In the fo||ow|ng cases, even though the agent acts w|thout or |n
excess of h|s author|ty, he wou|d not be persona||y ||ab|e for the
contracts or transact|ons he entered |nto |n the name of the pr|nc|pa|:
(a) When the pr|nc|pa| rat|f|es the contract or transact|ons
(Arts. 1898 and 1910),
(b) As to th|rd part|es who re||ed upon the terms of the
power of attorney as wr|tten, even |f |n fact the agent
had exceeded the ||m|ts of h|s author|ty accord|ng to an
understand|ng between the pr|nc|pa| and the agent
(Arts. 1900 and 1903),
Art|c|e 1898 of the New C|v|| Code acknow|edges that the contract
may be "va||dated" |f the pr|nc|pa| rat|f|es or acknow|edges the contracts
entered |nto w|thout or |n excess of author|ty of the agent. 1h|s pr|nc|p|e
|s re|terated |n the second paragraph of Art|c|e 1910 of the New C|v||
Code, wh|ch prov|des that "As for any ob||gat|on where|n the agent has
exceeded h|s power, the pr|nc|pa| |s not bound except when he rat|f|es |t
express|y or tac|t|y."
In <,)"- v. G'P5,(.)/o where money was rece|ved as a depos|t by
an agent, and that money |s turned over by the agent to the pr|nc|pa|,
w|th not|ce that |t |s the money of the depos|tor, the pr|nc|pa| was he|d
bound to de||ver to the depos|tor, even |f h|s agent was not author|zed
to rece|ve such depos|t, s|nce there was, |n effect, rat|f|cat|on of the
unauthor|zed act of the agent.
Under Art|c|e 1901, a th|rd person cannot set up the fact that the
agent has exceeded h|s powers, |f the pr|nc|pa| has rat|f|ed,
112
S h||. 611 (1906).

or has s|gn|f|ed h|s w||||ngness to rat|fy the agent's act. 1hus, |n K5'R3
K(".8P*) <"3 T3 K('$,*7(', K"8( @7 <"$$7(P7 DW*7('78(k K('$,*7(',R
sK5'R3u/ F-P3/o the Court he|d that when agent exceeds h|s author|ty, the
matter can be ra|sed on|y by the pr|nc|pa|, and when not so ra|sed,
recovery can be made by the th|rd party on|y aga|nst the pr|nc|pa|.
Art|c|e 1897 does not ho|d that |n case of excess of author|ty, both the
agent and the pr|nc|pa| are ||ab|e to the other contract|ng party.
In <"$$'))'"-7( "& K8SR'P >'+5b,%) T3 ;,- 4'7+"/O
a
the Court he|d
that |n an expropr|at|on proceed|ng, the State cannot ra|se the a||eged
|ack of author|ty of the counse| of the owner of the property to b|nd h|s
c||ent |n a comprom|se agreement because such |ack of author|ty may
be quest|oned on|y by the pr|nc|pa| or c||ent. 1h|s was so because |t |s
w|th|n the r|ght or prerogat|ve of the pr|nc|pa| to rat|fy even the
unauthor|zed acts of the agent.
3. Consequences When Agent Acts |n n|s Cwn Name
Ak1. 1883. If an agent acts |n h|s own name, the pr|nc|pa|
has no r|ght of act|on aga|nst the persons w|th whom the
agent has contracted, ne|ther have such persons aga|nst the
pr|nc|pa|.
In such case the agent |s the one d|rect|y bound |n favor of
the person w|th whom he has contracted, as |f the transact|on
were h|s own, except when the contract |nvo|ves th|ngs
be|ong|ng to the pr|nc|pa|.
1he prov|s|ons of th|s art|c|e sha|| be understood to be
w|thout pre[ud|ce to the act|ons between the pr|nc|pa| and
agent. (1717)
1,3
1S SCkA 301
( 96 )
114
31 SCkA 617
( 9 0)

Under Art|c|e 1883 of the New C|v|| Code, |f an agent acts |n h|s
own name, the pr|nc|pa| has no r|ght of act|on aga|nst the persons w|th
whom the agent has contracted, and ne|ther have such persons a r|ght
or cause of act|on aga|nst the pr|nc|pa|. It a we||-estab||shed doctr|ne |n
[ur|sprudence that when an agent, |n a matter that |s w|th|n the scope
of h|s author|ty, enters |nto the covered contract |n h|s own name, then
the contract |s b|nd|ng on|y aga|nst the agent, and the pr|nc|pa| |s not
bound, nor does he have |ega| stand|ng to enforce |t, th|s |s because the
contract |s deemed to have been entered between the th|rd party and
the agent as h|s own pr|nc|pa|.
11S

In K5'R'66'-7 ;8+,( D)*,*7) 47T3 <"(3 T3 K"'\,*,- the Supreme
Court d|scussed the mean|ng and effect of Art|c|e 1883 of the New C|v||
Code, thus:
It |s a genera| ru|e |n the |aw of agency that, |n order to
b|nd the pr|nc|pa| by a mortgage on rea| property executed
by an agent, |t must upon |ts face purport to be made, s|gned
and sea|ed |n the name of the pr|nc|pa|, otherw|se, |t w|||
b|nd the agent on|y. It |s not enough mere|y that the agent
was |n fact author|zed to make the mortgage, |f he has not
acted |n the name of the pr|nc|pa|. 97'*57( ') '* "(.'-,('R%
)8&&'P'7-* *5,* '- *57 $"(*+,+7 *57 ,+7-* .7)P('S7) 5'$)7R&
,) ,P*'-+ S% T'(*87 "& , 6"b7( "& ,**"(-7%/ '& '- &,P* *57 ,+7-*
5,) ,P*7. '- 5') "b- -,$7 ,-. 5,) )7* 5') "b- 5,-. ,-.
)7,R *" *57 $"(*+,+73 1h|s |s espec|a||y true where the agent
h|mse|f |s a party to the |nstrument. >"b7T7( PR7,(R% *57
S".% "& *57 $"(*+,+7 $,% )5"b ,-. '-*7-. *5,* '* )5,RR S7
*57 ,P* "& *57 6('-P'6,R/ %7*/ 8-R7)) '- &,P* '* ') 7W7P8*7. S% *57
,+7-* &"( ,-. "- S75,R& "& 5') 6('-P'6,R ,-. ,) *57 ,P* ,-.
.77. "& *57 6('-P'6,R/ '* ') -"* T,R'. ,) *" *57 6('-P'6,R3O
N

11S
nerranz & Garr|z v. ker & Co., L|m 1|u v. ku|z, Sm|th 8e|| v. Sote|o
Matt|, 8ehn Meyer & Co. v. 8anco Lspano|-I|||p|no, L|m 1ek Goan v.
Azores, Crtega v. 8auang Iarmers Cooperat|ve Market|ng Assn.
116
48 h||. S36 (192S).
O
N
RS'./ at p. S38, 7$65,)') )866R'7.3

1he ru||ng was re|terated |n G8(,R :,-1 "& :"$S"- =<,$,('-7)
;8(H/ F-P3 T3 <"8(* "& B667,R),
118
where the Court he|d: "In v|ew of th|s
ru|e, Aqu|no's act of s|gn|ng the Deed of kea| Lstate Mortgage |n h|s
name a|one as mortgagor, w|thout any |nd|cat|on that he was s|gn|ng for
and |n beha|f of the property owner, Lder||nda Ga||ardo, bound h|mse|f
a|one |n h|s persona| capac|ty as debtor of the pet|t|oner bank and not
as the agent or attorney-|n-fact of Ga||ardo."
119

In 0,('$67('" <"$6,-', 9,T'7(,/ ;3B3 T3 <"8(* "& B667,R)/^
Yc
the
Court he|d that under Art|c|e 1883 of the New C|v|| Code, |f an agent acts
|n h|s own name, the pr|nc|pa| has no r|ght of act|on aga|nst the persons
the pr|nc|pa|. In such case the agent |s the one d|rect|y bound |n favor of
the person w|th whom he has contracted, as |f the transact|on were h|s
own, except when the contract |nvo|ves th|ngs be|ong|ng to the
pr|nc|pa|. In that case, s|nce the pr|nc|pa|s had caused the|r agent to
enter |nto a charter party |n h|s own name and w|thout d|sc|os|ng that
he acted for any pr|nc|pa|, then the pr|nc|pa|s have no stand|ng to sue
upon any |ssue or cause of act|on ar|s|ng from sa|d charter party.
Late|y, C"\8- T3 07(P,."/o re|terated the genera| ru|e |n the Law
on Agency that, |n order to b|nd the pr|nc|pa| by a mortgage on rea|
property executed by an agent, |t must upon |ts face purport to be
made, s|gned and sea|ed |n the name of the pr|nc|pa|, otherw|se, |t w|||
b|nd the agent on|y.
a. Lxcept|on: When the roperty Invo|ved |n the Contract
8e|ongs to the r|nc|pa|
In C"R. ;*,( 0'-'-+ <"3/ F-P3 T3 @'$VJ'$7-,/o the Court he|d that
the except|on, as prov|ded |n Art|c|e 1883, |s when the propert|es of the
pr|nc|pa| are |nvo|ved, |n wh|ch case the
118
212 SCkA 2S
( )
O
l
'S'./ at p. 30.
120
1S6 SCkA 368

121
S11 SCkA 30S

122
2S SCkA S97
( )

pr|nc|pa| |s bound even when the contract was entered |nto |n the name
of the agent, wh|ch, accord|ng to K5'R'66'-7 9,*'"-,R :,-1 T3 B+8.7R",
123

|s a ru|e necessary for the protect|on of th|rd persons aga|nst poss|b|e
co||us|on between the agent and the pr|nc|pa|.
1hus, |n ;%VJ8P" T3 ;%VJ8P",* the Court he|d that the fact that
money used by the agent be|onged to the pr|nc|pa| |s covered by the
except|on.
In G8(,R :,-1 "& :"$S"- =<,$,('-7) ;8(H/ F-P3 T3 <"8(* "&
B667,R)/o |t was argued that even though the rea| estate mortgage was
executed by the author|zed agent |n h|s own name, nonethe|ess, the
mortgage was b|nd|ng on the pr|nc|pa| under the second paragraph of
Art|c|e 1883 wh|ch wou|d make the mortgage b|nd|ng on the pr|nc|pa|
because "the contract |nvo|ves th|ngs be|ong|ng to the pr|nc|pa|."
126
1he
Court he|d that for the paragraph to app|y, |t |s essent|a| that the
transact|ons undertaken were st||| for the account or |nterest of the
pr|nc|pa|, un||ke |n the case at bar where the rea| estate mortgage was
executed to secure the persona| |oans of the agent, thus
1he above prov|s|on of the C|v|| Code re||ed upon by the
pet|t|oner 8ank, |s not app||cab|e to the case at bar. nere|n
respondent Aqu|no acted purported|y as an agent of
Ga||ardo, but actua||y acted |n h|s persona| capac|ty. Invo|ved
here|n are propert|es t|t|ed |n the name of respondent
Ga||ardo aga|nst wh|ch the 8ank proposes to forec|ose the
mortgage const|tuted by an agent (Aqu|no) act|ng |n h|s
persona| capac|ty. Under these c|rcumstances, we ho|d, as we
d|d |n h|||pp|ne suganLstates Deve|opment Co. vs. o|zat,
)86(,/ that Ga||ardo's property |s not ||ab|e on the rea| estate
mortgage:"
127

123
S8 h||. 6SS
( 933)
"MC h||. 634
12S212 SCkA 2S

126
]Ib]d, at p. 31.
oRS'./ at p. 31.

b. kemedy of the r|nc|pa| Is to kecover Damages
from the Agent
Art|c|e 1883 of the New C|v|| Code makes |t c|ear that the forego|ng
ru|es are w|thout pre[ud|ce to act|ons between pr|nc|pa| and agent.
B'T,. T3 L'R$, 07(P,-*'R7 Co.,
128
he|d that the ru|e |n th|s
[ur|sd|ct|on |s that where the merchand|se |s purchased from an agent
w|th und|sc|osed pr|nc|pa| and w|thout know|edge on the part of the
purchaser that the vendor |s mere|y an agent, the purchaser takes t|t|e
to the merchand|se and the pr|nc|pa| cannot be sued on act|ons aga|nst
h|m for the recovery of the merchand|se or even for damages, but can
on|y proceed aga|nst the agent.
In K5'R3 :,-1 "& <"$$7(P7 T3 B(87+",
129
the party who s|gned a
b||| of exchange as an agent (as the res|dent of the company) fa||ed to
d|sc|ose h|s pr|nc|pa| and was he|d persona||y ||ab|e for the drafts he
accepted, even when he d|d so express|y as an agent> Sect|on 20 of the
Negot|ab|e Instruments Law prov|des express|y that when an agent
s|gns |n an representat|ve capac|ty, but does not |nd|cate or d|sc|ose h|s
pr|nc|pa| wou|d |ncur persona| ||ab|||ty on the b||| of exchange.
In :7,8$"-* T3 K('7*",
130
the Court he|d that a|though accord|ng to
Art|c|e 1883, when the agent acts |n h|s own name he |s not persona||y
||ab|e to the person w|th whom he enters |nto a contract when th|ngs
be|ong|ng to the pr|nc|pa| are the sub[ect thereof, yet such th|rd person
has a r|ght of act|on not on|y aga|nst the pr|nc|pa| but a|so aga|nst the
agent, when the r|ghts and ob||gat|ons wh|ch are the sub[ect matter of
the ||t|gat|on cannot be |ega||y and [ur|d|ca||y determ|ned w|thout
hear|ng both of them.
9,*'"-,R L"". B8*5"('*% T3 F-*7($7.',*7 B667RR,*7 <"8(*/o he|d
that when a comm|ss|on agent enters |nto a sh|pp|ng
128
49 h||. 816
( )
129
102 SCkA S30

130
41 h||. 670

131
184 SCkA 166
( )

contract |n h|s own name to transport the gra|ns of NIA on a vesse|
owned by a sh|pp|ng company, NIA cou|d not c|a|m |t |s not ||ab|e to the
sh|pp|ng company under Art|c|e 1883 of the New C|v|| Code "s|nce |t had
no know|edge of the fact of agency between respondent Super|or
Sh|pp|ng and Meda||a at the t|me when the contract was entered |nto
between them (NIA and Meda||a)."
132
1he Court further he|d
et|t|oner subm|ts that "(A)n und|sc|osed pr|nc|pa|
cannot ma|nta|n an act|on upon a contract made by h|s agent
un|ess such pr|nc|pa| was d|sc|osed |n such contract. Cne who
dea|s w|th an agent acqu|res no r|ght aga|nst the und|sc|osed
pr|nc|pa|."
et|t|oner NIA's content|on ho|ds no water. It |s an
und|sputed fact that G|| Meda||a was a comm|ss|on agent of
respondent Super|or Sh|pp|ng Corporat|on wh|ch owned the
vesse| "MV Sea kunner^ that transported the sacks of r|ce
be|ong|ng to pet|t|oner NIA. 1he context of the |aw |s c|ear
[under] Art. 1883, wh|ch |s the app||cab|e |aw |n the case at
bar. x x x
Consequent|y, when th|ngs be|ong to the pr|nc|pa| (|n
th|s case, Super|or Sh|pp|ng Corporat|on) are dea|t w|th, the
agent |s bound to the pr|nc|pa| a|though he does not assume
the character of such agent and appears act|ng |n h|s own
name. In other words, the agent's apparent representat|on
y|e|ds to the pr|nc|pa|'s true representat|on and that, |n
rea||ty and |n effect, the contract must be cons|dered as
entered |nto between the pr|nc|pa| and the th|rd person (Sy
Iuco and V|ardo v. Sy Iuco, 40 h||. 634). Coro||ar||y, |f the
pr|nc|pa| can be ob||ged to perform h|s dut|es under the
contract, then |t can a|so demand the enforcement of |ts
r|ghts ar|s|ng from the contract.
133

132
]b]d, at p.

$
RS'./ at pp.

4. When 1wo or More Agents Appo|nted by the Same r|nc|pa|
Art|c|e 1894 prov|des for the ru|e of respons|b|||ty (||ab|||ty) of two
or more agents serv|ng the same pr|nc|pa|, even when they have been
appo|nted s|mu|taneous|y:
(a) Io|nt, when noth|ng |s st|pu|ated, and
(b) So||dary, on|y when so st|pu|ated.
Under Art|c|e 189S, when so||dar|ty has been agreed upon, each of
the agents |s respons|b|e for the non-fu|f|||ment of the agency, and for
the fau|t or neg||gence of h|s fe||ow agents, except |n the |atter case
when the fe||ow agents acted beyond the scope of the|r author|ty.
Compare the ru|e |n Art|c|e |n 1894 w|th the genera| ru|e of
so||dary ||ab|||ty under Art|c|e 191S: when the agent |s serv|ng two or
more pr|nc|pa|s, the ||ab|||ty of the pr|nc|pa|s |s so||dary.
In 08-'P'6,R <"8-P'R "&RR"'R"T3 DT,-+7R ')*)*57 Court set the
genera| ru|e: when a person appo|nts two agents |ndependent|y, the
consent of one w||| not be requ|red to va||date the acts of the other,
un|ess that appears pos|t|ve|y to have been the pr|nc|pa|'s |ntent|on.
S. When 1h|rd arty L|ab|e to the Agent n|mse|f
In the fo||ow|ng cases, a th|rd party wou|d be d|rect|y ||ab|e to the
agent h|mse|f even on contracts entered |nto pursuant to the agency
arrangement, thus:
(a) Where the agent contracts |n h|s own name, on a
matter that |t w|th|n the scope of the agency (Art.
1883),
(b) Where the agent possesses a benef|c|a| |nterest |n the
sub[ect matter of the agency, such as a
134
SS h||. 290 (1930).

factor se|||ng under a .7R P(7.7(7 comm|ss|on (Art.
1907),
(c) Where a th|rd party comm|ts a tort aga|nst the agent.
SLCIIIC C8LIGA1ICN kULLS ICk CCMMISSICN AGLN1S
1. Nature of Iactor or Comm|ss|on Agent
A comm|ss|on agent |s one whose bus|ness |t |s to rece|ve and se||
goods for a comm|ss|on, and who |s entrusted by the pr|nc|pa| w|th the
possess|on of the goods to be so|d, and usua||y se|||ng |n h|s own name.
An ord|nary agent need not have possess|on of the goods of h|s pr|nc|pa|,
wh||e the comm|ss|on agent must be |n possess|on.
13S

2. Spec|f|c Cb||gat|ons of a Comm|ss|on Agent
a. 1ake Custody of Goods
Under Art|c|e 1903 of the New C|v|| Code, a comm|ss|on agent |s
respons|b|e for the goods rece|ved by h|m |n the terms and cond|t|ons
and as descr|bed |n the cons|gnment, un|ess upon rece|v|ng them he
shou|d make a wr|tten statement of the damage and deter|orat|on
suffered by the same.
b. Not to Comm|ng|e S|m||ar Goods 8e|ong|ng to
D|fferent r|nc|pa|s
Under Art|c|e 1904 of the New C|v|| Code, a comm|ss|on agent who
hand|es goods of the same k|nd and mark, wh|ch be|ong to d|fferent
owners, sha|| d|st|ngu|sh them by countermarks, and des|gnate the
merchand|se respect|ve|y be|ong to each pr|nc|pa|. In other words, the
defau|t ru|e |s that comm|ss|on agent cannot comm|ng|e goods of the
same k|nd be|ong|ng to d|fferent pr|nc|pa|s.
13S
De Leon, at p. S44.
196
D|st|ngu|sh th|s defau|t ru|e |n the case of a contract of depos|t,
wh|ch under Art|c|e 1976, the depos|tary |s a||owed to comm|ng|e gra|n
or other art|c|es of s|m||ar nature and qua||ty (Contract of Depos|t):
"Depos|tary may comm|ng|e gra|n or other art|c|es of s|m||ar nature and
qua||ty, and the resu|t wou|d be prorata ownersh|p among the owners
thereof."
c. Cannot Se|| on Cred|t W|thout r|nc|pa|'s
Author|zat|on
Under Art|c|e 190S of the New C|v|| Code, |f the comm|ss|on agent
se||s on cred|t, the pr|nc|pa| may st||| demand from h|s payment |n cash,
but the agent sha|| be ent|t|ed to any |nterest or benef|t wh|ch may
resu|t from such sa|e.
d. 1o Inform the r|nc|pa| of Lvery re-
Author|zed Sa|e on Cred|t
Under Art|c|e 1906, shou|d the agent se|| on cred|t w|th the
author|ty of the pr|nc|pa|, then the agent sha|| so |nform the pr|nc|pa|
w|th a statement of the names of the buyers. If he fa||s to do so, the sa|e
sha|| be deemed to have been made for cash |nsofar as the pr|nc|pa| |s
concerned.
e. Sha|| 8ear the k|sk of Co||ect|on under 47R
<(7.7(7 Comm|ss|on Set-up
Under Art|c|e 1908, shou|d the comm|ss|on agent rece|ve on a sa|e,
|n add|t|on to the ord|nary comm|ss|on, another ca||ed a guarantee
comm|ss|on, then:
(a) ne sha|| bear the r|sk of co||ect|on, and
(b) ne sha|| pay the pr|nc|pa| the proceeds of sa|e on same
terms agreed w|th purchaser.
f. 1o Co||ect Cred|ts of the r|nc|pa|
Under Art|c|e 1908, a comm|ss|on agent who does not co||ect the
cred|ts of h|s pr|nc|pa| at the t|me when they become due and
demandab|e sha|| be ||ab|e for damages, un|ess he proves that he
exerc|se due d|||gence for that purpose.

g. kespons|b|||ty for Iraud and Neg||gence
Under Art|c|e 1909 of the New C|v|| Code, the agent |s respons|b|e
to the pr|nc|pa| for the damages suffered for h|s fraud and h|s
neg||gence, wh|ch sha|| be [udged w|th more or |ess r|gor by the courts
accord|ng to whether the agency was or was not for a compensat|on.
F-*7(-,*'"-,R L'R$) T3 @%('P L'R$ DWP5,-+7,
138
he|d that the fa||ure of
the sub-agent who has custody of the f||m to |nsure aga|nst |oss by f|re,
where there was no |nstruct|on rece|ved from the pr|nc|pa| to so |nsure
or that the |nsurance of the f||m was not a part of the ob||gat|on
|mposed upon an agent by |aw, does not const|tute e|ther neg||gence or
fraud.
In !,- !'"-+ !7P1 T3 SLC,
137
where the c||ent ordered the broker to
se|| the shares g|v|ng a f|oor or m|n|mum pr|ce, and the broker d|d se|| at
the m|n|mum pr|ce |nd|cated even though the preva|||ng rang|ng pr|ces
were much h|gher than them, the broker was ||ab|e for the d|fference
suffered by the pr|nc|pa| because the broker fa||ed to exerc|se the
prudence and tact of a good father of a fam||y wh|ch the |aw requ|red of
h|m.
In K5'R'66'-7 9,*'"-,R :,-1 T3 :,+,$,)S,. ,-. L7((7(/^
[e
where
the manager of the bank re|eased the proceeds of an unauthor|zed |oan
to unqua||f|ed borrower, the Court ru|ed that the bank may recover
both aga|nst the borrower and |ts manager, and the su|t cou|d not be
cons|dered as the pr|nc|pa|- bank rat|fy|ng the unauthor|zed act of |ts
agent-manager, but was mere|y seek|ng to d|m|n|sh as much as poss|b|e
the |oss to |tse|f.
In C(77- 2,RR7% T3 FB</
$
the purported agent refused to be he|d
||ab|e for merchand|se rece|ved from the pr|nc|pa| on the ground that |t
was a mere agent to se|| and the u|t|mate buyers of the products shou|d
be the one made ||ab|e for the purchase pr|ce, (whereas the purported
pr|nc|pa| |ns|sted that |t was a sa|e arrangement). 1he Court ru|ed that
whether the contract between
136
63 h||. 778
( )
137
69 h||. 42S

138
89 h||. 36S
(19S1). 139133
SC 69 ( 98 )
the part|es be one of sa|e or agency to se||, there |s no doubt that the
purported agent wou|d be persona||y ||ab|e for the pr|ce of the
merchand|se so|d. 8e|ng a comm|ss|on agent under |ts author|ty, then
pursuant to Art|c|e 190S, |t shou|d not have so|d the merchand|se on
cred|t. Under Art|c|e 190S, the comm|ss|on agent cannot, w|thout the
express or |mp||ed consent of the pr|nc|pa|, se|| on cred|t, and shou|d he
do so, the pr|nc|pa| may demand from h|m payment |n cash.
oCo

CnA1Lk 4
C8LIGA1ICNS CI 1nL kINCIAL
8INDING LIILC1 CI 1nL 1LkMS CI 1nL CCN1kAC1 CI
AGLNC
S|nce a contract of agency |s mere|y a preparatory contract, |t |s
we|| w|th|n the |ega| capac|ty of both part|es to enter |nto any
st|pu|at|on, ob||gat|on and undertak|ng by wh|ch they can ta||or- f|t the
re|at|onsh|p to best ach|eve the purposes or ob[ect|ves of the agency.
L|ke any other contract governed by the pr|nc|p|es of ,8*"-"$%/
$8*8,R'*% and "SR'+,*"(% &"(P7/ the pr|nc|pa| |s bound by the terms
agreed upon under the contract of agency.
In De <,)*(" T3 <"8(* "& B667,R)/
`
the Supreme Court he|d that "A
contract of agency wh|ch |s not contrary to |aw, pub||c order, pub||c
po||cy, mora|s or good custom |s a va||d contract, and const|tutes the |aw
between the part|es. 1he contract of agency entered |nto [by the
pr|nc|pa| and the agent] |s the |aw between them and both are bound to
comp|y w|th |ts terms and cond|t|ons |n good fa|th."
2

Cn the other hand, s|nce the contract of agency |s one of
representat|on and bounded by f|duc|ary dut|es on the part of the agent,
then the pr|nc|pa| has the power to evo|ve the re|at|onsh|p beyond the
wr|tten terms of the |nstrument, and the agent under h|s f|duc|ary duty
of obed|ence, must comp|y w|th such new |nstruct|ons of the pr|nc|pa|.
1h|s po|nt h|gh||ghts the essent|a| character|st|c of agency as a
6("+(7))'T7 P"-*(,P*
1
384 SCkA 607
( )
Y
RS'./ at p. 616.
199

kINCIAL 8CUND 8 1nL CCN1kAC1S MADL 8 1nL AGLN1 IN nIS
8LnALI
Ak1. 1910. 1he pr|nc|pa| must comp|y w|th a|| the
ob||gat|ons wh|ch the agent may have contracted w|th|n the
scope of h|s author|ty.
As for any ob||gat|on where|n the agent has exceeded h|s
power, the pr|nc|pa| |s not bound except when he rat|f|es |t
express|y or tac|t|y. (1727)
||ab|e to the party w|th whom he contracts, un|ess he
express|y b|nds h|mse|f or exceeds the ||m|ts of h|s author|ty
w|thout g|v|ng such party suff|c|ent not|ce of h|s powers.
(172S)
1he centra| pr|nc|p|e In the Law on Agency |s that a|| contracts and
transact|ons entered |nto by the agent on beha|f of the pr|nc|pa| w|th|n
the scope of h|s author|ty are b|nd|ng on the pr|nc|pa| as though he
h|mse|f had entered |nto them d|rect|y. 1h|s tenet, referred to as the
."P*('-7 "& (76(7)7-*,*'"- |s repeated|y expressed |n var|ous prov|s|ons
|n the Law on Agency.
Art|c|e 1897 of the New C|v|| Code prov|des that the agent who
acts as such |s not persona||y ||ab|e to the party w|th whom he
contracts when act|ng w|th|n the scope of h|s author|ty, "un|ess he
express|y b|nds h|mse|f or exceeds the ||m|ts of h|s author|ty w|thout
g|v|ng such party suff|c|ent not|ce of h|s powers." !8,)"- T3 ?("\P",
3

he|d that even when the agent has express|y bound h|mse|f to the
contract entered |n the name of the pr|nc|pa|, the act does not re||eve
the pr|nc|pa| from the ob||gat|ons |ncurred, thus
3
S h||. S96 (1906).

C8LIGA1ICNS CI 1nL kINCIAL 201
. . . a debt thus |ncurred by the agent |s b|nd|ng d|rect|y
upon the pr|nc|pa|, prov|ded the former acted, as |n the
present case, w|th|n the scope of h|s author|ty. (Art. 1727
[now Art. 1910] of the C|v|| Code.) 1he fact that the agent
has a|so bound h|mse|f to pay the debt does not re||eve from
||ab|||ty the pr|nc|pa| for whose benef|t the debt was
|ncurred. 1he |nd|v|dua| ||ab|||ty of the agent const|tutes |n
the present case a further secur|ty |n favor of the cred|tor
and does not affect or prec|ude the ||ab|||ty of the pr|nc|pa|.
In the present case the |atter's ||ab|||ty was further
guaranteed by a mortgage upon h|s property. 1he |aw does
not prov|de that the agent can not b|nd h|mse|f persona||y to
the fu|f|||ment of an ob||gat|on |ncurred by h|m |n the name
and on beha|f of h|s pr|nc|pa|. Cn the contrary, |t prov|des
that such act on the part of an agent wou|d be va||d. (Art.
172S [now Art. 1897] of the C|v|| Code).
4

Art|c|e 1910 of the New C|v|| Code prov|des that the pr|nc|pa| must
comp|y w|th a|| the ob||gat|ons wh|ch the agent may have contracted
w|th|n the scope of h|s author|ty.
@'$ <5,' ;7-+ T3 !('-'.,./
Z
he|d that s|nce the genera| ru|e |s that
the pr|nc|pa| |s bound by the acts of h|s agent |n the scope of the agency,
therefore when the agent had fu|| author|ty to make the tax returns and
f||e them, together w|th the check payments, w|th the Co||ector of
Interna| kevenue on beha|f of the pr|nc|pa|, then the effects of
d|shonesty of the agent must be borne by the pr|nc|pa|, not by an
|nnocent th|rd party who has dea|t w|th the d|shonest agent |n good
fa|th.
C"-\,R7) T3 >,S7(7(/
e
he|d that where a sa|e of |and |s effected
through an agent who made m|srepresentat|ons to the buyer that the
property can be de||vered phys|ca||y to the contro| of the buyer when |n
fact |t was |n adverse possess|on of th|rd part|es, the se||er-pr|nc|pa| |s
bound for such m|srepresentat|ons and cannot |ns|st that the contract |s
|nva||d and unenforceab|e,
B
RS'./ at pp.
99 600
S
41 h||. S44

6
47 h||. 380
( )

202
the se||er-pr|nc|pa| cannot accept the benef|ts der|ved from such
representat|ons of the agent and at the same t|me deny the
respons|b|||ty for them.
In B'( L(,-P7 T3 <"8(* "& B667,R)/
N
emp|oy|ng the pr|nc|p|e that
know|edge of the agent |s chargeab|e as know|edge of the pr|nc|pa|, the
Court he|d that an a|r||ne company cannot be he|d ||ab|e for breach of
contract when |t d|shonored the t|ckets g|ven to the spouses, whose
trave| arrangement were hand|ed by the|r trave| agent, s|nce the
ev|dence showed that the|r trave| agent was du|y |nformed by the
a|r||ne company's proper off|cers that the t|ckets |n quest|on cou|d r|ot
be extended beyond the per|od of the|r va||d|ty w|thout pay|ng the fare
d|fferent|a|s and add|t|ona| trave| taxes brought about by the |ncreased
fare rate and trave| taxes. 1he Court he|d that "1o a|| |ega| |ntents and
purposes, 1eres|ta was the agent of the GANAS and not|ce to her of the
re[ect|on of the request for extens|on of the va||d|ty of the t|ckets was
not|ce to the GANAS, her pr|nc|pa|s."
8

In KR7,),-*T'RR7 47T3 T3 <"8(* "& B667,R)/
l
on the bas|s of the
genera| pr|nc|p|e that "the pr|nc|pa| |s respons|b|e for the acts of the
agent, done w|th|n the scope of h|s author|ty, and shou|d bear the
damage caused to th|rd persons," the Court ru|ed that the pr|nc|pa|
cou|d not abso|ve |tse|f from the damages susta|ned by |ts buyer on the
prem|se that the fau|t was pr|mar||y caused by |ts agent |n po|nt|ng to
the wrong |ot, s|nce the agent "was act|ng w|th|n |ts author|ty as the so|e
rea| estate representat|ve [of the pr|nc|pa|-se||er] when |t made the
de||very to" the buyer, a|though "[|]n act|ng w|th|n |ts scope of author|ty,
[the agent] was, however, neg||gent,"
10
s|nce |t |s neg||gence that |s the
bas|s of pr|nc|pa|'s ||ab|||ty, and that under Art|c|es 1909 and 1910 of the
New C|v|| Code, the ||ab|||ty of the pr|nc|pa| for acts done by the agent
w|th|n the scope of h|s author|ty do not exc|ude those done neg||gent|y.
7
126 SCkA 448
( 983)
]RS'./ at p. 4SS.
9
2S3 SCkA 10
OFS'./ at p. 20.

In L'R'6'-,) @'&7 B))8(,-P7 <"$6,-% T3 K7.(")"/O the Court found
occas|on to re|terate the facets of the doctr|ne, thus
8y the contract of agency, a person b|nds h|mse|f to ren-
der some serv|ce or to do someth|ng |n representat|on or on
beha|f of another, w|th the consent or author|ty of the |atter.
1he genera| ru|e |s that the pr|nc|pa| |s respons|b|e for the
acts of |ts agent done w|th|n the scope of |ts author|ty, and
shou|d bear the damage caused to th|rd persons. When the
agent exceeds h|s author|ty, the agent becomes persona||y
||ab|e for the damage. 8ut even when the agent exceeds h|s
author|ty, the pr|nc|pa| |s st||| so||dar|ty ||ab|e together w|th
the agent |f the pr|nc|pa| a||owed the agent to act as though
the agent had k||| powers. In other words, the acts of an
agent beyond the scope of h|s author|ty do not b|nd the pr|n-
c|pa|, un|ess the pr|nc|pa| rat|f|es them, express|y or |mp||ed.
kat|f|cat|on |n agency |s the adopt|on or conf|rmat|on by one
person of an act performed on h|s beha|f by another w|thout
author|ty.
12

In L'R'6'-,) @'&7/ desp|te the a||egat|on of the |nsurance company
"that |t was on|y a ||fe |nsurance company and was not engaged |n the
bus|ness of co||ect|ng |nvestment money," nonethe|ess |t was made
||ab|e to persons who |nvested money w|th |ts conf|rmed agent, when |t
was shown that other off|cers of the company had conf|rmed the power
of sa|d agent, and the |nvestments were rece|pted |n the off|c|a| rece|pts
of the company |tse|f.
1. r|nc|pa| Not 8ound by Contracts Made W|thout Author|ty or Cuts|de
the Scope of Author|ty
Art|c|e 1403 of the New C|v|| Code prov|des the coro||ary ru|e that
"for any ob||gat|on where|n the agent has exceeded h|s power," or acts
done by the agent outs|de of the scope of h|s
"S43 SCkA S42
( )
12
]Wd, at p. S47.

author|ty, even when entered |nto |n the name of the pr|nc|pa|, wou|d
not b|nd the pr|nc|pa|, and wou|d thus not be vo|d, but mere|y
unenforceab|e.
9,-*7) T3 0,.('+87(,,
13
he|d that a person w|th whom an agent
has contracted |n the name and for the account of h|s pr|nc|pa|, has a
r|ght of act|on aga|nst the purported pr|nc|pa|, even when the |atter
den|es the comm|ss|on or author|ty of the agent, |n wh|ch case the
party su|ng has the burden of prov|ng the ex|stence of the agency
notw|thstand|ng the purported pr|nc|pa|'s den|a| thereof. If the agency
re|at|on |s proved, then the pr|nc|pa| sha|| be he|d ||ab|e, and the agent
who |s made a party to the su|t cannot be he|d persona||y ||ab|e. Cn the
other hand, |f the agency re|at|onsh|p |s not proven, |t wou|d be the
agent who wou|d become ||ab|e persona||y on the contract entered
|nto.
I')7 ,-. <"3 T3 !,-+R,",
14
he|d that when the pr|nc|pa| has du|y
empowered h|s agent to enter |nto a contract of mortgage over h|s
property as we|| as a contract of surety, but the agent on|y entered |nto
a contract of mortgage, no |nference from the power of attorney can be
made to make the pr|nc|pa| ||ab|e as a surety, because under the |aw, a
surety must be express and cannot be presumed.
In K5'R'66'-7 9,*'"-,R :,-1 T3 :,+,$,)6,.,
1S
the Court he|d that
when bank off|cers, act|ng as agent, had not on|y gone aga|nst the
|nstruct|ons, ru|es and regu|at|ons of the bank |n re|eas|ng |oans to
numerous borrowers who were qua||f|ed, then such bank off|cers are
||ab|e persona||y for the |osses susta|ned by the bank. 1he fact that the
bank had a|so f||ed su|ts aga|nst the borrowers to recover the amounts
g|ven does not amount to rat|f|cat|on of the acts done by the bank
off|cers.
In @"67\ T3 BRT7-.',,
16
pursuant to the terms of the comprom|se
[udgment, the [udgment debtors had |ssued a check
"42 h||. 389
( )
"63 h||. 372
"89 h||. 36S

18
12 SCkA 634
( )

C8LIGA1ICNS CI 1nL kINCIAL 20S
In payment of the [udgment debt and made arrangements w|th the
bank for the |atter to a||ow the encashment thereof, but the check was
d|shonored by the bank wh|ch |ncreased the amount of the [udgment
debt. When the [udgment debtors sought not to be made ||ab|e for the
a||eged "overs|ght" of the bank, the Court den|ed such defense on the
ground that "And, the bank, hav|ng accepted the a||eged arrangement,
had const|tuted |tse|f as the agent of the pet|t|oners [[udgment
debtors]. 1he pr|nc|pa| |s respons|b|e for the acts of the agent, done
w|th|n the scope of h|s author|ty, and shou|d bear the damages caused
upon th|rd part|es. If the fau|t (overs|ght) ||es on the bank, the
pet|t|oners are free to sue sa|d bank for damages occas|oned
thereby."
17

2. When r|nc|pa| Is 8ound 8y the Acts Done Cuts|de the Scope of
Author|ty
Ak1. 1910. W W W As for any ob||gat|on where|n the agent
has exceeded h|s power, the pr|nc|pa| |s not bound except
when he rat|f|es |t express|y or tac|t|y. (1727)
(n)
In the fo||ow|ng acts done by the agent |n the name of the
pr|nc|pa|, but outs|de of the scope of h|s author|ty, the pr|nc|pa| wou|d
st||| be bound persona||y, thus:
(a) When the pr|nc|pa| rat|f|es such contract, express|y or
tac|t|y (Art. 1910, New C|v|| Code),
OFS'./ at p. 641.

/
/
(b) When the pr|nc|pa| has a||owed the purported agent to
act as though he had fu|| powers (Art. 1911, New C|v||
Code), and
(c) When the pr|nc|pa| has revoked the agency, but the
th|rd party have acted |n good fa|th w|thout not|ce of
such revocat|on.
Under Art|c|e 1911 of the New C|v|| Code, even when the agent
has exceeded h|s author|ty, the pr|nc|pa| |s so||dar||y ||ab|e w|th the
agent |f the former a||owed the |atter to act as though he had fu||
powers. 1h|s |s termed as O,+7-P% S% 7)*"667RO It |s a|so referred to as
the ."P*('-7 "& ,66,(7-* ,8*5"('*% |n Corporate Law.
In 0,-'R, G7$-,-*) T3 <"8(* "& B667,R)/
`c
the Court noted that
Art|c|e 1911 "|s |ntended to protect the r|ghts of |nnocent persons. In
such a s|tuat|on, both the pr|nc|pa| and the agent may be cons|dered as
[o|nt tortfeasors whose ||ab|||ty |s [o|nt and so||dary."
19

An ear|y examp|e of rat|f|cat|on act that b|nds the pr|nc|pa| to the
unauthor|zed act of the agent |s the one found |n <,)"- T3 G'P1,(.)/
Yc

where money was rece|ved as a depos|t by an agent, and that money
was subsequent|y turned over by the agent to the pr|nc|pa|, w|th not|ce
that |t |s the money of the depos|tor. 1he Court he|d that even |f |t |s
proven that the agent was not du|y author|zed to rece|ve such depos|t,
the pr|nc|pa| was bound to de||ver to the depos|tor, s|nce the act of
rece|v|ng the sum was a rat|f|cat|on of the prev|ous unauthor|zed act of
the agent.
In :R"-.7,8 T3 9,-",
21
the reg|stered owner who p|aced |n the
hands of another an executed document of transfer of the reg|stered
|and was he|d to have effect|ve|y represented to a th|rd party that the
ho|der of such document |s author|zed to dea| w|th the property. 1he
pr|nc|p|e was re|terated |n 4"$'-+" T3 G"SR7)3
YY

18
191 SCkA 622
( )
-
RS'./ at p. 629.
]qZ h||. 639

21
61 h||. 62S
*4S3 SCkA 812
( )

In the same manner, |n <"$$7(P',R :,-1 Q !(8)* <"3 T3 G768SR'P
B($"(7. <,( ;7(T'P7) <"(63/
Y[
the Court he|d that under the genera| ru|es
and pr|nc|p|es of |aw, the m|smanagement of the bus|ness of a party by
h|s agents does not re||eve sa|d party from the respons|b|||ty that he had
contracted w|th th|rd persons.
In 4% K75 T3 <"RR7P*"( "& F-*7(-,R G7T7-87/
Y
] where the pr|nc|pa|
|ssued the checks |n fu|| payment of the taxes due, but h|s agents had
m|sapp||ed the check proceeds, |t was he|d that the pr|nc|pa| wou|d st|||
be ||ab|e, because when a contract of agency ex|sts, the agent's acts b|nd
h|s pr|nc|pa|, w|thout pre[ud|ce to the |atter seek|ng recourse aga|nst the
agent |n an appropr|ate c|v|| or cr|m|na| act|on.
In <8')"- T3 <"8(* "& B667,R)
Y;
the fact that the agent defrauded
the pr|nc|pa| |n not turn|ng over the proceeds of the transact|ons to the
|atter cannot |n any way re||eve or exonerate such pr|nc|pa| from ||ab|||ty
to the th|rd persons who re||ed on h|s agent's author|ty. It |s an equ|tab|e
max|m that as between two |nnocent part|es, the one who made |t
poss|b|e for the wrong to be done shou|d be the one to bear the
resu|t|ng |oss.
In :7.', T3 I5'*7/
Ye
the Court he|d that when a th|rd party
adm|tted |n her wr|tten correspondence that he had contracted w|th the
pr|nc|pa| through a du|y author|zed agent, and then sues both the
pr|nc|pa| and the agent on an a||eged breach of that contract, and |n fact
|ater on d|sm|sses the su|t |nsofar as the pr|nc|pa| |s concerned, there can
be no cause of act|on aga|nst the agent. S|nce |t |s the pr|nc|pa| who
shou|d be answerab|e for the ob||gat|on ar|s|ng from the agency, |t |s
obv|ous that |f a th|rd person wa|ves h|s c|a|ms aga|nst the pr|nc|pa|, he
cannot assert them aga|nst the agent.
In 0,-'R, G7$-,-*)/ the pr|nc|pa| rea| estate company had
p|eaded non-||ab|||ty for the act of the agent |n engag|ng |n doub|e sa|es
of the propert|es. Wh||e not|ng |n|t|a||y that there was |ega|
23
8 SCkA 42S
( )
24
28 SCkA 216

2S
227 SCkA 391
^204 SCkA 273
( )

208
bas|s |n the pos|t|on of the pr|nc|pa| the agent "had c|ear|y
overstepped the bounds of |ts author|ty as agent and for that matter,
even the |aw when |t undertook the doub|e sa|e of the d|sputed |ots"
and that the pr|nc|pa| wou|d have been c|ear pursuant to Art|c|e 1897 of
the New C|v|| Code
27
nonethe|ess, the Court found that the pr|nc|pa|,
by ev|dence adduced, was ad[udge gu||ty of estoppe| under Art|c|e 1911,
because |t had accepted the payments rem|tted by the agent w|thout
ob[ect|on to the doub|e sa|es effected by |ts agent.
0,-'R, G7$-,-*) a|so ru|ed that a pr|nc|pa| becomes ||ab|||ty for
the acts and contracts done by |ts agent outs|de the scope of |ts
author|ty, when |t fa||s to take measures to protect the dea||ng pub||c
once |t |earns of the un|awfu| acts of |ts agent, |nc|ud|ng the need to
pub||sh |n a newspaper of genera| c|rcu|at|on the abrogat|on of the
powers of the agent, and fa|||ng to take steps to determ|ne the ta|nted
transact|ons of the agent before the term|nat|on of re|at|ons, thus:
"Lven assum|ng that Man||a kemnants was as much a v|ct|m as the
other |nnocent buyers, |t cannot be ga|nsa|d that |t was prec|se|y |ts
neg||gence and |ax|ty |n the day to day operat|ons of the rea| estate
bus|ness wh|ch made |t poss|b|e for the agent to dece|ve unsuspect|ng
vendees."
28

In G8(,R :,-1 "& 0'R,"( T3 ?P&7$',|t was he|d that when a bank, by
|ts acts and fa||ure to act, has c|ear|y c|othed |ts manager w|th apparent
author|ty to se|| an acqu|red asset |n the norma| course of bus|ness, |t |s
|ega||y ob||ged to conf|rm the transact|on by |ssu|ng a board reso|ut|on
to enab|e the buyers to reg|ster the property |n the|r names. 1he Court
he|d that the bank manager had a duty to perform necessary and |awfu|
acts to enab|e the other part|es to en[oy a|| benef|ts of the contract
wh|ch |t had author|zed.
now does ?P&7$', ru||ng [|ve w|th the other ru||ngs of the
Supreme Court that ho|d that even |n the case of a corporat|on,
YN
FS'., at p. 628.
]]RS'./ at p. 630.
29
32S SCkA 99
(2000)

the sa|e through |ts agent of a p|ece of |and requ|res that the author|ty of
the corporate off|cer to se|| on beha|f of the corporat|on must be |n
wr|t|ng, otherw|se the resu|t|ng transact|on |s vo|d pursuant to Art|c|e
1874? 1he ?P&7$', ru||ng shows that the use of the term "vo|d" under
Art|c|e 1874, |s re|at|ve, |n that |t |s vo|d on|y |nsofar as the pr|nc|pa| |s
concerned, and that any attempt to enforce the purchase by a th|rd
party |s vo|d when the pr|nc|pa| refuses to accept the sa|e of a p|ece of
|and effected by an agent |n h|s name w|thout wr|tten power of
attorney. In other words, |f the pr|nc|pa|, after the fact of sa|e, accepts
the contract, does not oppose the va||d|ty of the sa|e, or |n other words,
rat|f|es the sa|e, |t wou|d then be va||d and b|nd|ng on the pr|nc|pa|.
In ?P&7$',/ when an act|on was brought by the buyer aga|nst the
bank to enforce the sa|e, |t fa||ed to contest the genu|neness and due
execut|on of the deed of abso|ute sa|e executed by |ts genera| manager.
1he Court he|d
kespondents based the|r act|on before the tr|a| court on
the Deed of Sa|e, the substance of wh|ch was a||eged |n and a
copy thereof was attached to the et|t|on for Mandamus.
1he Deed named Ie S. 1ena as the representat|ve of the
bank. et|t|oner, however, fa||ed to spec|f|ca||y deny under
oath the a||egat|ons |n that contract. In fact, |t f||ed no answer
at a||, for wh|ch reason |t was dec|ared |n defau|t ____
30

x x x
In fa|||ng to f||e |ts answer spec|f|ca||y deny|ng under oath
the Deed of Sa|e, the bank adm|tted the due execut|on of the
sa|d contract. Such adm|ss|on means that |t acknow|edged
that 1ena was author|zed to s|gn the Deed of Sa|e on |ts
beha|f. 1hus, defenses that are |ncons|stent w|th the due
execut|on and the genu|neness of the wr|tten |nstrument are
cut off by an adm|ss|on |mp||ed from a fa||ure to make a
ver|f|ed spec|f|c den|a|.
31

x x x
$'./ at pp.

[`
FS'./ at p.

In any event, the bank acknow|edged, by |ts own acts or
fa||ure to act, the author|ty of Ie S. 1ena to enter |nto
b|nd|ng contracts. After the execut|on of the Deed of Sa|e,
respondents occup|ed the propert|es |n d|spute and pa|d the
rea| estate taxes due thereon. If the bank management
be||eved that |t had t|t|e to the property, |t shou|d have
taken some measures to prevent the |nfr|ngement or
|nvas|on of |ts t|t|e thereto and possess|on thereof.
L|kew|se, 1ena had prev|ous|y transacted bus|ness on
beha|f of the bank, and the |atter had acknow|edged her
author|ty. A bank |s ||ab|e to |nnocent th|rd persons where
representat|on |s made |n the course of |ts norma| bus|ness
by an agent ||ke Manager 1ena, even though such agent |s
abus|ng her author|ty. C|ear|y, persons dea||ng w|th her
cou|d not be b|amed for be||ev|ng that she was author|zed
to transact bus|ness for and on beha|f of the bank...
32

Sett|ed [ur|sprudence has |t that where s|m||ar acts have been
approved by the d|rectors as a matter of genera| pract|ce, custom, and
po||cy, the genera| manager may b|nd the company w|thout forma|
author|zat|on of the board of d|rectors. In vary|ng |anguage, ex|stence
of such author|ty |s estab||shed, by proof of the course of bus|ness, the
usages and pract|ces of the company and by the know|edge wh|ch the
board of d|rectors has, or must be presumed to have, of acts and do|ngs
of |ts subord|nates |n and about the affa|rs of the corporat|on. So a|so
?P&7$', he|d that
W W W author|ty to act for .and b|nd a corporat|on may
be presumed from acts of recogn|t|on |n other |nstances
where the power was |n fact exerc|sed.
x x x 1hus, when, |n the usua| course of bus|ness of a
corporat|on, an off|cer has been a||owed |n h|s off|c|a|
capac|ty to manage |ts affa|rs, h|s author|ty to represent the
corporat|on may be |mp||ed from the manner |n wh|ch he
has been perm|tted by the d|rectors to manage |ts bus|ness.
[Y
RS'./ at pp. 108-109.

Notw|thstand|ng the putat|ve author|ty of the manager
to b|nd the bank |n the Deed of Sa|e, pet|t|oner has fa||ed to
f||e an answer to the et|t|on be|ow w|th|n the reg|amentary
per|od, |et a|one present ev|dence controvert|ng such
author|ty. Indeed, when one of here|n respondents, Mar|fe
S. N|no, went to the bank to ask for the board reso|ut|on, she
was mere|y to|d to br|ng the rece|pts. 1he bank fa||ed to
categor|ca||y dec|are that 1ena had no author|ty.
As to the mer|ts of the case, |t |s a we||-estab||shed ru|e
that one who c|othes another w|th apparent author|ty as h|s
agent and ho|ds h|m out to the pub||c as such cannot be
perm|tted to deny the author|ty of such person to act as h|s
agent, to the pre[ud|ce of |nnocent th|rd part|es dea||ng w|th
such person |n good fa|th and |n the honest be||ef that he |s
what he appears to be . . . Irom the facts and the ev|dence
on record, there |s no doubt that th|s ru|e obta|ns. 1he
pet|t|on must therefore fa||.
33

In 4"R7) T3 B-+7R7)/
0
|t was he|d that s|nce the bas|s of agency |s
representat|on, then the quest|on of whether an agency has been
created |s ord|nar||y a quest|on wh|ch may be estab||shed |n the same
way as any other fact, e|ther by d|rect or c|rcumstant|a| ev|dence. It was
he|d that though that fact or extent of author|ty of the agents may not,
as a genera| ru|e, be estab||shed from the dec|arat|ons of the agents
a|one, |f one professes to act as agent for another, she may be estopped
to deny her agency both as aga|nst the asserted pr|nc|pa| and the th|rd
persons |nterested |n the transact|on |n wh|ch he or he |s engaged.
kecent|y, |n K,58. T3 <"8(* "& B667,R) ] the Court summar|zed the
|nstances when the pr|nc|pa| can be he|d persona||y ||ab|e for h|s agent's
dece|tfu| acts exerc|sed on th|rd part|es: "It |s a bas|c ru|e |n the |aw of
agency that a pr|nc|pa| |s sub[ect to ||ab|||ty for |oss caused to another by
the |atter's re||ance upon a dece|tfu| representat|on by an agent |n the
course of h|s emp|oyment (1) |f the representat|on |s author|zed, (2) |f |t
|s w|th|n the |mp||ed author|ty of the agent to make for the pr|nc|pa|, or
(3)
m|d, at pp.

"492 SCkA 607

3S
S97 SCkA 13
( )

|f |t |s apparent|y author|zed, regard|ess of whether the agent was
author|zed by h|m or not to make the representat|on."
36

LIA8ILI1 CI 1nL kINCIAL ICk AGLN1'S 1Ck1
1he genera| ru|e |s that the pr|nc|pa| |s ||ab|e to |n[ured th|rd
part|es for the torts comm|tted by the agent at the pr|nc|pa|'s d|rect|on
or |n the course of and w|th|n the scope of the agent's author|ty. It goes
w|thout say|ng, that s|nce the act of neg||gence was that of the agent,
he a|so becomes c|v|||y ||ab|e to the |n[ured part|es, even when he acts
|n representat|on of the pr|nc|pa|.
1hus, Art|c|e 1909 of the New C|v|| Code prov|des that "1he agent
|s respons|b|e not on|y for fraud, but a|so for neg||gence, wh|ch sha|| be
agency was or was not for a compensat|on."
In 27()"\, T3 @'$,
37
|t was he|d that when a co|||s|on w|th another
vesse| has been caused by the neg||gence of the sh|p agent, both the
owner of the vesse| and the sh|p agent can be sued together for the
recovery of damages.
C8LIGA1ICNS CI 1nL kINCIAL 1C 1nL AGLN1
1. 1o ay Agent's Compensat|on
In an onerous or compensated agency, the ob||gat|on of the
pr|nc|pa| to pay the agent sha|| be |n accordance w|th the terms agreed
upon when the agency was const|tuted. If no part|cu|ar formu|a has
been agreed upon on the agent's compensat|on, then the fo||ow|ng
ru|es shou|d app|y:
(a) 1he pr|nc|pa| sha|| pay the agent's comm|ss|on on|y on
the |ega| bas|s that the agent has comp||ed w|th h|s
ob||gat|ons w|th the pr|nc|pa|, and
W
RS'./ at pp.

37
4S h||. 416
( )

(b) 1he pr|nc|pa| sha|| be ||ab|e to the agent for the reasonab|e
va|ue of the agent's serv|ces.
It shou|d be noted that under Art|c|e 187S of the New C|v|| Code,
"Agency |s presumed to be for a compensat|on, un|ess there |s proof to
the contrary."
2,R7-\87R, T3 <"8(* "& B667,R)/
[e
he|d that when the revocat|on of
the agency was effected by the pr|nc|pa| pr|mar||y because of the refusa|
of the agent to share ha|f of the comm|ss|ons earned under the contract
of agency, such revocat|on was done |n bad fa|th, and for wh|ch the
pr|nc|pa| can be he|d ||ab|e for damages |nc|ud|ng the payment of fu||
comm|ss|ons earned by the agent at the t|me of the revocat|on of the
agency.
In 47 <,)*(" T3 <"8(* "& B667,R)presc|nd|ng from the pr|nc|p|e that
the terms of the contract of agency const|tuted the |aw between the
pr|nc|pa| and the agent, |t was ru|ed by the Court that the mere fact that
"other agents" |ntervened |n the consummat|on of the sa|e and were
pa|d the|r respect|ve comm|ss|ons cou|d not vary the terms of the
contract of agency w|th the p|a|nt|ff of a S percent comm|ss|on based on
the se|||ng pr|ce.
arenthet|ca||y, the Court a|so noted |n 47 <,)*(" that an act|on
upon a wr|tten contract, such as a contract of agency, must be brought
w|th|n ten years from the t|me the r|ght of act|on accrues.
1he doctr|nes on the r|ght of a broker to compensat|on or
comm|ss|on as d|scussed |n Chapter 1 app|y equa||y to contracts of
agency, s|nce they both const|tutes acts of serv|ce. Ior a better
understand|ng of the compensat|on r|ghts of an agent, you may w|sh to
refer to the d|scuss|on |n Chapter 1 on d|st|ngu|sh|ng a contract of
brokerage from a contract of agency.
M
191 SCkA1
( )
39
384 SCkA 607
( )

2. 1o Advance Sums kequested for Lxecut|on
of the Agency
Ak1. 1912. 1he pr|nc|pa| must advance to the agent, shou|d
the |atter so request, the sums necessary for the execut|on of
the agency.
Shou|d the agent have advanced them, the pr|nc|pa| must
re|mburse h|m therefor, even |f the bus|ness or undertak|ng
was not successfu|, prov|ded the agent |s free from a|| fau|t.
1he re|mbursement sha|| |nc|ude |nterest on the sums
advanced, from the day on wh|ch the advance was made.
(1728)
Under Art|c|e 1912 of the New C|v|| Code, the pr|nc|pa| must
advance to the agent, shou|d the |atter so request, the sums necessary
for the execut|on of the agency. Shou|d the agent have advanced them,
the pr|nc|pa| must re|mburse the agent therefore, even |f the bus|ness or
undertak|ng was not successfu|, prov|ded the agent |s free from fau|t.
1he re|mbursement sha|| |nc|ude |nterest on the sums advanced,
from the day on wh|ch the advance was made.
We shou|d compare th|s to the prov|s|ons |n Art|c|e 1886 where
the agent |s bound to advance the sums necessary to carry out the
agency, but on|y when he so consents or |t |s st|pu|ated |n the
agreement.
a. When r|nc|pa| Not L|ab|e to ke|mburse Agent for n|s
Lxpenses
Ak1. 1918. 1he pr|nc|pa| |s not ||ab|e for the expenses
|ncurred by the agent |n the fo||ow|ng cases:

C8LIGA1ICNS CI 1nL kINCIAL 21S
(1) If the agent acted |n contravent|on of the pr|nc|pa|'s
|nstruct|ons, un|ess the |atter shou|d w|sh to ava|| h|mse|f of
the benef|t der|ved from the contract,
(2) When the expenses were due to the fau|t of the agent,
(3) When the agent |ncurred them w|th know|edge that
an unfavorab|e resu|t wou|d ensure, |f the pr|nc|pa| was not
aware thereof,
(4) When |t was st|pu|ated that the expenses wou|d be
borne by the agent, or that the |atter wou|d be a||owed on|y a
certa|n sum. (n)
Under Art|c|e 1918 of the New C|v|| Code, the pr|nc|pa| |s not ||ab|e
for the expenses |ncurred by the agent |n the fo||ow|ng cases:
(a) |f the agent acted |n contravent|on of the pr|nc|pa|'s
|nstruct|ons, un|ess the |atter shou|d w|sh to ava||
h|mse|f of the benef|ts der|ved from the contract,
(b) When the expenses were due to the fau|t of the agent,
(c) When the agent |ncurred them w|th know|edge that an
unfavorab|e resu|t wou|d ensue, |f the pr|nc|pa| was not
aware thereof, or
(c) When |t was st|pu|ated that the expenses wou|d be borne
by the agent, or that the |atter wou|d be a||owed on|y a
certa|n sum.
In 4"$'-'"- F-)8(,-P7 T3 <"8(* "& B667,R)t |t was he|d that when
the author|ty of the area manager to sett|e the c|a|ms
<376 SCkA 239 (2002).

216
|s further ||m|ted by the wr|tten standard author|ty to pay, wh|ch states
that the payment sha|| come from h|s revo|v|ng fund or co||ect|on, the
sett|ement beyond such fund was a c|ear dev|at|on from the |nstruct|ons
of the pr|nc|pa|. Consequent|y, the expenses |ncurred by the area
manager |n the sett|ement of the c|a|ms of the |nsured may not be
re|mbursed from the |nsurance company pursuant to the c|ear prov|s|on
of Art|c|e 1918(1) of the New C|v|| Code.
nowever, |t was a|so ru|ed |n 4"$'-'"- F-)8(,-P7 that wh||e the
Law on Agency proh|b|ts the area manager from obta|n|ng
re|mbursement, h|s r|ght to recover may st||| be [ust|f|ed under the
genera| |aw on ob||gat|ons and contracts, part|cu|ar|y Art|c|e 1236 of the
New C|v|| Code on payment by a th|rd party of the ob||gat|on of the
debtor, a||ows recovery on|y |nsofar as the payment has been benef|c|a|
to the debtor. 1hus, to the extent that the ob||gat|on of the |nsurance
company has been ext|ngu|shed, the area manager may demand for
re|mbursement from h|s pr|nc|pa|, to ru|e otherw|se wou|d resu|t |n
un[ust enr|chment of pet|t|oner.
3. 1o Indemn|fy Agent for the Damages Susta|ned
Ak1. 1913. 1he pr|nc|pa| must a|so |ndemn|fy the agent for
a|| the damages wh|ch the execut|on of the agency may have
caused the |atter, w|thout fau|t or neg||gence on h|s part.
(1729)
Under Art|c|e 1913 of the New C|v|| Code, the pr|nc|pa| must
|ndemn|fy the agent for a|| the damages wh|ch the execut|on of the
agency may have caused the agent, w|thout fau|t or neg||gence on
agent's part.
Art|c|e 1913 |s the counter-ba|ance to the prov|s|on |n Art|c|e 1884
that makes the agent ||ab|e for damages susta|ned by the pr|nc|pa| for
agent's refusa| to perform h|s ob||gat|ons under the agency.

In BRS,R,.7X" % <', T3 KG<,
41
the Court ru|ed that when the purchase
by one company of the copra of another company |s by way of contract
of purchase rather than an agency to purchase, the former |s not ||ab|e to
re|mburse the |atter for expenses |ncurred by the |atter |n ma|nta|n|ng |t
purchas|ng organ|zat|on |ntact over a per|od dur|ng wh|ch the actua|
buy|ng of copra was suspended. 1he Court noted that the c|rcumstances
that the buy|ng company encouraged the se|||ng company to keep |ts
organ|zat|on |ntact dur|ng such per|od of suspens|on and suggested that
when the company resumed buy|ng the se|||ng company wou|d be
compensated for a|| |oss wh|ch |t had suffered mean|ng that the prof|ts
then to be made wou|d [ust|fy such expenses, d|d not render the buy|ng
company ||ab|e for such |osses upon |ts subsequent fa||ure to resume the
buy|ng of copra: "1he |nducements thus he|d out to the p|a|nt|ff were
not |ntended to |ay the bas|s of any contractua| ||ab|||ty, and the |aw w|||
not |nfer the ex|stence of a contract contrary to the revea|ed |ntent|on of
the part|es."
42

1he c|ear |mp||cat|on |n BRS,R7.7X" Q <', |s that under a contract of
sa|e, the re|at|onsh|p between the buyer and the se||er |s str|ct|y at arms'
|ength and un|ess express|y or |mp||ed contracted, one cannot assume
any ||ab|||ty ar|s|ng beyond the terms of the meet|ng of the m|nds of the
party. Cn the other hand, |f the re|at|onsh|p |s one of pr|nc|pa| and agent,
then equ|ty demands, and Art|c|es 1911 and 1913 of the New C|v|| Code
prov|de, that a|| expenses |ncurred and any |osses susta|ned, by the
agent |n pursu|t of the bus|ness of the pr|nc|pa| and those undertaken
upon |nstruct|on of the pr|nc|pa|, shou|d be re|mbursed by the pr|nc|pa|
to the agent.
a. k|ght of Agent to keta|n Cb[ect of Agency |n |edge for
Advances and Damages
Ak1. 1914. 1he agent may reta|n |n p|edge the th|ngs
wh|ch are the ob[ect of
41
4S h||. SS6
( )
OFS'./ at p. S71.

218
the agency unt|| the pr|nc|pa| effects the
re|mbursement and pays the |ndemn|ty set forth |n
the two preced|ng art|c|es. (1730)
Under Art|c|e 1914 of the New C|v|| Code, the agent |s granted the
power to reta|n |n p|edge the th|ngs wh|ch are the ob[ect of the agency
unt|| the pr|nc|pa| effects the re|mbursement and pays the |ndemn|ty
cover|ng advances made and damages susta|ned.
1h|s |s an except|on to the duty of the agent, expressed |n Art|c|e
1891 of the New C|v|| Code, to de||ver to the pr|nc|pa| everyth|ng he
rece|ved even |f not due to the pr|nc|pa|.
C8LIGA1ICN CI 1WC Ck MCkL kINCIALS 1C AGLN1 ACIN1LD ICk
CCMMCN 1kANSAC1ICNS
Ak1. 191S. If two or more persons have appo|nted an
agent for a common transact|on or undertak|ng, they sha|| be
so||dar||y ||ab|e to the agent for a|| the consequences of the
agency. (1731)
Under Art|c|e 191S of the New C|v|| Code, |f two or more persons
have appo|nted an agent for a commbn transact|on or undertak|ng, they
sha|| be so||dar||y ||ab|e to the agent for a|| the consequences of the
agency.
In 47 <,)*(" T3 <"8(* "& B667,R)/
a[
wh|ch |nvo|ved the |ssue on
whether a|| the co-owners must be |mp|eaded as |nd|spensab|e part|es
to a su|t brought by the agent aga|nst one of the co-owners
43
384 SCkA 607 (2002).

who executed a spec|a| power of attorney, the Court quotes from
1o|ent|no to exp|a|n the s|gn|f|cance of Art|c|e 191S, thus:
1he ru|e |n th|s art|c|e app||es even when the appo|nt-
ments were made by the pr|nc|pa|s |n separate acts,
prov|ded that they are for the same transact|on. !57
)"R'.,('*% ,(')7) &("$ *57 P"$$"- '-*7(7)* "& *57 6('-P'6,R)/
,-. -"* &("$ *57 ,P* "& P"-)*'*8*'-+ *57 ,+7-P%3 :% T'(*87 "&
*5') )"R'.,('*%/ *57 ,+7-* P,- (7P"T7( &("$ ,-% 6('-P'6,R *57
b5"R7 P"$67-),*'"- ,-. '-.7$-'*% "b'-+ *" 5'$ S% *57
"*57()3 1he part|es, however, may, by express agreement,
negate th|s so||dary respons|b|||ty. 1he so||dar|ty does not
d|sappear by the mere part|t|on effected by the pr|nc|pa|s
after the accomp||shment of the agency.
If the undertak|ng |s one |n wh|ch severa| are |nterested,
but on|y some create the agency, on|y the |atter are so||dary
||ab|e, w|thout pre[ud|ce to the effects of -7+"*'"(8$ +7)*'"
w|th respect to the others. And |f the power granted |nc|udes
var|ous transant|ons some of wh|ch are common and others
are not, non|y those |nterested |n each transact|on sha|| be
||ab|e for |t.
44

In summary, the Court ru|ed |n 47 <,)*(" that "When the |aw
express|y prov|des for so||dar|ty of the ob||gat|on, as |n the ||ab|||ty of
co-pr|nc|pa|s |n a contract of agency, each ob||gor may be compe||ed to
pay the ent|re ob||gat|on. 1he agent may recover the who|e
compensat|on from any one of the co-pr|nc|pa|s, as |n th|s case."
4S

1he matter of the r|ght of the agent to rece|ve h|s compensat|on or
comm|ss|on |s d|scussed |n deta|| |n the ear||er Chapter 1.
]]RS'./ at p. 61S, g8"*'-+ &("$ 1CLLN1INC, Ak1UkC M., CCMMLN1AkILS
AND IUkISkUDLNCL CN 1nL CIVIL CCDL CI 1nL nILIINLS (1992 ed.), Vo|. S, pp.

]
Z
RS'./ at p. 61S.
|.

kIGn1S CI LkSCNS WnLN IACLD WI1n CCNILIC1ING
CCN1kAC1S
Ak1. 1916. When two persons contract w|th regard to the
same th|ng, one of them w|th the agent and the other w|th the
pr|nc|pa|, and the two contracts are |ncompat|b|e w|th each
other, that of pr|or date sha|| be preferred, w|thout pre[ud|ce
to the prov|s|ons of Art|c|e 1S44. (n)
Ak1. 1917. In the case referred to |n the preced|ng art|c|e,
|f the agent has acted |n good fa|th, the pr|nc|pa| sha|| be ||ab|e
|n damages to the th|rd person whose contract must be
re[ected. If the agent acted |n bad fa|th, he a|one sha|| be
respons|b|e, (n)
Under Art|c|e 1916 of the New C|v|| Code, when two persons
contract w|th regard to the same th|ng, one of them w|th the agent and
the other w|th the pr|nc|pa|, and the two contracts are |ncompat|b|e
w|th each other, that of pr|or date sha|| be preferred, w|thout pre[ud|ce
to the prov|s|ons of Art|c|e 1S44 of the New C|v|| Code on the ru|es on
doub|e sa|es.
Art|c|e 1917 of the New C|v|| Code prov|des that |n such a case, |f
the agent had acted |n good fa|th, the pr|nc|pa| sha|| be ||ab|e |n
damages to the th|rd person whose contract m||st be re[ected. Cn the
other hand, |f the agent acted |n bad fa|th, the agent a|one sha|| be
respons|b|e.
oCo

CnA1Lk S
now AND WnLN AGLNC Lk1INGUISnLD
Ak1. 1919. Agency |s ext|ngu|shed:
(1) 8y |ts revocat|on,
(2) 8y the w|thdrawa| of the agent,
(3) 8y the death, c|v|| |nterd|ct|on, |nsan|ty or
|nso|vency of the pr|nc|pa| or of the agent,
(4) 8y the d|sso|ut|on of the f|rm or corporat|on
wh|ch entrusted or accepted the agency,
(5) 8y the accomp||shment of the ob[ect or
purpose of the agency,
(6) 8y the exp|rat|on of the per|od for wh|ch the
agency was const|tuted. (1732a)
Art|c|e 1919 of the New C|v|| Code enumerates the modes
by wh|ch an agency contract |s ext|ngu|shed, thus:
(a) kevocat|on by the pr|nc|pa|,
(b) W|thdrawa| of the agent,
(c) 8y the death, c|v|| |nterd|ct|on, |nsan|ty or |nso|-
vency of e|ther the pr|nc|pa| or agent,
221

(d) 8y the d|sso|ut|on of the [ur|d|ca| ent|ty wh|ch
entrusted or accepted the agency,
(e) 8y the accomp||shment of the ob[ect or purpose of
the agency, and
(f) 8y the exp|rat|on of the per|od for wh|ch the agency
was const|tuted.
Cther modes of ext|ngu|shment of an agency wou|d be:
(g) Mutua| w|thdrawa| from the re|at|onsh|p by the
pr|nc|pa| and agent,
(h) 8y the happen|ng of a superven|ng event that
makes |||ega| or |mposs|b|e the ob[ect|ve or
purpose for wh|ch the agency was const|tuted, ||ke
the destruct|on of the sub[ect matter wh|ch |s the
ob[ect of the agency.
kINCIAL'S kLVCCA1ICN CI 1nL AGLNC
Ak1. 1920. 1he pr|nc|pa| may revoke the agency at w|||,
and compe| the agent to return the document ev|denc|ng the
agency. Such revocat|on may be express or |mp||ed. (1733a)
Ak1. 192S. When two or more pr|nc|pa|s have granted a
power of attorney for a common transact|on, any one of them
may revoke the same w|thout the consent of the others, (n)
1he |aw recogn|zes the power to revoke an agency re|at|on by
pr|nc|pa|, |n keep|ng w|th the tru|sm that an agency |s a 5'+5R% 67()"-,R
(7R,*'"-)5'6 and one S8'R* 86"- *(8)* ,-. P"-&'.7-P73

223
Un||ke the remedy of resc|ss|on wh|ch requ|res the ex|stence of
substant|a| breach of contract, revocat|on |s ||tera||y at the w||| of the
pr|nc|pa|.
Under Art|c|e 192S of the New C|v|| Code, when two or more
pr|nc|pa|s have granted a power of attorney for a common transact|on,
any one of them may revoke the same w|thout the consent of the other.
1h|s ru|e |s cons|stent w|th the ru|e under Art|c|e 191S of the New C|v||
Code that the ob||gat|on of two or more pr|nc|pa|s to a common agent |s
so||dary, and consequent|y, the power to revoke the agency can be
made by the w||| of on|y one of the pr|nc|pa|s.
8ut the near abso|ute power of the pr|nc|pa| to revoke the agency
shou|d not be confused w|th the thought that there can be no breach of
contract comm|tted by a pr|nc|pa| who revokes the agency wh|ch was
const|tuted as "|rrevocab|e" or for a def|n|te term or per|od. In such a
case, the agreement as to the term of the agency wou|d not make the
pr|nc|pa| |ose h|s power to revoke, and when he does so revoke, the
agency |s term|nated, but he wou|d be ||ab|e to the agent for the
damages caused, |nc|ud|ng the compensat|on due the agent when the
revocat|on was done |n bad fa|th, '373/ that the revocat|on of the agency
re|at|onsh|p was done to avo|d the payment of the comm|ss|on earned
by the agent.
1hus, 4,5"- T3 :('$") he|d that where no t|me for the cont|nuance
of the agency |s f|xed by the terms, the pr|nc|pa| |s at ||berty to term|nate
|t at w||| sub[ect on|y to the requ|rements of good fa|th.
L|kew|se, the so|e except|on to the revocab|||ty ru|e of every agency
re|at|onsh|p |s when |t comes to agency "P"86R7. b'*5 '-*7(7)*3O
1
42 h||. 133 (1921).

224
1. Lxpress kevocat|on
Ak1. 1921. If the agency has been entrusted for the
purpose of contract|ng w|th spec|f|ed persons, |ts revocat|on
sha|| not pre[ud|ce the |atter |f they were not g|ven not|ce
thereof. (1734)
Ak1. 1922. If the agent had genera| powers, revocat|on of
the agency does not pre[ud|ce th|rd persons who acted |n good
fa|th and w|thout know|edge of the revocat|on. Not|ce of the
revocat|on |n a newspaper of genera| c|rcu|at|on |s a suff|c|ent
warn|ng to th|rd persons, (n)
Under Art|c|e 1920 of the New C|v|| Code, the pr|nc|pa| may revoke
the agency at w|||, express or |mp||ed, and thereby compe| the agent to
return the document ev|denc|ng the agency. 1h|s wou|d ensure that the
document, '373/ wr|tten power of attorney, wou|d not fa|| |nto the hands
of th|rd part|es who then wou|d be act|ng |n good fa|th |n enter|ng |nto a
contract |n the name of the pr|nc|pa|, be||ev|ng there |s st||| ex|st|ng
agency re|at|on.
If the agent fa||s or refuses to return the power of attorney, |t |s
|ncumbent upon the pr|nc|pa| to g|ve proper not|ce to the members of
the pub||c who may be affected by the revocat|on. Under Art|c|e 1921 of
the New C|v|| Code, |f the agency has been entrusted for the purpose of
contract|ng w|th spec|f|ed persons, |ts revocat|on sha|| not pre[ud|ce the
|atter |f they were not g|ven not|ce thereof. Under Art|c|e 1922, |f the
agent had genera| powers ='373/ not d|rected towards spec|f|c persons),
not|ce of the revocat|on |n a newspaper of genera| c|rcu|at|on |s a
suff|c|ent warn|ng to th|rd persons.
1he ru|es are cons|stent w|th the one set |n Art|c|e 1873 of the New
C|v|| Code, wh|ch prov|des that "If a person spec|a||y |nforms another or
states by pub||c advert|sement that he has g|ven a power of attorney to
a th|rd person, the |atter thereby becomes a du|y author|zed agent, |n
the former case w|th respect

Lk1INGUISnMLN1 CI AGLNC 22S
to the person who rece|ved the spec|a| |nformat|on, and |n the |atter
case w|th regard to any person." In add|t|on, Art|c|e 1873 prov|des that
"1he power sha|| cont|nue to be |n fu|| force unt|| the not|ce |s resc|nded
|n the same manner |n wh|ch |t was g|ven."
It shou|d be noted that a|though the power of the pr|nc|pa| to
express|y revoke the contract of agency cannot genera||y be den|ed, |t
may neverthe|ess amount to breach of contract that wou|d make the
pr|nc|pa| ||ab|e.
1hus, |n 4',R"), T3 <"8(* "& B667,R)/
Y
where the terms of the
agency contract a||owed the agent "to d|spose of, se||, cede, transfer
and convey x x x unt|| a|| the sub[ect property as subd|v|ded |s fu||y
d|sposed of," |t was he|d that the agency was one w|th a per|od or one
w|th a spec|f|c purpose, and |t was not ext|ngu|shed unt|| a|| the |ots
have been d|sposed of. Consequent|y, |f the contract were term|nated
by the pr|nc|pa| before a|| the |ots |n the subd|v|s|on has been d|sposed
off, there wou|d be a breach of contract for wh|ch the pr|nc|pa| wou|d
be ||ab|e for damages.
In 2,R7-\87R, T3 <"8(* "& B667,R),
3
revocat|on of the agency was effected by the pr|nc|pa| pr|mar||y
because of the refusa| of the agent to share ha|f of the comm|ss|ons
earned under the contract of agency, such revocat|on was done |n bad
fa|th, and for wh|ch the pr|nc|pa| can be he|d ||ab|e for damages
|nc|ud|ng the payment of fu|| comm|ss|ons earned by the agent at the
t|me of the revocat|on of the agency.
2. Imp||ed kevocat|on
Ak1. 1923. 1he appo|ntment of a new agent for the same
bus|ness or transact|on revokes the prev|ous agency from the
day on wh|ch not|ce
2
130 SCkA 3S0
( )
3
191 SCkA1
( )

226
thereof was g|ven to the former agent, w|thout pre[ud|ce to
the prov|s|ons of the two preced|ng art|c|es. (173Sa)
Ak1. 1924. 1he agency |s revoked |f the pr|nc|pa| d|rect|y
manages the bus|ness entrusted to the agent, dea||ng d|rect|y
w|th th|rd persons, (n)
Ak1. 1926. A genera| power of attorney |s revoked by a
spec|a| one granted to another agent, as regards the spec|a|
matter |nvo|ved |n the |atter, (n)
1he fo||ow|ng have been enumerated as to const|tute |mp||ed
revocat|on, thus:
a. Appo|ntment of New Agent for Same 8us|ness
Under Art|c|e 1923 of the New C|v|| Code, the appo|ntment of a
new agent for the same bus|ness or transact|on revokes the prev|ous
agency from the day on wh|ch not|ce thereof was g|ven to the former
agent. 1he effect of revocat|on |s w|thout pre[ud|ce to the r|ghts of th|rd
part|es who were not aware of or not|f|ed of such s|tuat|on.
1he cr|t|ca| t|me when the agency |s revoked |s "from the day on
wh|ch not|ce thereof was g|ven to the former agent." 1hus, |n C,(P', T3
47 0,-\,-",
4
where the father f|rst gave a power of attorney over the
bus|ness to h|s son, and subsequent|y to the mother, the Court he|d that
w|thout ev|dence show|ng that the son was |nformed of the |ssuance of
the power of attorney to the mother, the transact|on effected by the son
pursuant to h|s power of attorney, was va||d and b|nd|ng, thus
1here |s no proof |n the record that the f|rst agent, the
son, knew of the power-of-attorney of h|s mother.
"39 h||. S77 (1919).

227
It was necessary under the |aw for the defendants, |n
order to estab||sh the|r counterc|a|m, to prove that the son
had not|ce of the second power-of-attorney. 1hey have not
done so, and |t must be cons|dered that Ange| L. Manzano
was act|ng under a va||d power-of-attorney from h|s father
wh|ch had not been |ega||y revoked on the date of the sa|e
of the ha|f |nterest |n the steamer to the p|a|nt|ffs son, wh|ch
ha|f |nterest was |ega||y |nher|ted by the p|a|nt|ffs.
S

b. When r|nc|pa| D|rect|y Manages the 8us|ness
Under Art|c|e 1924 of the New C|v|| Code, the agency |s revoked
when the pr|nc|pa| d|rect|y manages the bus|ness entrusted to the
agent, dea||ng d|rect|y w|th th|rd persons. 1he prov|s|on does not state
when the act of revocat|on takes p|ace, and |t can be presumed
therefore that the moment the pr|nc|pa| d|rect|y manages the bus|ness
by dea||ng d|rect|y w|th th|rd persons, the agency |s revoked. 8ut that
wou|d on|y mean that the revocat|on of the agency |s on|y w|th respect
to the th|rd persons w|th whom the pr|nc|pa| dea|s d|rect|y, as to th|rd
part|es who have prev|ous|y known of the power of attorney of the
agent and who have not dea|t w|th the pr|nc|pa|, the agency cannot be
cons|dered revoked. It |s a|so apparent that un|ess the agent |s aware or
g|ven not|ce that the pr|nc|pa| has d|rect|y managed the bus|ness wh|ch
|s covered by h|s power of attorney, then |nsofar as the agent |s
concerned there |s as yet no revocat|on of h|s powers.
It must be made c|ear that the cont|nued |nvo|vement of the
pr|nc|pa| |n the management of the bus|ness or the property wh|ch |s
the ob[ect of a power of attorney g|ven to an agent does not necessar||y
mean there |s |ntent to revoke. Ior |ndeed, agency arrangements are
not meant to curta|| the power of the pr|nc|pa| to execute acts of
ownersh|p and adm|n|strat|on, but as a matter of bus|ness sense, to
a||ow the pr|nc|pa|, by |ega| f|ct|on, to extend h|s persona||ty through
the fac|||ty of the agent.
6
In other
Z
RS'./ at p. S84.
m?('7-* B'( ;7(T'P7 Q >"*7R G76(7)7-*,*'T7) T3 <"8(* "&
B667,R)

words, the d|rect management of the bus|ness by the pr|nc|pa| and
d|rect|y dea||ng w|th th|rd part|es sha|| be deemed to produce the effect
of revocat|on when such acts wou|d be |ncons|stent w|th the terms of
the power of attorney prev|ous|y g|ven to the agent.
Such pr|nc|p|e |s best |||ustrated |n <0; @"++'-+ T3 <"8(* "&
B667,R)/
N
where the pr|nc|pa| appo|nted the agent "as h|s so|e and
exc|us|ve export sa|es agent w|th fu|| author|ty .. .to se|| and export
under a f|rm sa|es contract... a|| |ogs produced by [the pr|nc|pa|] for a
per|od of f|ve (S) years commenc|ng upon the execut|on of the
agreement x x x [and for wh|ch the agent] sha|| rece|ve f|ve (S) per cent
comm|ss|on of the gross sa|es of |ogs of [the pr|nc|pa|] based on I.C.8.
|nvo|ce va|ue wh|ch comm|ss|on sha|| be deducted from the proceeds of
any and]or a|| moneys rece|ved by [agent] for and |n beha|f and for the
account of [the pr|nc|pa|]." Dur|ng the f|ve year-per|od, the pr|nc|pa| so|d
|ogs d|rect|y to Iapanese f|rms, and for wh|ch the agent now seeks to
recover the comm|ss|on to wh|ch he was ent|t|ed to under the exc|us|ve
agency arrangement. In deny|ng any r|ght on the part of the agent to
rece|ve comm|ss|on from the pr|nc|pa|'s d|rect sa|es of |ogs to |ts
Iapanese customers, the Court he|d
nowever, We f|nd mer|t |n [pr|nc|pa|'s] content|on that
the appe||ate court erred |n ho|d|ng that [the agent] was
ent|t|ed to |ts comm|ss|on from the sa|es made by [the
pr|nc|pa|] to Iapanese f|rms.
1he pr|nc|pa| may revoke a contract of agency at w|||,
and such revocat|on may be express, or |mp||ed, and may be
ava||ed of even |f the per|od f|xed |n the contract of agency
as not yet exp|red. As the pr|nc|pa| has th|s abso|ute r|ght to
revoke the agency, the agent can not ob[ect thereto, ne|ther
may he c|a|m damages ar|s|ng from such revocat|on, un|ess
|t |s shown that such was done |n order to evade the
payment of agent's comm|ss|on.
6

7
211 SCkA 374
( )
j
FS'./ at pp.

Lk1INGUISnMLN1 CI AGLNC 229
<0; @"++'-+ conf|rms the |ega| pos|t|on that the |nd|cat|on of a
per|od |n the contract of agency does not mean that the contract was
contractua||y deemed |rrevocab|e w|th|n the per|od granted, and to the
effect revocat|on w|th|n the per|od wou|d amount to breach of contract
for wh|ch the pr|nc|pa| may be he|d ||ab|e for damages. In add|t|on, the
ru||ng a|so conf|rms the pos|t|on that the grant to a person of an
"exc|us|ve agency" pos|t|on does not mean that the agency |s |rrevocab|e
w|th|n the per|od prov|ded |n the contract of agency, but that mere|y |t
means that the pr|nc|pa| wou|d not appo|nt another agent to hand|e the
bus|ness covered.
Lar||er, |n F-&,-*7 T3 <8-,-,-] the Court ru|ed that |f the purpose
of the pr|nc|pa| |n dea||ng d|rect|y w|th the purchaser and h|mse|f
effect|ng the sa|e of the pr|nc|pa|'s property |s to avo|d payment of h|s
agent's comm|ss|on, the |mp||ed revocat|on |s deemed made |n bad fa|th
and cannot be sanct|oned w|thout accord|ng to the agent the
comm|ss|on wh|ch |s due h|m.
Subsequent|y, |n 97b 0,-'R, @8$S7( <"$6,-%/ F-P3 T3 G768SR'P "&
*57 K5'R'66'-7),
10
the Court ru|ed that the act of a contractor, who, after
execut|ng powers of attorney |n favor of another ent|ty empower|ng the
|atter to co||ect whatever amounts may be due from the Government,
and thereafter demanded and co||ected from the Government the
money the co||ect|on of wh|ch he entrusted to h|s attorney-|n-fact,
const|tuted revocat|on of the agency.
Much |ater, |n C8,(.7\ T3 9@G<, where the pr|nc|pa| had
author|zed the purported agent to "fo||ow up" pr|nc|pa|'s prev|ous offer
to se|| a f|retruck to a company, the Court he|d that when the agent
dropped out of the scene and |t was the pr|nc|pa| that d|rect|y
negot|ated w|th the company to oversee the perfect|on and
consummat|on of the sa|e, no comm|ss|on was due to the agent because
"such agency wou|d have been deemed revoked upon the resumpt|on of
d|rect negot|at|ons between" the pr|nc|pa| and the company.
93 h||. 693
( )
1
0

1he ru||ngs |n the above-d|scussed cases |nd|cate that the |ssue of
"|mp||ed revocat|on" ar|s|ng when the pr|nc|pa| d|rect|y manages the
bus|ness or property covered by a power of attorney rea||y go |nto the
|ssue of ent|t|ement of the agent to the comm|ss|on or remunerat|on
agreed upon under the contract of agency. In other words, |t seems that
[ur|sprudence |nd|cates that agency be|ng a contract of serv|ce, the
agent must earn through h|s serv|ce or efforts the comm|ss|on or
remunerat|on agreed upon w|th the pr|nc|pa|, such that |f |t |s the
pr|nc|pa| h|mse|f, through h|s own efforts, who |s ab|e to effect the
transact|on contemp|ated by the agency arrangement, then the agent
wou|d not be ent|t|ed to rece|ve any comm|ss|on.
c. Spec|a| ower of Attorney kevokes a Genera|
ower of Attorney
Under Art|c|e 1926 of the New C|v|| Code, "A genera| power of
attorney |s revoked by a spec|a| one granted to another agent, as
regards the spec|a| matter |nvo|ved |n the" genera| power of attorney. It
|s unfortunate that Art|c|e 1926 fuses two d|st|nct s|tuat|ons |nto one
statutory ru|e.
Ior examp|e, the |mp||cat|on from the |anguage of Art|c|e 1926 |s
that "a spec|a| power of attorney granted to one person |s not revoked
by a genera| power of attorney subsequent|y granted |n favor of another
person as to the spec|a| matter |nvo|ved |n the spec|a| power of
attorney," for |ndeed the propos|t|on |s |||og|ca|. 1he use of the terms
"genera| power of attorney" and "spec|a| power of attorney" |s
comp|ete|y m|s|ead|ng |n Art|c|e 1926, for the ru|e |s proper|y embod|ed
|n Art|c|e 1923, |n that "the appo|ntment of a new agent for the same
bus|ness or transact|on revokes the prev|ous agency from the day on
wh|ch not|ce thereof was g|ven to the former agent."
In add|t|on, |f we |ook at the |anguage of Art|c|e 1926, |t wou|d
mean that "a genera| power of attorney |s not revoked by a spec|a| one
granted to *57 ),$7 ,+7-*O 1he fa|s|ty of such an |mp||cat|on |s best
shown |n the dec|s|on |n 4% :8-P'" ,-. <"3 T3 ?-+ C8,- <,-3^
Y

"60 h||. 696 (1934).

In that dec|s|on, the son executed on beha|f of the father, the deed
cover|ng the sa|e of a r|ce-m||| and camar|n, |n favor of buyers who re||ed
upon a 1928 power of attorney attached to the deed, but wh|ch turned
out was "not a genera| power of attorney but a ||m|ted one and [d|d] not
g|ve the express power to a||enate the propert|es |n quest|on."
13
When
the cred|tors of the pr|nc|pa| sought to have the sa|e dec|ared vo|d, the
buyers c|a|med that the defect |n the son's author|ty to se|| on beha|f of
the father was cured by an ear||er 1920 "genera| power of attorney g|ven
to the same agent [son]" by the father. 1he Court nonethe|ess dec|ared
the sa|e vo|d on the ground that "1he mak|ng and accept|ng of a new
power of attorney, whether |t en|arges or decreases the power of the
agent under a pr|or power of attorney, must be he|d to supp|ant and
revoke the |atter when the two are |ncons|stent. If the new appo|ntment
w|th ||m|ted powers does not revoke the genera| power of attorney, the
execut|on of the second power of attorney wou|d be a mere fut||e
gesture."
14

3. kevocat|on on the 8as|s of 8reach of 1rust
Dec|d|ng under the prov|s|ons of Art|c|e 300 of the Code of
Commerce, :,((7**" T3 ;,-*, 0,('-,] he|d that the t|me dur|ng wh|ch
the agent may ho|d h|s pos|t|on |s |ndef|n|te or undeterm|ned, when no
per|od has been f|xed |n h|s comm|ss|on and so |ong as the conf|dence
reposed |n h|m by the pr|nc|pa| ex|st, but as soon as th|s conf|dence
d|sappears the pr|nc|pa| has a r|ght to revoke the power he conferred
upon the agent, espec|a||y when the |atter has res|gned h|s pos|t|on for
good reasons.
:,((7**" a|so he|d that even though a per|od |s st|pu|ated dur|ng
wh|ch the agent |s to ho|d h|s pos|t|on |n the serv|ce of the owner or head
of a mercant||e estab||shment, yet the |atter may, for any of the spec|a|
reason spec|f|ed |n Art|c|e 300 of the Code of Commerce, d|sm|ss such
agent even before the term|nat|on of the per|od, |nc|ud|ng breach of
trust on the part of the agent.
13
]b]d, at pp.

O'S'./ at p. 698.
1S
26 h||. 440
( )

In 0,-'R, !(,.'-+ T3 0,-'R, !(,.'-+ @,S"(7() B))-3/o the Court
ru|ed that |t |s now we||-sett|ed that a pr|nc|pa| may d|scharge or d|sm|ss
h|s agent for [ust cause for ma|feasance or m|sfeasance |n the
performance of h|s dut|es. 1he prov|s|ons of Art|c|e 300 of the Code of
Commerce express|y author|zes a merchant to d|scharge h|s emp|oyee
or agent for fraud or breach of trust, or engag|ng |n any commerc|a|
transact|on for the|r own account w|thout the express know|edge and
perm|ss|on of the pr|nc|pa|.
1he pr|nc|p|es of breach of conf|dence as the |awfu| bas|s for
revocat|on of the agency arrangement are va||d even under the New
C|v|| Code. 1he pos|t|on of agent |s essent|a||y one of conf|dence, and the
f|duc|ary ro|e of the agent |mp||es that when he has breach the trust or
conf|dence reposed |n h|m by the pr|nc|pa|, then |t wou|d const|tute a
bas|s for revocat|on, wh|ch |s equ|va|ent to the remedy of resc|ss|on for
contracts |n genera|.
In :,P,R'-+ T3 08%,/
-
the Court ru|ed that even an agency coup|ed
w|th |nterest may |ndeed be revoked on the ground of fraud comm|tted
by the agent, wh|ch |s rea||y an act of resc|ss|on, the same must be
c|ear|y be proven.
4. Lffects of kevocat|on on 1h|rd art|es
a. When It Affects Dea||ngs w|th Spec|f|ed
1h|rd art|es
Under Art|c|e 1921 of the New C|v|| Code, |f the agency has been
entrusted for the purpose of contract|ng w|th spec|f|ed persons, |ts
revocat|on sha|| not pre[ud|ce the |atter |f they were not g|ven not|ce
thereof. It seems c|ear, when compared w|th the s|tuat|on |n Art|c|e
1873, that not|ce by pub||c advert|sement wou|d not const|tute
suff|c|ent not|ce to b|nd such spec|f|ed th|rd part|es.
1
8
8

In G,*'") T3 A,-+P",
18
the former pr|nc|pa| refused to be
persona||y ||ab|e for any account hand|ed by h|s agent (Co||antes) for
transact|ons that occurred after the pr|nc|pa| had term|nated the
agency re|at|ons, even to a |ong-stand|ng customer who had done
bus|ness w|th the pr|nc|pa| through the agent who was spec|a||y
endorsed. In aff|rm|ng the ||ab|||ty of the pr|nc|pa|, the Court he|d
It appears, however, that pr|or to the send|ng of sa|d
tobacco the defendant had severed h|s re|at|ons w|th
Co||antes and that the |atter was no |onger act|ng as h|s
factor.
1h|s fact was not known to the p|a|nt|ffs, and |t |s
conceded |n the case that no not|ce of any k|nd was g|ven by
the defendant to the p|a|nt|ffs of the term|nat|on of the
re|at|ons between the defendant and h|s agent. 1he
defendant refused to pay the sa|d sum upon demand of the
p|a|nt|ffs, p|ac|ng such refusa| upon the ground that at the
t|me the sa|d tobacco was rece|ved and so|d by Co||antes he
was act|ng persona||y and not as agent of the defendant. 1h|s
act|on was brought to recover sa|d sum.
As |s seen, the on|y quest|on for our dec|s|on |s whether
or not the p|a|nt|ffs, act|ng |n good fa|th and w|thout
know|edge, hav|ng sent produce to se|| on comm|ss|on to the
former agent of the defendant, can recover of the defendant
under the c|rcumstances above set forth. We are of the
op|n|on that the defendant |s ||ab|e. nav|ng advert|sed the
fact that Co||antes was h|s agent and hav|ng g|ven spec|a|
not|ce to the p|a|nt|ffs of that fact, and hav|ng g|ven them a
spec|a| |nv|tat|on to dea| w|th such agent, |t was the duty of
the defendant on the term|nat|on of the re|at|onsh|p of
pr|nc|pa| and agent to g|ve due and t|me|y not|ce thereof to
the p|a|nt|ffs. Ia|||ng to do so, he |s respons|b|e to them for
whatever goods may have been |n good fa|th and w|thout
neg||gence sent to the agent w|thout know|edge, actua| or
construct|ve, of the term|nat|on of such re|at|onsh|p.
19

18
20 h||. 269
( 9 )
19
to]d, at pp.

234
@8)*,- T3 <"8(* "& B667,R)/
Yc
he|d that when the spec|a| power of
attorney du|y author|zed the agent to represent and act on beha|f of the
pr|nc|pa|, the power granted thereto can be re||ed upon by th|rd part|es
for whom spec|f|ca||y the author|ty was |ssued, thus:
As far as th|rd persons are concerned, an act |s deemed
to have been performed w|th|n the scope of the agent's
author|ty |f such |s w|th|n the terms of the power of attorney
as wr|tten even |f the agent has |n fact exceeded the ||m|ts of
h|s author|ty accord|ng to the understand|ng between the
pr|nc|pa| and the agent. 1he Spec|a| ower of Attorney
part|cu|ar|y prov|des that the same |s good not on|y for th
pr|nc|pa| |oan but a|so for subsequent commerc|a|, |ndustr|a|,
agr|cu|tura| |oan or cred|t accommodat|on that the attorney-
|n-fact may obta|n and unt|| the power of attorney |s revoked
|n a pub||c |nstrument and a copy of wh|ch |s furn|shed to
N8. Lven when the agent has exceeded h|s author|ty, the
pr|nc|pa| |s so||dar|ty ||ab|e w|th the agent |f the former
a||owed the |atter to act as though he had fu|| powers (Art|c|e
1911, C|v|| Code). 1he mortgage d|rect|y and |mmed|ate|y
sub[ects the property upon wh|ch |t |s |mposed. 1he property
of th|rd persons wh|ch has been express|y mortgaged to
guarantee an ob||gat|on to wh|ch the sa|d persons are
fore|gn, |s d|rect|y and [o|nt|y ||ab|e for the fu|f|||ment
thereof, |t |s therefore sub[ect to execut|on and sa|e for the
purpose of pay|ng the amount of the debt for wh|ch |t |s
||ab|e. nowever, pet|t|oner has an unquest|onab|e r|ght to
demand proport|ona| |ndemn|f|cat|on from arangan w|th
respect to the sum pa|d to N8 from the proceeds of the sa|e
of her property |n case the same |s so|d to sat|sfy the unpa|d
debts.
21

@8)*,- ho|ds that where the spec|a| power of attorney prov|des
that the same |s good not on|y for the pr|nc|pa| |oan but a|so for
subsequent commerc|a|, |nd|v|dua|, agr|cu|tura| |oan or cred|t
accommodat|on that the attorney-|n-fact may obta|n and unt|| the
power of attorney |s revoked |n a pub||c |nstrument and a copy of wh|ch
|s furn|shed to the bank, |n the absence of any
266 SCkA663
( 99 )
Y(
RS'./ at p. 676.

Lk1INGUISnMLN1 CI AGLNC 23S
proof that the bank had know|edge that the |ast three |oans were
w|thout the express author|ty of the pr|nc|pa|, the bank cannot be
pre[ud|ced.
b. kevocat|on of Genera| owers of Attorney
Under Art|c|e 1922 of the New C|v|| Code, |f the agent had genera|
powers, revocat|on of the agency does not pre[ud|ce th|rd persons who
acted |n good fa|th and w|thout know|edge of the revocat|on. Not|ce of
the revocat|on |n a newspaper of genera| c|rcu|at|on |s a suff|c|ent
warn|ng to th|rd persons.
In G,$$,-' T3 <"8(* "& B667,R)/
YY
the Court he|d that |n a case
cover|ng a power of attorney to dea| w|th the genera| pub||c, the fact
that the revocat|on was advert|sed |n a newspaper of genera| c|rcu|at|on
wou|d be suff|c|ent warn|ng to th|rd persons.
c. kevocat|on of Spec|a| owers of Attorney
F- K5'R'66'-7 9,*'"-,R :,-1 T3 F-*7($7.',*7 B667RR,*7 <"8(*/
Y[
the
Court he|d that wh||e Art|c|e 13S8 of the New C|v|| Code requ|res that the
contracts |nvo|v|ng rea| property must appear |n a proper document, a
revocat|on of a spec|a| power of attorney to mortgage a parce| of |and,
embod|ed |n a pr|vate wr|t|ng, |s va||d and b|nd|ng between the part|es,
such requ|rement of Art|c|e 13S8 be|ng on|y for the conven|ence of the
part|es and to make the contract effect|ve as aga|nst th|rd persons.
In C]a. C7-3 47 !"S,P") T3 4',S,f the Court he|d that where a
pr|nc|pa| has been engaged, through h|s agent, |n a ser|es of purchase
and se|| transact|ons w|th a merchant, and purported suspended the
agent w|thout |nform|ng the merchant, the suspens|on of the agent
cou|d not work to the detr|ment of the merchant, thus: "1here |s no
conv|nc|ng proof |n the record that the orders g|ven by the p|a|nt|ff to |ts
agent (Gut|errez) had ever been commun|cated to the defendant. 1he
defendant had a
22196 SCkA 731
( )
23189 SCkA 680

24
20 h||. 321
( )

perfect r|ght to be||eve, unt|| otherw|se |nformed, that the agent of the
p|a|nt|ff, |n h|s purchase of abaca and other effects, was st|||
represent|ng the p|a|nt|ff |n sa|d transact|ons."
2S
1he Court a|so found
anoma|ous the pos|t|on taken by the pr|nc|pa| whereby he was w||||ng
to rat|fy the acts of the agent |n se|||ng goods to the merchant, but
unw||||ng to rat|fy the agent's acts |n purchas|ng goods from the same
merchant.
S. Irrevocab|e Agenc|es
Ak1. 1927. An agency cannot be revoked |f a b||atera|
contract depends upon |t
f
or |f |t |s the means of fu|f||||ng an
ob||gat|on a|ready contracted, or |f a partner |s appo|nted
manager of a partnersh|p |n the contract of partnersh|p and h|s
remova| from the management |s un[ust|f|ab|e, (n)
Under Art|c|e 1927 of the New C|v|| Code, an agency cannot be
revoked when:
a b||atera| contract depends upon the agency for |ts
fu|f|||ment,
|t |s the means of fu|f||||ng an ob||gat|on a|ready
contracted,
a partner |s appo|nted manager of a partnersh|p |n
the contract of partnersh|p and the remova| from
management |s un[ust|f|ab|e.
An examp|e of an agency coup|ed w|th |nterest |s when a power of
attorney |s const|tuted |n a contract of rea| estate mortgage pursuant to
the requ|rement of Act No. 313S, wh|ch wou|d empower the mortgagee
upon the defau|t of the mortgagor
]]RS'./ at p. 322.

237
to payment the pr|nc|pa| ob||gat|on, to effect the sa|e of the mortgage
property through extra[ud|c|a| forec|osure. 1hus, |n K7(7\ T3 K9:othe
Supreme Court
1he argument that forec|osure by the 8ank under |ts
power of sa|e |s barred upon death of the debtor, because
agency |s ext|ngu|shed by the death of the pr|nc|pa|, under
Art|c|e 1732 of the C|v|| Code of 1889 and Art|c|e 1919 of the
C|v|| Code of the h|||pp|nes, neg|ects to take |nto account
that the power to forec|ose |s not an ord|nary agency that
contemp|ates exc|us|ve|y the representat|on of the pr|nc|pa|
by the agent but |s pr|mar||y an author|ty conferred upon the
mortgagee for the |atter's own protect|on. It |s, |n fact, an
anc|||ary st|pu|at|on supported by the same P,8), or
cons|derat|on for the mortgage and forms an essent|a| and
|nseparab|e part of that b||atera| agreement. As can be seen
|n the preced|ng quotat|ons from asno vs. kav|na, S4 h||.
382, both the ma[or|ty and the d|ssent|ng op|n|ons conceded
that the power to forec|ose extra[ud|c|a||y surv|ved the
death of the mortgagor, even under the |aw pr|or to the C|v||
Code of the h|||pp|nes now |n force.
27

1he K7(7\ dec|s|on effect|ve|y reversed the ear||er ru||ngs |n K,)-"
T3 G,T'-, f and 47R G"),('" T3 BS,./
Yl
where the Court he|d that a
power of attorney to se|| |odged |n a rea| estate mortgage does not
const|tute an |rrevocab|e agency.
In ;7T'RR, T3 <"8(* "& B667,R)/
[c
the Court found that when the
pet|t|oner, L|na Sev|||a, agreed to manage the respondent, 1our|st Wor|d
Serv|ce, Inc.'s Lrm|ta off|ce, she must have done so pursuant to a
contract of agency. It |s the essence of th|s contract that the agent
renders serv|ces "|n representat|on or on beha|f of another." 1he Court
then he|d
. . . In the case at bar, Sev|||a so||c|ted a|r||ne fares, but
she d|d so for and on beha|f of her pr|nc|pa|, 1our|st Wor|d
Serv|ce,
w
17 SCkA 833 (1966).
OFS'./ at p. 839. ]]Za
h||. 382 (1930). ^104
h||. 648 (19S8).
M
160 SCkA 171
(1968)

Inc. As compensat|on, she rece|ved 4 of the proceeds |n
the concept of comm|ss|ons. And as we sa|d, Sev|||a herse|f,
based on her |etter of November 28, 1961, presumed her
pr|nc|pa|'s author|ty as owner of the bus|ness undertak|ng.
We are conv|nced, cons|der|ng the c|rcumstances and from
the respondent Court's rec|ta| of facts, that the part|es had
contemp|ated a pr|nc|pa|-agent re|at|onsh|p, rather than a
[o|nt management or a partnersh|p.
8ut un||ke s|mp|e grants of a power of attorney, the
agency that we hereby dec|are to be compat|b|e w|th the
|ntent of the part|es cannot be revoked at w|||. 1he reason |s
that |t |s one coup|ed w|th an |nterest, the agency hav|ng
been created for the mutua| |nterest of the agent and the
pr|nc|pa|. It appears that L|na Sev|||a |s a bona f|de trave|
agent herse|f, and as such, she had acqu|red an |nterest |n
the bus|ness entrusted to her. Moreover, she had assumed a
persona| ob||gat|on for the operat|on thereof, ho|d|ng
herse|f so||dar||y ||ab|e for the payment of renta|s. She
cont|nued the bus|ness, us|ng her own name, after 1our|st
Wor|d had stopped further operat|ons. ner |nterest,
obv|ous|y, |s not ||m|ted to the comm|ss|ons she earned as a
resu|t of her bus|ness transact|ons, but one that extends to
the very sub[ect matter of the power of management
de|egated to her. It |s an agency that, as we sa|d, cannot be
revoked at the p|easure of the pr|nc|pa|. Accord|ng|y, the
revocat|on comp|a|ned of shou|d ent|t|e the pet|t|oner, L|na
Sev|||a, to damages.
x x x
1h|s conduct on the part of 1our|st Wor|d Serv|ce, Inc.
betrays a s|n|ster effort to pun|sh Sev|||a for what |t had
perce|ved to be d|s|oya|ty on her part. It |s offens|ve, |n any
event, to e|ementary norms of [ust|ce and fa|r p|ay.
We ru|e, therefore, that for |ts unwarranted revocat|on
of the contract of agency, the pr|vate respondent, 1our|st
Wor|d Serv|ce, Inc., shou|d be sentenced to pay damages.
Under the C|v|| Code, mora| damages may be awarded for
"breaches of contract where the defendant acted ... |n bad
fa|th."
31

FS'./ at p. 184.

239
2,R7-\87R, T3 <"8(* "& B667,R)/
[Y
|s a c|ear |||ustrat|on of the
s|tuat|on that where the appo|ntment of the agent |s not mere|y for the
benef|t of the pr|nc|pa|, but a||ows the agent to bu||d bus|ness |nterests
that wou|d y|e|d h|m ga|ns |n terms of comm|ss|on on a |ong-term bas|s,
such as |n the case of an |nsurance agent, the same |s deed an agency
coup|ed w|th an |nterest and cannot [ust be revoked, thus:
In the |nsurance bus|ness |n the h|||pp|nes, the most
d|ff|cu|t and frustrat|ng per|od |s the so||c|tat|on and
persuas|on of the prospect|ve c||ents to buy |nsurance
po||c|es. Norma||y, agents wou|d encounter much
embarrassment, d|ff|cu|t|es, and oftent|mes frustrat|ons |n
the so||c|tat|on and procurement of the |nsurance po||c|es.
1o se|| po||c|es, an agent exerts great effort, pat|ence,
perseverance, |ngenu|ty, tact, |mag|nat|on, t|me and money.
In the case of Va|enzue|a, he was ab|e to bu||d up an agency
from scratch |n 196S to a h|gh|y product|ve enterpr|se w|th
gross b||||ngs of about 1wo M||||on I|ve nundred 1housand
esos (2,S00,000.00) prem|ums per annum. 1he records
susta|n the f|nd|ng that the pr|vate respondent started to
covet a share of the |nsurance bus|ness that Va|enzue|a had
bu||t up, deve|oped and nurtured to prof|tab|||ty through
over th|rteen (13) years of pat|ent work and perseverance.
When Va|enzue|a refused to share h|s comm|ss|on |n the
De|ta account, the boom sudden|y fe|| on h|m.
1he pr|vate respondent by the s|mp|e exped|ent of
term|nat|ng the Genera| Agency Agreement appro-pr|ated
the ent|re |nsurance bus|ness of Va|enzue|a. W|th the
term|nat|on of the Genera| Agency Agreement, Va|enzue|a
wou|d no |onger be ent|t|ed to comm|ss|on on the renewa|
of |nsurance po||c|es of c||ents sourced from h|s agency.
Worse, desp|te the term|nat|on of the agency, h||amgen
cont|nued to ho|d Va|enzue|a [o|nt|y and severa||y ||ab|e w|th
the |nsured for unpa|d prem|ums. Under these
c|rcumstances, |t |s c|ear that Va|enzue|a had an |nterest |n
the cont|nuat|on of the agency when |t was
unceremon|ous|y term|nated not on|y because of the
comm|ss|ons he shou|d cont|nue to
M
191 SCkA 1 (1990).

rece|ve from the |nsurance bus|ness he has so||c|ted and
procured but a|so for the fact that by the very acts of the
respondents, he was made ||ab|e to h||amgen |n the event
the |nsured fa||ed to pay the prem|ums due. 1herefore, the
respondents cannot state that the agency re|at|onsh|p
between Va|enzue|a and h||amgen |s not coup|ed w|th
|nterest. "1here may be cases |n wh|ch an agent has been
|nduced to assume a respons|b|||ty or |ncur a ||ab|||ty, |n
re||ance upon the cont|nuance of the author|ty under such
c|rcumstances that, |f the author|ty be w|thdrawn, the agent
w||| be exposed to persona| |oss or ||ab|||ty....
Iurthermore, there |s an except|on to the pr|nc|p|e that
an agency |s revocab|e at w||| and that |s when the agency
has been g|ven not on|y for the |nterest of the pr|nc|pa| but
for the |nterest of th|rd persons or for the mutua| |nterest of
the pr|nc|pa| and the agent. In these cases, |t |s ev|dent that
the agency ceases to be free|y revocab|e by the so|e w||| of
the pr|nc|pa|.
33

In :,P,R'-+ T3 08%,where the spec|a| power of attorney was
granted to the agent by the |andowner pr|mar||y to enab|e the agent to
effect|ve|y sett|e the sa|e of severa| |ots, the Court he|d the
|rrevocab|||ty of the agency re|at|on, thus:
Substant|ve|y, we ru|e that 8aca||ng [pr|nc|pa|-|and-
owner] cannot revoke at her wh|m and p|easure the
|rrevocab|e spec|a| power of attorney wh|ch she had du|y
executed |n favor of pet|t|oner Iose Iuan 1ong [agent] and
du|y acknow|edged before a notary pub||c. 1he agency, to
stress, |s one coup|ed w|th |nterest wh|ch |s exp||c|t|y
|rrevocab|e s|nce the deed of agency was prepared and
s|gned and]or accepted by pet|t|oner 1ong and 8aca||ng
w|th a v|ew to comp|et|ng the performance of the contract
of sa|e of the one hundred ten (110) sub-|ots. It |s for th|s
reason that the mandate of the agency const|tuted 1ong as
the rea| party |n |nterest to remove a|| c|ouds on the t|t|e of
8aca||ng and that, after a|| theses cases are reso|ved, to use
the
mFS'./ at pp. 12-13, P'*'-+ ADILLA, CIVIL CCDL ANNC1A1LD,
Vo|. IV, p. 3S0. "380 SCkA 714 (2002).

241
|rrevocab|e spec|a| power of attorney to u|t|mate|y "cause
and effect the transfer of the aforesa|d |ots |n the name of
the vendees [1ong w|th two (2) other buyers] and execute
and de||ver document]s or |nstruments of whatever nature
necessary to accomp||sh the forego|ng acts and deeds." 1he
f|duc|ary re|at|onsh|p |nherent |n ord|nary contracts of
agency |s rep|aced by mater|a| cons|derat|on wh|ch |n the
type of agency here|n estab||shed bars the remova| or
d|sm|ssa| of pet|t|oner 1ong as 8aca||ng's attorney-|n-fact on
the ground of a||eged |oss of trust and conf|dence.
3S

In 9,*'"-,R ;8+,( !(,.'-+ T3 K9:/
[e
NASU1kA, |n order to f|nance
|ts undertak|ng as the market|ng agent of nILSUCCM (wh|ch was by |aw
the so|e buy|ng and se|||ng agent of sugar on the g87.,- perm|t |eve|),
app||ed for and was grant a Kacj M||||on kevo|v|ng Cred|t L|ne by N8,
by wh|ch every t|me NASU1kA ava||ed of the cred|t ||ne, |t executed a
prom|ssory note |n favor of N8. Lventua||y, |n order to stab|||ze sugar
||qu|dat|on pr|ces, nILSUCCM]NASU1kA adopted a ||qu|dat|on scheme
of the sugar g87.,-) by const|tut|ng N8 as the attorney-|n-fact under
wr|tten |nstruct|ons "Upon not|ce from NASU1kA, N8 sha|| cred|t the
|nd|v|dua| producer and m|||ers |oan accounts for the|r sugar proceeds
and sha|| treat the same as |oans of NASU1kA."
37
In reso|v|ng the |ssue
on whether the agency re|at|on was that coup|ed w|th |nterest, and
therefore |rrevocab|e, the Court he|d:
A|so, the re|at|onsh|p between NASU1kA]SkA and N8
when the former const|tuted the |atter as |ts attorney-
|n-fact |s not a s|mp|e agency. NASU1kA]SkA has ass|gned
and pract|ca||y surrendered |ts r|ghts |n favor of N8 for a
substant|a| cons|derat|on. 1o re|terate, NASU1kA]SkA
executed prom|ssory notes |n favor of N8 every t|me |t
ava||ed of the cred|t ||ne. 1he agency estab||shed between
the part|es |s one coup|ed w|th |nterest wh|ch cannot be
revoked or cance||ed at w||| by any of the part|es.
33

m|d, at p. 729.
"396 SCkA S28

[N
FS'./ at p. S31.
[j
FS'./ at pp.
3 38

In @'$ T3 ;,S,-re|terated the pr|nc|p|e that [ust because the terms
of the agency agreement grants to the agent by way of comm|ss|on,
such amount of the purchase pr|ce that |s above the |nd|cated pr|ce of
the pr|nc|pa| (over-pr|ce), does not const|tute the agency one that |s
coup|ed w|th an |nterest, thus: "Stated d|fferent|y, an agency |s deemed
as one coup|ed w|th an |nterest where |t |s estab||shed for the mutua|
benef|t of the pr|nc|pa| and of the agent, or for the |nterest of the
pr|nc|pa| and of th|rd persons, and |t cannot be revoked by the pr|nc|pa|
so |ong as the |nterest of the agent or of a th|rd person subs|sts. In an
agency coup|ed w|th an |nterest, the agent's |nterest must be |n the
sub[ect matter of the power conferred and not mere|y an |nterst |n the
exerc|se of the power because |t ent|t|es h|m to compensat|on. When an
agent's |nterest |s conf|ned to earn|ng h|s agreed compensat|on, the
agency |s not one coup|ed w|th an |nterest, s|nce an agent's |nterest |n
obta|n|ng h|s compensat|on as such agent |s an ord|nary |nc|dent of the
agency re|at|onsh|p."
40

In G768SR'P T3 DT,-+7R')*,,
41
the Court noted that an except|on to
the revocab|||ty of a contract of agency |s when |t |s coup|ed w|th
|nterest, '373/ |f a b||atera| contract depends upon the agency. 1he reason
for |ts |rrevocab|||ty |s because the agency becomes part of another
ob||gat|on or agreement. It |s not so|e|y the r|ghts of the pr|nc|pa| but
a|so that of the agent and th|rd persons wh|ch are affected. nence, the
|aw prov|des that |n such cases, the agency cannot be revoked at the
so|e w||| of the pr|nc|pa|.
1he ru||ng emphas|zes the character of contract of agency as be|ng
pr|mar||y a 6(76,(,*"(% P"-*(,P*/ |n the sense that |t |s meant to the
med|um by wh|ch contracts and other [ur|d|ca| acts are entered |nto
w|th th|rd part|es, and consequent|y, pr|nc|p|es that are |nherent|y on|y
for "agency-cons|derat|on," such as |ts features of be|ng f|duc|ary and
essent|a||y revocab|e, cannot overcome more |mportant cons|derat|on
such as preserv|ng the contractua| expectat|ons of th|rd part|es who dea|
|n good fa|th w|th
39
447 SCkA 232
(200 )
]hRS'./ at p. 240:

41
466 SCkA S44
(200 )

the pr|nc|pa| through the agent. In the case of agency coup|ed w|th
|nterest, the revocab|e nature of the agency re|at|onsh|p must g|ve way
to mak|ng effect|ve, b|nd|ng and enforceab|e any "b||atera| contract
[wh|ch] depends upon" the ex|stence of the agency for |ts enforcement
and rea||zat|on.
1he recent dec|s|on |n K5'R7W 0'-'-+ <"(63 T3 <"$$'))'"-7( "&
F-*7(-,R G7T7-87 ,
42
offers a |nterest|ng study on what const|tutes
"|rrevocab|||ty" |n an agency re|at|onsh|p. In that case, h||ex M|n|ng, as
manager, and 8agu|o Go|d, as pr|nc|pa|, had entered |nto a "ower of
Attorney," whereby h||ex M|n|ng was to deve|op the m|n|ng resources
of 8agu|o Go|d and to make advances. When the ventured'd|d not
prosper, the two m|n|ng compan|es d|d a sett|ement of accounts
between them |eav|ng a |arge amount of advances by h||ex M|n|ng,
wh|ch was part|y sett|ed by 8agu|o Go|d. Lventua||y h||ex M|n|ng
wrote-off as bad debts the rema|n|ng ba|ance of the advances when |t
was shown that 8agu|o Go|d had become |nso|vent. 1he 8Ik refused to
accept the wr|t|ng-off as be|ng deduct|b|e from the |ncome tax due from
h||ex M|n|ng on the ground that the arrangement between the two
m|n|ng compan|es was a partnersh|p or a [o|nt venture arrangements,
and the advances were not rea||y rece|vab|es but equ|ty p|acements |nto
the venture.
In ru||ng that the arrangement under the "ower of Attorney" was
rea||y a partnersh|p arrangement, rather than an agency, the Court
seemed to |mp|y |n K5'R7W 0'-'-+ <"(63 that |t |s the st|pu|at|on of
"|rrevocab|||ty" found |n a contract of agency that makes |t an "agency
coup|ed w|th |nterest," thus:
In an agency coup|ed w|th |nterest, |t |s the agency that
cannot be revoked or w|thdrawn by the pr|nc|pa| due to an
|nterest of a th|rd party that depends upon |t, or the mutua|
|nterest of both pr|nc|pa| and agent. In th|s case, the
non-revocat|on or non-w|thdrawa| under paragraph S(c) [of
the "ower of Attorney"] app||es to the advances made by
pet|t|oner [agent] who |s supposed|y the agent and not the
pr|nc|pa| under the contract. !58)/ '* P,--"* S7 '-&7((7.
42
SS1 SCkA 428 (2008).

&("$ *57 )*'68R,*'"- *5,* *57 6,(*'7)^ (7R,*'"- 8-.7( *57
,+(77$7-* ') "-7 "& ,+7-P% P"86R7. b'*5 ,- '-*7(7)* ,-. -"*
, 6,(*-7()5'63
a[

8y |nd|cat|ng that "|t cannot be |nferred from the st|pu|at|on [of
|rrevocab|||ty] that the part|es' re|at|on under the agreement |s one of
agency coup|ed w|th an |nterest," the Court seems to |mp|y when
|rrevocab|||ty on the part of the pr|nc|pa| |s st|pu|ated, then the agency
becomes one that |s coup|ed w|th |nterest. 1h|s ru||ng |s not cons|stent
w|th the prov|s|ons of Art|c|e 1927 of the New C|v|| Code wh|ch prov|des
that |t |s not st|pu|at|on of |rrevocab|||ty that makes an agency coup|ed
w|th an |nterest, but by the fact that the contract of agency has been
entered |nto upon wh|ch the fu|f|||ment of the another contract |s
dependent. Indeed, even |f |t |s c|ear|y that the pr|nc|pa| |n a contract of
agency cannot revoke the agency w|th|n a spec|f|ed t|me or unt|| an
ob[ect|ve |s ach|eved, what the st|pu|at|on mere|y does |s to make the
agency one that |s not "at w|||," but' |t wou|d st||| be revocab|e by the
pr|nc|pa|, a|be|t |t wou|d const|tute a breach of contract for wh|ch the
pr|nc|pa| may be he|d ||ab|e for damages.
K5'R7W 0'-'-+ <"(63 found that a|though the |nstrument executed
between the two m|n|ng compan|es was denom|nated as a "ower of
Attorney," what |t const|tuted was essent|a||y a partnersh|p or [o|nt
venture between the part|es, thus
It shou|d be stressed that the ma|n ob[ect of the "ower
of Attorney" was not to confer a power |n favor of pet|t|oner
to contract w|th th|rd persons on beha|f of 8agu|o Go|d but
to create a bus|ness re|at|onsh|p between pet|t|oner and
8agu|o Go|d, |n wh|ch the former was to manage and
operate the |atter's m|ne through the part|es' mutua|
contr|but|on of mater|a| resources and |ndustry. 1he essence
of an agency, even one that |s coup|ed w|th |nterest, |s the
agent's ab|||ty to represent h|s pr|nc|pa| and br|ng about the
bus|ness re|at|ons between the |atter and th|rd persons.
Where representat|on for and |n beha|f of the pr|nc|pa| |s
mere|y |nc|denta| or necessary for the proper d|scharge of
OFS'./ at p. 441, 7$65,)') )866R'7.3

24S
one's paramount undertak|ng under a contract, the |atter
may not necessar||y be a contract of agency, but some other
agreement depend|ng on the u|t|mate undertak|ng of the
part|es.
In th|s case, the tota||ty of the c|rcumstances and the
st|pu|at|ons |n the part|es' agreement |ndub|tab|y |ead to the
conc|us|on that a partnersh|p was formed between
pet|t|oner and 8agu|o Go|d.
44

1he above-quoted reason|ng |n K5'R7W 0'-'-+ <"(63 seem to |mp|y
that agency and partnersh|p are mutua||y exc|us|ve, when |n fact one of
the essent|a| features of a contract of agency |s that |t br|ngs about
$8*8,R ,+7-P% between and among the partners |n the partnersh|p. In
fact, Art|c|e 1927, as |t enumerates what const|tutes "|rrevocab|e
agenc|es" |nc|udes as the th|rd enumerat|on those "|f a partner |s
appo|nted manager of a partnersh|p |n the contract of partnersh|p and
h|s remova| from the management |s un[ust|f|ab|e." In essence the
reso|ut|on |n K5'R7W 0'-'-+ <"(63 |s correct that f|nd|ng the re|at|onsh|p
between the two m|n|ng compan|es under a "ower of Attorney"
contract to st||| be a partnersh|p or [o|nt venture arrangement, s|nce the
agency features |n the contract cannot be cons|dered antagon|st|c to the
partnersh|p arrangements |ntended by the part|es.
It ought to be noted that ear||er, |n <"R7"-+P" T3 <R,6,("R) t the
Court he|d that "|t must not be forgotten that a power of attorney
a|though coup|ed w|th |nterest |n a partnersh|p can be revoked for a [ust
cause, such as when the attorney-|n-fact betrays the |nterest of the
pr|nc|pa|, as happened |n th|s case. It |s not open to ser|ous doubt that
the |rrevocab|||ty of the power of attorney may not be used to sh|e|d the
perpetrat|on of acts |n bad fa|th, breach of conf|dence, or betraya| of
trust, by the agent for that wou|d amount to ho|d|ng that a power
coup|ed w|th an |nterest author|zes the agent to comm|t frauds aga|nst
the pr|nc|pa|."
48

OFS'./ at pp.
441-442. ^10 SCkA
S77 (1964). OFS'./ at
S81 S82

erhaps the best way to end th|s sect|on |s to d|scuss the dec|s|on
|n 07-."\, T3 K,8R7/]
N
wh|ch app||ed the "agency coup|ed w|th
|nterest" prov|s|ons of Art|c|e 1927 of the New C|v|| Code.
In that case, Mendoza and au|e entered |nto an |nforma|
partnersh|p arrangement to b|d for NIA pro[ect under the fo||ow|ng
terms: "AULL's contr|but|on thereto |s h|s contractor's ||cense and
expert|se, wh||e MLNDC2A wou|d prov|de and secure the needed funds
for |abor, mater|a|s and serv|ces, dea| w|th the supp||ers and
sub-contractors, and |n genera| and together w|th AULL, oversee the
effect|ve |mp|ementat|on of the pro[ect. Ior th|s, AULL wou|d rece|ve
as h|s share three 67(P7-* (3) of the pro[ect cost wh||e the rest of the
prof|ts sha|| go to MLNDC2A."
48
nowever, s|nce on|y au|e had the
accred|ted bus|ness enterpr|se to qua||fy for the b|d, no partnersh|p
arrangement was drawn-up, and |nstead au|e executed a Spec|a|
ower of Attorney |n favor of Mendoza "1o represent me (AULL) |n my
capac|ty as Genera| Manager of the L.M. AULL CCNS1kUC1ICN AND
1kADING, |n a|| meet|ngs, conferences and transact|ons exc|us|ve|y for
the construct|on of the pro[ects"
49
w|th NIA. When au|e had rece|ved
h|s 3 share |n the pro[ect costs, and the rest of the co||ect|ons from the
NIA pro[ect a|| perta|ned to MLNDC2A, au|e revoked the Spec|a| ower
of Attorney, depr|v|ng Mendoza of the |ega| means by wh|ch to co||ect
the unpa|d b||||ngs from NIA. Cne of the |ssues ra|sed |s whether au|e
cou|d |ega| revoke the Spec|a| ower of Attorney, and h|s ||ab|||ty to
Mendoza for such revocat|on. 1he Court he|d |n 07-."\, he|d
1here was no va||d reason for AULL to revoke
MLNDC2A's SAs. S|nce MLNDC2A took care of the fund|ng
and sourc|ng of |abor, mater|a|s and equ|pment for the
pro[ect, |t |s on|y |og|ca| that she contro|s the f|nances, wh|ch
means that the SAs |ssued to her were necessary for the
proper performance of her ro|e |n the partnersh|p, and to
d|scharge the ob||gat|ons she had a|ready contracted
47
S79 SCkA 341
(2009)
OFS'./ at p. 3S4.
al
FS'./ at p. 347.

247
pr|or to revocat|on. W|thout the SA, she cou|d not co||ect
from NIA, because as far as |t |s concerned, LMC1 and
not the AULL-MLNDC2A partnersh|p |s the ent|ty |t had
contracted w|th. W|thout these payments from NIA, there
wou|d be no source of funds to comp|ete the pro[ect and to
pay off ob||gat|ons |ncurred. As MLNDC2A correct|y argues,
an agency cannot be revoked |f a b||atera| contract depends
upon |t, or |f |t |s the means of fu|f||||ng an ob||gat|on a|ready
contracted, or |f a partner |s appo|nted manager of a
partnersh|p |n the contract of partnersh|p and h|s remova|
from the management |s un[ust|f|ab|e.
AULL's revocat|on of the SAs was done |n ev|dent bad
fa|th. Adm|tt|ng a|| throughout that h|s on|y ent|t|ement |n
the partnersh|p w|th MLNDC2A |s h|s 3 roya|ty for the use
of h|s contractor's ||cense, he knew that the rest of the
amounts co||ected from NIA was ow|ng to MLNDC2A and
supp||ers of mater|a|s and serv|ces, as we|| as the |aborers.
et, he de||berate|y revoked MLNDC2A's author|ty such that
the |atter cou|d no |onger co||ect from NIA the amounts
necessary to proceed w|th the pro[ect and sett|e outstand|ng
ob||gat|ons.
S0

WI1nDkAWAL CI 1nL AGLN1 IkCM 1nL AGLNC
Ak1. 1928. 1he agent may w|thdraw from the agency by
g|v|ng due not|ce to the pr|nc|pa|. If the |atter shou|d suffer any
damage by reason of the w|thdrawa|, the agent must
|ndemn|fy h|m therefor, un|ess the agent shou|d base h|s
w|thdrawa| upon the |mposs|b|||ty of cont|nu|ng the
performance of the agency w|thout grave detr|ment to
h|mse|f. (1736a)
Ak1. 1929. 1he agent, even |f he shou|d w|thdraw from the
agency for a va||d reason, must cont|nue
sofb|d, at pp. 3S6-3S7.

to act unt|| the pr|nc|pa| has had reasonab|e opportun|ty to
take the necessary steps to meet the s|tuat|on. (1737a)
Under Art|c|e 1928 of the New C|v|| Code, the agent may
w|thdrawa| from the agency by g|v|ng due not|ce to the pr|nc|pa|. If the
pr|nc|pa| shou|d suffer any damage by reason of the w|thdrawa|, the
agent must |ndemn|fy h|m therefore, un|ess the agent shou|d base h|s
w|thdrawa| upon the |mposs|b|||ty of cont|nu|ng the performance of the
agency w|thout grave detr|ment to h|mse|f.
Under Art|c|e 1929 of the New C|v|| Code, even when the agent
shou|d w|thdraw for a va||d reason, he must cont|nue to act unt|| the
pr|nc|pa| has had reasonab|e opportun|ty to take the necessary steps to
meet the s|tuat|on.
In 47 R, K75, T3 >'.,R+"|t was he|d that when the agent and
adm|n|strator of property |nforms h|s pr|nc|pa| by |etter that for reasons
of hea|th and med|ca| treatment he |s about to depart from the p|ace
where he |s execut|ng h|s trust and where|n the sa|d property |s s|tuated,
and abandons the property, turns |t over to a th|rd party, renders
accounts of |ts revenues up to the date on wh|ch he ceases to ho|d h|s
pos|t|on and transm|ts to h|s pr|nc|pa| a genera| statement wh|ch
summar|zes and embraces a|| the ba|ances of h|s accounts s|nce he
began the adm|n|strat|on to the date of the term|nat|on of h|s trust, and,
w|thout stat|ng when he may return to take charge of the
adm|n|strat|on of the sa|d property, asks h|s pr|nc|pa| to execute a
power of attorney |n due form |n favor of and transm|t the same to
another person who took charge of the adm|n|strat|on of the sa|d
property, |t |s but reasonab|e and [ust to conc|ude that the sa|d agent
had express|y and def|n|te|y renounced h|s agency and that such agency
was du|y term|nated, |n accordance w|th the prov|s|ons of art|c|e 1732 of
the o|d C|v|| Code, now Arts. 1919 and 1928 of the New C|v|| Code.
S1
16 h||. 4S0(1910).

In 2,R7(, T3 27R,)P", |t was he|d that the fact that an agent
|nst|tuted an act|on aga|nst h|s pr|nc|pa| for the recovery of the ba|ance
|n h|s favor resu|t|ng from the ||qu|dat|on of the accounts between them
ar|s|ng from the agency, and rendered a f|na| account of h|s operat|ons,
was equ|va|ent to an express renunc|at|on of the agency, and term|nated
the [ur|d|ca| re|at|on between them, thus:
. . . for, a|though the agent has not express|y to|d h|s
pr|nc|pa| that he renounced the agency, yet ne|ther d|gn|ty
nor decorum perm|ts the |atter to cont|nue represent|ng a
person who has adopted such an antagon|st|c att|tude
towards h|m. When the agent f||ed a comp|a|nt aga|nst h|s
pr|nc|pa| for the recovery of a sum of money ar|s|ng from the
||qu|dat|on of the accounts between them |n connect|on w|th
the agency, [the pr|nc|pa|] cou|d not have understood
otherw|se because h|s act was more express|ve that words
and cou|d not have caused any doubt... In order to term|nate
the|r re|at|ons by v|rtue of the agency, the defendant, as
agent, rendered h|s f|na| account... to the p|a|nt|ff, as
pr|nc|pa|.
63

1hus, the Court he|d that the subsequent purchase by the former
agent of the pr|nc|pa|'s usufructuary r|ghts |n a pub||c auct|on was va||d,
s|nce no f|duc|ary re|at|onsh|p ex|sted between them at that po|nt.
DLA1n, INCAACI1 Ck INSCLVLNC CI 1nL kINCIAL
S|nce agency |s both a f|duc|ary and a representat|ve re|at|onsh|p,
the death of the pr|nc|pa| automat|ca||y ext|ngu|shes the contract, for
certa|n|y even |f the agent |s w||||ng to go on, he has nobody to represent
and b|nd |n [ur|d|ca| re|at|ons. 1hus, G,*'") T3 L7R'W C" <5,- Q ;"-)
G7,R*% <"(63/
Z
] he|d
a
S1 h||. 69S (1928).
mFS'./ at p. 699. "81
SCkA 2S1 (1978).

8y reason of the very nature of the re|at|onsh|p
between pr|nc|pa| and agent, agency |s ext|ngu|shed by the
death of the pr|nc|pa| or the agent. 1h|s |s the |aw |n th|s
[ur|sd|ct|on.
Manresa comment|ng on Art. 1709 of the Span|sh C|v||
Code exp|a|ns that the rat|ona|e for the |aw |s found |n the
[ur|d|ca| bas|s of agency wh|ch |s representat|on. 1here be|ng
an |ntegrat|on of the persona||ty of the pr|nc|pa| |nto that of
the agent |t |s not poss|b|e for the representat|on to
cont|nue to ex|st once the death of e|ther |s estab||sh.
oth|er agrees w|th Manresa that by reason of the nature of
agency, death |s a necessary cause for |ts ext|nct|on. Laurent
says that the [ur|d|ca| t|e between the pr|nc|pa| and the
agent |s severed '6)" X8(7 upon the death of e|ther w|thout
necess|ty for the he|rs of the pr|nc|pa| to not|fy the agent of
the fact of death of the former.
1he same ru|e preva||s at common |aw the death of the
pr|nc|pa| effects |nstantaneous and abso|ute revocat|on of
the author|ty of the agent un|ess the power be coup|ed w|th
an |nterest. 1h|s |s the preva|ent ru|e |n Amer|can
Iur|sprudence where |t |s we||-sett|ed that a power w|thout
an |nterest conferred upon an agent |s d|sso|ved by the
pr|nc|pa|'s death, and any attempted execut|on of the power
afterwards |s not b|nd|ng on the he|rs or representat|ves of
the deceased.
SS

In @,T'-, T3 <"8(* "& B667,R)/O the Court he|d that the death of a
c||ent d|vests h|s |awyer of author|ty to represent h|m as counse|, s|nce
a dead c||ent has no persona||ty and cannot be represented by an
attorney.
Cn|y recent|y, |n ;,(),S, T3 2.,3 .7 !7/
ZN
the Court summar|zed
the ru|es perta|n|ng to the effect of the death of the pr|nc|pa| on the
agency re|at|onsh|p
Agency |s ext|ngu|shed by the death of the pr|nc|pa|. 1he
on|y except|on where the agency sha|| rema|n |n fu|| force
mFS'./ at p. 260.
"171 SCkA 691
(1988).
C1
S94 SCkA 410

Lk1INGUISnMLN1 CI AGLNC 2S1
and effect even after the death of the pr|nc|pa| |s when |f |t
has been const|tuted |n the common |nterest of the |atter
and of the agent, or |n the |nterest of a th|rd person who has
accepted the st|pu|at|on |n h|s favor.
S8

1. When the Agency Cont|nues Desp|te
Death of r|nc|pa|
Ak1. 1930. 1he agency sha|| rema|n |n fu|| force
and effect even after the death of the pr|nc|pa|, |f |t
has been const|tuted |n the common |nterest of the
|atter and of the agent, or |n the |nterest of a th|rd
person who has accepted the st|pu|at|on h|s favor,
(n)
Under Art|c|e 1930 of the New C|v|| Code, the agency sha|| rema|n
|n fu|| force and effect even after the death of the pr|nc|pa|, |f |t has been
const|tuted |n the common |nterest of the |atter and of the agent, or |n
the |nterest of a th|rd person who has accepted the st|pu|at|on |n h|s
favor.
Lar||er on |n K,)-" T3 G,T'-,the Court recogn|zed that "the power
of sa|e g|ven |n a mortgage |s a power coup|ed w|th an |nterest wh|ch
surv|ves the death of the grantor."
In K7(7\ T3 K9:the Court noted that an examp|e of an agency
coup|ed w|th |nterest |s when a power of attorney |s const|tuted |n a
contract of rea| estate mortgage pursuant to the requ|rement of Act No.
313S, wh|ch wou|d empower the mortgagee upon the defau|t of the
mortgagor to payment the pr|nc|pa| ob||gat|on, to effect the sa|e of the
mortgage property through extra[ud|c|a| forec|osure. It has been he|d
that the power of sa|e |n the deed of rea| estate mortgage |s not revoked
by
m|d, at p. 430.
M
S4
h||. 378 (1930).
17 SCkA 833
(1966)

2S2
the death of the pr|nc|pa|-mortgagor, on the ground that |t |s an anc|||ary
st|pu|at|on supported by the same cause or cons|derat|on that supports
the mortgage and forms an essent|a| |nseparab|e part of that b||atera|
agreement. 1he power of attorney therefore surv|ves the death of the
mortgagor, and a||ows the mortgagee to effect the forec|osure of the
rea| estate mortgage even after the death of the pr|nc|pa|-mortgagor.
61

2. Lffect of Acts Done by Agent W|thout know|edge of
r|nc|pa|'s Death
Ak1. 1931. Anyth|ng done by the agent, w|thout
know|edge of the death of the pr|nc|pa| or of any other cause
wh|ch ext|ngu|shes the agency, |s va||d and sha|| be fu||y
effect|ve w|th respect to th|rd persons who may have
contracted w|th h|m |n good fa|th. (1738)
Under Art|c|e 1931 of the New C|v|| Code, anyth|ng done by the
agent, w|thout know|edge of the death of the pr|nc|pa| or of any other
cause wh|ch ext|ngu|shes the agency, |s va||d and sha|| be fu||y effect|ve
w|th respect to th|rd persons who may have contracted w|th h|m |n
good fa|th. It |s obv|ous, that th|rd part|es who dea| w|th the agent |n
bad fa|th ='373/ know|ng that the pr|nc|pa| |s dead) wou|d not be
protected, and the contract wou|d be vo|d, not [ust unenforceab|e, for
|ack of the essent|a| e|ement of consent.
In :8,)"- T3 K,-8%,)] the Court app||ed the prov|s|ons of Art|c|e
1931 |n upho|d|ng the va||d|ty of the sa|e of the |and effected by the
agent on|y after the death of the pr|nc|pa|, when no ev|dence was
adduced to show that at the t|me of sa|e both
e`
G7'*7(,*7. '- 47R G"),('" T3 BS,. ,-. BS,./ 104 h||.
( )
62
10S h||. 79S (19S9).

2S3
the agent and the buyers were unaware of the death of the pr|nc|pa|.
63

In G,RR") T3 L7R'W C" <5,- Q ;"-) G7,R*% <"(63/
e
] the Court
emphas|zed that |ack of know|edge of the death of the pr|nc|pa| must
ex|st at the t|me of contract w|th both the agent and the th|rd part|es
for the prov|s|on of Art|c|e 1931 to app|y, thus
Art|c|e 1931 |s the app||cab|e |aw. Under th|s prov|s|on,
an act done by the agent after the death of h|s pr|nc|pa| |s
va||d and effect|ve on|y under two cond|t|ons, T'\3k (1) that
the agent acted w|thout know|edge of the death of the
pr|nc|pa|, and (2) that the th|rd person who contracted w|th
the agent h|mse|f acted |n good fa|th. Good fa|th here means
that the th|rd son was not aware of the death of the
pr|nc|pa| at the t|me he contracted w|th sa|d agent. 1hese
two requ|s|tes must concur: the absence of one w||| render
the act of the agent |nva||d unenforceab|e.
In the |nstant case, |t cannot be quest|oned that the
agent, S|meon ka||os, knew of the death of h|s pr|nc|pa| at
the t|me he so|d the |atter's share |n Lot No. S983 to
respondent corporat|on. 1he know|edge of the death |s
c|ear|y to be |nferred from the p|ead|ngs f||ed by S|meon
ka||os before the tr|a| court. 1hat S|meon ka||os knew of the
death of h|s s|ster Concepc|on |s a|so a f|nd|ng of fact of the
court a g8" and of respondent appe||ate court when the
|atter stated that S|meon ka||os "must have known of the
death of h|s s|ster, and yet he proceeded w|th the sa|e of the
|ot |n the name of both h|s s|sters Concepc|on and Gerund|a
ka||os w|thout |nform|ng appe||ant (the rea|ty corporat|on)
of the death of the former."
Cn the bas|s of the estab||shed know|edge of S|meon
ka||os concern|ng the death of h|s pr|nc|pa|, Concepc|on
ka||os, Art|c|e 1931 of the C|v|| Code |s |napp||cab|e. 1he |aw
express|y requ|res for |ts app||cat|on |ack of know|edge on
the part of the agent of the death of h|s pr|nc|pa|, |t |s not
enough that the th|rd person acted |n good fa|th.
6S

mG7'*7(,*7. '- >7((7(, T3 E% p'$ C8,-/ 1 SCkA 406
(1961)
"81 SCkA 2S1 (1978).
6S
]b]d, at p. 262.

1he Court further he|d |n G,RR")k
. . . Another argument advanced by respondent court |s
that the vendee act|ng |n good fa|th re||ed on the power of
attorney wh|ch was du|y reg|stered on the or|g|na| cert|f|cate
of t|t|e recorded |n the keg|ster of Deeds of the rov|nce of
Cebu, that no not|ce of the death was ever annotated on
sa|d cert|f|cate of t|t|e by the he|rs of the pr|nc|pa| and
accord|ng|y they must suffer the consequences of such
om|ss|on.
66

1o support such argument reference |s made to a
port|on |n 0,-(7),^) Commentar|es wh|ch We quote:
"If the agency has been granted for the purpose of
contract|ng w|th certa|n persons, the revocat|on must be
made known to them. 8ut |f the agency |s genera| |n nature,
w|thout reference to part|cu|ar person w|th whom the agent
|s to contract, |t |s suff|c|ent that the pr|nc|pa| exerc|se due
d|||gence to make the revocat|on of the agency pub||c|y
known.
"In case of a genera| power wh|ch does not spec|fy the
persons to whom representat|on shou|d be made, |t |s the
genera| op|n|on that a|| acts executed w|th th|rd persons who
contracted |n good fa|th, w|thout know|edge of the
revocat|on, are va||d. In such case, the pr|nc|pa| may exerc|se
h|s r|ght aga|nst the agent, who, know|ng of the revocat|on,
cont|nued to assume a persona||ty wh|ch he no |onger had.
(Manresa, Vo|. 11, pp. S61 and S7S, pp. 1S-16, ro||o)"
67

1he above d|scourse, however, treats of revocat|on by an
act of the pr|nc|pa| as a mode of term|nat|ng an agency wh|ch
|s to be d|st|ngu|shed from revocat|on by operat|on of |aw
such as death of the pr|nc|pa| wh|ch obta|ns |n th|s case. Cn
page s|x of th|s Cp|n|on We stressed that by reason of the
very nature of the re|at|onsh|p between pr|nc|pa| and agent,
agency |s ext|ngu|shed '6)" X8(7 upon the death of e|ther
pr|nc|pa| or agent. A|though a revocat|on of a power of
attorney to be effect|ve must be commun|cated to the
part|es concerned, yet a revocat|on by operat|on of |aw, such
as by death of the pr|nc|pa| |s, as a ru|e, |nstantaneous|y
effect|ve |nasmuch as "by |ega| f|ct|on the agent's exerc|se of
a thor|t |s re arded as an e ec t|on of the pr|nc|pa|'s

wfRS'./ at p.
263
eN
FS'., at p.
263

2SS
1he New C|v|| Code does not |mpose a duty on the he|rs
to not|fy the agent of the death of the pr|nc|pa|. What the
Code prov|des |n Art|c|e 1932 |s that, |f the agent d|es, h|s
he|rs must not|fy the pr|nc|pa| thereof, and |n the meant|me
adopt such measures as the c|rcumstances may demand |n
the |nterest of the |atter. nence, the fact that no not|ce of the
death of the pr|nc|pa| was reg|stered on the cert|f|cate of t|t|e
of the property |n the Cff|ce of the keg|ster of Deeds, |s not
fata| to the cause of the estate of the pr|nc|pa|
68

DLA1n, INCAACI1 Ck INSCLVLNC CI 1nL AGLN1
Ak1. 1932. If the agent d|es, h|s he|rs must not|fy the
pr|nc|pa| thereof, and |n the meant|me adopt such measures as
the c|rcumstances may demand |n the |nterest of the |atter.
(1739)
Art|c|e 1919(3) prov|des that the death, c|v|| |nterd|ct|on, |nsan|ty
or |nso|vency of the agent ext|ngu|shes the agency.
In !7((,." T3 <"8(* "& B667,R)/o the Court he|d that contract of
agency estab||shes a pure|y persona| re|at|onsh|p between the pr|nc|pa|
and the agent, such that the agency |s ext|ngu|shed by the death of the
agent, and h|s r|ghts and ob||gat|ons ar|s|ng from the contract of agency
are not transm|ttab|e to h|s he|rs.
nowever, under Art|c|e 1932 of the New C|v|| Code, |f the agent
d|es dur|ng the term of the agency, h|s he|rs must not|fy the pr|nc|pa|
thereof, and |n the meant|me must adopt such measures as the
c|rcumstances may demand |n the |nterest of the pr|nc|pa|. 1he prov|s|on
estab||shes a rare s|tuat|on where an ob||gat|on |s |mposed by |aw upon
persons who are not part|es to a contractua| re|at|onsh|p, and that |n
fact of one that has a|ready been ext|ngu|shed by the death of the agent.
mFS'./ at p. 264.
ra
131 SCkA 371
( )

2S6
1. In Case of Mu|t|p|e Agents
Genera||y, w|thout show|ng an |ntent|on to the contrary, |n case of
an agency where there are severa| agents const|tuted for the same
bus|ness or property, the death of one or more, but not a|| of them
wou|d not ext|ngu|sh the agency, w|th respect to those who rema|n
||v|ng. 1he same ru|e wou|d app|y |n case of c|v|| |nterd|ct|on, |nsan|ty or
|nso|vency of any but not a|| of the common agents.
Cn the other hand, when |t |s c|ear at the const|tut|on of the
agency that the common agents were |ntended to be cons|dered as
hav|ng capac|ty as a group and not |nd|v|dua||y (such as by the use of the
term and |n def|n|ng the|r powers), then the death, |ega| |ncapac|ty, or
|nso|vency of one wou|d |ega||y term|nate the agency.
DISSCLU1ICN CI A CCkCkA1ICN
1he d|sso|ut|on of a corporat|on ext|ngu|shes |ts [ur|d|ca|
persona||ty for every purpose that seeks to pursue "new bus|ness,"
70
or
that of "a go|ng concern."
71
Consequent|y, upon the d|sso|ut|on of a
corporat|on, |ts 8oard of D|rectors and corporate off|cers |ose every |ega|
r|ght to enter |nto an contract or transact|on to pursue new bus|ness or
done |n the ord|nary course of bus|ness, and any of such contract
entered |nto wou|d be vo|d, even as aga|nst th|rd part|es who act |n
good fa|th, for at the po|nt of d|sso|ut|on, ex|st|ng cred|tors of the
corporat|ons must be protected under the trust fund doctr|ne.
nowever, the corporat|on after d|sso|ut|on, and w|th|n three years
therefrom cont|nues to have [ur|d|ca| persona||ty for on|y for purposes
of ||qu|dat|on. Consequent|y, the 8oard of D|rectors and corporate
off|cers cont|nue to have agency powers to represent
Nc
BR5,$S(, <'+,( T3 ;7P8('*'7) ,-. DWP5,-+7 <"$$'))'"-/ 24 SCkA
269 (1968).
71
A]8 T3 <"8(* "& L'()* F-)*,-P7 "& G'\,R/ K,)'+/ :(3 yyF/ 209 SCkA
294 (1992).
Lk1INGUISnMLN1 CI AGLNC 2S7
the corporat|on for any and a|| purpose that seek the ||qu|dat|on of |ts
assets and the payment of a|| |ts ||ab|||t|es.
C8LIGA1ICNS CI 1nL AGLN1 WnLN 1nL AGLNC IS
Lk1INGUISnLD
1he f|duc|ary nature of the contract of agency requ|res that even
when the agency re|at|on |s term|nated, the agent |s bound to keep
conf|dent|a| such matters and |nformat|on wh|ch he |earned |n the
course of the agency when the nature of such matter or |nformat|on |s
conf|dent|a|, such as bus|ness secrets.
Iust as the pr|nc|pa| cannot |ega||y revoke an agency |n order to
evade the payment of compensat|on due to the agent, then |n the same
manner an agent cannot |ega||y term|nate an agency |n order to take
advantage of the pr|nc|pa|'s cond|t|on or to prof|t by |nformat|on
resu|t|ng from h|s agency, for such wou|d be |n breach of h|s duty of
|oya|ty.
0C0

1kUS1S
CnA1Lk 1
IN1kCDUC1ICN
1kUS1S UNDLk 1nL NLW CIVIL CCDL
1|t|e V |n the New C|v|| Code on "1kUS1S" has no counterpart
|n the o|d C|v|| Code. Cn th|s matter, the Code Comm|ss|on
reported as fo||ows
1he |aw on trusts |s comprehens|ve |n Amer|can |aw.
1rusts are d|v|ded |nto express and |mp||ed. 1he former are
const|tuted by the |ntent|on of the trustor or of the part|es.
Imp||ed trusts come |nto be|ng by operat|on of |aw.
1he doctr|ne of |mp||ed trust |s founded upon equ|ty.
1he
pr|nc|p|e |s app||ed |n the Amer|can |ega| system to
numerous
cases where an |n[ust|ce wou|d resu|t |f the |ega| estate or
t|t|e were to preva|| over the equ|tab|e r|ght of the
benef|c|ary.
A number of |nstances of |mp||ed trusts are spec|f|ed |n the
ro[ect of C|v|| Code, but th|s enumerat|on does not exc|ude
other cases estab||shed by the genera| |aw on trust.
In art|c|e 1462 [now Art|c|e 1442 of the New C|v|| Code]
the pr|nc|p|e of the genera| |aw on trusts |nsofar as they are

2S8

IN1kCDUC1ICN 2S9
Commerce, the ku|es of Court and spec|a| |aws are adopted.
1h|s art|c|e |ncorporates a |arge part of the Amer|can Law on
trusts and thereby the h|||pp|ne |ega| system w||| be
amp||f|ed and w||| be rendered more su|ted to a [ust and
equ|tab|e so|ut|on of many quest|ons.
1

Cther than the forego|ng, the Code Comm|ss|on prov|ded for no
further exp|anat|ons or amp||f|cat|ons on the Law on 1rusts, and most of
what |s commented, found express|on |n the few prov|s|ons of the New
C|v|| Code.
What |s c|ear from the br|ef comments of the Code Comm|ss|on |s
that the growth of h|||pp|ne Law on 1rusts w||| f|nd |ts |mpetus from
common |aw from where |t was der|ved, and expressed |n
[ur|sprudent|a| ru||ngs of the Supreme Court.
1. h|||pp|ne 1rusts kooted on Amer|can Law on 1rusts
1rusts, the doctr|nes and pr|nc|p|es that ar|se from the|r
estab||shment, are rooted |n the h|||pp|ne |ega| system based on
Amer|can Law pr|nc|p|es on 1rusts. 1hus, Art|c|e 1442 of the New C|v||
Code now prov|des:
Ak1. 1442. 1he pr|nc|p|es of the genera| |aw of trusts,
|nsofar as they are not |n conf||ct w|th th|s Code, the Code of
Commerce, the ku|es of Court and spec|a| |aws are hereby
adopted.
1he foundat|on of Art|c|e 1442 may be drawn from the dec|s|on |n
C"T7(-$7-* T3 BS,. 'R',/
Y
As the |aw of trusts has been much more frequent|y
app||ed |n Lng|and and |n the Un|ted States than |t has |n
Spa|n, we may draw free|y upon Amer|can precedents |n
1
MALCLCS AND MAk1IN, kLCk1 CI 1nL CCDL CCMMISSICN, Domerte 8ook
Supp|y, 2116 Azcarraga, Man||a, h|||pp|nes, (19S1 ed.), at p. 60.
2
46 h||. 642 (1924).

determ|n|ng the effect of the testamentary trust here under
cons|derat|on, espec|a||y so as the trusts known to Amer|can
and Lng||sh equ|ty [ur|sprudence are der|ved from the &'.7'
P"$$')), of the koman |aw and are based ent|re|y upon
C|v|| Law pr|nc|p|es.
3

1nL "LUI1" LSSLNCL CI IMLILD 1kUS1S
Lxpress trusts are founded on the |ntent|on of the trustor or the
|ntent|ons of the part|es to the trust wh|ch br|ng about the app||cat|on
of pr|nc|p|es app||cab|e to contractua| re|at|onsh|ps ='373/ consensua||ty,
mutua||ty, and re|at|v|ty). Cn the other hand, |mp||ed trusts are created
by operat|on of |aw based on equ|ty pr|nc|p|es. Nonethe|ess, both types
of trusts are deemed to be vested w|th equ|tab|e cons|derat|ons.
When |t comes to express trusts, for examp|e, equ|ty cons|derat|on
|s expressed |n Art|c|e 144S of the C|v|| Code when |t prov|des that "No
trust sha|| fa|| because the trustee appo|nted dec||nes the des|gnat|on,
un|ess the contrary shou|d appear |n the |nstrument const|tut|ng the
trust."
Under the aeg|s of the New C|v|| Code, the Court re|terated the
equ|ty bas|s of trusts when |t he|d |n 47R8," T3 <,)*77R/] that as a |ega|
consequence of trust be|ng essent|a||y founded on equ|ty pr|nc|p|es, |s
that no trust, whether express or |mp||ed, can be he|d va||d and
enforceab|e when |t |s v|o|at|ve of the |aw, mora|s or pub||c po||cy.
In 0'+87R T3 <"8(* "& B667,R)/
Z
the Court he|d that
Iurthermore, because the case presents prob-|ems not
d|rect|y covered by statutory prov|s|ons or by Span|sh or
|oca| precedents, resort for the|r so|ut|on must be had to the
under|y|ng pr|nc|p|es of the |aw on the sub[ect. 8es|des, our
C|v|| Code |tse|f [Art|c|e 1442] d|rects the adopt|on of the
[
RS'./ at pp.
6 6 6
"22 SCkA 231

S
29 SCkA 760
( 969)

IN1kCDUC1ICN 261
pr|nc|p|es of the genera| |aw of trust, |nsofar as they are not
|n conf||ct w|th sa|d Code, the Code of Commerce, the ku|es
of Court and spec|a| |aws.
6

In other words, app||cat|on of |mp||ed trusts pr|nc|p|es on g|ven
transact|ons cover|ng propr|etary re|at|ons are mandated not by spec|f|c
reference to statutory prov|s|ons, but by seek|ng equ|tab|e so|ut|ons to
render [ust|ce to the part|es |nvo|ved or affected by the transact|on.
Later, |n Sa]ao v. Sa]ao,
7
the Court character|zed the equ|ty nature
of trusts, as fo||ows
In |ts techn|ca| |ega| sense, a trust |s def|ned as the r|ght,
enforceab|e so|e|y |n equ|ty, to the benef|c|a| en[oyment of
property, the |ega| t|t|e to wh|ch |s vested |n another, but the
word "trust" |s frequent|y emp|oyed to |nd|cate dut|es,
re|at|ons, and respons|b|||t|es wh|ch are not str|ct|y techn|ca|
trusts.
A person who estab||shes a trust |s ca||ed the trustor,
one |n whom conf|dence |s reposed as regards property for
the benef|t of another person |s known as the trustee, and
the person for whose benef|t the trust has been created |s
referred to as the benef|c|ary.
9
1here |s a f|duc|ary re|at|on
between the trustee and the P7)*8' g87 *(8)* as regards
certa|n property, rea|, persona|, money or choses |n act|on.
10

1he equ|ty nature of a trust supports the propos|t|on that the
|ntent|on of the trustor to create a trust for the benef|t of |ntended
benef|c|ary shou|d as much as poss|b|e be rea||zed. 1hus, Art|c|e 1444
prov|des that "No part|cu|ar words are requ|red for the creat|on of an
express trust, |t be|ng suff|c|ent that a trust |s c|ear|y |ntended." An
app||cat|on of th|s doctr|ne
]RS'./ at pp. 77S-776.
7
70 SCkA 6S (1976).
89 C.I.S. 712.
9
Art. 1440, New C|v|| Code.
b
RS'./ at p. 80, P'*'-+ K,P57P" T3 B($, 8S
h|| 0

(not the art|c|e) can be found |n C"T7(-$7-* T3 BS,.'RR,/O where after
ho|d|ng that the testamentary trust was "very unsk|||fu||y drawn, |ts
|anguage |s ungrammat|ca| and at f|rst b|ush seems to somewhat
obscure," the Court nonethe|ess he|d: "but on c|oser exam|nat|on |t
suff|c|ent|y revea|s the purpose of the testator. And |f |ts prov|s|ons are
not |n contravent|on of some estab||shed ru|e of |aws or pub||c po||cy,
they must be respected and g|ven effect."
12

In app|y|ng the equ|ty nature of trusts, BS,.'RR, he|d that the
|ntent|on of the trustor |s the more essent|a| cons|derat|on, and that
In regard to pr|vate trusts |t |s not a|ways necessary that
the P7)*8' g87 *(8)* shou|d be named, or even be '- esse at
the t|me the trust |s created |n h|s favor.
13
... 1hus a dev|se to
a father |n trust for accumu|at|on for h|s ch||dren |awfu||y
begotten at the t|me of h|s death has been he|d to be good
a|though the father had no ch||dren at the t|me of the
vest|ng of the funds |n h|m as trustee. In char|tab|e trusts
such as the one here under d|scuss|on, the ru|e |s st||| further
re|axed.
14

In G,$") T3 <"8(* "& B667,R)/
è
the payor of the purchase pr|ce of
the property had |ntended that |t be he|d by the purported trustee for
her because she was not qua||f|ed to ho|d such parce| of |and. A|though
a resu|t|ng trust shou|d have ar|sen under the prov|s|ons of Art|c|e 1448
of the C|v|| Code, nonethe|ess, the Court refused to grant to the payor
the re||ef of compe|||ng the purported trustee to convey the |and to her,
ru||ng that
nowever, |f the purpose of the payor of the
cons|derat|on |n hav|ng t|t|e p|aced |n the name of another
was to evade some ru|e of the common or statute |aw, the
courts w|||
"46 h||. 642 (1924).
`Y
FS'./ at p. 646.
m<'*'-+ ILIN1 CN 1kUS1S AND 1kUS1LLS, sect|on 2S, P'*'-+ L(,\'7( T3
L(,\'7(/ Y n||| Ch., 30S, B)58()* T3 C'T7-/ S Watts & S., 329, <,()"- T3
<,()"-/ 1 W|ns [N.C.], 24.
14
46 K5'R3 eaY/ eaN/ P'*'-+ Lkk CN 1kUS1S (Sth ed.) sec. 66.
1S
232 SCkA 348 (1994).

IN1kCDUC1ICN 263
not ass|st the payor |n ach|ev|ng h|s |mproper purpose by
enforc|ng a resu|t|ng trust for h|m |n accordance w|th the
"c|ean hands" doctr|ne. 1he courts genera||y refuses to g|ve
a|d to c|a|ms from r|ghts ar|s|ng out of an |||ega| transact|on,
such as where the payor cou|d not |awfu||y take t|t|e to |and
|n h|s own name and he used the grantee as a mere dummy
to ho|d for h|m and enab|e h|m to evade the |and |aws, '373/
an a||en who |s |ne||g|b|e to ho|d t|t|e to |and, who pays for |t
and has the t|t|e put |n the name of a c|t|zen. Ctherw|se
stated, as an except|on to the |aw on trust, "[a] trust or a
prov|s|on |n the terms of a trust |s |nva||d |f the enforcement
of the trust or prov|s|on wou|d be aga|nst pub||c po||cy, even
though |ts performance does not |nvo|ve the comm|ss|on of
a cr|m|na| or tort|ous act by the trustee."
16

1nL NA1UkL CI 1kUS1S
1. 1rusts Do Not Create Separate Iur|d|ca| Lnt|t|es
It shou|d be noted that there |s no statutory prov|s|on or case- |aw
wh|ch recogn|zes a trust re|at|onsh|p as creat|ng a separate [ur|d|ca|
ent|ty. Indeed, the essence of what const|tute a trust |s the recogn|t|on
that the trustee ho|ds d|rect|y |ega| or naked t|t|e to the trust propert|es.
Neverthe|ess, the naked or |ega| t|t|e he|d by the trustee shou|d be
|ooked upon as be|ng he|d "|n h|s off|c|a| capac|ty as trustee" and cannot
be deemed |nc|uded |n h|s estate to wh|ch he has fu|| ownersh|p.
1hese pr|nc|p|es are best exemp||f|ed |n 47T7R"6$7-* :,-1 "& *57
K5'R'66'-7) T3 CC]A,
17
where the D8 contr|buted funds |nto a ret|rement
p|an for |ts off|cers and emp|oyees, and const|tuted a board of trustees
vest|ng |t w|th the contro| and adm|n|strat|on of the fund. Augmentat|on
to the ret|rement fund were made through |oans extended to the
qua||f|ed off|cers and emp|oyees, wh|ch were |nvested |n shares of stocks
and other marketab|e secur|t|es, and the earn|ngs from wh|ch were
d|rected to be d|str|buted to the benef|c|ar|es even before they had
ret|red.
p
RS'./ at p. 361, g8"*'-+ &("$ kLS1A1LMLN1 (SLCCND) CI 1kUS1S 62
( )
"422 SCkA 46S (2004).

264
1he CCA ob[ected to the d|str|but|on of the earn|ngs from the
|nvestments made through the ret|rement fund on the ground that |s
was contrary to an express prov|s|on of |aw wh|ch proh|b|ts the
d|str|but|on of ret|rement benef|ts to government emp|oyees pr|or to
the|r actua| ret|rement. CCA a|so d|rected that the earn|ngs from the
|nvestment be |nc|uded |n D8's books of account as part of |ts own
earn|ngs, s|nce the ret|rement and |ts |ncome were actua||y owned by
D8 hav|ng made the contr|but|ons thereto. D8 ob[ected to the CCA
reso|ut|on on the ground "the express trust created for the benef|t of
qua||f|ed D8 emp|oyees under the 1rust Agreement... gave the Iund a
separate |ega| persona||ty,"
18
and therefore the earn|ngs perta|ned to
the emp|oyees and shou|d be cred|ted as |ncome of D8.
8ased on the reason|ng d|scussed be|ow, the Supreme Court
re[ected |n 4K: T3 <?B the propos|t|on that an express trust creates a
separate [ur|d|ca| person.
2. 1rusts D|vorces Naked 1|t|e of the 1rustee from the kest of the
1rustee's Lstate
Wh||e 4:K T3 <?B character|zed an "emp|oyees' trust" as "a trust
ma|nta|ned by an emp|oyer to prov|de ret|rement, pens|on or other
benef|ts to |ts emp|oyees... [and ] |s a separate taxab|e ent|ty estab||shed
for the exc|us|ve benef|t of the emp|oyees,"
19
st||| the Court d|d not
cons|der the such emp|oyees' trust as a separate [ur|d|ca| person. 1he
Court ru|ed that "1he pr|nc|pa| and |ncome of the Iund [of emp|oyees'
trust] wou|d be separate and d|st|nct from the funds of D8, on the
ground that D8 as trustor a|ready conveyed |ega| t|t|e thereto to the
8oard of 1rustees of the emp|oyees' trust, and w|th D8 off|cers and
emp|oyees hav|ng acqu|red benef|c|a| t|t|e thereto," thus:
In a trust, one person has an equ|tab|e ownersh|p |n the
property wh||e another person owns the |ega| t|t|e to such
property, the equ|tab|e ownersh|p of the former ent|t||ng
h|m
OFS'./ at p.

19
]b]d, at

IN1kCDUC1ICN 26S
to the performance of certa|n dut|es and the exerc|se of
certa|n powers by the |atter...
In the present case, D8, as the trustor, vested |n the
trustees of the Iund |ega| t|t|e over the Iund as we|| as
contro| over the |nvestment of the money and assets of the
Iund. 1he powers and dut|es granted to the trustees of the
Iund under the Agreement were p|a|n|y more than [ust
adm|n|strat|ve [but |nc|uded the power of contro|, the r|ght
to ho|d |ega| t|t|e, and the power to |nvest and re|nvest].. -
20

x x x .
C|ear|y, the trustees rece|ved and co||ected any |ncome
and prof|t der|ved from the Iund, and they ma|nta|ned
separate books of account for th|s purpose. 1he pr|nc|pa|
and |ncome of the Iund w||| not revert to D8 even |f the
trust |s subsequent|y mod|f|ed or term|nated. 1he
Agreement states that the pr|nc|pa| and |ncome must be
used to sat|sfy a|| of the ||ab|||t|es to the benef|c|ary off|c|a|s
and emp|oyees under the Gratu|ty |an .. .
21

Cn the |ssue that the D8 off|c|a|s and emp|oyees had no r|ght to
the fund nor to the |ncome earned unt|| they actua||y ret|re, wh|ch
therefore d|d not qua||fy them to be cons|dered P7)*8' g87 *(8)* or
benef|c|ary, and therefore the same shou|d st||| accrue to D8, the
Court ru|ed
As CCA correct|y observed, the r|ght of the emp|oyees
to c|a|m the|r gratu|t|es from the Iund |s st||| |nchoate. [1he
|aw], does not a||ow emp|oyees to rece|ve the|r gratut|t|es
unt|| they ret|re. nowever, th|s does not |nva||date the trust
created by D8 or the concom|tant transfer of |ega| t|t|e to
the trustees. As far back as |n C"T7(-$7-* T3 BS,.'RR,/ the
Court he|d that "|t |s not a|ways necessary that the P7)*8' g87
*(8)* shou|d be named, or even be '- 7))7 at the t|me the
trust |s created |n h|s favor." It |s enough that the
benef|c|ar|es are suff|c|ent|y certa|n or |dent|f|ab|e.
22

]qRS'./ at p.
474. OFS'./ at
p. 47S. ]RS'./
t

1he Court reso|ved |n 4:K T3 <?B/ that "1he Agreement
|nd|sputab|y transferred |ega| t|t|e over the |ncome and propert|es of the
Iund to the Iund's trustees. 1hus, CCA's d|rect|ve to record the |ncome
of the Iund |n D8's books of account as the m|sce||aneous |ncome of
D8 const|tutes grave abuse of d|scret|on. 1he |ncome of the Iund does
not form part of the revenues or prof|ts of D8, and D8 may not use
such |ncome for |ts own benef|t. 1he pr|nc|pa| and |ncome of the Iund
together const|tute the (7) or sub[ect matter of the trust. 1he
Agreement estab||shed the Iund prec|se|y so that |t wou|d eventua||y be
suff|c|ent to pay for the ret|rement benef|ts of D8 emp|oyees under
[the |aw] w|thout add|t|ona| out|ay from D8. CCA |tse|f acknow|edged
the author|ty of D8 to set up the Iund. nowever, CCA's subsequent
d|rect|ve wou|d d|vest the Iund of |ncome, and defeat the purpose for
the Iund's creat|on."
23

3. 1rust Is Anchored on Sp||tt|ng or Intent|on to Sp||t the Naked
1|t|e and 8enef|c|a| 1|t|e
1he essence of trusts, whether express or |mp||ed, |s that the
f|duc|ary re|at|onsh|p or the enforcement of equ|ty pr|nc|p|es |s bu||t
upon 6("67(*% (7R,*'"-)d un|ess, the d|spute |nvo|ved c|a|ms ar|s|ng from
property r|ghts, then trusts pr|nc|p|es do not app|y. In other words, there
|s no rea| trust re|at|onsh|p based on|y on the meet|ng of the m|nds, and
that the trustee does not even beg|n to assume f|duc|ary dut|es towards
the benef|c|ary, un|ess and unt|| t|t|e to the (7) |s transferred to h|m |n
e|ther of three ways:
(a) When on|y naked t|t|e |s g|ven to h|m ='373/ he |s
reg|stered as the naked or |ega| t|t|e ho|der or "trustee"
for the benef|t of an |dent|f|ed benef|c|ary), then an
express trust has been const|tuted, or
(b) When fu|| t|t|e has been reg|stered |n h|s name, but w|th
a c|ear undertak|ng to ho|d |t for the benef|t of another
person or pursuant to a c|ear arrangement
Y[
RS'./ at p. 477.

IN1kCDUC1ICN 267
w|th another person as the benef|c|ary, then an express
trust at best, or resu|t|ng trust at |east, has been
const|tuted, or
(c) When fu|| t|t|e to the property has been acqu|red by a
person under c|rcumstances that the |aw or equ|ty
|mposes upon h|m the ob||gat|on to convey |t to
another person who has a better c|a|m to such
property, |n wh|ch case a construct|ve trust |s deemed
const|tuted by force of |aw.
1h|s pr|nc|p|e has been conf|rmed by the Supreme Court |n <,-7\"
T3 G"X,)/
Ya
where |t he|d:
What d|st|ngu|shes a trust from other re|at|ons |s the
separat|on of the |ega| t|t|e and equ|tab|e ownersh|p of the
property. In a trust re|at|on, |ega| t|t|e |s vested |n the
f|duc|ary wh||e equ|tab|e ownersh|p |s vest |n a P7)*8' g87
*(8)*3 Such |s not true |n th|s case. 1he pet|t|oner a||eged |n
her comp|a|nt that the tax dec|arat|on of the |and was
transferred to the name of [the purported trustee] Cr|spu|os
w|thout her consent. nad |t been her |ntent|on to create a
trust and make Cr|spu|o her trustee, she wou|d not have
made an |ssue out of th|s because |n a trust agreement, |ega|
t|t|e |s vested |n the trustee. 1he trustee wou|d necessar||y
have the r|ght to transfer the tax dec|arat|on |n h|s name and
to pay the taxes on the property. 1hese acts wou|d be treated
as benef|c|a| to the P7)*8' g87 *(8)* and wou|d not amount to
an adverse possess|on.
2S

1he ex|stence of va||d t|t|e |n the person of the trustee for the
benef|t of the P7)*8' g87 *(8)* |s so essent|a| that |n cases where the t|t|e
of the purported trustee was found to be vo|d, the Supreme Court had
refused to app|y trust pr|nc|p|es at a||. 1hus, |n L7((7( T3 :,8*')*,/o
where the free patent and or|g|na| cert|f|cate of t|t|e |ssued |n the name
of the occupant of a str|p of
24
S38 SCkA242
(200 )
Y
Z
R

|and that had ar|sen by accret|on was he|d to be vo|d, the Court refused
to app|y the pr|nc|p|e that an act|on for reconveyance on an |mp||ed
trust prescr|bes |n ten (10) years after the |ssuance of the t|t|e, on the
ground that no |mp||ed trust cou|d ar|se from a vo|d t|t|e he|d by the
purported trustee, and hence the act|on to reconvey was deemed
|mprescr|pt|b|e.
L|kew|se, |n 0,P,S,SS,./ J(3 23 0,)'(,+where the t|t|e to the
reg|stered |and was obta|ned through forg|ng the s|gnatures of the he|rs
|n the purported extra[ud|c|a| sett|ement of estate, the Court he|d t|t|e
by the he|r who exerc|sed fraud, was vo|d and the ru|es on |mp||ed trust
to ||m|t the per|od to f||e an act|on for reconveyance to ten (10) years
was deemed |napp||cab|e.
kINDS CI 1kUS1S
Ak1. 1441. 1rusts are e|ther express or |mp||ed. Lxpress
trusts are created by the |ntent|on of the trustor or of the
part|es. Imp||ed trusts come |nto be|ng by operat|on of |aw.
Art|c|e 1441 of the C|v|| Code express|y recogn|zes the fo||ow|ng
k|nds of trust, thus:
Lxpress 1rust - wh|ch |s created by the |ntent|on of the trustor
or of the part|es,
Imp||ed 1rust - wh|ch comes |nto be|ng by operat|on of |aw.
In turn, [ur|sprudence has d|st|ngu|shed between two types of
|mp||ed trusts, name|y: (a) G7)8R*'-+ !(8)*), and (b) <"-)*(8P*'T7 !(8)*)3
OZNe SCkA 70 (2009).

IN1kCDUC1ICN 269
Lxpress trusts are the product of contractua| |ntents, they are
essent|a||y creatures of Contract Law, and therefore are an|mated by the
agreed |ntent|ons of the part|es under the pr|nc|p|e of ,8*"-"$% or
the"&(77."$ *" P"-*(,P* doctr|ne.
G,$") T3 G,$")/
Y:
def|ned 7W6(7)) *(8)*) as "those wh|ch are
created by the d|rect and pos|t|ve acts of the part|es, by some wr|t|ng or
deed, or w|||, or by words e|ther express|y or |mp||ed|y ev|nc|ng an
|ntent|on to create a trust."
29

Late|y, |n >7'() "& !(,-g8'R'-" @,S')*7 T3 >7'() "& J")7 @,S')*7/
[c
the
Court he|d that "1rust |s the r|ght to the benef|c|a| en[oyment of
property, the |ega| t|t|e to wh|ch |s vested |n another. It |s a f|duc|ary
re|at|onsh|p that ob||ges the trustee to dea| w|th the property for the
benef|t of the benef|c|ary. 1rust re|at|ons between part|es may e|ther be
express or |mp||ed. An express trust |s created by the |ntent|on of the
trustor or of the part|es. An |mp||ed trust comes |nto be|ng by operat|on
of |aw."
31

Cn the other hand, |mp||ed trusts, part|cu|ar|y construct|ve trusts,
are creatures of the |aw, they ex|st |n c|rcumstances where the |aw
mandates |t so, and |n a|| s|m||ar s|tuat|ons where [ust|ce or equ|ty has to
be ach|eved. Imp||ed trusts are essent|a||y a product of equ|tab|e
cons|derat|on.
G,$") def|ned '$6R'7. *(8)*) as "those wh|ch, w|thout be|ng
expressed, are deduc|b|e from the nature of the transact|on as matters
of |ntent, or wh|ch are super|nduced on the transact|on by operat|on of
|aw as matters of equ|ty, |ndependent|y of the part|cu|ar |ntent|on of the
part|es."
32

1he d|fference |n |ega| effects between an express trust and an
|mp||ed trust, accord|ng to G,$")/ was that the former |s not suscept|b|e
to charges of prescr|pt|on or |aches, whereas |n the |atter, |t |s poss|b|e
that the cause of act|on of the P7)*8' g87 *(8)* may be ext|ngu|shed by
prescr|pt|on or |aches.
28
61 SCkA 284 (1974).
mFS'./ g8"*'-+ &("$ 89

30
S87 SCkA 417 (2009).
OFS'./ at p. 418.
[Y
RS'./ g8"*'-+ &("$ 89
C S 2

In K5'R'66'-7 9,*'"-,R :,-1 T3 <"8(* "& B667,R)/
[[
the Court
app||ed the pr|nc|p|es of construct|ve trust under Art|c|e 14S6 of the
C|v|| Code to ru|e on a s|tuat|on where a bank had m|staken|y cred|ted
to the account of a person an amount not due to the depos|tor
(a|though the Court he|d that the pr|mary reso|ut|on of the |ssues was
under quas|-contract on )"R8*'" '-.7S'*'H3 A|though money or other
forms of |ega| tender do not const|tute "property" for the ho|der
thereof can c|a|m ownersh|p, the commerc|a| va|ue they represent |s a
propr|etary |nterest where trust pr|nc|p|es can be made to app|y.
Indeed, |t |s not unusua| that trust agreements are executed w|th the
trust departments of banks, where a good part of the corpus wou|d
const|tute a |arge sum of money.
Lar||er, under the o|d C|v|| Code, |n 4',\ T3 C"(('P5" ,-. B+8,."/
[
]
the Court he|d that
1he reason for the d|fference |n treatment |s obv|ous. In
express trusts, the de|ay of the benef|c|ary |s d|rect|y
attr|butab|e to the trustee who undertakes to ho|d the
property for the former, or who |s ||nked to the benef|c|ary
by conf|dent|a| or f|duc|ary re|at|ons. 1he trustee's
possess|on |s, therefore, not adverse to the benef|c|ary, unt||
and un|ess the |atter |s made aware that the trust has been
repud|ated. 8ut |n construct|ve trusts (that are |mposed by
|aw), there |s ne|ther prom|se nor f|duc|ary re|at|on, the
so-ca||ed trustee does not recogn|ze any trust and has no
|ntent to ho|d for the benef|c|ary, therefore, the |atter |s not
[ust|f|ed |n de|ay|ng act|on to recover h|s property. It |s h|s
fau|t |f he de|ays, hence, he may be estopped by h|s own
|aches.
3S

As w||| be d|scussed |n the |ast chapter, |t used to be the [ud|c|a|
pos|t|on that under an express trust arrangement, the trustee can never
c|a|m e|ther acqu|s|t|ve prescr|pt|on |n h|s favor to obta|n t|t|e to the
property he|d |n trust, or the benef|t of ext|nct|ve prescr|pt|on |n order
to defeat the r|ght of the
M
217 SCkA 347
( 993)
"103 h||. 261

[;
RS'./ at p. 266.
IN1kCDUC1ICN
271
benef|c|ary to demand the exerc|se of h|s r|ghts. 1he reason was that |n
an express trust arrangement, wh|ch |s created on|y by the express or
|mp||ed acceptance by the trustee that he ho|ds the trust property for
the benef|t of the benef|c|ary, h|s possess|on thereof |s not adverse to,
nor |n repud|at|on of, the r|ghts and benef|c|a| t|t|e of the benef|c|ary.
Consequent|y, the |ong passage of t|me cannot g|ve r|se to e|ther
prescr|pt|on, much |ess |aches, there must be an express repud|at|on of
the trust arrangement by the trustee, and not|ce to the benef|c|ary that
he now ho|ds t|t|e adverse to the benef|c|ary, for prescr|pt|on or |aches
to beg|n commenc|ng.
Cn the other hand, under an |mp||ed trust arrangement, where
there |s rea||y no |mp||ed acceptance of a trust ob||gat|on on the
purported trustee, the mere fact that t|t|e has been reg|stered |n the
name of the purported trustee and he ho|ds possess|on thereof for h|s
own benef|t |s const|tuted as a repud|at|on of any trust arrangement
that the purported benef|c|ary may expect from the arrangement.
Consequent|y, the mere passage of t|me w|th the purported trustee
exerc|s|ng dom|n|on over the purported trust propert|es for h|s own
benef|t, w|thout need of express repud|at|on cou|d eventua||y |ead to
successfu||y c|a|m|ng the effects of prescr|pt|on or |aches on the part of
the trustee, to the detr|ment of the benef|c|ary.
1h|s cr|t|ca| d|st|nct|on has been b|urred |n the years s|nce the
G,$") dec|s|on, w|th both k|nds of trusts be|ng cons|dered capab|e of
be|ng sub[ect to the defense of prescr|pt|on or |aches, w|th the
d|fference rema|n|ng on whether there |s a need for express
repud|at|on, and the nature requ|red for any of such repud|at|on to take
effect. 1he matter |s better d|scussed |n the |ast chapter.
Cne other d|st|nct|on between express trusts and |mp||ed trusts, |s
that express trusts over an |mmovab|e property cannot be enforced by
paro| ev|dence, but must be proper|y supported by a wr|tten
|nstrument, whereas, |mp||ed trusts, regard|ess of the nature of the
trust property, may a|ways be enforced even when const|tuted ora||y.
In other words, |mp||ed trusts are not w|th|n the operat|ve cover of the
Statute of Irauds, as expressed
272
succ|nct|y |n Art|c|e 14S7: "An |mp||ed trust may be proved by ora|
ev|dence."
A|though express trusts and |mp||ed trusts are governed by
d|fferent pr|nc|p|es, the common denom|nator between them |s that
they are |ega| re|at|onsh|ps bu||t upon property r|ghts, there can be no
express or |mp||ed trusts among |nd|v|dua|s un|ess some property ||es |n
the m|dd|e of such re|at|onsh|p.
oCo

CnA1Lk 2
LkkLSS 1kUS1S
DLIINI1ICN AND NA1UkL CI LkkLSS 1kUS1S
Ak1. 1440. A person who estab||shes a trust |s ca||ed the
trustor, one |n whom conf|dence |s reposed as regards
property for the benef|t of another person |s known as the
trustee, and the person for whose benef|t the trust has been
created |s referred to as the benef|c|ary.
trust are created by the |ntent|on of the trustors or of the
1|t|e V of the New C|v|| Code does not conta|n a part|cu|ar
def|n|t|on of O!(8)*^/ but |ts f|rst art|c|e - Art|c|e 1440 - def|nes the
persons who const|tute the part|es |n a trust re|at|onsh|p, thus:
1kUS1Ck - the person who estab||shes a trust
(referred to as "grantor", "sett|or", or
"founder" |n common-|aw par|ance),
1kUS1LL - the person |n whom conf|dence |s
reposed as regards the property
p|aced |n trust (referred to as the
273

274
OP"(68)OHd |t |s the trustee who
assumes certa|n dut|es re|at|ng to the
(7) or the trust property w|th respect
to the person for whose benef|t the
trust |s created, and
8LNLIICIAk - the person for whose benef|t the trust has
been created (the OP7)*8' g87 *(8)*H3
We can therefore def|ne 7W6(7)) *(8)* under the terms of Art|c|e
1440 of the New C|v|| Code as a |ega| re|at|onsh|p based pr|mar||y on
the part|es' re|at|onsh|p to the property that const|tutes the P"(68) or
the trust estate, whereby a person, ca||ed the "trustor," conveys the
naked or |ega| t|t|e to a property to another person, ca||ed the
"trustee," who takes t|t|e thereto under a f|duc|ary ob||gat|on to
adm|n|ster, manage and d|spose of the property for the benef|t of
another person, ca||ed the "benef|c|ary," to whom therefore benef|c|a|
or equ|tab|e t|t|e perta|ns.
uot|ng from Amer|can |ega| ||terature, 1o|ent|no def|nes trust as
"the |ega| re|at|onsh|p between one person hav|ng an equ|tab|e
ownersh|p |n property and another person own|ng the |ega| t|t|e to
such property, the equ|tab|e ownersh|p of the former ent|t||ng h|m to
the performance of certa|n dut|es and exerc|se of certa|n powers by the
|atter."
1

In :,((7**" T3 !8,)"-/
Y
the Supreme Court noted that O*(8)& |s
known as &'.7'P"$')" under Span|sh |ega| system, w|th the trustee
be|ng des|gnated as the &'.8P',('"/ and the benef|c|ary referred to as
the &'.7P"$'),('" or the P7)*8' g87 *(8)*,-*3
In K5'R'66'-7 9,*'"-,R :,-1 T3 <"8(* "& B667,R)/
[
the Court
descr|bed a "typ|ca| trust" (when d|st|ngu|shed from a construct|ve
1CLLN1INC, CIVIL CCDL CI 1nL nILIINLS, Vo|. IV, at p. 669, P'*'-+ S4 AM.
IUk. 21, here|nafter referred to as "1CLLN1INC". G7'*7(,*7. '- 0"(,R7) T3
<"8(* "& B667,R)/ 274 SCkA 282, 297 (1997).
2
S0 h||. 888 (1926).
3
217 SCkA 347 (1993).

LkkLSS 1kUS1S
27S
trust under Art|c|e 14S6 of the New C|v|| Code) as one where|n
"conf|dence |s reposed |n one person b5" ') -,$7. , *(8)*77 for the
benef|t of another who |s ca||ed the P7)*8' g87 *(8)*/ (7)67P*'-+
6("67(*% b5'P5 ') 57'. S% *57 *(8)*77 &"( *57 S7-7&'* "& *57 P7)*8' g87
*(8)*3 A construct|ve trust, un||ke an express trust, does not emanate
from, or generate a f|duc|ary re|at|on. Wh||e |n an express trust, a
benef|c|ary and a trustee are ||nked by conf|dent|a| or f|duc|ary
re|at|ons, |n a construct|ve trust, there |s ne|ther a prom|se nor any
f|duc|ary re|at|on to speak of and the so-ca||ed trustee ne|ther accepts
any trust or |ntends ho|d|ng the property for the benef|c|ary."
4

In add|t|on, K9: d|st|ngu|shed between the ob||gat|ons of the
trustee |n an express trust from that |n a construct|ve trust: "Under
Amer|can Law, a court of equ|ty does not cons|der a construct|ve
trustee for a|| purposes as though he were |n rea||ty a trustee, a|though
|t w||| force h|m to return the property, |t w||| not |mpose upon h|m the
numerous f|duc|ary ob||gat|ons ord|nar||y demanded from a trustee of
an express trust. It must be borne |n m|nd that |n an express trust, the
trustee has act|ve dut|es of management wh||e |n a construct|ve trust,
the duty |s mere|y to surrender the property."
S

LSSLN1IAL CnAkAC1LkIS1ICS CI LkkLSS 1kUS1S
In 0"(,R7) T3 <"8(* "& B667,R)/
e
after adopt|ng 1o|ent|no's
def|n|t|on of trusts, the Court enumerated the fo||ow|ng "essent|a|
character|st|cs" of trust fo||ow|ng the enumerat|on |n the esteemed
author's book:
(a) It |s a re|at|onsh|p,
(b) It |s a re|at|onsh|p of f|duc|ary character,
(c) It |s a re|at|onsh|p w|th respect to property, not one
|nvo|v|ng mere|y persona| dut|es,
a
RS'./ at pp. 3S3-3S4, '*,R'P)
R' .
)
RS'./ at p. 3S6.
6
274 SCkA 282 (1997).

(d) It |nvo|ves the ex|stence of equ|tab|e dut|es |mposed
upon the ho|der of the t|t|e to the property to dea| w|th
|t for the benef|t of another, and
(e) It ar|ses as a resu|t of a man|festat|on of |ntent|on to
create the re|at|onsh|p.
7

0"(,R7) actua||y |nvo|ved an app||cat|on of the pr|nc|p|es
perta|n|ng to |mp||ed trusts (part|cu|ar|y the app||cat|on of Art|c|e 1448
of the New C|v|| Code), and a|though one gets the |mpress|on that the
character|st|cs perta|n to a|| forms of trusts, both express and |mp||ed,
the above enumerated "essent|a| character|st|cs" actua||y perta|n to
express trusts, and perhaps even to resu|t|ng trusts, but not to
construct|ve trust arrangements, s|nce |t has a|ready been he|d by the
Supreme Court that techn|ca||y speak|ng, the purported trustee |n a
construct|ve trust actua||y owes no f|duc|ary duty or ob||gat|on to the
P7)*8' g87 *(8)*/ and certa|n|y a construct|ve trust ar|ses by " "67(,*'"-
"& R,bO and not "as a (7)8R* "& , $,-'&7)*,*'"- "& '-*7-*'"- *" P(7,*7 *57
(7R,*'"-)5'63Ot
1. Lxpress 1rusts Are Lssent|a||y Contractua| |n
Character
Ak1. 144S. No trust sha|| fa|| because the trustee
appo|nted dec||nes the des|gnat|on, un|ess the contrary shou|d
appear |n the |nstrument const|tut|ng the trust.
Ak1. 1446. Acceptance by the benef|c|ary |s necessary.
Neverthe|ess, |f the trust |mposes no onerous cond|t|on upon
the benef|c|ary, h|s acceptance sha|| be presumed, |f there |s no
proof to the contrary.
N
FS'./ at p.
298.
:
RS'.3

LkkLSS 1kUS1S 277
Genera||y speak|ng, an express trust |s essent|a||y P"-*(,P*8,R '-
P5,(,P*7( because |t can on|y be const|tuted through contractua|
|ntent|on on the part of the trustor to d|spose of h|s property by d|v|d|ng
|ts fu|| ownersh|p between the trustee and the benef|c|ary, and requ|res
genera||y the fu|| acceptance of the naked t|t|e and f|duc|ary ob||gat|ons
on the part of the trustee, and the concom|tant ob||gat|ons that go w|th
|t. 1h|s |s the reason why 0"(,R7) |nd|cates that one of the essent|a|
character|st|c of a trust that O'* ,(')7) ,) , (7)8R* "& , $,-'&7)*,*'"- "&
'-*7-*'"- *" P(7,*7 *57 (7R,*'"-)5'63Of
1hus, Art|c|e 1441 of the New C|v|| Code prov|des that "Lxpress
trusts ,(7 P(7,*7. S% *57 '-*7-*'"- "& *57 *(8)*"( "( "& *57 6,(*'7)," and
|n add|t|on Art|c|e 1444 prov|des that "No part|cu|ar words are requ|red
for the creat|on of an express trust, '* S7'-+ )8&&'P'7-* *5,* , *(8)* ')
PR7,(R% '-*7-.7.O
Wh||e Art|c|e 1441 of the New C|v|| Code def|nes an express trust as
"created by the |ntent|on... of the part|es," wh|ch c|ear|y supports the
propos|t|on that the nexus of every express trust arrangement |s a
contractua| re|at|onsh|p, nonethe|ess, |t a|so def|nes an express trust as
"created by the |ntent|on of the trustor" a|one, wh|ch seems to defy the
essence of $8*8,R P"-)7-* as a necessary e|ement |n br|ng|ng about a
contractua| re|at|onsh|p. et |t cannot be den|ed that no person may f|nd
h|mse|f bound to the f|duc|ary dut|es and ob||gat|ons of a trustee, un|ess
he prev|ous|y consented thereto, or expresses h|s consent by vo|untar||y
assum|ng such re|at|onsh|p to the trust property wh|ch necessar||y br|ngs
about the dut|es and ob||gat|ons of a trustee.
Cn the other hand, Art|c|e 144S of the New C|v|| Code prov|des that
"No trust sha|| fa|| because the trustee appo|nted dec||nes the
des|gnat|on, un|ess the contrary shou|d appear |n the |nstrument
const|tut|ng the trust." kead p|a|n|y, Art|c|e 144S seems to |mp|y that the
e|ement of "consent" or "meet|ng of m|nds," so essent|a| for a va||d
contract to ar|se, does not perta|n to express trust and thus may |ead to
the conc|us|on that express trusts are not necessar||y contractua|
re|at|onsh|ps. Such
j
FS'.3
|mpress|on wou|d be wrong, as w||| be exp|a|ned |n the sect|ons be|ow
d|scuss|ng the character|st|c of express trust as be|ng a (7,R and
6(76,(,*"(% P"-*(,P*
1here can be no deny|ng the |ega| tru|sm that an express trust
const|tutes essent|a||y a contractua| re|at|onsh|p between and among
the part|es thereto. 1h|s |s supported by Art|c|e 1446 wh|ch states that
"Acceptance by the benef|c|ary |s necessary," and that |f the trust does
not |mpose any onerous cond|t|on upon the benef|c|ary, then "h|s
acceptance sha|| be presumed, |f there |s no proof to the contrary."
Lxpress trusts are essent|a||y the product of contractua| |ntent, and
most express trust re|at|onsh|ps are overt|y P"-*(,P*8,R '- -,*8(7 s|nce
they are executed |n a forma| Deed of 1rust.
An express trust may a|so be const|tuted |n a w|||, |t wh|ch case |t
becomes a *7)*,$7-*,(% *(8)*/ and the va||d|ty of the trust arrangement
wou|d be depended on the va||d|ty of the testamentary d|spos|t|on. In
such case, the |ssues as to the va||d|ty of the trust arrangements wou|d
have to be reso|ved under the Laws on Success|on.
An express trust may a|so be const|tuted |n the &"($ "& ,
."-,*'"-/ |n wh|ch case |t |s embod|ed |n a so|emn contract, and many
of the |ssues on va||d|ty wou|d have to be reso|ved under the Law on
Donat|ons.
It shou|d be noted, however, that when the benef|c|ary con-
st|tuted |n a trust |s other than the trustor, then the deed of trust
actua||y prov|des for st|pu|at|onvXH"8( ,8*(8' |n favor of the des|gnated
benef|c|ary, and under Art|c|e 1446 of the New C|v|| Code, acceptance by
the benef|c|ary |s deemed presumed. More |mportant|y, a des|gnat|on
of a benef|c|ary wh|ch does no |mpose onerous cond|t|ons, partakes
essent|a||y of a g|ft or a donat|on |n favor of the benef|c|ary, and str|ct|y
speak|ng |s governed by the Law on Donat|on wh|ch makes the
d|spos|t|on a so|emn contract. L|kew|se, |n the Law on 1axat|on, the
same const|tute taxab|e g|ft or donat|on for wh|ch the proper g|ft tax
shou|d be pa|d. Nonethe|ess, the non-comp||ance w|th the so|emn|t|es
requ|red of donat|on |n the rea|m of trust does not render the trust vo|d.
Indeed,

LkkLSS 1kUS1S 279
under Art|c|e 1444 of the New C|v|| Code "No part|cu|ar words are
requ|red for the creat|on of an express trust, |t be|ng suff|c|ent that a
trust |s c|ear|y |ntended," and under Art|c|e 14S7, |t |s prov|ded that "An
|mp||ed trust may be proved by ora| ev|dence."
In pract|ce, therefore, many trust d|spos|t|ons are const|tuted |n a
manner that the trustor seeks to "g|ft" the des|gnated benef|c|ary w|th
a|| the benef|c|a| t|t|e to the estate property he|d |n the hands of the
trustee. In such cases, what |s executed |s mere|y a "Deed of 1rust," the
so|emn|t|es of wh|ch do not fa|| under the Law on Donat|ons, and
genera||y wou|d comp|y w|th the forma||t|es of an ord|nary deed of
conveyance.
2. Lssent|a| L|ements of Lxpress 1rusts
1|t|e V of the New C|v|| Code does not express|y state under any of
|ts art|c|e that express trusts are contractua| re|at|onsh|ps. nowever, as
exp|a|ned above, |t wou|d be more usefu| on our part to cons|der
express trusts, as d|st|ngu|shed from |mp||ed trusts, to be essent|a||y
contractua| |n nature, '373/ of be|ng created under contractua| |ntents,
and w|th the r|ghts, dut|es and respons|b|||t|es ar|s|ng from contractua|
re|at|onsh|p.
Much of the d|scuss|ons hereunder, un|ess otherw|se |nd|cated,
cover essent|a||y contractua| trusts arrangements those that are
created by the |ntent|on of the trustor or of the part|es, w|thout tak|ng
the form of donat|on or testamentary d|spos|t|on. 1herefore, we w|||
d|scuss |mmed|ate|y hereunder the essent|a| character|st|cs of express
trusts as contractua| re|at|onsh|p of be|ng: (a) -"$'-,*7 ,-. 6('-P'6,R,
(b) 8-'R,*7(,Rd (c) 6('$,('R% +(,*8'*"8), (d) (7,R, (e) 6(76,(,*"(%d and (f)
&'.8P',(%3 1he essent|a| character|st|c of an express trust be|ng a (7,R
P"-*(,P* w||| be d|scussed |n the next sect|on on O!57 G8R7) "&
D-&"(P7$7-* "& DW6(7)) !(8)*)3O
In 0'-.,-," 47T7R"6$7-* B8*5"('*% T3 <"8(* "& B667,R)/^
c
the
Supreme Court he|d that "It |s fundamenta| |n the |aw of trusts that
certa|n requ|rements must ex|st before an express trust w|||
10
113 SCkA 429 (1982).

be recogn|zed,"
11
and |t aff|rmed the fo||ow|ng to be the 7))7-*',R
7R7$7-*) of an express trust, enumerated ear||er |n L(,-P')P" T3
@7%P",
12
thus:
(a) 1rustee: who ho|ds the trust property and |s
sub[ect to equ|tab|e dut|es to dea|
w|th |t for another's benef|t,
(b) 8enef|c|ary: to whom the trustee owes
equ|tab|e dut|es to dea| w|th the
trust property for h|s, and
(c) G7)k wh|ch |s the trust property wh|ch the
trustee manages for the sake or the
|nterest of the benef|c|ary, wh|ch can be
created |n anyth|ng that the |aw
recogn|zes to be "property."
13

1he enumerat|on of the "essent|a| e|ements" of every express
trust |nd|cates that every trust re|at|onsh|p |s tru|y a |ega| re|at|onsh|p
bu||t on property r|ghts, and w|thout the (7) or the P"(68)/ there |s
rea||y no ob||gat|on upon the trustee who cannot be expected to
manage the property for the benef|t of the benef|c|ary, s|mp|y because
he has no contro| over property that has not been transferred to h|s
name.
a. Lxpress 1rusts Lstab||sh Contractua| ke|at|onsh|ps 8u||t
Around roperty ke|at|on
0"(,R7) T3 <"8(* "& B667,R)/
à
enumerates that one of the
essent|a| character|st|c of trusts |s that O'* ') , (7R,*'"-)5'6 b'*5
OFS'./ at p. 436.
12
3 C.A.k. 2s 1384, P'*'-+ kous, I|or|mond C., !57 !(8)* G7R,*'"-)5'6/
96 SCkA 186,191.
13
See ,R)" Aqu|no, kanh|||o Ca||angan, G7)8R*'-+ !(8)*) ,-. K8SR'P
K"R'P%/ 232 SCkA 364, 366, P'*'-+ DUkLMINILk at 128.
14
274 SCkA 282 (1997).

LkkLSS 1kUS1S 281
(7)67P* *" 6("67(*%/ -"* "-7 '-T"RT'-+ $7(7R% 67()"-,R .8*'7)3O
`Z
Cn th|s
matter, 0'-.,-," 47T7R"6$7-* B8*5"('*%/^
c
he|d that
St||ted forma||t|es are unnecessary, but neverthe|ess
each of the above e|ements |s requ|red to be estab||shed,
and, |f any one of them |s m|ss|ng, |t |s fata| to the trusts.
L8(*57($"(7/ *57(7 $8)* S7 , 6(7)7-* ,-. P"$6R7*7
.')6")'*'"- "& *57 *(8)* 6("67(*%/ -"*b'*5)*,-.'-+ *5,* *57
7-X"%$7-* '- *57 S7-7&'P',(% b'RR *,17 6R,P7 '- *57 &8*8(73 It |s
essent|a|, too, that the purpose be an act|ve one to prevent
trust from be|ng executed |nto a |ega| estate or |nterest, and
one that |s not |n contravent|on of some proh|b|t|on of
statute or ru|e of pub||c po||cy. 1here must a|so be some
power of adm|n|strat|on other than a mere duty to perform
a contract a|though the contract |s for a th|rd-party
benef|c|ary. A dec|arat|on of terms |s essent|a|, and these
must be stated w|th reasonab|e certa|nty |n order that the
trustee may adm|n|ster, and that the court, |f ca||ed upon so
to do, may enforce the trust.
17

1hus, when the deed of sa|e upon wh|ch an express trust was
sought to be estab||shed |n 0'-.,-," 47T7R"6$7-* B8*5"('*% mere|y
prov|ded that the se||er agree[s] to work for the t|t||ng of the ent|re area
of my |and under my own expense and the expenses for the t|t||ng of the
port|on so|d to me sha|| be under the expenses of the sa|d Iuan Cruz ap
Chuy," the Court he|d that no express trust was const|tuted, s|nce other
than undertak|ng to pay for the expenses of t|t||ng of the property: "1he
st|pu|at|on does not categor|ca||y create an ob||gat|on on the part of [the
se||er] to ho|d the property |n trust for Iuan Cruz. nence there |s no
express trust. It |s essent|a| to the creat|on of an express trust that the
sett|or [trustor] present|y and unequ|voca||y make a d|spos|t|on of
property and make h|mse|f the trustee of the property for the benef|t of
another."
10

'Z
RS'./ at p. 298, '*,R'P) )866R'7.3
18
113 SCkA 429 (1982).
OFS'./ at p. 437, P'*'-+ 76 AM IUk 2D, Sec. 31, pp. 278-279, 7$65,)')
)866R'7.3
`j
FS'., at p. 437, P'*'-+ 76 AM IUk 2D, sec. 3S, p. 281.

282
I|na||y, the Court a|so noted |n 0'-.,-," 47T7R"6$7-* B8*5"('*%
that the prov|s|on |n the deed of sa|e that the buyer w||| work for the
t|t||ng of "the ent|re area of my |and under my own expense," |t was not
c|ear what part|cu|ar property of the se||er was referred to, and thus no
express trust cou|d be va||d|y const|tuted s|nce "A fa||ure on the part of
the sett|or def|n|te|y to descr|be the sub[ect-matter of the supposed
trust or the benef|c|ar|es or ob[ect thereof |s strong ev|dence that he
|ntended no trust."
19

In <,57\" T3 G"X,)/
Yc
re|terat|ng the ru||ng |n 0"(,R7) T3 <"8(* "&
B667,R) on what const|tutes the "essent|a| e|ements" of an express
trust, the Court he|d:
. . . 1he presence of the fo||ow|ng e|ements must be
proved: (1) a trustor or sett|or who executes the |nstrument
creat|ng the trust, (2) a trustee, who |s the person express|y
des|gnated to carry out the trust, (3) the *(8)* (7)/ cons|st|ng
of du|y |dent|f|ed and def|n|te rea| property, and (4) the
P7)*8' g87 *(8)*)/ or benef|c|ar|es whose |dent|ty must be
c|ear.
21

Note that |n <,57\"/ as|de from re|terat|ng that among the
essent|a| e|ements of an express trust |s "the *(8)* (7)/ cons|st|ng of du|y
|dent|f|ed and def|n|te rea| property," |t mere|y requ|res that the
"benef|c|ar|es whose |dent|ty must be c|ear," and not that there must be
pr|or acceptance by the benef|c|ary of the trust benef|ts for the
contractua| trust re|at|onsh|p between the trustor and the trustee can
come |nto ex|stence.
1h|s wou|d |nd|cate that the nexus of the contractua| meet|ng of
the m|nds |n an express trust'|s that between the trustor and the
trustee, and the acceptance of the benef|ts by the benef|c|ary under the
trust arrangement wou|d const|tute norma||y mere|y st|pu|at|on 6"8(
,8*(8'3 A|though the proper |dent|f|cat|on of the benef|c|ary const|tutes
an essent|a| e|ement of a va||d trust, as |t determ|nes the nature and
extent of the f|duc|ary dut|es and
OFS'./ at p. 438.
20
S38 SCkA 242

Y'
RS'./ at p. 2S3.
LkkLSS 1kUS1S 283
ob||gat|ons of the trustee, forma| acceptance of the benef|ts by the
benef|c|ary |s genera||y not an essent|a| e|ement of a va||d trust. 1h|s |s
the reason why the |ack of acceptance by the benef|c|ary does not
genera||y render the trust vo|d. 1he prov|s|ons of the |aw mandat|ng
acceptance by the benef|c|ary, whether express or |mp||ed, or presumed,
are meant to cover the pr|nc|p|e of |aw that nobody can be compe||ed to
accept the g|ft or char|ty of another person w|thout h|s consent.
3. Nom|nate and r|nc|pa|, et Governed by Lqu|ty
r|nc|p|es
As a contract, an express trust |s -"$'-,*7 ,-. 6('-P'6,R/ hav|ng
been g|ven part|cu|ar name and essent|a||y def|ned by the New C|v||
Code, and not need|ng another contract to be va||d and b|nd|ng.
Usua||y, the essent|a| character|st|cs of "-"$'-,*7 ,-. 6('-P'6,(
br|ng about the app||cat|on of the doctr|ne that when a |ega| re|at|onsh|p
|s created between the part|es that embod|es the essence of a trust,
then |n sp|te of the |ntent|on or nomenc|ature used by the contract|ng
part|es, |t wou|d st||| be character|zed by the |aw, and governed by the
Law on 1rusts. Unfortunate|y, under the New C|v|| Code, the "Law on
1rusts" |s not a comp|ete set of |aw and has a genera| reference under
Art|c|e 1442 to the "pr|nc|p|es of the genera| |aw of trusts," wh|ch are
|nvoked as part of the h|||pp|ne Law on 1rusts. In fact, many of the
ob||gat|ons and dut|es of the trustee preva|| on the bas|s of equ|ty and
not necessar||y upon the contractua| |ntent|ons of the part|es.
4. Un||atera| and Gratu|tous
An express trust |s a un||atera| contract s|nce on|y the trustee
assumes ob||gat|ons to carry on the trust for the benef|t of the
benef|c|ary.
Art|c|e 1446, wh|ch prov|des that "acceptance by the benef|c|ary |s
necessary," not on|y conf|rms the contractua| nature of every trust
contract, but supports the pos|t|on that an express
trust |s essent|a||y a gratu|tous contract, supported by the cons|derat|on
of ||bera||ty, espec|a||y when the art|c|e prov|des that the benef|c|ary's
acceptance |s presumed "|f the trust |mposes no onerous cond|t|on upon
the benef|c|ary," un|ess there |s proof that he has not accepted the
benef|ts of the trust arrangement. Genera||y, therefore, a trust
re|at|onsh|p |mposes no ob||gat|on or burden upon the benef|c|ary.
S. Lxpress 1rust as a reparatory Contract
Lxpress trust |s 6(76,(,*"(% P"-*(,P* because |t |s not const|tuted
for |ts own sake |n that the trust re|at|onsh|p |s essent|a||y a med|um
estab||shed by the trustor to a||ow fu|| author|ty and d|scret|on on the
part of the trustee to enter |nto var|ous [ur|d|ca| acts on the P"(68) to
earn |ncome or ach|eve other goa|s g|ven for the benef|t of the
benef|c|ary.
An express trust may create of a form of contract 6"8( ,8*(8'/ |n
the sense that |f the trustor does not make h|mse|f the benef|c|ary, but
const|tutes the trust for the benef|t of another person, the transfer of
the naked or |ega| t|t|e of the property to the trustee who accepts the
f|duc|ary ob||gat|ons, creates the trust, even |f the benef|c|ary does not
forma||y accept the benef|c|a| t|t|ed conveyed under the trust
arrangement. In such a manner, an express trust re|at|onsh|p creates no
ob||gat|on on the part of the trustor to the des|gnated benef|c|ary, nor
does the benef|c|ary have any r|ght aga|nst the trustor, except those
vo|untar||y assumed by the trustor under the terms of the deed of trust.
Genera||y, the f|duc|ary dut|es under an express trust are |mposed on
the trustee, and the r|ghts of the benef|c|a| are exerc|sab|e aga|nst the
trustee.
Cne wou|d therefore arr|ve at the conc|us|on that |nsofar as the trustor
|s concerned, the act of estab||sh|ng an express trust for the benef|t of
the benef|c|ary, |s an act of donat|on or a g|ft, wh|ch often |s taxab|e
under the 1ax Code for donor's or g|ft tax. et, the const|tut|on of an
express trust, |s not cons|dered to be a form of )"R7$- P"-*(,P*3 1h|s |s
c|ear under Art|c|e 1444 of the New C|v|| Code that prov|des that "No
part|cu|ar words are
LkkLSS 1kUS1S 28S
trust |s c|ear|y |ntended."
Nonethe|ess, be|ng essent|a||y an act of ||bera||ty, and under the
prem|se that no person can be ob||ged to accept the k|ndheartedness of
others, Art|c|e 1446 express|y prov|des that "Acceptance by the
benef|c|ary |s necessary." 8ut s|nce the const|tut|on of an express trust |s
usua||y for the benef|t of the des|gnated benef|c|ary, Art|c|e 1446
presumes the acceptance thereof by the des|gnated benef|c|ary, thus:
"Neverthe|ess, |f the trust |mposes no onerous cond|t|on upon the
benef|c|ary, h|s acceptance sha|| be presumed, |f there |s no proof to the
contrary."
I5,* 5,667-) b57- *57 .7)'+-,*7. S7-7&'P',(% 7W6(7))R% (7&8)7)
*" ,PP76* *57 S7-7&'*) "& *57 *(8)* ,((,-+7$7-*/ ,-. %7* *57 -,17. "(
R7+,R *'*R7 *" *57 P"(68) 5,) ,R(7,.% S77- *(,-)&7((7. *" *57 *(8)*77r
4"7) *57 7W6(7)) *(8)* *57(7&"(7 &,'Rr1he essent|a| character|st|c of
express trust be|ng a preparatory contract wou|d mean that w|th the
purpose of the trust no |onger ava|||ng, s|nce the des|gnated benef|c|ary
has refused the trust re|at|onsh|p, the trust ceases to have an ob[ect|ve.
8ut s|nce the naked or |ega| t|t|e rema|ns w|th the trustee, h|s ob||gat|ons
|s to comp|y w|th the |nstruct|ons of the trustor, and d|spose of the
propert|es |n accordance w|th the |nstruct|ons of the trustor.
6. 1rust Const|tutes I|duc|ary Dut|es on the 1rustee
Art|c|e 1440 def|nes the "trustee" as "one |n whom P"-&'.7-P7 ')
(76")7. ,) (7+,(.) 6("67(*% &"( the benef|t of another person |s known
as the trustee." In other words, express trust creates a f|duc|ary
ob||gat|ons |n the trustee by v|rtue of h|s hav|ng assumed naked or |ega|
t|t|e to the propert|es const|tut|ng the corpus, under express prov|s|ons
to use, contro|, adm|n|ster and management them for the benef|t of the
trustee. An express trust const|tute the trustee as a f|duc|ary for the
benef|t of the benef|c|ary, s|nce both by contractua| st|pu|at|ons and by
the fact that the trustee accepts t|t|e to the propert|es for the benef|t of
the benef|c|ary, const|tutes necessary the dut|es of d|||gence and f|de||ty.

286
a. Acqu|s|t|ve rescr|pt|on on the <"(68) Unava|||ng to
the 1rustee
Cne of the consequences of the f|duc|ary re|at|onsh|p ex|st|ng |n a
trust re|at|onsh|p |s the |nab|||ty of the trustee to |nvoke the statute of
||m|tat|ons or prescr|pt|on aga|nst the benef|c|ary. 1hus, |n K,P57P" T3
B((" ] the Court he|d that a "trustee cannot |nvoke the statute of
||m|tat|ons to bar the act|on and defeat the r|ght of the P7)*8' g87
*(8)*7-*3 If the pretense of counse| for the pet|t|oners that the prom|se
above adverted to cannot preva|| over the f|na| decree of the cadastra|
court ho|d|ng the predecessor-|n-|nterest of the pet|t|oners to be the
owner of the |ots c|a|med by the respondents were to be susta|ned and
uphe|d, then act|ons to compe| a party to ass|gn or convey the und|v|ded
share |n a parce| of |and reg|stered |n h|s name to h|s co-owner or co-he|r
cou|d no |onger be brought and cou|d no |onger succeed and prosper."
23

In the same manner, |n the ear||er dec|s|on of D)P"S,( T3 @"P)'-/
Ya

where the p|a|nt|ff was the owner of a parce| of |and, but be|ng ||||terate,
asked the defendant's predecessor-|n- |nterest to c|a|m the same for her,
but that |nstead he comm|tted a breach of trust by c|a|m|ng the |ot for
h|mse|f, the tr|a| court, wh||e recogn|z|ng that the p|a|nt|ff had the
equ|tab|e t|t|e and the defendant the |ega| t|t|e, neverthe|ess d|sm|ssed
the comp|a|nt because the per|od of one year prov|ded for under the
1orrens system for the rev|ew of a decree had e|apsed, and the p|a|nt|ff
had not ava||ed herse|f of that remedy. In overturn|ng the tr|a| court's
dec|s|on, the Court he|d
A trust such as that wh|ch was created between the
p|a|nt|ff and [defendant's predecessor-|n-|nterest]|s sacred
and |nv|o|ab|e. 1he Courts have therefore sh|e|ded f|duc|ary
re|at|ons aga|nst every manner of ch|canery or detestab|e
des|gn c|oaked by |ega| techn|ca||t|es. 1he 1orrens system
was never ca|cu|ated to foment betraya| |n the performance
of a trust.
2S

^8S h||. S0S (19S0).
Y[
RS'./ at p. S1S.
24
74 h||. 86 (1943).
YZ
RS'./ at p. 87.

LkkLSS 1kUS1S
287
1he much ear||er dec|s|on |n :,((7**" T3 !8,\"-
Ye
character|zed the
o|d |nst|tut|on of $,%"(,\+" V , f|duc|ary charge made to the f|rst-born,
as tho usufructuary possessor, to preserve the enta||ed property |n the
fam||y and to de||ver them at the proper t|me to the succeed|ng
f|rst-bom, who sha|| possess and en[oy them - as a spec|es of the genus
trust, "the essence of wh|ch, |n conc|se terms, |s noth|ng more than the
conf|d|ng of a th|ng to one |n order that he may preserve |t and de||ver |t
to another."
27
1hus, the cause of act|on of the successors-|n-|nterest who
were ent|t|ed to benef|ts of the $,%"(,\+" cou|d not be defeated by
c|a|ms of prescr|pt|on or fa||ure to fa|| any c|a|ms |n the proceed|ngs for
the sett|ement of the estate of the deceased.
In A8 !'"-+ T3 A8,
28
the Court he|d that |n v|ew of the f|duc|ary
nature of the |ega| re|at|on that ex|sts between the trustee and the
P7)*8' g87 *(8)*, the statute of ||m|tat|ons or prescr|pt|on and the
pr|nc|p|e of |aches cannot be |nvoked by the trustee w|th respect to the
r|ght of act|on of the |atter. 1he pr|nc|p|e was re|terated |n 47
:87-P,$'-" T3 47 0,*',)3
Yl

kULLS CI LNICkCLA8ILI1 CI LkkLSS 1kUS1S
Ak1. 1443. No express trusts concern|ng an |mmovab|e or
any |nterst there|n may be proved by paro| ev|dence.
Ak1. 1444. No part|cu|ar words are requ|red for the
creat|on of an express trust, |t be|ng suff|c|ent that a trust |s
c|ear|y |ntended.
^S0 h||. 888
( 926)
YN
FS'./ at p. 918.
^6 SCkA 9S0
16 SCkA 849
( 966)

1. Lxpress 1rust Is Lssent|a||y a kea| Contract, Not Mere|y
Consensua|
D|scuss|ons on the ru|es govern|ng the O7-&"(P7,S'R'*%of an express
trust may |mp|y that as a contractua| re|at|onsh|p between the trustor
and the trustee, |t has the essent|a| character|st|c of be|ng P"-)7-)8,R
='373/ perfected, va||d and b|nd|ng upon mere meet|ng on the m|nds on
the sub[ect matter and the cons|derat|on), as contrasted from the
character|st|cs of (7,R ='373/ requ|r|ng the fourth e|ement of de||very), and
)"R7$- ='373/ requ|r|ng the fourth e|ement of form or so|emn|ty, for
va||d|ty). After a||, Art|c|e 1444 of the New C|v|| Code, wh|ch app||es
part|cu|ar|y to express trusts, prov|des that "No part|cu|ar words are
trust |s c|ear|y |ntended." et by |ts very def|n|t|on, an express trusts
const|tute a (7,R P"-*(,P*/ that |s, |t |s not mere|y perfected by a mere
meet|ng of m|nds between the trustor and trustee to const|tute a trust.
Indeed, no trust re|at|onsh|p ex|sts, unt|| and un|ess, the property
const|tut|ng the (7) |s conveyed to the trustee.
0"(,R7) T3 <"8(* "& B667,R)/
[c
he|d that trust "|s a re|at|onsh|p
w|th respect to property, not one |nvo|v|ng mere|y persona| dut|es," and
"|nvo|ves the ex|stence of equ|tab|e dut|es |mposed upon the ho|der of
the t|t|e to the property to dea| w|th |t for the benef|t of another."
31

1rusteesh|p |s essent|a||y a 6("6('7*,(% (7R,*'"-)5'6/ not mere|y
from acceptance of the dut|es and respons|b|||t|es of a trustee. Indeed, a
des|gnated trustee may forma||y accept the dut|es and respons|b|||t|es
|a|d out |n the deed of trust, but no f|duc|ary ob||gat|on ar|ses w|thout
the propert|es be|ng transferred to h|s name. W|thout naked or |ega|
t|t|e |n the propert|es of the corpus be|ng transferred |n the name of the
trustee, there |s no mora| or |ega| bas|s upon wh|ch h|s f|duc|ary
ob||gat|ons can ar|se.
30
274 SCkA 282
( )
31
M], at p. 298.

LkkLSS 1kUS1S 289
1hus, when Art|c|e 144S of the New C|v|| Code prov|des that "No
trust sha|| fa|| because the trustee appo|nted dec||nes the des|gnat|on," |t
can on|y mean two th|ngs. No contractua| re|at|onsh|p has been
estab||shed yet because the actua| transfer of naked or |ega| t|t|e to the
des|gnated trustee has been effected, and the trust cou|d not be sa|d to
fa|| because |ts f|na| estab||shment may st||| be effected by another
persons who accepts the trust and to whom the naked or |ega| t|t|e to
the P"(68) may be |nst|tuted. It may a|so mean that naked or |ega| t|t|e
has been effected by the trustor |n the name of the trustee before the
|atter has express|y accepted the des|gnat|on, but h|s refusa| of the trust
des|gnat|on cannot a|so work to "fa||" the trust, because |t |s then
poss|b|e to transfer naked or |ega| t|t|e to the corpus to another person
who accepts the trust des|gnat|on.
Art|c|e 144S of the New C|v|| Code recogn|zes that "un|ess the
contrary shou|d appear |n the |nstrument const|tut|ng the trust," that
the des|gnat|on of the part|cu|ar |nd|v|dua| was pr|mord|a| |n the
estab||shment of the trust (wh|ch by contractua| |ntent made the express
trust as persona||ty-centered re|at|onsh|p), trusteesh|p |s essent|a||y a
property-based re|at|onsh|p, that the transfer of naked or |ega| t|t|e of
the trust estate to the "trustee- as-a-profess|ona|-f|duc|ary" for the
benef|t of another person, |s the mov|ng sp|r|t beh|nd the trust
re|at|onsh|p.
W|th respect to the essent|a| character|st|c that trust re|at|onsh|p |s
a|ways based upon a sp||tt|ng of dom|n|on over the trust property (a
R7+,R (7R,*'"- S,)7. "- 6("67(*% ('+5*)H/ K,P57P" T3 B((", he|d that
"1he [ur|d|ca| concept of a trust, wh|ch |n a broad sense |nvo|ves, ar|ses
from, or |s the resu|t of, a f|duc|ary re|at|on between the trustee and the
P7)*8' g87 *(8)* as regards certa|n property-rea|, persona|, funds or
money, or choses |n act|on."
33
In more p|npo|nted |anguage, J8R'" T3
4,R,-.,-character|zes "trust" as "a method of d|spos|t|on of
property."
3S

M
8S h||. S0S
( 9 0)
mFS'./ at p. S14.
2
1

1here |s no doubt that the |dea| form of an express trust |s
const|tuted pursuant to a wr|tten Deed of 1rust whereby naked or |ega|
t|t|e to the trust property ') P"-T7%7. to the spec|f|ed trustee under
c|ear terms and cond|t|ons prov|d|ng for h|s dut|es and respons|b|||t|es
towards the |nd|cated benef|c|ary of the (7)3 In th|s case, |t must be
remembered that the execut|on of the Deed of 1rust as a pub||c
document wh|ch has the effect, as between the trustor and the trustee,
of construct|ve de||very of the covered trust propert|es.
When |t comes to |mmovab|es, espec|a||y reg|stered |and or any
|nterest there|n, express trusts take the |dea| form of |ega| or naked t|t|e
be|ng reg|stered |n the name of trustee who ho|ds the property for the
benef|t of the |nd|cated benef|c|ary. In other words, the best form of an
express trust |s when the trustee |s express|y reg|stered as "naked t|t|e
owner."
Do b7 6(7)8$7 *57- *5,* b57- *57 68(6"(*7. *(8)*77 5"R.) *'*R7
,) O&8RR "b-7(O "& *57 (7)/ *57 8-.7(R%'-+ *(8)* (7R,*'"-)5'6 ') -" R"-+7(
7W6(7)) *(8)*/ S8* (,*57( (7)8R*'-+ *(8)*r 1he answer do th|s |s that |t |s
|ega||y poss|b|e to st||| have an express trust even when the reg|stered
t|t|e |n the name of the trustee |s fu|| ownersh|p as d|st|ngu|shed from
naked or |ega| t|t|e. 1h|s |s c|ear from both statutory prov|s|ons and
[ur|sprudence.
L'()*R%/ apart from the |one requ|rement under Art|c|e 1443 that
"No express trusts concern|ng an |mmovab|e or any |nterest there|n may
be proved by paro| ev|dence," the contro|||ng pr|nc|p|e |s actua||y found
|n Art|c|e 1444 wh|ch prov|des that "No part|cu|ar words are requ|red for
the creat|on of an express trust, '* S7'-+ )8&&'P'7-* *5,* , *(8)* ') PR7,(R%
'-*7-.7.3O
Iur|sprudence supports the contractua| bas|s of express trusts as
"those wh|ch are created by the d|rect and pos|t|ve acts of the part|es,
by some wr|t|ng or deed, or w||| or by words e|ther express|y or
|mp||ed|y ev|nc|ng an act|on to create a trust." In J8R'" T3 4,R,-.,-/o the
Supreme Court observed that "In rea||ty, the deve|opment of the trust
as a method of d|spos|t|on of property,
21 SCkAS43 (1967).

LkkLSS 1kUS1S 291
so [ur|sprudence teaches, 'seems |n |arge part due to |ts freedom from
forma| requ|rements.' 1h|s pr|nc|p|e perhaps accounts for the prov|s|on
|n Art|c|e 1444."
37

In J8R'"/ the ev|dence of an express trust "was |n the form of an
aff|dav|t subscr|bed and sworn to by [purported trustee] C|emente
Da|andan ... 8y the terms of th|s wr|t|ng, C|emente Da|andan, deceased
father of defendants Lm|||ano and Mar|a Da|andan, acknow|edged that a
four-hectare p|ece of r|ce|and |n Las |nas, k|za| be|ong|ng to V|ctor|ana
Da|andan, whose on|y ch||d and he|r |s p|a|nt|ff V|ctor|a Iu||o, was posted
as secur|ty for an ob||gat|on wh|ch he, C|emente Da|andan, assumed but,
however, fa||ed to fu|f||| 1he resu|t was that V|ctor|ana's sa|d |and was
forec|osed."
38
1he tr|a| court had d|sm|ssed on the comp|a|nt seek|ng
reconveyance of the property to the he|r of V|ctor|ana Iu||o on the
ground of prescr|pt|on: "the |ower court ru|ed that p|a|nt|ffs su|t, v|ewed
e|ther as an act|on for spec|f|c performance or for the f|x|ng of a term,
had prescr|bed. keason: the 10-year per|od from the date of the
document had e|apsed."
39
In ru||ng that the document embod|ed an
express trust, and that prescr|pt|on cou|d not commence un|ess there
was an express repud|at|on of the trust, the Court further he|d:
. . . Ior, "techn|ca| or part|cu|ar forms of words or
phrases are not essent|a| to the man|festat|on of |ntent|on to
create a trust or to such words as "trust" or "trustee"
essent|a| to the const|tut|on of a trust as we have he|d |n
@"(7-\" T)3 K"),.,)/ 64 h||. 3S3,368. Converse|y, the mere
fact that the word "trust" or "trustee" was emp|oyed wou|d
not necessar||y prove an |ntent|on to create a trust. What |s
|mportant |s whether the trustor man|fested an |ntent|on to
create the k|nd of re|at|onsh|p wh|ch |n |aw |s known as a
trust. It |s un|mportant that the trustor shou|d know that the
re|at|onsh|p "wh|ch he |ntends to create |s ca||ed a trust, and
whether or not he knows the prec|se character|st|cs of the
re|at|onsh|p wh|ch |s ca||ed a trust. nere, that trust |s effect|ve
as aga|nst
[N
FS'./ at p. SS0, g8"*'-+ &("$ S4
0
0
RS'./ at pp. S4S-S46.
[l
RS'./ at p. S48.

defendants and |n favor of the benef|c|ary thereof, p|a|nt|ff
V|ctor|a Iu||o, who accepted |t |n the document |tse|f."
40

In <8,%P"-+ T3 <8,%P"-+,
41
the Court he|d that "Cur C|v|| Code
def|nes an express trust as one created by the |ntent|on of the trustor or
of the part|es, and an |mp||ed trust as one that comes |nto be|ng by
operat|on of |aw. [Art|c|e 1441] Lxpress trusts are those created by the
d|rect and pos|t|ve acts of the part|es, by some wr|t|ng or deed or w||| or
by words ev|denc|ng
an |ntent|on to create a trust ______We f|nd |t c|ear that the p|a|nt|ffs
a||eged an express trust over an |mmovab|e, espec|a||y s|nce |t |s a||eged
that the *(8)*"( 7W6(7))R% to|d the defendants of h|s |ntent|on to
estab||sh the trust. Such a s|tuat|on def|n|te|y fa||s under Art|c|e 1443 of
the C|v|| Code."
42

G,$") T3 G,$")/]
[
he|d that "Lxpress trusts are those wh|ch are
created by the d|rect and pos|t|ve acts of the part|es, by some wr|t|ng or
deed, or w|||, or by words e|ther express|y or |mp||ed|y ev|nc|ng an
|ntent|on to create a trust."
44

1he pr|nc|p|e that an express trust may st||| be const|tuted outs|de
of forma| des|gnat|on of the trustee as naked or |ega| t|t|eho|der of the
P"(68)/ and can be deduced from the words or actuat|ons of the party
has been cons|stent|y uphe|d |n dec|s|ons of the Supreme Court.
4S

Cn|y recent|y, |n >7'() "&!(,-g8'R'-" @,S')*7 T3 >7'() "& J")7
@,S')*7the Court he|d that s|nce under Art|c|e 1444 of the New C|v||
Code, "No part|cu|ar words are requ|red for the creat|on of
oRS'./ at pp. SS0-SS1.
41
21 SCkA 1192 (1967).
aY
'S'., at p. 1197.
43
61 SCkA 284 (1974).
OFS'./ at p. 298, g8"*'-+ &("$ 89 C.I.S. 722.
aZ
;"**" T3 !7T7)/ 86 SCkA 1S4 (1978), K5'R'66'-7 9,*'"-,R :,-1 T3
<"8(* "& B667,R)/ 217 SCkA 347 (1993), G'\,R ;8(7*% Q F-)3 <"3 T3 <"8(* "&
B667,R)/ 261 SCkA 69 (1996), ;6"8)7) G"),('" T3 <"8(* "& B667,R)/ 310
(1999), 4:K T3 <?B/ 422 SCkA 4S9 (2004), <,57\" T3 G"X,)/ S38 SCkA 242
(2007), K7&R,RS7(T3 G,$")/ S77 SCkA S09 (2009).
48
S87 SCkA 417 (2009).

LkkLSS 1kUS1S
293
an express trust, |t be|ng suff|c|ent that a trust |s c|ear|y |ntended," then
an aff|dav|t executed by eventua| reg|stered owner of a reg|stered |and
"that the |ot brought |n h|s name was co-owned by h|m, as one of the
he|rs of Iose, and h|s unc|e 1ranqu|||no. And by agreement, each of them
has been |n possess|on of ha|f of the property," qua||f|es |t to be as an
express trust, and consequent|y, "prescr|pt|on and |aches w||| run on|y
from the t|me the express trust |s repud|ated."
47

2. Lxpress 1rust Must Neverthe|ess 8e C|ear|y Shown to nave
8een Intended
1he ru|e under Art|c|e 1444 of the New C|v|| Code |s that "No
part|cu|ar words are requ|red for the creat|on of an express trust, |t be|ng
suff|c|ent that a trust |s c|ear|y |ntended,"
48
rem|nds us that an express
trust w||| never be presumed to ex|st, that the party who c|a|ms are r|ght
under a trust arrangement must prove the ex|stence thereof, thus: "A
trust must be proven by c|ear, sat|sfactory, and conv|nc|ng ev|dence. It
cannot rest on vague and uncerta|n ev|dence or on |oose, equ|voca| or
|ndef|n|te dec|arat|ons. As a|ready noted, an express trust cannot be
proven by paro| ev|dence."
49

47 @7"- T3 0"R"VK7P1)"-re|terated the pr|nc|p|e that "to estab||sh
a trust the proof must be c|ear, sat|sfactory and conv|nc|ng. It cannot rest
on vague, uncerta|n ev|dence, or on a |oose, equ|voca| or |ndef|n|te
dec|arat|on."
S1
nowever, when the trustees themse|ves (].., the
donees |n a donat|on '-*7( T'T")H/ have executed a dec|arat|on of trust
(wh|ch |s def|ned as an act by wh|ch a person acknow|edges that the
property, t|t|e to wh|ch
BN
RS'./ at p. 426.
48
See ,R)" !8,)"- .7 K7(7\ T3 <,R8,+/ 96 h||. 981 (19SS), J8R'" T3
4,V R,-.,-/ 21 SCkA S43, S46 (1967), nonethe|ess G,$") T3 G,$")/ 61
SCkA 284 (1974).
]
l
RS'./ at pp. 300-301, <'*'-+ 47 @7"- T3 K7P1)"-/ 62 C. G. 994,
K,)P8,R T3 07-7)7)/ 20 SCkA 219,228 (1967), <8,%P"-+ T)3 <8,%P"-+/
21 SCkA 1192 (1967).
"6 SCkA 978 (1962).
Z'
RS'./ at p. 984.

294
he ho|ds Is he|d by h|m for the use of another), wh|ch const|tuted c|ear|y
and unequ|voca||y the trust "even |f the same was executed subsequent
to the death of the trustor, Iuana Iuan, for |t has been he|d that the r|ght
creat|ng or dec|ar|ng a trust need not be contemporaneous or
|nter-part|es. It was even he|d that an express trust may be dec|ared by
a wr|t|ng made after the |ega| estate has been vested |n the trustee."
S2

Late|y, |n <,-7\" T3 G"X,)/
Z[
he|d that "As a ru|e, however, the
burden of prov|ng the ex|stence of a trust |s on the party assert|ng |ts
ex|stence, and such proof must be c|ear and sat|sfactor||y show the
ex|stence of the trust and |ts e|ements."
S4

3. Lssence of the ke|at|onsh|p 8etween 1rustor and 1rustee r|or
to the Conveyance of the G7) to the 1rustee
A Deed of 1rust sett|ng-up the trust re|at|onsh|p, const|tut|ng the
trustee, prov|d|ng for h|s dut|es and respons|b|||t|es and des|gnat|ng the
benef|c|ary, wou|d not g|ve r|se to a true trust re|at|onsh|p even w|th the
forma| acceptance of the des|gnated trustee, un|ess and unt|| the
property that wou|d const|tute the corpus of the trust re|at|onsh|p |s
actua||y conveyed to the trust re|at|onsh|p.
If the fourth e|ement of de||very, '373/ transfer of |ega| t|t|e over the
trust property to the trustee, |s necessary |n order that a contract of
express trust |s const|tuted, then the proper quest|on that ought to be
ask |s: I5,* ') *57 )*,*8) "& , 477. "& !(8)*/ .8R% 7W7P8*7. S% *57
*(8)*"( ,-. *57 *(8)*77 ,-. ,PP76*7. '- *57 ),$7 '-)*(8$7-* S% *57
S7-7&'P',(%/ S7&"(7 *'*R7 *" *57 .7)'+-,*7. *(8)* 6("67(*% ') ,P*8,RR%
6R,P7. '- *57 -,$7 "& *57 *(8)*77r
Cne answer to th|s |ssue |s that before de||very of t|t|e over the
trust estate to the trustee, there |s no va||d contract of trust, but on|y a
nom|nate contract of ." 8* &,P',, that |s that the trustor
Îb|d, at p. 984.
M
S38 SCkA 242
m|d, at p. 2S3.
LkkLSS 1kUS1S
29S
has contractua||y bound h|mse|f to de||ver and transfer t|t|e over the
trust property to the trustee (essent|a||y a rea| ob||gat|on to g|ve), and
the trustee has bound h|mse|f to accept de||very and to manage the
propert|es to be de||vered for the |nterests of the benef|c|ary (essent|a||y
a persona| ob||gat|on "to do").
If the so-ca||ed "contract of trust" |s va||d at th|s po|nt ='373/ upon
mere meet|ng of the m|nds), then |n order to be a rea| contract, |t must
mean that |t creates a b|nd|ng ob||gat|on. 8ut the on|y enforceab|e
ob||gat|on so far created by meet|ng of the m|nds |s that of the trustor to
de||ver |ega| t|t|e to the trust property to the trustee and benef|c|a| t|t|e
to the benef|c|ary, wh|ch does not fa|| w|th|n the essence of a trust wh|ch
|s supposed to create an ob||gat|on on the part of the trustee to manage
the trust property for the benef|t of the benef|c|ary. 1he trustor of a true
trust does not assume any ob||gat|on, he |s the creator of the trust.
4. Lxpress 1rusts Cver Immovab|es Must 8e |n Wr|t|ng
Art|c|e 1443 of the New C|v|| Code prov|des that "No express trusts
cover|ng an |mmovab|e or any |nterest there|n may be proved by paro|
ev|dence." 1he c|ear |ega| |mp||cat|on of the |anguage of Art|c|e 1443 |s
that an express trust concern|ng movab|es or any |nterests there|n may
be proved by paro| ev|dence, wh|ch means that the mere meet|ng of
m|nds over the creat|on of an express trust over movab|es creates a va||d
and enforceab|e contract of trust once the movab|e |s de||vered to the
trustee.
-\r It |s the author's subm|ss|on that Art|c|e 1443 of the New C|v||
Code |s a |ame prov|s|on, and rea||y serves no usefu| purpose |n the
rea|m of express trusts arrangements |nvo|v|ng |mmovab|es or any
|nterest there|n.
L'()*R%, Art|c|e 1443 does not render the express trusts over
|mmovab|es vo|d when |t |s not effected |n wr|t|ng, |t mere|y renders the
contractua| re|at|onsh|p unenforceab|e. S|nce |t |s on|y the grantor or the
accept|ng benef|c|ary who have r|ghts to enforce under the terms of the
contractua| re|at|onsh|p, |t |s they who are unfavorab|y affected by the
prov|s|ons of Art|c|e

1443: they cannot adduce paro| ev|dence |n order to enforce the
f|duc|ary dut|es and ob||gat|ons of the trustee through court act|on. 1h|s
means that Art|c|e 1443 const|tutes a mere spec|es of the Statute of
Irauds.
1hus, |n K7-,RS7( T3 G,$")/the Supreme Court conf|rmed that
"1he requ|rement |n Art|c|e 1443 that the express trust concern|ng an
|mmovab|e or an |nterest there|n be |n wr|t|ng |s mere|y for purposes of
proof, not for the va||d|ty of the trust agreement," and |t went on to ru|e

. . . 1herefore, the sa|d art|c|e |s |n the nature of a
statute of frauds. 1he term statute of frauds |s descr|pt|ve of
statutes wh|ch requ|re certa|n c|asses of contracts to be |n
wr|t|ng. 1he statute does not depr|ve the part|es of the r|ght
to contract w|th respect to the matters there|n |nvo|ved, but
mere|y regu|ates the forma||t|es of the contract necessary to
render |t enforceab|e. 1he effect of non-comp||ance |s s|mp|y
that no act|on can be proved un|ess the requ|rement |s
comp||ed w|th. Cra| ev|dence of the contract w||| be
exc|uded upon t|me|y ob[ect|on. 8ut |f the part|es to the
act|on, dur|ng the tr|a|, make no ob[ect|on to the
adm|ss|b|||ty of the ora| ev|dence to support the contract
covered by the statute, and thereby perm|t such contract to
be proved ora||y, |t w||| be [ust as b|nd|ng upon the part|es as
|f |t had been reduced to wr|t|ng.
S6

Nonethe|ess, K7-,RS,( d|d not f|nd for the estab||shment of an
express trust from the ora| test|mony g|ven, on the ground that the
paro| ev|dence fa||ed to prove c|ear|y that an express trust had been
const|tuted, thus
A carefu| perusa| of the records of the case revea|s that
respondent spouses kamos d|d |ndeed fa|| to |nterpose the|r
ob[ect|ons regard|ng the adm|ss|b|||ty of the afore-
ment|oned test|mon|es when the same were offered to
prove the a||eged verba| trust agreement between them
and
^
S
7

LkkLSS 1kUS1S 297
pet|t|oner. Consequent|y, these test|mon|es were rendered
adm|ss|b|e |n ev|dence. Neverthe|ess, wh||e adm|ss|b|||ty of
ev|dence |s an affa|r of |og|c and |aw, determ|ned as |t |s by |ts
re|evance and competence, the we|ght g|ven to such
ev|dence, once adm|tted, st||| depends on [ud|c|a| eva|uat|on.
1hus, desp|te the adm|ss|b|||ty of the sa|d test|mon|es, the
Court ho|ds that the same carr|ed ||tt|e we|ght |n prov|ng the
a||eged verba| trust agreement between pet|t|oner and
respondent.
S7

C|v|| Law prov|des that the Statute of Irauds, wh|ch |s meant to
prevent fraud and cannot be used to perpetuate fraud, and therefore
has no app||cat|on to contracts that have e|ther been part|a||y or fu||y
executed. If that were so, and Art|c|e 1443 |s mere|y a spec|es of the
Statute of Irauds, then |t wou|d have no app||cat|on to a true express
trust over an |mmovab|e, s|nce by def|n|t|on an express trust ex|sts by
v|rtue of the trustor hav|ng conveyed the (7) or the P"(68) to the
trustee who assumes naked or |ega| t|t|e to |t. In other words, s|nce
express trust over an |mmovab|e presents a (7,R P"-*(,P* b57(7
"b-7()5'6 5,) '- &,P* S77- P"-T7%7. *" *57 68(6"(*7. *(8)*77/ then |t |s
exempted from the coverage of the Statute of Irauds, and paro|
ev|dence may now be adduced to prove the ex|stence of such express
trust.
;7P"-.R%/ cons|der|ng that express trust over |mmovab|es are
necessar||y covered by the character|st|c of be|ng a (7,R P"-*(,P*,
|ne|uctab|y no express trust over |mmovab|es can be const|tuted by
mere meet|ng of the m|nds. 1o even be va||d|y const|tuted, an express
trust over |mmovab|e requ|res the fourth requ|s|te of de||very to have
taken p|acethat naked or |ega| t|t|e over the propert|es const|tut|ng
the P"(68) have been transferred |n the name of the des|gnated trustee.
Under current |eg|s|at|on, no t|t|e to reg|stered |and or any |nterest
there|n may be reg|stered w|th the keg|ster of Deeds and t|t|e
transferred |n the name of a trustee, un|ess the deeds are |n a pub||c
|nstrument, and a|| taxes thereto have been pa|d and cert|f|ed to have
been pa|d.
;N
RS'./ at pp. S29-S30.
Lven |f Art|c|e 1443 were to be construed as referr|ng to an express
trust that has been const|tuted not on|y by the meet|ng of the m|nds of
the part|es, but coup|ed w|th de||very of the |mmovab|e trust property
to the trustee, |t wou|d a|so |ead to the absurd consequence of dec|ar|ng
as unenforceab|e an ora| express trust contract, where there has been
execut|on. It |s an estab||shed doctr|ne that the Statute of Irauds
cons|derat|on has no app||cat|on to fu||y or part|a||y executed contracts.
In any event, reg|strat|on of naked or |ega| t|t|e |n the reg|stered |and |n
the name of the trustee |s certa|n|y equ|va|ent to the trust be|ng |n
wr|t|ng.
Art|c|e 144S supports the propos|t|on that a contract of express
trust |s not a consensua| contract, but essent|a||y requ|res transfer of
t|t|e to the trust propert|es for |ts va||d const|tut|on, when |t prov|des
that "No trust sha|| fa|| because the trustee appo|nted dec||nes the
des|gnat|on, un|ess the contrary shou|d appear |n the |nstrument
const|tut|ng the trust." Under Art|c|e 1441, an express can be "created
by the |ntent|on of the trustor" a|one, and that Art|c|e 144S fo||ows up
by stat|ng that ones that |ntent|on has created the express trust, |t
cannot fa|| s|mp|y "because the trustee appo|nted dec||nes the
des|gnat|on," wh|ch can on|y mean that the |ntent|on of the trustor to
create the trust can on|y be man|fested by the act of p|ac|ng t|t|e |n the
trust propert|es |n the name of the des|gnated trustee for the benef|t of
the des|gnated benef|c|ary. 1he refusa| by the des|gnated trustee ='373/
non-g|v|ng of h|s consent), does not make the express trust contract
|nvo|v|ng |mmovab|es to be vo|d for |ack of consent, for |ndeed the
transfer of t|t|e to the property has been effected, most espec|a||y of the
benef|c|a| or equ|tab|e t|t|e to the benef|c|ary, whose acceptance of the
grant of the trustor |s deemed to have taken p|ace when no onerous
cond|t|on has been p|aced upon h|m under the terms of the trust
agreement.
!5'(.R%, |t |s now we||-sett|ed |n h|||pp|ne [ur|sprudence that when
an express trust over |mmovab|e |s not |n wr|t|ng, nonethe|ess, |t can st|||
be proven by c|ear and conv|nc|ng paro| ev|dence to be a resu|t|ng trust,
under the aeg|s of Art|c|e 14S7 that prov|des that "An |mp||ed trust may
be proved by ora|
LkkLSS 1kUS1S 299
ev|dence." 1h|s matter |s thorough|y covered |n the next chapter on the
sect|on on G7)8R*'-+ !(8)*)3
Lven under the terms of the pub||c |nstrument creat|ng an express
trust over |mmovab|es, the mere actua| or phys|ca| de||very of
possess|on or contro| over |and and any |nterest there|n to the
des|gnated trustee wou|d not create a va||d and b|nd|ng express trust yet
because naked or |ega| t|t|e has not yet been const|tuted |n the name of
the trustee by wh|ch he |s therefore ab|e to exerc|se the prerogat|ves of
t|t|e ho|der for the benef|t of the des|gnated benef|c|ary.
1hus, when an express trust has been const|tuted over |and or any
|nterest there|n, espec|a||y those reg|stered under the 1orrens system,
but there has been no effect|ve transfer of naked or |ega| t|t|e to the
propert|es const|tut|ng the corpus, there |s as yet no rea| express trust
that has ar|sen. Lack|ng the fourth requ|s|te of .7R'T7(%/ the purported
express trust over |mmovab|es cannot even be sa|d to be unenforceab|e,
for |t |s as yet non-ex|stent.
It may further be argued that the forego|ng d|scuss|ons are rea||y
for academ|c purposes, s|nce even when the express trust has not been
|ega||y const|tuted by non-transfer of naked or |ega| t|t|e to the trustee,
the |ntent|ons of the part|es may st||| be pursued to equ|tab|e ends
under the pr|nc|p|es of |mp||ed trusts. et even for |mp||ed trust,
part|cu|ar|y resu|t|ng trusts as d|scussed |n the next chapter, no f|duc|ary
re|at|onsh|p w||| ar|se |n the person of the trustee un|ess and unt|| t|t|e to
the property |n d|spute |s transferred |n h|s name.
erhaps, |f Art|c|e 1443 |s to have any |ega| s|gn|f|cance at a||, |ts
prov|s|ons must be understood to app|y to "an agreement to create an
express trust over an |mmovab|e or any |nterest there|n" (wh|ch |s the
|nnom|nate contract O." 8* &,P',O referred to ear||er). In other words, an
ora| agreement between the trustor and the trustee to const|tute a trust
over an |mmovab|e or any |nterest there|n wh|ch |s not fo||owed-up w|th
an actua| conveyance of the covered (7) |s not enforceab|e by paro|
ev|dence.
300
DIS1INGUISnING LkkLSS 1kUS1S IkCM SIMILAk
AkkANGLMLN1S
We can |earn more of the essence and character|st|cs of express
trusts by compar|ng them w|th other s|m||ar contracts.
1. Sp||tt|ng of Iu|| Dom|n|on Into Naked or Lega| 1|t|e and 8enef|c|a|
or Lqu|tab|e 1|t|e
1he s|tuat|on whereby there |s a sp||t of the fu|| dom|n|on of a
part|cu|ar property between |ega| t|t|e |n one person and benef|c|a|
ownersh|p |n another, does not necessar||y create the trust re|at|onsh|p.
a. Compared w|th Usufruct
Ior examp|e a usufruct |s a property arrangement recogn|zed
under Art|c|es S62 and S63 of the New C|v|| Code, whereby a
usufructuary en[oys the property of another (the naked t|t|e owner), and
may be const|tuted on the who|e or a part of the fru|ts of the th|ng.
Consequent|y, |t |s the usufructuary who d|rect|y possess and en[oys the
fru|ts and benef|ts of on the sub[ect property.
In fact under Art|c|es S66 and S89 of the New C|v|| Code, |t |s the
usufructuary who |s ob||ged to preserve the form and substance of the
property he|d |n usufruct, and to take care of |ts w|th the d|||gence of a
good father of a fam||y for the benef|t of the naked t|t|e ho|der at the
end of the usufruct. In contrast, under a trust re|at|onsh|p, |t |s the
trustee, the naked t|t|e ho|der, who act|ve|y manages and adm|n|sters
the trust property, and the benef|c|ary ma|n|y |s a pass|ve rece|ver of the
fru|ts and benef|ts ar|s|ng from the trust property.
b. Compared w|th Lease
Another examp|e wou|d be a |ease agreement, whereby the |essor
reta|ns not on|y naked t|t|e to the property |eased and many other
benef|c|a| t|t|es, and what |s contracted out to the |essee |s the narrow
en[oyment of the possess|on and use of
LkkLSS 1kUS1S 301
the |eased property, and on|y for a ||m|ted per|od prov|ded |n the |ease
agreement.
In contrad|st|nct|on, |n a trust re|at|onsh|p, fu|| benef|c|a|
ownersh|p over the trust property |s for the account of the benef|c|ary,
and rea||y what |s assumed by the trustee |s the ob||gat|on to manage
the trust property as the |ega| t|t|e ho|der for the benef|t and |nterest of
the benef|c|ary. In add|t|on, un||ke |n a |ease arrangement where the
benef|ts en[oyed by |essee are on|y for a ||m|ted contracted per|od,
those of the benef|c|ary |n a trust arrangement are usua||y of a
permanent nature.
c. Compared w|th Sa|e
Lxpress trusts therefore be|ong to those genre of contracts wh|ch
|nvo|ve the d|spos|t|on of t|t|e to property. nowever, un||ke a contract
of sa|e wh|ch |s def|ned under Art|c|e 14S8 of the New C|v|| Code as one
whereby the se||er ob||ges h|mse|f to transfer ownersh|p and de||ver
possess|on to the buyer, an express trust |s not perfected by mere
consent, but requ|res the actua| de||very of the naked or |ega| t|t|e to
the trustee for the re|at|onsh|p to ar|se.
L|kew|se, un||ke sa|e where the buyer takes fu|| ownersh|p of the
sub[ect matter for h|s so|e benef|t, the trustee |n an express trust on|y
takes naked or |ega| t|t|e and for the benef|t of another person, the
benef|c|ary.
1hus, a contract of sa|e |s entered |nto for |ts own end, the
acqu|r|ng of t|t|e of the sub[ect matter by the buyer, an express trust |s
const|tuted mere|y as a preparatory arrangement, a med|um, by wh|ch
the trustee |s expected to pursue other [ur|d|ca| acts for the benef|t of
the benef|c|ary.
2. Cn 8e|ng 8ound to I|duc|ary Dut|es and Cb||gat|ons
a. Compared w|th Agency
1he essence of what makes a party |n a trust arrangement the
"trustee" |s by reason of the fact that he rece|ves naked or |ega| t|t|e
to the property to be he|d |n trust, and the reason why the off|ce of the
trustee |s f|duc|ary |n character |s because he ho|ds t|t|e to the property
for the benef|t of another person, the benef|c|ary. 1hus, there |s no
trust re|at|onsh|p mere|y because the trustor st|pu|ates |n a contract
that he reposes trust and conf|dence |n the person denom|nated as
trustee, trust re|at|onsh|p |s essent|a||y borne out of a property
re|at|onsh|p whereby fu|| dom|n|on over a property |s sp||t between
naked t|t|e |n the name of the trustee where he wou|d manage and
adm|n|ster the property for the benef|t of the another person |n whom
benef|c|a| ownersh|p |s g|ven.
In the case of an agent, the f|duc|ary re|at|onsh|p |s str|ct|y based
on a persona| |eve|: that he has been comm|ss|oned by the pr|nc|pa| to
represent h|m and h|s |nterest |n dea||ngs w|th th|rd part|es. 1he agent
|s therefore bound by the dut|es of obed|ence, d|||gence and |oya|ty by
reason of h|s contractua| comm|tment to act for and represent the
pr|nc|pa| and the |atter's |nterest w|th th|rd part|es, he does not purport
to act for h|mse|f or upon h|s own powers, but by the pr|nc|pa|'s
author|ty, and therefore the agent does not have any t|t|e to the
property p|aced |n h|s custody. An agent therefore |s bound to act |n
accordance w|th the |nstruct|ons of the pr|nc|pa|, and |n the name of
the pr|nc|pa|, consequent|y, the agent |s not a party to the contracts
entered |nto by h|m |n the name of the pr|nc|pa|, and has no r|ghts, or
assumes no ob||gat|ons, under such contracts.
Cn the other hand, the trustee |s g|ven naked t|t|e to the property
to be he|d |n trust, and he transacts bus|ness w|th th|rd part|es under
the trust |n h|s own beha|f as a trustee and |ega| t|t|e ho|der and not |n
the name of the benef|c|ary. A|though, a trustee |s bound by the duty of
|oya|ty, '373/ he must act for the best |nterest of the benef|c|ary, and that
|n a conf||ct-of-|nterests s|tuat|on, he must prefer the |nterest of the
benef|c|ary over that of h|s own estate, nonethe|ess, he |s not bound by
any duty of obed|ence, for |ndeed he has been g|ven |ega| t|t|e to the
trust property prec|se|y because he |s expected to use h|s d|scret|on and
best [udgment |n pursu|ng transact|ons under the trust arrangement.
ne |s not expected to be bound by the |nstruct|ons of the benef|c|ary,
who often |s an |nfant, or who has no |ega| capac|ty, ||ke an |nsane
person. S|nce the trustee |s ob||ged to

LkkLSS 1kUS1S 303
manage the trust property for the benef|t of the benef|c|ary, he |s
bound to exerc|se due d|||gence |n h|s dea||ngs |n re|at|on to the trust.
Wh||e both trust and agency re|at|onsh|ps are f|duc|ary |n nature,
the agency re|at|on |s essent|a||y revocab|e "at the w||| of the pr|nc|pa|,"
be|ng based pr|mar||y on w||||ngness of the pr|nc|pa| to be represented
by another person. Cn the other hand, a trust be|ng essent|a||y based
on a property re|at|onsh|p, |s not revocab|e at w|||, and a|though
"revocat|on of trust" |s the term used, |t |s not at the w||| of the trustor
or the benef|c|ary, un|ess that |s so stated |n the trust |nstrument, but
can on|y be based on a "breach of trust," or on|y upon show|ng that the
trustee has breached h|s duty of |oya|ty or duty of d|||gence. In other
words, a trustee cannot genera||y be str|pped of the |ega| t|t|e un|ess |t
|s shown that he |s unf|t for the pos|t|on of trustee, or he has breached
h|s trust ob||gat|ons.
1hus, |n 47 @7"- T3 0"R"VK7P1)"-,
M
the Court he|d that |n the
absence of any reservat|on of the power to revoke, an express trust
(referred to as "vo|untary trust"), |s |rrevocab|e w|thout the consent of
the benef|c|ary.
kINDS CI LkkLSS 1kUS1S
It has been he|d that the deve|opment of trust as a method of
d|spos|t|on of property |s to a |arge part due to |ts freedom from forma|
requ|rements.
S9
1hus, Art|c|e 1444 of the New C|v|| Code prov|des that
"No part|cu|ar words are requ|red for the creat|on of an express trust, |t
be|ng suff|c|ent that a trust |s c|ear|y |ntended."
In the ear|y case of C,$S", T3 C,$S",/
ec
the Supreme Court
demonstrated how mere ora| assert|ons of trustee ob||gat|ons aga|nst
the reg|stered owner of a parce| of |and was he|d unava|||ng, the Court
ho|d|ng a person who has he|d |ega| t|t|e to
M
6 SCkA 798 (1962).
Zl
@8P7-,('"/ 4"$'-+"/ K,("R DT'.7-P7 "& DW6(7)) !(8)*/ 109 SCkA
4S1, 4S3, P'*'-+ S4 AM. IUk. S0, ,R)" J8R'" T3 4,R,-.,-/ 21 SCkA S43, SS0

2 h||. S03 (1928).

304
|and, coup|ed w|th possess|on and benef|c|a| use of the property for
more than ten years, w||| not be dec|ared to have been ho|d|ng such t|t|e
as trustee for h|mse|f and h|s brothers and s|sters upon doubtfu| ora|
proof tend|ng to show a recogn|t|on by such owner of the a||eged r|ghts
of h|s brother and s|sters to share |n the produce of the |and. In other
words, the best ev|dence to show a trust re|at|onsh|p |s wr|tten
adm|ss|on of the purported trustee that he or she has agreed to ho|d
t|t|e to the property |n quest|on for the benef|t of the c|a|mants.
In Sa]ao T3 ;,R,",
81
the Court he|d mandatory the prov|s|ons of
Art|c|e 1443, wh|ch requ|res that an express trust |nvo|v|ng |mmovab|e
property must be covered |n a wr|tten |nstrument, thus
Not a sc|nt|||a of documentary ev|dence was presented
by the p|a|nt|ffs to prove that there was an express trust
over the Ca|unuran f|shpond |n favor of Va|ent|n Sa|ao.
ure|y paro| ev|dence was offered by them to prove the
a||eged trust. 1he|r c|a|m that |n the ora| part|t|on |n 1919 of
the two f|shponds the Ca|unuran f|shpond was ass|gned to
Va|ent|n Sa|ao |s |ega||y untenab|e.
It |s |ega||y |ndefens|b|e because the terms of art|c|e
1443 of the C|v|| Code (a|ready |n force when the act|on
here|n was |nst|tuted) are peremptory and unm|stakab|e:
paro| ev|dence cannot be used to prove an express trust
concern|ng rea|ty.
82

A|though Art|c|e 1444 prov|des that "No part|cu|ar words are
requ|red for the creat|on of an express trust," |t st||| requ|res that the
c|rcumstances |nd|cate that "a trust |s c|ear|y |ntended." When |t comes
to |mmovab|e property, that "a trust |s c|ear|y |ntended" takes on|y one
form: a wr|tten |nstrument as mandated under Art|c|e 1443. In the
absence of such wr|tten |nstrument then pub||c po||cy expressed under
Art|c|e 1443 |s that no such |ntent to create a trust ex|sts, and
consequent|y, there are not trust ob||gat|ons on the part of the
purported trustee.
6
1
7

LkkLSS 1kUS1S 30S
When |t comes to other forms of trust propert|es, the e|ement of
"|ntent|on to create trust" must st||| come |nto p|ay, wh|ch |s any
ev|dence tend|ng to show that the trustor had transferred t|t|e to the
trust property w|th |ntent|on to have them managed for the benef|t of
the benef|c|ary, coup|ed w|th an |ntent|on on the part of the trutee to
have accepted t|t|e to the trust property w|th the ob||gat|on to manage
them for the benef|t of the benef|c|ary. An express trust |s never
presumed to ex|st mere|y on the bas|s that t|t|e to property has been
transferred to another person, |n the absence of wr|tten ev|dence, the
|ntent|on to create a trust must be proved by c|ear and conv|nc|ng
ev|dence. 1hus, 47 @7"- T3 0"R"VK7P1)"-, he|d
1rue, |t |s that to estab||sh a trust the proof must be
c|ear, sat|sfactory and conv|nc|ng. It cannot rest on vague,
uncerta|n ev|dence, or on a |oose, equ|voca| or |ndef|n|te
dec|arat|on... but here the document |n quest|on c|ear|y and
unequ|voca||y dec|ares the ex|stence of the trust even |f the
same was executed subsequent to the death of the trustor,
Iuana Iuan, for |t has been he|d that the r|ght creat|ng or
dec|ar|ng a trust need not be contemporaneous or |nter-
part|es . . It was even he|d that an express trust may be
dec|ared by a wr|t|ng made after the |ega| estate has been
vested |n the trustee.
64

In 47 @7"-/ the |nstrument showed that the appe||ants agreed to
se|| to the appe||ee the |ots at a nom|na| pr|ce of 1.00 per |ot, wh|ch to
the Court represented a recogn|t|on of a preex|st|ng trust or a
dec|arat|on of an express trust, based on the prov|s|on |n the donor's w|||
to the effect that the t|t|es to the |and shou|d be conveyed to appe||ants
w|th the duty to ho|d them |n trust for the appe||ee.
8ut |n ;,R,"/ after |t was he|d that no express trust cou|d have
been const|tuted over |mmovab|es w|thout a wr|tten trust, the Court
went on to determ|ne whether a trust over |mmovab|e
"
6

306
property, wh|ch cannot be enforced |n the absence of wr|tten ev|dence
thereof, can st||| be pursued under the prov|s|ons of |mp||ed trust: OF)
6R,'-*'&&)^ $,))'T7 "(,R 7T'.7-P7 )8&&'P'7-* *" 6("T7 ,- '$6R'7. *(8)*/
(7)8R*'-+ "( P"-)*(8P*'T7/ (7+,(.'-+ *57 *b" &')56"-.)"
6S
1he matter
w||| be covered under the chapter on |mp||ed trusts.
1. Contractua| 1rusts
1he manner of sp||tt|ng the |ega| t|t|e and benef|c|a| ownersh|p
over the property (|.e., the corpus) to be he|d |n trust may be done |n
severa| ways. Ior examp|e, the s|tuat|on covered under Art|c|e 1440
wou|d |nvo|ve a s|tuat|on where the fu|| owner of a property, def|ned as
the trustor, conveys the naked t|t|e to one person, say a bank|ng
|nst|tut|on, as trustee, under the terms of the trust agreement for the
benef|t of another person ca||ed the benef|c|ary, say the retarded ch||d
of the trustor. In th|s case, you wou|d have three part|es to the trust
arrangement.
Another mode wou|d be for the trustor to convey the naked t|t|e
of the trust property to a trustee, say a bank|ng |nst|tut|on, w|th trustor
h|mse|f to become the benef|c|ary of the trust. In th|s case you wou|d
on|y have two part|es to the trust agreement, the trustor-benef|c|ary
and the trustee.
A th|rd mode wou|d be for the trustor to convey the t|t|e to the
property to h|mse|f mere|y as trustee for the benef|t of a benef|c|ary,
such as when a father donates a property to h|s son by const|tut|ng
h|mse|f as the trustee dur|ng the |nfancy of the son. In th|s case, there
are essent|a||y on|y two part|es, the trustor-turned-trustee and the
benef|c|ary. Such an arrangement essent|a||y covers a g|ft by the trustor
to the benef|c|ary.
What |s c|ear from the forego|ng |||ustrat|ons |s that express trust
re|at|onsh|p |s the product of contractua| |ntent|ons. Lxpress trusts
therefore are the creature of what we term |n Contract Law as the
"freedom to contract" or the doctr|ne of autonomy, and
mFS'./ at p. 81, '*,R'P &"($,* )866R'7.

LkkLSS 1kUS1S 307
the r|ght of every owner to dea| w|th propr|etary arrangements over
property owned by h|m |n a manner that serves h|s purpose, prov|ded |t
|s not contrary to |aws, mora| or pub||c po||cy.
2. F-*7( 2'T") 1rusts
As d|scussed prev|ous|y, '-*7( T'T") trusts are expressed trust
pursued |n the form of donat|ons, and wh|ch therefore become so|emn
contracts wh|ch must comp|y w|th the so|emn|t|es mandated by the
Law on Donat|ons.
A good examp|e of an express trust created through a donat|on |s
found |n the dec|s|on |n 47 @7"- T3 0"R"VK7P1)"-/t where the husband,
Mar|ano Mo|o y Legasp|, d|ed |eav|ng a w||| where|n he bequeathed h|s
ent|re estate to h|s w|fe, Iuana Iuan, who |n turn executed a w||| nam|ng
there|n many dev|sees and |egatees, |nc|ud|ng Gu|||ermo San kafae|.
Subsequent|y, Iuana Iuan executed a donat|on '-*7( T'T") |n favor of her
two daughters for a|most the ent|re property, wh|ch |nc|uded the ten
parce|s of |and |ocated |n asay C|ty and sub[ect of the su|t. S|x months
after the mother d|ed, the donees-daughters executed a "Mutua|
Agreement" whereby the bound themse|ves to se|| for 1.00 each the
ten |ots to the |ssues of Gu|||ermo San kafae| under the express purpose
"1hat th|s agreement |s made |n conform|ty w|th the verba| w|sh of the
|ate Don Mar|ano Mo|o y Legasp| and the |ater Dona Iuana Iranc|sco
Iuan y Mo|o. 1hese ob||gat|ons were repeated|y to|d to [the
donees-daughters] before the|r death and that the same shou|d be
fu|f|||ed after the|r death."
A|though the donees-daughter subsequent|y tr|ed to revoke the
Mutua| Agreement, the Court he|d that an express trust had been du|y
const|tuted, s|nce the |nstrument, "where|n the appe||ants
[donees-daughters] agreed to se|| to the appe||ee the |ots at a nom|na|
pr|ce of 1.00 p|er |ot, represents a recogn|t|on of a pre-ex|st|ng trust or
a dec|arat|on of an express trust, based on the prov|s|on |n the donor's
w||| to the effect that the t|t|es to
"6 SCkA 978 (1982).

308
the |and shou|d be conveyed to appe||ants w|th the duty to ho|d them
|n trust for the appe||ee."
67

3. 1estamentary 1rusts
When an express trust |s created under the terms of the |ast w|||
and testament of the testator, |t |s a testmentary trust and |s governed
by the Law on Success|on. Un|ess the w||| conforms w|th the
so|emn|t|es and cond|t|ons set by |aw, |t w||| be vo|d together w|th the
testmentary trust sought to be created there|n.
K,R,. T3 K("T'-P7 "& U87\"- shows where an express trust was
embod|ed |n a ho|ograph|c w||| conta|n|ng testamentary d|spos|t|ons,
through wh|ch the testator created a trust for the estab||shment and
ma|ntenance of a h|gh schoo| to be f|nanced w|th t|e |ncome of certa|n
spec|f|ed propert|es for the benef|t of the |nhab|tants of a town,
nam|ng as trustee whomsoever may be the governor of the prov|nce.
In K7(7\ T3 B(,-7*,,the Court he|d that the prov|s|ons of the w|||
of the decedent exp||c|t|y author|z|ng the trustee const|tuted there|n to
se|| the property he|d |n trust and to acqu|red, w|th the proceeds of the
sa|e, other propert|es, |eaves no room for doubt about the |ntent of the
testatr|x to keep, as part of the trust estate, sa|d proceeds of sa|e, and
not turn the same over to the benef|c|ary as net renta| or |ncome.
In 47 @7"- T3 0"R"VK7P)"-/
Nc
the Court he|d that the execut|on by
the appe||ants of the agreement to se|| the parce|s of |and at a nom|na|
pr|ce of 1.00 per |ot, represent a recogn|t|on of a pre-ex|st|ng trust or a
dec|arat|on of an express trust, based on the prov|s|ons |n the donor's
w||| to the effect that the t|t|es to the parce|s of |and covered shou|d be
conveyed to appe||ants w|th the duty to ho|d them |n trust for the
appe||ee.
eN
RS'./ at p. 984.
46 SCkA 3S4
w]a SCkA 430

70
6 SCkA 798
( 962)

LkkLSS 1kUS1S 309
4. L|eemosynary or Char|tab|e 1rusts
A descr|pt|on of a char|tab|e trusts |s found |n @"67\ T3 <"8(* "&
B667,R)/
N
^ where |n the notar|a| w|||, the testator "expressed that she
w|shed to const|tute a trust fund for her parapherna| propert|es,
denom|nated as L'.7'P"$')" .7 J8R',-, @"67\ 0,-\,-" =L'.7'P"$')"H/ to
be adm|n|stered by her husband. . . 1wo-th|rds (2]3) of the |ncome from
renta|s over theses propert|es were to answer for the educat|on of
deserv|ng but needy honor students, wh||e one-th|rd (1]3) was to
shou|der the expenses and fees of the adm|n|strator."
nowever, the propert|es des|gnated for the L'.7'P"$')" were
exc|uded and |nstead ad[ud|cated to the husband (Iose) as so|e he|r.
Consequent|y, the Court ru|ed that "Cn the prem|se that the d|sputed
propert|es were the parapherna| propert|es of Iu||ana wh|ch shou|d have
been |nc|uded |n the L'.7'"P"$')"/ the|r reg|strat|on |n the name of Iose
wou|d be erroneous and Iose's possess|on wu|d be that of a trustee |n an
|mp||ed trust... [wh|ch from] the factua| m|||eu of th|s case |s prov|ded |n
Art|c|e 14S6 of the C|v|| Code.""
5. ub||c|y-kegu|ated 1rusts
ub||c|y-regu|ated trusts wou|d be those where the State prov|des
the veh|c|e by wh|ch |nst|tut|ons are a||owed to adm|n|ster |arge funds
for the benef|t of the pub||c. Among such funds created under the |aw
wou|d be the pens|on and benef|ts funds adm|n|stered by the GSIS, the
SSS and the ag-|b|g Iund. 1ax |aws prov|de for |ncent|ves to the
sett|ng-up of ret|rement funds for emp|oyees. A|| such funds are rea||y
be|ng adm|n|stered for the benef|c|ar|es thereof through the med|um of
trust.
A good examp|e of a ret|rement trust |s that d|scussed |n
47T7R"6$7-* :,-1 "& *57 K5'R'66'-7) T3 <"$$'))'"- "- B8.'*/
N[
wh|ch
the Court descr|bed as fo||ows:
71
S74 SCkA 26
( )
m|d, at p. 36.
73
422 SCkA 4S9
( )

In the present case, the D8 8oard of Governors' (now
8oard of D|rectors) keso|ut|on No. 794 and the agreement
executed by former D8 Cha|rman kafae| S|son and the
trustees of the |an created an express trust, spec|f|ca||y, an
emp|oyees' trust. An emp|oyees' trust |s a trust ma|nta|ned
by an emp|oyer to prov|de ret|rement, prson or other
benef|ts to |ts emp|oyees. It |s a separate taxab|e ent|ty
estab||shed for the exc|su|vse benef|t of the emp|oyees.
keso|ut|on No. 794 shows that D8 |ntended to estab||sh a
trust fund to cover the ret|rement benef|ts of certa|n
emp|oyees under kepub||c Act No. 1616 ("kA 1616"). 1he
pr|nc|pa| and |ncome of the Iund wou|d be separate and
d|st|nct from the funds of D8.
74

A|though the Supreme Court he|d that the pr|nc|pa| and |ncome of
the fund no |onger perta|ned |n ownersh|p to D8, s|nce naked t|t|e has
been devo|ved to the trustees of the Iund, and that benef|c|a| |nterest
was w|th the qua||f|ed off|cers and emp|oyees of D8, nonethe|ess |t
found that D8, as trustor, has |ega| stand|ng to sue on matters re|at|ng
to the Iund, thus:
As a party to the Agreement and a trustor of the Iund,
D8 has a mater|a| |nterest |n the |mp|ementat|on of the
Agreement, and |n the operat|on of the Gratu|ty |an and
the Iund as prescr|bed |n the Agreement. 1he D8 a|so
possesses a rea| |nterest |n upho|d|ng the |eg|t|macy of the
po||c|es and programs approved by |ts 8oard of D|rectors for
the benef|t of D8 emp|oyees.
7S

CAACI1ILS, kIGn1S, DU1ILS AND C8LIGA1ICNS CI 1nL Ak1ILS 1C 1nL
LkkLSS 1kUS1
1. 1he 1rustor
a. 1rustor as the Creator of the 1rust
Under Art|c|e 1440, the "trustor" |s def|ned as the "person who
estab||shes a trust," and under Art|c|e 1441, an express
OFS'./ at p.

NZ
FS'., at

LkkLSS 1kUS1S 311
trust may be "created by the |ntent|on of the trustor." 1he trustor
therefore, d|sposes of h|s fu|| ownersh|p of the des|gnated trust
propert|es |n favor of the trustee who assumes |ega| t|t|e thereto, and
the benef|c|ary, to whom benef|c|a| or equ|tab|e t|t|e sha|| perta|n.
It |s poss|b|e that under an express trust, the trustor transfers
naked or |ega| t|t|e to propert|es to the trustee, but w|th the trustor
des|gnated as the benef|c|ary.
b. 1rustor Must nave Lega| Capac|ty to Convey
1rust roperty
C,%"-.,*" T3 !(7,)8(7( "& *57 K3 F3/
Ne
d|st|ngu|shes an express trust
from an |mp||ed trust |n the sense that |n an express trust, the trustor
must have |ega| capac|ty to create the trust, wh|ch effect|ve|y requ|res
the ab|||ty to convey naked or |ega| t|t|e |n the trust property to the
trustee to be he|d by the |atter for the benef|t of the benef|c|ary. 1he
Court he|d
8ouv|er def|nes a trust |n |ts techn|ca| sense as "a r|ght
of property, rea| or persona|, he|d by one party for the
benef|t of another." In the present case we have th|s
s|tuat|on: 1he p|a|nt|ff was a m|nor at the t|me of the
reg|strat|on of the |and and had no |ega| guard|an. It |s true
that her mother |n whose name the |and was reg|stered was
the natura| guard|an of her person, but that guard|ansh|p d|d
not extend to the property of the m|nor and conferred no
r|ght to the adm|n|strat|on of the same... and the p|a|nt|ff,
be|ng a m|nor and under d|sab|||ty, cou|d not create a
techn|ca| trust of any k|nd. App|y|ng 8ouv|er's def|n|t|on to
th|s state of facts, |t |s c|ear that there was no trust |n |ts
techn|ca| s|gn|f|cat|on. 1he mother had no r|ght of property
or adm|n|strat|on |n her daughter's estate and was noth|ng
but a mere trespasser.
77

In effect, capac|ty of the part|es |s not essent|a| |n |mp||ed trusts,
because the arrangement |s |mposed by operat|on of |aw,
76
49 h||. 244
( 926)
OFS'./ at p. 2S0.
whereas, |n an express trust, capac|ty to transfer t|t|e on the trust
propert|es, |n order to have |ega| t|t|e he|d by the trustee, |s cr|t|ca|.
2. 1he 1rustee
a. 1rustee Is the arty r|mar||y 8ound
Under Art|c|e 1440 of the New C|v|| Code, the "trustee" |s the
person |n the trust re|at|on |n whom conf|dence |s reposed as regards
property for the benef|t of another person. It |s the trustee therefore
who |s the party pr|mar||y bound under the trust re|at|on, and be|ng
possessed of the |ega| t|t|e to the trust property he|d for the benef|t of
another person, he |s bound by the f|duc|ary dut|es of d|||gence and
|oya|ty.
b. 1rustee Must nave Lega| Capac|ty to Accept
the 1rust
It |s to the trustee that naked or |ega| t|t|e to the trust propert|es |s
transferred. Consequent|y, the trustee must a|so have |ega| capac|ty to
accept the trust, espec|a||y when upon acceptance of the trust, he b|nds
h|mse|f to certa|n ob||gat|ons.
c. When 1rustee Dec||nes the Des|gnat|on
Art|c|e 144S of the New C|v|| Code prov|des that "No trust sha|| fa||
because the trustee appo|nted dec||nes the des|gnat|on, un|ess the
contrary shou|d appear |n the |nstrument const|tut|ng the trust." Cn th|s
matter, 1o|ent|no wrote
Want of 1rustee. 1he pr|nc|p|e that equ|ty w||| not
a||ow a trust to fa|| for want of a trustee |s c|ear|y
estab||shed. Where a trust has once been created and the
trustee d|es, becomes |nsane or sub[ect to some other |ega|
|ncapac|ty, or res|gns or |s removed, the trust does not fa||,
but a new trustee w||| be appo|nted. Such an appo|ntment
w||| be made by the proper court un|ess by the terms of the
trust other prov|s|on |s made for the appo|ntment of a
successor trustee. 1he reason why a trust does not fa|| for
want of a trustee |s that to perm|t |t to fa|| for th|s reason
wou|d be contrary to

LkkLSS 1kUS1S
313
the |ntent|on of the trustor |n creat|ng the trust. 1he trustor
|s pr|mar||y |nterested |n the d|spos|t|on of the benef|c|a|
|nterest |n the property, and the matter of |ts adm|n|strat|on
|s a subs|d|ary cons|derat|on.
W W W
1here are cases, however, |n wh|ch |t may appear that
the trustor |ntended the trust to cont|nue on|y so |ong as the
person des|gnated by h|m as trustee shou|d cont|nue as
such. It may be so prov|ded by the terms of the trust, or |t
may appear that the purposes of the trust cannot be carr|ed
out un|ess the person named as trustee cont|nues to act. In
such a case, the trust w||| fa||, |f the trustee res|gns, d|es, |s
removed, or otherw|se ceased to be a trustee.
70

1he pr|nc|p|e that the |aw w||| not a||ow a trust to fa|| due non-
acceptance, res|gnat|on, |ncapac|ty or death of the des|gnated trustee |n
recogn|zed under our ku|es of Court wh|ch prov|de for the dut|es of the
trustee and the manner of appo|ntment or rep|acement, as d|scussed
hereunder.
d. Cb||gat|ons of the 1rustee
(1) <"-*(,P*8,RR% ;*,*7. 48*'7) ,-. ?SR'+,*'"-) "& *57
!(8)*77
An express trust const|tuted under a trust agreement norma||y
prov|des for the powers and funct|ons of the trustee, and wou|d
enumerate such powers wh|ch under the |aw need to be covered by a
spec|a| power of attorney to remove any doubt as to the dut|es of the
trustee, and prov|de for the parameters of h|s ob||gat|ons as we||.
(2) <"$$"- @,b 48*'7) "& *57 !(8)*77
1he pos|t|on of trustee be|ng f|duc|ary |n nature, a trustee |s
expected to carry out the trust us|ng the d|||gence of a good father of a
fam||y. 1he trustee becomes persona||y ||ab|e for gross
78
1CLLN1INC, CIVIL CCDL CI 1nL nILIINLS, Vo|. IV, at pp. 676-677 [1991 ed.].

314
neg||gence comm|tted even when |t |s |n the pursu|t of the trust
arrangement, for neg||gence wh|ch causes damage to another person
const|tutes a wrong comm|tted by the tort-feasor for wh|ch he can be
he|d persona||y ||ab|e. Lvery trustee has the common |aw duty of
d|||gence.
In add|t|on, the trustee |s expected to be |oya| to the affa|rs and
|nterest of the benef|c|ary. ne cannot appropr|ate for h|mse|f any
opportun|ty wh|ch |n the course of h|s funct|ons as trustee shou|d
perta|n to the benef|c|ary. ne has the duty to account t the benef|c|ary
for the affa|rs of the trust. And he cannot convert the use of the trust
propert|es, and the |ncomes, fru|ts and proceeds for h|s own benef|t.
Lvery trustee has the common |aw duty of |oya|ty.
K7(7\ T3 B(,-7*,/
Ne
he|d that a|though the benef|c|ar|es may be
ent|t|ed to rece|ve the |ncome f|ow|ng from the trust estate, the prof|ts
rea||zed |n the sa|e of trust propert|es are part of the cap|ta| he|d |n
trust, to wh|ch the benef|c|ar|es are ent|t|ed to rece|ve as |ncome.
47 @7"- T3 0"R"VK7P1)"-he|d that the other dut|es of the trustee,
wh|ch f|ow out of the ma|n duty of |oya|ty, wou|d be the duty to account
to the benef|c|ary of the trust estate. It wou|d be the duty of the trustee
a|so to de||ver the property |n trust to the P7)*8' g87 *(8)*, when |t |s
t|me to so do |t, free a|| ||ens and encumbrances.
Under Art|c|e 14SS, when the trustee uses trust funds for the
purchase of property and causes the conveyance to be made |n h|s
name or a th|rd person, a trust |s estab||shed |n favor pf the benef|c|ary.
A v|o|at|on of the dut|es of the trustee may const|tute a "breach of
trust" that wou|d be the |ega| bas|s by wh|ch the trustee may be
removed, or the trust revoked ent|re|y.
re
4 SCkA 434
(1962).
ro
6SCkA978

LkkLSS 1kUS1S 31S
(3) !(8)*77 F) K("5'S'*7. &("$ 4"-,*'-+ !(8)* K("67(*%
Under Art|c|e 736 of the New C|v|| Code, "trustees cannot donate
the property entrusted to them." Such proh|b|t|on |s |n accordance w|th
the f|duc|ary duty of |oya|ty of a trustee, that the ho|ds the trust property
for the benef|t of the benef|c|ary. ne therefore cannot exerc|se acts of
benef|cence emp|oy|ng the property that he ho|ds for the benef|t of
another person.
81

(4) !(8)*77 <,--"* E)7 L8-.) "& *57 !(8)* *" BPg8'(7
K("67(*% &"( >'$)7R&
Under Art|c|e 14SS of the New C|v|| Code (on |mp||ed trusts),
"When any trustee ... uses trust funds for the purchase of property and
causes the conveyance to be made to h|m or to a th|rd person, a trust |s
estab||shed by operat|on of |aw |n favor of the person to whom the
funds be|ong." Art|c|e 14SS actua||y estab||shes the parameters of the
duty of |oya|ty that every trustee owes to the benef|c|ary - that the
trustee |s ob||ged to use the funds of the trust estate for the so|e benef|t
of the benef|c|ary.
Lvery trustee |n express trust, be|ng the naked t|t|e ho|der, of
course has the power to use funds of the trust estate to acqu|re
propert|es to be p|aced |n h|s name, but that wou|d have to be off|c|a||y
as "trustee." Art|c|e 14SS app||es |n a s|tuat|on where the property |s
p|aced |n the name of the trustee w|thout |nd|cat|ng that he ho|ds |t as
trustee. 1hat wou|d then |ater author|ze h|m to c|a|m the property as h|s
own, |n breach of h|s dut|es of |oya|ty.
(5) 48*'7) ,-. G7)6"-)'S'R'*'7) "& *57 !(8)*77) 8-.7( *57
G8R7) "& <"8(*
ku|e 98 of the ku|es of Court grants to the courts the author|ty to
appo|nt a trustee when "necessary to carry |nto effect the prov|s|ons of a
w||| or a wr|tten |nstrument." (Sect|on 1), and that t|t|e to the trust estate
w||| vest |n the trustee thus appo|nted by the courts (Sect|on 2).
O;77 B(,-7*, Tk K7(7\/ S SCkA 338 (1962).

In part|cu|ar, Sect|on 3 of ku|e 98, prov|des that
When a trustee under a wr|tten |nstrument dec||nes,
res|gns, d|es, or |s removed before the ob[ects of the trust
are accomp||shed, and no adequate prov|s|on |s made |n
such |nstrument for supp|y|ng the vacancy, the proper
[keg|ona| 1r|a| Court] may, after due not|ce to a|| persons
|nterested, appo|nt a new trustee to act a|one or [o|nt|y w|th
the others, as the case may be. Such new trustee sha|| have
and exerc|se the same powers, r|ghts, and dut|es as |f he had
been or|g|na||y appo|nted, and the trust estate sha|| vest |n
h|m |n ||ke manner as |t had vested or wou|d have vested, |n
the trustee |n whose p|ace he |s subst|tuted, and the court
may order such conveyance to be made by the former
trustee or h|s representat|ves, or by the other rema|n|ng
trustees, as may be necessary or proper to vest the trust
estate |n the new trustee, e|ther a|one or [o|nt|y w|th others.
1he prov|s|ons of ku|e 38 of the ku|es of Court are meant to
|mp|ement the ru|e |n th|s [ur|sd|ct|on that the non-acceptance, death,
c|v|| |nterd|ct|on, |nsan|ty, |nso|vency, or even the res|gnat|on of a
des|gnated trustee, sha|| not of |tse|f prevent a trust from com|ng |nto
fru|t|on or ext|ngu|sh one that has been a|ready const|tuted. 1he
doctr|ne f|ows from the equ|ty nature of the trust as a |ega| |nst|tut|on |n
the h|||pp|nes.
An examp|e of the app||cat|on of th|s pr|nc|p|e |s |n the dec|s|on |n
@"(7-\" T3 K,),.,), where the w||| of the decedent never used the
term "trust," but neverthe|ess the |ntent|on to create one was deemed
|mp||c|t to the Court, thus
1he appo|ntment of .I.M. Moore as trustee was made
by the tr|a| court |n conform|ty w|th the w|shes of the
testator as expressed |n h|s w|||. It |s true that the word
"trust" |s not ment|oned or used |n the w||| but the |ntent|on
to create one |s c|ear. No part|cu|ar or techn|ca| words are
requ|red to create a testamentary trust (69 C.I., p. 711). 1he
words "trust" and "trustee," though apt for the purpose, are
not necessary.
^64 h||. 3S3 (1937).

LkkLSS 1kUS1S 317
In fact, the use of these two words |s not conc|us|ve on the
quest|on that a trust |s created (69 C.I., p. 714). "1o create a
trust by w||| the testator must |nd|cate |n the w||| h|s
|ntent|on so to do by us|ng |anguage suff|c|ent to separate
the |ega| from the equ|tab|e estate, and w|th suff|c|ent
certa|nty des|gnate the benef|c|ar|es, the|r |nterest |n the
trust, the purpose or ob[ect of the trust, and the property or
sub[ect matter thereof. Stated otherw|se, to const|tute a
va||d testamentary trust there must be concurrence of three
c|rcumstances: (1) Suff|c|ent words to ra|se a trust, (2) a
def|n|te sub[ect, (3) a certa|n or ascerta|ned ob[ect, statutes
|n some [ur|sd|ct|ons express|y or |n effect so prov|d|ng." (69
C. I., pp. 70S, 70S.) 1here |s no doubt that the testator
|ntended to create a trust. ne ordered |n h|s w||| that certa|n
of th|s propert|es be kept together und|sposed dur|ng a f|xed
per|od, for a stated purpose. 1he probate court certa|n|y
exerc|sed sound [udgment |n appo|nt|ng a trustee to carry
|nto effect the prov|s|ons of the w|||, (see sec. S82, Code of
C|v|| rocedure).
83

Io||ow|ng up on th|s pr|nc|p|e, the Supreme Court he|d |n J8R'" T3
4,R,-.,-that:
Ior, techn|ca| or part|cu|ar forms of words or phrases
are not essent|a| to the man|festat|on of |ntent|on to create
a trust or to the estab||shment thereof. Nor wou|d the use of
some such words as "trust" or "trustee" essent|a| to the con-
st|tut|on of a trust as we have he|d |n @"(7-\" T3 K"),.,)/ 64
h||. 4S3,368. Converse|y, the mere fact that the word
"trust" or "trustee" was emp|oyed wou|d not necessar||y
prove an |ntent|on to create a trust. What |s |mportant |s
whether the trustor man|fested an |ntent|on to create the
k|nd of re|at|onsh|p wh|ch |n |aw |s known as a trust. Is |t
|mportant that the trustor shou|d know that the re|at|onsh|p
wh|ch |ntents to create |s ca||ed a trust, and whether or not
he knows the prec|se character|st|cs of the re|at|onsh|p
wh|ch |s ca||ed a trust. nere, that trust |s effect|ve as aga|nst
defendants and
m
F
S

|n favor of the benef|c|ary thereof, p|a|nt|ff V|ctor|a Iu||o, who
accepted |t |n the document |tse|f."
8S

Under Sect|ons S and 6 of ku|e 98 of the ku|es of Court,
the fo||ow|ng are the dut|es and respons|b|||t|es of the trustee
appo|nted by the courts:
(a) 8efore enter|ng on the dut|es of h|s trust, a trustee
sha|| f||e a bond w|th the court cond|t|oned upon
comp||ance w|th h|s dut|es,
(b) 1o make and return to the court, at such t|me as
|t may order, a true |nventory of a|| the rea| and
persona| estate be|ong|ng to h|m as trustee, wh|ch
at the t|me of the mak|ng of such |nventory sha||
have come to h|s possess|on or know|edge,
(c) 1o manage and d|spose of a|| such estate, and
fa|thfu||y d|scharge h|s trust |n re|at|on thereto,
accord|ng to |aw and the w||| of the testator or the
prov|s|ons of the |nstrument or order under wh|ch
he |s appo|nted,
(d) 1o render upon oath at |east once a year unt|| h|s
trust |s fu|f|||ed, un|ess he |s excused therefrom
|n any year by the court, a true account of the
property |n h|s hands and of the management
and d|spos|t|on thereof, and w||| render such other
account as the court may order, and
(e) Upon the exp|rat|on of h|s trust, he w||| sett|e h|s
accounts |n court and pay over and de||ver a|| the
estate rema|n|ng |n h|s hands, or due from h|m on
such sett|ement, to the person or persons ent|t|ed
thereto.
m|d, at pp. SS0-SS1.

LkkLSS 1kUS1S 319
(6) K("67( K("P77.'-+) &"( ;,R7 "( D-P8$S(,-P7
"& !(8)* D)*,*7
Under Sect|on 9 of ku|e 98 of the ku|es of Court, when the sa|e or
encumbrance of any rea| or persona| estate he|d |n trust |s necessary or
exped|ent, the keg|ona| 1r|a| Court (k1C) hav|ng proper [ur|sd|ct|on of
the trust may, on pet|t|on and after due not|ce and hear|ng, order such
sa|e or encumbrance to be made, and the re|nvestment and app||cat|on
of the proceeds thereof |n such manner as w||| best effect the ob[ects of
the trust.
(7) !(8)*77 4"7) 9"* B))8$7 C7-7(,RR% K7()"-,R @',S'R'*%
"- *57 !(8)*
A|though a trustee enters upon the fu|f|||ment of h|s dut|es by h|s
own name, and not |n the name of the trustor or the benef|c|ary,
nonethe|ess, |t shou|d be understood that the performance of the
funct|ons of the trustee and the contracts entered |nto |n pursu|t of the
trust, as performed under "off|c|a| capac|ty" as a trustee. Consequent|y,
the ||ab|||t|es assumed by the trustee |s such capac|ty can on|y be
enforced to the extent of the trust propert|es. In other words, the
trustee, un|ess he so st|pu|ates, does not become persona||y ||ab|e to h|s
separate propert|es outs|de of the trust propert|es, for contracts and
transact|ons ar|s|ng from the trust and entered |nto |n h|s off|c|a| capac|ty
as trustee.
1hus, |n !,- ;7-+8,- ,-. <"3 T3 K5'R3 !(8)* Co.,
86
where the
propert|es for wh|ch the trust company had entered |nto transact|on
were rece|ved not |n a trustee capac|ty, the Court he|d that the trustee
wou|d be ||ab|e for such transact|ons |n |ts persona| capac|ty, and not as
a trustee.
A trustee who acts w|th|n the scope of the trust therefore, has a
r|ght to charge to the trust estate the expenses |ncurred by reason
thereof.
Cn the other hand, a trustee |s expected to exerc|se due d|||gence
|n the pursu|t of the trust, and when he acts w|th fraud or gross
neg||gence, he becomes persona||y ||ab|e for h|s own
"8 h||. 700 (1933).

separate propert|es, as to a|| persons who suffer damage by reason of
such fraud or neg||gence.
(8) !(8)*77 ') D-*'*R7. *" <"$67-),*'"- &"(
0,-,+7$7-* "& *57 !(8)* D)*,*7
In @"(7-\" T3 K,),.,) the Court he|d that as a matter of genera|
propos|t|on, "A trustee, no doubt, |s ent|t|ed to rece|ve a fa|r
compensat|on for h|s serv|ces."
88

Under Sect|on 7 of ku|e 98 of the ku|es of Court, |f the
compensat|on of the trustee |s not determ|ned |n the |nstrument
creat|ng the trust, h|s compensat|on sha|| be f|xed by the court that
appo|nted h|m.
F-B(,-7*, T3 K7(7\/
ce
the Court he|d that the reasonab|eness of
fees of a trustees shou|d be determ|ned |n advance, but must be
determ|ned at the t|me he f||es a c|a|m for the same, s|nce
reasonab|eness depends upon var|ab|e c|rcumstances, such as the
character and powers of the trusteesh|p, the r|sk and respons|b|||ty
assumed, the t|me and |abor and sk||| requ|red |n the adm|n|strat|on of
the trust, as we|| as the care and management of the estate. 1he Court
a|so he|d that the trustee may be |ndemn|f|ed out of the trust estate for
the expenses |ncurred |n render|ng and prov|ng h|s accounts and for the
costs and counse|'s fees |n connect|on therew|th.
(9) G7$"T,R "( G7)'+-,*'"- "& !(8)*77
Under Sect|on 8 of ku|e 98 of the ku|es of Court, the proper k1C
may, upon pet|t|on of the part|es benef|c|a||y |nterested and after due
not|ce to the trustee and hear|ng, remove a trustee |f such remova|
appears essent|a| |n the |nterests of the pet|t|oners. 1he k1C may a|so,
after due not|ce to a|| persons |nterested, remove a trustee who |s
|nsane or otherw|se |ncapab|e of d|scharg|ng h|s trust or ev|dent|y
unsu|tab|e therefore.
"64 h||. 3S3 (1937).
mFS'./ at p. 36S, P'*'-+ :,(-7% T3 ;,8-.7()/ 16 now., S3S, 14 Law.
Ld., 1047.
"7 SCkA 2S8 (1962).

LkkLSS 1kUS1S 321
1he sect|on a|so recogn|zes that a trustee, whether appo|nted by
the court or under a wr|tten |nstrument, may res|gn h|s trust |f |t appears
to the court that |s |t proper to a||ow such res|gnat|on.
3. 1he 8enef|c|ary
a. 8enef|c|ary Is the ass|ve kec|p|ent of 8enef|ts
I|ow|ng from the 1rust
Under Art|c|e 1440 of the New C|v|| Code, the "benef|c|ary" |s the
person for whose benef|t the trust has been created. As a genera| ru|e,
the des|gnat|on of the benef|c|ary, |s a gratu|tous act, essent|a||y an act
of donat|on by wh|ch benef|c|a| or equ|tab|e t|t|e to the trust property |s
g|ven to the benef|c|ary. nowever, when the trustor creates the trust by
des|gnat|ng a trustee to ho|d the trust propert|es for the benef|t of the
trustor, there |s no act of benef|cence |n th|s case, but const|tutes more
as a sense of estate p|ann|ng.
Under Art|c|e 1446 of the New C|v|| Code, acceptance by the
benef|c|ary of the express trust |s necessary. Neverthe|ess, |f the trust
|mposes no onerous cond|t|on upon the benef|c|ary, h|s acceptance sha||
be presumed, |f there |s no proof to the contrary. 1he s|tuat|on does not
cover the case when the trustor des|gnates h|mse|f as the benef|c|ary.
Art|c|e 72S of the New C|v|| Code def|nes donat|on as "an act of
||bera||ty whereby a person d|sposes gratu|tous|y of a th|ng or r|ght |n
favor of another, who accepts |t." S|nce a person cannot be compe||ed to
accept the generos|ty of another, |t |s prov|ded under Art|c|e 1446 that
"Acceptance by the benef|c|ary |s necessary." A|though the Law on
Donat|ons prov|des for so|emn|t|es for the act of donat|on and |ts
acceptance, |t has been he|d |n <(')*"S,R T3 C"$7\/o that the acceptance
by the benef|c|ary of gratu|tous express trust |s not sub[ect to the ru|es
for the forma||t|es of donat|ons.
"S0 h||. 810 (1927).

arenthet|ca||y, under Art|c|e 748 of the New C|v|| Code, |t |s
prov|ded that "the donat|on of a movab|e may be made ora||y or |n
wr|t|ng. An ora| donat|on requ|res the s|mu|taneous de||very of the th|ng
or the document represent|ng the r|ght donated. If the va|ue of he
persona| property donated exceeds f|ve thousand pesos, the donat|on
and the acceptance sha|| be made |n wr|t|ng. Ctherw|se, the donat|on
sha|| be vo|d."
Under Art|c|e 749 of the New C|v|| Code, "|n order that the
donat|on of an |mmovab|e may be va||d, |t must be made |n a pub||c
document, spec|fy|ng there|n the property donated and the va|ue of the
charges wh|ch the donee must sat|sfy. 1he acceptance may be made |n
the same deed of donat|on or |n a separate pub||c document, but |t sha||
not take effect un|ess |t |s done dur|ng the ||fet|me of the donor. If the
acceptance |s made |n a separate |nstrument, the donor sha|| be not|f|ed
thereof |n an authent|c form, and th|s step sha|| be noted |n both
|nstruments."
47 @7"- T3 0"R"VK7P1)"-,
91
re|y|ng upon Amer|can [ur|sprudence,
he|d that "1he fact that the benef|c|ar|es [to a donat|on '-*7( T'T")u were
not not|f|ed of the ex|stence of the trust or that the |atter have not been
g|ven an opportun|ty to accept |t |s of no |mportance, for |t |s not
essent|a| to the ex|stence of a va||d trust and to the r|ght of the
benef|c|ar|es to enforce the same that they had know|edge thereof at
the t|me of |ts creat|on. Ne|ther |s |t necessary that the benef|c|ary
shou|d consent to the creat|on of the trust. In fact |t has been he|d that
|n case of a vo|untary trust the assent of the benef|c|ary |s not necessary
to render |t va||d because as a genera| ru|e acceptance by the benef|c|ary
|s presumed."
02

b. 8enef|c|ary Need Not nave Lega| Capac|ty
It |s pos|ted that the benef|c|ary of an express trust need not have
|ega| capac|ty to be const|tuted as such |n a trust agreement, espec|a||y
so when the des|gnat|on |s an act of pure ||bera||ty.
91
6 SCkA978 (1962).
lY
FS'., at p. 98S, P'*'-+ Art|c|e 1446, New C|v|| Code, <(')*"S,R T3
C"$7\/ S0 h||. 810.
LkkLSS 1kUS1S 323
Under Art|c|e 738 of the New C|v|| Code, "A|| those who are not
spec|a||y d|squa||f|ed by |aw therefore may accept donat|ons," wh|ch
means that a|| persons regard|ess of |ega| capac|ty, may be donees
except on|y |n those spec|f|c cases where the donat|on to them cannot
be made. Art|c|e 741 prov|des that m|nors and others who cannot enter
|nto a contract may become donees but acceptance sha|| be done
through the|r parents or |ega| representat|ves. Under Art|c|e 742,
donat|ons may even be made to conce|ved and unborn ch||dren and may
be accepted by those persons who wou|d |ega||y represent them |f they
were a|ready born.
In the case of express trust, Art|c|e 1446 of the New C|v|| Code
prov|des that |f the trust |mposes no onerous cond|t|on upon the
benef|c|ary, h|s acceptance sha|| be presumed, |f there |s no proof to the
contrary.
now LkkLSS 1kUS1 Lk1INGUISnLD Ck 1LkMINA1LD
L|ke any other |ega| re|at|onsh|p, express trust re|at|onsh|ps may
be term|nated by reason prov|ded for |n the trust |nstrument |tse|f, or
upon grounds prov|ded for by |aw or equ|ty.
1. Destruct|on of the <"(68)
When the ent|re trust estate |s |oss or destroyed, the trust |s
ext|ngu|shed s|nce the under|y|ng propr|etary bas|s no |onger ex|sts to
warrant any |ega| re|at|onsh|p between the trusted and the benef|c|ary.
2. kevocat|on by the 1rustor
In a revocab|e express trust, the trustee may s|mp|y |nvoke the
revocat|on or term|nat|on c|ause found |n the deed of trust thereby
revok|ng the trust and convey|ng not|ce thereof to the trustee. Un|ess
there |s reserved power to revoke, the genera| ru|e |s that an express
trust |s |rrevocab|e.

In 47 @7"- T3 0"R"VK7P1)"-, the donee-daughters had tr|ed to
revoke the Mutua| Agreement they prev|ous|y executed conf|rm|ng the
des|res of the mother who donated to them that the ten parce|s of |and
donated wou|d be so|d at nom|na| pr|ce to a des|gnated P7*8' g87 *(8)*3
1he Court he|d that a|though "It |s true, as appe||ants contend, that the
a||eged dec|arat|on of trust was revoked, and hav|ng been revoked |t
cannot be accepted, but the attempted revocat|on d|d not have any
|ega| effect. !57 (8R7 ') *5,* '- *57 ,S)7-P7 "& ,-% (7)7(T,*'"- "& *57
6"b7( *" (7T"17 , T"R8-*,(% *(8)* ') '((7T"P,SR7 b'*5"8* *57 P"-)7-* "&
*57 S7-7&'P',(%333 F* P,--"* S7 (7T"17. S% *57 P(7,*"( ,R"-7/ -"( S% *57
*(8)*77q
3. Ach|evement of the Cb[ect|ve, or nappen|ng of the Cond|t|on,
rov|ded for |n the 1rust Instrument
When the trust |nstrument prov|des the ob[ect|ve or the cond|t|on
upon wh|ch the trust sha|| be ext|ngu|shed, say when the trust
|nstrument prov|des that fu|| ownersh|p |n the trust propert|es sha|| be
conso||dated |n the person of the benef|c|ary once he reaches the age of
ma[or|ty, the happen|ng of the cond|t|on sha|| term|nate the trust.
4. Death or Lega| Incapac|ty of the 1rustee
Un|ess otherw|se express|y st|pu|ated |n the trust |nstrument, the
death, c|v|| |nterd|ct|on, |nsan|ty or |nso|vency of the trustee does not
necessar||y term|nate the trust. 1hus, 1o|ent|no wr|tes:
1he pr|nc|p|e that equ|ty w||| no a||ow a trust to fa|| for
want of a trustee |s c|ear|y estab||shed. Where a trust has
once been created and the trustee d|es, becomes |nsane or
sub[ect to some other |ega| |ncapac|ty, or res|gns or |s
"6 SCkA 978 (1962).
]]RS'./ at p. 98S, c|t|ng BRR7- T3 ;,&7 476"R)'* ,-. !(8)* <"3/ "&
:,R'*$"(7/ 7 A.2d 180,177 Md. 26, L('P17 T3 I7S7(/ C.A.A. Ch|o, 14S
I.2d 737, >8+57) T3 <3F3G3/ C.C.A. 9,104 I.2d 144, Db'-+ T3 ;5,--,5,-/
20 S.W. 106S,113 Mo. 188, '*,R'P) )866R'7.3

LkkLSS 1kUS1S 32S
removed, the trust does not fa||, but a new trustee w||| be
appo|nted. Such an appo|ntment w||| be made by the
property court un|ess by the terms of the trust other
prov|s|on |s made for the appo|ntment of a successor
trustee. 1he reason why a trust does not fa|| for want of a
trustee |s that to perm|t |t to fa|| for th|s reason wou|d be
contrary to the |ntent|on of the trustor |n creat|ng the trust.
1he trustor |s pr|mar||y |nterested |n the d|spos|t|on of the
benef|c|a| |nterest |n the property, and the matter of |ts
adm|n|strat|on |s a subs|d|ary cons|derat|on.
9S

In <,-7\" T3 G"X,), where the daughter a||eged that she had
entrusted possess|on and t|t|e to the property to her father Cr|spu|o
when she |eft M|ndanao based on e|ther an express trust or a resu|t|ng
trust, the Supreme Court |a|d down the fo||ow|ng |ega| effect on the
death of the trustee:
Assum|ng that such a re|at|on ex|sted, |t term|nated
upon Cr|spu|o's death |n 1978. A trust term|nates upon the
death of the trustee where the trust |s persona| to the
trustee |n the sense that the trustor |ntended no other
person to adm|n|ster |t. If Cr|spu|o was |ndeed appo|nted as
trustee of the property, |t cannot be sa|d that such
appo|ntment was |ntedned to be conveyed to the
respondents or any of Cr|pu|o's other he|rs. nence, after
Cr|spu|o's death, the respondent had no r|ght to reta|n
possess|on of the property. At such po|nt, a construct|ve
trust wou|d be created over the property by operat|on of
|aw. Where one m|staken|y reta|ns property wh|ch r|ghtfu||y
be|ongs to another, a construct|ve trust |s the proper
remed|a| dev|ce to correct the s|tuat|on.
97

S. Confus|on or Merger of Lega| 1|t|e and 8enef|c|a| 1|t|e |n the Same
erson
When the trustee of an ex|st|ng trust becomes the benef|c|ary
thereof, or T'P7 T7(),/ the trust re|at|on |s '6)" X8(7 ext|ngu|shed,
9S
1CLLN1INC, at p.

]
;
[

for |t |s d|ff|cu|t to see how a person can owe f|duc|ary dut|es to h|mse|f.
6. 8reach of 1rust
When a trustee breaches h|s duty of |oya|ty, |t wou|d const|tute
|ega| bas|s by wh|ch to term|nate the trust.
In 0,(*'-7\ T3 C(,-"the Court he|d that when a person
adm|n|ster|ng the property |n the character of a trustee |ncons|stent|y
assumes to be ho|d|ng |t |n h|s own r|ght, th|s operates as a
renunc|at|on of the trust and the persons |nterested as benef|c|ar|es |n
the property are ent|t|ed to ma|nta|n an act|on to dec|are the|r r|ght
and remove the unfa|thfu| trustee.
0C0
19)
"42 h||. 3S (1921).

CnA1Lk 3
IMLILD 1kUS1S
NA1UkL AND 1LS CI IMLILD 1kUS1S
trusts are created by the |ntent|on of the trustor or of the
Ak1. 1442. 1he pr|nc|p|es of the genera| |aw of trusts,
|nsofar as they are not |n conf||ct w|th th|s [C|v||] Code, the
Code of Commerce, the ku|es of Court and spec|a| |aws are
hereby adopted.
Accord|ng to the keport of the Code Comm|ss|on, the under|y|ng
doctr|ne of |mp||ed trusts |s founded on equ|ty, der|ved from Amer|can
dec|s|ons under a |ega| system where |n[ust|ce wou|d resu|t |n wh|ch the
|ega| estate or t|t|e were to preva|| over the equ|tab|e r|ght of the
benef|c|ary.
1
In essence, the system of |mp||ed trusts app||es |n s|tuat|ons
where the property that ought to be owned and en[oyed by one party
has ended up |n the hands of or reg|stered w|th another party, and
equ|ty demands that the |atter ought to reconvey such property to the
former, or at |east acknow|edge forma||y that he ho|ds |t for the benef|t
of the former.
'keport of the Code
Comm|ss|on p 60
327

0"(,R7) T3 <"8(* "& B667,R)/
Y
gave the rat|ona|e for resu|t|ng
trusts as be|ng "based on the equ|tab|e doctr|ne that va|uab|e
cons|derat|on and not |ega| t|t|e determ|nes the equ|tab|e t|t|e or
|nterest and are presumed to a|ways to have been contemp|ated by the
part|es. 1hey ar|se from the nature or c|rcumstances of the
cons|derat|on |nvo|ved |n a transact|on whereby one person thereby
becomes |nvested w|th |ega| t|t|e but |s ob||gat|on |n equ|ty to ho|d h|s
|ega| t|t|e for the benef|t of another."
3

Under Art|c|e 1441 of the New C|v|| Code, as d|st|ngu|shed from
express trust wh|ch are "created by the |ntent|on of the trustor or of
the part|es," |mp||ed trusts "come |nto be|ng by operat|on of |aw," '373/
that |t |s the |aw by app||cat|on of equ|ty pr|nc|p|es that mandates the
app||cat|on of the |mp||ed trust pr|nc|p|es. 0"(,R7) def|ned |mp||ed
trusts as those that "come |nto be|ng by operat|on of |aw, e|ther
through |mp||cat|on of an |ntent|on to create a trust as a matter of |aw
or through the |mpos|t|on of the trust |rrespect|ve of, and even contrary
to, any such |ntent|on."*
A|| the forego|ng may |mp|y that |mp||ed trusts are essent|a||y
creatures of the |aw, and do not ar|se from the |ntent|ons of the part|es
bound by the trust re|at|onsh|p. A|though such an |mp||cat|on may be
true of construct|ve trusts, |t does not app|y to resu|t|ng trusts, as
exp|a|ned hereunder.
1. 1he 1wo 1ypes of Imp||ed 1rusts
1here are two types of |mp||ed trusts recogn|zed under the NeW
C|v|| Code, name|y:
(a) G7)8R*'-+ !(8)*), and
(b) <"-)*(8P*'T7 !(8)*)3
2
2
7

]RS'./ at p. 298.

IMLILD 1kUS1S 329
In G,$") T3 G,$")/] the Supreme Court def|ned and char-
acter|zed '$6R'7. *(8)*) as "those wh|ch, w|thout be|ng expressed, are
deduc|b|e from the nature of the transact|ons as $,**7() "& '-*7-*/ or
wh|ch are super|nduced on the transact|on by "67(,*'"- "& R,b ,)
$,**7() "& 7g8'*%/ '-.767-.7-*R% "& *57 6,(*'P8R,( '-*7-*'"- "& *57
6,(*'7) (89 C.I.S. 724)."
6
1herefore, |mp||ed trusts wh|ch are "deduct|b|e
from the nature of the transact|ons as matters of |ntent," are referred to
as (7)8R*'-+ *(8)*), and those wh|ch are super|nduced "by operat|on of
|aw as matters of equ|ty" are P"-)*(8P*'T7 *(8)*)3
Cn the other hand, 0"(,R7) T3 <"8(* "& B667,R)/
N
def|ned
construct|ve trusts as those wh|ch "are created by the construct|on of
equ|ty |n order to sat|sfy the demands of [ust|ce and prevent un[ust
enr|chment. 1hey ar|se contrary to |ntent|on aga|nst one who, by fraud,
duress or abuse of conf|dence, obta|ns or ho|ds the |ega| r|ght to
property wh|ch he ought not, |n equ|ty and good consc|ence, to ho|d."
8

In K5'R'66'-7 9,*'"-,R :,-1 T3 <"8(* "& B667,R)/
e
the Court he|d
that "the framers of our present C|v|| Code |ncorporated |mp||ed trusts,
wh|ch |nc|udes construct|ve trusts, on top of quas|- contracts, S"*5 "&
b5'P5 7$S".% *57 6('-P'6R7 "& 7g8'*% ,S"T7 )*('P* R7+,R')$3O
`c

2. Imp||ed 1rusts D|st|ngu|shed from Lxpress 1rusts
Un||ke an express trust, wh|ch essent|a||y proceeds from a c|ear or
d|rect contractua| |ntent|on to d|spose of trust property to a trustee for
the benef|t of the benef|c|ary, '- , (7)8R*'-+ *(8)*/
S
61 SCkA 284 (1974).
e
RS'./ at p. 298, '*,R'P) )866R'7.3 G7'*7(,*7. '- ;,R," T3 ;,R,"/ 70
SCkA 6S, 80 (1976).
7
274 SCkA 282 (1997).
]RS'./ at p. 298, P'*'-+ >8,-+ T3 <"8(* "& B667,R)/ 236 SCkA420
(1994), 2.,3 47 D)P"-.7 T3 <"8(* "& B667,R)/ 2S3 SCkA 66 (1996).
G7'*7(,*7. '- <,&'7\" T3 G"X,)/ S38 SCkA 242 (2007), K7(',RS7(T3 G,$")/

8
217 SCkA 347 (1993).
OFS'./ at p. 3S6, '*,R'P) )866R'7.3

-" )8P5 '-*7-*'"- ') ,66,(7-*/ S8* $7(7R% 6(7)8$7. S% R,b &("$ *57
-,*8(7 "& *57 *(,-),P*'"-3 In essence, express trusts are creatures of the
part|es' express |ntent usua||y man|fested by devo|v|ng naked or |ega|
t|t|e to the trustee of the (7) or the estate property, whereas resu|t|ng
trusts are |mp||ed by |aw from the |mp||ed |ntent|ons of the part|es as
der|ved from the nature of the|r transact|ons.
When |t comes to construct|ve trusts, no such |ntent|on at a|| |s
drawn from the nature of the transact|on, and the purpose of the |aw |n
|mbu|ng the re|at|onsh|p w|th trust character|st|cs |s to ach|eve equ|ty
demanded by the s|tuat|on. In fact, G,$") ho|ds that construct|ve trust
may be const|tuted by force of |aw "|ndependent|y of the part|cu|ar
|ntent|ons of the part|es."
Lxpress trusts over |mmovab|es can be proved by paro| ev|dence,
whereas, |n both types of |mp||ed trusts, they may be proved and
enforced by paro| ev|dence.
In construct|ve trust, s|nce the trust re|at|onsh|p |s |mposed by
|aw, there |s rea||y no f|duc|ary re|at|onsh|p ex|st|ng between the
purported trustee and the purported P7)*8' g87 *(8)* |n construct|ve
trusts, whereas, |n both express trusts and resu|t|ng trusts, the trustee
assumed f|duc|ary dut|es to the P7)*8' g87 *(8)*3
Consequent|y, wh||e express trusts (and resu|t|ng trusts) may be
sub[ect to |aches or defenses of prescr|pt|on on|y when there has been a
prev|ous c|ear repud|at|on by the trustee made known to the
benef|c|ary, |n construct|ve trusts, no such repud|at|on need be made for
prescr|pt|on to beg|n to run.
NA1UkL CI LVIDLNCL kLUIkLD 1C kCVL IMLILD 1kUS1S
Ak1. 14S7. An |mp||ed trust may be proved by ora|
ev|dence.

IMLILD 1kUS1S 331
1he d|scuss|ons hereunder are based on the |ega| prem|se that
trusts re|at|onsh|ps, whether express or |mp||ed, are bu||t on 7W')*'-+
6("67(*% (7R,*'"-) and that at the center of the |ega| |ssue |nvo|ves
property that has been transferred |n the name of, or |n ownersh|p to,
the purported trustee. Issues perta|n|ng to the enforceab|||ty of trusts
re|at|ons, and the nature of the ev|dence that |s |ega||y a||owed to prove
such trust re|at|ons, are pursued on|y when such property re|at|ons are
|n p|ace. 0"(,R7) T3 <"8(* "& B667,R),
11
has |n fact cons|dered as one of
the essent|a| character|st|cs of every trust that "|t |s a re|at|onsh|p w|th
respect to property, not one |nvo|v|ng mere|y persona| dut|es."
12
Such a
|ega| prem|se fo||ows the pr|nc|p|e that trusts contracts _'373/ express and
resu|t|ng trusts) have the essent|a| character|st|c of be|ng (7,R/ as
d|st|ngu|shed from that of be|ng P"-)7-)8,R or &"($,R3
Under the o|d C|v|| Code, the sy||abus appear|ng at the beg|nn|ng
of the dec|s|on |n C,$S", T3 C,$S",,
13
aff|rmed the nature of the proof
that must be sat|sf|ed |n order to prove |mp||ed trusts, thus
1. 1kUS1S, kCCI INSUIIICILN1 1C SnCW 1I1LL CI LAND 1C nAVL
8LLN nLLD IN 1kUS1. A person who has he|d |ega| t|t|e to
|and, coup|ed w|th possess|on and benef|c|a| use of the
property for more than ten years, w||| not be dec|ared to
have been ho|d|ng such t|t|e as trustee for h|mse|f and h|s
brothers and s|sters upon doubtfu| ora| proof tend|ng to
show a recogn|t|on by such owner of the a||eged r|ghts of h|s
brothers and s|sters to share |n the produce of the |and.
14

Under Art|c|e 14S7 of the New C|v|| Code, an |mp||ed trust,
whether resu|t|ng or construct|ve, may be proved by ora| ev|dence,
w|thout d|st|nct|on on whether |t |nvo|ves a movab|e or an |mmovab|e
property. Art|c|e 14S7 therefore conta|ns the rat|ona|e for |mp||ed trusts
as reported by the Code Comm|ss|on
11
274 SCkA 282
( )
12
]b]'d, at p. 298.
,3
S2 h||. S03
OFS'./ at pp.

332
that "the under|y|ng doctr|ne of |mp||ed trusts |s founded on equ|ty . . .
under a |ega| system where |n[ust|ce wou|d resu|t |n wh|ch the |ega|
estate or t|t|e were to preva|| over the equ|tab|e r|ght of the
benef|c|ary." 1h|s |s |n contrast to Art|c|e 1443 of the New C|v|| Code,
wh|ch prov|des that an express trust over |mmovab|es or any |nterest
there|n can on|y be const|tuted |n wr|t|ng, and cannot be proved by
paro| ev|dence, and wh|ch embod|es the pub||c po||cy that when |t
comes to reg|stered |and, genera||y paro| ev|dence cannot derogate the
t|t|e of the reg|stered owner.
In ;,R," T3 ;,R,"o where the Court refused to enforce the c|a|ms
of the p|a|nt|ffs under a cause of act|on based on an express trust over
|mmovab|e property unsupported by a wr|tten |nstrument, next
proceeded to address the |ssue OF) 6R,'-*'&&)^ $,))'T7 "(,R 7T'.7-P7
)8&&'P'7-* *" 6("T7 ,- '$6R'7. *(8)*/ (7)8R*'-+ "( P"-)*(8P*'T7/ (7+,(.'-+
*57 *b" &')56"-.)rO^
e
1he Court he|d that |ndeed |f the pr|nc|p|es of
express trust cannot be app||ed for |ack of wr|tten ev|dence to susta|n a
trust over |mmovab|es, then the ora| ev|dence can be accepted by the
courts to support a c|a|m of |mp||ed trusts.
nowever, ;,R," a|so he|d that a|though ora| ev|dence may be
adduced to prove an |mp||ed trust over |mmovab|es, |n order to be
recogn|zed such ora| ev|dence must measure up to the yardst|ck that a
trust must be proven by c|ear, sat|sfactory and conv|nc|ng ev|dence, and
cannot rest on vague and uncerta|n ev|dence or on |oose, equ|voca| or
|ndef|n|te dec|arat|ons.
17
1he Court quoted the fo||ow|ng author|t|es
!(8)*)d !(8)* ,-. *(8)*77d 7)*,SR')5$7-* "& *(8)* S% 6,("R
7T'.7-P7d P7(*,'-*% "& 6(""&3 - Where a trust |s to be
estab||shed by ora| proof, the test|mony support|ng |t must
be suff|c|ent|y strong to prove the r|ght of the a||eged
benef|c|ary w|th as much certa|nty as |f a document prov|ng
the trust were shown. A trust cannot be estab||shed,
contrary to the rec|ta|s of a 1orrens t|t|e, upon vague and
|nconc|us|ve proof." (Sy||abus, Suarez vs. 1|rambu|o, S9 h||.
303).
1S
70 SCkA 6S (1976).
OFS'./ at p. 81.
OFS'./ at p. 83, P'*'-+ 47 @7"- T3 0"R"VK7P1)"-/ 116 h||.
( )

IMLILD 1kUS1S 333
X O!(8)* 7T'.7-P7 -77.7. *" 7)*,SR')5 *(8)* "- 6,("R ^ *7)*'$"-%3
V In order to estab||sh a trust |n rea| property by paro|
ev|dence, the proof shou|d be as fu||y conv|nc|ng as |f the act
g|v|ng r|se to the trust ob||gat|on were proven by an
authent|c document. Such a trust cannot be estab||shed
upon test|mony cons|st|ng |n |arge part of |nsecure surm|ses
based on anc|ent hearsay." (Sy||abus, Santa Iuana vs. De|
kosar|o, S0 h||. 110).
18

In Sa]ao, the Court noted |ts ear||er dec|s|on |n A8$8R T3 G'T7(, ,-.
4'\"-/o where |t he|d that when |t comes to reg|stered |and, "A
cert|f|cate of t|t|e |s conc|us|ve ev|dence of the ownersh|p of the |and
referred to there|n (sec. 47, Act No. 496). x x x 8ut a strong
presumpt|on ex|sts that 1orrens cert|f|cates of t|t|e have been regu|ar|y
|ssued and are va||d and, |n order to ma|nta|n an act|on '- 67()"-,$ for
reconveyance... proof as to the f|duc|ary re|at|on of the part|es and of
the breach of trust must be c|ear and conv|nc|ng."
20
It a|so referred to |ts
dec|s|on |n @7+,(., ,-. K('7*" T3 ;,R77S%,
21
where |t he|d that the
purpose of the 1orrens system |s to qu|et t|t|e to |and: "Cnce a t|t|e |s
reg|stered, the owner may rest secure, w|thout the necess|ty of wa|t|ng
|n the porta|s of the court, or s|tt|ng |n the $'(,."( .7 )8 P,),/ to avo|d
the poss|b|||ty of |os|ng h|s |and."
22

1he Court then conc|uded |n Sa]ao that "1here was no resu|t|ng
trust |n th|s case because there never was any |ntent|on on the part of
the part|es |nvo|ved to create any trust. 1here was [a|so] no construct|ve
trust because the reg|strat|on of the two f|shponds ... was not v|t|ated by
fraud or m|stake. 1h|s |s not a case where to sat|sfy the demands of
[ust|ce |t |s necessary to cons|der t h e . . . f|shponds as be|ng he|d |n
trust."
23

1he Sa]ao doctr|nes therefore show the c|ose k|nsh|p between
express trusts and resu|t|ng trusts and that treatment
oRS'./ at pp. 83-84.
19
64 h||. 13(1937).
]qRS'./ at pp. 17-18.
21
31 h||. S90,

a
64 h||. 13, at pp.

Y[
RS'./ at p. 84.

can move from one to the other |n order to ach|eve the ends of equ|ty.
In 08-'P'6,R'*% "& 2'P*"(',) T3 <"8(* "& B667,R)/
Y
] |t was he|d that
the ex|stence of pub||c records other than the 1orrens t|t|e |nd|cat|ng a
proper descr|pt|on of the |and, and not the techn|ca| descr|pt|on thereof,
and c|ear|y |nd|cat|ng the |ntent|on to create a trust, was cons|dered
suff|c|ent proof to support the c|a|m of the P7)*8' g87 *(8)*3
In ?-+ <5'-+ K" T3 <"8(* "& B667,R)/
YZ
where the Court he|d that
a|though an |mp||ed trust may be proved ora||y, "the ev|dence to prove
|t must be trustworthy and rece|ved by the courts w|th extreme caut|on,
and shou|d not be made to rest on |oose, equ|voca| and |ndef|n|te
dec|arat|ons."
26

Late|y, |n :""P T3 L'T7 ;*,() 0,(17*'-+ Co., F-P3/O the Court
re|terated the doctr|ne |t |a|d down |n 0"(,R7) T3 <"8(* "& B667,R)/
Ye
and
!'+-" T3 <"8(* "& B667,R)/
Yl
that "As a ru|e, the burden of prov|ng the
ex|stence of a trust |s on the party assert|ng |ts ex|stence and such proof
must be c|ear and sat|sfactor||y show the ex|stence of the trust and |ts
e|ements." :""P he|d that an aff|dav|t of the fact of resu|t|ng trust
aga|nst contrary aff|dav|ts presented by other w|tnesses, as we|| as the
transfer cert|f|cates of t|t|e and tax dec|arat|ons to the contrary, do not
support c|ear|y the ex|stence of trust.
1he conc|us|on one gets from read|ng the forego|ng dec|s|ons |s
that, faced w|th a 1orrens t|t|e that shows no trust re|at|onsh|p assumed
by the reg|stered owner, and there |s no other wr|tten ev|dence to show
an |ntent|on to create a trust, then genera||y ora| ev|dence |s unava|||ng
to overcome the reg|stered t|t|e of the purported trustee who den|es
the ex|stence of any trust. 1he re||ab|e ev|dence to |nd|cate a resu|t|ng
trust
24
149 SCkA 32
( 98 )
2S
239 SCkA 341
oRS'./ at p. 347.
"S38 SCkA 42

28
274 SCkA 282
^280 SCkA 262
( 99 )

IMLILD 1kUS1S 33S
re|at|onsh|p aga|nst a c|ean t|t|e reg|stered |n the name of the purported
trustee can on|y be a wr|tten document s|gned by sa|d purported trustee
acknow|edg|ng that he ho|ds t|t|e for the benef|t of another party, or
from the nature of the transact|on du|y proven |nd|cat|ng how t|t|e was
acqu|red by the reg|stered owner, and shows that there was a c|ear
agreement or |ntent|on to ho|d |t for the benef|t of another person.
erhaps the best way to end th|s sect|on |s to |nvoke the dec|s|on
|n <,57\" T3 G"X,)/
[c
wh|ch he|d that
Wh||e |mp||ed trust may be proved by ora| ev|dence, the
ev|dence must be trustworthy and rece|ved by the courts
w|th extreme caut|on, and shou|d not be made to rest on
|oose, equ|voca| or |ndef|n|te dec|arat|ons. 1rustworthy
ev|dence |s requ|red because ora| ev|dence can eas||y be
fabr|cated. In order to estab||sh an |mp||ed trust |n rea|
property by paro| ev|dence, the proof shou|d be as fu||y
conv|nc|ng as |f the acts g|v|ng r|se to the trust ob||gat|on are
proven by an authent|c document. An |mp||ed trust, |n f|ne,
cannot be estab||shed upon vague and |nconc|us|ve proof. In
the present case, there was no ev|dence of any transact|on
between the pet|t|oner and her father form wh|ch |t can be
|nferred that a resu|t|ng trust was |ntended.
31

kLSUL1ING 1kUS1S
In G,$") T3 G,$")/
[Y
the Court he|d that '"A resu|t|ng trust |s
broad|y def|ned as a trust wh|ch |s ra|sed or created by the act or
construct|on of |aw, but |n |ts more restr|cted sense |t |s a trust ra|sed by
|mp||cat|on of |aw and presumed a|ways to have been contemp|ated by
the part|es, *57 '-*7-*'"- ,) *" b5'P5 ') *" S7 &"8-. '- *57 -,*8(7 "& *57'(
*(,-),P*'"-/ but not expressed |n the deed or |nstrument of
conveyance.
33
Lxamp|es of resu|t|ng trusts are found |n art|c|e 1448,
[1449, and] 14SS of the C|v|| Code>
M
S38 SCkA 242 (2007).
OFS'./ at p. 2S6. G7'*7(,*7. ;,R," T3 ;,R,"/ 70 SCkA 6S, 80-81

M
61 SCkA 284 (1974).
mFS'./ g8"*'-+ &("$ 89 C.I.S. 72S, '*,R'P) )866R'7.3
[a
FS'./,* p. 298.

336
1. 8urden of roof |n kesu|t|ng 1rusts
1he essence of resu|t|ng trusts |s the |mp||cat|on drawn out by
|aw from the nature of the transact|ons covered, and necessar||y, the
enumerated cases, be|ng mere|y |mp||ed trust from the |aw's perce|ved
|ntent|ons of the part|es, const|tute d|sputab|e presumpt|ons of trust,
and ev|dence may thus be adduced to show that no trust was |ntended
nor contemp|ated by the part|es.
Correct|y |nterpreted, s|nce |t |s the |aw that |mbues certa|n
transact|ons w|th the character|st|cs of resu|t|ng trusts, the P7)*8' g87
*(8)* need on|y prove the facts that wou|d const|tute the covered
transact|on and the |ega| presumpt|on that there ex|sts a resu|t|ng trust
wou|d ar|se from the very nature of the transact|on, thereafter, the
burden of proof wou|d be on the part of the purported trustee to show
that no such trust re|at|onsh|p was |ntended.
2. 8|urr|ng of the D|st|nct|ons 8etween Lxpress 1rusts and
kesu|t|ng 1rusts
If we go by the [ur|sprudent|a| def|n|t|on of resu|t|ng trusts, the
presumed |ntent|on of the part|es bounded by the trust re|at|onsh|p |s
drawn from the nature of the transact|on, and not from the words, acts
or om|ss|ons of the part|es. 1hus, when the |ntent|on |s der|ved, not
on|y from the nature of the transact|ons, but from the verba|
express|ons of the part|es, then the re|at|onsh|p |s one of express trust,
not resu|t|ng trust, s|nce under Art|c|e 1441 of the C|v|| Code, express
trust are "created by the |ntent|on of the trustor or of the part|es." Cn|y
recent|y, |n <,-7\" T3 G"X,),the Court character|zed express trusts as
"those wh|ch are created S% *57 .'(7P* ,-. 6")'*'T7 ,P*) "& *57 6,(*'7)/
S% )"$7 b('*'-+ "( .77./ "( b'RR/ "( S% b"(.) 7T'-P'-+ ,- '-*7-*'"- *"
P(7,*7 , *(8)*/O
[e
as d|st|ngu|shed from |mp||ed
3SS38 SCkA 242 (2007).
mFS'./ at pp. 2S1-2S2, '*,R'P) )866R'7./ P'*'-+ :8,- 2.,3 47 D)P"-.7
T3 <"8(* "& B667,R)/ 2S3 SCkA 66, 73 (1996).

IMLILD 1kUS1S
337
trusts (wh|ch wou|d |nc|ude resu|t|ng trusts) "wh|ch, w|thout be|ng
expressed, are deduc|b|e from the nature of the transact|on as matters
of |ntent or, |ndependent|y, of the part|cu|ar |ntent|on of the part|es, as
be|ng super|nduced on the transact|on by operat|on of |aw bas|ca||y by
reason of equ|ty."
37

et, as shown by the d|scuss|ons hereunder, the ru|es on |mp||ed
trusts (part|cu|ar|y resu|t|ng trusts) have been made to app|y to
s|tuat|ons wh|ch are cons|dered as express trusts because the |ntent|ons
of the part|es are deduc|b|e OS% *57 .'(7P* ,-. 6")'*'T7 ,P*) "& *57
6,(*'7)/ S% )"$7 b('*'-+ "( .77./ "( b'RR/ "( S% b"(.) 7T'-P'-+ ,-
'-*7-*'"- *" P(7,*7 , *(8)*O
D|scuss|ons on th|s |ssue w||| start w|th the dec|s|on |n the ear|y
case of 0,(*'-7\ T3 C(,-",
M
were the facts showed that prev|ous|y the
he|rs of the deceased spouses Mart|nez had so|d under a sa|e a (7*(" the
parce|s of |and |nher|ted from the deceased spouses |n order to cover
the debts of the estates, and that |n order to exped|te the obta|n|ng of a
|arge |oan from a sav|ngs assoc|at|on and to prevent the conso||dat|on of
t|t|e to the buyer , (7*("/ the he|rs had agreed to a||ow one of the|r own
to effect redempt|on and dea| d|rect|y w|th the sav|ngs assoc|at|on.
0,(*'-7\ dec|s|on narrated that "1he person chosen as the
repos|tory of th|s trust was C|emenc|a Grano,"
39
who executed a notar|a|
dec|arat|on "|n wh|ch she states, among other th|ngs, that she had
|ntervened |n the aforement|oned transact|ons |n beha|f of a|| the
Mart|nez he|rs."
40
8ut "[|]n cons|derat|on of the respons|b|||ty thus to be
assumed by C|emenc|a Grano, as borrower, a|| of the adu|t Mart|nez
he|rs persona||y and the guard|ans of the m|nor he|rs executed a
document [o|nt|y w|th C|emenc|a Grano . . . |n wh|ch |t was agreed that
C|emenc|a Grano shou|d have exc|us|ve possess|on of a|| the |and
perta|n|ng to the Mart|nez estate and adm|n|ster the same for the
purpose of ra|s|ng the
[N
FS'./ at p.

M
42 h||. 3S
mFS'./ at p. 39.
OFS'./ at p. 40.

necessary revenue to meet her ob||gat|ons"
41
to the |end|ng sav|ngs
assoc|at|on. ears |ater, C|emenc|a Grano asserted that she was the
abso|ute owner of a|| the property obta|ned by her from the or|g|na|
buyer a (7*(" and den|ed that the other Mart|nez he|rs had any |nterest
whatsoever there|n.
1he Supreme Court he|d |n 0,(*'-7\ that the propert|es
redeemed from the buyer a (7*(" and mortgaged w|th the sav|ngs
assoc|at|ons were "he|d |n trust by the sa|d C|emenc|a Grano for the
benef|t of the sa|d he|rs . . . sub[ect, however, to the mortgage |n favor"
of the sav|ngs assoc|at|on. 1he Court d|d not character|ze what type of
trust was created by the transact|on s|nce the dec|s|on was rendered
under the o|d C|v|| Code, but |t he|d that the Mart|nez he|rs were
ent|t|ed to account|ng from the sa|d C|emenc|a Grano of a|| the proceeds
obta|ned from her adm|n|strat|on of the propert|es, that any amount
appropr|ated by her for her own benef|t and not app||ed to the payment
of the mortgage |oan wou|d have to be re|mbursed, and that "|t be|ng
man|fest|y |mproper that a person |n the host||e att|tude occup|ed by
C|emenc|a Grano towards the Mart|nez he|rs shou|d be a||owed to
adm|n|ster the property |n quest|on, |t resu|ts that the rece|versh|p
[prev|ous|y ordered by the tr|a| court] shou|d be re|nstated."
42

0,(*'-7\ |s a pr|me examp|e of the app||cat|on of trusts pr|nc|p|es
under the o|d C|v|| Code, pure|y based on equ|ty pr|nc|p|es and w|thout
statutory support.
1he pr|nc|p|e was re|terated under the aeg|s of the New C|v|| Code
|n >7'() "& <,-.7R,(', T3 G"$7("where the proven facts showed that
one brother (Lm|||o) had taken over the |nsta||ment payments over a
purchased subd|v|s|on |ot of another brother (Lucas) who had fa||en |||,
unt|| the who|e purchase pr|ce had been fu||y sat|sf|ed under the
arrangement "that a|though Lucas Cande|ar|a had no more |nterest over
the |ot, the subsequent payments made by Lm|||o Cande|ar|a unt|| fu||y
pa|d were
O'S'./ at p. 40.
B
Y
R

IMLILD 1kUS1S 339
made |n the name of Lucas Cande|ar|a, w|th the understand|ng that the
necessary documents of transfer w||| be made |ater, the reason that the
transact|on be|ng from brother to brother."
44
ears |ater, when the
cert|f|cate of t|t|e was |ssued |n the name of Lucas, h|s he|rs refused to
reconvey the property to the he|rs of Lm|||o.
In an act|on for reconveyance f||ed by the he|rs of Lm|||o, the tr|a|
court d|sm|ssed the comp|a|nt ho|d|ng "that an express and not an
|mp||ed trust was created as may be g|eaned from the facts a||eged |n
the comp|a|nt, wh|ch |n unenforceab|e w|thout any wr|t|ng, and that
s|nce [the t|t|e] cover|ng the |and |n quest|on had been |ssued to Lucas
Cade|ar|a way-back |n 1918 or 38 years before the f|||ng of the
comp|a|nt, the act|on has a|ready prescr|bed."
4S
Cn appea|, the Court
he|d that
1he trust a||eged to have been created, |n our op|n|on, ')
,- '$6R'7. *(8)* As he|d, |n effect, by th|s Court |n the case of
Mart|nez T)3 Graf|o (42 h||., 3S), where rea| property |s
taken by a person under an agreement to ho|d |t for, or
convey |t to another or the grantor, a resu|t|ng or |mp||ed
trust ar|ses |n favor of the person for whose benef|t the
property was |ntended. ;8P5 '$6R'7. *(8)* ') 7-&"(P7,SR7
7T7- b57- *57 ,+(77$7-* ') -"* '- b('*'-+/ ,-. ') -"* ,-
7W6(7)) *(8)* b5'P5 (7g8'(7) *5,* '* S7 '- b('*'-+ *" S7
7-&"(P7,SR73 1h|s ru|e, wh|ch has been |ncorporated |n the
new C|v|| Code |n Art. 14S3 thereof, |s founded upon equ|ty.
1he ru|e |s the same |n the Un|ted States, part|cu|ar|y where,
on the fa|th of the agreement or understand|ng, the grantee
|s enab|e to ga|n an advantage |n the purchase of the
property or where , the cons|derat|on or part thereof has
been furn|shed by or for such ot her. . . . It |s a|so the ru|e
there that an |mp||ed trust ar|ses where a person purchases
|and w|th h|s own money and takes a conveyance thereof |n
the name of another. In such a case, the property |s he|d on
a resu|t|ng trust |n favor of the one furn|sh|ng the
cons|derat|on for the transfer, un|ess a d|fferent |ntent|on or
understand|ng appears. 1he trust wh|ch resu|ts under such
c|rcumstances does not ar|se
OFS'./ at p.

]
Z
RS'./ at
02

from contract or agreement of the part|es, but from the
facts and c|rcumstances, that |s to say, |t resu|ts because of
equ|ty and ar|ses by |mp||cat|on or operat|on of |aw.
46

I|nd|ng that a resu|t|ng trust was du|y const|tuted, the Court
app||ed the pr|nc|p|e that "Cont|nuous recogn|t|on of a resu|t|ng trust,
however, prec|udes any defense of |aches |n a su|t to dec|are and
enforce the tr ust. . . . 1he benef|c|ary of a resu|t|ng trust may,
therefore, w|thout pre[ud|ce to h|s r|ght to enforce the trust, prefer the
trust to pers|st and demand a conveyance from the trustee."
47

1he Court a|so ru|ed that "It be[ng a||eged |n the comp|a|nt that
Lucas he|d the t|t|e to the |ot |n quest|on mere|y |n trust for Lm|||o and
that th|s fact was acknow|edged not on|y by h|m but a|so by h|s he|rs,
here|n defendants wh|ch a||egat|on |s hypothet|ca|^ adm|tted we
are not prepared to ru|e that p|a|nt|ffs act|on |s a|ready barred by |apse
of t|me. Cn the contrary, we th|nk the |nterest of [ust|ce wou|d be
better served |f she and her a||eged co-he|rs were to be g|ven an
opportun|ty to be heard and a||owed to present proof |n support of
the|r c|a|m."
48

A|though <,-.7R,(', refers to the ru||ng |n 0,(*'-7\ to have
recogn|zed the const|tut|on of a "resu|t|ng trust" even though |n
0,(*'-7\ the agreement was covered |n three notar|zed documents,
what may be |earned from <,-.7R,(', |s that when the arrangement |s
covered mere|y by verba| agreement, the trust re|at|onsh|p const|tuted
over |mmovab|es wou|d then be character|zed as be|ng a "resu|t|ng
trust" |n order to ach|eve equ|ty and be ab|e to move around the
requ|rement under Art|c|e 1443 of the C|v| Code that "No express trusts
concern|ng an |mmovab|e or any |nterest there|n may be proved by
paro| ev|dence." 1hus, |n <,-.7R,(',/ hav|ng reso|ved that what was
const|tuted was a resu|t|ng trust, the Court d|rected the case to be
remanded to the tr|a| court to a||ow the he|rs of the P7)*8' g87 *(8)* to
prove the|r a||egat|ons wh|ch wou|d |nc|ude paro| ev|dence.
OFS'./ at pp. S02-S03, '*,R'P)
R' .
]
N
RS'./ at p. S04.
aj
FS'./ at p. S04.

IMLILD 1kUS1S
341
In K,.'RR, T3 <"8(* "& B667,R)]
l
the Court he|d that "1he concept of
|mp||ed trusts |s that from the facts and c|rcumstances of a g|ven case
the ex|stence of a trust re|at|onsh|p |s |nferred |n order to effect the
presumed (|n th|s case |t |s even express) |ntent|on of the part|es or to
sat|sfy the demands of [ust|ce or to protect aga|nst fraud."
S0

Cn|y |ate|y, |n <,57\" T3 ko]as,
61
the Court he|d that
A resu|t|ng trust |s a spec|es of |mp||ed trust that |s
presumed a|ways to have been contemp|ated by the part|es,
*57 '-*7-*'"- ,) *" b5'P5 P,- S7 &"8-. '- *57 -,*8(7 "& *57'(
*(,-),P*'"- ,R*5"8+5 -"* 7W6(7))7. '- , .77. "( '-)*(8$7-*
"& P"-T7%,-P73 A resu|t|ng trust |s based on the equ|tab|e
doctr|ne that |t |s the more va|uab|e cons|derat|on than the
|ega| t|t|e that determ|nes the equ|tab|e |nterests |n
property.
S2

It seems therefore that when the |ntent|on of the part|es bound by
the trust re|at|onsh|p |s found expressed |n a deed or |nstrument, |t
covers an express trust, whereas, when the same |ntent|on |s mere|y
verba| or can be proved by paro| ev|dence, |t may be cons|dered as a
resu|t|ng trust.
In the chapter on express trusts, the quest|on has been asked
whether for express trust to ex|st, as d|st|ngu|shed from resu|t|ng trust, |t
|s necessary that naked t|t|e |s forma||y reg|stered |n the name of the
trustee who express|y assumes f|duc|ary ob||gat|ons to an |dent|f|ed
benef|c|ary. 1he |mp||cat|on |s that a wr|tten undertak|ng by the t|t|e
ho|der of a property, espec|a||y reg|stered |and, ho|d|ng the property for
the benef|t of another on|y creates a resu|t|ng trust and not an express
trust.
1he |atest dec|s|on on the matter, >7'() "& !(,-g8'R'-" @,S')*7 T3
>7'() "& J")7 @,S'7)*7,
S3
|s to the effect that a wr|tten
49
S3 SCkA168 (1973).
]qRS'./ p. 179.
S
1
S
3

342
undertak|ng by the reg|stered owner to ho|d the property for the benef|t
of another wou|d const|tute an express trust, even when t|t|e reg|stered
|n the name of the purported trustee |s fu|| t|t|e.
In @,S')*7/ D6'&,-'" @,S')*7/ represent|ng the he|rs of J")7 @,S')*7/
and h|s unc|e, 1ranqu|||no Lab|ste, obta|ned [o|nt reg|strat|on as
co-owners of a |arge tract of |and wh|ch they bought from the 8ureau of
Lands. Subsequent|y, the he|rs of !(,-g8'R'-" a|so bought the one-ha|f
|nterest of the Iose he|rs and took over fu|| possess|on of the property.
After the war, the Iose he|rs f||ed a pet|t|on for the reconst|tut|on of t|t|e
to the property w|th a agreement w|th the 1ranqu|||no he|rs that the
|atter's c|a|ms wou|d be ||t|gated after the reconst|tut|on of the t|t|e. 1he
reconst|tuted t|t|e was |ssued over the property |n the name of Lp|fan|o
Lab|ste as represent|ng the Iose he|rs, who thereafter refused to honor
the r|ghts of the 1ranqu|||no he|rs. When su|t was f||ed seek|ng
reconveyance of the t|t|e to the property to the 1ranqu|||no he|rs, |t was
ru|ed by the tr|a| court that the act|on had prescr|bed hav|ng been f||ed
beyond the 10-year per|od from the reg|strat|on of t|t|e as mandated for
a resu|t|ng trust.
1he Supreme Court ru|ed that the s|tuat|on const|tuted an express
trust, and not a resu|t|ng trust, and that consequent|y "prescr|pt|on and
|aches w||| run on|y from the t|me the express trust |s repud|ated,"
cont|nu|ng that
. . . 1he Court has he|d that for acqu|s|t|ve prescr|pt|on
to bar the act|on of the benef|c|ary aga|nst the trustee |n an
express trust for the recovery of the property he|d |n trust
1
!
|t must be shown that: (a) the trustee has performed
unequ|voca| acts of repud|at|on amount|ng to an ouster of
the P7)*8' g87 *(8)*/ (b) such pos|t|ve acts of repud|at|on
have been made known to the P7)*8' g87 *(8)*/ and (c) the
ev|dence thereon |s c|ear and conc|us|ve. kespondents
cannot re|y on the fact that the 1orrens t|t|e was |ssued |n
the name of Lp|fan|o and the other he|rs of Iose. It has been
he|d that a trustee who obta|ns a 1orrens t|t|e over property
he|d |n trust by h|m for another cannot repud|ate the trust
by re|y|ng on the reg|strat|on. 1he ru|e requ|res a c|ear
repud|at|on of the trust du|y commun|cated to the
benef|c|ary. 1he on|y act that can be construed as
repud|at|on was when

IMLILD 1kUS1S 343
respondents f||ed the pet|t|on for reconst|tut|on |n Cctober
1993. And s|nce pet|t|oners f||ed the|r comp|a|nt |n Ianuary
199S, the|r cause of act|on has not yet prescr|bed, |aches
cannot be attr|buted to them.
S4

1he Court noted |n @,S')*7 that "Under Art|c|e 1444 of the C|v||
Code, 'No part|cu|ar words are requ|red for the creat|on of an express
trust, |t be|ng suff|c|ent that a trust |s c|ear|y |ntended.'"
SS
It therefore
conc|uded, that what was |nvo|ved was not an |mp||ed trust, but rather
an express trust s|nce "1he Aff|dav|t of Lp|fan|o |s |n the nature of a
trust agreement. Lp|fan|o aff|rmed that the |ot brought |n h|s name was
co-owned by h|m, as one of the he|rs of Iose, and h|s unc|e 1ranqu|||no.
And by agreement, each of them has been |n possess|on of ha|f of the
property. 1he|r arrangement was corroborated by the subd|v|s|on p|an
prepared by Lngr. 8unagan and approved by Iose . Dans, Act|ng
D|rector of Lands."
S6

Compare the ru||ng |n @,S')*7/ w|th that |n <,57\" T3 G"X,)/
ZN
where the pet|t|on|ng daughter sought to recover a parce| of |and from
her stepmother wh|ch the |atter |nher|ted from the deceased husband,
we f|nd that the Court seems undec|ded on what const|tutes the rea|
d|fference between an express trust and a resu|t|ng trust when |t comes
to reg|stered |and.
In <,57\"/ the daughter a||eged that she was the one who
purchased the unreg|stered |and from the 8ureau of Lands, but that
when she had to |eave M|ndanao, she p|aced |t |n the care of her father
who verba||y agreed to ho|d t|t|e on her beha|f. 1he father eventua||y
obta|ned a tax dec|arat|on to the |and |n h|s name and pa|d the rea|
property taxes thereon a|so |n h|s name. After the father d|ed, when the
stepmother took over the t|t|e to the |and, the daughter sought a
reconveyance of t|t|e to the |and on the ground of a trust was created
thereon |n her favor. 1he daughter executed a sworn statement to
prove the ex|stence of
Za
FS'., at p. 426.
mFS'./ at pp.

W
RS'./ at p. 426.
S7
S38 SCkA 242
( )

[
an express trust or a resu|t|ng trust on the theory that prescr|pt|on or
|aches cannot be po|sed aga|nst her c|a|ms on the property. 1he Court
ru|ed aga|nst the daughter as fo||ows:
It |s true that |n express trusts and resu|t|ng trusts, a
trustee cannot acqu|re by prescr|pt|on a property entrusted
to h|m un|ess he repud|ates the trust, xxx.
S 8

As a ru|e, however, the burden of prov|ng the ex|stence
of a trust |s on the party assert|ng |ts ex|stence, and such
proof must be c|ear and sat|sfactor||y show the ex|stence of
the trust and |ts e|ements ___ Accord|ng|y, |t was |ncumbent
upon pet|t|oner [daughter] to prove the ex|stence of the
trust re|at|onsh|p. And pet|t|oner sad|y fa||ed to d|scharge
that burden.
1he ex|stence of express trust concern|ng rea| property
may not be estab||shed by paro| ev|dence. It must be proven
by some wr|t|ng or deed. In th|s case, the on|y ev|dence to
support the c|a|m that an express trust ex|sted between the
pet|t|oner and her father was the se|f-serv|ng test|mony of
f
the pet|t|oner. 8are a||egat|ons do not const|tute ev|dence
adequate to support a conc|us|on. 1hey are not equ|va|ent
to proof under the ku|es of Court.
S9

1he best ev|dence of an express trust, apart from reg|strat|on of
the |and |n the name of the trustee, wou|d be a Deed of 1rust, wh|ch
descr|bes the trust propert|es, and conveys naked or |ega| t|t|e thereto
to the trustee under terms and cond|t|ons that |nd|cate the powers,
dut|es and respons|b|||t|es of the trustee to the |nd|cated benef|c|ary. A
deed of trusts |s usua||y acknow|edged and subscr|bed by both the
trustor and the trustee. In @,S')*7/ where there was no such deed of
trust, the Court a||owed sworn statements to const|tute as the wr|tten
ev|dence to prove the ex|stence of an express trust, whereas, |n <,57\"/
such sworn statement was deemed to be |nsuff|c|ent to prove e|ther an
express or a resu|t|ng trust. 1he |esson |earned from a compar|son of the
@,S')*7 and the <,57\" ru||ngs |s that,
$'./ at p.
2S2. m|d, at p.
2S3

IMLILD 1kUS1S 34S
outs|de of a forma| deed of trust, wr|tten or sworn statements narrat|ng
the purported trust, |n order to support the conc|us|on that there |s such
a trust re|at|onsh|p, must conta|n the s|gnature of "the party sought to
be bound" (a term used for the requ|s|te memorandum under the
Statute of Irauds), '373/ the s|gnature of the trustee, who under any trust
re|at|onsh|p, |s rea||y the party who assumes ob||gat|ons and f|duc|ary
dut|es re|at|ve to the property he|d |n trust.
a. ku|es of rescr|pt|b|||ty of kesu|t|ng 1rusts
S|nce a resu|t|ng trust |s much ak|n to an express trust under the
cons|derat|on that |t ar|ses from the presumed or somet|mes mere|y
ora||y expressed |ntent|on of the part|es, the Supreme Court has he|d |n
G,$") T3 G,$")/
$
that the ru|e of |mprescr|pt|b|||ty of an act|on to
recover property he|d |n express trust, may poss|b|e app|y to a resu|t|ng
trust as |ong as the trustee has not repud|ated the trust.
1herefore, the ru|es on acqu|s|t|ve prescr|pt|on when |t comes to
resu|t|ng trusts, wou|d be the same ru|es perta|n|ng to express trusts.
1he matter |s dea|t more |n deta|| |n the |ast chapter of th|s sect|on on
1rusts.
CCNS1kUC1IVL 1kUS1S
In 4',\ T3 C"(('P5" ,-. B+8,.",
61
and <,(,-*7) T3 <"8(* "&
B667,R)the Supreme Court character|zed construct|ve trust as one
"wh|ch |s |mposed by |aw ... [and] there |s ne|ther prom|se nor f|duc|ary
re|at|ons, the so-ca||ed trustee does not recogn|ze any trust and has no
|ntent to ho|d the property for the benef|c|ary."
In C7("-'$" ,-. F)'."(" T3 9,T, ,-. Bg8'-"/
e[
a construct|ve trust
was he|d to have ar|sen upon a tr|a| court's dec|s|on becom|ng f|na| and
executory wh|ch he|d that defendants-
"61 SCkA 284 (1974).
61
103 h||. 261, 266
276 SCkA S14, S24

ra
10S h||. 14S (19S9).

spouses' r|ght to redeem the property |n ||t|gat|on and ordered the
p|a|nt|ffs-spouses to make the resa|e, |n the sense that a|though the
p|a|nt|ffs-spouses were the reg|stered owners of the property they
possessed on|y naked t|t|e thereto wh|ch they were to ho|d |n trust for
the defendants-spouses to redeem, sub[ect to the payment of the
redempt|on pr|ce. nowever, the Court he|d |n that dec|s|on that "In the
|atter |nstance of construct|ve trust, prescr|pt|on may app|y on|y where
the trustee asserts a r|ght adverse to that of the P7)*8' g87 *(8)*/ such
as, assert|ng acts of ownersh|p over the property be|ng he|d |n trust,"
64

wh|ch |s contrary to |ts ru||ng that |n a construct|ve trust, s|nce there |s
rea||y no f|duc|ary re|at|onsh|p, no act of repud|at|on need to be made
by the trustee for prescr|pt|on to run.
G,$") T3 G,$")/o character|zed P"-)*(8P*'T7 *(8)* as
" . . . a trust ra|sed by construct|on of |aw, or ar|s|ng by
operat|on of |aw. In a more restr|cted sense and as
contrad|st|ngu|shed from a resu|t|ng trust, a construct|ve
trust |s a trust not created by any words, e|ther express|y or
|mp||ed|y ev|nc|ng a d|rect |ntent|on to create a trust, but by
*57 P"-)*(8P*'"- "& 7g8'*% '- "(.7( *" ),*')&% *57 .7$,-.) "&
X8)*'P73 It does not ar|se by agreement or |ntent|on, but by
operat|on of |aw.
68
If a person obta|ns |ega| t|t|e to property
by fraud or concea|ment, courts of equ|ty w||| |mpress upon
the t|t|e a so-ca||ed construct|ve trust |n favor of the
defrauded party. A construct|ve trust |s not a trust |n the
techn|ca| sense."
87

1.
1
D|st|ngu|sh|ng from kesu|t|ng 1rusts
Un||ke resu|t|ng trusts that draw the|r essence from the perce|ved
|ntent|on of the part|es as taken from the structure of
OFS'./ at p. 1S3.
Î SCkA 284 (1974).
"89 C I.S. 726-727.
eN
FS'./ at p. 298-299, P'*'-+ Art|c|e 14S6 of the C|v|| Code, and
T3 !(7,)8(7( "& *57 K3F3/ 49 h||. 244 (1926). !57 (8R'-+ 5,) S77-
(7'*7(,*7. '- ;,R," T3 ;,R,"/ 70 SCkA 6S, 81 (1976), C8% T3 <"8(* "&
B667,R)/ S39 SCkA S84 (2007).

IMLILD 1kUS1S 347'
the transact|ons covered, construct|ve trusts draw the|r essence
from the need to |mpose a f|duc|ary duty on a person who takes t|t|e to
a property to ach|eve [ust|ce or equ|ty on beha|f of another person who
wou|d otherw|se be adverse|y affected by the fact that such t|t|e
rema|ns w|th, or has been conveyed to, another person.
In K5'R'66'-7 9,*'"-,R :,-1 T3 <"8(* "& B667,R)/the Court
d|st|ngu|shed an express trust from the construct|ve trust |n the
fo||ow|ng manner, thus
In ana|yz|ng the |aw on trust, |t wou|d be |nstruct|ve to
refer to Ang|o-Amer|can [ur|sprudence on the sub[ect. Under
Amer|can Law, a court of equ|ty does not cons|der a
construct|ve trustee for a|| purposes as though he were |n
rea||ty a trustee, a|though |t w||| force h|m to return the
property, |t w||| not |mpose upon h|m the numerous
f|duc|ary ob||gat|ons ord|nar||y demanded from a trustee of
an express trust. It must be borne |n m|nd that |n an express
trust, the trustee has act|ve dut|es of management wh||e |n a
construct|ve trust, the duty |s mere|y to surrender the
property.
69

In B\-,( :("*57() G7,R*% <"$6,-% T3 B%'-+/
Nc
the Court d|s-
t|ngu|shed a resu|t|ng trust from a construct|ve trust, as fo||ows
kesu|t|ng trusts are based on the equ|tab|e doctr|ne that
va|uab|e cons|derat|on and not |ega| t|t|e determ|nes the
equ|tab|e t|t|e or |nterest and are presumed a|ways to have
been contemp|ated by the part|es. 1hey ar|se from the
nature of c|rcumstances of the cons|derat|on |nvo|ved |n a
transact|on whereby one person thereby becomes |nvested
w|th |ega| t|t|e but |s ob||ged |n equ|ty to ho|d h|s |ega| t|t|e
for the benef|t of another. Cn the other hand, construct|ve
trusts are created by the construct|on of equ|ty |n order to
sat|sfy the demands of [ust|ce and prevent un[ust
enr|chment. 1hey
w
2
1

70
4S8 SCkA 496
(200 )

ar|se contrary to |ntent|on aga|nst one who, by fraud, duress
or abuse of conf|dence, obta|ns or ho|ds the |ega| r|ght to
property wh|ch he ought not, |n equ|ty and good consc|ence,
to ho|d.
71

1he pr|nc|p|e was re|terated '- @"67\ T3 <"8(* "& B667,R)/
NY
where the Court further he|d that
A resu|t|ng trust |s presumed to have been
contemp|ated
by the part|es, the |ntent|on as to wh|ch |s to be found |n
the nature of the|r transact|on but not expressed |n the deed
|tse|f. Spec|f|c examp|es of resu|t|ng trusts may be found |n
the C|v|| Code, part|cu|ar|y Arts. 1448,1449,14S1,14S2 and
14S3.
A construct|ve trust |s created, not by any word ev|nc|ng
a d|rect |ntent|on to create a trust, but by operat|on of |aw |n
order to sat|sfy the demands of [ust|ce and to prevent un[ust
enr|chment. It |s ra|sed by equ|ty |n respect of property,
wh|ch
has been acqu|red by fraud, or where a|though acqu|red
or|g|na||y w|thout fraud, |t |s aga|nst equ|ty that |t shou|d be
reta|ned by the person ho|d|ng |t. Construct|ve trusts are
|||ustrated |n Arts. 14S0,14S4,14SS and 14S6.
73

Late|y, |n <,(>7\" T3 G"X,)/
N
] the Court he|d that
A construct|ve trust |s one created not by any word
or phrase, e|ther express|y or |mp||ed|y, ev|nc|ng a d|rect
|ntent|on to create a trust, but one wh|ch ar|ses |n order to
sat|sfy the demands of [ust|ce. It does not come about by
agreement or |ntent|on but |n the ma|n by operat|on of |aw,
construed as aga|nst one who, by fraud, duress or abuse of
conf|dence, obta|ns or ho|ds the |ega| r|ght to property
wh|ch

OFS'./ at pp.

"S74 SCkA 26

-
RS'./ at p. 27.
74
S38 SCkA 242

N;
RS'./ at p. 2S8.

IMLILD 1kUS1S 349'
2. Construct|ve 1rusts S|m||ar |n urpose to the U8,)'VContracts
of ;"R8*'" F-.7S'*'
It |s qu|te |nterest|ng to note that |n K5'R'66'-7 9,*'"-,R :,-1 T3
<"8(* "& B667,R)/
è
the Supreme Court d|scussed the s|m||ar|ty |n the
nature and equ|ty cons|derat|ons of construct|ve trusts and the
g8,)'Vcontract of )"R8*'" '-.7S'*'/ thus:
kare|y |n th|s Court confronted w|th a case ca|||ng for the
de||neat|on |n broad strokes of the d|st|nct|ons between such
c|ose|y a|||ed concepts as the quas|-contract ca||ed O)"R8*'"
'-.7S'*'O under the venerab|e Span|sh C|v|| Code and the
spec|es of |mp||ed trust denom|nated "construct|ve trust,"
common|y regarded as of Ang|o-Amer|can or|g|n. Such a case
|s the one presented to us now wh|ch has h|gh||ghted more
of the aff|n|ty and |ess of the d|ss|m||ar|ty between the two
concepts as to |ead the |ega| scho|ar |nto the error of
|nterchang|ng the two. resented be|ow are the factua|
c|rcumstances that brought |nto [uxtapos|t|on the tw|n
|nst|tut|ons of the C|v|| Law quas|-contract and the Ang|o-
Amer|can trust.
77

In K9:/ the drawee-bank had m|staken|y cred|ted doub|e
payments |nto the account of the payee Mata, wh|ch |t d|scovered on|y
s|x years |ater, at wh|ch t|me |t made a forma| demand upon the payee
to refund the overpayment. When the payee d|d not comp|y w|th the
demand, the pet|t|oner drawee-bank f||ed a co||ect|on case "based on a
construct|ve trust under Art|c|e 14S6 of the C|v|| Code, |t has a r|ght to
recover the sa|d amount |t erronenous|y cred|ted to respondent Mata."
78

1he drawee-bank d|d not seek to recover based on )"R8*'" '-.7S'*'
s|nce under Art|c|e 114S(2) of the C|v|| Code, s|nce |t has exceed the
statute of ||m|tat|on of s|x (6) years. 1he tr|a| court rendered [udgment
d|sm|ss|ng the comp|a|nt ru||ng that "the |nstant case fa||s square|y
under Art|c|e 21S4 on )"R8*'" '-.7S'*'
re
217 SCkA 347
( )
NN
FS'./ at p. 3S0.
-
RS'./ at p. 3S1.

3S0
and not under Art|c|e 14S6 on construct|ve trust. In aff|rm|ng the |ower
court, the appe||ate court added |n |ts op|n|on that under Art|c|e 21S4 on
)"R8*'" '-.7S'*'/ the person who makes the payment |s one who
comm|ts the m|stake T')VzVT') the rec|p|ent who |s unaware of such a
m|stake."
79

1he Court noted that "et|t|oner [drawee-bank] natura||y opts for
an |nterpretat|on under construct|ve trust as |ts act|on . . . can st|||
prosper s'37/ |mp||ed trust], as |t |s we|| w|th|n the prescr|pt|ve per|od
often (10) years as prov|ded by Art|c|e 1144, paragraph 2 of the C|v||
Code."
80
In contrast|ng an express trust from an |mp||ed trust, the Court
he|d |n K9: i
A deeper ana|ys|s of Art|c|e 14S6 revea|s that |t |s not a
trust |n the techn|ca| sense for |n a typ|ca| trust, conf|dence |s
reposed |n one person who |s name a trustee for the benef|t
of another who |s ca||ed the P7)*8' g8' trust, respect|ng
property wh|ch |s he|d by the trustee for the benef|t of the
P7)*8' g8' *(8)* A construct|ve trust, un||ke an express trust,
does not emanate from, or generate a f|duc|ary re|at|on.
Wh||e |n an express trust, a benef|c|ary and a trustee are
||nked by conf|dent|a| or f|duc|ary re|at|ons, |n a construct|ve
trust, there |s ne|ther a prom|se nor any f|duc|ary re|at|on to
speak of and the so-ca||ed trustee ne|ther accepts any trust
nor |ntends ho|d|ng the property for the benef|c|ary.
81

x x x
In ana|yz|ng the |aw on trust, |t wou|d be |nstruct|ve to
refer to Ang|o-Amer|can [ur|sprudence on the sub[ect. Under
Amer|can Law, a court of equ|ty does not cons|der a
construct|ve trustee for a|| purposes as though he were |n
rea||ty a trustee, a|though |t w||| force h|m to return the '
property, |t w||| not |mpose upon h|m the numerous
f|duc|ary ob||gat|ons ord|nar||y demanded from a trustee of
an express trust. It must be borne |n m|nd that |n an express
trust, the trustee has act|ve dut|es of management wh||e |n a
construct|ve trust, the duty |s mere|y to surrender the
property.
-
RS'./ at p. 3S1.
]hRS'./ at p. 3S2.
OFS'./ at pp.

IMLILD 1kUS1S 3S1'
St||| app|y|ng Amer|can case |aw, quas|-contractua| ob||-
gat|ons g|ve r|se to a persona| ||ab|||ty ord|nar||y enforceab|e
by an act|on at |aw, wh||e construct|ve trusts are enforceab|e
by a proceed|ng |n equ|ty to compe| the defendant to sur-
render spec|f|c property. 1o be sure, the d|st|nct|on |s more
procedura| than substant|ve.
82

In draw|ng the para||e||sm between )"R8*'" '-.7S'*'and trusts, the
Court noted that "Wh||e the pr|nc|p|e of undue enr|chment or )"R8*'"
'-.7S'*'/ |s not new, hav|ng been |ncorporated |n the sub[ect on
quas|-contracts |n 1|t|e kVI of 8ook IV of the Spa-n|sh C|v|| Code . . . the
chapter on 1rusts |s fa|r|y recent, hav|ng been |ntroduced by the Code
Comm|ss|on |n 1949. A|though the concept of trusts |s nowhere to be
found |n the Span|sh C|v|| Code, the framers of our present C|v|| Code
|ncorporated |mp||ed trusts, wh|ch |nc|ude construct|ve trusts, on top of
quas|-contracts, S"*5 "& b5'P5 7$S".% *57 6('-P'6R7 "& 7g8'*% ,S"T7
)*('P* R7+,R')$q In add|t|on, the Court he|d
Iurther ref|ect|on on these concepts revea|s that cons-
truct|ve "trust" |s as much a m|snomer as a "quas|-contract",
so far removed are they from trusts and contracts proper,
respect|ve|y. In the case of a construct|ve trust, as |n the case
of quas|-contract, a re|at|onsh|p |s "forced" by operat|on of
|aw upon the part|es, not because of any |ntent|on on the|r
part but |n order to prevent un[ust enr|chment, thus g|v|ng
r|se to certa|n ob||gat|ons not w|th|n the contemp|at|on of
the part|es.
64

In ru||ng that the drawee-bank had a r|ght to |nvoke the pr|nc|p|es
of construct|ve trust under Art|c|e 14S6 of the C|v|| Code, the Court he|d
that "We agree w|th pet|t|oner's stand that under Art|c|e 14S6, the |aw
does not make any d|st|nct|on s|nce mutua| m|stake |s a poss|b|||ty on
e|ther s|de on the s|de of e|ther the grantor or the grantee. 1hus, |t
was error to conc|ude that |n a construct|ve trust, on|y the person
obta|n|ng the property
TMS'./ at p. 3S6.
mFS'./ at pp. 3SS-3S6, '*,R'P)

ea
FS'., at p. 3S6.

3S2
comm|ts a m|stake. 1h|s |s because |t |s a|so poss|b|e that a grantor, ||ke
N8 |n the case at hand, may comm|t the m|stake."
8S
Nonethe|ess, the
drawee-bank |ost the case on the ground of |aches.
IMLILD 1kUS1S Ak1ICULAkL CCNS1I1U1LD 8 LAW
Ak1. 144S. 1he enumerat|on of the fo||ow|ng cases of
|mp||ed trust does not exc|ude others estab||shed by the
genera| |aw of trust, but the ||m|tat|on |a|d down |n Art|c|e
1442 sha|| be app||cab|e.
Art|c|e 1447 of the C|v|| Code express|y prov|des that the
enumerat|on |n the subsequent art|c|es of the cases of |mp||ed trust
does not exc|ude others estab||shed by the genera| |aw of trust, but that
the ||m|tat|on |a|d down |n Art|c|e 1442 sha|| be app||cab|e, '373/ so |ong
as those pr|nc|p|es do not conf||ct w|th the C|v|| Code, the Code of
Commerce, the ku|es of Court and spec|a| |aws.
1he d|scuss|ons |n th|s sect|on wou|d u|t|mate|y show that str|ct|y
speak|ng the enumerated |mp||ed trusts are essent|a||y resu|t|ng trusts
(Art|c|es 1448 to 14SS), and that the on|y true construct|ve trusts are
those covered by Art|c|e 14S6, wh|ch actua||y embod|es the genera|
pr|nc|p|e for construct|ve trusts.
1. urchase of roperty Where 1|t|e |aced |n Cne erson, 8ut r|ce a|d
by Another erson
Ak1. 1448. 1here |s an |mp||ed trust when prop-
erty |s so|d, and the |ega| estate |s granted to one
S'./ at p. 3S7.

IMLILD 1kUS1S 3S3'
party but the pr|ce |s pa|d by another for the pur-
pose of hav|ng the benef|c|a| |nterest of the prop-
erty. 1he former |s the trustee, wh||e the |atter |s the
benef|c|ary.
nowever, |f the person to whom the t|t|e |s
conveyed |s a ch||d, |eg|t|mate or |||eg|t|mate, of the
one pay|ng the pr|ce of the sa|e, no trust |s |mp||ed
by |aw, |t be|ng d|sputab|y presumed that there |s a
g|ft |n favor of the ch||d.
Under Art|c|e 1448 of the New C|v|| Code, there |s an |mp||ed trust
when property |s bought, and the |ega| estate |s granted to one party but
the pr|ce |s pa|d by another for the purpose of hav|ng the benef|c|a|
|nterest of the property. 1he person |n whose name the property |s
reg|stered |s the trustee, wh||e the person who pa|d for the pr|ce sha|| be
the benef|c|ary. 1he presumpt|on of resu|t|ng trust ar|ses from the tru|sm
expressed |n E% BR"7 T3 <5" J,- J'-+,
M
that one of who pays for
someth|ng usua||y does so for h|s own benef|t.
1ru|y, Art|c|e 1448 covers a resu|t|ng trust that bases |tse|f from the
|mp||ed |ntent|ons of the trustor-benef|c|ary and the acceptance of the
ob||gat|on by the trustee who |s fu||y aware that property |s reg|stered |n
h|s name for wh|ch he never pa|d the pr|ce.
87

In 0"(,R7) T3 <"8(* "& B667,R)/
ee
the Court referred to the |mp||ed
trust covered under Art|c|e 1448 as O68(P5,)7 $"-7% (7)8R*'-+ *(8)*\
thus:
1he trust |s created |n order to effectuate what the |aw
presumes to have been the |ntent|on of the part|es |n
8619 h||. 202 (1911).
eN
;77 G,$") T3 G,$")/ 61 SCkA 284 (1974), K5'R'66'-7 9,*'"-,R
:,-1 T3 <"8(* "& B667,R)/ 217 SCkA 347 (1993), and @"67\ T3 <"8(* "&
Appea|s, S74 SCkA 26 (2008).
88
274 SCkA 282 (1997).

the c|rcumstances that the person to whom the |and was
conveyed ho|ds |t as trustee for the person who supp||ed the
purchase money.
89

1he reason why the s|tuat|on descr|bed under Art|c|e 1448 |s an
|mp||ed trust |s that un||ke |n an express trust, the person who takes t|t|e
to the purchased property does not express|y bound h|mse|f to ho|d or
adm|n|ster the same for the benef|t of any person. 1he presumpt|on of a
resu|t|ng trust ar|ses from the fact of a sa|e transact|on where the
ev|dence shows that t|t|e |s p|aced |n the name of one person, wh||e the
purchase pr|ce was pa|d by the other.
1he other reason why there |s on|y an |mp||ed or resu|t|ng trust |s
that fu|| t|t|e, not [ust naked or |ega| t|t|e, |s p|aced |n the name of a
person who |s not referred to forma||y as "trustee" nor |s the other
person who pa|d for the purchase pr|ce referred to forma||y as a
"benef|c|ary." 1h|s |s to emphas|ze the po|nt the most d|st|ngu|sh|ng
mark between an express trust and a resu|t|ng trust |s that |n the former
the part|es bound by the trust are forma||y const|tuted w|th naked or
|ega| t|t|e p|aced |n the trustee and benef|c|a| t|t|e perta|ns to the
benef|c|ary, or that the trustee (whatever he may be ca||ed) |s express|y
g|ven t|t|e to the property w|th ob||gat|ons to ho|d |t for the benef|t of
another party (whatever he may be ca||ed).
1he s|tuat|on covered under Art|c|e 1448 |s meant to address the
observat|on made |n the ear|y dec|s|on |n 0,(*'-7\ T3 0,(*'-7\ hh where
the facts showed that |t was the father who expended the sums for the
purchase of two vesse|s wh|ch were reg|stered |n the name of h|s son,
who was then of |ega| age, where the Court he|d:
It may be true that the |aws |n some of the Un|ted States
wou|d |n th|s case ra|se a resu|t|ng trust |n favor of the
p|a|nt|ff [the father]. 8ut such |aws are not |n force here, and
whatever other r|ght the p|a|nt|ff may have aga|nst the
o'S'./ at p. 299,
P'*'-+ 76 AM.IUk.
2D ! * 179

IMLILD 1kUS1S 3SS'
defendant [son], e|ther for the recovery of the money pa|d
or for damages, |t |s c|ear that such payment gave h|m no
t|t|e e|ther |ega| or equ|tab|e to these vesse|s.
91

In K,.'RR, T3 <"8(* "& B667,R)/
lY
the Court app||ed the prov|s|ons of
Art|c|e 1448 to |mpute a resu|t|ng trust where pursuant to a spec|a|
arrangement w|th the GSIS wh|ch had forec|osed the mortgaged
property and the r|ght of redempt|on had a|ready exp|red, the
mortgagors-spouses had effected the sa|e thereof to the purported
trustee w|th the undertak|ng that the |atter wou|d use funds supp||ed by
the spouses to buy-back the property on beha|f of the spouses. 1he
Court observed that "1he concept of |mp||ed trusts |s that from the facts
and c|rcumstances of a g|ven case the ex|stence of a trust re|at|onsh|p |s
|nferred |n order to effect the presumed (|n th|s case |t |s even expressed)
|ntent|on of the part|es or to sat|sfy the demands of [ust|ce or to protect
aga|nst fraud."
93

Cne w||| not|ce from K,.'RR, that, a|though there |s an express
agreement on the part of the trustee to ho|d the property for the benef|t
of the spouses, |t wou|d st||| const|tute a resu|t|ng trust, when by
def|n|t|on under Art|c|e 1441, |t ought to be an express trust. 4" b7 5"R.
*57(7&"(7 *5,* b57- '* P"$7) *" (7+')*7(7. R,-./ b57(7 &8RR *'*R7 =,)
P"-*(,)*7. &("$ *'*R7 (7+')*7(7. O,) *(8)*77OH '- 6R,P7. '- *57 -,$7 "&
*57 68(6"(*7. *(8)*77/ '* P,--"* S7 7W6(7)) *(8)* S7P,8)7 *57 !"((7-)
*'*R7 ."7) -"* )5"b -,17. "( R7+,R *'*R7 '- *57 (7+')*7(7. "b-7(/ $8P5
R7)) ."7) '* '-.'P,*7 *57 S7-7&'P',(%r B-. '& *57 *(8)* (7R,*'"-)5'6 b,)
7W6(7))7. '- ,- '-)*(8$7-* -"* (7+')*7(7. '- *57 !"((7-) *'*R7)/ b"8R.
*57 ,((,-+7$7-* -"b S7 ,- 7W6(7)) *(8)*/ (,*57( *5,- ,- '$6R'7. *(8)*r
a. When 1|t|e Is |aced |n the Name of a Ch||d
Art|c|e 1448 of the New C|v|| Code express|y prov|des that there |s
no presumpt|on of any form of |mp||ed trust, |f the person to whom the
t|t|e |s conveyed |s a ch||d, |eg|t|mate or |||eg|t|mate, of
FS'./ at p. 649.
92
S3 SCkA 168

l[
RS'./ at p. 179.

3S6
the one pay|ng the pr|ce of the sa|e, |t be|ng d|sputab|y presumed that
there |s a g|ft |n favor of the ch||d.
1he pr|nc|p|e found app||cat|on |n 47 R") ;,-*") T3 G7%7)/
l
] where
the Court he|d that |f the person to whom the t|t|e |s conveyed |s a ch||d,
|eg|t|mate or |||eg|t|mate, of the one pay|ng the pr|ce of the sa|e, no trust
|s |mp||ed by |aw, |t be|ng d|sputab|y presumed that there |s a g|ft |n
favor of the ch||d.
As a genera| ru|e, |t cannot be presumed that a parent p|ac|ng
property he bought |n the name of the ch||d |ntended any form of trust,
s|nce |t cannot be norma||y expected that a ch||d wou|d adm|n|ster
property for the benef|t of the parents. Consequent|y, )5"8R. B(*'PR7
àaj S7 '-*7(6(7*7. *" $7,- *5,* b57- '* 8)7) *57 b"(. OP5'R.O *" P"T7(
, )'*8,*'"- b57(7 *'*R7 *" *57 6("67(*% ') 6R,P7. S% *57 6,(7-* '- *57
-,$7 "& , P5'R. b5" *57- b,) , $'-"(r I be||eve that th|s |s a
reasonab|e presumpt|on, as bo|stered by the cases d|scussed hereunder.
In 0,(*'-7\ T3 0,(*'-7\,the Court a||uded to the prov|s|on of
then Art|c|e 161 of the o|d C|v|| Code, re|at|ng to m|nors, that the
ownersh|p or en[oyment of property acqu|red by a m|nor ch||d w|th
funds of h|s parents, perta|n to the |atter [parents], wh|ch the Court
observed was "the on|y prov|s|on wh|ch the we have found anywhere |n
the |aws now |n force that dec|ares the property to be|ong to the person
who pa|d the money."
96
1he except|on under Art|c|e 1448 |s mere|y a
d|sputab|e presumpt|on, wh|ch means that |t can st||| be shown that
|ndeed the parents had p|aced property bought by them |n the name of
the|r ch||d to |mpose an ob||gat|on on the part of the ch||d to adm|n|ster
the same for the benef|t of the parents, espec|a||y when the ch||d
reaches the age of ma[or|ty.
In 0"(,R7) T3 <"8(* "& B667,R)/O the Court recogn|zed three
except|ons to the estab||shment of an |mp||ed resu|t|ng trust under
Art|c|e 1448, "1he f|rst |s stated |n the |ast part of Art|c|e
M
2
0

97
274 SCkA 282
( 99 )

IMLILD 1kUS1S 3S7'
1448 |tse|f. 1hus, where A pays the purchase money and t|t|e |s
conveyed by abso|ute deed to A's ch||d or to a person to whom A stands
'- R"P" 6,(7-*') and who makes no express prom|se, a trust does not
resu|t, the presumpt|on be|ng that a g|ft was |ntended."
98
It |s on|y w|th
respect to a m|nor ch||d that a parent stands |n R"P" 6,(7-*')3
Cn|y |ate|y |n !% T3 !%/]q where the ev|dence showed that the
father had pa|d for the pr|ce of the purchase of a va|uab|e tract of |and
a|ong LDSA, but where the t|t|e was p|aced |n the name of a son, |t was
he|d by the Court that no express trust cou|d be deemed const|tuted
because there was no wr|t|ng to prove the same as requ|red under
Art|c|e 1443 of the C|v|| Code when |t comes to trust be|ng const|tuted
over |mmovab|e propert|es. A|though, the Court conceded that |t was
st||| poss|b|e to prove the ex|stence of an |mp||ed trust, neverthe|ess, |t
ru|ed that the prov|s|ons of Art|c|e 1448 express|y prov|de that no
|mp||ed trust |s deemed to have been estab||shed |f the person to whom
the t|t|e |s conveyed |s the ch||d of the one pay|ng the pr|ce of the sa|e,
and |nstead a donat|on |s d|sputab|y presumed |n favor of the ch||d. In
!%/ the successors of the deceased father had not shown that no such
donat|on was |ntended.
b. When It Is the Ch||d that Supp||es the urchase
r|ce
A good |||ustrat|on where no |mp||ed trust ar|ses can be found |n
the dec|s|on |n !('-'.,. T3 G'P,&"(*,
100
where the ev|dence showed that
the father had repurchased the property he so|d to a th|rd party us|ng
the money of h|s son, yet the |mp||ed trust arrangement |mbued by the
tr|a| court to [ust|fy the tak|ng over of t|t|e by the son after the death of
the father, was overturned by the Supreme Court
It p|a|n|y appears from a|| of the ev|dence |n the case that at
the t|me of the death of [the father] he was st||| the
mFS'./ at p. 299. "SS3
SCkA 306 (2008).
1
7
h||. 449 (1907).

owner of whatever |nterest was acqu|red by the repurchase
of th|s property |n 1894, and that |f the 2,600 pesos
furn|shed by [the son] to h|s father for that purpose |t was
so furn|shed by way of a |oan and d|d not transfer to [the
son] any |nterest |n the property.
101

In other words, the equ|ty pr|nc|p|es under Art|c|e 1448 cannot
app|y |n a s|tuat|on where property |s bought by the father |n h|s own
name, us|ng the money of the ch||d. kesu|t|ng trusts under Art|c|e 1448
comes from the presumed |ntent|on of the trustor who supp||ed the
money to have benef|c|a| on trust |n the property. In !('-'.,./ the
presumed |ntent|on was com|ng from the father and cou|d not be
presumed to come from a ch||d.
c. When a Contrary Intent|on Is roved
0"(,R7) T3 <"8(* "& B667,R)/
$
he|d that "Another except|on [to
the estab||shment of an |mp||ed resu|t|ng trust under Art|c|e 1448] |s, of
course, that |n wh|ch an actua| contrary |ntent|on |s proved."
103

1he ru||ng emphas|zes the fact that the |mp||ed trusts
super|nduced by |aw under the var|ous prov|s|ons |n the 1|t|e V |n the
New C|v|| Code const|tute mere|y d|sputab|e presumpt|ons, and the
burden of proof |s on the party a||eg|ng that there |s no |mp||ed trust
const|tuted on each of the transact|ons spec|f|ca||y covered by |aw. et,
|n 0"(,R7)/ the |mmed|ate ru||ng of the Court tended to app|y the
genera| ru|e that O*57 S8(.7- "& 6("T'-+ *57 7W')*7-P7 "& , *(8)* ') "-
*57 6,(*% ,))7(*'-+ '*) 7W')*7-P7/O thus:
1here are recogn|zed except|ons to the estab||shment of
an |mp||ed resu|t|ng trust... Another except|on |s, of course,
that |n wh|ch an actua| contrary |ntent|on |s proved.. .
1M

As a ru|e, the burden of prov|ng the ex|stence of a trust
|s on the party assert|ng |ts ex|stence, and such proof must
101
AWd, at p. 4S2.
102
274 SCkA 282
o&S'./ at p. 299.
oRS'./ at p. 299.

IMLILD 1kUS1S 3S9'
be c|ear and sat|sfactor||y show the ex|stence of the trust
and |ts e|ements. Wh||e |mp||ed trust may be proved by ora|
ev|dence, the ev|dence must be trustworthy and rece|ved by
the courts w|th extreme caut|on, and shou|d not be made to
rest on |oose, equ|voca| or |ndef|n|te dec|arat|ons.
1rustworthy ev|dence |s requ|red because ora| ev|dence can
eas||y be fabr|cated.
10S

d. When urchase r|ce Lxtended as a Loan
If |t |s shown that the person who pa|d for the amount of the
purchase pr|ce d|d so as a |oan or as an advance to the person |n whose
name the t|t|e to the property |s transferred, then no |mp||ed trust
shou|d a|so resu|t because of the |ack of |ntent|on on the part of the
person supp|y|ng the money to have benef|c|a| |nterest |n the property
bought.
Such s|tuat|on |s |n contrast w|th the s|tuat|on covered |n Art|c|e
14S0 of the New C|v|| Code (d|scussed |mmed|ate|y hereunder), where
the t|t|e to the property |s p|aced |n the name of the person who
advanced or |oan the amount, wh|ch |s cons|dered to be a form of
|mp||ed trust, but may proper|y be treated as an equ|tab|e mortgage.
e. When the urchase Is Made |n V|o|at|on of an
Lx|st|ng Statute
0"(,R7) T3 <"8(* "& B667,R)/^
ce
he|d that another except|on to the
estab||shment of an |mp||ed resu|t|ng trust under Art|c|e 1448 |s "where
the purchase |s made |n v|o|at|on of an ex|st|ng statute and |n evas|on of
|ts express prov|s|on, [s|nce] no trust can resu|t |n favor of the party who
|s gu||ty of fraud."
107

1h|s part|cu|ar ru||ng |n 0"(,R7) re|terates the pr|nc|p|e |a|d down
|n 47R8," T3 Castee],
108
that s|nce |mp||ed trusts are essent|a||y founded
on equ|ty pr|nc|p|es, no trust can be he|d
10S
]b]c], at p. 300.
106
274 SCkA 282 (1997).
IN
RS'./ at p. 299, P'*'-+ 4 1CLLN1INC

10a
22 SCkA 231 (1962).

va||d and enforceab|e when |t |s v|o|at|ve of the |aw, mora|s or pub||c
po||cy.
2. urchase of roperty Where 1|t|e Is |aced |n the Name of erson Who
Loaned the urchase r|ce
Ak1. 14S0. If the pr|ce of a sa|e of property |s |oaned or
pa|d by one person for the benef|t of another and the
conveyance |s made to the |ender or payor to secure the
payment of the debt, a trust ar|ses by operat|on of |aw |n
favor of the person to whom the money |s |oaned or for
whom |t |s pa|d. 1he |atter may redeem the property and
compe| a conveyance thereof to h|m.
Under Art|c|e 14S0 of the New C|v|| Code, |f the pr|ce of a property
bought |s |oaned or pa|d by one person for the benef|t of another and
the conveyance |s made to the |ender or payor O*" )7P8(7 *57 6,%$7-*
"& *57 .7S*O an |mp||ed trust ar|ses by operat|on of |aw |n favor of the
person to whom the money |s |oaned or for whom |t |s pa|d. 1he
benef|c|ary |s express|y empowered to redeem the property and compe|
a conveyance thereof to h|m.
Wh||e, K5'R'66'-7 9,*'"-,R :,-1 T3 <"8(* "& B667,R)/^
cl
enumerates
the arrangement under Art|c|e 14S0 as a resu|t|ng trust, @"67\ T3 <"8(*
"& B667,R)/
110
ho|ds the |mp||ed trust arrangement to be a construct|ve
trust.
We agree w|th the K9: character|zat|on, s|nce |t can be deduced
from the very essence of the descr|bed transact|on that the buyer took
t|t|e to the property as secur|ty for the |oan or advance g|ven to the
P7)*8' g87 *(8)*/ and such trustee therefore
109
217 SCkA 347
( 993)
110
S74 SCkA 26
(2008)

IMLILD 1kUS1S
361'
ho|ds t|t|e sub[ect to the |ntent|on of the P7)*8' g87 *(8)* to pay for the
pr|nc|pa| as a means to secure t|t|e to the property that was bought |n h|s
beha|f |n the f|rst p|aced.
a. Ak|n to an Lqu|tab|e Mortgage Arrangement
1he |mp||ed trust s|tuat|on covered under Art|c|e 14S0 of the New
C|v|| Code |s ak|n to an 7g8'*,SR7 $"(*+,+7 arrangement, s|nce t|t|e to
the property |ntended for the borrower |s p|aced |n the name of the
|ender to secure the payment of the debt.
In G,%$8-." T3 :,-."-+/o the Supreme Court re|terated the
|ong-stand|ng def|n|t|on of 7g8'*,SR7 $"(*+,+7 "as one wh|ch a|though
|ack|ng |n some forma||ty or form or words, or other requ|s|tes
demanded by a statute, neverthe|ess revea|s the |ntent|on of the part|es
to charge rea| property as secur|ty for a debt, and conta|ns noth|ng
|mposs|b|e or contrary to |aw."
112
1hat |s the reason why Art|c|e 14S0
express|y prov|des that the borrower may redeem the property and
compe| the |ender to convey the property to h|m.
It shou|d be noted, hpwever, that the arrangement prov|ded
under Art|c|e 14S0 |s not the typ|ca| equ|tab|e mortgage arrangement
found |n the Law on Sa|e, s|nce under such arrangement, the equ|tab|e
mortgage |s const|tuted between the purported se||er
(borrower-mortgagor) and buyer (|ender-mortgagee) |n the contract of
sa|e w|th a r|ght of repurchase, where the purpose of the sa|e |s rea||y to
secure a pr|nc|pa| ob||gat|on, usua||y a |oan, between the purported
se||er and purported buyer. Under Art|c|e 14S0, the equ|tab|e mortgage
|s const|tuted by the sa|e of a th|rd party of h|s property to a purported
buyer (the |ender-mortgagee) who takes t|t|es to secure h|s |oan or
advance made to the P7)*8' g87 *(8)*/ who |s a stranger to the contract
of sa|e.
1he character|zat|on of the s|tuat|on as an |mp||ed trust wou|d
|mpose upon the |ender-buyer the f|duc|ary ob||gat|ons of the trustee.
When the borrower fa||s to pay the |oan or ob||gat|on, |t wou|d be
anoma|ous for the |ender-buyer to br|ng a co||ect|on
111
S26 SCkA S14
( )
``Y
RS'., at p. S2S.

362
case, for |ndeed he has a|ready |n h|s name the property bought as
secur|ty the |oan, otherw|se, |t wou|d amount to un[ust enr|chment. 8ut
|f the |ender does noth|ng because he |s deemed to be fu||y pa|d w|th
the property a|ready secured |n h|s name, that wou|d const|tute 6,P*8$
P"$$'))"('8$ proh|b|ted under Art|c|e 2088 of the C|v|| Code, and the
t|t|e of the |ender wou|d be vo|d ,S '-'*'"3 I'*5"8* *57 ('+5* *" (7.77$
+(,-*7. 8-.7( B(*'PR7 àZc "& *57 <'T'R <".7/ P"8R. *57 S"(("b7(/ b5" ')
, )*(,-+7( *" *57 P"-*(,P* "& ),R7 7&&7P*7. S7*b77- , *5'(.V6,(*% ,-.
*57 R7-.7( )771 (7P"T7(% "& *57 6("67(*% S% b,% "& (7.7$6*'"-r
Iortunate|y, w|th Art|c|e 14S0 |n p|ace, there |s no doubt that the
borrower has the ab|||ty to redeem the property by pay|ng h|s |oan to,
or advances from, the |ender-trustee.
8ut even w|thout Art|c|e 14S0 |n the statute books, |t |s our
pos|t|on that |ndeed the borrower may seek redempt|on of the property
bought by and p|aced |n the name of the |ender. It has a|ready been he|d
by the Supreme Court that |n sp|te of the best ev|dence ru|e, a wr|tten
contract may be proved by paro| ev|dence to be an equ|tab|e mortgage,
because the pub||c po||cy aga|nst 6,P*8$ P"$$'))"('8$ takes
precedence.
113
It |s usua| |n such arrangements that a|though the
property bought |s p|aced |n the name of the |ender, |t |s the borrower
who takes possess|on and en[oys the property bought, and pays for the
rea| property taxes due thereon. Such an arrangement wou|d const|tute
badges of equ|tab|e mortgage under Art|c|e 1602 of the Law on Sa|es
under the New C|v|| Code.
I57- *57 S"(("b7(VS7-7&'P',(% &,'R) "( (7&8)7) *" (7.77$ *57
6("67(*% ='373/ 6,% *57 6('-P'6,R "SR'+,*'"-H/ ,-. *57 R7-.7( S('-+) ,-
,P*'"- &"( P"RR7P*'"-/ P,- *57 *(8)* 6("67(*% S7 R7T'7. 86"- &"( *57
6,%$7-* "& *57 X8.+$7-* .7S*/ P"-*(,(% *" 5') .8*% "& R"%,R*% ,) ,
'$6R'7. *(8)*77r 1he answer wou|d of course be |n the aff|rmat|ve.
|ndeed, |n an equ|tab|e mortgage s|tuat|on, even when t|t|e |s
reg|stered |n the name of the |ender, |t |s cons|dered vo|d for be|ng |n
v|o|at|on of the pub||c po||cy aga|nst 6,P*8$ P"$$'))"('8$3 In
o<8%8+,- T3 ;,-*")/ 34 h||. 100 (1916), G"),R7) T3 ;8S,/ 220 SCkA
716 (1993), 0,(',-" T3 <"8(* "& B667,R)/ 408 SCkA 664 (2003).

IMLILD 1kUS1S 363'
a s|tuat|on where the borrower has defau|ted on h|s |oan, the remedy of
the |ender |s not to appropr|ate t|t|e to the property but rather br|ng an
act|on for forec|osure,
114
or to br|ng a s|mp|e co||ect|on su|t.
11S

It shou|d be emphas|zed, though that when the pr|nc|pa| contract has been
ext|ngu|shed w|th fu|| payment thereof, then necessar||y the accessory
contract of equ|tab|e mortgage |s a|so ext|ngu|shed, wh|ch then a||ows the
borrower to recover any and v a|| propert|es g|ven as secur|ty for the |oan.
3. When Abso|ute Conveyance of roperty Lffected as a Means to Secure
erformance of Cb||gat|on
Ak1. 14S4. If an abso|ute conveyance of property |s made
|n order to secure the performance of an ob||gat|on of the
grantor toward the grantee, a trust
1
by v|rtue of |aw |s
estab||shed. If the fu|f|||ment of the ob||gat|on |s offered by the
grantor when |t becomes due, he may demand the
reconveyance of the property to h|m.
Under Art|c|e 14S4 of the New C|v|| Code, |f an abso|ute
conveyance of property |s made |n orderto secure the performance of an
ob||gat|on of the grantor toward the grantee, a trust by v|rtue of |aw |s
estab||shed. If the fu|f|||ment of the ob||gat|on |s offered by the grantor
when |t becomes due, he may demand the reconveyance of the property
to h|m.
1he pr|nc|p|e embod|ed |n Art|c|e 14S4 of the New C|v|| Code were
app||ed under the o|d C|v|| Code |n 47 ?P,$6" T3 x,6"(*7\,/O
e
where a
deed of sa|e w|th r|ght of repurchase was
$
:('"-7)V2,\g87\ T3 <"8(* "& B667,R)/ 4S0 SCkA
( )
``
]:'-+, T3 :7RR"/ 471 SCkA 6S3 (200S).
116
S3 h||. 442 (1929).

rea||y |ntended to cover a |oan made by the purported se||er from the
purported buyer and t|t|e to the sub[ect matter was p|aced |n the name
of the buyer. 1he Supreme Court he|d that the "app||cat|on must here
be made of the doctr|nes uphe|d |n the cases of E% BR"7 T)3 <5" J,-
@'-+/O
N
<,$,P5" T)3 08-'P'6,R'*% "& :,R',8+/o and ;7T7('-" T)3
;7T7('-"/O
l
to the effect that the defendants [buyer] on|y ho|d the
cert|f|cate of transfer |n trust for the p|a|nt|ffs w|th respect to the port|on
of the |ot p|anted w|th 1,300 coconut trees, and they are therefore
bound to execute a deed |n favor of the p|a|nt|ffs, transferr|ng to them
sa|d port|on p|anted w|th 1,300 coconut trees."
120

Wh||e K9: enumerates the arrangement under Art|c|e 14S4 as
one of the resu|t|ng trusts, @"67\ ho|ds the |mp||ed trust arrangement to
be a construct|ve trust. We tend to agree w|th the K9: character|zat|on.
1he s|tuat|on covered under Art|c|e 14S4 rea||y const|tutes an
7g8'*,SR7 $"(*+,+7 arrangement thorough|y covered under Art|c|e
1602 to 160S of the Law on Sa|es |n the C|v|| Code. Indeed, the "abso|ute
conveyance of property" descr|bed |n Art|c|e 14S4 |s noth|ng more than
a "deed of abso|ute sa|e," and Art|c|e 1604 embod|es a doctr|ne
|ong-estab||shed |n h|||pp|ne [ur|sprudence that "1he prov|s|ons of
art|c|e 1602 [on badges of equ|tab|e mortgage] sha|| a|so app|y to a
contract purport|ng to be an abso|ute sa|e."
121

If one wou|d wonder why the matter has to be covered by the
pr|nc|p|es of |mp||ed trusts under Art|c|e 14S4 of the New C|v|| Code, the
p|aus|b|e answer |s that Art|c|es 1604 and 160S |n the Law on Sa|es,
express|y a||ows the purported se||er to ask for the reformat|on of the
deed of abso|ute sa|e to ref|ect |ts true nature as a mortgage contract,
but nowhere express|y grants the r|ght to the se||er to redeem the
property so|d. 1he power of the purported se||er |n an
equ|tab|e-mortgage-cwm-deed-of-
117
19 h||., 202.
118
28 h||., 46.
119
44 h||., 343.
120
to]d, at p. 44S.
ox,$"(, T3 <"8(* "& B667,R)/ 260 SCkA 10 (1996), !8,\"- T3 <"8(*
"& B667,R)/ 341 SCkA 07 (2000).

IMLILD 1kUS1S 36S'
abso|ute-sa|e to redeem the property |n the absence of a r|ght of
redempt|on c|ause |s express|y prov|ded for |n Art|c|e 14S4.
Irank|y, |t wou|d have been better to transfer the r|ght to redeem
under Art|c|e 14S4 to be part of Art|c|e 160S of the C|v|| Code, |nstead of
treat|ng the matter under |mp||ed trusts. A good reason we g|ve for th|s
advocacy |s that s|nce the contract or arrangement def|ned under Art|c|e
14S4 |s cons|dered a construct|ve trust, |t wou|d be suscept|b|e under
current [ur|sprudence to the defense of prescr|pt|on, espec|a||y when |t
comes to reg|stered |and. Under the Law on Sa|es, the arrangement
wou|d c|ear|y be an equ|tab|e mortgage s|nce the d|spos|t|on contract |s
rea||y a secur|ty arrangement for a pr|nc|pa| ob||gat|on. S|nce property
g|ven as secur|ty has |n fact been p|aced |n the name of the ob||gee, th|s
wou|d be contrary to the pub||c po||cy aga|nst 6,P*8$ P"$$'))"('8$
under Art|c|e 2088 of the C|v|| Code wh|ch prov|des that the cred|tor
cannot appropr|ate the th|ngs g|ven by way of p|edge or mortgage, or
d|spose of them, that any st|pu|at|on to the contrary |s nu|| and vo|d, and
the r|ght of the borrower-se||er to redeem the property purported|y so|d
|n rea||y |mprescr|pt|b|e ='373/ for as |ong as the buyer can fu||y pay the
pr|nc|pa| ob||gat|on, wh|ch br|ngs about the ext|ngu|shment of the
accessory equ|tab|e mortgage arrangement), save when forma|
forec|osure proceed|ngs have been brought by the |ender-buyer, or |f the
property has passed a th|rd party buyer |n good fa|th and for va|ue.
4. 1wo or More ersons urchase roperty Io|nt|y, 8ut |ace 1|t|e |n
Cne of 1hem
Ak1. 14S2. If two or more persons agree to purchase
property and by common consent the |ega| t|t|e |s taken |n
the name of one of them for the benef|t of a||, a trust |s
created by force of |aw |n favor of the others |n proport|on to
the |nterest of each.

Under Art|c|e 14S2 of the New C|v|| Code, |f two or more persons
agree to purchase property and by common consent the |ega| t|t|e |s
taken |n the name of one of them for the benef|t of a||, a trust |s created
by force of |aw |n favor of the others |n proport|on to the |nterest of
each. 8oth K9: and @"67\ c|ass|fy the arrangement under Art|c|e 14S2
as a resu|t|ng trust, to wh|ch character|zat|on we agree w|th.
An app||cat|on of the pr|nc|p|e covered |n Art|c|e 14S2 under the
o|d C|v|| Code can be found |n 47 R, <(8\ T3 9'-"/
`YY
where the t|t|e to
certa|n parce|s of |and appear to have been drawn up on|y |n the name
of one of the two part|es who formed a partnersh|p and comb|ned the|r
cap|ta| to acqu|re the propert|es. Nonethe|ess, there was drawn up
between them a pr|vate document that descr|bed the|r arrangements,
wh|ch has never been |mpugned by the party |n whose names the t|t|es
to the |and had been p|aced. 1he Court he|d that the part|es were rea||y
co-owners, and the party |n whose names appear the t|t|es to the |and,
be|ng |n possess|on of on|y ha|f of the parce|s of |and, was not ent|t|ed
to c|a|m possess|on of the other ha|f he|d by the he|rs of the deceased
co-owner.
In E% BR"7 T3 <5" J,- J'-+,
123
where a number of Ch|nese
merchants ra|sed a fund by vo|untary subscr|pt|on w|th wh|ch they
purchased a va|uab|e tract of |and and erected a |arge bu||d|ng to be
used as a sort of c|ub house for the mutua| benef|t of the subscr|bers to
the fund, but s|nce the assoc|at|on was not reg|stered as a [ur|d|ca|
person, |t was agreed to have the t|t|e to the property p|aced |n the
name of one of the|r members, who accepted the trust, and agreed to
ho|d the property as agent and trustee of the members of the
assoc|at|on. When the t|t|e ho|der refused to account for the renta|s
earned from the property, and |n fact set up t|t|e |n h|mse|f, the
members brought su|t to have t|t|e conveyed to them. 1he Court he|d |n
E% BR"7 that there was an |mp||ed trust const|tuted and the reg|stered
owner he|d |t under an ob||gat|on, both express and |mp||ed, to dea|
w|th |t exc|us|ve|y
122
18 h||.
( )
123
19 h||.
( )

IMLILD 1kUS1S
367'
for the benef|t of the members of the assoc|at|on and sub[ect to the|r
w|||.
Cne has to wonder why the arrangement descr|bed under Art|c|e
14S2 of the New C|v|| Code shou|d even be cons|dered an "|mp||ed trust"
arrangement, the very |anguage of Art|c|e 14S2 shows that |t covers an
express trust arrangement, s|nce |t says that |s covers as s|tuat|on where
"two or more persons ,+(77 to purchase property" and that OS%
P"$$"- P"-)7-* the |ega| t|t|e |s taken |n the one of one of them for the
benef|t of a||." In other words, a trust arrangement |s created not "by
force of |aw", but by the |ntent|ons c|ear|y expressed by the part|es
through the|r "agreement" and "common consent", and therefore fa||s
w|th the def|n|t|on under Art|c|e 1441 that "Lxpress trust are created by
the |ntent|on of the trustor or of the part|es."
1he on|y reason we see why the |aw wou|d treat the arrangement
under Art|c|e 14S2 not as an express trust |s because fu|| t|t|e, not [ust
naked or |ega| t|t|e |s p|aced |n the name of the trustee, wh|ch means
that |nsofar as the wor|d |s concerned he appears to be the fu|| owner,
rather than as a trustee. 1h|s |s espec|a||y true when |t comes to
reg|stered |and where fu|| t|t|e |s p|aced |n the name of the trustee ='373/
he |s not reg|stered as "trustee" |n the cert|f|cate of t|t|e), and therefore,
the trust arrangement can on|y be "|mp||ed" from other source.
S. roperty Conveyed to a erson Mere|y as no|der
1hereof
Ak1. 14S3. When property |s conveyed to a person |n
re||ance upon h|s dec|ared |ntent|on to ho|d |t for, or transfer
|t to another or the grantor, there |s an |mp||ed trust |n favor
of the person whose benef|t |s contemp|ated.

Under Art|c|e 14S3 of the New C|v|| Code, when property |s
conveyed to a person |n re||ance upon h|s dec|ared |ntent|on to ho|d |t
for, or transfer |t to another or the grantor, there |s an |mp||ed trust |n
favor of the person whose benef|t |s contemp|ated. 8oth K9: and @"67\
character|ze the arrangement under Art|c|e 14S3 as resu|t|ng trust.
As |n the case of Art|c|e 14S2, the s|tuat|on covered by Art|c|e
14S3 covers rea||y an express trust, because t|t|e to property |s taken by
the trustee under a c|ear agreement to ho|d |t for another person. 1he
on|y d|fference |s that there may be a s|tuat|on where the person sought
to be benef|ted by the grantor has not yet g|ven forma| acceptance of
the benef|t. Lven such a s|tuat|on |s not cr|t|ca|, s|nce under Art|c|e 1446,
|f the trust |mposes no onerous cond|t|ons upon the benef|c|ary, h|s
acceptance |s presumed. Iur|sprudence has a|so aff|rmed the va||d|ty of
a trust estab||shed for a person who |s not yet ex|st|ng, such as an
unborn ch||d.
1he po|nts ra|sed |n the forego|ng paragraph seemed to have
been aff|rmed by the Supreme Court |n <8,%P"-+ T3 <8,%P"-+/o but
w|th oppos|te resu|ts. In <8,%P"-+, the Court den|ed the app||cat|on of
the prov|s|ons of Art|c|e 14S3 to estab||sh an |mp||ed trust: "Sa|d
arguments are untenab|e, even cons|der|ng the who|e comp|a|nt. 1he
|ntent|on of the trustor to estab||sh the a||eged trust may be seen |n
paragraphs S and 6. Art|c|e 14S3 wou|d app|y |f the person convey|ng
the property d|d not express|y state that he was estab||sh|ng the trust,
un||ke the case at bar where he was a||eged to have expressed such
|ntent. Consequent|y, the |ower court d|d not err |n d|sm|ss|ng the
comp|a|nt,"
12S
on the ground that s|nce the comp|a|nt sought to recover
an express trust over |mmovab|es, then under Art|c|e 1443 of the C|v||
Code, the same may not be proved by paro| ev|dence.
An examp|e of the s|tuat|on covered by Art|c|e 14S3 may be found
|n the dec|s|on |n K,P57P" T3 B((",
126
where the c|a|ms
124
21 SCkA 1192
( 96 )
oRS'./ at p. 1198.
126
8S h||. S0S
( )

IMLILD 1kUS1S
369'
of respondents |n cadastra| case were w|thdrawn re|y|ng upon the
assurance and prom|se made |n open court by pet|t|oners'
predecessor-|n-|nterests that upon obta|n|ng t|t|e to the propert|es
sub[ect to the pet|t|on, he wou|d convey and ass|gn the |ots to the
respondents |n accordance w|th the|r respect|ve c|a|ms. In an act|on for
spec|f|c performance f||ed to compe| the pet|t|oner to ass|gn and convey
the |ots covered, the Court he|d: "When the c|a|m to the |ots |n the
cadastra| case was w|thdrawn by the respondents re|y|ng upon the
assurance and prom|se made |n open court by . . . the
predecessor-|n-|nterests of the pet|t|oners, a trust or a f|duc|ary re|at|on
between them arose, or resu|ted therefrom, or was created thereby."
127

Consequent|y, the Court he|d that such trustee cannot |nvoke the statute
of ||m|tat|ons to bar the act|on and defeat the r|ght of the P7)*8') g87
*(8)*3
Lar||er, |n 0,(*'-7\ T)3 C(,-",
128
the Court he|d that a person who,
before conso||dat|on of property |n the purchaser under a contract of
sa|e w|th 6,P*" .7 (7*(", agrees w|th the vendors to buy and adm|n|ster
the property unt|| a|| debts const|tut|ng an encumbrance thereon sha||
be pa|d, after wh|ch the property sha|| be turned back to the or|g|na|
owner, |s bound by such agreement, and becomes |n effect a trustee to
ho|d and adm|n|ster the property |n such character. 1he pr|nc|p|e was
re|terated |n <(')*"S,R T3 C"$7\3
`Yl

In re|terat|ng the 0,(*'-7\ ru||ng, the Court |n >7'() "& D$'R'"
<,-.7R,(', T3 G"$7("/o he|d
1he trust a||eged to have been created, |n our op|n|on, |s
an |mp||ed trust. As he|d, |n effect, by th|s Court |n the case
of Mart|nez vs. Grano
131
, where property |s taken by a
person under an agreement to ho|d |t for, or convey |t to
another or the grantor, a resu|t|ng or |mp||ed trust ar|ses |n
favor of the person for whose benef|t the property was
|ntended. 1h|s
oRS'./ at pp.

128
42 h||.

129
S0 h||. 810

130
109 h||.

131
42 h||., 3S.

ru|e, wh|ch has been |ncorporated |n the new C|v|| Code |n
Art. 14S3 thereof, |s founded upon equ|ty. 1he ru|e |s the
same |n the Un|ted States, part|cu|ar|y where, on the fa|th of
the agreement or understand|ng, the grantee |s enab|ed to
ga|n an advantage |n the purchase of the property or where
the cons|derat|on or part thereof has been furn|shed by or
for such other. 1hus, |t has been he|d that where the grantee
takes the property under an agreement to convey to
another on certa|n cond|t|ons, a trust resu|ts for the benef|t
of such other or h|s he|rs, wh|ch equ|ty w||| enforce
accord|ng to the agreement.
132
It |s a|so the ru|e there that
an |mp||ed trust ar|ses where a person purchases |and w|th
h|s own money and takes a conveyance thereof |n the name
of another. In such a case, the property |s he|d on a resu|t|ng
trust |n favor of the one furn|sh|ng the cons|derat|on for the
transfer, un|ess a d|fferent |ntent|on or understand|ng
appears. 1he trust wh|ch resu|ts under such c|rcumstances
does not ar|se from contract or agreement of the part|es,
but from the facts and c|rcumstances, that |s to say, |t resu|ts
because of equ|ty and ar|ses by |mp||cat|on or operat|on of
|
133

6. Donat|on of roperty to a Donee Who Sha|| nave No
8enef|c|a| 1|t|e
Ak1. 1449. 1here |s a|so an |mp||ed trust when a donat|on
|s made to a person but |t appears that a|though the |ega|
estate |s transm|tted to the donee, he neverthe|ess |s e|ther to
have no benef|c|a| |nterest or on|y a part thereof.
Under Art|c|e 1449 of the New C|v|| Code, there |s an |mp||ed trust
when a donat|on |s made to a person but |t appears that a|though the
|ega| estate |s transm|tted to the donee, he
132
189 C.I.S. 960.
$
RS'./ at pp. S02-S03, P'*'-+ 89 C.I.S.
964 968

IMLILD 1kUS1S 371'
neverthe|ess |s e|ther to have no benef|c|a| |nterest or on|y a part
thereof. In such a s|tuat|on, the donor |s deemed to have become the
benef|c|ary under an |mp||ed trust arrangement. @"67\ and K9: c|ass|fy
the arrangement under Art|c|e 1449 as a resu|t|ng trust, for obv|ous
reasons, we agree w|th such a pos|t|on.
In has been op|ned that the resu|t|ng trust covered under Art|c|e
1449 |s ana|ogous to, but shou|d not be confused w|th, the
&'.7'P"$$')),(% subst|tut|on under Art|c|e 863 of the C|v|| Code, where|n
the testator des|gnates a person as an he|r charg|ng h|m to de||ver to
another person the who|e or part of the |nher|tance.
134
et, under the o|d
C|v|| Code, |t was observed by the Court |n K7(7\ T3 C,(P5'*"(7-, ,-.
<,)'$'(",
13S
that a &'.7'P"$$')),(% subst|tut|on |s not equ|va|ent to the
Lng||sh trust.
Under the New C|v|| Code, |n B.,\, T3 <"8(* "& B667,R)/^
[e
where
the father donated a p|ece of |and |n the name of the daughter but w|th
verba| not|ce that the other ha|f wou|d be he|d by her for the benef|t of a
younger brother, coup|ed w|th a deed of wa|ver |ater on executed by the
daughter that she he|d the |and for the common benef|t of her brother,
the Court he|d that the arrangement created an |mp||ed trust |n favor of
the brother under Art|c|e 1449.
B.,\, |s qu|te a cur|ous ru||ng for two reasons. L'()*R%/ |f the
donat|on to the daughter was made by the father w|th the express
d|rect|ve that the daughter wou|d take t|t|e for her benef|t and that of
her younger brother, wou|d that not const|tute an express trust, or one
that |s created by the express |ntent|on of the father? ;7P"-.R%/ d|d not
the wa|ver const|tute a wr|tten acknow|edgment on the part of the
trustee that the took t|t|e for the benef|t of the brother a|so, and thereby
const|tute competent ev|dence to support an express trust
arrangement?
134
Coqu|a, Iorge k., !57 4"P*('-7 "& F$6R'7. !(8)*/ 310 SCkA

13S
S4 h||. 431(1930).
138
171 SCkA 369 (1989).

7. Land asses 8y Success|on 8ut ne|r |aces 1|t|e |nto a
1rustee
Ak1. 14S1. When |and passes by success|on to any person
and he causes the |ega| t|t|e to be put |n the name of another,
a trust |s estab||shed by |mp||cat|on of |aw for the benef|t of
the true owner.
Under Art|c|e 14S1 of the New C|v|| Code, when |and passes by
success|on to any person and he causes the |ega| t|t|e to be p|aced |n the
name of another, a trust |s estab||shed by |mp||cat|on of |aw for the
benef|t of the true owner.
8oth K9: and @"67\ character|ze the |mp||ed trust arrangement
covered under Art|c|e 14S1 as resu|t|ng trust. We agree w|th such
character|zat|on.
1he |anguage of Art|c|e 14S1, as |t ||m|ts |ts app||cat|on to |and, may
be taken to mean that no such |mp||ed trust ar|ses when |t comes to
other types of property, espec|a||y as to movab|e propert|es, when the
preva|||ng doctr|ne |s that he who possess movab|e |s presumed to be
the r|ghtfu| owner. 1hat wou|d perhaps be an erroneous conc|us|on for
the fo||ow|ng reasons:
L'()*R%, Art|c|e 14S1 ||m|ts |ts app||cat|on to |and because the
pr|nc|pa| of |mp||ed trust |t embod|es |s most appropr|ate to reg|stered
|and, where t|t|e |ssued |n the name of the trustee, w|thout |nd|cat|on
that he ho|ds the same under f|duc|ary undertak|ngs, can be an occas|on
to abuse.
;7P"-.R%, the enumerat|on of the app||cab|||ty of |mp||ed trust
under Art|c|e 14S1 and those of other art|c|es, |s not deemed to be on an
exc|us|ve bas|s as c|ear|y expressed |n the |anguage of Art|c|e 1447: "1he
enumerat|on of the fo||ow|ng cases of |mp||ed trust does not exc|ude
others estab||shed by the genera| |aw of trust."
Art|c|e 14S1 shou|d be read to cover the s|tuat|on when the
property |nher|ted |s reg|stered |n another's name as fu|| owner

IMLILD 1kUS1S
373'
rather than as "trustee," for |n the |atter case that wou|d c|ear|y be an
express trust.
Art|c|e 14S1 shou|d a|so be d|st|ngu|shed from the s|tuat|ons
covered by Art|c|e 14S6 where property |s acqu|red through fraud or
m|stake (d|scussed hereunder), because under Art|c|e 14S1, the p|ac|ng
of t|t|e |n the name of another (the trustee) |s done purported|y w|th the
know|edge and consent of the P7)*8' g87 *(8)* What makes the
arrangement under Art|c|e 14S1 an |mp||ed trust arrangement |s the |ack
of c|ear purpose or |ntent|on on why the he|r caused |ega| t|t|e to be put
|n another person's name.
Art|c|e 14S1 does not cover a s|tuat|on where the person takes t|t|e
to the |nher|ted |and acknow|edg|ng c|ear|y that he does so for the
benef|t of the he|r, for that wou|d be an express trust, except for the fact
that t|t|e |n reg|stered fu||y |n the name of such person, and not express|y
as "trustee."
1he doctr|ne covered |n Art|c|e 14S1 has for |ts bas|s the dec|s|ons
of the Supreme Court under the o|d C|v|| Code that d|d not conta|n
prov|s|ons on trusts. 1hus, |n :,(+,%" T3 <,$8$"*/o the Court he|d that
that the co-owner or co-he|r who |s |n possess|on of an |nher|tance 6("
'-.'T')" for h|mse|f and |n representat|on of h|s co-owners or co-he|rs, |f,
as such owner, he adm|n|sters or takes care of the rest thereof w|th the
ob||gat|on of de||very |t to h|s co-owners or co-he|rs, |s under the same
s|tuat|on as a trustee. :,(+,%" however recogn|zed the pr|nc|p|e that
when a co-owner or co-he|r refutes the co-ownersh|p and takes adverse
possess|on of the property for h|mse|f a|one, then acqu|s|t|ve
prescr|pt|on may ar|se |n h|s favor to the detr|ment of the other co-he|rs
or co-owners. :,(+,%" d|st|ngu|shed between the ru|e of
|mprescr|pt|b|||ty of the act|on for part|t|on among co- owners, from the
doctr|ne of acqu|s|t|ve prescr|pt|on that a||ows a person to obta|n t|t|e to
property by open, adverse possess|on.
In <,)*(" T3 <,)*("/o the Court he|d that one who acqu|res a
1orrens t|t|e |n h|s own name to property wh|ch he |s adm|n|ster|ng
137
40 h||. 8S7
( )
138
S7 h||. 67S
( )

for h|mse|f and h|s s|b||ngs as he|rs |n common by descent from a
common ancestor may be compe||ed to surrender to each of h|s
co-he|rs h|s appropr|ate share, and a proceed|ngs for part|t|on |s an
appropr|ate remedy by wh|ch to enforce such r|ght. W|th respect to the
|ega| pos|t|on taken by the brother who had t|t|e reg|stered |n h|s name
that he had repud|ated the trust more than ten years before the act|on
for part|t|on had been f||ed by h|s s|b||ngs, and thus had acqu|red t|t|e by
adverse possess|on, the Court d|d not d|spute the theory of acqu|s|t|ve
prescr|pt|on be|ng ava||ab|e |n such a s|tuat|on but he|d that |t cou|d not
be app||ed on the bas|s that th|s supposed repud|at|on of the trust f|rst
took p|ace before [brother P7)*8' g87 *(8)&v had reached h|s ma[or|ty.
1he Court he|d "we are unab|e to see how a m|nor w|th whom another
|s |n trust re|at|on can be pre[ud|ced by repud|at|on of the trust
addressed to h|m by the person who |s sub[ect to the trust ob||gat|on.
1he defendant |n our op|n|on |s not ent|t|ed to the benef|t of
prescr|pt|on from h|s supposed repud|at|on of the trust."
139

In 0,S,-, T3 07-."\,,
140
where t|t|e to a homestead was
obta|ned pursuant to an agreement entered |nto between the app||cant
and h|s co-he|rs that shou|d put the t|t|e |n h|s name sub[ect to the
cond|t|on that he was mere|y to act as a trustee of h|s co-he|rs, and a
part|t|on of the property wou|d |ater be effected between h|m and h|s
co-he|rs, the Court he|d that there was created a re|at|onsh|p of trust
between the app||cant and h|s co-he|rs wh|ch g|ves to the |atter the r|ght
to recover the|r share |n the property un|mpa|red by the defense of
prescr|pt|on.
In <8)*".', T3 <,)',-",
141
where the predecessor-|n-|nterest had
bought a |arge tract of |and on |nsta||ments, wh|ch devo|ved to the he|rs
upon h|s death, but upon fu|| payment thereof, the on|y ma|e he|r had
caused the t|t|e to be |ssued |n h|s name w|th the understand|ng w|th h|s
co-he|r that he wou|d act as trustee, the Court he|d that there be|ng no
ev|dence that the trust re|at|on had
$
RS'./ at p. 68S.
140
10S h||. 260

141
9 SCkA 841
( 963)

IMLILD 1kUS1S
37S'
even been repud|ated by sa|d trustee, then the re|at|onsh|p of co-
ownersh|p had ex|sted between such trustee and h|s s|sters and the r|ght
of the successors |n |nterest of the sa|d s|ster to br|ng an act|on for the
recovery of the|r shares aga|nst the successor- |n-|nterest of the sa|d
trustee cannot be barred by prescr|pt|on, desp|te the |apse of 2S years
from the date of reg|strat|on of the |and |n the trustee's name.
1he dec|s|on |n 0,(',-" T3 J8.+7 47 27+,/
EY
rem|nds us that the
pr|nc|p|es of |mp||ed trust under Art|c|e 14S1 do not app|y when the rea|
property |s unreg|stered |and and no t|t|e has been |ssued |n the name of
one of the co-owners, and the s|tuat|on on|y shows that he has
possess|on and en[oyment of the property sub[ect of the co-ownersh|p.
No |mp||ed trust cou|d be ascr|bed to the s|tuat|on accord|ng to the Court
|n that: "1he ex|stence of the co-ownersh|p here argues aga|nst theory of
|mp||ed trust, for then a co-owner possesses co-owned property not |n
beha|f of the other co-owners but |n h|s own beha|f,"
143
|n accordance
w|th the tru|sm that possess|on by a co-owner of the property owned |n
common |s not necessar||y adverse possess|on aga|nst the other
co-owners for "[a[fter a||, co-owners are ent|t|ed to be |n possess|on of
the prem|ses, and |t wou|d not a|so const|tute a c|ear repud|at|on of the
co-ownersh|p |tse|f."
144

In !'-+ >"/ J(3 T3 !7-+ Gt]],
14S
where a Ch|nese res|dent had caused
|and to be p|aced |n the name of the trustee who was bound to ho|d the
same for the benef|t of the trustor and h|s fam||y |n the event of death,
the app||cat|on of the doctr|ne of a resu|t|ng trust under Art|c|e 14S1 by
the he|rs of the trustor cou|d not be uphe|d by the Court: "1h|s
content|on must fa|| because the proh|b|t|on aga|nst an a||en from
own|ng |ands of the pub||c doma|n |s abso|ute and not even an |mp||ed
trust can be perm|tted to ar|se on equ|ty cons|derat|on."
146

142
148 SCkA 342
( 98 )
8[
RS'./ at p. 346.
oRS'./ at p. 346.
14S
SS8 SCkA 421

Ee
RS'./ at p. 434.

8. When 1rust Iund Used to urchase roperty Wh|ch Is
keg|stered |n 1rustee's Name
Ak1. 14SS. When any trustee, guard|an or other person
ho|d|ng a f|duc|ary re|at|onsh|p uses trust funds for the
purchase of property and causes the conveyance to be made
to h|m or to a th|rd person, a trust |s estab||shed by operat|on
of |aw |n favor of the person to whom the funds be|ong.
Under Art|c|e 14SS of the New C|v|| Code, when any trustee,
guard|an or other person ho|d|ng a f|duc|ary re|at|onsh|p uses trust
funds for the purchase of property and causes the conveyance to be
made to h|m or to a th|rd person, a trust |s estab||shed by operat|on of
|aw |n favor of the person to whom the funds be|ong.
Wh||e G,$") and K9: character|ze the arrangement covered
under Art|c|e 14SS as const|tut|ng a resu|t|ng trust, @"67\ ho|ds that |t |s
a form of construct|ve trust. We be||eve that the better pos|t|on |s to
treat such a s|tuat|on as const|tut|ng a resu|t|ng trust, s|nce |t comes
about |n breach of f|duc|ary duty of |oya|ty that brought about that a
pre-ex|st|ng contractua| re|at|onsh|p, '373/ agency or express trust.
Art|c|e 14SS of the New C|v|| Code |s the operat|ve prov|s|on
govern|ng the duty of |oya|ty of the agent to the pr|nc|pa|, as we|| as the
trustee to the benef|c|ary. A trustee |s duty-bound to hand|e the affa|rs
of the trust and to app|y a|| the propert|es |n the trust estate for the so|e
benef|t of the benef|c|ary. In a s|tuat|on where there |s a conf||ct
between the |nterests of the trustee and the benef|c|ary, |t |s the duty of
the trustee to prefer that of the benef|c|ary. A v|o|at|on of the duty of
|oya|ty makes the trustee persona||y ||ab|e to the benef|c|ary for the
resu|t|ng damages. An appropr|at|on of any bus|ness or |nterest that
shou|d be for the account of the benef|c|ary wou|d requ|re that the
trustee to re|mburse the prof|ts or tum-over the benef|ts to the estate
trust.

IMLILD 1kUS1S 377'
1he pr|nc|p|e |a|d down |n Art|c|e 14SS cover|ng the f|duc|ary duty of
|oya|ty of the trustee |s app||cab|e to express trusts and |mp||ed trusts.
In <,$,P5" T3 08-'P'6,R'*% "& :,R' b,+/O
N
where ev|dence showed
that a mun|c|pa| off|cer rece|ved funds from the members of the
commun|ty to b|d on beha|f of the mun|c|pa||ty at a pub||c auct|on of
the |and that was taken over by the nat|ona| government, and who
after many years c|a|med t|t|e |n h|s own name, the Court he|d:
1here have been a number of cases before th|s court |n
wh|ch a t|t|e to rea| property was acqu|red by a person |n h|s
own name wh||e act|ng |n a f|duc|ary capac|ty, and who
afterwards sought to take advantage of the conf|dence
reposed |n h|m by c|a|m|ng the ownersh|p of the property
for h|mse|f. 1h|s court has |nvar|ab|y he|d such ev|dence
competent as between the f|duc|ary and the cestu| que
trust.
148

1he Court went further to summar|ze the deve|opment of the
doctr|ne, thus
In E% BR"7 T)3 <5" J,- @'-+/o the members of a Ch|nese
c|ub agreed to purchase some rea| property and for that
purpose subscr|bed a fund and p|aced |t |n the hands of the
defendant, who made the purchase |n h|s own name.
Subsequent|y, he refused to account for the rents on the
property and c|a|med |t as h|s own. 1h|s court he|d paro|
proof of the trust suff|c|ent to overcome the case |n favor of
the defendant by reason of h|s reg|stered documents of t|t|e,
and decreed that a conveyance be made by the defendant
to the members of the assoc|at|on.
In !,+8'-"* vs. 08-'P'6,R'*% "& !,-,%,
1S0
the p|a|nt|ffs, as
he|rs of the|r father, sought to recover possess|on of a parce|
147
28 h||. 466
( )
oRS'./ at pp.

149
19 h||. 202.
1S0
9 h||. 396.

of |and he|d by the mun|c|pa||ty on the strength of a Span|sh
patent |ssued to h|m. It was proved (|arge|y by paro| ev|-
dence) that the|r father acted on beha|f and at the expense
of the mun|c|pa||ty |n secur|ng the patent. 1he patent was
reta|ned by the goberr[adorc|||o, a copy on|y be|ng |ssued to
the patentee. 1he |atter a|so drew up a pr|vate document
engag|ng to execute a conveyance to the mun|c|pa||ty, the
same be|ng offered |n ev|dence. 1he mun|c|pa||ty had con-
t|nuous|y occup|ed the |and s|nce the |ssuance of the t|t|e.
1he [udgment of the court be|ow d|sm|ss|ng the comp|a|nt
was aff|rmed.
In the fo||ow|ng cases of a s|m||ar character, paro|
ev|dence was he|d not suff|c|ent to overcome the case made
out by the ho|der of the reg|stered t|t|e: :7R7- T)3 :7R7-/d
/;`
C,(7- T)3 K'R,(/
`ZY
:,R,*',- T)3 B+(,d
'),
B+"-"% T)3 G8'\d
`Za
and
0,.,(',+, T)3 <,)*("/o were both cases where|n one
person was de|egated by a commun|ty of property owners
to secure |n h|s own name a patent from the Span|sh
Government cover|ng a|| the|r |ands, the ob[ect be|ng to
save the expense of obta|n|ng |nd|v|dua| patents |n the
name of each. After secur|ng these patents, the there|n
grantees e[ected the|r ne|ghbors from the |and covered by
the patents and respect|ve|y c|a|med the |and as the|r own.
1he ev|dence tend|ng to estab||sh these facts was
cons|dered by the court |n both cases re||ef by reformat|on
of the patent or a compu|sory conveyance to the |n[ured
persons was den|ed |n each case, because the r|ghts of an
|nnocent th|rd purchaser |ntervened. 8ut |n the f|rst case the
|n[ured persons were he|d ent|t|ed to damages, prov|ded
they were ab|e to estab||sh the same. In the second case,
however, the court presumed a wa|ver of the|r c|a|ms by
reason of other ev|dence of record. 1he fact that the paro|
ev|dence re||ed upon |n the cases c|ted |n th|s paragraph to
defeat the documents of t|t|e was carefu||y cons|dered by
the court, |mp||ed|y adm|ts |ts competency. It fa||ed |n |ts
purpose |n
1S1
13 h||.

1S2
17 h||.

1S3
17 h||.

1S4
11 h||.

1SS
20 h||.

IMLILD 1kUS1S 379'
these cases mere|y because |t was not suff|c|ent|y strong to
overcome the case |n favor of the ho|ders of the reg|stered
t|t|es.
1S6

1he Court conc|uded |n <,$,P5" that "We ho|d, therefore, that
the paro| ev|dence |ntroduced by the defendant mun|c|pa||ty was
competent to defeat the terms of the p|a|nt|ff's deed. It need on|y be
added that |n a|| such cases as the present we have requ|red and sha||
cont|nue to requ|re that the proof contrad|ct|ng such documents must
be c|ear and conv|nc|ng. 1hese qua||t|es are apparent |n the proof
offered by the defendant mun|c|pa||ty |n the case at bar."
1S7

In ;'-+ J"P" T3 ;8-%,-*8-+,
1S8
a trusted or conf|dent|a| emp|oyee of
the company d|rect|y emp|oyed fraud to |nduce the company to forfe|t
|ts opt|on to purchase a va|uab|e |arge tract of |and, and thereafter
caused h|s w|fe to purchase the same. In aff|rm|ng the dec|s|on of the
tr|a| court wh|ch decreed the reconveyance of the property to the
company, the Court then adm|tted that from statutory |aw po|nt of v|ew
on|y a recovery of damages aga|nst the emp|oyee was a||owed, thus:
"1h|s reparat|on prov|ded for |n the C|v|| Code and app||ed to the case of
bar seems to be ||m|ted to the |ndemn|f|cat|on of damages, as we are not
aware of any express prov|s|on |n sa|d Code wh|ch |mposes upon the
person thus he|d ||ab|e, any ob||gat|on, such as that of transferr|ng to
p|a|nt|ffs the estate |n quest|on."
1S9
Nonethe|ess, the Court aff|rmed that
"1h|s spec|f|c re||ef [of reconveyance], however, has a|ready come to be
app||ed |n th|s [ur|sd|ct|on |n s|m||ar cases, among wh|ch can be c|ted that
of <,$,P5" T3 08-'P'6,R'*% "& :,R'8,+k
ec
And |n the North Amer|can |aw
such sanct|on |s express|y recogn|zed, and a transact|on of th|s nature
m|ght be regarded as an 'equ|tab|e trust' by v|rtue of wh|ch the th|ng
acqu|red by an emp|oyee |s deemed not to have
1S6
]Ib]of, at pp.
69
`ZN
FS'./ at p.

1S8
43 h||. S89

1S9
]b]d, at p.

160
28 h||., 466.

been acqu|red for h|s own benef|t or that of any other person but for
h|s pr|nc|pa|, and he|d |n trust for the |atter."
181
In [ust|fy|ng such a
reso|ut|on, the Court he|d
Such an act of |nf|de||ty comm|tted by a trusted
emp|oyee ca|cu|ated to redound to h|s own benef|t and to
the detr|ment of h|s emp|oyers cannot pass w|thout |ega|
sanct|on. 97$" .7S7* ,R'7-, X,P*8(, R"P86R7*,('d -7$" 7W
)8" .7R'P*" $7R'"(7$ )8,$ P"-.'*'"-7$ &,P7(, 6"*7)*3 It |s
an ||||c|t act comm|tted w|th cu|pa and therefore, |ts agent |s
||ab|e (art. 1089, C|v|| Code), for the damage caused (art.
1902, |b|dem). Not |dent|ca|, but s|m||ar, to th|s |nf|de||ty |s
the abuse of conf|dence sanct|oned |n our ena| Code as a
gener|c c|rcumstance, nay as spec|f|c aggravat|ng one, and
even as an essent|a| e|ement of certa|n cr|mes.
Such pr|nc|p|e, however, |n case of th|s nature |s
genera||y recogn|zed |n our |aws, s|nce |n the case of
commerc|a| agents (factores) |t |s express|y estab||shed.
Undoubted|y, former|y under the c|rcumstances then
preva|||ng such sanct|on was not necessary |n the f|e|d of
c|v|| |aw, because |ts sphere of act|on |s the genera| re|at|ons
of soc|ety, but even then |t was deemed necessary express|y
to protect w|th such sanct|on the commerc|a| re|at|ons
where|n the quest|on of ga|n was |nvo|ved, wh|ch |s
somet|mes so |mperat|ve as to |gnore everyth|ng, even the
very pr|nc|p|es of |oya|ty, honesty, and f|de||ty.
182

A conf|dent|a| emp|oyee who, know|ng that h|s pr|nc|pa|
was negot|at|ng w|th the owner of some |and for the
purchase thereof, surrept|t|ous|y succeeds |n buy|ng |t |n the
name of h|s w|fe, comm|ts an act of d|s|oya|ty and |nf|de||ty
to h|s pr|nc|pa|, and |s ||ab|e for damage. 1he reparat|on of
the damage must cons|st |n respect|ng the contract wh|ch
was about to be conc|uded, and transferr|ng the sa|d |and
for the same pr|ce and upon the same terms as those on
wh|ch the purchase was made for the |and so|d to the w|fe
of sa|d emp|oyee passed to them as what m|ght be regarded
as equ|tab|e trust, by v|rtue of wh|ch the th|ng thus acqu|red
oRS'./ at p. S93, P'*'-+ 21 k. C. L., 82S, 2 CCkUS
3 3
162
]fw'd, at pp. S92-S93.

IMLILD 1kUS1S408'
by an emp|oyee |s deemed to have been acqu|red not for h|s
own benef|t or that of any other person but for h|s pr|nc|pa|
and he|d |n trust for the |atter.
183

In ;7T7('-" T3 Sever]no,
164
the Court he|d
1he re|at|ons of an agent to h|s pr|nc|pa| are f|duc|ary
and |t |s an e|ementary and very o|d ru|e that |n regard to
property form|ng the sub[ect-matter of the agency, he |s
estopped from acqu|r|ng or assert|ng a t|t|e adverse to that
of the pr|nc|pa|. n|s pos|t|on |s ana|ogous to that of a trustee
and he cannot cons|stent|y, w|th the pr|nc|p|es of good fa|th,
be a||owed to create |n h|mse|f an |nterest |n oppos|t|on to
that of h|s pr|nc|pa| or P7)*8' g87 *(8)* Upon th|s ground, and
substant|a||y |n harmony w|th the pr|nc|p|es of the C|v|| Law
(see sentence of the supreme court of Spa|n of May 1, 1900),
the Lng||sh Chance||ors he|d that |n genera| whatever a
trustee does for the advantage of the trust estate |nures to
the benef|t of the P7)*8' g87 *(8)* (Green|aw vs. k|ng, S Iur.,
18, Lx parte 8urne||, 7 Iur., 116, Lx parte nughes, 6 Ves., 617,
Lx parte Iames, 8 Ves., 337, C||ver vs. Court, 8 pr|ce, 127.)
1he same pr|nc|p|e has been cons|stent|y adhered to |n so
many Amer|can cases and |s so we|| estab||shed that
exhaust|ve c|tat|ons of author|t|es are superf|uous and we
sha|| therefore ||m|t ourse|ves to quot|ng a few of the
numerous [ud|c|a| express|ons upon the sub[ect. 1he
pr|nc|p|e |s we|| stated |n the case of G||ber vs. newetson (79
M|nn., 326)
"A rece|ver, trustee, attorney, agent, or any other person
occupy|ng f|duc|ary re|at|ons respect|ng property or persons,
|s utter|y d|sab|ed from acqu|r|ng for h|s own benef|t the
property comm|tted to h|s custody for management. 1h|s
ru|e |s ent|re|y |ndependent of the fact whether any fraud
has |ntervened. No fraud |n fact need be shown, and no
excuse w||| be heard from the trustee. It |s to avo|d the
necess|ty of any such |nqu|ry that the ru|e takes so genera| a
form. 1he ru|e stands on the mora| ob||gat|on to refra|n from
p|ac|ng one's se|f |n pos|t|ons wh|ch ord|nar||y exc|te conf||cts
$
RS'./ at p. S93.
184
44 h||. 343
(1923)

382
between se|f-|nterest and |ntegr|ty. It seeks to remove the
temptat|on that m|ght ar|se out of such a re|at|on to serve
one's se|f-|nterest at the expense of one's |ntegr|ty and duty
to another, by mak|ng |t |mposs|b|e to prof|t by y|e|d|ng to
temptat|on. It app||es un|versa||y to a|| who come w|th|n |ts
pr|nc|p|e."
16S

9. When roperty Is Acqu|red 1hrough M|stake or
Iraud
Ak1. 14S6. If property |s acqu|red through m|stake or
fraud, the person obta|n|ng |t |s, by force of |aw, cons|dered a
trustee of an |mp||ed trust for the benef|t of the person from
whom the property comes.
Under Art|c|e 14S6 of the New C|v|| Code, |f property |s acqu|red
through m|stake or fraud, the person obta|n|ng |t |s, by force of |aw,
cons|dered a trustee under an |mp||ed trust arrangement for the benef|t
of the person from whom the property comes.
@"67\ aff|rms that Art|c|e 14S6 covers a form of construct|ve trust.
K5'R'66'-7 9,*'"-,R :,-1 T3 <"8(* "& B667,R)/^
ee
a|so conf|rms the
arrangement covered under Art|c|e 14S6 as a construct|ve trust, thus
A deeper ana|ys|s of Art|c|e 14S6 revea|s that |t |s not a
trust |n the techn|ca| sense[,] for |n a typ|ca| trust, conf|dence
|s reposed |n one person who |s named a trustee for the
benef|t of another who |s ca||ed the P7)*8' g87 *(8)*/
respect|ng property wh|ch |s he|d by the trustee for the
benef|t of the P7)*8' g87 *(8)* A construct|ve trust, un||ke an
express
$
RS'./ at pp. 3S0-3S1.
186
217 SCkA 347
(1993)

IMLILD 1kUS1S 383'
trust, does not emanate from, or genera| a f|duc|ary re|at|on.
Wh||e |n an express trust, a benef|c|ary and a trustee are
||nked by conf|dent|a| or f|duc|ary re|at|ons, |n a construct|ve
trust, there |s ne|ther a prom|se nor any f|duc|ary re|at|on to
speak of and the so-ca||ed trustee ne|ther accepts any trust
nor |ntends ho|d|ng the property for the benef|c|ary.
167

8y |ts |anguage Art|c|e 14S6 covers a|| types of property, whether
movab|e or |mmovab|e. et the cases that have app||ed the pr|nc|p|e |n
Art|c|e 14S6 have often |nvo|ved |mmovab|es, spec|a||y reg|stered parce|s
of |and, where the pub||c po||cy |s that the operat|ve key to determ|ne
who has t|t|e to the property |s reg|strat|on.
When |t comes to movab|e property, the app||cat|on of the
pr|nc|p|es of an |mp||ed trust under Art|c|e 14S6 must contend w|th the
pub||c po||cy covered |n Art|c|e SS9 of the C|v|| Code that possess|on of
movab|e property acqu|red |n good fa|th |s equ|va|ent to t|t|e, thus
Ak1. SS9. 1he possess|on of movab|e property acqu|red |n
good fa|th |n equ|va|ent to a t|t|e. Neverthe|ess, one who has
|ost any movab|e or has been un|awfu||y depr|ved thereof,
may recover |t from the person |n possess|on of the same.
If the possessor of a movab|e |ost or of wh|ch the owner
has been un|awfu||y depr|ved, has acqu|red |t |n good fa|th at a
pub||c sa|e, the owner cannot obta|n |ts return w|thout
re|mburs|ng the pr|ce pa|d therefore.
1he second part of Art|c|e SS9 offers the same pr|nc|p|e of recovery
on the part of the true owner of a movab|e that |s s|m||ar to the |mp||ed
trust doctr|ne under Art|c|e 14S6: "Neverthe|ess, one who has |ost any
movab|e or has been un|awfu||y depr|ved thereof, may recover |t from
the person |n possess|on of the same."
pN
RS'./ at pp. 3S3-3S4.

384
a. App||cat|on of r|nc|p|e under the C|d C|v|| Code
1he equ|ty pr|nc|p|e now expressed |n Art|c|e 14S6 f|rst found
express|on |n C,%"-.,*" T3 F-)8R,( !(7,)8(7( o In C,%"-V .,*"/ where a
mother and her m|nor daughter |nher|ted a |arge tract of |and, and had |t
app||ed for cadastra| survey, but t|t|e was m|staken|y |ssued on|y |n the
name of the mother, the Court he|d that courts of equ|ty w||| |mpress
upon the t|t|e, a cond|t|on wh|ch |s genera||y |n a broad sense termed
"construct|ve trust" |n favor of the defrauded party, but the use of the
word "trust" |n th|s sense |s not techn|ca||y accurate and |s not the k|nd
of trust.
In the app||cat|on of the under|y|ng equ|ty pr|nc|p|e now conta|ned
|n Art|c|e 14S6, the Court has a|ways emphas|zed that |n sp|te of the
proceed|ngs under the 1orrens system of reg|strat|on be|ng '- (7$/ and
the t|t|e |ssued thereto be|ng cons|dered |mprescr|pt|b|e and
|ndefeas|b|e, the 1orrens system does not prevent the P7)*8' g87 *(8)*
under an |mp||ed trust to sue for the recovery of the |and |n the act|on
for reconveyance, whenever the property |s acqu|red through m|stake
or fraud, s|nce the person obta|n|ng the reg|stered t|t|e |s, by force of
|aw, cons|dered a trustee of an |mp||ed trust for the benef|t of the
person from whom the property comes.
In ;7T7('-" T3 ;7T7('-",
169
where the unc|e who was act|ng as
agent or adm|n|strator of the property be|ong|ng to a n|ece, had
procured through fraud a 1orrens t|t|e over sa|d property |n h|s name, |t
was he|d that the unc|e was ob||ged to surrender the property to the
n|ece and transfer t|t|e to her.
In @,8(7,-" T3 ;*7T7-)"-,
170
a cert|f|cate of t|t|e under the 1orrens
system was m|staken|y |ssued |n favor of pet|t|oner k||ayko cover|ng not
on|y the parce| of |and he bought from Laureano, but |nc|ud|ng another
ad[acent |and wh|ch rema|ned the property of h|s se||er. When the
cred|tors of k||ayko had |ev|ed upon a|| the propert|es covered by the
t|t|e to enforce a [udgment debt obta|ned aga|nst k||ayko, Laureano then
|earned
1
8
8

170
4S h||. 2S2
( 923)

IMLILD 1kUS1S 38S'
of the m|stake comm|tted dur|ng the reg|strat|on proceed|ngs wh|ch had
become f|na| and executory. In determ|n|ng whether Laureano cou|d
|ega||y prevent the pub||c sa|e of propert|es reg|stered under the 1orrens
system |n the name of k||ayko, the Court he|d
1he fundamenta| pr|nc|p|es govern|ng the 1orrens
system are we|| known. Crd|nar||y |f one tasks no steps to
protect h|s property |nterests at the t|me of the cadastra|
survey, he |s estopped to d|spute the t|t|e. ne has one year
from the |ssuance of the decree to a||ege and prove fraud.
8ut he may not wa|t |onger than th|s per|od to assert h|s
r|ghts. And were th|s an ord|nary reg|strat|on case, we wou|d
reach a conc|us|on sat|sfactory to the appe||ants. 8ut we
th|nk that there |s more to the case than th|s.
It must not be forgotten that k||ayco never |a|d c|a|m to
th|s property, that the two |ots Nos. 4267 and 4289 covered
by the cert|f|cate of t|t|e No. 830 were m|staken|y reg|stered
|n the name of Lugen|o k||ayco, that the court d|d not have
[ur|sd|ct|on to conf|rm the t|t|e of sa|d two |ots e|ther |n favor
of Lugen|o k||ayco or of anybody e|se, for the reason that no
pet|t|on for t|t|e was f||ed, no tr|a| was he|d, no ev|dence was
presented, and no [udgment was rendered regard|ng these
two |ots |n the |and reg|strat|on proceed|ngs, that k||ayco
never asserted any r|ght of ownersh|p over the property,
that the rent was pa|d to Laureano, and that [udgment was
obta|ned |n the courts |n favor of Laureano through the
acqu|escence and consent of k||ayco. k||ayco was, |n effect,
mere|y ho|d|ng the t|t|e of the property |n trust for Laureano.
1he cred|tors of k||ayco had |n the property, wh|ch, |n th|s
case, was noth|ng.
171

In 47 ?P,$6" T3 x,6"(*7\,/
$
where |t was determ|ned that an
|nstrument, wh|ch d|d not express the true contract between the part|es,
but wh|ch neverthe|ess became the bas|s upon wh|ch the defendants
obta|ned the amendment of the decree of ad[ud|cat|on by wh|ch they
rece|ved a cert|f|cate of transfer of t|t|e
171
]b]d, at pp.

172
S3 h||. 442
( )

cover|ng more than the number of |ots due them, the Court he|d that
"app||cat|on must here be made of the doctr|nes uphe|d |n the cases of
E% BR"7 vs. <5" J,- @'-+/o <,$,P5" T)3 08-'P'6,R'*% "& :,R'8,+,
174
and
;7T7('-" T)3 ;7T7('-"/
$
to the effect that the defendants on|y ho|d the
cert|f|cate of transfer |n trust for the p|a|nt|ffs w|th respect to the
port|on of the |ot p|anted w|th 1,300 coconut trees, and they are
therefore bound to execute a deed |n favor of the p|a|nt|ff, transferr|ng
to them sa|d port|on p|anted w|th 1,300 coconut trees."
176

In D)P"S,( T3 @"P)'-,
177
the des|gnated agent, tak|ng advantage of
the ||||teracy of the pr|nc|pa|, c|a|med for h|mse|f the property wh|ch he
was des|gnated to c|a|m for the pr|nc|pa| and managed to have |t
reg|stered |n h|s own name and became part of h|s estate when the
agent d|ed. 1he Court he|d that the estate was |n equ|ty bound to
execute the deed of conveyance of the |ot to the P7)*8' g87 *(8)*k "A
trust such as that wh|ch was created between the p|a|nt|ff and
Dom|ngo Sumang|| |s sacred and |nv|o|ab|e. 1he Courts have
therefore sh|e|ded f|duc|ary re|at|ons aga|nst every manner of
ch|canery or detestab|e des|gned c|oaked by |ega| techn|ca||t|es. 1he
1orrens system was never ca|cu|ated to foment betraya| |n the
performance of a trust."
178

In K,P57P" T3 B(("/o the Court he|d that "When the c|a|m to the
|ots |n the cadastra| case was w|thdrawn by the respondents re|y|ng
upon the assurance and prom|se made |n open court by . . . the
predecessor-|n-|nterest of the pet|t|oners, a trust or f|duc|ary re|at|on
between them arose, or resu|ted therefrom, or was created thereby.
!57 *(8)*77 P,--"* '-T"17 *57 )*,*8*7 "& R'$'*,*'"-) *" S,( *57 ,P*'"-
,-. .7&7,* *57 ('+5* "& *57 P7)*8' g87 *(8)*7-*3O
`j
h
173
19 h||., 202.
174
28 h||., 466.
17S
44 h||., 343.
oRS'./ at p. 44S.
177
74 h||. 86
oRS'./ at p. 87.
179
8S h||. S0S

$
RS'./ at pp.

IMLILD 1kUS1S 387'
1he reason why K,P57P" |s covered under Art|c|e 14S6, rather
than under Art|c|e 14S3 ("When property |s conveyed to a person |n
re||ance to h|s dec|ared |ntent|on to ho|d |t for, or transfer |s to another
or the grantor") |s because the act|on for reconveyance was be|ng f||ed
aga|nst the successors-|n-|nterest of the person who gave such a
dec|arat|on, and consequent|y, the property he|d |n trust passed to the
he|rs by way m|stake, and r|ghtfu||y covered under Art|c|e 14S6. 1h|s
state of th|ngs was acknow|edged years |ater by the Supreme Court |n
<,-7\" T3 G"X,),
181
where |t he|d:
Assum|ng that such a[n express trust] re|at|on ex|sted, |t
term|nated upon Cr|pu|o's death |n 1978. A trust term|nates
upon the death of the trustee where the trust |s persona| to
the trustee |n the sense that the trustor |ntended no other
person to adm|n|ster |t. If Cr|spu|o was |ndeed appo|nted as
trustee of the property, |t cannot be sa|d that such
appo|ntment was |ntended to be conveyed to the
respondents or any of Cr|spu|o's other he|rs. nence, after
Cr|spu|o's death, the respondent had no r|ght to reta|n
possess|on of the property. B* )8P5 6"'-*/ , P"-)*(8P*'T7 *(8)*
b"8R. S7 P(7,*7. "T7( *57 6("67(*% S% "67(,*'"- "& R,b3
I57(7 "-7 $')*,17-R% (7*,'-) 6("67(*% b5'P5 ('+5*&8RR%
S7R"-+) *" ,-"*57(/ , P"-)*(8P*'T7 *(8)* ') *57 6("67(
(7$7.',R .7T'P7 *" P"((7P* *57 )'*8,*'"-3o
In ;7T'RR, T3 47 R") B-+7R7)/o one of the he|rs of decedent Ie||x
Sev|||a, through fraudu|ent representat|on, succeeded |n hav|ng the
or|g|na| cert|f|cate of t|t|e |ssued |n the name of the "he|rs of Ie||x
Sev|||a" cance||ed and a new one |ssued |n her name on|y and thereby
enab||ng her to possess the |and and appropr|ate the produce therefor.
1he Court he|d that "1h|s was of acqu|r|ng t|t|e creates what |s ca||ed
'construct|ve trust' |n favor of the defrauded party and grants to the
|atter a r|ght to v|nd|cate the property (7+,(.R7)) "& *57 R,6)7
off]me."
184

181
S38 SCkA 242 (2007).
182
]b]d, at p. 2S7, 7$65,)')

183
97 h||. 87S (19SS).
b
RS'./ at p. 879, '*,R'P)
R' .

b. App||cat|on under the New C|v|| Code
In 4',\ T3 C"(('P5" ,-. B+8,."/
$
the Supreme Court recogn|zed
that Art|c|e 14S6 "mere|y expresses a ru|e a|ready recogn|zed by our
courts [f|rst enunc|ated |n C,%"-.,*" T3 F-)8R,( !(7,)8(7(/ 49 h||. 244
(1926)] pr|or to the [New C|v||] Code's promu|gat|on."
188

Short|y thereafter, |n BT7P'RR, T3 A,*P",
187
|mp||ed trust arrangement |mposed by Art|c|e 14S6 of the New C|v||
Code a||ows the aggr|eved party a remedy to seek reconveyance aga|nst
the party who has emp|oyed fraud, thus
8ut the r|ght of act|on |n th|s construct|ve trust shou|d
be exerc|sed aga|nst the trustee, who caused the fraud, and
not aga|nst an |nnocent purchaser for va|ue, as the Susana
kea|ty, Inc. 1h|s r|ght may a|so be exerc|sed aga|nst Sant|ago
Cruz who a|so obta|ned t|t|e to the |and w|th know|edge of
the fraud, but not w|th regard to Susana kea|ty, Inc. wh|ch,
as a|ready stated, has bought the property |n good fa|th. 1he
remedy |n th|s case of the defrauded he|rs |s to br|ng an
act|on for damages aga|nst those who caused the fraud or
were |nstrumenta| |n depr|v|ng them of the property. 1he|r
act|on cannot reach an |nnocent purchaser for va|ue who |s
protected by |aw.
188

L|kew|se, under the New C|v|| Code, the Court re|terated the
pr|nc|p|e that pub||c po||cy demands that a person gu||ty of fraud or at
|east, of breach of trust, shou|d not be a||owed to use a 1orrens t|t|e as a
sh|e|d aga|nst the consequences of h|s own wrongdo|ng. In 2.,3 .7
J,P'-*" T3 2.,3 .7 J,P'-*"/
189
the Court he|d
Lven |n the absence of fraud |n obta|n|ng reg|strat|on or
even after the |ease of one year after the |ssuance of a
18S
103 h||. 261
( )
$
RS'./ at p. 264.
187
103 h||. 666

$
RS'./ at p. 670.
189
S SCkA 370
( )

IMLILD 1kUS1S 389'
decree of reg|strat|on, a co-owner of |and who app||ed for
and secured |ts ad[ud|cat|on and reg|strat|on |n h|s name
know|ng that |t had not been a||otted to h|m |n the part|t|on,
may be compe||ed to convey the same to whoever rece|ved
|t |n the apport|onment, so |ong as no |nnocent th|rd party
had acqu|red r|ghts there|n, |n the meant|me for a va|uab|e
cons|derat|on. "Indeed, any ru|e to the contrary wou|d
sanct|on one's enr|chment at the expense of another. ub||c
. po||cy demands that a person gu||ty of fraud Cr, at |east, of
breach of trust, shou|d not be a||owed to use a 1orrens t|t|e
as a sh|e|d aga|nst the consequences of h|s wrongdo|ng
(Cabanos vs. keg|ster of Deeds, etc., 40 h||. 620, Sever|no
vs. Sever|no, 41 h||. 343.)
Last|y, the c|a|m of the he|rs of edro Iac|nto that the
|atter had acqu|red ownersh|p of the property |n ||t|gat|on by
prescr|pt|on, |s ||kew|se untenab|e. As we had recent|y he|d
|n Iuan, et a|. vs. 2uf||ga, G.k. No. L-17044, Apr|| 28,1962, an
act|on to enforce a trust |s |mprescr|pt|b|e. Consequent|y, a
co-he|r who, through fraud, succeeds |n obta|n|ng a
cert|f|cate of t|t|e |n h|s name to the pre[ud|ce of h|s cohe|rs,
|s deemed to ho|d the |and |n trust for the |atter, and the
act|on by them to recover the property does not prescr|be.
190

1he Court has s|nce then re-aff|rmed under the New C|v|| Code the
pr|nc|p|e that reg|strat|on of property by one person |n h|s name,
whether by m|stake or fraud, the rea| owner be|ng another person,
|mpresses upon the t|t|e so acqu|red the character of a construct|ve
trust for the rea| owner, wh|ch wou|d [ust|fy an act|on for
reconveyance:
- In C"-\,R7) T3 J'$7-7\/o where unreg|stered |and was so|d
by the father to a buyer who took possess|on thereof,
but subsequent|y, the father managed to obta|n a free
patent over the same property |n the name of the son
to whom an or|g|na| cert|f|cate of t|t|e was |ssued.
190
]b]d, at pp.

191
13 SCkA 80

In L,S',- T3 L,S',-/
192
where co-he|rs entered |nto an
extra[ud|c|a| sett|ement of the estate of the decedent,
exc|ud|ng therefrom some of the other forced he|rs, and
subsequent|y obta|n|ng or|g|na| and transfer cert|f|cates
of t|t|e |n the|r names, the co-he|rs who obta|ned t|t|e
through fraud were cons|dered trustees under an
|mp||ed trust for the benef|t of the other co-he|rs.
In :87-, T3 keyes,
193
where the husband of one of the
co-he|rs was des|gnated by a|| the he|rs of the decedent
to f||e an answer |n the cadastra| proceed|ngs and to
obta|n t|t|e to the property |eft by the decedent |n beha|f
of a|| he|rs, but |nstead on|y obta|ned t|t|e |n h|s name
and h|s two brothers, the Court ru|ed the creat|on of a
construct|ve trust.
In 0,+,RR"- T3 0"-*7X",
194
where con[uga| property was
ad[ud|cated ent|re|y |n the name of the surv|v|ng
husband and |eav|ng out the ch||dren from the|r
success|ona| r|ghts to one-ha|f of the property perta|n|ng
to the|r deceased mother, the Court he|d that a
construct|ve trust under Art|c|e 14S6 had been du|y
const|tuted w|th the surv|v|ng father "as the trustee of a
construct|ve trust, [w|th] an ob||gat|on to convey to the
pr|vate respondents that part of the |and |n quest|on to
wh|ch she now c|a|ms an ostens|b|e t|t|e, sa|d port|on
r|ghtfu||y perta|n|ng to the respondents' deceased
mother as her share |n the con[uga| partnersh|p."
19S

In 08-'P'6,R'*% "& 2'P*"(',) T3 <"8(* "& B667,R)/
`le
where
reg|stered |and prev|ous|y so|d to the mun|c|pa|
corporat|on, but wh|ch fa||ed to du|y
192
22 SCkA 231 (1968).
193
27 SCkA 1179

194
146 SCkA 282

19S
]]>]d, at p. 290.
196
149 SCkA 32 (1987).

IMLILD 1kUS1S
391'
reg|ster the sa|e, was erroneous|y passed by |ntestate
success|on to the he|rs of the se||er, |t was he|d that
notw|thstand|ng the |rrevocab|||ty of the 1orrens t|t|e the
trustee and h|s successors- |n-|nterest were bound to
execute the deed of reconveyance: "As the |and |n
d|spute |s he|d by pr|vate respondents |n trust for the
Mun|c|pa||ty of V|ctor|as, |t |s |og|ca| to conc|ude that the
|atter can ne|ther be depr|ved of |ts possess|on nor be
made to pay renta|s thereof. r|vate respondent |s |n
equ|ty bound to reconvey the sub[ect |and to the P7)*8'
g87 *(8)*, the Mun|c|pa||ty of V|ctor|as. 1he 1orrens
system was never ca|cu|ated to foment betraya| |n the
performance of a trust."
197

In B.'RR7 T3 <"8(* "& B667,R)/o where one of the
co-owners exerc|sed for h|mse|f a|one the r|ght to
redeem the property so|d under a sa|e a (7*(" and p|aced
t|t|e so|e|y |n h|s name, he was he|d to have taken t|t|e as
trustee under an |mp||ed trust governed under Art|c|e
14S6.
K,X,('RR" T3 F-*7($7.',*7 B667RR,*7 <"8(*,
199
where the
mother had prev|ous|y va||d|y donated the |and to a
daughter, and |atter so|d |t aga|n to a son who knew of
the donat|on, the |atter hav|ng rece|ved t|t|e thereto as a
trustee of an |mp||ed trust under Art|c|e 14S6.
et, the Supreme Court has not been cons|stent |n |ts pos|t|on.
Let us f|rst take the dec|s|on |n >7'() "& !,-,1 K,-+,,(,-
K,*'b,%"- T3 0,(*'-7\where the decedent dur|ng h|s ||fet|me had
marr|ed |eg|t|mate|y three success|ve t|mes, but w|thout
197
]b]d, at p. 4S.
198
1S7 SCkA 4SS
199176 SCkA 340

200
142 SCkA 2S2
( )

||qu|dat|on of the con[uga| partnersh|ps formed dur|ng the f|rst and
second marr|ages. 1he on|y ma|e |ssue managed to conv|nce h|s co-he|rs
that he shou|d act as adm|n|strator of the propert|es |eft by the
decedent, but |nstead obta|ned a cert|f|cate of t|t|e |n h|s own name to
the va|uab|e p|ece of property of the estate. It was he|d by the Court that
where the son, through fraud was ab|e to secure a t|t|e |n h|s own name
to the exc|us|on of h|s co-he|rs who equa||y have the r|ght to a share of
the |and covered by the t|t|e, an |mp||ed trust was created |n favor of sa|d
co-he|rs, and that sa|d son was deemed to mere|y ho|d the property for
the|r and h|s benef|t:
1he ru|es are we||-sett|ed that when a person through
fraud succeeds |n reg|ster|ng the property |n h|s name, the
|aw creates what |s ca||ed a "construct|ve or |mp||ed trust" |n
favor of the defrauded party and grants the |atter the r|ght o
recover the property fraudu|ent|y reg|stered w|th|n a per|od
of ten years.
201

Iust a few months |ater, |n 0,(',-" T3 J8.+7 47 27+, where the
ch||dren of the decedent by h|s second marr|age had taken over
propert|es of the estate, exc|ud|ng therefrom grandch||dren of the
decedent by h|s f|rst marr|age, the Court he|d that the s|tuat|on |s one
that |s governed by the ru|es of co- ownersh|p under Art|c|e 494 of the
C|v|| Code wh|ch prov|des that no prescr|pt|on sha|| run |n favor of a
co-owner or co-he|r aga|nst h|s co-owners or co-he|rs so |ong as he
express|y or |mp||ed|y recogn|zes the co-ownersh|p. In v|ew of a c|ear
repud|at|on of the co-ownersh|p du|y commun|cated to the co-he|rs, no
prescr|pt|on occurred and the f|||ng of the act|on for part|t|on and
de||very of possess|on cover|ng the|r correspond|ng shares 28 years after
the death of the decedent was deemed not f||ed out of t|me.
oRS'./ at p. 261, P'*'-+ C"-\,R7) T3 J'$7-7\/ ;(3/ 13 SCkA 80, 82
(196S), ,-. 6"'-*'-+ *" G8'\ T3 <"8(* "& B667,R)/ 79 SCkA S2S, S37.
]]àj SCkA 342 (1987).

IMLILD 1kUS1S
393'
In !"$,) T3 <"8(* "& B667,R)/
Yc[
wh||e a |arge tract of |and was st|||
unreg|stered |and, the owners so|d port|ons thereof to the vendees
covered by tax dec|arat|ons, and possess|on and contro| thereof was
transferred to the vendees. et when the owners had sought
reg|strat|on of the property under the 1orrens system, they |nc|uded the
port|ons a|ready so|d and obta|ned t|t|e thereto |n the|r names. Upon
d|scovery thereof, the vendees f||ed an act|on for reconveyance to wh|ch
the reg|stered owner p|eaded f|na||ty of the decree of reg|strat|on. 1he
Court he|d that an |mp||ed trust was const|tuted under Art|c|e 14S6 thus:
"In the present case, prescr|pt|on w||| not ||e |n favor of the pet|t|oners
[owners-se||ers] who are not even |n possess|on of the d|sputed |and."
204

In 9"7R T3 <"8(* "& B667,R)/
YcZ
where the surv|v|ng w|fe so|d the
ent|rety of a parce| of |and bought dur|ng the marr|age, w|thout the
author|ty from the forced he|rs of the deceased husband, the Court |n
ru||ng that that the sa|e of the other ha|f const|tuted the buyer as trustee
under an |mp||ed trust under Art|c|e 14S6, he|d
In 4',\ T3 C"(('P5"/
$
the Court sa|d that Art|c|e 14S6
mere|y expresses a ru|e recogn|zed |n C,%"-.,*" T3 F-)8R,(
!(7,)8(7(3o App|y|ng sa|d ru|e, the C,%"-.,*" court he|d
that the buyer of a parce| of |and at a pub||c auct|on to
sat|sfy a [udgment aga|nst a w|dow acqu|red on|y one-ha|f
|nterest on the |and correspond|ng to the share of the
w|dow and the other ha|f be|ong|ng to the he|rs of her
husband became |mpressed w|th a construct|ve trust |n
beha|f of sa|d he|rs.
208

^8S SCkA627
( 990)
oRS'./ at p. 633.
20S
240 SCkA 78
h||. 261

207
49 h||. 244
xx|b|d, at pp.
88 89

c. kecent App||cat|ons of Art|c|e 14S6
K7.(,-" T3 >7'() "& :7-7.'P*" K7.(,-"/o pa|d ||p serv|ce to the
pr|nc|p|e embod|ed |n Art|c|e 14S6 that |f property |s acqu|red through
m|stake or fraud, the person obta|n|ng |t |s, by force of |aw, cons|dered a
trustee of an |mp||ed trust for the benef|t of the person from whom the
property comes.
In >7'() "& 2,R7(',-" ;3 <"-P5,/ ;(3 T3 @8$"P)"/o the Court he|d
that "An act|on for reconveyance respects the decree of reg|strat|on as
|ncontrovert|b|e but seeks the transfer of property, wh|ch has been
wrongfu||y or erroneous|y reg|stered |n other person's names, to |ts
r|ghtfu| and |ega| owners, or to those who c|a|m to have a better r|ght.
1here |s no spec|a| ground for an act|on for reconveyance. It |s enough
that the aggr|eved party has a |ega| c|a|m on the property super|or to
that of the reg|stered owner and that the property has not yet passed to
the hands of an |nnocent purchaser for va|ue."
211

@8$"P)" a|so he|d that cases brought under Art|c|e 14S6 "may a|so
be cons|dered as act|ons to remove c|oud on one's t|t|e as they are
|ntended to procure the cance||at|on of an |nstrument const|tut|ng a
c|a|m on pet|t|oners' a||eged t|t|e wh|ch was used to |n[ure or vex them
|n the en[oyment of the|r a||eged t|t|e."
212

K,)'-" T3 0"-*7(("%",
213
he|d that "Under the pr|nc|p|e of
construct|ve trust, reg|strat|on of property by one person |n h|s name,
whether by m|stake or fraud, the rea| owner be|ng another person,
|mpresses upon the t|t|e so acqu|red the character of a construct|ve trust
for the rea| owner, wh|ch wou|d [ust|fy an act|on for reconveyance.
214
In
the act|on for reconveyance, the decree of reg|strat|on |s respected as
|ncontrovert|b|e but what |s sought |nstead |s the transfer of the
property wrongfu||y or erroneous|y reg|stered |n another's name to |ts
r|ghtfu| owner or to one w|th a
209
S39 SCkA 401 (2007).
210
S40 SCkA 1 (2007).
211
]])]d, at pp. 13-14.
oRS'./ at p. 1S.
213
S60 SCkA 739 (2008).
Y8
RS'./ P'*'-+ >7'() "&!,S', T3 <"8(* "& B667,R)/ S16 SCkA 431
( )

IMLILD 1kUS1S 39S'
better r|ght. If the reg|strat|on of the |and |s fraudu|ent, the person |n
whose name the |and |s reg|stered ho|ds |t as a mere trustee, and the
rea| owner |s ent|t|ed to f||e an act|on for reconveyance of the
property."
21S

In K,)'&'" the respondents were ab|e to estab||sh that they have a
better r|ght to the parce| of |and s|nce they had |ong been |n possess|on
of the property |n the concept of owners, by themse|ves and through
the|r predecessors-|n-|nterest. 1herefore, desp|te the |rrevocab|||ty of the
1orrens t|t|es |ssued |n the names of the pet|t|oners and even |f they are
a|ready the reg|stered owners under the 1orrens system, the pet|t|oners
may st||| be compe||ed under the |aw to reconvey the property to
respondents.
In @"67\ T3 <"8(* "& B667,R)/O
e
where |n her notar|a| w||| the
testator "expressed that she w|shed to const|tute a trust fund for her
parapherna| propert|es, denom|nated as L'.7'P"$')" .7 J8R',-, @"67\
0,-\,-" =L'.7'P"$')"H/ to be adm|n|stered by her husband. . .
1wo-th|rds (2]3) of the |ncome from renta|s over theses propert|es were
to answer for the educat|on of deserv|ng but needy honor students,
wh||e one-th|rd (1]3) was to shou|der the expenses and fees of the
adm|n|strator," but that eventua||y |n the probate of the w||| the
propert|es were ad[ud|cated to the husband as so|e he|r, the Court ru|ed
that "Cn the prem|se that the d|sputed propert|es are the parapherna|
propert|es of Iu||ana wh|ch shou|d have been |nc|uded |n the
L'.7'"P"$')"/ the|r reg|strat|on |n the name of Iose wou|d be erroneous
and Iose's possess|on wou|d be that of a trustee |n an |mp||ed trust...
[wh|ch from] the factua| m|||eu of th|s case |s prov|ded |n Art|c|e 14S6 of
the C|v|| Code. . . . 1he apparent m|stake |n the ad[ud|cat|on of the
d|sputed propert|es to Iose created mere |mp||ed trust of the
construct|ve var|ety |n favor of the benef|c|ar|es of the L'.7'P"$')"Oo
oRS'./ at p. 7S1, P'*'-+ 07-.'\,S7R T3 B6,"/ 482 SCkA

216
S74 SCkA 26.
Y
ORS'./ at pp. 38.

kecent|y, |n @8-,/ J(3 T3 <,S,R7)/o the Court he|d that "1he
reg|strat|on of a property |n one's name, whether by m|stake or fraud,
the rea| owner be|ng another, |mpresses upon the t|t|e so acqu|red the
character of a construct|ve trust for the rea| owner. 1he person |n whose
name the |and |s reg|stered ho|ds |t as a mere trustee, and the rea|
owner |s ent|t|ed to f||e an act|on for reconveyance of the property. 1he
1orrens system does not protect a usurper from the true owner."
219

0C0
218
608 SCkA
206
oRS'./ at p.
206

CnA1Lk 4
kLSCkI1ICN kULLS ICk 1kUS1S
A separate and f|na| chapter on the ru|es on prescr|pt|on of trusts
has been set-out |n order to prov|de a f|tt|ng compar|son of the three
types of trusts recogn|zed |n the h|||pp|ne [ud|c|a| system: express
trusts, resu|t|ng trusts, and construct|ve trusts.
A sect|on on forma| rec|ass|f|cat|on of trusts under the h|||pp|ne
Lega| System |s set at the end of th|s chapter, that draws from the
doctr|nes that have evo|ved from the dec|s|ons of the Supreme Court on
1rusts.
kULLS CI kLSCkI1ICN ICk LkkLSS 1kUS1S
1. Genera| ku|e: Lxpress 1rusts Not Suscept|b|e to
Acqu|s|t|ve rescr|pt|on
Io||ow|ng Amer|can doctr|ne, the Supreme Court dec|ared |n 4',\
T3 C"(('P5" ,-. B+8,.") that as a matter of pub||c po||cy, when t|t|e and
possess|on of the property |s he|d by a person as trustee under an
express trust, and for as |ong as he has not made a c|ear and express
repud|at|on of the trust, then the r|ghts of the P7)*8' g8' *(8)* are not
sub[ect to prescr|pt|on to favor the trustee, thus:
1he Amer|can |aw on trusts has a|ways ma|nta|ned a
d|st|nct|on between express trusts created by |ntent|on of
'103 h||. 261 (19S8).
397

the part|es, and the |mp||ed or construct|ve trusts that are
exc|us|ve|y created by |aw, the |atter not be|ng trusts |n the|r
techn|ca| sense. !57 7W6(7)) *(8)*) .'),SR7 *57 *(8)*77 &("$
,Pg8'('-+ &"( 5') "b- S7-7&'* *57 6("67(*% P"$$'**7. *" 5')
$,-,+7$7-* "( P8)*".%/ ,* R7,)* b5'R7 57 ."7) -"* "67-R%
(768.',*7 *57 *(8)*/ ,-. $,17) )8P5 (768.',*'"- 1-"b- *"
*57 S7-7&'P',(% "( P7)*8' g87 *(8)*3 Ior th|s reason, the o|d
Code of C|v|| rocedure (Act 190) dec|ared that the ru|es on
adverse possess|on do not app|y to "cont|nu|ng and subs|st-
|ng" _'373/ unrepud|ated) trusts.
2

1he doctr|ne was re|terated |n C7("-'$" ,-. F)'.(" T3 9,T, ,-.
Bg8'-"/
[
wh|ch he|d that "Such a trust |s an express one, not sub[ect to
prescr|pt|on... Cf course, |t m|ght be contended that |n the |atter
|nstance of a construct|ve trust, prescr|pt|on may app|y where the
trustee asserts a r|ght adverse to that of the P7)*8' g87 *(8)*, such as,
assert|ng and exerc|s|ng acts of ownersh|p over a property be|ng he|d |n
trust."
4

8y the t|me of the |ssuance of the sem|na| dec|s|on |n G,$") T3
G,$")/
)
the Court was conf|dent enough to summar|ze the preva|||ng
ru|es aga|nst prescr|pt|on when |t came to express trusts by c|t|ng the
cases that have enunc|ated the covered doctr|nes, thus:
(a) 1here |s a ru|e that a trustee cannot acqu|re by
prescr|pt|on the ownersh|p of property entrusted to
h|m,
6
or
(b) An act|on to compe| a trustee to convey property
reg|stered |n h|s name |n trust for the benef|t of the
P7)*8' g8' *(8)* does not prescr|be,
7
or
Y
RS'./ at p. 264, '*,R'P) )866R'7.3
3
10S h||. 14S (19S9).
B
'S'./ at p. 1S3). G7'*7(,*7. '- C7("-, T3 47 C8\$,-/ 11 SCkA 1S3
(1964), and J8R'" T3 4,R,-.,-/ 21 SCkA S43 (1967).
S
61 SCkA 284 (1974).
e
'S'./ P'*'-+ K,R$, T3 <(')*"S,R/ 77 h||. 712 (1946).
N
RS'./ P''*'-+ 0,-,R,-+ T3 <,-R,)/ 94 h||. 776, <(')*"S,R T3 C"$7\/
S0 h||. 810(1927).

399
(c) 1he defense of prescr|pt|on cannot be set up |n an
act|on to recover property he|d by a person |n trust for
the benef|t of another,
8
or
(d) 1he property he|d |n trust can be recovered by the
benef|c|ary regard|ess of the |apse of t|me.
9

G,$") he|d that |n an express trust, "1he bas|s of the ru|e |s that
the possess|on of a trustee |s not adverse. Not be|ng adverse, he does
not acqu|re by prescr|pt|on the property he|d |n trust. 1hus, sect|on 38 of
Act 190 prov|des that the |aw of prescr|pt|on does not app|y "|n the case
of a cont|nu|ng and subs|st|ng trust."
10

2. Lxcept|on: When Acqu|s|t|ve rescr|pt|on May Ar|se |n Lxpress 1rusts
As ear|y as |n <"(*7\ T3 0]]Va,
11
the Supreme Court recogn|zed the
pr|nc|p|e that |n an express trust, the trustee who |s |n adverse
possess|on may c|a|m t|t|e by prescr|pt|on where |t appears that:
(a) the trustee has performed unequ|voca| acts of
repud|at|on amount|ng to an ouster of the P7)*8' g87
*(8)*d
(b) such pos|t|ve acts of repud|at|on have been made
known to the P7)*8' g87 *(8)*/ and
(c) the ev|dence thereon |s c|ear and conc|us|ve.
8y 1974, apart from aff|rm|ng the genera| ru|e of |mprescr|pt|b|||ty
for express trusts, G,$") recogn|zed the pr|nc|p|e that un
]RS'./ P'*'-+ ;7T'RR, T3 47 R") B-+7R7)/ 97 h||. 87S(19SS).
l
RS'./ P'*'-+ 0,(,S'RR7) T3 U8'*"/ 100 h||. 64 (19S6), :,-P,'(7- T3
4'"-7)/ 98 h||. 122,126, J8,- T3 x8-'+,/ 4 SCkA 1221, J,P'-*" T3 J,P'-*"/
S SCkA 370 (1962), and !,$,%" T3 <,RR7X"/ 147 h||. 31, 37 (1972).
OFS'./ at p. 299, P'*'-+ 4',\ T3 C"(('P5" ,-. B+8,."/ 103 h||. 261,
266 (19S8), @,+8-, T3 @7T,-*'-"/ 71 h||. S66 (1941), ;8$'(, T3 2')*,-/
74 h||. 138 (1943), C"R&7" T3 <"8(* "& B667,R)/ 12 SCkA 199 (1964),
<,R,.'," T3 ;,-*")/ 10 SCkA 691 (1964).
11
33 h||. 480 (1916).

400
der the str|ct cond|t|ons prov|ded by <"(*7\/ acqu|s|t|ve prescr|p-
t|on over the (7) or trust property may va||d|y accrue |n favor of
the trustee, thus:
Acqu|s|t|ve prescr|pt|on may bar the act|on of the bene-
f|c|ary aga|nst the trustee |n an express trust for the recov-
ery of the property he|d |n trust where (a) the trustee has
performed unequ|voca| acts of repud|at|on amount|ng to an
ouster of the P7)*8' g8' *(8)*/ (b) such pos|t|ve acts of repu-
d|at|on have been made known to the P7)*8' g87 *(8)* and
(c) the ev|dence thereon |s c|ear and conc|us|ve.
12
Compare
w|th the ru|e regard|ng co-owners found |n the |ast
paragraph
of art|c|e 494, C|v|| Code.
13

1he essent|a| e|ements for effect|ve repud|at|on of an
express trust have been re|terated |n recent t|mes |n K'',6'R T3
>7'() "& 0,W'$'-" G3 :('"-7)/
à
<,57\" T3 G"X,),
1S
and >7'() "&
!(,-g8'''-" @,S')*7 T3 >7'() "& J")7 @,S')*73
è

a. Va||d "kepud|at|on" |n Lxpress 1rusts
F- ;'8$'(, T3 2')*,/O the Court he|d that |n an express trust,
an open d|savowa| of the trust must be made by pos|t|ve acts
amount|ng to an ouster of, and made known to the P7)*8' g87
*(8)*/ |n order that the |atter may be affected, and that prescr|pt|on*
or |aches do not come |nto effect by the mere passage of t|me.
1hus, |n the case of co-ownersh|p, mere possess|on of one co-
owner does not const|tute d|savowa|, for possess|on by any co-
owner |s cons|stent w|th the co-ownersh|p |nterest of other co-
owners.
OFS'./ at p. 300, P'*'-+ @,+8-, T3 @7T,-*'-"/ 71 h||. S66
(1940-1941), ;,R'-,) T3 !8,)"-/ SS h||. 729 (1931).
oRS'./ P'*'-+ <,),-,) T3 G")7'R"/ S0 h||. 97 (1927), C7("-, T3 47
C8\$,-/ 11 SCkA 1S3,1S7(1964).
"S14 SCkA 197 (2007)
1S
S38 SCkA 242 (2007).
16
S87 SCkA 417 (2009).
"74 h||. 138 (1943).

kLSCkI1ICN kULLS ICk 1kUS1S 401
kecent|y, |n >7'() "& !(,-g8'R'-" @,S')*7 T3 >7'() "& J")7 @,S')*7,
18

the Court he|d that the successors-|n-|nterest of the trustee cannot re|y
on the fact that the 1orrens t|t|e was |ssued |n the name of the trustee
under an express trust, s|nce
It has been he|d that a trustee who obta|ns a 1orrens
t|t|e over property he|d |n trust by h|m for another cannot
repud|ate the trust by re|y|ng on the reg|strat|on. 1he ru|e
requ|res a c|ear repud|at|on of the trust du|y commun|cated
to the benef|c|ary. 1he on|y act that can be construed as
repud|at|on was when respondents f||ed the pet|t|on for
reconst|tut|on |n Cctober 1993. And s|nce pet|t|oners f||ed
the|r comp|a|nt |n Ianuary 199S, the|r cause of act|on has not
yet prescr|bed, |aches cannot be attr|buted to them.
19

S|nce there can be an express trust over reg|stered and even when
fu|| t|t|e to the property |s reg|stered |n the name of the trustee, then
such reg|strat|on of fu|| ownersh|p (as d|st|ngu|shed from reg|strat|on of
on|y naked or |ega| t|t|e) does not amount to an act of repud|at|on. 1he
other ru|es of prescr|pt|on on express trusts can be better apprec|ated by
d|scuss|ng them |n compar|son w|th the ru|es perta|n|ng to |mp||ed
trusts, as was done hereunder.
kULLS CI kLSCkI1ICN ICk IMLILD 1kUS1S
h|||pp|ne |ega| h|story on 1rusts has fo||owed a tortuous path on
the |ssue of whether |n a trust re|at|onsh|p, |mbued w|th f|duc|ary and
equ|tab|e characters, there cou|d be app||ed the pr|nc|p|es of
prescr|pt|on and |aches, and |f so, what per|ods wou|d be appropr|ate
and what commences the runn|ng of any of such per|ods.
1he doctr|nes on prescr|pt|on as they covered |mp||ed trusts took a
|ong t|me to crysta|||ze because the Supreme Court was try|ng to deve|op
a s|ng|e set of doctr|nes for both resu|t|ng trusts
1f|
S87 SCkA 417
( )
19
]6]d, at p. 426.

402
and construct|ve trusts. Cn|y when the Court began to categor|ze and
treat resu|t|ng trusts to be more ak|n to the express trusts based on the
rea||sm that they emanate from the same contractua| |ntent, that a c|ear
doctr|ne of prescr|pt|b|||ty began to make sense |n the case of
construct|ve trusts.
1. C|d C|v|| Code Iur|sprudence
S|nce t|t|e to the purported trust property |s |n the name of the
trustee |n |mp||ed trust, whether resu|t|ng and construct|ve, ru|es of
prescr|pt|on began to evo|ve pr|mar||y |n act|ons for reconveyance of the
trust property f||ed by the P7)*8' g87 *(8)*
Under the aeg|s of the o|d C|v|| Code wh|ch d|d not have prov|s|ons
on trusts, the r|ght of the P7)*8' g87 *(8)* aga|nst the trustee |n |mp||ed
trusts to demand a reconveyance of the property had |ts roots |n a str|ng
of dec|s|ons of the Supreme Court
20
wh|ch bas|ca||y uphe|d the doctr|ne
that prescr|pt|on cannot be set up as a defense |n an act|on that seeks to
recover property he|d |n trust for the benef|t of another.
In a|| those dec|s|ons, the Court refused to sanct|on a purported
trustee's c|a|m of ownersh|p by prescr|pt|on wh|ch was based upon h|s
own breach of trust, on ground of genera||y accepted eth|ca| pr|nc|p|es,
part|cu|ar|y the pr|nc|p|es of good fa|th and the ru|e on the mora|
ob||gat|on to refra|n from p|ac|ng one's se|f |n a pos|t|on wh|ch ord|nar||y
br|ngs about conf||cts between se|f-|nterest and |ntegr|ty. Lven then,
there were a few dec|s|ons that d|verged from the ma|n ru|e of
|mprescr|pt|b|||ty.
In <R,('.,. T3 :7-,(7)/O where the p|a|nt|ffs were, through fraud,
made to s|gn deeds of sa|e of the |ands |n favor of Iose
]q<"-)8-X' T3 !')"-/ 1S h|. 81 (1910), E% BR"7 T3 <5" J,- S^-+/ 19
h||. 202 (1911), <,$,P5" T3 08-'P'6,R'*% "& :,R'8,+/ 28 h||. 466
(1914), ;7T7('-" T3 ;7T7('-"/ 44 h||. 343 (1923), <(')*"S,R T3 C"$7\/ S0
h||. 810 (1927), <,)*(" T3 <,)*("/ S7 h||. 67S (1932), K,R$, T3 <(')*"S,R/
77 h||. 712 (1946), K,P57P" T3 B(("/ 8S h||. S0S (19S0), 0,-,R,-+ T3
<,-R,)/ 94 h||. 776 (19S4), ;7T'RR, T3 B-+7R7)/ 97 h||. 87S (19SS),
:,-P,'(7- T3 4'"-7)/ 98 h||. 122 (19SS), 0,(,V S'R7) T3 U8'*" / 100 h||.
64 (19S6), and 0,S,-, T3 07-."\,/ 10S h||. 260 (19S9).
21
97 h||. 973 (19SS).

8enares, be||ev|ng them to be mere |ease contracts, the fraud was
d|scovered |n 1940 and the act|on to dec|are the sa|es f|ct|t|ous and
|||ega| were brought on|y |n 194S. 1he Court he|d that such act|on was
barred, s|nce be|ng based on fraud |t cou|d on|y be brought w|th|n &"8(
(4) %7,() from the t|me the fraud was d|scovered. 1he use of the four (4)
year prescr|pt|ve per|od based on fraud was |ncongruent w|th the ten
(10) year per|od prov|ded under the then Code of C|v|| rocedure on
prescr|pt|on of act|on.
It |s sa|d that |t was |n Iust|ce I8L keyes' d|ssent|ng op|n|on |n the
19S6 dec|s|on |n 0,(,S'R7) T3 U8'*"/
YY
that the seeds on accept|ng the
ru|e of prescr|pt|b|||ty for |mp||ed trusts began to take roots, where he
wrote
I concur w|th the reasons of the ma[or|ty dec|s|on, but
cons|der the statement to the effect that "property he|d
under construct|ve trust can be v|nd|cated regard|ess of the
|apse of t|me" much too broad for unqua||f|ed assent. 1he
ru|e of |mprescr|pt|b|||ty |s |og|ca| |n case of express trusts,
s|nce a party who agrees to ho|d property for another, and
upon whose prom|se conf|dence |s reposed, w||| natura||y be
he|d to h|s agreement, and w||| not be a||owed to set t|t|e |n
h|mse|f w|thout f|rst repud|at|ng the trust express|y. 1he ru|e
can be extended to resu|t|ng trusts, s|nce the |ntent to create
a trust ex|sts |n such case, even |f a|| requ|s|tes of express
trust do not concur. 8ut |n construct|ve trusts, based on
fraud or tort, the e|e-ment of trust and conf|dence |s not
present, and the author|t|es are [agreed] that no repud|at|on
|s requ|red for the app||cat|on of ext|nct|ve prescr|pt|on.
23

In 19S8, |n 4',\ T3 C"(('P5" ,-. B+8,."/
Ya
Iust|ce I8L keyes wrote
the ma[or|ty op|n|on for the Court wh|ch he|d that "a|though express
trusts d|sab|e the trustee from acqu|r|ng for h|s own benef|t the property
comm|tted to h|s management or custody, at |east wh||e he does not
open|y repud|ate the trust,
^100 h||. 64 (19S6).
Y[
FS'., at p. 68, P'*'-+ 34 AM. Ik. pp. 88, 143, AMLkICAN LAW INS1.,
kLS1A1LMLN1 CN kLS1I1U1ICN, SLC. 179, kLS1A1LMLN1S CN 1kUS1S, Sec. 219.
"103 h||. 261 (19S8).

and makes such repud|at|on known to the benef|c|ary or P7)*8' g87
*(8)*.. 8ut |n construct|ve trusts . . . the ru|e |s that |aches const|tutes a
bar to act|ons to enforce the trust, and repud|at|on |s not requ|red,
un|ess there |s concea|ment of the facts g|v|ng r|se to the trust."
2S
1he
Court exp|a|ned |ts new off|c|a| pos|t|on on the matter as fo||ows
1he reason for the d|fference |n treatment |s obv|ous. In
express trust, the de|ay of the benef|c|ary |s d|rect|y
attr|butab|e to the trustee who undertakes to ho|d the
property for the former, or who |s ||nked to the benef|c|ary
by conf|dent|a| or f|duc|ary re|at|ons. 1he trustee's
possess|on |s, therefore, not adverse to the benef|c|ary, unt||
and un|ess the |atter |s made aware that the trust has been
repud|ated. 8ut |n construct|ve trusts (that are |mposed by
|aw), there |s ne|ther prom|se nor f|duc|ary re|at|on, the
so-ca||ed trustee does not recogn|ze any trust, and has no
|ntent to ho|d for the benef|c|ary, therefore, the |atter |s not
[ust|f|ed |n de|ay|ng act|on to recover h|s property. It |s h|s
fau|t |f he de|ays, hence, he may be estopped by h|s own
|aches.
28

1he 4',\ doctr|ne was fo||owed |n >7'() "& <,-.7R,(', T3 G"$7("
and J303 !8,)\"- Q <"3/ F-P3 T3 0,+.,-+,R/
Ye
wh|ch were a|| dec|ded on
|ssues ar|s|ng under the o|d C|v|| Code, but w|th an eye on the prov|s|ons
of the New C|v|| Code on trusts. 8ut even dur|ng that per|od, the Court
was not qu|te f|rm |n |ts pos|t|on.
Ior examp|e, [ust a year after 4',\/ |n <8')"- T3 L7(-,-.7\ ,-.
:7-+\"-, where the surv|v|ng husband so|d the con[uga| partnersh|p
property w|thout the forma||t|es estab||shed for the sa|e of the property
of the deceased w|fe, the Court he|d that the
mFS'./ at p. 264, P'*'-+ S4 AM. IUk., sees. S80,S81, 6S C. I., sees.
9S6,9S7, 9S8, AMLk. LAW INS1I1U1L, kLS1A1LMLN1 CN 1kUS1S, sec. 219, on
G7)*'*8*'"-/ sec. 179, ;*',-)"- T3 ;*',-)"-/ 6 ALk 287, <R,('.,. T3
: 97 h|| 973 (19SS)
]RS'./ at p. 266. "109
h||. S00 (1960).
a
4
SCkA 84 (1962).
10S h||. 13S
( )

kLSCkI1ICN kULLS ICk 1kUS1S 40S
sa|e by the surv|v|ng husband was vo|d as to the share of the deceased
spouse and the buyer became a trustee of the share of the deceased
spouse for the benef|t of her he|rs, the P7)*8') g87 *(8)*7-*3 1he Court
he|d that desp|te the |apse of twenty-f|ve (2S) years from the t|me of
the purchase of the property, the he|rs cou|d st||| seek reconveyance
from the buyer s|nce "rescr|pt|on cannot be set up as a defense |n an
act|on that seeks to recover the property he|d |n trust for the benef|t of
another. Ne|ther cou|d |aches be set up as a defense, |t be|ng s|m||ar to
prescr|pt|on."
30

a. Cont|nu|ng ke|evant Iur|sprudence under the C|d C|v||
Code keg|me
1here are some doctr|na| ru|es estab||shed by the Supreme Court
under the o|d C|v|| Code wh|ch we pos|t st||| mer|t acceptance under the
New C|v|| Code.
L'()*/ |s the ru||ng |n the ear|y dec|s|on |n <,)*(" T3 <,)*("/
[`
where
the Court he|d that the defense of prescr|pt|on or |aches by the trustee
cannot be accepted when the P7)*8' g87 *(8)* |s a m|nor, s|nce the |atter
was not |n a pos|t|on to defend h|mse|f, thus:
In an |mp||ed trust, when the act of repud|at|on of the
trustee was effected at the t|me the P7)*8' g87 *(8)* was st|||
a m|nor, then such act does not pre[ud|ce the |atter: "We
note, however, that th|s supposed repud|at|on of the trust
f|rst took p|ace before Manue| Castro had reached h|s
ma[or|ty, and we are unab|e to see how a m|nor w|th whom
another |s |n trust re|at|on can be pre[ud|ced by repud|at|on
of the trustee addressed to h|m by the person who |s sub[ect
to the trust ob||gat|on. 1he defendant |n our op|n|on |s not
ent|t|ed to the benef|t of prescr|pt|on from h|s supposed
repud|at|on of the trust.
32

m'S'./ at p. 139.
31
S7 h||. 67S
m|d, at p. 68S.

406
;7P"-./ |s the ru||ng |n C7("-'$" ,-. F)'.(" T3 9,T, ,-.
Bg8'-"where the Court he|d that prescr|pt|on cannot ar|se |n favor of a
trustee who st||| acknow|edges the r|ghts of the P7)*8' g87 *(8)*3
In C7("-'$" ,-. F)'.("/ a dec|s|on of the tr|a| court dec|ared that
the appe||ees had the r|ght to redeem the property and ordered
appe||ants to make the resa|e of the property |n favor of appe||ees. After
the dec|s|on had become f|na| and executory, appe||ants acknow|edged
the appe||ees had a r|ght to rece|ved the renta|s on the property and
d|rected tenants to pay to the appe||ees d|rect|y, and when the tenant
|eft the house, appe||ees took possess|on of, and exerc|sed acts of
ownersh|p over, w|th seem|ng conform|ty of the appe||ants. Later, the
appe||ants sought to reta|n t|t|e to the property and refused to convey
t|t|e to the appe||es on the ground that they had |n the|r favor
prescr|pt|on, or that the appe||ees where gu||ty of |aches for wa|t|ng for
so many years to have the tr|a| court's dec|s|on enforced.
1he Court ru|ed that when the tr|a| court dec|s|on became f|na| and
executory, there was created a construct|ve trust, |n the sense that
a|though appe||ants had the naked t|t|e |ssued |n the|r names, and wh|ch
they reta|ned, neverthe|ess, they were to ho|d sa|d property |n trust for
appe||ees to redeem, sub[ect to the payment of the redempt|on pr|ce,
and that "Cf course, |t m|ght be contended that |n the |atter |nstance of
a construct|ve trust, prescr|pt|on may app|y on|y where the trustee
asserts a r|ght adverse to that of the P7)*8' g87 *(8)*/ such as, assert|ng
acts of ownersh|p over the property be|ng he|d |n trust. 8ut even under
th|s theory, such a c|a|m of prescr|pt|on wou|d not prosper,"
34
s|nce the
facts showed that the appe||ants had actua||y began to recogn|ze the
r|ghts of the appe||ees to the trust property.
1he pr|nc|p|e was re|terated In >7'() "& <,-.7R,(', T3 G"$7("/
[Z

wh|ch was dec|ded under the prov|s|ons of the o|d C|v|| Code, but
recogn|z|ng the same trust pr|nc|p|es to have been
M
10S h||. 14S
(19S9). OFS'./ at p.
1S3. ^109 h||. S00
(1960)

expressed under the prov|s|ons of the New C|v|| Code, the Court he|d
that:
Construct|ve or |mp||ed trusts may, of course, be barred
by |apse of t|me. 1he ru|e |n such trusts |s that |aches
const|tutes a bar to act|ons to enforce the trust, and
repud|at|on |s not requ|red, un|ess there |s concea|ment of
the facts g|v|ng r|se to the trust. =4',\/ 7* ,R3 T)3 C"(('P5"/ 7*
,R/ `c[ K5'R3 Ye`..3H Cont|nuous recogn|t|on of a resu|t|ng
trust, however, prec|udes any defense of |aches |n a su|t to
dec|are and enforce the trust. . . . 1he benef|c|ary of a
resu|t|ng trust may, therefore, w|thout pre[ud|ce to h|s r|ght
to enforce the trust, prefer the trust to pers|st and demand
no conveyance from the trustee.
38

2. Iur|sprudence under the New C|v|| Code
Under the New C|v|| Code, the Supreme Court for a t|me
cont|nued to padd|e |nto two streams of dec|s|ons, one upho|d|ng the
doctr|ne of |mprescr|pt|b|||ty for |mp||ed trusts, and the other
acknow|edg|ng that a c|ear repud|at|on of the trust on the part of the
trustee cou|d g|ve r|se to the defense of prescr|pt|on.
In one case, the Court he|d that |t shou|d be noted that the
10-year prescr|pt|on per|od used |n [ur|sprudence under the C|d C|v||
Code was based on the prov|s|on of the then Code of C|v|| rocedure.
Under the New C|v|| Code, the 10-year per|od for acqu|s|t|ve
prescr|pt|on for |mp||ed trusts |s based on the second paragraph of
Art|c|e 1144.
37

In 1962, BR\"-, T3 <,68-'*,-,
M
the Court dec|ared that s|nce
1he case at bar |nvo|ves an |mp||ed or construct|ve trust
upon the defendants-appe||ees. . 3!57 6(7)P('6*'S'R'*% "& ,-
,P*'"- &"( (7P"-T7%,-P7 S,)7. "- '$6R'7. "( P"-)*(8P*'T7
mFS'./ at p. S04.
[N
K5'R'66'-7 9,*'"-,R :,-1 T3 <"8(* "& B667,R)/ 217 SCkA

M
4 SCkA 4S0 (1962).

408
*(8)*/ ') -"b , )7**R7. g87)*'"- '- *5') X8(').'P*'"-3 F* 6(7)P('S7) '-
*7- =`cH%7,()O
[c

et that same year, |n J8,- T3 x85'+,/]
c
the Court he|d:
We need not re|terate those cases ho|d|ng |mprescr|p-
t|b|e the act|on to enforce a trust. A d|fferent v|ew cou|d en-
courage fraud and perm|t one person un[ust|y to enr|ch h|m-
se|f at the expense of another.
41

1h|s was fo||owed-up |n J,P'-*" T3 J,P'-*"]
Y
where the Court
he|d:
Last|y, the c|a|m of the he|rs of edro Iac|nto that the
|atter had acqu|red ownersh|p of the property |n ||t|gat|on
by prescr|pt|on, |s ||kew|se untenab|e. As we have recent|y
he|d |n J8,-/ 7* ,R3 T)3 x85'+,/333/ ,- ,P*'"- *" 7-&"(P7 , *(8)*
') '$6(7)P('6*'SR73 <"-)7g87-*R%/ , P"57'( b5"/ *5("8+5
&(,8./ )8PP77.) '- "S*,'-'-+ , P7(*'&'P,*7 "& *'*R7 '- 5') -,$7
"& *57 6(7X8.'P7 "& 5') P"57'()/ ') .77$7. *" 5"R. *57 R,-. '-
*(8)* &"( *57 R,**7(/ ,-. *57 ,P*'"- S% *57$ *" (7P"T7( *57
6("67(*% ."7) -"* 6(7)P('S7O
a[

In 1964, the Court began to turn away from the not|on of
|mprescr|pt|b|||ty of the act|on for reconveyance for |mp||ed trusts, when
|n C7("-, T3 47 C8\$,-/]] |t reaff|rmed the ru|e of prescr|pt|b|||ty and
express|y overru|ed prev|ous dec|s|ons to the contrary, thus
39
]b]d, at p. 4SS, <'*'-+ :"&',+, T3 ;"R7(/ 2 SCkA 7SS (1961), J303
!8,)"- Q <"3 F-P3 T3 0,+.,-+,R/ 4 SCkA 84 (1962), b'*5 )67P',R
,**7-*'"- *" &""*-"*7 9"3 `v 7$65,)') )866R'7.
]ha SCkA 1221 (1962).
a`
FS'./ at p. 1226, P'*'-+ ;7T'RR, T3 B-+7R7)/ 97 h||. 87S (19SS),
7$65,)') )866R'7.3
]
Y
Z SCkA 370 (1962).
]
[
RS'./ at pp. 376-377, 7$65,)') )866R'7.3
"11 SCkA 1S3 (1964).

409
A|though, there are some dec|s|ons to the contrary,
4S
|t |s
a|ready sett|ed |n th|s [ur|sd|ct|on that an act|on for
reconveyance of rea| property based upon a construct|ve or
|mp||ed trust, resu|t|ng from fraud, may be barred by the
statute of ||m|tat|ons.
46

8ut C7("-, (7*8(-7. to the four (4) year prescr|pt|ve per|od when
the under|y|ng bas|s of the |mp||ed trust |s fraud, as we|| as the ru|e that
the prescr|pt|ve per|od beg|ns to run from the |nscr|pt|on of the t|t|e |n
the name of the purported trustee, thus
Inasmuch as pet|t|oners seek to annu| the aforemen-
t|oned deed of "extra-[ud|c|a| sett|ement" upon the ground
of fraud |n the execut|on thereof, the act|on therefor may be
f||ed w|th|n four (4) years from the d|scovery of the fraud.
Such d|scovery |s deemed to have taken p|ace . . . when sa|d
|nstrument was f||ed w|th the keg|ster of Deeds and new
cert|f|cates of t|t|e were |ssued |n the name of respondents
exc|us|ve|y, for the reg|strat|on of the deed of extra-[ud|c|a|
sett|ement const|tutes construct|ve not|ce to who|e wor|d.
47

et ear||er that same year, |n <,R,.'," T3 2., .7 :',) tthe Court
he|d that
Appe||ants a|so urge that the act|on for reconveyance
has prescr|bed because more than twenty years have
e|apsed s|nce the spouses L|mp|n obta|ned a cert|f|cate of
t|t|e |n the|r name over the f|shpond ob[ect of the present
||t|gat|on. 1h|s content|on |s w|thout mer|t. As a|ready
po|nted out, the app||cat|on for reg|strat|on was |n bad fa|th,
w|th the
mFS'./ P'*'-+ J,P'-*" T3 07-."\,/ 10S h||., 260, <8')"- T3 L7(-,-.7\/
10S h||. 13S (19S9), 0,(,S'R7) T3 U8'*"/ 100 h||., 64 (19S6), and ;7T'RR,
T3 47 R") B-+7R7)/ 97 h||. 87S (19SS).
OFS'./ at p. 1S7, FS'./ P'*'-+ <,-.7R,(', T3 G"$7("/ 109 h||. S00
(1960), BR\"-, T3 <,68-'*,/ 4 SCkA 4S0 (1962).
]
N
RS'./ at p. 1S7, P'*'-+ 0,8('P'" T3 2'RR,-87T,/ L-11072, September
24, 19S9, 4',\ T3 C"(('P5"/ 103 h||., 261 (19S8), BT7P'RR, T3 A,*P"/
L-11S78, May 14, (19S8), J303 !8,)"- Q <"3/ F-P3 T3 0,+.,-+,R/ 4 SCkA
84 (1962), @"67\ T3 C"-\,+,/ 10 SCkA 167 (1964). ^10 SCkA 691 (1964).

410
resu|t that the cert|f|cate of t|t|e |ssued to the vendor L|mp|n
|n 1934 was |n |aw |ssued to and he|d by h|m |n beha|f and |n
trust for the benef|t of the buyers, S|meon 8|as and h|s w|fe,
Max|ma. E-.7( BP* `lc =*57 "R. <".7 "& <'T'R K("P7.8(7H/
)7P*'"- [j/ b5'P5 ') *57 +"T7(-'-+ )*,*8*7/ 6(7)P('6*'"- ."7)
-"* ,66R% *" ^P"-*'-8'-+ ,-. )8S)')*'-+ *(8)*)^d )" *5,* ,PV
*'"-) ,+,'-)* , *(8)*77 *" (7P"T7( *(8)* 6("67(*% 57R. S% 5'$
,(7 '$6(7)P('6*'SR73 BP*'"-) &"( *57 (7P"-T7%,-P7 "& 6("67(*%
b("-+&8RR% (7+')*7(7. ,(7 "& *5') P,*7+"(%M
l

1hat same year, |n @"67\ T3 C"-\,+,/
Zc
where the adm|n|strator of
the estate of the decedent had been du|y |nst|tuted as the so|e he|r |n
the w||| of the decedent wh|ch was du|y probated, the Court he|d that
even assum|ng that the adm|n|strator had acted as trustee for the other
he|rs, the obta|n|ng of the transfer cert|f|cates of t|t|es |n the
adm|n|strator's name of a|| reg|stered |and of the estate "wou|d
const|tute an open and c|ear repud|at|on of any trust, and the |apse of
more than twenty years' open and adverse possess|on as owner wou|d
certa|n|y suff|ce to vest t|t|e by prescr|pt|on |n sa|d adm|n|strator."
S1

L|kew|se that same year, |n <,)*('RR" T3 <"8(* "& B667,R)/
ZY
the
Court aff|rmed that |n construct|ve trusts among co-he|rs or co-owners,
the prescr|pt|ve per|od beg|ns on the date when the trustee reg|sters
the deed that seeks to exc|ude the P7)*8') g87 *(8)*,-* from t|t|e to the
property and seek|ng to have new t|t|e |ssued on|y |n trustee's name.
1he subsequent ru||ngs |n C"-\,R7) T3 J'$7-7\/ Sr.,
S3
L,S',- T3
L,S',-and 47 R, <7(-, T3 47 R, <7(-,,- a|| uphe|d the 10-year
prescr|pt|ve per|od for a|| types of |mp||ed trusts. In part|cu|ar, |n 47 R,
<7(-,/ the Court he|d
B;
RS'./ at p. 69S, P'*'-+ 0,-,S,-+ T3 <,-R,)/ S0 Cff. Gaz., 1980,
7$65,)') )866R'7.3
^|C SCkA 167 (1964).
OFS'./ at p. 179. *10
SCkA S49 (1964). "13
SCkA 80 (196S)
"22 SCkA 231 (1968).
72 SCkA S14 (1976).

... n|s nonor comm|tted no error |n ru||ng [that the
act|on has a|ready prescr|bed]. It |s |d|e to bother as to
whether the act|on here |s one founded exc|us|ve|y on fraud
wh|ch prescr|bes |n four (4) years or one based on
construct|ve trust wh|ch |s barred after ten years, there be|ng
no quest|on that the appe||ees secured the|r t|t|e more than
twenty years before the f|||ng of the comp|a|nt, and |t |s from
the date of the |ssuance of such t|t|e that the effect|ve
assert|on of adverse t|t|e for purpose of the statute of
||m|tat|ons |s counted.
S6

1hus, even by 1969, |n :87-" T3 G7%7)
ZN
where property be|ong|ng
to an predecessor-|n-|nterest of whom p|a|nt|ffs parents were the
|ntestate he|rs was, through m|stake or |n bad fa|th, reg|stered |n the
cadastra| proceed|ngs |n the name of other part|es who had no r|ght
thereto, the Court he|d that "Wh||e there are some dec|s|ons wh|ch ho|d
that an act|on upon a trust |s |mprescr|pt|b|e, w|thout d|st|ngu|sh|ng
between express and |mp||ed trusts, the better ru|e, as |a|d down by
th|s Court |n other dec|s|ons, ') *5,* 6(7)P('6*'"- ."7) )867(T7-7 b57(7
*57 *(8)* ') $7(7R% ,- '$6R'7. "-7q
a. When rescr|pt|on Is A||owed What Is the er|od
App||cab|e?
In add|t|on, the dec|s|on |n :87-" prov|ded a d|fferent formu|a on
when the prescr|pt|ve per|od beg|ns to run, |n that |t wou|d not be at
the t|me of reg|strat|on, but upon d|scovery of the fraud or m|stake,
thus
Upon the genera| propos|t|on that an act|on for
reconveyance such as the present |s sub[ect to prescr|pt|on
|n ten years the appe||ees and the court a g8" are correct.
1he quest|on here, however, |s: from what t|me shou|d the
mFS'./ at p. S18, P'*'-+ C7("-, T3 47 C8\$,-/ 11 SCkA 1S3.
S7
27 SCkA 1179 (1969).
mFS'./ at p. 1183, P'*'-+ BR\"-, T3 <,68-'*,-/ 4 SCkA 4S0 (1962),
C7("-, T3 47 C8\$,-/ 11 SCkA 1S3 (1964), C"-\,R7) T3 J'$7-7\/ 13
SCkA 80 (196S), <8,%P"-+ T3 <8,%P"-+/ 21 SCkA 1192 (1967), L,S',- T3
L,S',-/ 22 SCkA 231 (1968). D$65,)') )866R'7.3

prescr|pt|ve per|od be counted, |n the ||ght of the a||egat|ons
|n the comp|a|nt? It shou|d be remembered that the
construct|ve trust arose by reason of the bad fa|th or
m|stake of the deceased father of the p|a|nt|ffs,
compounded by the conn|vance of the appe||ees.
<"-)7g87-*R%/ *57 P,8)7 "& ,P*'"- 86"- )8P5 *(8)* $8)* S7
.77$7. *" 5,T7 ,PP(87. "-R% 86"- *57 .')P"T7(% "& )8P5 S,.
&,'*5 "( $')*,17/ "( *" 68* '* $"(7 )67P'&'P,RR%/ 86"- *57
.')P"T7(% S% *57 ,667RR,-*) *5,* *57'( &,*57(/ '- T'"R,*'"- "&
*57'( 6("67(*% '- 5') "b- -,$7 ,-. '- *57 -,$7) "& 5')
S("*57(3 F* b"8R. -"* ." -"* ),% *5,* *57 P,.,)*(,R
6("P77.'-+ '*)7R&/ S% T'(*87 "& '*) -,*8(7 ,) , 6("P77.'-+ '-
(7$/ b,) P"-)*(8P*'T7 -"*'P7 *" *57 ,667RR,-*)/ &"( ,) &,( ,)
*57% b7(7 P"-P7(-7. *57 P,.,)*(,R ,-)b7( *57% 5,.
,8*5"('\7. *57 &,*57( "& *57 6R,'-*'&&) *" &'R7 b,) -"* ,.T7()7
*" *57$d ,-. -7'*57( 57 -"( *57 ,667RR77) $,% '-T"17 *57
P"-)*(8P*'T7V-"*'P7 (8R7 "- *57 S,)') "& *57'( "b- S(7,P5 "&
*57 ,8*5"('*% *58)/ +'T7-3 Cn top of a|| th|s, |t was the
appe||ants and not the appe||ees who were |n possess|on of
the property as owners, cont|nuous|y up to 1962, when for
the f|rst t|me the |atter appeared upon the scene and tr|ed
to get such possess|on, thereby revea||ng to them the fact of
the m|staken or fraudu|ent reg|strat|on.
S9

In other words, :87-" he|d that the cause of act|on, and the
10-year prescr|pt|ve per|od beg|n to run from the d|scovery of bad fa|th
or m|stake.
Interest|ng|y, |n the same year as :87-"/ |n 0'+87R T3 <"8(* "&
B667,R)/
ec
the Court he|d that an act|on for the 7-&"(P7$7-* "& ,
P"-)*(8P*'T7 *(8)* ') *57 8R*'$,*7 "SX7P* "& b5'P5 |s the (7P"-T7%,-P7 of
a property |ost through breach of f|duc|ary re|at|ons and]or fraud, must
be f||ed w|th|n &"8( %7,() &("$ the d|scovery of the fraud.
61

;l
RS'./ at p. 1184, 7$65,)') )866R'7.3
29 SCkA 760 (1969).
e`
<'*'-+ *57 .7P')'"-) '- @R,-7(, T3 @"67\/ 106 h||. 70 (19S9), C7("-,
47 C8\$,-/ 11 SCkA 1S4 (1964), and L,S',- T3 L,S',-/ 22 SCkA 232
( )

8y 1974, the Supreme Court cou|d summar|ze |n |ts dec|s|on |n
G,$") T3 G,$")/
eY
the then sett|ed ru|es of prescr|pt|on and |aches for
came to |mp||ed trusts, thus
(a) 1he ru|e of |mprescr|pt|b|||ty of the act|on to recover
property he|d |n trust may poss|b|y app|y to resu|t|ng
trusts as |ong as the trustee has not repud|ated the
trust,
63

(b) 1he ru|e of |mprescr|pt|b|||ty was m|sapp||ed to
construct|ve trusts,
64

(c) W|th respect to construct|ve trusts, the ru|e |s d|fferent.
1he prescr|pt|b|||ty of an act|on for reconveyance based
on construct|ve trust |s now sett|ed,
6S

(d) rescr|pt|on may supervene |n an |mp||ed trust,
66
and
(e) Whether the trust |s resu|t|ng or construct|ve, |ts
enforcement may be barred by |aches.
67

m
61 SCkA 284,299-300 (1974).
$'./ P'*'-+ >7'() "& <,-.7',(', T3 G"$7("/ 109 h||. S00, S02-3
(1960), 0,(*'-7\ T3 C(,-"/ 42 h||. 3S, :87-P,$'-" T3 0,*',)/ 63 C. G.
11033, 16 SCkA 849 (1966).
ea
FS'./ P'*'-+ C7("-'$" ,-. F)'."(" T3 9,T, ,-. Bg8'-"/ 10S h||.
14S,1S3 (19S9), ,-. )771'-+ P"$6,(')"- b'*5 <8')"- T3 L7(-,-.7\ ,-.
:7-+\"-/ 10S h||. 13S,139 (19S9), 47 K,)'"- T3 47 K,)'"-/ 112 h||.
$'./ P'*'-+ BR\"-, T3 <,68-'*,-/ 4 SCkA 4S0 (1962), C7("-, T3 47
C8\$,-/ 11 SCkA 1S3 (1964), <R,('.,. T3 >7-,(7)/ 97 h||. 973,
C"-\,R7) T3 J'$7-7\/ 13 SCkA 80 (196S), :"-,+, T3 ;"R7(/ 112 h||. 6S1
(1961), J3 03 !8,V )"- Q <"3/ T3 0,+.,-+,R/ 4 SCkA 84 (1962).
$'./ P'*'-+ :87-" T3 G7%7)/ 27 SCkA 1179 (1969), L,S',- T3 L,S',-/
YY SCkA 231 (1968), J,P'-*" T3 J,P'-*"/ S SCkA 371 (1962).
eN
FS'./ P'*'-+ 90 C.I.S. 887-889, S4 AM IUk. 449-4S0, 4',\ T3 C"(('P5"
,-.

6"-',/ 100 h||. 277 (19S6).

414
D)P,% T3 <"8(* "& B667,R)/
el
re|terated the doctr|nes when |t he|d
that
1he prescr|pt|b|||ty of an act|on for reconveyance based
on |mp||ed or construct|ve trust, |s now a sett|ed quest|on |n
th|s [ur|sd|ct|on. It prescr|bes |n ten years.
69

Lxpress trusts prescr|be 10 years from the repud|at|on of
the trust.
70

S|nce then, the 10-year prescr|pt|ve per|od ru|e for |mp||ed trusts
has been aff|rmed on a cons|stent bas|s
In G8'\ T3 <"8(* "& B667,R),
71
where |t was he|d that "1he
ru|es are we||-sett|ed that when a person through fraud
succeeds |n reg|ster|ng the property |n h|s name, the |aw
creates what |s ca||ed a 'construct|ve or |mp||ed trust' |n
favor of the defrauded party and grants the |atter the
r|ght to recover the property fraudu|ent|y reg|stered
w|th|n a per|od of ten years."
72

In B($,$7-*" T3 C87((7("/
N[
where the p|a|nt|ff, the
actua| occupant and or|g|na| homestead app||cant of a
|arge tract of |and under h|s cu|t|vat|on, was depr|ved
thereof by the defendant who obta|ned a free patent
over sa|d property through fraudu|ent assert|on, the
Court app||ed the prov|s|ons of Art|c|e 14S6, cover|ng a
prescr|pt|ve per|od often years.
"61 SCkA 369 (1974).
$'./ P'*'-+ :"(',+, T3 ;"R7(/ Y SCkA 7SS (1961), J303 !8,)"- Q Co.,
F-P3 T3 0,+.,-+,R/ 4 SCkA 84 (1962), spec|a| attent|on to footnote
No. 1, BR\"-, T3 <,68-'*,-/ 4 SCkA 4S0 (1962), :87-" T3 G7%7)/ 27
SCkA 1179 (1969). D$65,)') )866R'7.3
Nc
RS'./ at pp. 387-388, P'*'-+ 4',\ T3 C"(('P5"/ S4 C.G. p. 8429, Sec.
40, Code of C|v|| rocedure. D$65,)') )866R'7.3
71
79 SCkA S2S (1977).
OFS'./ at p. S37.
"96 SCkA 178 (1980).

In >7'() "& !,-,1 K,-+,b,(,- K,*'b,%,- T3 0,(*'-7\,w
where It was he|d that "1herefore, |t |s c|ear that the
prescr|pt|ve per|od wh|ch |s app||cab|e |n th|s case |s ten
(10) years. Consequent|y, the act|on of pet|t|oner was not
yet barred s|nce |t was f||ed on Iu|y 1,1976 wh||e the |ast
day for f|||ng such act|on was on Iu|y 19,1976, ten years
after the |ssuance of the or|g|na| cert|f|cate of t|t|e."
7S

I n C"-\,R7) T3 F-*7($7.',*7 B667RR,*7 <"8(*/
è
where
property was reg|stered |n the name of one Iausto Soy
w|th the understand|ng that he wou|d ho|d |t for and |n
beha|f of other co-owners, the Court character|zed the
s|tuat|on not as an express trust, but an |mp||ed trust
covered under Art|c|e 14S6 of the C|v|| Code: "1he trust
a||uded to |n th|s case |s a construct|ve trust ar|s|ng by
operat|on of |aw. It |s not a trust |n the techn|ca| sense."
77

In 2,()'*% >'RR) T3 9,T,(("/
Ne
our dec|s|ons make |t abundant|y c|ear that act|ons on
|mp||ed and construct|ve trusts (as d|st|ngu|shed from
express ones) are ext|ngu|shed by |aches or prescr|pt|on
often (10) years.
In <,(,-*7) T3 <"8(* "& B667,R)/
-
wh|ch aff|rmed that
prescr|pt|ve per|od under a construct|ve trust, |s ten years
from d|scovery of the fraud, and that when |t comes to
reg|stered |and, the |nscr|pt|on of the t|t|e of the
purported trust commences the runn|ng of sa|d per|od.
"142 SCkA 2S2 (1986).
NZ
RS'./ at p. 261.
76
204 SCkA 106 (1991).
NN
FS'./ at p. 114.
78
43 SCkA S03 (1922).
79
76 SCkA S14 (1977).

416
- In B$7("R T3 :,+8$S,%,-2.,3 .7 :8-P'" T3 D)*,*7 "& 47
Leon,
81
K,X,('RR" T3 F-*7($7.',*7 B667RR,*7 <"8(*/!"$,)
T3 <"8(* "& B667,R)/
e[
and 9"7R T3 <"8(* "& B667,R)/
e
]
wh|ch a|| he|d that the per|od of prescr|pt|on to recover
the property based on an |mp||ed trust |s ten (10) years
from the t|me that 1orrens t|t|e were obta|ned over the
property |n the name of the trustee or h|s successors-|n-
|nterest.
b. When Does the 10-ear rescr|pt|ve er|od
8eg|n to kun?
It seems we||-sett|ed that when |t comes to |mp||ed trusts,
whether resu|t|ng or construct|ve, and even those where the
under|y|ng equ|ty cons|derat|on |s based on fraud, that prescr|pt|on and
|aches wou|d app|y to bar recovery by the P7)*8' g87 *(8)* of the
property he|d |n the name of the purported trustee, and the
prescr|pt|ve per|od |s ten (10) years. 1he on|y ||nger|ng quest|on |s when
exact|y the 10-year prescr|pt|ve per|od beg|ns.
Wh||e the ma[or|ty of recent dec|s|ons of the Supreme Court po|nt
to the reg|strat|on of t|t|e for reg|stered |and w|th the appropr|ate
keg|ster of Deeds as the reckon|ng t|me, there have been recent
dec|s|ons that use the actua| date of d|scovery of fraud, as the
reckon|ng t|me, when the |mp||ed trusts |s founded on fraud.
c. When keg|strat|on |n the Name of 1rustee Was Integra|
art of the 1rust Arrangement
In !"-+"% T3 <"8(* "& B667,R)/
ee
where the |mp||ed trust resu|ted
from the s|mu|ated sa|es wh|ch were made for the
8
1S4 SCkA 396
( )
81
1S6 SCkA 3S2
^M SCkA 340
SCkA627

M
240 SCkA 78
123 SCkA 99
( 983)

purpose of enab||ng the transferee to save the propert|es from
forec|osure for the benef|t of the co-owners, the Court refused to app|y
the theory of construct|ve not|ce resu|t|ng from the reg|strat|on |n the
trustee's name, on the ground that "dur|ng that per|od the subs|st|ng
trust was unrepud|ated and the P7)*8' g87 *(8)*,-*) cou|d not be
expected to demand transfer of t|t|e |n the|r names, but [r]ather, |t
shou|d be counted from the date of record|ng of the re|ease of mortgage
|n the keg|stry of Deeds . . . the P7)*8' g87 *(8)* were charged w|th the
know|edge of the sett|ement of the mortgage ob||gat|on, the atta|nment
of the purpose for wh|ch the trust was const|tuted."
88

d. When <7)*8' U87 1rust |s |n ossess|on of the G7)
In <,(,+,%V@,%-" T3 <"8(* "& B667,R)/O the Court he|d that |f the
|eg|t|mate owner of a parce| of |and has a|ways been |n possess|on
thereof, but wh|ch was fraudu|ent|y reg|stered |n the name of another
person, then the construct|ve not|ce and 10- year prescr|pt|ve per|od
ru|es based on the |ssuance of t|t|e |n the name of the purported trustee
w||| not be app||cab|e on the ground that the act|on brought by the
P7)*8' g87 *(8)*,-* |s rea||y one for qu|et|ng of t|t|e wh|ch under the
estab||shed doctr|ne under the C|v|| Code |s |mprescr|pt|b|e.
e. When reva|||ng C|rcumstances D|d Not Grant <7)*8' U87
1rust Suff|c|ent 1|me to D|scover the Iraud
In B.'RR7 T3 <"8(* "&B667,R)/
`98
where the pet|t|onerfraudu|ent|y
m|srepresented |n h|s un||atera| aff|dav|t of ad[ud|cat|on that he was the
on|y he|r and ch||d of the decedent, when |n truth he had ha|f brothers
and s|sters whose names were not |nc|uded |n the transfer cert|f|cate of
t|t|e |ssued on the estate property.
m|d, at p. 123.
87
133 SCkA 718

M
1S7 SCkA 4SS
( 988)

A|though the Court he|d that a construct|ve trust ensued under Art|c|e
14S6, and the facts showed that the t|t|e was |ssued |n 19SS wh||e the
act|on for reconveyance was f||ed on|y |n 1974, |t cou|d not app|y str|ct|y
the 10-year prescr|pt|ve per|od thus
Wh||e act|ons to enforce a construct|ve trust prescr|bes
|n ten years, reckoned from the date of the reg|strat|on of
the property, we, as we sa|d, are not prepared to count the
per|od from such a date |n th|s case. We note the
pet|t|oner's )8S ("), efforts to get ho|d of the property
exc|us|ve|y for h|mse|f beg|nn|ng w|th h|s fraudu|ent
m|srepresentat|on |n h|s un||atera| aff|dav|t of extra[ud|c|a|
sett|ement that he |s an on|y he|r and ch||d of h|s mother
Ie||sa w|th the consequence that he was ab|e to secure t|t|e
|n h|s name a|so. Accord|ng|y, we ho|d that the r|ght of
pr|vate respondents commenced from the t|me they
actua||y d|scovered the pet|t|oner's act of defraudat|on.
Accord|ng to the respondent Court of Appea|s, they came to
know apparent|y on|y dur|ng the progress of the ||t|gat|on.
nence, prescr|pt|on |s not a bar.
89

1he |ssue of c|ose-f|||a| re|at|onsh|p was cr|t|ca| |n B.,\, T3 <"8(* "&
B667,R)/
ec
where the Deed of Donat|on executed by the father |n favor
of h|s daughter V|o|eta cover|ng a parce| of |and had the fo||ow|ng
prov|s|on crossed-out"!5,* *57 ."-77 )5,RR )5,(7 "-7V5,R& =`MYH "& *57
7-*'(7 6("67(*% b'*5 "-7 "& 57( S("*57() "( )')*7() ,&*7( *57 .7,*5 "&
*57 ."-"(d and t|t|e to the property was |ssued |n the so|e name of the
daughter." Many years |ater after the death of the father, the daughter
had forma||y executed a sworn wa|ver acknow|edg|ng that the property
was reg|stered |n her name but w|th the |ntent|on that she wou|d ho|d
one-ha|f of |t |n favor of the brother norac|o. 1he Court app||ed Art|c|e
1449, wh|ch prov|des that there |s a|so an |mp||ed trust when a donat|on
|s made to a person but |t appears that a|though the |ega| estate |s
transm|tted to the donee, he neverthe|ess |s e|ther to have no benef|c|a|
|nterest or on|y a part thereof. In ru||ng upon the |ssue
m
F
S

of whether the brother was gu||ty of |aches or that h|s act|on had
prescr|bed, thus
kespondent V|o|eta and her husband a|so contended
that the |ong de|ay and |nact|on on the part of norac|o |n
tak|ng any steps for reconveyance of the one-ha|f (1]2) share
c|a|med by h|m, |nd|cates |ack of any co|or of r|ght over the
sa|d one-ha|f (1]2) share. It was a|so argued by the two (2)
that cons|der|ng that twe|ve (12) years had passed s|nce CC1
No. -11111 was |ssued and more than n|neteen (19) years
s|nce the Deed of Donat|on was executed, the counterc|a|m
for part|t|on and reconveyance of norac|o's a||eged one-ha|f
share was barred by |aches, |f not by prescr|pt|on. Aga|n, we
ru|e for the pet|t|oners. In determ|n|ng whether de|ay |n
seek|ng to enforce a r|ght const|tutes |aches, the ex|stence of
a conf|dent|a| re|at|onsh|p based upon, for |nstance,
consangu|n|ty, |s an |mportant c|rcumstance for
cons|derat|on. 47R,% '- , )'*8,*'"- b57(7 )8P5 P'(P8$)*,-P7
7W')*)/ )5"8R. -"* S7 ,) )*('P*R% P"-)*(87. ,) b57(7 *57
6,(*'7) ,(7 P"$6R7*7 )*(,-+7() T')V,VT') 7,P5 "*57(3 !57
."P*('-7 "& R,P57) ') -"* *" S7 ,66R'7. $7P5,-'P,RR% ,)
S7*b77- -7,( (7R,*'T7)d *57 &,P* *5,* *57 6,(*'7) '- *57
'-)*,-* P,)7 ,(7 S("*57( ,-. )')*7( *7-.) *" 7W6R,'- ,-.
7WP8)7 b5,* b"8R. "*57(b')7 ,667,() ,) R"-+ .7R,%3
Moreover, cont|nued recogn|t|on of the ex|stence of the
trust prec|udes the defense of |aches. 1he two (2) |etters
noted above sent by respondent V|o|eta to pet|t|oner
norac|o, one |n 1969 and the other |n 1971, show that
V|o|eta as |ate as 1971 had recogn|zed the trust |mposed on
her by |aw. Converse|y, norac|o's re||ance upon h|s b|ood
re|at|onsh|p w|th h|s s|ster and the trust and conf|dence
norma||y connoted |n our cu|ture by that re|at|onsh|p, shou|d
not be taken aga|nst h|m. et|t|oners' counterc|a|m |n the
tr|a| court for part|t|on and reconveyance cannot he
regarded as barred whether by |aches or by prescr|pt|on.
9
*
In stark contrast to B.,\, |s the ru||ng |n C"-\,R7) T3 F-*7($7.',*7
B667RR,*7 <"8(*] where property was reg|stered
l
/
R

420
|n the name of one Iausto Soy w|th the understand|ng that he wou|d
ho|d |t for and |n beha|f of other co-owners, and the Court
character|zed the s|tuat|on not as an express trust, but an |mp||ed trust
covered under Art|c|e 14S6 of the New C|v|| Code wh|ch states that |f
property |s acqu|red through m|stake or fraud, the person obta|n|ng |t
|s, by force of |aw, cons|dered a trustee of an |mp||ed trust for the
benef|t of the person from whom the property comes. It ru|ed that
"1he trust a||uded to |n th|s case |s a construct|ve trust ar|s|ng by
operat|on of |aw. It |s not a trust |n the techn|ca| sense,
93
and therefore
sub[ect to prescr|pt|on." 1he Court further ru|ed
We ho|d that after Iausto Soy, the predecessor-|n-
|nterest of here|n pet|t|oners, had appeared to be the
reg|stered owner of the |ot for more than th|rty years, h|s
t|t|e had become |ndefeas|b|e and h|s dom|n|ca| r|ghts over |t
cou|d no |onger be cha||enged. Any |ns|nuat|on as to the
ex|stence of an |mp||ed or construct|ve trust shou|d not be
a||owed ----- Lven assum|ng that there was an |mp||ed trust,
pr|vate respondents' attempt at reconveyance (funct|ona||y,
an act|on for part|t|on |s both an act|on for dec|arat|on of
co-ownersh|p, and for segregat|on and conveyance of a
determ|nate port|on of the sub[ect property. See koque vs.
IAC, G.k. No. 7S886, August 30,1988,16S SCkA 118) was
c|ear|y barred by prescr|pt|on.
W W W
It |s we||-sett|ed that an act|on for reconveyance of rea|
property to enforce an |mp||ed trust prescr|bes |n ten years,
the per|od reckoned from the |ssuance of the adverse t|t|e to
the property wh|ch operates as a construct|ve not|ce.
In the case at bar, that assert|on of adverse t|t|e, wh|ch
was |n exp||c|t |nd|cat|on of repud|at|on of the trust for the
purpose of the statute of ||m|tat|ons, took p|ace when CC1
No. 49661 was |ssued |n the name of Iausto Soy |n 1932, to
the exc|us|on of h|s three s|sters.
"tfwd, at p. 114, P'*'-+ C,%"-.,*" T3 !(7,)8(7( "& *57 K3F3/ 49 h||.
244
(1926)

8ut even |f there were no repud|at|on as pr|vate res-
pondent kos|ta Lopez wou|d have us be||eve when she
test|f|ed |n court that wh||e Iausto Soy m|ght have
succeeded |n secur|ng t|t|e |n h|s so|e name, he nonethe|ess
recogn|zed the co-ownersh|p between h|m and h|s s|sters the
ru|e |n th|s [ur|sd|ct|on |s that an act|on to enforce an |mp||ed
trust may be c|rcumscr|bed not on|y by prescr|pt|on but a|so
by |aches, |n wh|ch case repud|at|on |s not even requ|red.
Irom 1932 to 196S, or a per|od of th|rty-three years, pr|-
vate respondents had ||tera||y s|ept on the|r r|ghts, presum-
|ng they had any. 1hey can no |onger d|spute the conc|us|ve
and |ncontrovert|b|e character of Iausto Soy's t|t|e as they
are deemed, by the|r unreasonab|y |ong |nact|on, to have
acqu|esced there|n. Moreover, the |aw protects those who
are v|g||ant of the|r r|ghts.
Undue de|ay |n the enforcement of a r|ght |s strong|y
|nd|cat|ve of a |ack of mer|t |n the c|a|m, s|nce |t |s human
nature for persons to assert the|r r|ghts most v|gorous|y
when threatened or |nvaded.
94

3. Ior Land, W|thout keg|strat|on the 10-ear er|od Does Not
Lven 8eg|n to kun
In K7.(,-" T3 >7'() "& :7-7.'P*" K7.(,-"the Court emphas|zed
the |mportance of reg|strat|on of t|t|e to determ|n|ng the runn|ng of the
10-year prescr|pt|ve per|od, thus: "An act|on for the reconveyance of a
parce| of |and based on |mp||ed or construct|ve trust prescr|bes |n 10
years, the po|nt of reference be|ng the date of reg|strat|on of the deed or
the date of the |ssuance of the cert|f|cate of t|t|e of the property...
W|thout an CC1, the date from whence the prescr|pt|ve per|od cou|d be
reckoned |s unknown and |t cou|d not be determ|ned |f |ndeed the
per|od had a|ready |apsed or not."
96

w]b]d, at pp.

9S
S39 SCkA 401
m|d., at p. 412.

In @"67\ T3 <"8(* "& B667,R)/O the Court he|d that "1he r|ght to
seek reconveyance based on an |mp||ed or construct|ve trust |s not
abso|ute. It |s sub[ect to ext|nct|ve prescr|pt|on. An act|on for
recoveyance based on |mp||ed or construct|ve trust prescr|bes |n 10
years. 1h|s per|od |s reckoned from the date of the |ssuance of the
or|g|na| cert|f|cate of t|t|e or transfer cert|f|cate of t|t|e. S|nce such
|ssuance operates as a construct|ve not|ce to the who|e wor|d, the
d|scovery of the fraud |s deemed to have taken p|ace at that t|me."
98

4. When keg|strat|on Covers a Vo|d 1|t|e
In 0,P,S,SS,./ J(3 23 0,)'(,+,
w
an Lxtra[ud|c|a| Sett|ement w|th
S|mu|taneous Sa|e of ort|on of keg|stered Land was executed were the
s|gnature of some of the forced he|rs were forged, and wh|ch a||owed
the transfer of a reg|stered |and to Macababbab who had t|t|ed
transferred |n h|s name |n 1967. It was on|y |n 1999 that the forced he|rs
a||eged|y |earned of the death of the parents and forg|ng of the|r
s|gnature, and after ver|fy|ng the facts, f||ed a comp|a|nt aga|nst
Macabbad for qu|et|ng of t|t|e, nu|||ty of t|t|es, and reconveyance.
Cn the |ssue of whether even under an |mp||ed trusts scenar|o,
the act|on for reconveyance has prescr|bed w|th the passage of ten
years from the t|me of |ssuance of a t|t|e |n the name of Macababbad,
the Court he|d
We be||eve and so ho|d that the respondents' amended
comp|a|nt suff|c|ent|y p|eaded a cause to dec|are the nu|||ty
of the extra[ud|c|a| sett|ement of estate and sa|e, as they
c|a|med |n the|r amended comp|a|nt. W|thout pre[udg|ng
the |ssue of the mer|ts of the respondents' c|a|m and on the
assumpt|on that the pet|t|oners a|ready hypothet|ca|
adm|tted the a||egat|ons of the comp|a|nt when they f||ed a
mot|on to d|sm|ss based on prescr|pt|on, the transfer may
be nu|| and vo|d |f |ndeed |t |s estab||shed that respondent
C1
S74 SCkA 26
( )
b
RS'./ at p. 39.
"S76 SCkA 70
( )

423
had not g|ven the|r consent and that the deed |s a forgery or
|s abso|ute|y f|ct|t|ous. As the nu|||ty of the extra[ud|c|a|
sett|ement of estate and sa|e has been ra|sed and |s the
pr|mary |ssue, the act|on to secur|ty th|s resu|t w||| not
prescr|be pursuant to Art|c|e 1410 of the C|v|| Code.
100

0,P,S,SS,. app||es the pr|nc|p|e f|rst he|d |n L7((7( T3
:,8*')*,,
101
that |mp||ed trust doctr|nes app|y on|y when t|t|e of the
purported trustee |s va||d. In Ierrer, where a free patent and eventua||y
an or|g|na| cert|f|cate of t|t|e was |ssued |n favor of the occupant of a
str|p of |and that had accumu|ated by way of accret|on and wh|ch
shou|d have been awarded to the ad[acent |and owner who had
reg|stered t|t|e to the ad[acent property, the Court refused to app|y the
doctr|nes that an act|on for reconveyance prescr|bes after ten (10) years
from the |ssuance of the t|t|e, on the ground that no construct|ve trust
under Art|c|e 14S6 of the C|v|| Code had ar|sen, thus
r|vate respondents contend that an act|on for recon-
veyance prescr|bes |n ten years. 1he ten-year prescr|pt|ve
per|od |s app||cab|e to an act|on for reconveyance |f, |ndeed,
|t |s based on an |mp||ed or construct|ve trust. Art|c|e 14S6 of
the C|v|| Code, upon wh|ch a construct|ve trust can be
pred|cated, cannot be |nvoked, however, s|nce the pub||c
grant and the t|t|e correspond|ng|y |ssued to pr|vate
respondents that can create that [ur|d|ca| re|at|onsh|p |s a
patent nu|||ty. Lven assum|ng, nonethe|ess, that a
construct|ve trust d|d ar|se, the runn|ng of the prescr|pt|ve
per|od |s to be deemed |nterrupted when an act|on |s f||ed |n
court (Art. 11SS, C|v|| Code) or, obv|ous|y, when one |s
a|ready there pend|ng.
102

S. ku|es on rescr|pt|on on kesu|t|ng 1rusts Io||ow 1hose of
Lxpress 1rusts
In ?^@,P" T3 <" <5" CM,
103
the Court app||ed the ru|e that when |t
comes to resu|t|ng trusts, prescr|pt|on does not beg|n to run
100
]6]d, at p. 8S.
101
231 SCkA 2S7

102
])]d, at p. 262.
103
220 SCkA 6S6
( )

unt|| there |s an express repud|at|on of the trust by the purported
trustee, and he|d that the fo||ow|ng requ|s|tes must be present for
repud|at|on to be effect|ve: (a) the trustee has performed unequ|voca|
acts of repud|at|on amount|ng to an ouster of the P7)*8' g8'7 *(8)*d (b)
such pos|t|ve acts of repud|at|on have been made known to the P7)*8'
g87 *(8)*d and (c) the ev|dence thereon |s c|ear and conv|nc|ng. In
effect, ?^@,P" equates a resu|t|ng trust to an express trust.
1h|s was the same ru||ng |n 2,R.7\ T3 ?R"(+,,
1M
a|though |t d|d not
fu||y acknow|edge that the re|at|onsh|p ex|st|ng among the co-owners
w|th one of them who acqu|red t|t|ed |n h|s name a|one, was an
|mp||ed trust.
In <,57\" T3 G"X,)o aff|rmed the d|st|nct|ons between express
and resu|t|ng trusts on one hand, and construct|ve trusts, on the other
hand, when |t came to spec|f|c acts of repud|cat|on, thus
As prev|ous|y stated, the ru|e that a trustee cannot, by
prescr|pt|on, acqu|re ownersh|p over property entrusted to
h|m unt|| and un|ess he repud|ates the trust, app||es to
express trust and resu|t|ng |mp||ed trusts, >"b7T7(/ '- P"-V
)*(8P*'T7 *(8)*)/ 6(7)P('6*'"- $,% )867(T7-7 7T7- '& *57
*(8)*77 ."7) -"* (768.',*7 *57 (7R,*'"-)5'63 Necessar||y, re-
pud|at|on of the sa|d trust |s not a cond|t|on precedent to
the runn|ng of the prescr|pt|ve per|od. A construct|ve trust,
un||ke an express trust, does not emanate from, or generate
a f|duc|ary re|at|on. Wh||e |n an express trust, a bene-f|c|ary
and a trustee are ||nked by conf|dent|a| or f|duc|ary
re|at|ons, |n a construct|ve trust, there |s ne|ther a prom|se
nor any f|duc|ary re|at|on to speak of and the so-ca||ed
trustee ne|ther accepts any trust nor |ntends ho|d|ng the
property for the benef|c|ary. 1he re|at|on of trustee and
P7)*8' g87 *(8)* does not |n fact ex|st, and the ho|d|ng of a
construct|ve trust |s for the trustee h|mse|f, and therefore, at
a|| t|mes adverse.
106

104
S1 SCkA 71
( 9 3)
10S
S38 SCkA 242
oRS'./ at p. 2S8.

6. When G7) nas assed-on to a 8uyer |n Good Ia|th and for
Va|ue
In p57$,-' T3 >7'() "& B-,)*,P'" !('-'.,.,
107
the Court re|terated
the doctr|ne that a|though an aggr|eved party may f||e an act|on for
reconveyance based on |mp||ed or construct|ve trust, wh|ch prescr|bes
|n ten years from the date of |ssuance of the cert|f|cate of t|t|e over the
property, yet such act|on cannot prosper when the property has not
been acqu|red by an |nnocent purchaser for va|ue.
In <,T''7 T3 @'*,-',V>"-+ the Court he|d that when the reg|stered
owner, whether he be the patentee or h|s successor- |n-|nterest to
whom the free patent was transferred, knew that the parce| of |and
descr|bed |n the patent and |n the 1orrens t|t|e be|onged to another,
who together w|th h|s predecessors-|n- |nterest had been |n possess|on
thereof, and |f the patentee and h|s successor-|n-|nterest were never |n
possess|on thereof, the true owner may br|ng an act|on to have the
ownersh|p of or t|t|e to the |and [ud|c|a||y sett|ed. Such aggr|eved party
may st||| f||e an act|on for reconveyance based on |mp||ed or
construct|ve trust, wh|ch prescr|bes |n 10 year from the date of the
|ssuance of the cert|f|cate of t|t|e over the property, prov|ded that the
property has not been acqu|red by an |nnocent purchaser for va|ue. In
<,T''7/ the act|on for reconveyance was f||ed more than 12 years after
the 1orrens t|t|es were |ssued, and the Court he|d that "1he remedy |s,
therefore, a|ready t|me-barred."
109

kLCLASSIIICA1ICN CI 1kUS1S
1he forego|ng d|scuss|ons, as they sought to estab||sh the d|ffer|ng
ru|es on prescr|pt|on, have drawn out the tru|sm that a|though resu|t|ng
trusts and construct|ve trusts are |umped together by |aw under the
aeg|s of "|mp||ed trusts", |t seems more f|tt|ng to put together express
trusts and resu|t|ng trusts (and to proper|y ca|| the |atter as the on|y
"|mp||ed trusts") under
107
S40 SCkA 83
( )
108
S81 SCkA 408
oRS'./ at p. 429.
the c|ass|f|cat|on of "convent|ona| trusts," whereas, construct|ve trusts
shou|d no |onger be referred to as "|mp||ed trusts." trusts" but actua||y
set apart as "|ega| trust."
In other words, there ought to be two types of trusts c|ass|f|ed
under the C|v|| Code: (a) convent|ona| trusts, and (b) |ega| or
construct|ve trusts, and that for convent|ona| trusts, they wou|d be
d|v|ded |nto "express trusts" and "|mp||ed trusts".
1he reason why the term "convent|ona| trusts" |s a more
appropr|ate term to use for both express and resu|t|ng trusts, |s that
they are un|ted together under the nexus of "contractua| |ntent", as
d|st|ngu|shed from "|ega| trusts" wh|ch come about w|thout contractua|
|ntent but by force of |aw. 1hey wou|d be the same words to d|st|ngu|sh
"convent|ona| redempt|on" (the r|ghts to redeem property const|tuted
at the t|me the contract of sa|e |s perfected) from "|ega| redempt|on" (or
the r|ght granted by |aw to a person to redeem property so|d).
1he reason why "resu|t|ng trusts" shou|d be forma||y ca||ed and
referred to as the on|y form of "|mp||ed trusts" _'373/ we ought to
remove construct|ve trusts from the coverage of "|mp||ed trusts") |s that
the terms "express" and "|mp||ed" are techn|ca||y used together |n
var|ous other areas |n the Law on Cb||gat|ons and Contracts, such as
"express or |mp||ed consent," "express or |mp||ed rat|f|cat|on," 7*P3 1he
resu|t wou|d be a set of ru|es and doctr|nes that app|y equa||y to two
sets of trusts that are more ak|n to one another: express trusts and
resu|t|ng trusts under c|ass|f|cat|on of "convent|ona| trusts".
8oth express and |mp||ed [resu|t|ng] trusts, under the category
"convent|ona| trusts," sha|| then have a un|f|ed set of ru|es, such as:
Ak1. [1441]. 1rusts are e|ther convent|ona| trusts or |ega|
trusts. Convent|ona| trusts can e|ther be express or |mp||ed
[resu|t|ng].
Ak1. [1440]. In convent|ona| trusts the person who
estab||shes a trust |s ca||ed the 'trustor', one |n whom
conf|dence |s reposed as regards property for the benef|t of
another person, |s ca||ed the

'trustee', and the person for whose benef|t the trust has been
created |s referred to as the 'benef|c|ary".
Ak1. [****]. No part|cu|ar words are requ|red for the
creat|on of a convent|ona| trust, |t be|ng suff|c|ent that a trust
|s c|ear|y |ntended.
Ak1. [****]. 1here are two forms of convent|ona| trusts,
express and |mp||ed.
When the trustor |n a convent|ona| trust executes a
forma| deed of trust or by some |nstrument, conveys naked or
|ega| t|t|e |n the trust propert|es to the trustee for the benef|t
of the benef|c|ary who |s deemed to have equ|tab|e or
benef|c|a| t|t|e thereto, then |t |s an express trust.
When from the conveyance of the trust propert|es, no
express trust |s prov|ded, but an |ntent|on to create a trust can
c|ear|y be |mp||ed e|ther from the nature of the transact|on
convey|ng the property or from the acts of the part|es, then an
|mp||ed [resu|t|ng] trust |s deemed const|tuted w|th the party
ho|d|ng t|t|e to the property be|ng cons|dered the trustee.
1he current Art|c|es 1448 to 14SS of the New C|v|| Code shou|d be
brought under a s|ng|e paragraph that reads:
Ak1. [****]. In the fo||ow|ng cases, and a|| other cases
s|m||ar thereto, an |mp||ed [resu|t|ng] trust |s d|sputab|y
presumed to have been const|tuted from the very nature of
the transact|on covered: (1447a)
1. When property |s so|d, and the |ega| estate |s granted to
one party but the pr|ce |s pa|d by another for the purpose of
hav|ng the benef|c|a| |nterest of the property, the former |s
the trustee, wh||e the |atter |s the benef|c|ary, however, |f the
person to whom the t|t|e |s conveyed |s a m|nor ch||d,
|eg|t|mate or |||eg|t|mate, of the one pay|ng the pr|ce of the
sa|e, no trust |s |mp||ed, |t be|ng
4SS NCN-CCkCkA1L MLDIA CI DCING 8USINLSS
d|sputab|y presumed that there |s a g|ft |n favor of the ch||d,
(1448a)
2. When a donat|on |s made to a person but |t appears
that a|though the |ega| estate |s transm|tted to the donee, he
neverthe|ess |s e|ther to have no benef|c|a| |nterest or on|y a
part thereof, (1449a)
3. If the pr|ce of a sa|e of property |s |oaned or pa|d by
one person for the benef|t of another and the conveyance |s
made to the |ender or payor to secure the payment of the
debt, an |mp||ed trust ar|ses |n favor of the person to whom
the money |s |oaned or for whom |t |s pa|d, the person |n
whose favor the property |s acqu|red may redeem the
property and compe| a conveyance thereof to h|m, (14S0a)
4. When |and passes by success|on to any person and he
causes the |ega| t|t|e to be put |n the name of another, an
|mp||ed trust |s estab||shed for the benef|t of the true owner,
(14S1a)
5. If two or more persons agree to purchase property
and by common consent the |ega| t|t|e |s taken |n the name of
one of them for the benef|t of a||, an |mp||ed trust |s created
|n favor of the others |n proport|on to the |nterest of each,
(14S2a)
6. When property |s conveyed to a person |n re||ance
upon h|s dec|ared |ntent|on to ho|d |t for, or transfer |t to
another or the grantor, there |s an |mp||ed trust |n favor of the
person whose benef|t |s contemp|ated, (14S3)
7. If an abso|ute conveyance of property |s made |n
order to secure the performance of an ob||gat|on of the
grantor toward the grantee, a trust by v|rtue of |aw |s
estab||shed. If the fu|f|||ment of the ob||gat|on |s offered by
the grantor when |t becomes due, he may demand the
reconveyance of the property to h|m, (14S4)
429
8. When any trustee, guard|an or other person ho|d|ng a
f|duc|ary re|at|onsh|p uses trust funds for the purchase of
property and causes the conveyance to be made to h|m or to
a th|rd person, a trust |s estab||shed by operat|on of |aw |n
favor of the person to whom the funds be|ong, (14SS)
1he enumerat|on of the forego|ng cases of |mp||ed
[resu|t|ng] trusts does not exc|ude others estab||shed by the
genera| |aw of trusts, prov|ded they are not |n conf||ct w|th
th|s Code, and the ku|es of Court and spec|a| |aws as w||| be
adopted on the matter. (1447a)
1he who|e gamut of construct|ve trusts are rea||y covered under
Art|c|e 14S6 of the New C|v|| Code, and ought to be reworded to read as
fo||ows:
Ak1. [14S6]. In a|| |nstances where property |s acqu|red
through m|stake, abuse of conf|dence or fraud, the person
obta|n|ng |t |s, by force of |aw, cons|dered a trustee under a
|ega| [construct|ve] trust for the benef|t of the person from
whom the property comes or for whom the property was
|ntended.
S|nce under current pub||c po||cy on reg|stered |and, the operat|ve
act b|nd|ng on the wor|d |s reg|strat|on of t|t|e or any dea||ngs there|n,
then the more appropr|ate word|ngs on enforceab|||ty on trusts,
current|y found |n Art|c|e 14S7, shou|d be as fo||ows:
Ak1. [14S7]. 1rusts may be proved by ora| ev|-
dence, except that no convent|ona| trust concern-
|ng |and or any |nterest there|n sha|| be proved by
paro| ev|dence. (14S7a)
oCo

Ak1NLkSnIS
CnA1Lk 1
nIS1CkICAL 8ACkGkCUND CI nILIINL Ak1NLkSnI LAW
SCUkCLS CI nILIINL LAW CN Ak1NLkSnI
1. Not|on of artnersh|p Is of Anc|ent Cr|g|ns
rof. Lsteban 8. 8aut|sta wrote that as a bus|ness dev|ce, the
partnersh|p "was we|| known among the anc|ents and apparent|y
occup|ed such an |mportant p|ace |n the|r soc|a| and econom|c ||fe that
they made prov|s|on for |t |n the|r |aws among the 8aby|on|ans from
the t|me of nammurab|, among the 8aby|on|an Iews as ear|y as the
fourth century, and among the komans a|most from the t|me they |a|d
the foundat|on of the|r monumenta| |ega| system."
1
ne a|so wrote that
"|n med|eva| t|mes, the dev|ce was prom|nent among the merchant
pr|nces |n the Ita||an c|t|es, |t
1
8AU1IS1A, LS1L8AN 8., 1kLA1ISL CN nILIINL Ak1NLkSnI LAW, kex 8ook
Store, 199S Ld., at p. 1 _57(7'-,&*7( (7&7((7. *" ,) "8AU1IS1A"), P'*'-+ 12
LNCCLCLDIA CI SCCIAL SCILNCL 3 (1948).
430

Ak1NLkSnI LAW
431
a|so thr|ved |n th|rteenth century Lng|and where |t was regu|ated by
gu||ds merchant."
2

rofessors nector S. de Leon and nector M. de Leon, Ir. wr|te that
"As ear|y as 2300 8.C., nammurab|, the famous k|ng of 8aby|on, |n h|s
comp||at|on of the system of |aws of that t|me, prov|ded for the
regu|at|on of the re|at|on ca||ed partnersh|p. Commerc|a| partnersh|ps
of that t|me were genera||y for s|ng|e transact|ons or undertak|ngs."
3

1hey a|so wr|te that "Io||ow|ng the 8aby|on|an per|od, we f|nd c|ear-cut
references to partnersh|ps |n Iew|sh |aw ... however, |t must be
remembered that the anc|ent Iews were a pastora| peop|e, and,
therefore, the partnersh|p as a bus|ness organ|zat|on under Iew|sh |aw
was concerned w|th the ho|d|ng of t|t|e to |and by two or more
persons."
4

2. C|v|| and Common Law 8ases of artnersh|p Laws
1he De Leons trace the or|g|ns of the modern-day partnersh|p
through the Lng||sh commerc|a|s courts wh|ch eventua||y was
|ntegrated by then Ch|ef Iust|ce Lord Mansf|e|d |nto the common |aw
system and that |t "was not unt|| the |atter years of the 18th century
that the |aw of partnersh|p as we know |t today began to assume both
form and substance."
3

1hey wr|te that eventua||y |n the Un|ted States, |n 1914 the
Un|form artnersh|ps Act was endorsed by the Nat|ona| Conference of
Comm|ss|oners on Un|form State Laws, wh|ch had many po|nts of
s|m||ar|ty w|th the Lng||sh artnersh|p Act of 1890, and that "Ior th|s
reason, the pract|ca| operat|on of the Un|form artnersh|p Act has a
background of app||cat|on |n the work|ngs of the Lng||sh Act."
6

2
8AU1IS1A, at p. 1, P'*'-+ 4 CCLLILkS LNCCLCLDIA 2S7 (19S2) and 12
LNCCLCLDIA CI SCCIAL SCILNCL 4 (1948).
3
DL LLCN, nLC1Ck S. AND DL LLCN, nLC1Ck M., Ik., CCMMLN1S AND CASLS CN
Ak1NLkSnI, AGLNC AND 1kUS1, kex 8ook Store, Inc., Man||a, h|||pp|nes,
200S ed., at p. 2 (57(7'-,&*7( (7&7((7. *" ,) "DL LLCNS").
4
DL LLCNS, at p. 2.
S
DL LLCNS, at p. 3.
6
DL LLCNS, at p. S.

8aut|sta suggested that "the modem wor|d prov|s|ons on
partnersh|p of every |ega| system prov|d|ng for and regu|at|ng th|s type
of bus|ness organ|zat|on are based upon the koman |aw, of course w|th
severa| |mportant mod|f|cat|ons," . . . and that "c|v|| |aw countr|es or
[ur|sd|ct|on regard the partnersh|p as a |ega| ent|ty, wh||e the common
|aw ones genera||y do not."
7
1he De Leons observe that "In f|ne, modern
partnersh|p |aw may be sa|d to conta|n comb|nat|on of pr|nc|p|es and
concepts deve|oped from three sources: the koman Law, the |aw [on]
merchant and equ|ty, and the common |aw courts."
8

3. art|cu|ar 8ases of the h|||pp|ne Law on
artnersh|ps
8efore the promu|gat|on of the New C|v|| Code, the h|||pp|ne
partnersh|p |aws d|st|ngu|shed between c|v|| partnersh|ps from
commerc|a| partnersh|ps.
C|v|| partnersh|ps were governed |n 1|t|e VIII of 8ook IV of the o|d
C|v|| Code of 1889 (Art|c|es 166S to 1708), wh||e commerc|a| or
mercant||e partnersh|p were governed by 1|t|e I of 8ook II of the Code of
Commerce (Art|c|es 116 to 238). Accord|ng to 8aut|sta, both sets of |aws
"had the|r or|g|n |n the koman Law."
9

1he present h|||pp|ne Law on artnersh|ps |s prov|ded under 1|t|e
Ik, 8ook V of the New C|v|| Code
10
wh|ch took effect on 30 August 19S0,
supersed|ng the o|d C|v|| Code and repea|ed '- *"*" the prov|s|ons of the
Code of Commerce on partnersh|ps, wh|ch "has resu|ted |n the abo||t|on
of the d|st|nct|on between c|v|| and commerc|a| partnersh|ps."
11
In
part|cu|ar, Art|c|e 4S of the New C|v|| Code express|y prov|des that
"artnersh|ps and assoc|at|ons for pr|vate |nterest or purpose are
governed by the prov|s|ons of th|s Code concern|ng partnersh|ps."
7
8AU1IS1A, at p. 1, P'*'-+ 17 LNCCLCLDIA 8kI1ANNICA 420
(1969)
8
DL LLCNS, at p. S.
9
8AU1IS1A, at p. 2.
"kepub||c Act No. 386.
"8AU1IS1A, at p. 2.

nIS1CkICAL 8ACkGkCUND CI nILIINL 433
Ak1NLkSnI LAW
Wh||e the bu|k of the present prov|s|ons |n New C|v|| Code were
taken from the o|d C|v|| Code prov|s|ons, the Code Comm|ss|on reported
that "some prov|s|ons were taken from the Code of Commerce," and
other ru|es were adopted from the Un|form artnersh|p Act and the
Un|form L|m|ted artnersh|p Act of the Un|ted States. 8aut|sta assessed
that "Cn the who|e, |t may be stated that the bu|k of the prov|s|ons of
the New C|v|| Code on th|s sub[ect are of Amer|can or|g|n, '373/ based on
the Un|ted States' 'Un|form artnersh|p Act and Un|form L|m|ted
artnersh|p Act.'"
12

4. S|gn|f|cance of know|ng the n|stor|ca| 8ackground of h|||pp|ne
artnersh|p Law
1he h|stor|ca| background of the h|||pp|ne Law on artnersh|ps,
f|nd|ng |ts source from anc|ent t|mes, |nd|cate to us the re|at|ve eff|c|ency
of the med|um as |t |s ab|e to surv|ve up to the modern t|mes. 1he
reasons that may be drawn for the |ongev|ty of the partnersh|p as a
med|um of do|ng bus|ness can be drawn from the fo||ow|ng
character|st|cs:
L'()*R%/ that soc|ety cons|ders |t |mportant enough to prov|de a |ega|
framework by wh|ch entrepreneurs, merchants and bus|nessmen may
draw upon a set of ru|es to govern the med|um by wh|ch to pursue a
venture, w|thout hav|ng to enter |nto cost|y and t|me-consum|ng
negot|at|ons and contract draft|ng.
1he essent|a| character|st|cs of partnersh|p as governed by |aw
(under modern sett|ngs, they wou|d be: [ur|d|ca| persona||ty, mutua|
agency, .7R7P*8) 67()"-,7 and un||m|ted ||ab|||ty of partners), a||ow
wou|d-be partners the ab|||ty to re|y upon the defau|t |ega| ru|es, w|th
the assurance of the back|ngs of the State by wh|ch to enforce such
defau|t ru|es. 1h|s |s what may be termed as the "-"$'-,*7 ,-.
6('-P'6,&' character|st|cs of the contract of partnersh|p.
;7P"-.R%/ that the partnersh|p re|at|onsh|p be|ng "essent|a||y
contractua| |n nature," assures wou|d-be partners of the exped|ence of
contractua| st|pu|at|on, or"6,(*% ,8*"-"$%/O for the
"8AU1IS1A, at p. 2.
co-partners to be ab|e to ta||or-f|t the|r commerc|a| arrangement |n a
way that wou|d best address the|r |nd|v|dua| needs and the work|ng
re|at|onsh|ps among themse|ves, as we|| as the demands of the bus|ness
enterpr|se they have dec|ded to embark upon.
artnersh|p Law wou|d a||ow a stab|e p|atform by wh|ch AN
AGGkUA1ICN of |nd|v|dua|s may prov|de for the|r group an act|ve
means by wh|ch to pursue [o|nt|y a bus|ness enterpr|se.
1he other s|gn|f|cant feature of h|||pp|ne Law on artnersh|ps
com|ng from |ts h|stor|ca| background, |s that |t draws |t strength and |ts
weakness from the fact that |t |s rea||y an ama|gam between two sets of
|ega| trad|t|ons: the C|v|| Law system upon wh|ch most of the prov|s|ons
of the New C|v|| Code had been drawn, and from the Common Law
trad|t|on, part|cu|ar|y from the Un|form artnersh|p Act of the Un|ted
States. roper|y apprec|ated, that means that the h|||pp|ne Law on
artnersh|ps can tru|y be mo|ded |nto a framework that prov|des a
stab|||ty from the set of ru|es and pr|nc|p|es that are |a|d out |n the
prov|s|ons of the New C|v|| Code, and yet be dynam|c and progress|ve |n
character|st|c to a||ow I|||p|no bus|nessmen and the |ega| profess|on the
ab|||ty to be ab|e to evo|ve them effect|ve|y through app||cat|on |n the
bus|ness wor|d of |nnovat|ve changes and advances, conf|rmed and
made "precedent|a|" |n dec|s|ons of our courts reso|v|ng the
acceptab|||ty of such cutt|ng-edge |nnovat|ons.
CLD 8kANCnLS CI nILIINL Ak1NLkSnI LAW
1. D|st|ngu|sh|ng 8etween C|v|| and Commerc|a|
artnersh|ps
8efore the New C|v|| Code, reso|ut|on of partnersh|p |ssues
depended on whether |t covered a c|v|| partnersh|p for wh|ch the
prov|s|ons of the o|d C|v|| Code were made to app|y, or commerc|a|
partnersh|p, and therefore covered by the Code of Commerce. 1here
was even a th|rd type of partnersh|ps, the |ndustr|a| partnersh|ps, wh|ch
may have the character|st|cs of commerc|a| or c|v|| partnersh|ps,
accord|ng to whether they have been estab

nIS1CkICAL 8ACkGkCUND CI nILIINL 43S
Ak1NLkSnI LAW
||shed |n accordance w|th the requ|rements of the Code of Commerce
or w|thout regard to the |atter.
13

1he essence of a commerc|a| partnersh|p was that |t was
undertaken by merchants, and essent|a||y possessed of the
character|st|c of"5,S'*8,R-7))/O or more proper|y referred to as
O68()87. ,) , +"'-+ P"-P7(-/O to be governed under the prov|s|ons of
the Code of Commerce. Art|c|e 1 of the Code of Commerce prov|ded
that "Ior purposes of th|s Code, the fo||ow|ng are merchants: 1. 1hose
who, hav|ng |ega| capac|ty to engage |n commerce, hab|tua||y devote
themse|ves thereto."
1o |||ustrate, DT,-+7R')*, T3 <"$$'))'"-7( "& F-*7(-,R G7T7-87/
à

he|d that there ex|sted the e|ements of common fund and |ntent|on to
d|v|de the prof|ts among the members of the fam||y who borrowed
money as a group, when the facts showed that the
1. Sa|d common fund was not someth|ng they found
a|ready |n ex|stence. It was not a property |nher|ted by them
6(" '-.'T')"3 1hey P(7,*7. |t purpose|y. What |s more they
X"'-*R% S"(("b7. a substant|a| port|on thereof |n order to
estab||sh sa|d common fund.
2. 1hey |nvested the same, not mere|y |n one
transact|on, but |n a )7('7) of transact|ons, x W W 1he number
of |ots (24) acqu|red and transact|ons undertaken, as we|| as
the br|ef |nterregnum between each, part|cu|ar|y the |ast
three purchases, |s strong|y |nd|cat|ve of a pattern or
common des|gn that was not ||m|ted to the conservat|on and
preservat|on of the aforement|oned common fund or even
of the property acqu|red ... In other words, one cannot but
perce|ve a character of 5,S'*8,R'*% pecu||ar to S8)'-7))
transact|ons engaged |n for purposes of ga|n.
3. 1he aforesa|d |ots were not devoted to res|dent|a|
purposes, or to other persona| uses, of pet|t|oners here|n.
1he propert|es were |eased separate|y to severa| persons
who, from 194S to 1948 |nc|us|ve, pa|d the tota| sum of
70.068.30 by way of renta|s. Seem|ng|y, the |ots are st|||
OK(,8*P5/ 7*P3 T3 >7(-,-.7\/ 1 h||. 70S
( )
"102 h||. 140 (19S7).

436
be|ng so |et, for pet|t|oners do not even suggest that there
has been any change |n the ut|||zat|on thereof.
1S

r|or to the New C|v|| Code, the s|gn|f|cant d|st|nct|ons between
c|v|| partnersh|ps from commerc|a| partnersh|ps were as fo||ows:
(a) keg|strat|on was essent|a| for the com|ng |nto ex|stence
of commerc|a| partnersh|ps and the|r acqu|s|t|on of
[ur|d|ca| persona||t|es,
18
whereas, |t was the mere
meet|ng of the m|nds ='373/ perfect|on of a contract of
partnersh|p) wh|ch under the o|d C|v|| Code brought
about the separate [ur|d|ca| persona||ty of a c|v||
partnersh|p,
(b) Commerc|a| partners were so||dar||y ||ab|e for
partnersh|p debts, a|be|t |n a subs|d|ary manner, and
therefore had the benef|t of excuss|on,
17
wh||e c|v||
partners were pr|mar||y but on|y [o|nt|y =6("V(,*,H ||ab|e
for partnersh|p debts,
18
and
(c) Commerc|a| partnersh|ps were deemed to be, and
sub[ect to Code of Commerce prov|s|ons for,
merchants.
At the onset of h|||pp|ne [ur|sprudent|a| deve|opment, |t was
recogn|zed |n K(,8*P5 T3 >7(-,-.7\,
19
that a commerc|a| or mercant||e
partnersh|p had for |ts ob[ect *57 68()8'* "& '-.8)*(% "( P"$$7(P7/ and
was then treated ||ke a merchant that must necessar||y be governed by
the Code of Commerce and had to comp|y w|th the reg|strat|on
requ|rements thereof to |awfu||y come |nto ex|stence.
p
RS'./ at p. 14S.
16
Arts. 118-119, Code of Commerce, >8-+V0,-VA"P T3 p'7-+V<5'"-+
;7-+/ 6 h||. 498 (1906).
`N
2'8., .7 <5,- 4',P" T3 K7-+/ S3 h||. 906 (1928).
'e
<"VK'*P" T3 A8R"/ 8 h||. S44 (1907).
19
1 h||. 70S (1903).

Ak1NLkSnI LAW
437
In 4'7*('P5 T3 L(77.$,-/
Yc
where the c|v|| partnersh|p was
engaged |n the |aundry bus|ness and governed by the prov|s|ons of o|d
C|v|| Code, the Supreme Court he|d that the partnersh|p ex|sted as a
separate [ur|d|ca| person even when no forma| partnersh|p agreement
was entered |nto and reg|stered, and thereby the ob||gat|ons of the
partners for partnersh|p debts were he|d to be 6("V(,*,3
In a commerc|a| partnersh|p, both the partnersh|p and the
separate partners thereof may be [o|ned |n one act|on, but the pr|vate
property of the partners cou|d be taken |n payment of the partnersh|p
debts on|y after the common property of the partnersh|p had been
exhausted.
21

1he commerc|a| partnersh|p under the Code of Commerce
tended to be a more so|emn affa|r, and when |t fa||ed to reg|ster |ts
art|c|es of partnersh|p |n the mercant||e reg|stry, |t d|d not become a
[ur|d|ca| person nor d|d |t have any persona||ty d|st|nct from the
persona||ty of the |nd|v|dua|s who composed |t,
22
and therefore cou|d
not a|so ma|nta|n an act|on |n |ts name.
23

In pb"-+VI"V;'-+ T3 p'7-+V<5'"-+V;7-+,
24
wh|ch |nvo|ved a
commerc|a| partnersh|p but the requ|rements of the Code of Commerce
for the execut|on of pub||c document and reg|strat|on |n the mercant||e
reg|stry
2S
were not comp||ed w|th, the Supreme Court he|d that the
"a||eged partnersh|p never had any |ega| ex|stence nor has |t acqu|red
any [ur|d|ca| persona||ty |n the acts and contracted executed and made
by |t."
26
What was app||ed was Art|c|e 119 of the Code of Commerce
wh|ch made ||ab|e for the debts |ncurred by such "partnersh|p .7 &,P*"O
the "persons |n charge of the management of the assoc|at|on . . .
together w|th persons not members of the assoc|at|on w|th whom they
218 h||. 341 (1911).
Y`
@, <"$6,-', 0,('*'$, T3 08-"\/ 9 h||. 326 (1907).
,
>8-+V0,-VA"P T3 p'7-+V<5'"-+V;7-+/ 6 h||. 498 (1906), :"8(-) T3
<,($,-/ 7 h||. 117 (1906), B-+ ;7-+ U87- T3 !7 <5'P"/ N h||. S41
;$8*P5/ 7*P3 T3 >7(-,-.7\ ,1 h||. 70S (1903).
24
6 h||. 498 (1906).
2S
Art. 119, Code of Commerce.
]RS'./ at pp. S00-S01.

may have transact|on bus|ness |n the name of the same."
27
1hus, the
|ega| consequence of fa|||ng to comp|y w|th the reg|strat|on
requ|rements under the Code of Commerce was to make the act|ng
partners persona||y and pr|mar||y ||ab|e for a|| partnersh|p debts. 1he
doctr|ne |s s|m||ar to the Agency doctr|ne that an agent who enters |nto
a transact|on on beha|f of a non-ex|st|ng pr|nc|pa| becomes persona||y
||ab|e for the ob||gat|ons |ncurred thereby.
Nonethe|ess, the reg|strat|on requ|rements under the Code of
Commerce were never |nterpreted to underm|ne the ob||gatory force of
contracts entered |nto |n the name of the commerc|a| partners. 1hus, |t
was he|d |n K(,8*P5/ 7*P3 T3 J"-7)/
Y
] and aff|rmed |n B-+ ;7-+ U87- T3
!7 <5'P"/
Yl
that wh||e an unreg|stered commerc|a| partnersh|p and
assoc|at|on has no [ur|d|ca| persona||ty, and as such cannot ma|nta|n an
act|on |n the partnersh|p name, neverthe|ess, the |nd|v|dua| members
may sue [o|nt|y as |nd|v|dua|s, and persons dea||ng w|th them |n the|r
[o|nt capac|ty w||| not be perm|tted to deny the|r r|ght to do so.
It was he|d |n 47 R") G7%7) T3 @81S,-/
[c
and aff|rmed |n K5'R'66'-7
9,*'"-,R :,-1 T3 Lo,
31
that under the Code of Commerce, where the
partners' ||ab|||ty for a partnersh|p debt was on|y secondary or
subs|d|ary, the|r r|ght of excuss|on was deemed a|ready sat|sf|ed where
at the t|me the [udgment was executed aga|nst the partnersh|p they
were unab|e to show that there were st||| partnersh|p assets, or when a
wr|t of execut|on aga|nst the partnersh|p had been returned not fu||y
sat|sf|ed.
1here was under the o|d set-up the debate of whether a
partnersh|p can choose wh|ch set of |aws shou|d govern |t, or whether a
group of co-venturers can choose by the exped|ency of reg|strat|on
under the o|d C|v|| Code or under the Code of Commerce, on whether to
organ|ze a c|v|| or a commerc|a| partnersh|p. In K(,8*P5/ 7*P3 T3
>7(-,-.7\/
[Y
|t was he|d -
OFS'./ at p. S00.
*8 h||. 1
"12 h||. S47

M
3S h||. 7S7

31
S0 h||. 802

32
1 h||. 70S
( )

Ak1NLkSnI LAW
439
. . . Is a commerc|a| partnersh|p d|st|ngu|shed from a
c|v|| one by the ob[ect to wh|ch |t |s devoted or by the
mach|nery w|th wh|ch |t |s organ|zed? We th|nk that the
former d|st|nct|on |s the true one. 1he Code of Commerce of
1829 d|st|nct|y prov|ded that those partnersh|ps were
mercant||e wh|ch had for the|r ob[ect an operat|on of
commerce. (Art. 264.). x x x . 1he Code of Commerce
dec|ares the manner |n wh|ch commerc|a| partnersh|ps can
be organ|zed. Such organ|zat|on can be effected on|y |n
certa|n we||-def|ned ways. 1he prov|s|ons of th|s Code were
we|| known when the C|v|| Code was adopted. 1he author of
that Code when wr|t|ng art|c|e 1667, hav|ng |n m|nd the
prov|s|ons of the Code of Commerce, d|d not say that a
partnersh|p may be organ|zed |n any form, wh|ch wou|d
have repea|ed the sa|d prov|s|ons of the Code of Commerce,
but d|d say |nstead that a c|v|| partnersh|p may be organ|zed
|n any form.
If that sect|on |nc|udes commerc|a| partnersh|ps then
such a partnersh|p can be organ|zed under |t se|ect|ng from
the Code of Commerce such of |ts prov|s|ons as are favorab|e
to the partners and re[ect|ng such as are not, and even
|nc|ud|ng |n |ts art|c|es of agreement the r|ght to do th|ngs
wh|ch by that Code are express|y proh|b|ted. Such a
construct|on wou|d a||ow a commerc|a| partnersh|p to use or
d|spense w|th the Code of Commerce as best su|ted |ts own
ends.
33

Subsequent|y, |n <"$6,-',B+('P"R, .7 ER*(,$,( T3 G7%7)/
[
] what
the Supreme Court he|d cr|t|ca| was proper app||cat|on of Art|c|e 1670 of
the o|d C|v|| Code wh|ch prov|ded that c|v|| partnersh|ps, on account of
the ob[ects to wh|ch they are devoted, may adopt a|| the forms
recogn|zed by the Commerc|a| Code, and thereby he|d that
It w||| be seen from th|s prov|s|on that whether or not
partnersh|ps sha|| adopt the forms prov|ded for by the C|v||
or Commerc|a| Codes |s |eft ent|re|y to the|r d|scret|on. And
furthermore, that such c|v|| partnersh|ps sha|| on|y be gov
oRS'./ at pp.
707-708.
M
4
h|| 2 (1904)

erned by the forms and prov|s|ons of the Commerc|a| Code
when they express|y adopt them, and then on|y |n so far as
they (ru|es of the Commerc|a| Code) do not conf||ct w|th the
prov|s|ons of the C|v|| Code. In th|s prov|s|on the |eg|s|ature
express|y |nd|cates that there may ex|st two c|asses of com-
merc|a| assoc|at|ons, depend|ng not upon the bus|ness |n
wh|ch they are engaged but upon the part|cu|ar form adopt-
ed |n the|r organ|zat|on... We are |nc||ned to the be||ef that
the respect|ve codes, C|v|| and Commerc|a|, have adopted a
comp|ete system for the organ|zat|on, contro|, cont|nuance,
||ab|||t|es, d|sso|ut|ons, and [ur|st|c persona||t|es of assoc|a-
t|ons organ|zed under each... It |s our op|n|on that assoc|a-
t|ons organ|zed under the d|fferent codes are governed by
the prov|s|ons of the respect|ve code.
3S

As was apt|y observed |n <"$6,-', B+('P"R, .7 ER*(,$,( T3
G7%7)/
[e
the d|st|nct|on between c|v|| and commerc|a| partnersh|ps was
cr|t|ca| under the o|d set-up because |t determ|ned the app||cab|e ru|es
for reg|strat|on, ||ab|||ty for the members, and the r|ghts and manner of
d|sso|ut|on.
2. S|gn|f|cance of know|ng the n|stor|ca| D|st|nct|ons 8etween C|v|| and
Commerc|a| artnersh|ps
What may be cons|dered as a good deve|opment |n our present
Law on artnersh|ps |s the remova| of the d|st|nct|ons between c|v|| and
commerc|a| partnersh|ps, s|nce a|| partnersh|ps |n the h|||pp|nes are
now governed by a common set of |aws, '373/ the re|evant prov|s|ons of
the New C|v|| Code.
1he ma|n drawback of such a deve|opment |s that even
commerc|a| partnersh|ps (and adm|tted|y there may not be qu|te a
number operat|ng due to the ava||ab|||ty of the corporate med|um),
wou|d f|nd themse|ves governed by non-commerc|a| doctr|nes, such as
the non-centra| ro|e of the |nst|tut|on of reg|strat|on. In fact, many
|ssues have ar|sen under our current Law on artnersh|ps ar|s|ng from
hav|ng adopted |n the New
mFS'./ at pp.

M
4 h||. 2
( )
nIS1CkICAL 8ACkGkCUND CI nILIINL 441
Ak1NLkSnI LAW
C|v|| Code prov|s|ons from the Code of Commerce on reg|strat|on
requ|rements.
In add|t|on, the "c|v||-cod|ng" of some of the prov|s|ons of the
Code of Commerce wh|ch were cop|ed |nto the New C|v|| Code, shou|d
prov|de a better understand|ng of the |ega| consequences of current
prov|s|ons of the h|||pp|ne Law on artnersh|ps, and a better
construct|on of the effects they have on the commerc|a| f|e|d, by
prov|d|ng a compar|son w|th the o|d [ur|sprudent|a| ru||ngs for
commerc|a| partnersh|ps under the prov|s|ons of the Code of
Commerce.
0C0

CnA1Lk 2
1he Law on artnersh|ps under the New C|v|| Code treats of the
partnersh|p |n three"@7T7R) "& DW')*7-P7name|y:
(a) r|mar||y as a CCN1kAC1UAL kLLA1ICNSnI between and
among the partners,
(b) A MLANS Ck MLDIUM CI DCING 8USINLSS, through the
structure of ;76,(,*7 J8('.'P,R K7()"-,R'*%/ or as the
bas|s of creat|ng mu|t|-|eve|ed con-tractua| re|at|ons
among var|ous part|es, and
(c) A 8USINLSS LN1LkkISL, or a bus|ness venture, or what |s
termed |n other d|sc|p||nes as "a go|ng P"-P7(-3O
know|ng the three |eve|s at wh|ch the h|||pp|ne artnersh|p Law
treats the partnersh|p arrangement |s |mportant |n determ|n|ng the
|ega| s|gn|f|cance of the var|ous prov|s|ons of the New C|v|| Code
regu|at|ng partnersh|ps, and of apprec|at|ng the doctr|na| va|ue of such
prov|s|ons.
IN1LkLA CI 1nL 1kI-LLVLL LkIS1LNCL CI 1nL Ak1NLkSnI
It wou|d be |mportant to |||ustrate the |ega| |nterp|ay between
the three (3) |eve|s of partnersh|p ex|stence, and the
442

443
|ega| doctr|nes that resu|t from such |nterp|ay. Ior th|s purpose we w|||
use the dec|s|on of the Supreme Court |n A8 T3 A]LkC.
1

In that dec|s|on, the facts |nd|cated that a ||m|ted partnersh|p was
du|y reg|stered w|th the f|rm name of OJ,.7 0"8-*,'- K(".8P*)
<"$6,-% @'$'*7.O ("Iade Mounta|n"), w|th the partnersh|p bus|ness
cons|st|ng of exp|o|t|ng a marb|e depos|t found on |and s|tuated |n
8u|acan, but w|th the partnersh|p hav|ng |ts ma|n off|ce |n Makat|.
8en[am|n u was for many years the Ass|stant Genera| Manager of the
partnersh|p bus|ness, but on|y ha|f of h|s contracted sa|ary was pa|d
under the agreement that the rest wou|d be pa|d when the partnersh|p
|s ab|e to source more fund|ng. Ma[or|ty of the partners eventua||y so|d
the|r equ|ty |nterests |n the bus|ness (about 82) to a new set of
|nvestors who reta|ned the bus|ness enterpr|se under the or|g|na| name
of Iade Mounta|n, but moved the head off|ce to Manda|uyong. When
Mr. u |earned |ater of the new address he proceeded to Manda|uyong
but was to|d that the new partnersh|p d|d not w|sh to reta|n h|s
serv|ces.
Mr. u f||ed a comp|a|nt for |||ega| d|sm|ssa| and recovery of
unpa|d accrued sa|ar|es, mora| and exemp|ary damages and attorney's
fees, aga|nst Iade Mounta|n under the new partnersh|p arrangement.
1he new partners contended that Mr. u was never h|red as an
emp|oyee by the present or new partnersh|p. Cne of the |ssues ra|sed
was whether the new partnersh|p cou|d be he|d ||ab|e for the c|a|ms of
Mr. u perta|n|ng to the o|d partnersh|p wh|ch had been d|sso|ved due
to the w|thdrawa| of the |ead|ng partners.
1he bas|c content|on of Mr. u was the pr|nc|p|e that a
partnersh|p has a [ur|d|ca| persona||ty separate and d|st|nct from that of
each of |ts members, wh|ch subs|sted notw|thstand|ng changes |n the
|dent|t|es of the partners, and that consequent|y, the emp|oyment
contract between Mr. u and the partnersh|p Iade Mounta|n cou|d not
have been affected by changes |n the |atter's membersh|p.
1he Supreme Court def|ned the |nextr|cab|e ||nk of the contract
of partnersh|p between the or|g|na| partners and the
1
224 SCkA 7S (1993).

[ur|d|ca| persona||ty that arose from the nexus of that contract, and that
when the contract was resc|nded w|th the w|thdrawa| of the ma[or|ty
of the partners, then the partnersh|p was d|sso|ved and |ts separate
[ur|d|ca| persona||ty ceased to ex|st to cover the new set of partners,
thus:
1wo (2) ma|n |ssues are thus posed for our
cons|derat|on |n the case at bar:
(1) whether the partnersh|p wh|ch had h|red pet|t|oner
u as Ass|stant Genera| Manager had been ext|ngu|shed and
rep|aced by a new partnersh|p composed of W|||y Co and
Lmmanue| 2apanta, and
(2) |f |ndeed a new partnersh|p had come |nto
ex|stence, whether pet|t|oner u cou|d nonethe|ess assert
h|s r|ghts under h|s emp|oyment contract as aga|nst the new
partnersh|p.
In respect of the f|rst |ssue, we agree w|th the resu|t
reached by the NLkC, that |s, that the |ega| effect of the
changes |n the membersh|p of the partnersh|p was the
d|sso|ut|on of the o|d partnersh|p wh|ch had h|red pet|t|oner
|n 1984 and the emergence of a new f|rm composed of W|||y
Co and Lmmanue| 2apanta |n 1987.
2

1he Court he|d that the app||cab|e ru|e wou|d be Art|c|e 1828 of
New C|v|| Code wh|ch def|nes "d|sso|ut|on of a partnersh|p [as] the
change |n the re|at|on of the partners caused by any partner ceas|ng to
be assoc|ated |n the carry|ng on as d|st|ngu|shed from the w|nd|ng up of
the bus|ness." Nonethe|ess, the determ|nat|on of the r|ght of Mr. u to
recover from the new partnersh|p wh|ch const|tuted |ts own separate
[ur|d|ca| persona||ty was based on the fact that |t cont|nued the o|d
bus|ness enterpr|se of the d|sso|ved partnersh|p, thus:
In the ord|nary course of events, the |ega| per-sona||ty
of the exp|r|ng partnersh|p pers|sts for the ||m|ted purpose
of w|nd|ng up and c|os|ng of the affa|rs of the partnersh|p.
Y
RS'./ at p. 80.

44S
In the case at bar, It |s |mportant to underscore the fact that
the bus|ness of the o|d partnersh|p was s|mp|y cont|nued by
the new partners, w|thout the o|d partnersh|p undergo|ng
the procedures re|at|ng to d|sso|ut|on and w|nd|ng up of |ts
bus|ness affa|rs. In other words, the new partnersh|p s|mp|y
took over the bus|ness enterpr|se owned by the preced|ng
partnersh|p, and cont|nued us|ng the o|d name of Iade
Mounta|n roducts Company L|m|ted, w|thout w|nd|ng up
the bus|ness affa|rs of the o|d partnersh|p, pay|ng off |ts
debts, ||qu|dat|ng and d|str|but|ng |ts net assets, and then re-
assemb||ng the sa|d assets or most of them and open|ng a
new bus|ness enterpr|se. 1here were, no doubt, powerfu| tax
cons|derat|ons wh|ch under|ay such an |nforma| approach to
bus|ness on the part of the ret|r|ng and the |ncom|ng
partners. It |s not, however, necessary to |nqu|re |nto such
matters.
What |s |mportant for present purposes |s that, under
the above descr|bed s|tuat|on, not on|y the ret|r|ng partners
(khodora 8enda|, 7* ,R3H but a|so the new partnersh|p |tse|f
wh|ch cont|nued thebus|ness of the o|d, d|sso|ved, one, are
||ab|e for the debts of the preced|ng partnersh|p. In ;'-+)"-/
7* ,R3 T3 F),S7R) ;,b 0'RR/ 7* ,R3/ the Court he|d that under
facts very s|m||ar to those |n the case at bar, a w|thdraw|ng
partner rema|ns ||ab|e to a th|rd party cred|tor of the o|d
partnersh|p. 1he ||ab|||ty of the new partnersh|p, upon the
other hand, |n the set of c|rcumstances obta|n|ng |n the case
at bar, |s estab||shed |n Art|c|e 1840 of the C|v|| Code.. .
3

1he essence of the afore-quoted ru||ng |s that Mr. u cou|d not
recover h|s c|a|ms through the med|um of the separate [ur|d|ca|
persona||ty of the company wh|ch the Court he|d had been ext|ngu|shed
w|th the w|thdrawa| of the or|g|na| partners who were h|s emp|oyers,
but cou|d recover h|s c|a|ms aga|nst the new company on the bas|s that
|t was hand||ng exact|y the same bus|ness enterpr|se that rema|ned
unchanged w|th the transfer of |ts ownersh|p from the o|d partners to
the new |nvestors. 1he Court |n A8 therefore recogn|zed the app||cab|||ty
[
RS'./ at pp. 81-82.

of the "successor ||ab|||ty ru|e"
4
ar|s|ng from bus|ness enterpr|se
transfer ='373/ that the cred|tors of the bus|ness enterpr|se have a r|ght
to recover payment of the|r c|a|ms aga|nst the transferee of the
bus|ness enterpr|se), and recogn|zed that the bus|ness enterpr|se
transfer doctr|ne |s governed |n deta||s under Art|c|e 1840 of the New
C|v|| Code.
A8 a|so recogn|zed one of the pr|nc|p|es |n bus|ness enterpr|se
transfers, that the new owners of the bus|ness enterpr|se do have a
r|ght to choose who wou|d be emp|oyed |n the|r new|y acqu|red
bus|ness, and they cannot be compe||ed to ma|nta|n the emp|oyment
contracts of the managers and emp|oyees ex|st|ng w|th the transferor,
thus:
It |s at the same t|me a|so ev|dent to the Court that the
new partnersh|p was ent|t|ed to appo|nt and h|re a new
genera| or ass|stant genera| manager to run the affa|rs of the
bus|ness enterpr|se taken over. An ass|stant genera|
manager be|ongs to the most sen|or ranks of management
and a new partnersh|p |s ent|t|ed to appo|nt a top manager
of |ts own cho|ce and conf|dence. 1he non-retent|on of
8en[am|n u as Ass|stant Genera| Manager d|d not therefore
const|tute un|awfu| term|nat|on, or term|nat|on w|thout [ust
or author|zed cause. We th|nk that the prec|se author|zed
cause for term|nat|on |n the case at bar was redundancy.
1he new partnersh|p had |ts own new Genera| Manager,
apparent|y Mr. W|||y Co, the pr|nc|pa| new owner h|mse|f,
who persona||y ran the bus|ness of Iade Mounta|n.
8en[am|n u's o|d pos|t|on as Ass|stant Genera| Manager
thus became superf|uous or redundant. It fo||ows that
pet|t|oner 8en[am|n u |s ent|t|ed to separat|on pay at the
rate of one month's pay for each year of serv|ce that he had
rendered to the o|d partnersh|p, a fract|on of at |east s|x (6)
months be|ng cons|dered as a who|e year.
S

]L"( $"(7 '-V.76*5 .')P8))'"-) "& *57 S8)'-7)) 7-*7(6(')7 ."P*('-7/
%"8
$,% b')5 *" (7&7( *" *57 P5,6*7( "- BPg8')'*'"-)/ !(,-)&7()/ 07(+7() ,-.
<"-V

Z
RS'./ at p. 83-84.

447
Another |||ustrat|ve case |s the dec|s|on |n E-'*7. ;*,*7) T3 <R,('-/]
where a partner f||ed estafa charges aga|nst h|s copartners for the
|atter's fa||ure to de||ver to h|m h|s ha|f of the prof|ts from the
partnersh|p venture. In deny|ng the app||cab|||ty of the charges of estafa
the Court he|d
1he 172 hav|ng been rece|ved by the partnersh|p, the
bus|ness commenced and prof|ts accrued, the act|on that
||es w|th the partner who furn|shed the cap|ta| for the
recovery of h|s money |s not a cr|m|na| act|on for estafa, but
a c|v|| one ar|s|ng from the partnersh|p contract for a
||qu|dat|on of the partnersh|p and a |evy on |ts assets |f there
shou|d be any. xxx [Lstafa] does not |nc|ude money rece|ved
for a partnersh|p, otherw|se the resu|t wou|d be that, |f the
partnersh|p, |nstead of obta|n|ng prof|ts, suffered |osses, as
|t cou|d not be he|d ||ab|e c|v|||y for the share of the cap|ta||st
partner who reserved the ownersh|p of the money brought
|n by h|m, |t wou|d have to answer to the charge of estafa,
for wh|ch wou|d be suff|c|ent to argue that the partnersh|p
had rece|ved money under the ob||gat|on to return |t. 1he
comp|a|nt for estafa |s d|sm|ssed w|thout pre[ud|ce to the
|nst|tut|on of a c|v|| act|on.
7

1he ru||ng |n <R,('- shou|d be d|st|ngu|shed from that |n K7"6R7 T3
.7 R, <(8\/
e
where the |ndustr|a| partner was he|d ||ab|e for estafa for
appropr|at|ng money that has been g|ven to h|m by the cap|ta||st
partner &"( , 6,(*'P8R,( *(,-),P*'"-3 47 R, <(8\ was re|terated |n
@'b,-,+ T3 <"8(* "& B667,R)/
l
where the Court he|d: "1hus, even
assum|ng that a contract of partnersh|p was |ndeed entered |nto by and
between the part|es, we have ru|ed that when money or property have
been rece|ved by a partner for a spec|f|c
17 h||. 84 (1910).
N
FS'./ at p. 86. ;77 ,R)" K7"6R7 T3 BR7+(7/ (CA) 48 C.G. S341 (19S2).
8
G.k. No. 21732 (19S7), 3 September 1924, P'*7. '- K7"6R7 T3
<,$6")/ (CA) S4 C.G. 681 (19S7).
9
281 SCkA 22S (1997).

purpose (such as that obta|n|ng |n the |nstant case) and he |ater
m|sappropr|ated |t, such partner |s gu||ty of estafa."
10

erhaps the |nterp|ay of the var|ous |eve|s of ex|stence of the
partnersh|p arrangement |s best exemp||f|ed by the dec|s|on of the
Supreme Court |n G"X,) T3 0,+R,-,3O
In that case, a partnersh|p was const|tuted between ko[as and
Mag|ana to operate t|mber forest products concess|on, and art|c|es of
co-partnersh|p were du|y executed and reg|stered w|th the SLC us|ng the
f|rm name "D,)*P",)* 47T7R"6$7-* D-*7(6(')7)." Later, the partners
took |n an |ndustr|a| partner, whereby they executed an "Add|t|ona|
Agreement" wh|ch essent|a||y adopted the reg|stered art|c|es but
cover|ng the acceptance of an |ndustr|a| partner, wh|ch agreement was
not du|y reg|stered w|th the SLC, and the partnersh|p operated under
the or|g|na| reg|stered f|rm name. Short|y thereafter, the or|g|na|
partners bought out the |nterest, share and part|c|pat|on of the
|ndustr|a| partner |n the f|rm, and the partnersh|p was cont|nued
w|thout the benef|t of any wr|tten agreement or reconst|tut|on of the|r
wr|tten art|c|es of co-partnersh|p.
When ko[as entered |nto a separate management contract w|th
another |ogg|ng enterpr|se and w|thdrew h|s equ|pment from the
partnersh|p, Mag|ana made a forma| demand aga|nst ko[as for the
payment of h|s prom|sed contr|but|on to the partnersh|p and
comp||ance w|th h|s ob||gat|on to perform the dut|es of |ogg|ng
super|ntendent as prov|ded express|y |n the reg|stered art|c|es of
co-partnersh|p. When ko[as responded that he wou|d not be ab|e to
comp|y w|th h|s prom|sed contr|but|on and w||| not work as |ogg|ng
super|ntendent for the partnersh|p, Mag|ana gave not|ce of the
d|sso|ut|on of the partnersh|p. In the su|t that ensued between the
partners, one of the |ssues that had to be reso|ved by the Court was the
nature of the partnersh|p and the |ega| re|at|onsh|p of ko[as and
Mag|ana after the ret|rement of the |ndustr|a| partner from the second
partnersh|p.
O
F
S

449
Cn th|s |ssue, the tr|a| court ru|ed that the second partnersh|p
superseded the f|rst partnersh|p, so that when the second partnersh|p
was d|sso|ved by the w|thdrawa| of the |ndustr|a| partner, there be|ng no
wr|tten contract of co-partnersh|p when |t was cont|nued by the two
or|g|na| partners, there was no reconst|tut|on of the or|g|na| partnersh|p,
and consequent|y the partnersh|p that was cont|nued between ko[as
and Mag|ana was a .7 &,P*" partnersh|p at w|||. In overru||ng the court a
g8"/ the Court he|d
. . . [I]t appears ev|dent that |t was not the |ntent|on of
the partners to d|sso|ve the f|rst partnersh|p, upon the
const|tut|on of the second one, wh|ch they unm|stakab|e
ca||ed an "Add|t|ona| Agreement"... Lxcept for the fact that
they took |n one |ndustr|a| partner, gave h|m an equa| share
|n the prof|ts and f|xed the term of the second partnersh|p to
th|rty (30) years, everyth|ng e|se was the same. 1hus, they
adopted the same name, . . . they pursued the same
purposes and the cap|ta| contr|but|ons of ko[as and Mag|ana
as st|pu|ated |n both partnersh|p ca|| for the same amounts.
Iust as |mportant |s the fact that a|| subsequent renewa| of
1|mber L|cense No. 3S-36 were secured |n favor of the I|rst
artnersh|p, the or|g|na| ||censee... 1o a|| |ntents and purpose
therefore, the I|rst Art|c|es of artnersh|p were on|y
amended, |n the form of Supp|ementary Art|c|es of Co-
partnersh|p ... wh|ch was never reg|stered ... Ctherw|se
stated, even dur|ng the ex|stence of the second partnersh|p,
a|| bus|ness transact|ons were carr|ed out under the du|y
reg|stered art|c|es.
12

After recogn|z|ng that one of the "essence" of a partnersh|p
arrangement |s the under|y|ng bus|ness enterpr|se, the Court then
proceeded to ho|d that the bus|ness enterpr|se shou|d be treated
d|fferent|y from the persona| contractua| re|at|onsh|p between and
among the partners, thus
OFS'./ at pp. 117-118.

Cn the other hand, there |s no d|spute that the second
partnersh|p was d|sso|ved by common consent. Sa|d
d|sso|ut|on d|d not affect the f|rst partnersh|p wh|ch
cont|nued to ex|st "as shown by the subsequent acts of the
or|g|na| partners carry|ng one w|th the or|g|na| partnersh|p
bus|ness and conf|rm|ng the ob||gat|ons const|tuted under
the or|g|na| art|c|es of partnersh|p. 1he conc|us|on of the
Court was thus: "Under the c|rcumstances, the re|at|onsh|p
of ko[as and Mag|ana after the w|thdrawa| of [the |ndustr|a|
partner] can ne|ther be cons|dered as a .7 &,P*"
partnersh|p, nor a partnersh|p at w|||, for as stressed, there
|s an ex|st|ng partnersh|p, du|y reg|stered."
13

G"X,) therefore aff|rms two |mportant aspects |n artnersh|p Law:
L'()*R%/ that reg|strat|on of the contract of partnersh|p w|th the SLC has
the |ega| effect of b|nd|ng the partners, as to the contractua| ob||gat|ons,
the r|ghts and dut|es of the partners, and wh|ch has effect|ve force even
as the partnersh|p undergoes changes w|th|n |ts const|tut|on by the
acceptance |nto and w|thdrawa| of partners |nto the venture. ;7P"-.R%/
the under|y|ng bus|ness enterpr|se, the manner of |ts operat|on, |s the
more durab|e aspect of the partnersh|p, and has much |ega| |nf|uence on
determ|n|ng the contractua| |ntents of the partners |n the determ|nat|on
of |nter-partnersh|p r|ghts and ob||gat|ons.
We now proceed to d|scuss separate|y each of the three |eve|s of
ex|stence of partnersh|ps.
Ak1NLkSnI IS kIMAkIL A CCN1kAC1UAL kLLA1ICNSnI
Ak1. 1767. 8y the contract of partnersh|p two or more
persons b|nd themse|ves to contr|bute money, property, or
|ndustry to a common fund,
OFS'./ at p. 118.

1kI-LLVLL LkIS1LNCL CI 1nL Ak1NLkSnI 4S1
w|th the |ntent|on of d|v|d|ng the prof|ts among themse|ves.
1wo or more persons may a|so form a partnersh|p for the
exerc|se of a profess|on. (166Sa)
Ak1. 1770. A partnersh|p must have a |awfu| ob[ect or
purpose, and must be estab||shed for the common benef|t or
|nterest of the partners, xx x. (1666a)
Ak1. 1771. A partnersh|p may be const|tuted |n any form,
except where |mmovab|e property or rea| r|ghts are
contr|buted thereto, |n wh|ch case a pub||c |nstrument sha|| be
necessary. (1667a)
Ak1. 1784. A partnersh|p beg|ns from the moment of the
execut|on of the contract, un|ess |t |s otherw|se st|pu|ated.
(1679)
Art|c|e 1767 of New C|v|| Code def|nes a "contract of partnersh|p"
as one where "two or more persons b|nd themse|ves to contr|bute
money, property, or |ndustry to a common fund, w|th the |ntent|on of
d|v|d|ng the prof|ts among themse|ves," and |nc|udes |n |ts coverage the
[o|nt exerc|se of a profess|on. 1he fact that a partnersh|p |s f|rst and
foremost a contractua| re|at|onsh|p, means that |t |s sub[ect to the ru|es,
pr|nc|p|es and doctr|nes perta|n|ng to contracts |n genera|, but mod|f|ed
|n the sense that a partnersh|p |s at the same t|me a "med|um of do|ng
bus|ness" or a dev|ce for undertak|ng a venture.
1he |mp||cat|on of th|s doctr|ne |s that the Law on artnersh|ps
must ba|ance between the pr|nc|p|es govern|ng the re|at|onsh|p of
partners among themse|ves as contractua| part|es, and a|so the|r r|ghts
and ob||gat|ons w|th respect to the bus|ness venture or undertak|ng
that brought them together |n the f|rst p|ace. In other words, part|es to
a partnersh|p do not come together for the sake of com|ng together, but
|n order to pursue as a group, a bus|ness venture or undertak|ng wh|ch
w||| enter

|nto var|ous transact|ons w|th the pub||c. 1he var|ous prov|s|ons of the
Law on artnersh|ps embod|ed |n the New C|v|| Code address e|ther
separate|y or coord|nate|y these "|eve|s of ex|stence" of a partnersh|p:
as contractua| re|at|onsh|p, and as a means of do|ng bus|ness, and the
under|y|ng bus|ness enterpr|ses that |s operated.
An examp|e show|ng the essence of a partnersh|p as a contract |s
prov|ded under Art|c|e 1771 wh|ch bears the doctr|ne of OP"-)7-)8,R'*M
govern|ng contracts |n genera|: "A partnersh|p may be const|tuted |n any
form, except where |mmovab|e property or rea| r|ghts are contr|buted
thereto, |n wh|ch case a pub||c |nstrument sha|| be necessary." Art|c|e
1770 a|so embod|es the pr|nc|p|e that the prov|s|ons of |aw are deemed
|ncorporated |nto every contract, even a contract of partnersh|p as |t
prov|des that "A partnersh|p must have a |awfu| ob[ect or purpose."
1he pr|mary doctr|ne that f|rst and foremost the partnersh|p must
f|nd |ts nexus |n a contractua| re|at|onsh|p |s exemp||f|ed |n the dec|s|on
|n @%"-) T3 G")7-*"P13O
In that case, Lyons and L|ser were a|ready partners |n part|cu|ar
rea| estate undertak|ngs. Subsequent|y, Lyons became |nterested |n
purchas|ng for the venture the San Iuan estate, and moved forward
towards negot|at|ng |ts acqu|s|t|on and commun|cat|ng to L|ser |n the
Un|ted States to [o|n h|m |n the venture. L|ser wrote back unequ|vocab|y
|nd|cat|ng that he was not [o|n|ng Lyons |n the venture. 1he Court he|d
that the fact that Lyons had used as secur|ty for the acqu|s|t|on of the
San Iuan estate one of the partnersh|p propert|es |n ant|c|pat|on that
L|ser wou|d accept the partnersh|p arrangement, but wh|ch L|ser
def|n|t|ve|y refused and the partnersh|p property was subst|tuted by
Lyons separate property to secure the venture, d|d not make Lyons a
partner |n the San Iuan estate venture, s|nce there was never any
meet|ng of m|nds to const|tute such partnersh|p.
@%"-) demonstrate that before there can be a partnersh|p
enterpr|se, |t |s necessary that there must have been a meet|ng of m|nds
to const|tute a contract of partnersh|p.
14
S6 h||. 632 (1932).

1h|s partnersh|p |eve| of ex|stence |s better d|scussed |n Chapter 4
on <"-*(,P* "& K,(*-7()5'63
Ak1NLkSnI AS A MLANS CI DCING 8USINLSS, 1nkCUGn 1nL Ak1NLkSnI
IUkIDICAL LkSCN
Ak1. 1768. 1he partnersh|p has a [ur|d|ca|
persona||ty separate and d|st|nct from that of
each of the partners, even |n case of fa||ure to
comp|y w|th the requ|rements of Art|c|e 1772, f|rst
paragraph, (n)
Ak1. 44. 1he fo||ow|ng are [ur|d|ca| persons:
W W W 3
(3) Corporat|ons, partnersh|ps and assoc|at|ons
for pr|vate |nterest or purpose to wh|ch the |aw
grants a [ur|d|ca| persona||ty, separate and d|st|nct
from that of each shareho|der, partner or member.
(3Sa)
Ak1. 4S. x x x.
artnersh|ps and assoc|at|ons for pr|vate
|nterest or purpose are governed by the prov|s|ons
of th|s Code concern|ng partnersh|ps. (36 and 37a)
Ak1. 46. Iur|d|ca| persons may acqu|re and
possess property of a|| k|nds, as we|| as |ncur
ob||gat|ons and br|ng c|v|| or cr|m|na| act|ons, |n
conform|ty w|th the |aws and regu|at|ons of the|r
organ|zat|on. (38a)
Ak1. 1774. Any |mmovab|e property or an
|nterest there|n may be acqu|red |n the partnersh|p
name. 1|t|e so acqu|red can be conveyed on|y |n
the partnersh|p name, (n)
1. Lega| 8ases of the artnersh|p Iur|d|ca|
ersona||ty
After def|n|ng partnersh|p as a contract under Art|c|e 1767 of New
C|v|| Code, the Law on artnersh|ps |mmed|ate|y prov|des under Art|c|e
1768 that the "partnersh|p has a [ur|d|ca| persona||ty separate and
d|st|nct from that of each of the partners, even |n case of fa||ure to
comp|y w|th the [reg|strat|on] requ|rements of Art|c|e 1772." 1he c|ear
|mp||cat|on of the [uxtapos|t|on of the two art|c|es |s that the perfect|on
of the contract of partnersh|p |mmed|ate|y br|ngs about the const|tut|on
by |aw of a separate [ur|d|ca| person.
Art|c|e 44 of New C|v|| Code express|y recogn|zes "partnersh|ps" as
be|ng "[ur|d|ca| persons," and prov|des that "partnersh|ps and
assoc|at|ons for pr|vate |nterest or purpose to wh|ch the |aw grants a
[ur|d|ca| persona||ty, separate and d|st|nct from that of each ... partner
or member."
Art|c|e 4S of New C|v|| Code prov|des that "artnersh|ps and
assoc|at|ons for pr|vate |nterests or purpose are governed by the
prov|s|ons of th|s Code concern|ng partnersh|ps." In turn, Art|c|e 46
prov|des that [ur|d|ca| persons such as partnersh|ps "may acqu|re and
possess propert|es of a|| k|nds, as we|| as |ncur ob||gat|ons and br|ng c|v||
or cr|m|na| act|ons, |n conform|ty w|th the |aws and regu|at|ons of the|r
organ|zat|ons."
1he "[ur|d|ca| persona||ty" of the partnersh|p has been
character|zed as be|ng "weak" (when compared w|th that of the
corporat|on) |n the sense that |t can eas||y be d|sso|ved. 1he reason for
that |s because a partnersh|p's [ur|d|ca| persona||ty |s |nextr|cab|y ||nked
w|th the perfect|on of the under|y|ng contract of partnersh|p, and r|ses
and fa|| w|th the pr|v|ty of contract ex|st|ng between and among the
partners.
2. Under|y|ng 8us|ness Lnds of the artnersh|p
Iur|d|ca| erson
1he |mportance of the grant of separate [ur|d|ca| persona||ty to the
partnersh|p |s to make |t an eff|c|ent means by wh|ch
1kI-LLVLL LkIS1LNCL CI 1nL Ak1NLkSnI 4SS
severa| persons can co||ect|ve|y pursue bus|ness. Under Art|c|e 46 of the
New C|v|| Code |t |s prov|ded that "Iur|d|ca| persons may acqu|re and
possess property of a|| k|nds, as we|| as |ncur ob||gat|ons and br|ng c|v|| or
cr|m|na| act|ons, |n conform|ty w|th the |aws and regu|at|ons of the|r
organ|zat|on."
In the Law on artnersh|ps, the bus|ness purpose of the
partnersh|p [ur|d|ca| person |s best exemp||f|ed by Art|c|e 1774 of New
C|v|| Code wh|ch prov|des that "Any |mmovab|e property or an |nterest
there|n may be acqu|red |n the partnersh|p name," to avo|d the
cumbersome need of hav|ng a|| the names of the partners ||sted |n the
t|t|e to the property. Consequent|y, the art|c|e prov|des that t|t|e to rea|
property acqu|red |n the partnersh|p name may be conveyed on|y |n the
partnersh|p name.
A|though a partnersh|p |s treated as a "person" before the |aw,
such [ur|d|ca| persona||ty does not occupy the same h|erarch|ca| |eve| as
the "person" of an |nd|v|dua|. 1he "person" of an |nd|v|dua| |s cons|dered
sacrosanct under modern soc|eta| doctr|nes, the State and c|v|| soc|ety |s
organ|zed towards protect|ng that person and engender|ng |ts safety and
we||-be|ng. Cn the other hand, the "person" of a partnersh|p |s a
|eg|s|at|ve grant by the State or a f|ct|on created by the |aw, not for the
benef|t of the [ur|d|ca| person, but prec|se|y as a means or med|um by
wh|ch |nd|v|dua|s |n soc|ety may ach|eve certa|n bus|ness or commerc|a|
ends.
a. 1he Case for "Secret Assoc|at|ons"
1hat a partnersh|p |s granted by |aw a separate [ur|d|ca| persona||ty
as a means by wh|ch soc|ety may pursue certa|n bus|ness or commerc|a|
ends means therefore that |t |s regu|ated under the Law on artnersh|ps
for the benef|t of those who emp|oy |t as the|r med|um (the partners)
and those who are author|zed to dea| w|th sa|d med|um (the cred|tors,
the c||ents and customers). 1h|s ph||osoph|ca| understand|ng of the
essence and purpose of the partnersh|p's "[ur|d|ca| person" |s best
exemp||f|ed by the prov|s|ons of Art|c|e 177S of New C|v|| Code wh|ch
den|es [ur|d|ca| persona||ty to "Assoc|at|ons and soc|et|es, whose art|c|es
are kept secret among the members, and where|n any one of the
members may contract |n h|s own name w|th th|rd persons," thus:

4S6
Ak1. 177S. Assoc|at|ons and soc|et|es, whose art|c|es are
kept secret among the members, and where|n any one of the
members may contract |n h|s own name w|th th|rd persons,
sha|| have no [ur|d|ca| persona||ty, and sha|| be governed by
the prov|s|ons re|at|ng to co-ownersh|p. (1669)
1o the author, the commerc|a| pr|nc|p|e of Art|c|e 177S |s that |f
an aggregat|on of |nd|v|dua|s |s not meant to undertake a bus|ness or
commerc|a| venture that |s supposed to dea| w|th the pub||c at |arge,
then |t |s not |ntended to be a med|um of do|ng bus|ness, and there |s
no purpose of grant|ng |t a separate [ur|d|ca| persona||ty.
Cn the other hand, 8aut|sta d|scussed the rat|ona|e and effects of
Art|c|e 177S as be|ng "|ntended to preserve the equa||ty wh|ch must
ex|st among the partners and to prevent any of them from defraud|ng
the partnersh|p or the other members. 1h|s be|ng the case |t does not
proh|b|t secret st|pu|at|ons wh|ch are not des|gned to produce th|s
resu|t. It wou|d not, for |nstance, have the effect of render|ng |nva||d a
separate agreement between two members of a partnersh|p pursuant
to wh|ch one guarantees the other aga|nst |oss of h|s cap|ta|
contr|but|on or assures h|m of prof|t. Ne|ther can the ru|e be |nvoked as
aga|nst th|rd persons by the partners enter|ng |nto the secret
st|pu|at|ons, |n consonance w|th the genera| pr|nc|p|e that a party
shou|d not be a||owed to take advantage of a nu|||ty wh|ch he h|mse|f
has caused."
1S

b. Iur|sprudent|a| App||cat|on of the Doctr|ne of Separate
Iur|d|ca| ersona||ty of the artnersh|p
In 2,(+,) Q <"3 T3 <5,-/O |n deny|ng the content|on that s|nce the
defendant sued was a partnersh|p that summons must be served upon
each of the partners, the Court he|d
[|]t has been the un|versa| pract|ce |n the h||-|pp|ne Is|ands
s|nce Amer|can occupat|on, and was the pract|ce
1S
8AU1IS1A, at pp. S8-S9, P'*'-+ 11 Manresa
289 291
16
29 h||. 446 (191S).

pr|or to that t|me, to treat compan|es of the c|ass to wh|ch
the p|a|nt|ff be|ongs as |ega| or [ur|d|ca| ent|t|es and to
perm|t them to sue and be sued |n the name of the
company, the summons be|ng served so|e|y on the
manag|ng agent or other off|c|a| of the company by the
sect|on of the Code of C|v|| rocedure.
17

In one case,
18
the Court he|d that the death of e|ther of the two
partners |s not a ground for the d|sm|ssa| of a pend|ng su|t aga|nst the
partnersh|p, as a partnersh|p possesses a persona||ty d|st|nct from any of
the partners. In another case,
19
the Court he|d that a partnersh|p may
sue and be sued |n |ts name or by |ts du|y author|zed representat|ve, and
when |t has a des|gnated manag|ng partner, he may execute a|| acts of
adm|n|strat|on |nc|ud|ng the r|ght to sue debtors of the partnersh|p.
<,$6") G87., Q <"3 T3 K,P'&'P <"$$7(P',R Co.,
20
demonstrates
how the separate [ur|d|ca| persona||ty accorded to a partnersh|p
arrangement makes certa|n ru|es on |nso|vency work d|fferent|y as
compared to Amer|can [ur|sprudence on the same matter.
In <,$6") G87., a pet|t|on for |nvo|untary |nso|vency was f||ed by
the cred|tors of the ||m|ted partnersh|p for an act of |nso|vency prov|ded
under the Inso|vency Act ='373/ hav|ng fa||ed to pay |ts ob||gat|ons w|th
three cred|tors for more than th|rty days). 1he tr|a| court den|ed the
pet|t|on on the ground that |t was not proven, nor a||eged, that the
partners of the f|rm were |nso|vent at the t|me the app||cat|on was f||ed,
and that as sa|d partners are persona||y and so||dary ||ab|e for the
consequences of the transact|ons of the partnersh|p, |t cannot be
ad[udged |nso|vent so |ong as the partners are not a||eged and proven to
be |nso|vent. In ru||ng that the den|a| of the pet|t|on for |nso|vency was |n
error, the Court he|d
OFS'./ at p. 448.
18
A]go !',- !71 T3 K5'R3 D.8P,*'"- Co., 78 h||. 27S (1947).
19
1a] !"-+ <58,P57 Q <"3 T3 F-)8(,-P7 <"$$'))'"-/ 1S8

20
44 h||. 916 (1923).

Un||ke the common |aw, the h|||pp|ne statutes
cons|der a ||m|ted partnersh|p as a [ur|d|ca| ent|ty for a||
|ntents and purposes, wh|ch persona||ty |s recogn|zed |n a||
|ts acts and contracts (Art. 116, Code of Commerce). 1h|s
be|ng so and the [ur|d|ca| persona||ty of a ||m|ted
partnersh|p be|ng d|fferent from that of |ts members, |t
must, on genera| pr|nc|p|e, answer for, and suffer, the
consequence of |ts acts as such an ent|ty capab|e of be|ng
the sub[ect of r|ghts and ob||gat|ons. If, as |n the |nstant case,
the ||m|ted partnersh|p of Campos kueda & Co. fa||ed to pay
|ts ob||gat|ons w|th three cred|tors for a per|od of more than
th|rty days, wh|ch fa||ure const|tutes, under our Inso|vency
Law, one of the acts of bankruptcy upon wh|ch an
ad[ud|cat|on of |nvo|untary |nso|vency can be pred|cted, th|s
partnersh|p must suffer the consequences of such fa||ure,
and must be ad[udged |nso|vent. We are not unm|ndfu| of
the fact that some courts of the Un|ted States have he|d that
a partnersh|p may not be ad[udged |nso|vent |n an
|nvo|untary |nso|vency proceed|ng un|ess a|| of |ts members
are |nso|vent, wh||e others have ma|nta|ned a contrary v|ew.
8ut |t must be borne |n m|nd that under the Amer|can
common |aw, partnersh|ps have no [ur|d|ca| persona||ty
|ndependent from that of |ts members, and |f now they have
such persona||ty for the purposes of the |nso|vency |aw.
21

3. App||cab|||ty of the Doctr|ne of |erc|ng the Ve|| of Separate
Iur|d|ca| I|ct|on
1he "doctr|ne of p|erc|ng the ve|| of corporate f|ct|on" f|nds
re|evance |n Corporate Law because |t |s the means by wh|ch to by-pass
the effects of the doctr|ne of "||m|ted ||ab|||ty," and through p|erc|ng the
act|ng stockho|ders and]or off|cers may be he|d persona||y ||ab|e for
corporate debts.
In sp|te of the partnersh|p be|ng accorded a|so a separate [ur|d|ca|
partnersh|p, the p|erc|ng doctr|ne has |ess app||cat|on |n artnersh|p Law
because the partners are un||m|ted|y ||ab|e ='373/ persona||y ||ab|e w|th
the|r separate propert|es) for partnersh|p
OFS'./ at pp. 918-919.

debts. et, the doctr|ne found app||cat|on to partnersh|ps |n
<"$$'))'"-7( "& F-*7(-,R G7T7-87 T3 ;8*7(/
YY
where the Court
addressed the |ega| pos|t|on of the 1ax Comm|ss|oner seek|ng to make
the |nd|v|dua| partners ||ab|e for |ncome tax for the |ncome earned by
the ||m|ted partnersh|p, thus:
It be|ng a bas|c tenet of the Span|sh and h|||pp|ne |aw
that the partnersh|p has a [ur|d|ca| persona||ty of |ts own,
d|st|nct and separate from that of |ts partners (un||ke Amer|-
can and Lng||sh |aw that does not recogn|ze such separate
[ur|d|ca| persona||ty). 1he bypass|ng of the ex|stence of the
||m|ted partnersh|p as a taxpayer can on|y be done by |g-
nor|ng or d|sregard|ng c|ear statutory mandates and bas|c
pr|nc|p|es of our |aw. 1he ||m|ted partnersh|p's separate |nd|-
v|dua||ty makes |t |mposs|b|e to equate |ts |ncome w|th that
of the component members...
23

x x x
. . . In the c|ted cases, the corporat|ons were a|ready
sub[ect to tax when the f|ct|on of the|r corporate persona||ty
was p|erced, |n the present case, to do so wou|d exempt the
||m|ted partnersh|p from |ncome taxat|on but wou|d throw
the tax burden upon the partners-spouses |n the|r |nd|v|dua|
capac|t|es. 1he corporat|ons, |n the cases c|ted, mere|y
served as bus|ness condu|ts or a|ter egos of the stockho|ders,
a factor that [ust|f|ed a d|sregard of the|r corporate
persona||t|es for tax purposes. 1h|s |s not true |n the present
case. nere, the ||m|ted partnersh|p |s not a mere bus|ness
condu|t of the partner-spouses, |t was organ|zed for
|eg|t|mate bus|ness purposes, |t conducted |ts own dea||ngs
w|th |ts customers pr|or to appe||ee's marr|age, and had
been f|||ng |ts own |ncome tax returns as such |ndependent
ent|ty. ... As far as the records show, the partners d|d not
enter |nto matr|mony and thereafter buy the |nterests of the
rema|n|ng partner w|th the premed|tated scheme or des|gn
to use the partnersh|p as a bus|ness condu|t to dodge the tax
|aws. kegu|ar|ty, not otherw|se, |s presumed.
24

*27 SCkA 1S2
( )
Y[
RS'./ at pp.

24
at p. 1S9.

In other words, ;8*7( ho|ds that when the facts show that the
[ur|d|ca| persona||ty of the partnersh|p |s but a means to evade the |aw
or a sham, then the courts w||| p|erce the ve|| of |ts separate [ur|d|ca|
persona||ty to treat the partners as d|rect|y ||ab|e or accountab|e for the
consequences of the acts or contracts done |n the partnersh|p name.
1he p|erc|ng doctr|ne a|so found recogn|t|on, a|be|t by way of
"S'*7(/ |n B+8'R,/ J(3 T3 <"8(* "& B667,R)/
YZ
but on|y |n the ||m|ted area of
determ|n|ng stand|ng |n a su|t brought aga|nst c|a|ms perta|n|ng to the
partnersh|p.
In B+8'R,/ J(3 the comp|a|nt was f||ed aga|nst the partners and
off|cers to enforce essent|a||y a partnersh|p ob||gat|on. In ru||ng that the
[udgment rendered by the tr|a| court (aff|rmed by the Court of Appea|s)
aga|nst the |nd|v|dua| defendants was vo|d, the Court he|d
Under Art. 1768 of the C|v|| Code, a partnersh|p "has a
[ur|d|ca| persona||ty separate and d|st|nct from that of each
of the partners." 1he partners cannot be he|d ||ab|e for the
ob||gat|ons of the partnersh|p un|ess |t |s shown that the
|ega| f|ct|on of a d|fferent [ur|d|ca| persona||ty |s be|ng used
for fraudu|ent, unfa|r, or |||ega| purposes. In th|s case,
pr|vate respondent has not shown that A.C. Agu||a & Sons,
Co., as a separate [ur|d|ca| ent|ty, |s be|ng used for
fraudu|ent, unfa|r or |||ega| purposes. Moreover, the t|t|e to
the sub[ect property |s |n the name of A.C. Agu||a & Sons,
Co. and the Memorandum of Agreement was executed
between pr|vate respondent w|th the consent of her |ate
husband, and A.C. Agu||a & Sons, Co., represented by
pet|t|oner. nence, |t |s the partnersh|p, not |ts off|cers, or
agents, wh|ch shou|d be |mp|eaded |n any ||t|gat|on
|nvo|v|ng property reg|stered |n |ts name. A v|o|at|on of th|s
ru|e w||| resu|t to d|sm|ssa| of the comp|a|nt. We cannot
understand why both the keg|ona| 1r|a| Court and the Court
of Appea|s s|destepped th|s |ssue when |t was square|y
ra|sed before them by pet|t|oner.
26

2S
319 SCkA246
( )
OFS'./ at p. 2S4.

1kI-LLVLL LkIS1LNCL CI 1nL Ak1NLkSnI 461
4. Lnt|t|ement to Const|tut|ona| k|ghts and Guarantees
1he more |nterest|ng top|c under the OX8('.'P,R 67()"-,R'*%
."P*('-7O |s whether partnersh|ps are ent|t|ed to the const|tut|ona| r|ghts
of due process, equa| protect|on, unreasonab|e searches and se|zures
and the r|ght aga|nst se|f-|ncr|m|nat|on.
It |s we|| estab||shed |n h|||pp|ne Corporate Law, that corporat|ons
as "persons before the |aw" are ent|t|ed to the const|tut|ona| guarantee
to due process and equa| protect|on,
27
the r|ghts aga|nst unreasonab|e
searches and se|zure,
28
but not to the r|ght aga|nst se|f-|ncr|m|nat|on.
29

;$'*5/ :7RR Q <"3 T3 9,*'T'.,./
[c
d|scusses the rat|ona|e why
corporat|ons wou|d be ent|t|ed to const|tut|ona| guarantees accorded to
|nd|v|dua|s, thus:
1he guarantees of the Iourteenth Amendment and so of
the f|rst paragraph of the h|||pp|ne 8||| of k|ghts, are
un|versa| |n the|r app||cat|on to a|| persons w|th|n the
terr|tor|a| [ur|sd|ct|on, w|thout regard to any d|fferences of
race, co|or, or nat|ona||ty. 1he word 'person' |nc|udes a||ens
... r|vate corporat|ons, ||kew|se, are 'persons' w|th|n the
scope of the guarant|es |n so far as the|r property |s
concerned.. .
31

1he ;$'*5/ :7RR Q <"3 rat|ona|e has equa| app||cat|on to
partnersh|ps wh|ch are accorded a separate persons under the
artnersh|p Law. 1he better rat|ona|e app||cab|e to partnersh|p wou|d be
the ru||ng |n :,P57 Q <"3 =K5'R3H/ F-P3 T3 G8'\/
[Y
a corporat|on |s ent|t|ed to |mmun|ty aga|nst unreasonab|e searches and
se|zures because "A corporat|on |s, after a||, but an assoc|at|on of
|nd|v|dua|s under an assumed name
YN
;$'*5/ :7RR Q <"3 T3 9,*'T'.,./ 40 h||. 136 (1919), :,P57 Q Co.
=K5'R3H/ F-P3 T3 G8'\/ 37 SCkA 823 (1971).
Y:
;*"-75'R' T3 4'"1-"/ 20 SCkA 383 (1967).
Yl
:,*,,- ;5'6%,(. ,-. D-+'-77('-+ <"3/ F-P3 T3 K<CC/ 1S0 SCkA 181
(1987).
C1
40 h||. 136 (1919).
OFS'./ at p. 144.
W SCkA 823 (1971).

and w|th a d|st|nct |ega| ent|ty. In organ|z|ng |tse|f as a co||ect|ve body |t
wa|ves no const|tut|ona| |mmun|t|es appropr|ate for such body. Its
property cannot be taken w|thout compensat|on. It can on|y be
proceeded aga|nst by due process of |aw, and |s protected, under the
14th Amendment, aga|nst un|awfu| d|scr|m|nat|on."
33

In fact, |n the partnersh|p sett|ng there |s c|oser |dent|ty between
the partners and the partnersh|p |n the sense that the partners not on|y
own the partnersh|p, co-own partnersh|p assets, and d|rect|y manage
the affa|rs of the partnersh|p, but more so that the separate [ur|d|ca|
persona||ty |s c|ose|y |dent|f|ed w|th the persona||ty of the partners
under .7R7P*8) 67()"-,7 cons|derat|ons.
Cn the other hand, the Court's ru||ng on why corporat|ons are not
ent|t|ed to the r|ghts aga|nst se|f-|ncr|m|nat|on, has |ess v|gor to the
partnersh|p sett|ng. Cons|der the dec|s|on |n :,*,,- ;5'6%,(. Q
D-+'-77('-+ <"3/ F-P3 T3 CGG,
34
where the Court he|d that the r|ght
aga|nst se|f-|ncr|m|nat|on has no app||cat|on to corporat|ons, thus:
* * * 1he corporat|on |s a creature of the state. It |s
presumed to be |ncorporated for the benef|t of the pub||c. It
rece|ves certa|n spec|a| pr|v||eges and franch|ses, and ho|ds
them sub[ect to the |aws of the state and the ||m|tat|ons of
|ts charter. Its power are ||m|ted by |aw. It can make no
contract not author|zed by |ts charter. Its r|ght to act as a
corporat|on are on|y preserved to |t so |ong as |t obeys the
|aws of |ts creat|on. 1here |s a reserve r|ght |n the |eg|s|ature
to |nvest|gate |ts contracts and f|nd out whether |t has
exceeded |ts powers. It wou|d be a strange anoma|y to ho|d
that a state, hav|ng chartered a corporat|on to make use of
certa|n franch|ses, cou|d not, |n the exerc|se of sovere|gnty,
|nqu|re how these franch|ses had been emp|oyed, and
whether they had been abused, and demand the product|on
of the corporate books and papers for that purpose. 1he
defense amounts to th|s, that an off|cer of the corporat|on
wh|ch |s
mFS'./ at p. 837, g8"*'-+ &("$ >,R7 T3 >7-17R/ 201 U.S. 43, S0
L Ld 6S2
"1S0 SCkA 181 (1987).

463
charged w|th a cr|m|na| v|o|at|on of the statute may p|ead
the cr|m|na||ty of such corporat|on as a refusa| to produce |ts
books. 1o state th|s propos|t|on |s to answer |t. Wh||e an
|nd|v|dua| may |awfu||y refuse to answer |ncr|m|nat|ng
quest|ons un|ess protected by an |mmun|ty statute, |t does
not fo||ow that a corporat|on, vested w|th spec|a| pr|v||eges,
and franch|se may refuse to show |ts hand when charged
w|th an abuse of such pr|v||eges.
3S

Lvery corporat|on |s a d|rect creature of the |aw and rece|ves an
|nd|v|dua| franch|se from the State. 8ut a partnersh|p, a|though |s
deemed to be a [ur|d|ca| person by state grant under Art|c|e 1768 of the
New C|v|| Code, becomes a [ur|d|ca| person through a pr|vate contract of
partnersh|p between and among the partners, w|thout need|ng to
reg|ster |ts ex|stence w|th the State or any of |ts organs. More
|mportant|y, the partnersh|p "person" |s a f|ct|on of |aw g|ven more for
the conven|ence of the partners, and thus can be d|sso|ved by the w||| of
the partners or by the happen|ng of an event that wou|d const|tute the
term|nat|on of the contractua| re|at|onsh|p, whereas, no corporat|on
can be d|sso|ved w|thout the consent of the State, and on|y after due
not|ce and hear|ng. L|kew|se, the other features of the partnersh|p,
ma|n|y mutua| agency, .7R7P*8) 67()"-,7 and un||m|ted ||ab|||ty on the
part of the partners, a|| p|ace a c|oser |dent|f|cat|on between the
persons of the partners and that of the partnersh|p.
1h|s |s un||ke |n corporate sett|ng, where the stockho|ders do not
own corporate propert|es, have no part|c|pat|on |n management of
corporate affa|rs, and en[oy persona| |mmun|ty from the debts and
||ab|||t|es of the corporat|on, and where bas|ca||y the corporat|on "|s |ts
own person," and acts through a profess|ona| group of managers and
agents ca||ed the board of d|rectors. Wh||e therefore |t |s
understandab|e that a corporat|on, that has no heart, fee|s no pa|n, and
has no sou| that can be damned, cannot be expected to be ent|t|ed to
the const|tut|ona| r|ght aga|nst se|f-|ncr|m|nat|on, |t |s qu|te d|fferent |n
the case of the partnersh|p, s|nce |ts person |s mere|y an extens|on of
the
mFS'./ at pp. 234-23S, g8"*'-+ &("$ I'R)"- T3 E-'*7. ;*,*7)/ SS Law
Ld. 771, 780.
group of partners, who hav|ng come together |n bus|ness, and act|ng st|||
for such bus|ness enterpr|se, cou|d not be presumed to have wa|ved
the|r |nd|v|dua| r|ghts aga|nst se|f-|ncr|m|nat|on.
As the author has observed |n h|s wr|t|ng on h|||pp|ne Corporate
Law, when |t comes to the const|tut|ona| r|ght aga|nst se|f-|ncr|m|nat|on,
the Court wou|d re|y upon o|d Amer|can doctr|ne wh|ch v|ews the
corporat|on as a mere creature of the |aw and w|th separate [ur|d|ca|
persona||ty apart from |ts stockho|ders or members. In the partnersh|p
sett|ng, the d|fference |n the Court's stance may ||e |n the fact that the
r|ght aga|nst se|f-|ncr|m|nat|on does not rea||y resu|t |n phys|ca| |ntrus|on
|nto the prem|ses of the partnersh|p, because |t wou|d requ|re on|y that
the partnersh|p, through |ts agents, produce records and books before
the courts. 1he den|a| of the r|ght aga|nst se|f-|ncr|m|nat|on from
corporat|ons and partnersh|ps does not rea||y |nv|te state author|t|es
|nto the prem|ses or phys|ca| pr|vacy of the stockho|ders, members or
partners who compose the [ur|d|ca| ent|ty, but wou|d deny act|ng
|nd|v|dua|s the r|ght to abuse the med|um of separate [ur|d|ca|
persona||ty as a means to do fo||y.
Cn the other hand, to deny the due process r|ghts or r|ght aga|nst
unreasonab|e searches and se|zures to corporat|ons and partnersh|ps
wou|d actua||y be to |nv|te state author|t|es to phys|ca||y |ntrude |nto
bus|ness prem|ses, and therefore a|so |ntrude |nto the persona| and
bus|ness pr|vacy of the stockho|ders, members or partners who
compose the [ur|d|ca| person. erhaps that |s the bas|s for the d|fference
|n stance by the Court between two sets of const|tut|ona| r|ghts w|th
respect to corporat|ons, and a|so |n the case of partnersh|ps.
Another v|ew |s that the const|tut|ona| guarantees of due process,
equa| protect|on c|ause and aga|nst unreasonab|e searches and se|zures
are a|| meant to curb the abuse that the State and |ts representat|ves
may emp|oy upon the c|t|zenry, |nc|ud|ng the modes upon wh|ch they
conduct the|r ||ves and bus|nesses. Cn the other hand, the const|tut|ona|
protect|on aga|nst se|f-|ncr|m|nat|on |s not meant to prevent an actua|
State abuse but to avo|d pressur|ng the |nd|v|dua| from hav|ng to te|| a
||e: "1he ma|n purpose of the prov|s|on ... |s to proh|b|t

1kI-LLVLL LkIS1LNCL CI 1nL Ak1NLkSnI 46S
compu|sory ora| exam|nat|on of pr|soners before the tr|a|, or upon tr|a|,
for the purpose of extort|ng unw||||ng confess|ons or dec|arat|ons
|mp||cat|ng them |n the comm|ss|on of a cr|me."
38
A corporat|on owes
fu|| a||eg|ance and sub[ect to the unrestr|cted [ur|sd|ct|on of the courts of
the State under wh|ch |t has been organ|zed.
37

Ak1NLkSnI AS A 8USINLSS LN1LkkISL
A|though not exp||c|t|y stated |n the prov|s|ons of New C|v|| Code,
the partnersh|p may const|tute a|so a "bus|ness enterpr|se" or what |s
known |n the d|sc|p||nes of Lconom|cs and Account|ng, as "a +"'-+
P"-P7(-O that |s separate|y va|ued and accounted for from the
|nd|v|dua| va|ue of the assets and propert|es const|tut|ng |t and from the
med|um or means by wh|ch |t |s operated (|n the case of partnersh|p, the
[ur|d|ca| person created by express prov|s|on of |aw). kecogn|t|on of the
ex|stence and operat|on of the partnersh|p's bus|ness enterpr|se, as
d|st|ngu|shed from the |ega| effects and consequences of the contract of
partnersh|p among the partners and the partnersh|p [ur|d|ca| person,
g|ves r|se to |ega| re|at|onsh|ps, r|ghts and ob||gat|ons, and doctr|nes, that
can on|y be accounted for from that |eve|.
Ior examp|e, the r|ght of the partners to spec|f|c partnersh|p
property and to share |n the prof|ts and |osses, as we|| as the r|ght to
manage, are |ega| matters that necessar||y refer to the partnersh|p
bus|ness enterpr|se.
1h|s understand|ng of the bus|ness enterpr|se of a partnersh|p |s
app||cab|e even to a profess|ona| partnersh|p. Cur Supreme Court has
def|ned the term "profess|on" as "a group of men pursu|ng a |earned art
as a common ca|||ng |n the sp|r|t of pub||c serv|ce no |ess a pub||c
serv|ce because |t may |nc|denta||y be a means of ||ve||hood."
38

OE3;3 T3 !,- !7-+, 23 h||. 14S,1S2 (1912).
[N
!,%,+ T3 :7-+87* <"-)"R'.,*7./ F-P3/ 26 SCkA 242,248 (1968).
0
R-
*57 0,**7( "& *57 K7*'*'"- &"( B8*5"('*% *" <"-*'-87 E)7 "& L'($ 9,$7
;%P'6/ ;,R,\,(/ 7*,R3 T3 ?\,7*,/ G"$8R"/ 7*P3/ 92 SCkA 1 (1979).

466
1he recogn|t|on of the |nherent re|at|onsh|p between and among
the partners to be bound by the resu|ts of operat|ons from the
bus|ness enterpr|se has been we||-exp|a|ned by the Court |n 2'RR,(7,R T3
G,$'(7\,thus:
I|rst, |t seems that the appe||ate court was under the
m|sapprehens|on that the tota| cap|ta| contr|but|on was
equ|va|ent to the gross assets to be d|str|buted to the
partners
at the t|me of the d|sso|ut|on of the partnersh|p. We cannot
susta|n the under|y|ng |dea that the cap|ta| contr|but|on at
the beg|nn|ng of the partnersh|p rema|ns |ntact, un|mpa|red
and ava||ab|e for d|str|but|on or return to the partners. Such
|dea |s specu|at|ve, con[ectura| and tota||y w|thout factua| or
|ega| support.
Genera||y, |n the pursu|t of a partnersh|p bus|ness, |ts
cap|ta| |s e|ther |ncreased by prof|ts earned or decreased
by |osses susta|ned. It does not rema|n stat|c and unaffect-
ed by the chang|ng fortunes of the bus|ness. In the pres-
ent case, the f|nanc|a| statements presented before the tr|a|
court showed that the bus|ness had made meager prof|ts.
nowever, notab|e therefrom |s the om|ss|on of any prov|s|on
for the deprec|at|on of the furn|ture and the equ|pment. 1he
amort|zat|on of the goodw||| (|n|t|a||y va|ued at S00,000) |s
not ref|ected e|ther. roper|y tak|ng these non-cash |tems
|nto account w||| show that the partnersh|p was actua||y sus-
ta|n|ng substant|a| |osses, wh|ch consequent|y decreased
the cap|ta| of the partnersh|p. 8oth the tr|a| and the
appe||ate
courts |n fact recogn|zed the decrease of the partnersh|p as-
sets to a|most -'R/ but the |atter fa||ed to recogn|ze the
conse-
quent correspond|ng decrease of the cap|ta|.
40

x x x
8ecause of the above-ment|oned transact|ons, the
partnersh|p cap|ta| was actua||y reduced. When pet|t|oners
and respondents ventured |nto bus|ness together, they
shou|d have prepared for the fact that the|r |nvestment

^
o

1kI-LLVLL LkIS1LNCL CI 1nL Ak1NLkSnI 467
of 2S0,000 wh|ch they had |nvested cou|d no |onger be
returned to them, because one th|rd of the partnersh|p
propert|es at the t|me of d|sso|ut|on d|d not amount to that
much.
It |s a |ong estab||shed doctr|ne that the |aw does not
re||eve part|es from the effects of unw|se, foo||sh or
d|sastrous contracts they have entered |nto w|th a|| the
requ|red forma||t|es and w|th fu|| awareness of what they
were do|ng. Courts have no power to re||eve them from
ob||gat|ons they have vo|untar||y assumed, s|mp|y because
the|r contracts turn out to be d|sastrous dea|s or unw|se
|nvestments.
41

It |s on|y from the "partnersh|p bus|ness enterpr|se" |eve| that we
can fu||y apprec|ate the concept that essent|a||y the partners are
"owners" of the bus|ness, or that they take the pos|t|on of "equ|ty"
ho|ders, as d|st|ngu|shed from cred|tors who advance money to the
partnersh|p as "debt" ho|ders.
It |s an essent|a| e|ement to the ex|stence of the partnersh|p under
Art|c|e 1767 of the New C|v|| Code, that the ob||gat|ons assumed by the
partners "to contr|bute money, property or |ndustry to a common
fund," wh|ch essent|a||y represents the "bus|ness enterpr|se" to be
pursued, to thereby assume the pos|t|on of be|ng "owners" or "equ|ty
ho|ders," and to be ent|t|ed to the prof|ts made from the pursu|t of the
bus|ness enterpr|se, and |og|ca||y to assume the r|sks connected w|th |t,
|nc|ud|ng absorb|ng the |osses susta|ned.
1he cr|t|ca| pos|t|on of partners as "equ|ty ho|ders" |s conf|rmed
under Art|c|e 1770 New C|v|| Code wh|ch requ|res that a partnersh|p
"must be estab||shed for the common benef|t or |nterest of the
partners," wh|ch apt|y descr|bes the|r pos|t|ons as owners of the
partnersh|p bus|ness enterpr|se.
Cn|y recent|y, |n >7'() "& J")7 @'$ T3 @'$]
Y
the Supreme Court
def|ned the partnersh|p |n terms of be|ng essent|a||y a contract to
pursue a bus|ness enterpr|se, thus:
4
1
A

A partnersh|p ex|sts when two or more persons agree to
p|ace the|r money, effects, |abor, and sk||| |n |awfu|
commerce or bus|ness, w|th the understand|ng that there
sha|| be a proport|onate shar|ng of the prof|ts and |osses
among them. A contract of partnersh|p |s def|ned by the
C|v|| Code as one where two or more persons b|nd
themse|ves to contr|bute money, property, or |ndustry to a
common fund, w|th the |ntent|on of d|v|d|ng the prof|ts
among themse|ves.
43

1he |mportance of be|ng aware that the partnersh|p wou|d
eventua||y const|tute a bus|ness enterpr|se ||es |n the app||cat|on of
certa|n doctr|nes of success|on of ||ab|||ty that app|y pecu||ar|y to
bus|ness enterpr|ses. L|kew|se, the ru|es on d|sso|ut|on and ||qu|dat|on
c|ear|y apprec|ate the d|fference between the contract re|at|onsh|p and
[ur|d|ca| person const|tut|ng the partnersh|p, from the under|y|ng
bus|ness enterpr|se that may rema|n operat|ng even when the f|rst two
|eve|s are |ega||y d|sso|ved or ext|ngu|shed. 1hese matters are better
d|scussed |n succeed|ng chapters of the book.
0C0
OFS'./ at p. 148.

CnA1Lk 3
A11kI8U1LS CI 1nL
Ak1NLkSnI
|ndustry to a common fund, w|th the |ntent|on of d|v|d|ng the
prof|ts among themse|ves.
exerc|se of a profess|on. (166Sa)
Ak1. 1768. 1he partnersh|p has a [ur|d|ca| persona||ty
separate and d|st|nct from that of each of the partners, even
|n case of fa||ure to comp|y w|th the requ|rements of Art|c|e
1722, f|rst paragraph, (n)
Lvery partnersh|p ex|st|ng under the Law on artnersh|ps
of New C|v|| Code |s endowed w|th the fo||ow|ng essent|a|
attr|butes:
(a) INICkMAL]CCNSLNSUAL AND WLAk IUkIDICAL Lk-
SCNALI1,
(b) MU1UAL AGLNC,
(c) DLLLC1US LkSCNAL,
469

(D) Ak1NLkS 8UkDLNLD WI1n UNLIMI1LD LIA8ILI1 (except for
L|m|ted artners |n a L|m|ted artnersh|p).
An understand|ng of each of the partnersh|p attr|butes prov|des a
better apprec|at|on of the mu|t|far|ous funct|ons of the partnersh|p |n
the h|||pp|ne commerc|a| sett|ng.
NCN-SCLLMN Ck CCNSLNSUAL IUkIDICAL LkSCNALI1
Ak1. 1771. A partnersh|p may be const|tuted |n any form
contr|buted thereto, |n wh|ch case a pub||c |nstrument sha||
be necessary. (1667a)
Ak1. 178S. When a partnersh|p for a f|xed term or
part|cu|ar undertak|ng |s cont|nued after the term|nat|on of
such term or part|cu|ar undertak|ng w|thout any express
agreement, the r|ghts and dut|es of the partners rema|n the
same as they were at such term|nat|on, so far as |s cons|stent
w|th a partnersh|p at w|||.
A cont|nuat|on of the bus|ness by the partners or such of
them as hab|tua||y acted there|n dur|ng the term, w|thout any
sett|ement or ||qu|dat|on of the partnersh|p affa|rs, |s 6('$,
&,P'7 ev|dence of a cont|nuat|on of the partnersh|p, (n)
In contrast to the corporate [ur|d|ca| persona||ty wh|ch can on|y
ar|se and can on|y be term|nated by comp|y|ng w|th the forma|
processes and procedures mandated by the State, the [ur|d|ca|
persona||ty accorded to every partnersh|p under Art|c|e 1768 of New
C|v|| Code |s best descr|bed to be "|nforma|," or better yet mere|y
"consensua|," as d|st|ngu|shed from be|ng "forma|" or "so|emn" |n
character.
A11kI8U1LS CI 1nL Ak1NLkSnI 471
It |s very we|| |mp||ed from the substance and sequence of Art|c|es
1767 and 1768 of the New C|v|| Code that the ex|stence of a separate
[ur|d|ca| persona||ty for a partnersh|p |s cond|t|oned on the perfect|on
and va||d|ty of a contract of partnersh|p, and that the separate [ur|d|ca|
persona||ty ar|ses as a mandatory consequence under the |aw from the
perfect|on of a contract of partnersh|p. Consequent|y, as the contract of
partnersh|p |s best descr|bed as a consensua| contract, |t fo||ows
necessar||y that the const|tut|on of a partnersh|p [ur|d|ca| persona||ty
wou|d a|so be consensua|. 1he genera| ru|e under Art|c|e 1771 of the
New C|v|| Code |s that "a partnersh|p may be const|tuted |n any form."
1o |||ustrate, the partnersh|p's separate [ur|d|ca| persona||ty ar|ses
|n the pr|vacy of the perfect|on of the contract of partnersh|p: Art|c|e
1768 prov|des that the "partnersh|p has a [ur|d|ca| persona||ty separate
and d|st|nct from that of each of the partners," wh|ch under Art|c|e 1784
"beg|ns from the moment of the execut|on of the contract, un|ess |t |s
otherw|se st|pu|ated." So |nforma| or casua| |s the att|tude of the |aw on
the partnersh|p's [ur|d|ca| persona||ty that under Art|c|e 178S, such
[ur|d|ca| persona||ty can be extended beyond the or|g|na| f|xed term or
part|cu|ar undertak|ng by the mere "cont|nuat|on of the bus|ness by the
partners or such of them as hab|tua||y acted there|n dur|ng the term,
w|thout any sett|ement or ||qu|dat|on of the partnersh|p affa|rs."
I5,* ') *57 (7,)"- &"( *57 R7+,R ,**'*8.7 "& S7'-+ (,*57(
O'-&"($,RO "- *57 X8('.'P,R 67()"-,R'*% "& *57 6,(*-7()5'6r It seems from
the prov|s|ons of the Law on artnersh|ps of New C|v|| Code that the
"separate [ur|d|ca| persona||ty" granted to the partnersh|p contractua|
re|at|onsh|p between and among the partners, and the under|y|ng
partnersh|p bus|ness enterpr|se, |s not the centerp|ece of the artnersh|p
Law, but mere|y an "add on" to a||ow the bus|ness venture to be run
more eff|c|ent|y by the owners thereof (the partners), and to make |ts
dea||ngs w|th the pub||c eas|er and pursued w|th more eff|c|ency. After
a||, |n common |aw trad|t|ons the partnersh|p has surv|ved and thr|ved |n
a sett|ng that does not accord |t a [ur|d|ca| persona||ty. In other words,
the c|v|| |aw trad|t|on of prov|d|ng a partnersh|p
w|th a [ur|d|ca| persona||ty separate and d|st|nct from the partners
or proper|y speak|ng, to c|othe the bus|ness enterpr|se w|th a [ur|d|ca|
person by wh|ch |t can better dea| w|th the pub||c |s meant to add to
the commerc|a| eff|c|ency of the partnersh|p both as a med|um of
assoc|at|on and as a med|um of do|ng bus|ness.
1he defau|t ru|e of accord|ng by operat|on of |aw a [ur|d|ca|
persona||ty to a partnersh|p arrangement, makes |t a cheaper med|um
of do|ng bus|ness. 1herefore, |f the manner by wh|ch to ach|eve
[ur|d|ca| persona||ty be made more r|gorous and forma|, then |t makes
the partnersh|p med|um a more expens|ve propos|t|on, and therefore
commerc|a||y unattract|ve, espec|a||y for bus|nessmen and merchants
who embark on modest ventures.
1. Lxcept|ons to Informa| or Consensua| Nature of Iur|d|ca|
ersona||ty
Ak1. 1772. Lvery contract of partnersh|p hav|ng a cap|ta|
of three thousand pesos or more, |n money or property, sha||
appear |n a pub||c |nstrument, wh|ch must be recorded |n the
Cff|ce of the Secur|t|es and Lxchange Comm|ss|on.
Ia||ure to comp|y w|th the requ|rements of the preced|ng
paragraph sha|| not affect the ||ab|||ty of the partnersh|p and
the members thereof to th|rd person, (n)
Ak1. 1773. A contract of partnersh|p |s vo|d, whenever
|mmovab|e property |s contr|buted thereto, |f an |nventory of
sa|d property |s not made, s|gned by the part|es, and attached
to the pub||c |nstrument. (1668a)
Ak1. 1843. A ||m|ted partnersh|p |s one formed by two or
more persons under the prov|s|ons of the fo||ow|ng art|c|e,
hav|ng as members one or more genera| partners and one or
more ||m|ted partners.

A11kI8U1LS CI 1nL Ak1NLkSnI
473
1he ||m|ted partners as such sha|| not be bound by the
ob||gat|ons of the partnersh|p.
1he on|y t|me |n New C|v|| Code when the contract of partnersh|p
(and therefore ||kew|se w|th the partnersh|p [ur|d|ca| person) must
assume a "so|emn" or "forma|" character covers three express
|nstances:
(a) Under Art|c|e 1772, that every contract of partnersh|p
hav|ng a cap|ta| of f*3,000 or more sha|| appear |n a
pub||c |nstrument, wh|ch must be recorded w|th the
Secur|t|es and Lxchange Comm|ss|on (SLC),
(b) Under Art|c|es 1771 and 1773, where |mmovab|e
property or rea| r|ghts are contr|buted to the
partnersh|p:
(i) |n wh|ch case a pub||c |nstrument sha|| be
necessary, and
(ii) the contract of partnersh|p |s vo|d, |f an |nventory
of sa|d property |s not made, s|gned by the part|es
and attached to the pub||c |nstrument, and
(c) Under Art|c|es 1843 and 1844, wh|ch requ|re part|cu|ar
prov|s|ons descr|b|ng ||m|ted partners |n the art|c|es of
||m|ted partnersh|p, and wh|ch must be forma||y
reg|stered w|th the SLC.
When the cap|ta| contr|but|ons not |nvo|v|ng rea| property are |n
excess of ^3,000, and there |s fa||ure to comp|y w|th the requ|rement for
pub||c |nstrument and record|ng w|th the SLC, Art|c|e 1772 of the New
C|v|| Code does not express|y state what happens to the |ega| status of
the contract of partnersh|p. In fact, Art|c|e 1772 prov|des that "Ia||ure to
comp|y w|th the requ|rements of the preced|ng paragraph sha|| not
affect the ||ab|||ty of the partnersh|p and the members thereof to th|rd
persons."

Cn the other hand, the |aw |s c|ear that when what |s contr|buted
to the partnersh|p |s |mmovab|e property, and there |s fa||ure to
prov|de for an |nventory thereof to be attached to the pub||c |n-
strument to be reg|stered w|th the SLC, the resu|t|ng partnersh|p |s
"vo|d." 1he except|on when |t comes to rea| property contr|but|ons |s
the pub||c po||cy conta|ned |n the New C|v|| Code and |n other spec|a|
|aws, that cons|ders rea| property as const|tut|ng a cornerstone |n our
econom|c ||fe, and that dea||ngs therew|th must be forma| and pub||c,
wh|ch wou|d afford to the pub||c a re||ab|e means to determ|ne the
status of ownersh|p and the ex|st|ng ||ens of rea| property.
1he on|y other except|on to the |nforma| or consensua| nature of
the partnersh|p [ur|d|ca| persona||ty wou|d be the mandatory
reg|strat|on requ|rements for the va||d const|tut|on of the ||m|ted
partnersh|p. Aga|n, th|s |s |n ||ne w|th the pr|nc|p|e that ||m|ted ||ab|||ty
to the owners of a bus|ness enterpr|se |s unusua|, and |f |t |s to ex|st to
b|nd the pub||c, |t must be pursued and ref|ected |n a forma| manner.
As shown |n the dec|s|on |n 0,P4"-,R. T3 9,*'"-,R <'*% :,-1 "&
97b A"(1/^ even under the Code of Commerce where reg|strat|on was
essent|a| for the com|ng |nto ex|stence of a commerc|a| partnersh|p,
nonethe|ess |n a proper case of estoppe|, the courts treated such
unreg|stered commerc|a| partnersh|p as a .7 &,P*" partnersh|p w|th a
persona||ty of |ts own |n order to protect the r|ghts of th|rd persons.
2. Weak Iur|d|ca| ersona||ty
Cn the other hand, the [ur|d|ca| persona||ty of the partnersh|p |s
"weak" because |t can be put as under w|thout need of forma|
d|sso|ut|on process, and by the w||| of any of the partners or a|| of them,
or even by chance.
1o |||ustrate, under Art|c|e 1830 of New C|v|| Code, the partnersh|p
may be d|sso|ved by:
'99 h||. 1S6(19S6).
A11kI8U1LS CI 1nL Ak1NLkSnI 47S
(a) Lxpress w||| of any partner, e|ther act|ng |n good fa|th or
even when not |n good fa|th and |n contravent|on of the
agreement,
(b) Lxpress w||| of a|| the partners,
(c) Lxpu|s|on of any partner,
(d) Any event wh|ch makes the partnersh|p bus|ness
un|awfu|,
(e) Loss before de||very of the property prom|sed to be
contr|buted by the partner,
(f) Death, |nso|vency, or c|v|| |nterd|ct|on of any partner,
(g) 8y court decree, when a partner has been dec|ared
|nsane or |ncapac|tated, or gu||ty of conduct pre[ud|c|a|
to the partnersh|p bus|ness or |n breach of the
agreement, or when the partnersh|p bus|ness can on|y
be carr|ed at a |oss.
1he comp|a|nt has often been heard |n bus|ness and |ega| c|rc|es
that one of the d|sadvantages of the partnersh|p med|um |s that |t have
a weak [ur|d|ca| persona||ty. 1he author be||eves that such an
observat|on |s m|sp|aced and fa||s to apprec|ate the fact that |t makes no
sense |n the Law on artnersh|ps to |nfuse a med|um that |t seeks to
|nv|te bus|nessmen and the pub||c to use and endow |t w|th a f|aw or
d|sadvantage. In other words, there |s a purpose why the |aw |nfuses the
partnersh|p [ur|d|ca| persona||ty w|th the character|st|c of "weakness."
Understood proper|y the weakness of the partnersh|p [ur|d|ca|
persona||ty |s a c|ear advantage for the partnersh|p as a med|um of
assoc|at|on and as a med|um of do|ng bus|ness.
1he separate [ur|d|ca| persona||ty |s emp|oyed on|y to a||ow the
partners and the partnersh|p venture to atta|n the|r ob[ect|ves, and |t |s
e|ther brushed as|de or set as|de when |t beg|ns to obstruct such
ob[ect|ves. 1he va|ue of the separate [ur|d|ca| persona||ty of the
partnersh|p cannot overr|de a va|ue of greater |mportance |n the Law of
artnersh|ps best exemp||f|ed

by the aphor|sm, that above a||, the partnersh|p |s a contractua| and
persona| re|at|onsh|p among the partners who assoc|ate together to be
ab|e to pursue a bus|ness venture co||ect|ve|y. In other words,
everyth|ng |s persona| |n a partnersh|p set-up, and th|s |s best
exemp||f|ed by the attr|butes of "mutua| agency" and O.7R7P*8)
67()"-,73O
MU1UAL AGLNC
Ak1. 1803. When the manner of management
has not been agreed upon, the fo||ow|ng ru|es sha||
be observed:
(1) A|| the partners sha|| be cons|dered agents
and whatever any one of them may do a|one sha||
b|nd the partnersh|p, w|thout pre[ud|ce to the
prov|s|ons of Art|c|e 1801.
xxx. (169Sa)
Ak1. 1818. Lvery partner |s an agent of the
partnersh|p for the purpose of |ts bus|ness, and the
act of every partner, |nc|ud|ng the execut|on |n the
partnersh|p name of any |nstrument, for apparent|y
carry|ng on |n the usua| way the bus|ness of the
partnersh|p of wh|ch he |s a member b|nds the
partnersh|p, un|ess the partner so act|ng has |n
fact no author|ty to act for the partnersh|p |n the
part|cu|ar matter, and the person w|th whom he |s
dea||ng has know|edge of the fact that he has no
such author|ty.
An act of a partner wh|ch |s not apparent|y for
the carry|ng on of bus|ness of the partnersh|p |n
the usua| way does not b|nd the partnersh|p un|ess
author|zed by the other partners.
Lxcept when author|zed by the other partners
or un|ess they have abandoned the bus|ness, one

A11kI8U1LS CI 1nL Ak1NLkSnI
477
or more but |ess than a|| the partners have no
author|ty to:
(1) Ass|gn the partnersh|p property |n trust for
cred|tors or on the ass|gnee's prom|se to pay the
debts of the partnersh|p,
(2) D|spose of the goodw||| of the bus|ness,
(3) Do any other act wh|ch wou|d make |t
|mposs|b|e to carry on the ord|nary bus|ness of a
partnersh|p,
(4) Confess a [udgment,
(5) Lnter |nto a comprom|se concern|ng a part-
nersh|p c|a|m or ||ab|||ty,
(6) Subm|t a partnersh|p c|a|m or ||ab|||ty to
arb|trat|on,
(7) kenounce a c|a|m of the partnersh|p.
No act of a partner |n contravent|on of a restr|c-
t|on on author|ty sha|| b|nd the partnersh|p to per-
sons hav|ng know|edge of the restr|ct|on, (n)
1he defau|t ru|e under Art|c|e 1803(1) of New C|v|| Code |s that
each of the partners |s an agent of the partnersh|p and of a|| of the
other partners |n the pursu|t of partnersh|p affa|rs, thus: "When the
manner of management has not been agreed upon . . . A|| the partners
sha|| be cons|dered agents and whatever any one of them may do a|one
sha|| b|nd the partnersh|p."
Art|c|e 1818 of New C|v|| Code prov|des that "Lvery partner |s an
agent of the partnersh|p for the purpose of |ts bus|ness, and the act of
every partner, |nc|ud|ng the execut|on |n the partnersh|p name of any
|nstrument, for apparent|y carry|ng on |n the usua| way the bus|ness of
the partnersh|p of wh|ch he |s a member b|nds the partnersh|p."
1he pr|nc|p|e of mutua| agency ||es at the heart of the partnersh|p
arrangement because |t def|nes the prerogat|ve of

478
every partner to part|c|pate |n the management of the partnersh|p
bus|ness. It |s one of the more |mportant man|festat|on of the pos|t|on
of the partners as "owners" or "equ|ty ho|ders" of the partnersh|p
bus|ness enterpr|se. It a|so br|ngs |nto focus the rea||ty that the
partnersh|p arrangement |s of the most persona| nature, and that the
part|es are not on|y |nvestors but exerc|se the prerogat|ves of ownersh|p
and contro| |nto the partnersh|p bus|ness.
roper|y apprec|ated, a partnersh|p |s s|mp|y a cong|omerat|on of
two or more so|e propr|etorsh|ps, where the or|g|na| so|e propr|etor
cont|nue to manage the|r bus|ness and a|so the bus|ness of the other
propr|etors |n the assoc|at|on. Consequent|y, as a so|e propr|etor |s ||ab|e
w|th h|s other assets for the ||ab|||t|es |ncurred by h|s bus|ness, then |n
the same manner, the partners w||| a|so be ||ab|e persona||y and w|th
the|r other non-contr|buted assets for the ||ab|||t|es |ncurred by the|r
comb|ned bus|ness enterpr|ses.
4D@D<!E; KDG;?9BD
8aut|sta referred to .7R7P*8) 67()"-,7 as fo||ows: "Ior, |n
accordance w|th the pr|nc|p|e of .7R7P*8) 67()"-,7 (se|ect|on of
persons), one se|ects h|s partners on the bas|s of the|r persona|
qua||f|cat|ons and qua||t|es, such as so|vency, ab|||ty, honesty, and
trustworth|ness, among others. It |s for th|s reason that there |s mutua|
representat|on among the partners so that the act of one |s cons|dered
the act and respons|b|||ty of the others as we||."
2

1he best way to def|ne the concept of .7R7P*8) 67()"-,7 |s that
the contract of partnersh|p creates the most persona| re|at|onsh|p
between and among the partners wh|ch when broken, a|so breaks the
bond of the partnersh|p. 1he doctr|ne emphas|zes the
persona|-contractua| re|at|onsh|p between and among the partners as
be|ng more |mportant than the property r|ghts and the bus|ness
enterpr|se created |n the partnersh|p.
2
8AU1IS1A, at p. 9S.
1hus, Art|c|e 1770 of New C|v|| Code prov|des that "A partnersh|p . . .
must be estab||shed for the common benef|t or |nterest of the partners."
1he doctr|ne of .7R7P*8) 67()"-,7 can be v|ewed |n two ways:
L'()*R%, |t |s the embod|ment of the 6('-P'6R7 "& (7R,*'T'*% or 6('T'*%
'- P"-*(,P*): a partnersh|p arrangement be|ng pr|mar||y a contractua|
re|at|onsh|p, then the pr|v|ty that |s created by |ts perfect|on |s between
and among the partners thereto at the po|nt of perfect|on, and that such
pr|v|ty cannot be extended beyond the or|g|na| partners w|thout the
consent of a|| the other part|es to the contract of partnersh|p.
1o |||ustrate the po|nt, a|though Art|c|e 1810 of New C|v|| Code
recogn|zes that "|nterest |n the partnersh|p" |s a property r|ght of a
partner, neverthe|ess under Art|c|e 1804, a|though a partner may
assoc|ate another person w|th h|m |n h|s share, "the assoc|ate sha|| not
be adm|tted |nto the partnersh|p w|thout the consent of a|| the other
partners, even |f the partner hav|ng an assoc|ate shou|d be a manager."
1he pr|v|ty created by the contract of partnersh|p |s of the group of
partners who consent that the moment one partner |s gone the pr|v|ty |s
broken and the partnersh|p contract |s term|nated. In other words, |f f|ve
|nd|v|dua|s come together |nto a partnersh|p agreement, the pr|v|ty
reta|ns |ts |ntegr|ty among the f|ve, and not [ust between two or three or
four of the members. 1hus, under Art|c|e 1830 of the New C|v|| Code, the
partnersh|p |s d|sso|ved by the expu|s|on, death, |nso|vency, c|v||
|nterd|ct|on of any of the partners.
;7P"-.R%/ that the re|at|onsh|p estab||shed |n a contract of
partnersh|p |s of the most f|duc|ary character, or of the most conf|dent|a|
manner, that once that trust or conf|dence |s |ost, the contract |s
deemed breached or at |east at an end. 1h|s |s fort|f|ed by the fact that
the partners are mutua| agents to one another, and essent|a||y the
re|at|onsh|p between and among them |s of f|duc|ary character, and the
character of every agency re|at|on |s that |t |s essent|a||y revocab|e.
Consequent|y, even when the art|c|es of partnersh|p prov|de for a
def|n|te term of ex|stence,

480
under Art|c|e 1830 of the New C|v|| Code, a partnersh|p can be
d|sso|ved |n m|dstream "8y the express w||| of any partner, who must
act |n good fa|th." Lven the separate [ur|d|ca| persona||ty of the
partnersh|p enterpr|se cannot save the partnersh|p from be|ng
d|sso|ved under the ru|e that the term|nat|on of the contract of
partnersh|p term|nates the separate [ur|d|ca| persona||ty as we||.
1he features of mutua| agency and .7R7P*8) 67()"-,7 def|ne the
r|ghts and ||ab|||t|es of the partners |n a partnersh|p arrangement, and
const|tute the under|y|ng reason why partners are persona||y ||ab|e for
partnersh|p debts beyond the|r contr|but|ons and to the extent of the|r
separate propert|es.
In ?(*7+, T3 <"8(* "& B667,R),
3
Iust|ce V|tug wrote one of the best
p|eces of doctr|na| descr|pt|on of the nature and essence of the
doctr|ne of .7R7P*8) 67()"-,7 |n every partnersh|p, thus
1he b|rth and ||fe of a partnersh|p at w||| |s pred|cated on
the mutua| des|re and consent of the partners. 1he r|ght to
choose w|th whom a person w|shes to assoc|ate h|mse|f |s
the very foundat|on and essence of that partnersh|p. Its
cont|nued ex|stence |s, |n turn, dependent on the constancy
of that mutua| reso|ve, a|ong w|th each partner's capab|||ty
to g|ve |t, and the absence of a cause for d|sso|ut|on
prov|ded by the |aw |tse|f. Ver||y, any one of the partners
may, at h|s so|e p|easure, d|ctate a d|sso|ut|on of the
partnersh|p at w|||. ne must, however, act |n good fa|th, not
that the attendance of bad fa|th can prevent the d|sso|ut|on
of the partnersh|p but that |t can resu|t |n a ||ab|||ty for
d
4

In !"P," T3 <"8(* "& B667,R)/
Z
the Court he|d "An un[ust|f|ed
d|sso|ut|on by a partner can sub[ect h|m to act|on for damages because
by the mutua| agency that ar|ses |n a partnersh|p, the doctr|ne of
.7R7P*8) 67()"-,7 a||ows the partners to have
3
24S SCkA S29
( 99 )
]RS'./ at pp.

S
342 SCkA 20
(2000)

the power, a|though not necessar||y the r|ght to d|sso|ve the
partnersh|p."
6

Ak1NLkS 8CUND 1C UNLIMI1LD LIA8ILI1
Ak1. 1816. A|| partners, |nc|ud|ng |ndustr|a| ones, sha|| be
||ab|e 6(" (,*, w|th a|| the|r property and after a|| the
partnersh|p assets have been exhausted, for the contracts
wh|ch may be entered |nto |n the name and for the account of
the partnersh|p, under |ts s|gnature and by a person
author|zed to act for the partnersh|p. nowever, any partner
may enter |nto a separate ob||gat|on to perform a partnersh|p
contract, (n)
Ak1. 1817. Any st|pu|at|on aga|nst the ||ab|||ty |a|d down |n
the preced|ng art|c|e sha|| be vo|d, except as among the
partners, (n)
8oth Art|c|es 44 and 1768 of New C|v|| Code recogn|ze that a
partnersh|p |s granted w|th "a [ur|d|ca| persona||ty, separate and d|st|nct
from that of each ... partner or member," and that Art|c|e 46 recogn|zes
the |ega| capac|ty of the partnersh|p therefore to enter |nto contracts,
own and possess propert|es, thus: "Iur|d|ca| persons may acqu|re and
possess property of a|| k|nds, as we|| as |ncur ob||gat|ons and br|ng c|v||
or cr|m|na| act|ons, |n conform|ty w|th the |aws and regu|at|ons of the|r
organ|zat|ons."
1he ord|nary pr|nc|p|e of "(7R,*'T'*% under the Law on Contracts
that "Contracts take effect on|y between the part|es, the|r ass|gns and
he|rs,"
7
shou|d mean that when a [ur|d|ca| person enters |nto a contract
and assumes an ob||gat|on by
e
RS'./ at p. 37.
7
Art|c|e 1311, New C|v||
Code
reason thereof, |ts members or const|tuents, and |ts agents, do not
ord|nar||y become ||ab|e for the ob||gat|ons assumed by the|r pr|nc|pa|.
et, |n def|ance of the very essence of separate [ur|d|ca| persona||ty of
the partnersh|p, the genera| ru|e |s that every partner |s ||ab|e persona||y
for h|s other property not contr|buted to the partnersh|p for partnersh|p
debts and ob||gat|ons.
Art|c|es 1816 and 1817 of New C|v|| Code thus prov|de that "A||
partners, |nc|ud|ng |ndustr|a| ones, sha|| be ||ab|e 6(" (,*, w|th a|| the|r
property and after a|| the partnersh|p assets have been exhausted . . .
[and that] Any st|pu|at|on aga|nst [such] ||ab|||ty sha|| be vo|d, except as
among the partners."
I5% ."7) *57 R,b $,17 6,(*-7() 67()"-,RR% R',SR7 &"( 6,(*-7()5'6
.7S*) P"-*(,P*7. ,) , )76,(,*7 X8('.'P,R 67()"-r I"8R. )8P5 8-R'$'*7.
R',S'R'*% )*'RR ,66R% b'*5"8* 7W6(7)) 6("T')'"- "& R,br Lven w|thout any
express prov|s|on of |aw and desp|te the separate [ur|d|ca| persona||ty of
the partnersh|p, un||m|ted ||ab|||ty wou|d be the ru|e for partners |n a
partnersh|p sett|ng for the bas|c reason that partners essent|a||y occupy
the pos|t|on of so|e propr|etors, a|be|t assoc|ated w|th other so|e
propr|etors.
1he bas|c ru|e |s that so|e propr|etors are a|ways un||m|ted|y ||ab|e
for bus|ness debts and ob||gat|ons even as to the|r propert|es not used
nor devoted for the bus|ness enterpr|se. 1he reason why a so|e
propr|etor |s ||ab|e w|th h|s non-bus|ness assets for debts and ||ab|||t|es
ar|s|ng from a bus|ness venture |s because he contro|s the bus|ness
enterpr|se, and a|| prof|ts go to h|m wh|ch he can devote |nto
non-bus|ness matters, and thereby he must a|so absorb the |osses from
the bus|ness. 1herefore, |f h|s bus|ness goes bankrupt, he cannot |ns|st
that h|s bus|ness cred|tors are ||m|ted on|y to the bus|ness assets for the
sat|sfact|on of the|r c|a|ms, and as a|| benef|ts and prof|ts can be
channe|ed to h|s persona| non-bus|ness affa|rs, then h|s non-bus|ness
propert|es must a|so be he|d ||ab|e for the sat|sfact|on of those c|a|ms, to
ru|e otherw|se wou|d mean that the owner benef|ts fu||y on the prof|ts,
but |ets h|s cred|tors absorb the |osses from the bus|ness. It |s a
commerc|a| |aw tru|sm that |t |s the owner or equ|ty ho|ders of the
bus|ness enterpr|se, and not the cred|tors, who must stand ready to
absorb the |osses of the bus|ness enterpr|se.
In a partnersh|p sett|ng, the partners are st||| co||ect|ve owners of
the bus|ness enterpr|se, as by the pr|nc|p|e of mutua| agency they a||
have the power of management of the partnersh|p affa|rs, and a|| prof|ts
and ga|ns are to the|r ent|re benef|t and account. 1hus, Art|c|e 1770 of
New C|v|| Code prov|des that every "partnersh|p must be estab||shed for
the common benef|t or |nterest of the partners," and |n turn Art|c|e 1799
prov|des that "Any st|pu|at|on wh|ch exc|udes one or more partners
from any share |n the prof|ts or |osses |s vo|d." 1herefore, desp|te the
separate [ur|d|ca| persona||ty of the partnersh|p enterpr|se, the
partnersh|p |s st||| who||y owned, managed and contro||ed by the
partners as co||ect|ve propr|etors of the bus|ness enterpr|se, and
consequent|y, they must bear the fu|| brunt of the reverses of the
bus|ness. S|nce the partners benef|t fu||y and persona||y from the
partnersh|p's prof|tab|e operat|ons, they must thereby stand ||ab|e
persona||y for the debts and ob||gat|ons contracted even |n the
partnersh|p name. Ctherw|se ='373/ to prov|de for ||m|ted ||ab|||ty as to
a||ow cred|tors recourse on|y to the partnersh|p assets), wou|d be
tantamount to |ett|ng the partnersh|p cred|tors take the r|sks and
consequences of the |osses of the partnersh|p enterpr|se when they
draw no benef|t from |ts prof|ts.
oCo
CnA1Lk 4
1nL CCN1kAC1 CI Ak1NLkSnI
LSSLN1IAL LLLMLN1S CI 1nL CCN1kAC1
CI Ak1NLkSnI
prof|ts among themse|ves.
exerc|se of a profess|on. (166Sa).
Ak1. 1770. A partnersh|p must have a |awfu| ob[ect or
purpose, and must be estab||shed for the common benef|t or
|nterest of the partners.
When an un|awfu| partnersh|p |s d|sso|ved by a [ud|c|a|
decree, the prof|ts sha|| be conf|scated |n favor of the State,
w|thout pre[ud|ce to the prov|s|ons of the ena| Code
govern|ng the conf|scat|on of the |nstruments and effects of a
cr|me. (1666a)
484

1nL CCN1kAC1 CI Ak1NLkSnI 48S
(1679)
1he Law on artnersh|ps under the New C|v|| Code
beg|ns w|th |ts def|n|t|on under Art|c|e 1776 as a "P"-*(,P* "&
6,(*-7()5'6O emphas|z|ng that f|rst and foremost the nexus of the
|ega| re|at|onsh|p between and among the partners |s contractua|
|n nature. As |n any other contract, the essent|a| e|ements for a
contract of partnersh|p to be va||d wou|d be as fo||ows:
(a) CCNSLN1: 1he meet|ng of m|nds between two or
more persons to form a partnersh|p ='373/
to pursue [o|nt|y a bus|ness enterpr|se,
or to [o|nt|y exerc|se a profess|on),
(b) SU8ILC1 MA11Lk: 1he "creat|on of a common fund"
or more spec|f|ca||y, to undertake a
bus|ness venture w|th the "|ntent|on of
d|v|d|ng the prof|ts among themse|ves,"
or |n the case of a profess|ona| partner-
sh|p, to exerc|se together a common
profess|on, and
(c) CCNSIDLkA1ICN: 1he contr|but|on of cash, property
or serv|ce to the bus|ness venture.
1. L|ement of CCNSLN1
Ak1. 1769. In determ|n|ng whether a partnersh|p ex|sts,
these ru|es sha|| app|y:
(1) Lxcept as prov|ded by Art|c|e 182S, persons who are
not partners as to each other are not partners as to th|rd
persons,
(2) Co-ownersh|p or co-possess|on does not of |tse|f
estab||sh a partnersh|p, whether such co-

486
owners or co-possessors do or do not share any
prof|ts made by the use of the property,
(3) 1he shar|ng of gross returns does not of
|tse|f estab||sh a partnersh|p, whether or not the
persons shar|ng them have a [o|nt or common r|ght
or |nterest |n any property from wh|ch the returns
are der|ved,
(4) 1he rece|pt by a person of a share of the
prof|ts of a bus|ness |s 6('$, &,P'7 ev|dence that he
|s a partner |n the bus|ness, but no such |nference
sha|| be drawn |f such prof|ts were rece|ved |n
payment:
(a) As a debt by |nsta||ments or otherw|se,
(b) As wages of an emp|oyee or rent to a
|and|ord,
(c) As an annu|ty to a w|dow or representat|ve
of a deceased partner,
(d) As |nterest on a |oan, though the amount
of payment vary w|th the prof|ts of the bus|ness,
(e) As the cons|derat|on for the sa|e of a
goodw||| of a bus|ness or other property by |n-
sta||ments or otherw|se, (n)
a. Consent to ursue a 8us|ness Io|nt|y Is the Nexus of the
artnersh|p ke|at|onsh|p
1he agreement of two or more persons to "b|nd themse|ves" to
[o|nt|y pursue a bus|ness venture const|tutes the very nexus by wh|ch
the contract of partnersh|p ar|ses under Art|c|e 1767 of New C|v|| Code.
Under Art|c|e 1769 of New C|v|| Code, "|n determ|n|ng whether a
partnersh|p ex|sts," the f|rst and foremost ru|e |s that "persons who are
not partners as to each other are not partners as to th|rd persons." In
other words, no person can f|nd h|mse|f a partner |n a partnersh|p
un|ess he prev|ous|y consented to be |n such contractua| re|at|onsh|p.

1nL CCN1kAC1 CI Ak1NLkSnI 487
Agroup of |nd|v|dua|s do not become partners to one another, nor
|s a partnersh|p const|tuted, by the fact a|one that they are assoc|ated
together |n s|tuat|on where there |s co-ownersh|p or prof|ts earned
therefrom. 1hus, under Art|c|e 1769(2) of the New C|v|| Code,
"Co-ownersh|p or co-possess|on does not of |tse|f estab||sh a
partnersh|p, whether such co-owners or co- possessors do or do not
share any prof|ts made by the use of the property."
In ?(*7+, T3 <"8(* "& B667,R)/^ the Supreme Court he|d that "1he
b|rth and ||fe of a partnersh|p at w||| |s pred|cated on the mutua| des|re
and consent of the partners."
2
1hus, the essence of every partnersh|p
arrangement |s the P"-)7-* "& 7,P5 of the partners to be assoc|ated |n a
bus|ness venture.
b. Lega| Capac|ty to Contract
art|es to a contract of partnersh|p must have |ega| capac|ty to
contract. Under Art|c|e 1782 of the New C|v|| Code, persons who are
proh|b|ted from g|v|ng each other any donat|on or advantage cannot
enter |nto a un|versa| partnersh|p.
Cn the other hand, under Art|c|e 87 of the Iam||y Code, a marr|ed
woman may enter |nto a contract of partnersh|p even w|thout her
husband's consent, but the |atter may ob[ect under certa|n cond|t|ons.
c. Adm|ss|on of New artner |nto an Lx|st|ng
artnersh|p
S|nce consent |s the nexus of a|| partnersh|p re|at|onsh|ps, the
pr|nc|p|e |s exemp||f|ed under Art|c|e 1804 of New C|v|| Code wh|ch
prov|des that even |n an a|ready ex|st|ng partnersh|p, no person sha|| be
adm|tted |nto a partnersh|p, or become a party to the partnersh|p
arrangement, w|thout the consent of a|| the partners.
'24S SCkA S29
( )
Y
RS'./ at p. S3S.
2. SU8ILC1 MA11Lk: ursu|t of a 8us|ness Lnterpr|se
Lssent|a||y, the consent or meet|ng of the m|nds of the par-
1
t|es |n
a contract of partnersh|p must be upon a part|cu|ar type of "sub[ect
matter," wh|ch essent|a||y |s the pursu|t of a "bus|ness enterpr|se." 1h|s
|s embod|ed |n the e|ements prov|ded |n Art|c|e 1767 of the New C|v||
Code as |t def|nes a partnersh|p, thus:
(a) An agreement to contr|bute to a common fund, and
(b) W|th [o|nt |nterest |n the prof|ts and |osses thereof.
1he agreement to share prof|ts and |osses from the bus|ness
venture |s the ha||mark of a partnersh|p arrangement. It |s a|so the
essence of the "equ|ty" pos|t|on of the partners T')V,T') the bus|ness
enterpr|se, as d|fferent|ated from partnersh|p supp||ers and cred|tors,
and company emp|oyees, who bear no propr|etary |nterest w|th the
bus|ness enterpr|se they dea| w|th.
Art|c|e 1769 of New C|v|| Code, |n prov|d|ng for the ru|es "In
determ|n|ng whether a partnersh|p ex|sts," states under paragraph (4)
that "1he rece|pt by a person of a share of the prof|ts |n the bus|ness |s
6('$, &,P'7 ev|dence that he |s a partner |n the bus|ness." In contrast,
the same art|c|e prov|des that, "1he shar|ng of gross returns does not of
|tse|f estab||sh a partnersh|p, whether or not the persons shar|ng them
have a [o|nt or common r|ght or |nterest |n any property from wh|ch the
returns are der|ved."
It |s |mp||ed under Art|c|e 1767 of the New C|v|| Code, as |t def|nes
a contract of partnersh|p, that the essence of the agreement among the
partners |s to become equ|ty-ho|ders |n a bus|ness enterpr|se, because
the|r consent must be the creat|on of a common fund "w|th the
|ntent|on of d|v|d|ng the prof|ts among themse|ves." 1he essence of the
pos|t|on of an equ|ty ho|der |s to part|c|pate |n the prof|ts of the
bus|ness, and consequent|y, he ought to be ready to absorb the |osses
that may be susta|ned thereby. When a person |s ent|t|ed to share |n the
"gross returns" of the bus|ness venture, he |s not necessar||y an equ|ty
ho|der,

and |f |t |s operated under the med|um of a partnersh|p, such person |s
not a partner |n the venture.
In ;,-*") T3 G7%7)/
[
the fact that |n the|r "Art|c|es of Agreement,"
the part|es agreed to d|v|de the prof|ts of a |end|ng bus|ness "|n a
70-1S-1S manner, w|th the pet|t|oner gett|ng the ||on's share... proved
the estab||shment of a partnersh|p,"
4
even when the other part|es to
the agreement were g|ven separate compensat|ons as bookkeeper and
cred|t |nvest|gator.
In !"P," T3 <"8(* "& B667,R)/
Z
the Court he|d that a cred|tor of a
bus|ness enterpr|se cannot seek recovery of h|s c|a|m aga|nst the
partnersh|p from a person who |s w|thout any r|ght to part|c|pate |n the
prof|ts and who cannot be deemed as a partner |n the bus|ness
enterpr|se, s|nce the essence of partnersh|p |s that the partners share |n
the prof|ts and |osses.
In 0"(,-/ J(3 T3 <"8(* "& B667,R)/
e
the Court he|d that
8e|ng a contract of partnersh|p, each partner must share
|n the prof|ts and |osses of the venture. 1hat |s the essence
of a partnersh|p. And even w|th an assurance made by one
of the partners that they wou|d earn a huge amount of
prof|ts, |n the absence of fraud, the other partners cannot
c|a|m a r|ght to recover the h|gh|y specu|at|ve prof|ts. It |s a
rare bus|ness venture guaranteed to g|ve 100 prof|ts.
7

1he Court a|so he|d |n 0"(,-/ J(3 that any st|pu|at|on on the
payment of a h|gh comm|ss|on to one of the partners must be
understood to have been based on an ant|c|pat|on of |arge prof|ts be|ng
made from the venture, and s|nce the venture susta|ned |osses, then
there |s no bas|s to demand for the payment of the comm|ss|ons.
Nonethe|ess, even when a person |s ent|t|ed to share |n the
"prof|ts" of the bus|ness venture, when the reason upon such r|ght
3
368 SCkA 261
( )
]RS'./ at p. 269.
S
36S SCkA 463

6
133 SCkA 88

N
RS'./ at p. 9S.

|s based on some other contractua| re|at|onsh|p not borne out of equ|ty
or propr|etary |nterests, such as payment of the pr|nc|pa| and]or
|nterest on a |oan or a debt, wages of an emp|oyee, rents to a |and|ord,
annu|ty to a w|dow or representat|ve of a deceased partner, or as
cons|derat|on for the sa|e of the goodw||| of a bus|ness or other
property by |nsta||ments, then he |s not deem to be a partner as
|nd|cated |n Art|c|e 1769(4) of the New C|v|| Code. In other words, the
contractua| agreement to share |n the prof|ts and |osses of a bus|ness
venture must a|ways be based upon the assumpt|on of equ|ty |nterest
|n the bus|ness enterpr|se upon wh|ch the contract of partnersh|p sha||
ar|se.
a. Co-ownersh|p or Co-ossess|on Does Not Necessar||y
Const|tute a artnersh|p
In 9,T,((" T3 <"8(* "& B667,R)/
e
the Court he|d that mere
co-ownersh|p or co-possess|on of property does not necessar||y
const|tute the co-owners or co-possessors partners, regard|ess of
whether or not they share any prof|ts der|ved from the use of the
property, when no |nd|cat|on |s shown that the part|es had |ntended to
enter |nto a partnersh|p.
In ?S'RR")/ J(3 T3 <"$$'))'"-7( "& F-*7(-,R G7T7-87,
9
four brothers
and s|sters acqu|red |ots w|th the or|g|na| purpose to d|v|de the |ots
among themse|ves for res|dent|a| purposes, when |ater they found |t
not feas|b|e to bu||d the|r res|dences thereon because of the h|gh cost
of construct|on, they dec|ded to rese|| the propert|es to d|sso|ve the
co-ownersh|p. 1he Court ru|ed that no partnersh|p was const|tuted
among the s|b||ngs, s|nce the or|g|na| |ntent|on was mere|y to
co||ect|ve|y purchase the |ots and eventua||y to part|t|on them among
themse|ves to bu||d the|r res|dences, and that |n fact they had no cho|ce
but to rese|| the same to d|sso|ve the co-ownersh|p. ?S'RR") found that
the d|v|s|on of the prof|ts was mere|y |nc|denta| to the d|sso|ut|on of
the co-ownersh|p wh|ch was |n the nature of a temporary state, and
that there cou|d not have been any partnersh|p, but mere|y
8
222 SCkA 67S
(1993)
9
139 SCkA 436
( 98 )

a co-ownersh|p, s|nce there was utter |ack of |ntent to form a
partnersh|p or [o|nt venture.
In contrast, |n G7%7) T3 <"$$'))'"-7( "& F-*7(-,R G7T7-87/o the
Court found that where father and son purchased a |ot and bu||d|ng and
had |t adm|n|stered by an adm|n|strator, and d|v|ded equa||y the net
|ncome, there was a partnersh|p formed because prof|t was the or|g|na|
|ntent|on for the common fund.
L|kew|se |n DT,-+7R')*, T3 <"RR7P*"( "& F-*7(-,R G7T7-87/t where
three s|sters bought four p|eces of rea| property w|th every |ntent|on to
|ease them out, and wh|ch they |n fact |eased to var|ous tenants and
der|ved renta|s therefrom, |t was ru|ed that a partnersh|p was formed.
b. kece|pt 8y a erson of a Share of the Net rof|t
Under Art|c|e 1769(4), the rece|pt by a person of a share of the
net prof|ts of a bus|ness |s 6('$, &,P'7 ev|dence that he |s a partner |n
the bus|ness. nowever, |n the fo||ow|ng cases, where there |s |ega| and
contractua| bas|s for the rece|pt of the prof|ts other than as equ|ty
ho|der, there |s no partnersh|p const|tuted, thus:
(a) As |nsta||ment payments of debt and]or |nterests
thereof,
(b) As wages of an emp|oyee,
(c) As renta|s pa|d to a |and|ord,
(d) As annu|ty to a w|dow or representat|ve of deceased
partner,
(e) As cons|derat|on of sa|e of goodw||| or other property.
In K,)*"( T3 C,)6,(,the Court he|d that there was no new
partnersh|p formed when a |oan was obta|ned to purchase |or-
10
24 SCkA 198
( )
"102 h||. 140

12
2 h||. S92
( )

chas needed to expand the sh|pp|ng bus|ness of an ex|st|ng sh|pp|ng
partnersh|p venture under the cond|t|on that the |ender wou|d rece|ve
part of the prof|ts of the bus|ness |n ||eu of |nterests.
In L"(*') T3 C8*'7((7\ >7($,-"),
13
where the terms of the contract
prov|ded for the sa|ary of the bookkeeper to be S of net prof|ts of the
bus|ness, the same d|d not make the bookkeeper a partner |n the
bus|ness, s|nce |t was mere|y a measure of h|s sa|ary as an emp|oyee of
the company. 1o the same effect |s the ru||ng |n ;,(.,-7 T3 <"8(* "&
B667,R)3^]
In :,)*'., T3 07-\' Q Co.,
1S
the Court he|d that desp|te the
agreement that 8ast|da was to rece|ve 3S of the prof|t from the
bus|ness of m|x|ng and d|str|but|ng fert|||zer reg|stered |n the name of
Menz| & Co., there was never any contract of partnersh|p const|tuted
between them based on the fo||ow|ng key e|ements: (a) there was no
common fund created between the part|es, s|nce the ent|re bus|ness as
we|| as the expenses and d|sbursements for operat|ng |t were ent|re|y
for the account of Menz| & Co., (b) there was no prov|s|on |n the
agreement for re|mburs|ng Menz| & Co. |n case there shou|d be no
prof|ts at the end of the year, and (c) the fert|||zer bus|ness was [ust one
of the many ||nes of bus|ness of Menz| & Co., and there were no
separate books and no separate bank accounts kept for that part|cu|ar
||ne of bus|ness. 1he arrangement was deemed to be one of
emp|oyment, w|th 8ast|da contr|but|ng h|s serv|ces to manage the
part|cu|ar ||ne of bus|ness of Menz| & Co.
In >7'() "& !,-+ D-+ p77 T3 <"8(* "& B667,R)/^
c
|t was he|d that |n a
s|tuat|on where the payro|| of the company |nd|cated that the brother
was ||sted as an emp|oyee and rece|v|ng on|y wages from the company,
there was no bas|s to ru|e that he was a partner |n the bus|ness
enterpr|se of h|s e|der brother.
13
6 h||. 100
( )
"167 SCkA S24

1S
S8 h||. 188

16
341 SCkA 740
(2000)

!"P," T3 <"8(* "& B667,R)/O he|d that "wh||e |t |s true that the
rece|pt of a percentage of net prof|ts const|tutes on|y 6('$, &,P'7
ev|dence that the rec|p|ent |s a partner |n the bus|ness, the ev|dence |n
the case at bar controverts an emp|oyer-emp|oyee re|at|onsh|p between
the part|es. In the f|rst p|ace, pr|vate respondent had a vo|ce |n the
management of the affa|rs of the cookware d|str|butorsh|p, |nc|ud|ng
se|ect|on of peop|e who wou|d const|tute the adm|n|strat|ve staff and
the sa|es force."
18

c. Meet|ng of M|nds on the Lstab||sh|ng a Common Iund Is the Lssence of
a artnersh|p Contract
A|| the forego|ng examp|es |nd|cate that what br|ngs about a
contract of partnersh|p |s essent|a||y an agreement to const|tute a
common fund w|th the |ntent|on of d|v|d|ng the prof|ts and |osses,
outs|de of these essent|a| e|ements, a contract of partnersh|p cannot
subs|st.
1h|s doctr|ne |s best |||ustrated |n A8R" T3 A,-+ <5'," ;7-+/o where
|n fact the part|es had executed forma| art|c|es of partnersh|p, and yet
the Supreme Court found that the rea| |ntent|on of the part|es was rea||y
to const|tute a re|at|on of sub|ease between the part|es over a
commerc|a| |and where one party (the |essee) was proh|b|ted under her
ma|n contract of |ease from sub|eas|ng the property, and the other party
(the sub|essee) wanted to operate a theater |n sa|d prem|ses. 1he Court
he|d
1he most |mportant |ssue ra|sed |n the appea| |s that
conta|ned |n the fourth ass|gnment of error, to the effect
that the |ower court erred |n ho|d|ng that the wr|tten
contracts, Lxhs. "A," "8," and "C," between p|a|nt|ff and
defendant, are one of |ease and not one of partnersh|p. We
have gone over the ev|dence and we fu||y agree w|th the
conc|us|on of the tr|a| court that the agreement was a
sub|ease, not a partnersh|p. 1he fo||ow|ng are the requ|s|tes
of partnersh|p: (1) two or more persons who b|nd
themse|ves to contr|bute money,
"342 SCkA 20
(2001). oRS'./ at

19
106 h||. 111
( )

property, or |ndustry to a common fund, (2) |ntent|on on the
part of the partners to d|v|de the prof|ts among
themse|ves.
20

In the f|rst p|ace, p|a|nt|ff d|d not furn|sh the supposed
20.000 cap|ta|. In the second p|ace, she d|d not furn|sh any
he|p or |ntervent|on |n the management of the theatre. In
the th|rd p|ace, |t does not appear that she has ever
demanded from defendant any account|ng of the expenses
and earn|ngs of the bus|ness. Were she rea||y a partner, her
f|rst concern shou|d have been to f|nd out how the bus|ness
was progress|ng, whether the expenses were |eg|t|mate,
whether the earn|ngs were correct, etc. She was abso|ute|y
s||ent w|th respect to any of the acts that a partner shou|d
have done, a|| that she d|d was to rece|ve her share of
3.000 a month, wh|ch can not be |nterpreted |n any
manner than a payment for the use of the prem|ses wh|ch
she had |eased from the owners. C|ear|y, p|a|nt|ff had
a|ways acted |n accordance w|th the or|g|na| |etter of
defendant of Iune 17, 194S (Lxh. "A"), wh|ch shows that
both part|es cons|dered th|s offer as the rea| contract
between them.
21

In the more contemporary dec|s|on |n D)*,-')R,"/ J(3 T3 <"8(* "&
B667,R)/
YY
the Court aff|rmed the dec|s|on of the tr|a| court "Crder|ng
the defendant to execute a pub||c |nstrument embody|ng a|| the
prov|s|ons of the partnersh|p agreement entered |nto between
p|a|nt|ffs and defendant as prov|ded for |n Art|c|e 1771, C|v|| Code of
the h|||pp|nes." In that case, the s|b||ngs |eased out to SnLLL a fam||y
commerc|a| |ot for the estab||shment of a gaso||ne stat|on, and they
|nvested the advanced renta|s they rece|ved from SnLLL to a||ow one
the|r brother to be the reg|stered dea|er of SnLLL under the |atter's
po||cy of "one stat|on, one dea|er," and that |n fact the reg|stered
dea|er had accounted for the operat|ons to the other members of the
fam||y. When |ater on he stopped account|ng for the operat|ons, and
refused to acknow|edge the ex|stence of a partnersh|p over the
gaso||ne stat|on, the Court he|d
"Art. 1767, New C|v||
d
21
]b]d, at pp.
^160 SCkA 830
( )

1nL CCN1kAC1 CI Ak1NLkSnI 49S
Moreover other ev|dence |n the record shows that there
was |n fact such partnersh|p agreement between the part|es.
. . et|t|oner subm|tted to pr|vate respondents per|od|c
account|ng of the bus|ness. . . gave a wr|tten author|ty to
pr|vate respondent. ... h|s s|ster, to exam|ne and aud|t the
books of the|r "common bus|ness" (,$'-+ -7+")%"H3 3 3 3
1here |s no doubt that the part|es hereto formed a
partnersh|p when they bound themse|ves to contr|bute
money to a common fund w|th the |ntent|on of d|v|d|ng the
prof|ts among themse|ves. 1he so|e dea|ersh|p by the
pet|t|oner and the |ssuance of a|| government perm|ts and
||censes |n the name of pet|t|oner was |n comp||ance w|th
the afore-stated po||cy of SnLLL and the understand|ng of
the part|es of hav|ng on|y one dea|er of the SnLLL
products.
23

1he other |mportant aspect |n determ|n|ng whether a partnersh|p
has been const|tuted among severa| persons, |s that under our tax |aws,
a partnersh|p |s treated ||ke a corporate taxpayer and ||ab|e separate|y
for |ncome tax for |ts operat|ons apart from the |nd|v|dua| |ncome tax
||ab|||t|es of each of the partners.
1hus, |n DT,-+7R')*, T3 <"RR7P*"( "& F-*7(-,R G7T7-87/
Ya
three s|sters
borrowed a huge amount of money from the|r father, and w|th the|r
persona| funds, purchased under severa| transact|ons rea| estate
propert|es, and subsequent|y appo|nted the|r brother as manager
thereof who |eased them out to var|ous |essees. Lventua||y, the Co||ector
of Interna| kevenue assessed them for the payment of corporate |ncome
tax they have been operat|ng the rea| estate venture. In argu|ng that
they have never formed a partnersh|p, and that they mere|y const|tuted
themse|ves a co- owners of the propert|es bought 6(" '-.'T')"/ the Court
he|d:
ursuant to th|s art|c|e, the essent|a| e|ements of a
partnersh|p are two, name|y: (a) an agreement to contr|bute
money, property or |ndustry to a common fund, and (b)
|ntent to d|v|de the prof|ts among the contract|ng part|es.
1he f|rst e|ement |s undoubted|y present |n the case at bar,
for, adm|tted|y, pet|t|oners have agreed to, and d|d,

m|d, at p. 837.
24
102 h||. 140
( )
money and property to a common fund. nence, the |ssue
narrows down to the|r |ntent |n act|ng as they d|d. Upon
cons|derat|on of a|| the facts and c|rcumstances surround|ng
the case, we are fu||y sat|sf|ed that the|r purpose was to
engage |n rea| estate transact|ons for monetary ga|n and
then d|v|de the same among themse|ves, because:
1. Sa|d common fund was not someth|ng they found
a|ready |n ex|stence. It was not a property |nher|ted by them
6(" '-.'T')"3 1hey created |t purpose|y. What |s more they
[o|nt|y borrowed a substant|a| port|on thereof |n order to
estab||sh sa|d common fund.
2. 1hey |nvested the same, not mere|y |n one transac-
t|on, but |n a ser|es of transact|ons.... 1he number of |ots
(24) acqu|red and transact|ons undertaken, as we|| as the
br|ef |nterregnum between each, part|cu|ar|y the |ast three
purchases, |s strong|y |nd|cat|ve of a pattern or common
des|gn that was not ||m|ted to the conservat|on and preser-
vat|on of the aforement|oned common fund or even of the
property acqu|red by pet|t|oners |n Iebruary, 1943. In other
words, one cannot but perce|ve a character of hab|tua||ty
pecu||ar to bus|ness transact|ons engaged |n for purposes of
ga|n.
3. 1he aforesa|d |ots were not devoted to res|dent|a|
purposes, or to other persona| uses, of pet|t|oners here|n.
1he propert|es were |eased separate|y to severa| persons,
who, from 194S to 1948 |nc|us|ve, pa|d the tota| sum of
70,068.30 by way of renta|s. Seem|ng|y, the |ots are st|||
be|ng so |et, for pet|t|oners do not even suggest that there
has been any change |n the ut|||zat|on thereof.
4. S|nce August, 194S, the propert|es have been under
the management of one person, name|y, S|meon
Lvange||sta, w|th fu|| power to |ease, to co||ect rents, to |ssue
rece|pts, to br|ng su|ts, to s|gn |etters and contracts, and to
|ndorse and depos|t notes and checks. 1hus, the affa|rs
re|at|ve to sa|d propert|es have been hand|ed as |f the same
be|onged to a corporat|on or bus|ness enterpr|se operated
for prof|t.
5. 1he forego|ng cond|t|ons have ex|sted for more than
ten (10) years, or, to be exact, over f|fteen (1S) years, s|nce
the f|rst property was acqu|red, and over twe|ve (12) years,
s|nce S|meon Lvange||sta became the manager.

6. et|t|oners have not test|f|ed or |ntroduced any ev|-
dence, e|ther on the|r purpose |n creat|ng the set up a|ready
adverted to, or on the causes for |ts cont|nued ex|stence.
1hey d|d not even try to offer an exp|anat|on therefore.
2S

1he essence of the contract of partnersh|p |s that the partners
"contract or b|nd themse|ves under a contractua| arrangement" to be
[o|nt owners and managers of a bus|ness enterpr|se, wh|ch |s
h|gh||ghted by the r|ght to rece|ve the net prof|ts and share the |osses
there|n. Art|c|e 1770 of New C|v|| Code prov|des that for a partnersh|p
contract to be va||d |t "must be estab||shed for the common benef|t or
|nterest of the partners," wh|ch c|ear|y |nd|cates the equ|ty or
propr|etorsh|p pos|t|on of the partners. Consequent|y, |f there |s no
c|ear meet|ng of the m|nds to form a partnersh|p venture, the fact that
a person part|c|pates |n the "gross rece|pts" of a bus|ness enterpr|se or
from a property arrangement does not make h|m a partner because he
|s not made to bear the burdens of ownersh|p, '373/ to be ||ab|e for
expenses and |osses of the bus|ness enterpr|se.
1he dec|s|on |n ?-, T3 <"$$'))'"-7( "& F-*7(-,R G7T7-87/
Ye
|s
|||ustrat|ve of th|s pr|nc|p|e. In ?-,/ |n the pro[ect part|t|on the he|rs the
agreed to keep the propert|es of the estate together and to d|v|de the
prof|ts |n proport|on to the|r st|pu|ated |nterests there|n. In ho|d|ng that
there was thereupon const|tuted among the co-he|rs an unreg|stered
partnersh|p sub[ect to corporate |ncome tax under the 1ax Code, the
Court he|d
It |s thus |ncontrovert|b|e that pet|t|oners d|d not,
contrary to the|r content|on, mere|y ||m|ted themse|ves to
ho|d|ng the propert|es |nher|ted by them. Indeed, |t |s
adm|tted that dur|ng the mater|a| years here|n |nvo|ved,
some of the sa|d propert|es were so|d at cons|derab|e prof|t
and that w|th sa|d prof|t, pet|t|oners engaged, thru Lorenzo
1. Cna, |n the purchase and sa|e of corporate secur|t|es. It |s
||kew|se adm|tted that a|| the prof|ts from these ventures
were d|v|ded among pet|t|oners proport|onate|y |n
accordance
YZ
RS'./ at pp.

26
4S SCkA 74
( 9 2)

w|th the|r respect|ve shares |n the |nher|tance. . . the
moment pet|t|oners a||owed not on|y the |ncomes from
the|r respect|ve shares of the |nher|tance but even the
|nher|ted propert|es themse|ves to be used by Lorenzo 1.
Cna as a common fund |n undertak|ng severa| transact|ons
or |n bus|ness, w|th the |ntent|on of der|v|ng prof|ts to be
shared by them proport|ona||y, such act was tantamount to
actua||y contr|but|ng such |ncomes to a common fund and,
|n effect, they thereby formed an unreg|stered
partnersh|p.
27

In C,*P5,R',- T3 <"RR7P*"( "& F-*7(-,R G7T7-87/
Yj
where f|fteen
peop|e contr|buted money to buy a sweepstakes t|cket w|th the
|ntent|on to d|v|de the pr|ze wh|ch they may w|n, and |n fact the t|cket
won th|rd pr|ze, the Court ru|ed that they had formed a partnersh|p
wh|ch was sub[ect to tax as a corporate taxpayer.
L|kew|se, |n C,RR7$7* T3 !,S'R,(,-/
YZ
the Court he|d that when |and
|s purchased w|th equa| funds to be contr|buted by the part|es, and |t
was the c|ear |ntent|on to d|v|de the property between the two of them
after acqu|s|t|on, there was formed a partnersh|p.
We can end th|s sect|on by |ook|ng at the dec|s|on |n >7'() "& !,-
D-+ p77 T3 <"8(* "& B667,R)/
[c
where the ma|n |ssue was whether there
was const|tuted between two brothers a partnersh|p |nvo|v|ng a |umber
and hardware bus|ness reg|stered as a so|e propr|etorsh|p |n the name
of the o|der brother |n the absence of a forma| art|c|es of partnersh|p
hav|ng been executed between them. 1he Court cons|dered the fact
that dur|ng the ent|re per|od of the a||eged partnersh|p, the brother
seek|ng the dec|arat|on of such partnersh|p never exerc|sed any of the
r|ghts and prerogat|ves of a partner, thus:
8es|des, |t |s |ndeed odd, |f not unnatura|, that desp|te
the forty years the partnersh|p was a||eged|y |n ex|stence,
1an Lng kee never asked for an account|ng. 1he essence
YN
FS'./ at p. 81.
28
67 h||. 666

29
20 h||. 241

M
341 SCkA 740
(2000)

of a partnersh|p |s that the partners share |n the prof|ts and
|osses. Lach has the r|ght to demand an account|ng as |ong
as the partnersh|p ex|sts. We have a||owed a scenar|o
where|n "[|]f exce||ent re|at|ons ex|sts among the partners at
the start of the bus|ness and a|| the partners are more
|nterested |n see|ng the f|rm grow rather than get
|mmed|ate returns, a deferment of shar|ng |n the prof|ts |s
perfect|y p|aus|b|e."
31
8ut |n the s|tuat|on |n the case at bar,
the deferment, |f any, had gone on too |ong to be p|aus|b|e.
A person |s presumed to take ord|nary care of h|s concerns, x
x x
A demand for per|od|c account|ng |s ev|dence of a
partnersh|p. Dur|ng h|s ||fet|me, 1an Lng kee appeared never
to have made any such demand for account|ng from h|s
brother, 1an Lng Lay.
32

d. roof of the Lx|stence of the 8us|ness Lnterpr|se May Support the
Lx|stence of a artnersh|p
1here have been cases where the ex|stence of the bus|ness
enterpr|se became the bas|s by wh|ch the courts conc|uded that |ndeed
a contract of partnersh|p had been entered |nto by the part|es.
In F.") T3 <"8(* "& B667,R)/
[[
|n determ|n|ng whether the
partnersh|p enterpr|se cont|nued to ex|st and has not been term|nated,
the Court ru|ed that "1he best ev|dence of the ex|stence of the
partnersh|p, wh|ch was not yet term|nated (though |n the w|nd|ng up
stage), were the unso|d goods and unco||ected rece|vab|es, wh|ch were
presented to the tr|a| court. S|nce the partnersh|p has not been
term|nated, the pet|t|oner and pr|vate comp|a|nant rema|ned as
co-partners."
34

In !"P," T3 <"8(* "& B667,R)/
[Z
c|t|ng the ru||ng |n F.")/ the Court
he|d that the fact that the c|a|m|ng party "had been
OP'*'-+ L87 @8-+ T3 F-*7($7.',*7 B667RR,*7 <"8(*/ 169 SCkA 746, 7S4
(1989).
*at pp. 7SS-7S6.
^296 SCkA 194 (1998).
mFS'./ at p. 206.
3S
342 SCkA 20 (2000).

unceremon|ous|y booted out of the partnersh|p... she st||| rece|ved her
overr|d|ng comm|ss|on
36
. . . 1he w|nd|ng up of partnersh|p affa|rs has not
yet been undertaken by the partnersh|p. 1h|s |s man|fest |n pet|t|oners'
c|a|m for stocks that had been entrusted to pr|vate respondent |n the
pursu|t of the partnersh|p bus|ness."
37

e. Doctr|ne of "Attr|butes of ropr|etorsh|p" as a Means to rove the
Lx|stence of a artnersh|p
1here are a number of dec|s|ons that use the hazy doctr|ne of
O,**('S8*7) "& 6("6('7*"()5'6" as one of the |nd|cat|ons of the ex|stence
of a contract of partnersh|p or a partnersh|p venture.
We take the dec|s|on |n !"P," T3 <"8(* "& B667,R)/
[e
where the
ma|n |ssue was whether there ex|sted a contract of partnersh|p between
three part|es, name|y 1ocao, 8e||o and Anay, |n the face of the assert|ons
of both 1ocao and 8e||o that there was no partnersh|p agreement
entered |nto cons|der|ng that: (a) there was no wr|tten agreement
embody|ng the a||eged partnersh|p agreement, and that |n fact the
bus|ness was reg|stered w|th the government author|t|es as a s|ng|e
propr|etorsh|p |n the sty|e of "Gem|nesse Lnterpr|se" |n the name of
1ocao, (b) 8e||o asserts that he never gave any contr|but|on to the
venture, but mere|y guaranteed |ts cred|t stand|ng, and (c) Anay never
contr|buted anyth|ng to the bus|ness, and she was rece|v|ng overr|d|ng
comm|ss|on and part|c|pat|on |n prof|ts d|rect|y as a resu|t of her
hand||ng the market|ng of the products, and not as a partner to the
venture.
In brush|ng as|de the assert|ons that there was no contract of
partnersh|p, the Court, apart from ho|d|ng that a contract of partnersh|p
need not be |n wr|t|ng to be va||d and enforceab|e, he|d that a|| three
part|es had by the ev|dence adduced exerc|sed r|ghts of propr|etorsh|p
on the bus|ness venture as to show w|thout doubt the ex|stence of a
partnersh|p, thus:
$'./ at p. 36.
$'./ at p. 38.
M
342 SCkA 20
( )

S01
et|t|oners [1ocao and 8e|o] adm|t that pr|vate res-
pondent [Anay] had the expert|se to engage |n the bus|ness
of d|str|butorsh|p of cookware. r|vate respondent
contr|buted such expert|se to the partnersh|p and hence,
under the |aw, she was the |ndustr|a| or manag|ng partner. It
was through her reputat|on w|th the West 8end Company
that the partnersh|p was ab|e to pen the bus|ness of
d|str|butorsh|p of that company's cookware products, |t was
through the same efforts that the bus|ness was prope||ed to
f|nanc|a| success. et|t|oner 1ocao herse|f adm|tted pr|vate
respondent [Anay] he|d the pos|t|ons of market|ng manager
and v|ce-pres|dent for sa|es ...xxx.
39

8y the set-up of the bus|ness, th|rd persons were made
to be||eve that a partnersh|p had |ndeed been forged be-
tween pet|t|oners [1acao and 8e|o] and pr|vate respondent
[Anay]...
Cn the other hand, pet|t|oner 8e|o's den|a| that he
f|nanced the partnersh|p r|ngs ho||ow |n the face of the
estab||shed fact that he pres|ded over meet|ng regard|ng
matters affect|ng the operat|on of the bus|ness. Moreover,
h|s hav|ng author|zed |n wr|t|ng . .. that pr|vate respondent
shou|d rece|ve th|rty-seven percent (37) of the proceeds of
her persona| sa|es, cou|d not be |nterpreted otherw|se than
that he had a propr|etary |nterest |n the bus|ness. n|s c|a|m
that he was mere|y a guarantor |s be||ed by that persona| act
of propr|etorsh|p |n the bus|ness ...
40

1he bus|ness venture operated under Gem|nesse Ln-
terpr|se d|d not resu|t |n an emp|oyer-emp|oyee re|at|onsh|p
between pet|t|oners and pr|vate respondent. Wh||e |t |s true
that the rece|pt of a percentage of net prof|ts const|tutes
on|y 6('$, &,P'7 ev|dence that the rec|p|ent |s a partners |n
the bus|ness, the ev|dence |n the case at bar controverts an
emp|oyer-emp|oyee re|at|onsh|p between the part|es. In the
f|rst p|ace, pr|vate respondent had a vo|d |n the
management of the affa|rs of the cookware d|str|butorsh|p,
|nc|ud|ng se|ect|on of peop|e who wou|d const|tute the
adm|n|strat|ve staff and the sa|es force...
41

mFS'./ at p. 31, 8-.7()P"('-+ )866R'7.3
]hRS'./ at p. 32, 8-.7()P"('-+ )866R'7.3
a`
FS'., at pp. 33-34, 8-.7()P"('-+
R' .

1he doctr|ne of "exerc|se of the prerogat|ves of a propr|etor"
shou|d be v|ewed as mere|y co||aborat|ve ev|dence of the partnersh|p
re|at|onsh|p between the part|es |n a bus|ness venture, |n the end the
ex|stence of the contract of partnersh|p must be |ocated |n the actua|
meet|ng of m|nds to const|tute a common fund and to d|v|de the prof|ts
thereof among themse|ves. 1he reason why exerc|s|ng the prerogat|ves
of propr|etorsh|p or part|c|pat|ng |n the management of the bus|ness
enterpr|se cannot on the|r own be we|ghty ev|dence to prove the
ex|stence of a partnersh|p agreement |s because, |t |s |og|ca| for a
bus|ness enterpr|se, whether |t |s operated as a partnersh|p or a s|ng|e
propr|etorsh|p, to actua||y appo|nt a manager or other agents,
author|zed to exerc|se acts of management, w|thout be|ng owners or
partners of the bus|ness venture.
In any event, the app||cat|on of the supp|etory doctr|ne of
"attr|butes of propr|etorsh|p" |n [ur|sprudence |s a recogn|t|on that a
partnersh|p arrangement |s |n essence a contractua| aggregat|on of so|e
propr|etors, who come together to form a common venture, each act|ng
very much a propr|etor of the bus|ness venture, wh||e at the same t|me
as agents to one another.
1he dec|s|on |n Sy T3 <"8(* "& B667,R)/
aY
succ|nct|y summar|zes the
badges that wou|d norma||y accompany a partnersh|p re|at|onsh|p,
thus:
Art|c|e 1767 of the C|v|| Code states that |n a contract of
partnersh|p two or more persons b|nd themse|ves to
contr|bute money, property or |ndustry to a common fund,
w|th the |ntent|on of d|v|d|ng the prof|ts among themse|ves.
Not one of these c|rcumstances |s present |n th|s case
[wh|ch sought to make the truck dr|ver of the company of
many years to be character|zed as an |ndustr|a| partner]. No
wr|tten agreement ex|sts to prove the partnersh|p between
the part|es. r|vate respondent d|d not contr|bute money,
property or |ndustry for the purpose of engag|ng |n the
supposed bus|ness. 1here |s no proof that he was rece|v|ng a
share |n the prof|ts as a matter of course, cur|ng the per|od
42
398 SCkA 301 (2003).

1nL CCN1kAC1 CI Ak1NLkSnI S03
when the truck|ng bus|ness was under operat|on. Ne|ther |s
there any proof that he had act|ve|y part|c|pated |n the
management, adm|n|strat|on and adopt|on of po||c|es of the
bus|ness.
43

In contrast, we shou|d cons|der the dec|s|on |n >7'() "& !,- D-+ p77
T3 <"8(* "& B667,R)/
aa
where a partnersh|p was |ns|sted to have been
const|tuted from a proven set of c|rcumstances where the brother
c|a|m|ng to be a partner |n the bus|ness enterpr|se |s proven to exerc|se
manager|a| and |mportant ro|es |n the day-to-day operat|ons. 1he Court
found such |ega| pos|t|on "to be we||-taken" |n that "Where
c|rcumstances taken s|ng|y may be |nadequate to prove the |ntent to
form a partnersh|p, neverthe|ess, the P"RR7P*'T7 7&&7P* of these
c|rcumstances may be such as to support a f|nd|ng of the ex|stence of the
part|es' |ntent."
4S
Nonethe|ess, |n that dec|s|on the Court ru|ed aga|nst
the ex|stence of the partnersh|p s|nce
. . . et, |n the case at bench, even the aforesa|d
c|rcumstances when taken together are not persuas|ve
'-.'P', of a partnersh|p. 1hey on|y tend to show that 1an Lng
kee was |nvo|ved |n the operat|ons of 8enguet Lumber, but
|n what capac|ty |s unc|ear. We cannot d|scount the
||ke||hood that as a member of the fam||y, he occup|ed a
n|che above the rank-and-f||e emp|oyees. ne wou|d have
en[oyed ||bert|es otherw|se unava||ab|e were he not k|n,
such as h|s res|dence |n the 8enguet Lumber Company
compound. ne wou|d have mora|, |f not actua|, super|or|ty
over h|s fe||ow emp|oyees, thereby ent|t||ng h|m to exerc|se
powers of superv|s|on. It may even be that among h|s dut|es
|s to p|ace orders w|th supp||ers. Aga|n, the c|rcumstances
proffered by pet|t|oners do not prov|de a |og|ca| nexus to the
conc|us|on des|red, these are not |ncons|stent w|th the
powers and dut|es of a manager, even |n a bus|ness
organ|zed and run as |nforma||y as 8enguet Lumber
Company.
OFS'./ at p. 308.
"341 SCkA 740

4S
At pp. 7S8-768.

S04
1here be|ng no partnersh|p, |t fo||ows that there |s no
d|sso|ut|on, w|nd|ng up or ||qu|dat|on to speak of. nence,
the pet|t|on must fa||.
46

1he same pr|nc|p|e was app||ed |n the recent case of >7'() "& J")7
@'$ T3 @'$/
aN
where the |ssue evo|ved was whether |t was the father
[Iose] who gave the |nvestment money to a son [Lf|edo], or |t was the
son, who actua||y entered |nto a partnersh|p arrangement w|th two
other |nd|v|dua|s. It conf|rm|ng that the we|ght of ev|dence showed the
|nd|cat|ons prov|ded under Art|c|e 1769 of the New C|v|| Code were |n
favor the son be|ng the partner |n the partnersh|p bus|ness enterpr|se,
the Court noted that the son [L|f|edo] was the person who exerc|sed the
prerogat|ves of a partner and not the father, thus:
App|y|ng the |ega| prov|s|on to the facts of th|s case, the
fo||ow|ng c|rcumstances tend to prove that L|f|edo was
h|mse|f the partner of I|mmy and Norberto: (1) Cresenc|a
test|f|ed that Iose gave L|f|edo S0,000.00, as share |n the
partnersh|p, (2) L|f|edo ran the affa|rs of the partnersh|ps,
w|e|d|ng contro|, power and author|ty, w|thout any
|ntervent|on or oppos|t|on whatsoever from any of
pet|t|oners here|n, (3) a|| of the propert|es, part|cu|ar|y the
n|ne trucks of the partnersh|p, were reg|stered |n the name
of L|f|edo, (4) I|mmy test|f|ed that L|f|edo d|d no rece|ve
wages or sa|ar|es from the partnersh|p, |nd|cat|ng that what
he actua||y rece|ved were shares of the prof|ts of the
bus|ness, and (S) none of the pet|t|oners, as he|rs of Iose,
the a||eged partner, demanded per|od|c account|ng from
L|f|edo dur|ng h|s ||fet|me. As repeated|y stressed |n ne|rs of
1an Lng kee, a demand for per|od|c account|ng |s ev|dence
of a partnersh|p.
48

f. When Sub[ect Matter (the 8us|ness Venture) Is Un|awfu|
or Aga|nst ub||c o||cy
When the sub[ect matter of a contract of partnersh|p |s un|awfu|,
Art|c|e 1770 of New C|v|| Code prov|des that the
OFS'./ at pp. 7S9.
47
614 SCkA 141
OFS'./ at pp.
0

S0S
contract |s vo|d, and be|ng vo|d the purported partners have no r|ght to
part|c|pate |n any prof|ts that may have been earned by the partnersh|p
enterpr|se. 1hus, the art|c|e prov|des that "the prof|ts sha|| be
conf|scated |n favor of the State."
In B(S7) T3 K"R')*'P",
49
a partnersh|p organ|zed to engage |n |||ega|
gamb||ng was dec|ared vo|d by [ud|c|a| order, and pursuant to the
prov|s|ons of Art|c|e 1770, a|| the prof|ts earned were deemed
conf|scated |n favor of the state. nowever, |t decreed that the partners
had a r|ght to recover the|r contr|but|ons, thus:
Cur Code does not state whether, upon the d|sso|ut|on
of the un|awfu| partnersh|p, the amounts contr|buted are to
be returned to the partners, because |t on|y dea|s w|th the
d|spos|t|on of the prof|ts, but the fact that sa|d contr|but|ons
are not |nc|uded |n the d|sposa| prescr|bed for sa|d prof|ts,
shows that |n consequence of sa|d exc|us|on, the genera|
ru|es of |aw must be fo||owed, and hence, the partners must
be re|mbursed the amount of the|r respect|ve contr|but|ons.
Any other so|ut|on wou|d be |mmora|, and the |aw w||| not
consent to the |atter rema|n|ng |n the possess|on of the
manager or adm|n|strator who has refused to return them,
by deny|ng to the partners the act|on to demand them.
S0

In 47R8," T3 <,)*77R,
S1
the Court he|d that a contract of part-
nersh|p that sought to d|v|de between the two partners-app||cants the
f|shpond |n contravent|on of the proh|b|tory prov|s|ons of |aw was
deemed d|sso|ved when the Government d|d f|na||y |ssue a f|shpond
perm|t to one of the partners.
3. CAUSL Ck CCNSIDLkA1ICN: kCMISLD CCN1kI8U1ICNS
In a contract of partnersh|p, |t |s he|d that the cause or
cons|derat|on for each partner |s the undertak|ng of the other or
49
S3 h||. 489 (1929).
W
RS'./ at p. 49S, g8"*'-+ &("$ MANkLSA, CCMMLN1AkILS CN 1nL SANISn
CIVIL CCDL, Vo|. kI, pp. 262-264.
S1
26 SCkA 47S (1968).

S06
others to contr|bute money, property or |ndustry to a common fund
='373/ to the bus|ness venture). 8e|ng essent|a||y consensua| |s
character|st|c, a contract of partnersh|p |s perfected by the agreement
by the partners to make such contr|but|on ='373/ by the assumpt|on of
the ob||gat|on to contr|bute or to render serv|ce. 1he essence of the
e|ement of cause or cons|derat|on |n every contract of partnersh|p |s
emphas|zed |n the fo||ow|ng prov|s|ons of the New C|v|| Code, thus:
(a) Art|c|e 1786, wh|ch dec|ares that every partner to be a
debtor of the partnersh|p for whatever he may have
prom|sed to contr|bute,
(b) Art|c|e 1787, wh|ch makes a partner 1|ab|e for |nterest
and damages for fa|||ng to contr|bute the sum of money
he was bound to pay under the art|c|es of partnersh|p,
(c) Art|c|e 1789, wh|ch proh|b|ts an |ndustr|a| partner from
engag|ng |n bus|ness for h|mse|f, s|nce he bound h|mse|f
to contr|bute serv|ce to the partnersh|p,
(d) Art|c|e 1790, wh|ch p,esumes an ob||gat|on to
contr|bute equa| shares among the partners when
there |s no st|pu|at|on as to manner and amount of
contr|but|on, and
(e) Art|c|e 1830(4), wh|ch decrees the d|sso|ut|on of a
partnersh|p when the spec|f|c th|ng, wh|ch a partner
had prom|sed to contr|bute to the partnersh|p, per|shes
before the de||very.
<'*% "& 0,-'R, T3 <8$S7/
ZY
he|d that "cred|t," such as a prom|ssory
note or other ev|dence of ob||gat|on, or even goodw|||, may va||d|y be
contr|buted |nto the partnersh|p. In other words, |f serv|ce |s a va||d
contr|but|on to the common fund, then more so when |t comes to
|ntang|b|e th|ngs, r|ghts and chooses |n act|on.
S2
13 h||. 677 (1909).

4. C1nLk LSSLN1IAL LLLMLN1S CI Ak1NLkSnI
A|though Amer|can [ur|sprudence wou|d cons|der two other
e|ements to be essent|a| for the contract of partnersh|p to ex|st, name|y:
(a) the purpose of a partnersh|p must be to engage |n some
bus|ness enterpr|se, and
(b) the e|ement of [o|nt contro|,
S3

the same are a|so present |n h|||pp|ne artnersh|p Law.
As d|scussed above, the sub[ect matter of every contract of
partnersh|p must be the agreement to [o|nt|y pursue a bus|ness
enterpr|se. 1he e|ement of "[o|nt contro|" |s embod|ed |n the prov|s|ons
of |aw that prov|des for mutua| agency |n a partnersh|p arrangement.
1hus, Art|c|e 1810(3) of the New C|v|| Code prov|des that one of the
property r|ghts of a partner |s "n|s r|ght to part|c|pate |n the
management." Art|c|e 1818 of the New C|v|| Code |n turn prov|des that
"Lvery partner |s an agent of the partnersh|p for the purpose of |ts
bus|ness, and the act of every partner, |nc|ud|ng the execut|on |n the
partnersh|p name of any |nstrument, for apparent|y carry|ng on |n the
usua| way the bus|ness of the partnersh|p of wh|ch he |s a member b|nds
the partnersh|p."
In L7(-,-.7\ T3 47 R, G"),] the Court he|d that "a [o|nt |nterest |n
the prof|ts" wou|d const|tute one of the "essent|a| po|nts upon wh|ch
the m|nds of the part|es must meet |n a contract of partnersh|p."
SS

In <"8-P'R "& G7. 07- T3 27*7(,-) B($%/
Ze
the const|tut|on of the
Veteran Army of the h|||pp|nes prov|ded "for the fo||ow|ng
"8AU1IS1A, at p.

"1 h||. 671
mFS'./ at pp.
7 h||. 68S
( )

S08
purpose: 1he ob[ect of th|s assoc|at|on sha|| be to perpetuate the sp|r|t
of patr|ot|sm and fratern|ty those men who uphe|d the Stars and Str|pes
|n the h|||pp|ne Is|ands dur|ng the Span|sh war and the h|||pp|ne
|nsurrect|on, and to promote the we|fare of |ts members |n every [ust
and honorab|e way, to ass|st the s|ck and aff||cted and to bury the dead,
to ma|nta|n among |ts members |n t|me of peace the same un|on and
harmony w|th wh|ch they served the|r country |n t|mes of war and
|nsurrect|on.'"
S7
1he Court had ra|sed the po|nt that: "It seems to be the
op|n|on of the commentators that where the soc|ety |s not const|tuted
for the purpose of ga|n, |t does not fa|| w|th|n th|s art|c|e of New C|v||
Code. Such an organ|zat|on |s fu||y covered by the Law of Assoc|at|ons of
1887, but that |aw was never extended to the h|||pp|ne Is|ands."
S8

Nonethe|ess, <"8-P'R "& G7. 07- app||ed the o|d C|v|| Code ru|e on c|v||
partnersh|p.
1he on|y form of partnersh|p where "bus|ness cons|derat|on" or
the "ga|n|ng of prof|ts" |s not the pr|mary cons|derat|on for the common
fund wou|d be the author|zed profess|ona| partnersh|ps, but even |n
such cases the Court has cons|dered that a profess|on |s pursued as part
of the ||ve||hood undertak|ng of the partners.
S8

1he e|ement of "[o|nt contro|" |s actua||y spec|f|ed as the property
r|ghts of a partner under Art|c|e 1810 "to part|c|pate |n the
management," as we|| as the conf|rmat|on of the attr|bute of "mutua|
agency" under Art|c|e 1818 conf|rm|ng that "Lvery partner |s an agent of
the partnersh|p for the purposes of |ts bus|ness, and the act of every
partner, |nc|ud|ng the execut|on |n the partnersh|p name of any
the partnersh|p of wh|ch he |s a member b|nds the partnersh|p."
ZN
FS'./ at p. 686.
mFS'./ at p. 687.
Zl
M- *57 0,**7( "& *57 K7*'*'"- &"( B8*5"('*% *" <"-*'-87 E)7 "&
L'($ 9,$7 O;%P'6/ ;,R,\,(/ 7*,R3 T3 ?\,7*,/ G"$8R"/ 7*P3/O 92 SCkA 1
(1979)

S09
LSSLN1IAL CnAkAC1LkIS1ICS CI 1nL Ak1NLkSnI
CCN1kAC1
1. Nom|nate and r|nc|pa|
1he contract of partnersh|p |s a nom|nate contract, not on|y
because |t has been g|ven a spec|f|c name under the New C|v|| Code, but
|t |s a pr|nc|pa| contract and can ex|st on |ts own upon the essent|a|
e|ements com|ng together at perfect|on, and that once created there |s
a set of ru|es (Law on artnersh|ps of the New C|v|| Code) that govern
such contract, and the part|es to such contract cannot refuse genera||y
to be governed by such prov|s|ons. 1hus, Art|c|e 4S of New C|v|| Code
prov|des that "artnersh|ps and assoc|at|ons for pr|vate |nterest or
purpose are governed by the prov|s|ons of th|s Code concern|ng
partnersh|ps."
1o |||ustrate the "-"$'-,*7 ,-. 6('-P'6,&^ nature of the contract of
partnersh|p, L7(-,-.7\ T3 47R, G"),o he|d that "1he essent|a| po|nts
upon wh|ch the m|nds of the part|es must meet |n a contract of
partnersh|p are, therefore, (1) mutua| contr|but|on to a common stock,
and (2) a [o|nt |nterest |n the prof|ts. If the contract conta|ns these two
e|ements the partnersh|p re|at|on resu|ts, and the |aw |tse|f f|xes the
|nc|dents of th|s re|at|on |f the part|es fa|| to do so."
61

In reso|v|ng the mot|on for recons|derat|on on |ts or|g|na| dec|s|on,
the Court even he|d that "It |s of no |mportance that the part|es have
fa||ed to reach an agreement w|th respect to the m|nor deta||s of
contract. 1hese deta||s perta|n to the acc|denta| and not to the essent|a|
part of the contract."
62

2. Consensua|
A contract of partnersh|p |s essent|a||y consensua|, |t |s perfected
upon meet|ng of the m|nds of the part|es of the sub[ect
1 h||. 671 (1903).
61
]b]d, at pp. 67S-676.
$'./ at p. 680. BR)" L87 @78-+ T3 FB</ 169 SCkA 746
(1989

matter to undertake a bus|ness venture, and the cons|derat|on, wh|ch |s
the ob||gat|on to contr|bute of money, property or serv|ce to a common
fund. Whether the bus|ness enterpr|se |s actua||y const|tuted or set-up,
or whether or not the contr|but|ons have been made |nto the
partnersh|p coffers, do not detract from the com|ng |nto ex|stence of a
va||d partnersh|p contract. 1he fa||ure to comp|y w|th the undertak|ng to
de||ver the prom|sed contr|but|on does not make a contract of
partnersh|p vo|d, but mere|y g|ves a ground for |ts d|sso|ut|on.
1hus, |n the ear|y dec|s|on |n L7(-,-.7\ T3 47 R, G"),/
e[
the Court
he|d that "1he execut|on of a wr|tten agreement was not necessary |n
order to g|ve eff|cacy to the verba| contract of partnersh|p as a c|v||
contract, the contr|but|ons of the partners not hav|ng been |n the form
of |mmovab|es or r|ghts |n |mmovab|es."
64

1h|s feature of consensua||ty of a contract of partnersh|p |s now
embod|ed |n Art|c|e 1772 of the New C|v|| Code wh|ch prov|des that "A
partnersh|p may be const|tuted |n any form except where |mmovab|e
property or rea| r|ghts are contr|buted thereto, |n wh|ch case a pub||c
|nstrument sha|| be necessary."
A|though Art|c|es 1772 and 1773 of the New C|v|| Code prov|de for
pub||c |nstrument and reg|strat|on when the cap|ta| contr|but|on |s more
than 3.000.00, and that of an |nventory attached to the pub||c
|nstrument whenever |mmovab|e property |s contr|buted, nonethe|ess
[ur|sprudence even d|scount the nu|||ty of the resu|t|ng contract of
partnersh|p, as w||| be d|scussed hereunder.
In D)*,-R)R,"/ J(3 T3 <"8(* "& B667,R)/
eZ
the Court he|d that when
members of the fam||y |eased out a parce| of |and to SnLLL, and used
the advance renta|s pa|d them to a||ow one of the|r members to
cap|ta||ze the dea|ersh|p w|th SnLLL, then a partnersh|p has been
const|tuted among them, thus:
1here |s no doubt that the part|es hereto formed a
partnersh|p when they bound themse|ves to contr|bute
1 h||. 671
( 903)
OFS'./ at p. 677.
-k^C SCkA 830
( )

S11
money to a common fund w|th the |ntent|on of d|v|d|ng the
prof|ts among themse|ves. 1he so|e dea|ersh|p by the
pet|t|oner and the |ssuance of a|| government perm|ts and
||censes |n the name of pet|t|oner was |n comp||ance w|th
the [po||cy] of SnLLL that a dea|ersh|p can on|y be granted to
one person and the understand|ng of the part|es of hav|ng
on|y one dea|er of the SnLLL products.
66

In essence, D)*,-')R," demonstrates that |t |s the true meet|ng of
the m|nds of the part|es (|n th|s case, to pursue a common venture as a
fam||y group) that sha|| govern the r|ghts and ob||gat|ons of the
contract|ng part|es, and not the ev|dence of a purported agreement (|n
th|s case the dea|ersh|p agreement be|ng reg|stered on|y |n the name of
a brother).
In contrast, |n A8R" T3 A,-+ <5'," ;7-+/
eN
the part|es executed a
"partnersh|p agreement," to conduct and carry on the bus|ness of
operat|ng a theatre for the exh|b|t|on of mot|on and ta|k|ng p|ctures,
nonethe|ess, the Court he|d that the rea| |ntent|on of the part|es was to
effect a sub-|ease of the property and the partnersh|p agreement was
resorted to |n order to avo|d the prov|s|on |n the ma|n |ease agreement
proh|b|t|ng a sub|ease of the prem|ses. 1he Court took |nto cons|derat|on
the fo||ow|ng actuat|ons of the supposed u|o partner to show that there
was never a rea| agreement to form a partnersh|p, thus:
In the f|rst p|ace, p|a|nt|ff d|d not furn|sh the supposed
20.000 cap|ta|. In the second p|ace, she d|d not furn|sh any
he|p or |ntervent|on |n the management of the theatre. In
the th|rd p|ace, |t does not appear that she has ever
demanded from defendant any account|ng of the expenses
and earn|ngs of the bus|ness. Were she rea||y a partner, her
f|rst concern shou|d have been to f|nd out how the bus|ness
was progress|ng, whether the expenses were |eg|t|mate,
whether the earn|ngs were correct, etc. She was abso|ute|y
s||ent w|th respect to any of the acts that a partner shou|d
m|d, at p. 837.
oMCS h||. 111
( 9 9)

have done, a|| that she d|d was to rece|ve her share of
3.000 a month, wh|ch can not be |nterpreted |n any
manner than a payment for the use of the prem|ses wh|ch
she had |eased from the owners. C|ear|y, p|a|nt|ff had a|ways
acted |n accordance w|th the or|g|na| |etter of defendant of
Iune 17, 194S (Lxh. "A"), wh|ch shows that both part|es
cons|dered th|s offer as the rea| contract between them.
68

A8R" demonstrates the pr|nc|p|e that a contract of partnersh|p |s
consensua| |n nature and |s const|tuted by the actua| meet|ng of the
m|nds, such that even when forma| art|c|es of partnersh|p are
drawn-up between the part|es, when |t fact the ev|dence shows that
they never |ntended to enter |nto a partnersh|p, where there has never
been a meet|ng of m|nds to const|tute one.
In contrast, we v|ew the dec|s|on |n I"".5"8)7 T3 >,R'R' as a ||tt|e
dub|ous when |t d|st|ngu|shed between the ob||gat|on to enter |nto a
contract of partnersh|p, from that of execut|ng the cert|f|cate of
partnersh|p |tse|f.
In I"".5"8)7, the p|a|nt|ff and the defendant had come to an
agreement to enter |nto a partnersh|p bus|ness to bott|e and d|str|bute
an Amer|can brand softdr|nks |n the h|||pp|nes, and that defendant,
who wou|d pr|mar||y f|nance the bus|ness, agreed to grant p|a|nt|ff the
r|ght to rece|ve 30 of the prof|ts under h|s ob||gat|on to secure the
bott||ng franch|se for the venture. When the venture was eventua||y
set-up, the defendant had refused to f|na||ze the art|c|es of partnersh|p
when he |earned dur|ng the negot|at|ons |n the Un|ted States that
p|a|nt|ff d|d not have for h|mse|f the bott||ng franch|se he prom|sed he
had secured. 1he p|a|nt|ff brought act|on to have the art|c|es of
partnersh|p executed and to rece|ve h|s 30 share |n the earn|ngs.
resc|nd|ng from the |anguage of the or|g|na| agreement
executed between the part|es that the very |anguage of the agreement
that the part|es |ntended that the execut|on of the agreement to form a
partnersh|p was to be carr|ed out at a |ater
w]RS'./ at p.
117. 93 h||.
S26 (19S3)

date. 1hey express|y agreed that they sha|| form a partnersh|p,"
70
the
Court he|d
As the tr|a| court correct|y conc|uded, the defendant
may not be compe||ed aga|nst h|s w||| to carry out the
agreement nor execute the partnersh|p papers. Under the
Span|sh C|v|| Code, the defendant has an ob||gat|on to do,
not to g|ve. 1he |aw recogn|zes the |nd|v|dua|'s freedom or
||berty to do an act he has prom|sed to do, or not to do |t, as
he p|eases. It fa||s w|th|n what Span|sh commentators ca|| a
very persona| act (acta 67()"-,R')'$"H/ of wh|ch courts may
not compe| comp||ance, as |t |s cons|dered an act of v|o|ence,
t d
71

We d|sagree w|th the afore-quoted ru||ng of the Court |n that |t
fa||s to apprec|ate the consensua| nature of a contract of partnersh|p,
and that the moment the part|es come to an agreement wh|ch bas|ca||y
embod|es the format|on of a common fund w|th the |ntent|on of
d|v|d|ng the prof|ts, as was the case between the part|es |n I"".5"8)7/
a contract of partnersh|p ar|ses, and the |nc|dents thereof governed by
artnersh|p Law, even |n the absence of a forma| cert|f|cate or art|c|es
of copartnersh|p. In any event, we now have the prov|s|ons under
Art|c|e 13S8 of the New C|v|| Code prov|d|ng that acts and contracts
wh|ch have "for the|r ob[ect the creat|on, transm|ss|on, mod|f|cat|on or
ext|ngu|shment of rea| r|ghts over |mmovab|e property, sa|e or rea|
property or of an |nterest there|n ... power to adm|n|ster property, or
any other power wh|ch has for |ts ob[ect an act appear|ng or wh|ch
shou|d appear |n a pub||c document, or shou|d pre[ud|ce th|rd person,"
and wh|ch has been |nterpreted by the Supreme Court as grant|ng a
cause of act|on to one party to seek the execut|on of such pub||c
|nstrument as aga|nst the other party to the contract.
72

`c
FS'./ at p. S39.
71
to]of, at p. S39.
NY
L8R7 T3 <"8(* "& B667,R)/ 286 SCkA 698 (1998), 4,R'"- T3 <"8(* "&
B667,R)/ 182 SCkA 872 (1990), @'$17*1,' ;"-) 0'RR'-+/ F-P3 T3 <B/ 2S0
SCkA S23 (199S), B+,)7- T3 <B/ 32S SCkA S04 (2000).

Cn|y recent|y, !"P," T3 <"8(* "& B667,R)/
-
summar|zed the
preva|||ng doctr|ne on the nature of the contract of partners, thus
1o be cons|dered a [ur|d|ca| persona||ty, a partnersh|p
must fu|f||| these requ|s|tes: (1) two or more persons b|nd
themse|ves to contr|bute money, property or |ndustry to a
common fund, and (2) |ntent|on on the part of the partners
to d|v|de the prof|ts among themse|ves. It may be
const|tuted |n any form, a pub||c |nstrument |s necessary
on|y where |mmovab|e property or rea| r|ghts are
contr|buted thereto. 1h|s |mp||es that s|nce a contract of
partnersh|p |s consensua|, an ora| contract of partnersh|p |s
as good as a wr|tten one. Where no |mmovab|e property or
rea| r|ghts are |nvo|ved, what matters|s that the part|es have
comp||ed w|th the requ|s|tes of a partnersh|p. 1he fact that
there appears to be no record |n the Secur|t|es and Lxchange
Comm|ss|on of a pub||c |nstrument embody|ng the
partnersh|p agreement pursuant to Art|c|e 1772 of the C|v||
Code d|d not cause the nu|||f|cat|on of the partnersh|p...
74

!"P," a|so he|d that so |ong as the two essent|a| e|ements of a
partnersh|p are present, then the fact that the bus|ness was operated
under the name of a reg|stered so|e propr|etorsh|p was of no moment,
espec|a||y when the reg|strat|on of the bus|ness name w|th the 8ureau
of Domest|c 1rade was on|y for purpose of protect|ng the bus|ness
name of the company.
7S

3. Cnerous and 8||atera|
1he onerous and b||atera| character|st|cs of the contract of
partnersh|p are demonstrated by the fact that the ex|stence of a
partnersh|p requ|res an agreement for the creat|on of a common fund
from the contr|but|ons of the partners, wh|ch may e|ther be |n money,
property or |ndustry. Under Art|c|e 1786 of the New C|v||
"342 SCkA 20
(2000)
N
]RS'./ at pp.

`Z
RS'./ at p. 36.

1nL CCN1kAC1 CI Ak1NLkSnI S1S
Code, a partner becomes by |ts very const|tut|on, "a debtor of the
partnersh|p for whatever he may have prom|sed to contr|bute thereto."
A|| partners are bound to contr|bute to the common fund, or to the
partnersh|p, |nc|ud|ng even the |ndustr|a| partner who |s bound to
contr|bute h|s serv|ce.
4. reparatory and rogress|ve
A contract of partnersh|p |s not entered |nto mere|y for the sake of
creat|ng a contractua| re|at|onsh|p between and among the partners, but
pr|mar||y to pursue a bus|ness enterpr|se ='373/ creat|on of a common
fund w|th |ntent to share prof|ts and |osses). Consequent|y, fa|||ng w|th|n
the contractua| meet|ng of the m|nds of the part|es |s that the
|nter-partnersh|p re|at|onsh|p cont|nues to evo|ve as the under|y|ng
bus|ness enterpr|se |tse|f evo|ves and progresses. In other words, the
contract of partnersh|p |s s|mp|y the base upon wh|ch other contracts
and var|ous other transact|ons are to be pursued w|th the pub||c, and for
wh|ch the partners sha|| cont|nua||y ad[ust the|r work|ng re|at|onsh|ps.
1he operat|on of the under|y|ng bus|ness enterpr|se a|so determ|nes the
nature and va|ue of the equ|ty of the partners. 1hus, when the nexus of
the contract of partnersh|p (the common fund and |ntent|on to d|v|de
the prof|ts and |osses) have been const|tuted, other contractua|
re|at|onsh|ps are expected to f|ow therefrom as a matter of course.
An ear|y |||ustrat|on of the "6(76,(,*"(% ,-. 6("+(7))'T7O nature of
the contract of partnersh|p can be found |n the dec|s|on |n L7(-,-.7\ T3
47 R, G"),/
Ne
where once the e|ements of contr|but|on to a common
fund and understand|ng of shar|ng of prof|ts had been c|ear|y estab||shed
between the part|es, a contract of partnersh|p arose and a|| the |nc|dents
ar|s|ng therefrom automat|ca||y engendered even |f the part|es have not
yet dec|ded upon the deta||s of the|r re|at|onsh|p, thus
. . . We have a|ready stated |n the op|n|on what are
the essent|a| requ|s|tes of a contract of partnersh|p . . .
76
1 h||. 671 (1903).

Cons|der|ng as a who|e the probatory facts wh|ch appears
from the record, we have reached the conc|us|on that
p|a|nt|ff and the defendant agreed to the essent|a| parts of
that contract, and d|d |n fact const|tute a partnersh|p, w|th
the funds of wh|ch were purchased the cascoes w|th wh|ch
th|s ||t|gat|on dea|s, a|though |t |s true that they d|d not take
precaut|on to prec|se|y estab||sh and determ|ne from the
beg|nn|ng the cond|t|ons w|th respect to the part|c|pat|on of
each partner |n the prof|ts or |osses of the partnersh|p. 1he
d|sagreements subsequent|y ar|s|ng between them, when
endeavor|ng to f|x these cond|t|ons, shou|d not and cannot
produce the effect of destroy|ng that wh|ch has been done,
to the pre[ud|ce of one of the partners, nor cou|d |t d|vest h|s
r|ghts under the partnersh|p wh|ch had accrued by the
actua| contr|but|on of cap|ta| wh|ch fo||owed the agreement
to enter |nto a partnersh|p, together w|th the transact|ons
effected w|th partnersh|p funds. 1he |aw has foreseen the
poss|b|||ty of the const|tut|on of a partnersh|p w|thout an
express st|pu|at|on by the partners upon those cond|t|ons,
and has estab||shed ru|es wh|ch may serve as a bas|s for the
d|str|but|on of prof|ts and |osses among the partners... We
cons|der that the partnersh|p entered |nto by the p|a|nt|ff
and the defendant fa||s w|th|n the prov|s|on of th|s art|c|e.
77

NN
FS'., at pp. 680-681.

CnA1Lk S
ICkMAL kLUIkLMLN1S ICk Ak1NLkSnIS
We cover separate|y |n th|s chapter the except|ona| c|rcumstances
when the |aw, wh|ch genera||y treats of partnersh|ps as consensua|
contractua| arrangements, |mposes spec|f|c so|emn|t|es and reg|strat|on
requ|rements under certa|n cond|t|ons, and d|scuss the|r |mpact on the
partnersh|p |tse|f, the r|ghts and ob||gat|ons between and among
partners, and dea||ngs w|th the pub||c.
Ak1NLkSnI LSSLN1IALL CCNSLNSUAL IN CnAkAC1Lk
contr|buted thereto, |n wh|ch case a pub||c |nstrument sha|| be
necessary. (1667a)
(1679)
S|nce the contract of partnersh|p |s essent|a||y consensua| |n
character, there |s genera||y no form requ|red, much |ess a need for the
actua| de||very of the prom|sed contr|but|ons, to perfect |t, and thereby
|ead to the ar|s|ng of a separate [ur|d|ca| persona||ty.
S17
S18
Art|c|e 1771 of the New C|v|| Code prov|des that "A partnersh|p
may be const|tuted |n any form, except where |mmovab|e property or
rea| r|ghts are contr|buted thereto, |n wh|ch case a pub||c |nstrument
sha|| be necessary."
1he other except|on |s prov|ded |n Art|c|e 1772 of the New C|v||
Code wh|ch prov|des that "Lvery contract of partnersh|p hav|ng a cap|ta|
of 1hree thousand pesos or more, |n money or property, sha|| appear |n
a pub||c |nstrument, wh|ch must be recorded |n the Cff|ce of the
Secur|t|es and Lxchange Comm|ss|on."
ub||c documents and other forms of reg|strat|on are features of
every commerc|a| |aw system, for |ndeed the pub||c must dea| on the
bas|s of systems, |nfrastructures and |nst|tut|ons that are man|fest and
made known to them, |n ||ne w|th the character|st|c of 8-'&"($'*% of
commerc|a| transact|ons. 8ut as w||| be shown hereunder, the forms and
reg|strat|on requ|rements for partnersh|ps under New C|v|| Code are
meant more to regu|ate the re|at|onsh|p of the partners among
themse|ves and w|th the partnersh|p, but do not rea||y bear |nto the
r|ghts of cred|tors who dea| w|th the bus|ness enterpr|se. Indeed, Art|c|e
1772 of New C|v|| Code prov|des that "Ia||ure to comp|y w|th the
[forma|] requ|rements [of pub||c |nstrument and SLC reg|strat|on] sha||
not affect the ||ab|||ty of the partnersh|p and the members thereof to
th|rd persons."
kLUIkLMLN1S 1ILD 1C CAI1AL CCN1kI8U1ICNS 1. When Cap|ta| Contr|but|ons
1ota| I3,000.00 or More
of 1hree thousand pesos or more, |n money or property, sha||
paragraph sha|| not affect the ||ab|||ty of

ICkMAL kLUIkLMLN1S ICk Ak1NLkSnIS S19
the partnersh|p and the members thereof to th|rd persons, (n)
Under modern day sett|ngs, most partnersh|ps wou|d be formed or
const|tuted hav|ng contr|buted cap|ta| of more than 1^3,000.00, for |t |s
doubtfu| whether two or more persons wou|d come together |n pursu|t
of bus|ness w|th a cap|ta| of |ess than f*3,000.00. 1herefore, the tw|n
requ|rements under Art|c|e 1772 of New C|v|| Code of hav|ng the
contract of partnersh|p |n a pub||c document and reg|stered w|th the SLC
app|y a|most un|versa||y to a|| modern-day partnersh|ps. Lven then, the
tw|n requ|rements may have no |ega| or commerc|a| s|gn|f|cance based
on the fo||ow|ng grounds:
(a) 1he |aw does not dec|are the partnersh|p vo|d when the
tw|n requ|rements are not met, nor |s non-comp||ance
meted any adverse |ega| consequence, and
(b) 1he |aw express|y prov|des that "Ia||ure to comp|y w|th
the requ|rements ... sha|| not affect the ||ab|||ty of the
partnersh|p and the members thereof to th|rd
persons."
a. kat|ona|e for Art|c|e 1772 of the New C|v|| Code
Accord|ng to the Code Comm|ss|on, the bus|ness purpose of the
requ|rements under Art|c|es 1771 and 1772 |s to prevent evas|on of tax
||ab|||t|es by b|g partnersh|p and to safeguard the pub||c by enab||ng |t to
determ|ne more accurate|y the membersh|p and cap|ta| of partnersh|ps
before dea||ng w|th them.
1

Under current tax ru|es, wh|ch essent|a||y taxes the partnersh|p
separate|y as corporate taxpayer, forma| reg|strat|on requ|rements w|th
the 8Ik on matters as gett|ng a taxpayer |dent|f|cat|on number (1IN), to
be reg|stered as w|thho|d|ng agent, 7*P3/
Memorandum of Code Comm|ss|on, LAWLkS' ICUkNAL, Cctober
19SS, p. S18, c|ted |n 8AU1IS1A, at pp. 71-72.

S20
wou|d requ|re subm|ss|on of the reg|stered art|c|es of partnersh|p. 8ut
then |f the mot|vat|on |s to go be|ow the government radar, and to
operate w|th|n the underground eco-nomy as a means of avo|d|ng tax
and adm|n|strat|ve burdens, then non-reg|strat|on w|th the SLC and
other government agenc|es wou|d be the ||ke|y scheme to be fo||owed.
F& *57(7 ,(7 -" .7R7*7('"8) P"-)7g87-P7) '$6")7. S% *57 @,b "-
K,(*-7()5'6) '- -"* P"$6R%'-+ b5% *57 &"($,R'*'7) 8-.7( B(*'PR7 `NN`/
b5% )5"8R. *57% S7 P"$6R'7. b'*5r
In B-+7R7) T3 ;7P(7*,(% "& J8)*'P7/
Y
the Supreme Court he|d that
the "mere fa||ure to reg|ster the contract of partnersh|p w|th the SLC
does not |nva||date a contract that has the essent|a| requ|s|tes of a
partnersh|p. 1he purpose of reg|strat|on of the contract of partnersh|p |s
to g|ve not|ce to th|rd part|es. L,'R8(7 *" (7+')*7( *57 P"-*(,P* "&
6,(*-7()5'6 ."7) -"* ,&&7P* *57 R',S'R'*% "& *57 6,(*-7()5'6 ,-. "& *57
6,(*-7() *" *5'(. 67()"-)3 97'*57( ."7) )8P5 &,'R8(7 *" (7+')*7( ,&&7P* *57
6,(*-7()5'6^) X8('.'P,R 67()"-,R'*%3 B 6,(*-7()5'6 $,% 7W')* 7T7- '& *57
6,(*-7() ." -"* 8)7 *57 b"(.) ^6,(*-7(^"( ^6,(*-7()5'63O
[

In any event, s|nce Art|c|es 1771 and 1772 of the New C|v|| Code do
not express|y dec|are that fa||ure to comp|y w|th the pub||c document
requ|rement renders the contract of partnersh|p vo|d, then the genera|
ru|e |s that such fa||ure does not render the contract vo|d, but on|y
affects the manner of |ts reg|strat|on and affords to the part|es affected
the remedy of demand|ng that |t be executed |n a pub||c |nstrument.
4

b. keg|stered artnersh|p Deemed Conc|us|ve as to the artnersh|p Set-up
Among the artners
1he dec|s|on |n G"X,) T3 0,+R,-,,seems to po|nt to a "|ega|
usefu|ness" of comp|y|ng w|th the tw|n requ|rements mandated under
Art|c|es 1771 and 1772 of New C|v|| Code.
246S SCkA 106 (200S).
[
FS'./ at p. 11S, 7$65,)') )866R'7.3
]4,8.7-V>7(-,7\ T3 47 R") B-+7R7)/ 27 SCkA 1276 (1969), 4,R'"- T3
<"8(* "& B667,R)/ 182 SCkA 872 (1990), L8R7 T3 <"8(* "& B667,R)/ 286
SCkA 698 (1998).
S
192 SCkA 110 (1990).
In that case, Mag|ana and ko[as executed the|r Art|c|es of Co-
partnersh|p, ca|||ng the|r company the "Lastcoast Deve|opment
Lnterpr|ses (LDL)," w|th the purpose to "app|y or secure t|mber and]or
m|nor forests products ||censes and concess|ons over pub||c and]or
pr|vate forest |ands and to operate, deve|op and promote such forests
r|ghts and concess|ons." 1he art|c|es were du|y reg|stered w|th the the
SLC, |nd|cat|ng there|n an |ndef|n|te per|od for the venture, and
prov|d|ng that the prof|ts wou|d be d|v|ded "share and share a||ke."
When the venture was not gett|ng off the ground, they |nv|ted
ahamatong as |ndustr|a| partner, and they executed a "Supp|ementa|
Art|c|es of Co-partnersh|p" ma|nta|n|ng the or|g|na| name of the
company, but th|s t|me prov|d|ng for a per|od of th|rty (30) years for the
||fe of the venture, and prov|d|ng for equa| d|str|but|on of prof|ts among
the three partners. 1he new art|c|es were not reg|stered w|th the SLC.
A|though the f|rm began operat|ons w|th prof|ts, eventua||y ahamatong
w|thdrew from the arrangement and h|s equ|ty was bought back by
Mag|ana and ko[as, who then proceeded to operate the f|rm under the
or|g|na| name, and w|th the verba| agreements that the prof|ts wou|d be
d|str|buted 80-20 |n favor of Mag|ana.
When ko[as abandoned the enterpr|se to set-up a compet|ng
venture |n another |ogg|ng concess|on, he w|thdrew some of h|s
equ|pment contr|buted to LDL to be used |n h|s new venture. Mag|ana
not|f|ed ko[as of h|s (Mag|ana's) w|thdrawa| from the partnersh|p
arrangement, and for ko[as to account fu||y for the amounts w|thdrawn
from the partnersh|p treasury, wh|ch when tota|ed up wou|d
necess|tated for ko[as to pay the prom|sed contr|but|ons under the
or|g|na| art|c|es of co-partnersh|p.
1he case reached the Supreme Court on the fo||ow|ng |ssues: (a) on
the nature of the partnersh|p that ex|sted between Mag|ana and ko[as
after the w|thdrawa| of the |ndustr|a| partner, (b) whether |t became a
partnersh|p at w||| as prov|ded under the or|g|na| art|c|es of partnersh|p
as to have [ust|f|ed Mag|ana's term|nat|on thereof when the second
art|c|es of partnersh|p prov|ded for a per|od of 30 years, and (c) the bas|s
of the d|str|but|on of prof|ts and |osses from the LDL venture, whether |t
wou|d be the "share and share a||ke" under the f|rst art|c|es of

S22
partnersh|p, on the bas|s of cap|ta| contr|but|ons based on the second
art|c|es of partnersh|p, or on the verba| agreement of 80-20 |n favor
of Maga|ana.
1he Court p|aced much we|ght on the or|g|na| art|c|es of
|ncorporat|on executed by Mag|ana and ko[as, wh|ch was du|y
reg|stered w|th the SLC, and he|d that when the second art|c|es of
co-partnersh|p was executed (but not reg|stered), there was every
|ntent|on to ab|de by the or|g|na| partnersh|p arrangement ex|st|ng
under the reg|stered art|c|es, s|nce |t covered the same venture and
used the same f|rm name, thus
After a carefu| study of the records as aga|nst the
conf||ct|ng c|a|ms of ko[as and Mag|ana, |t appears ev|dent
that |t was not the |ntent|on of the partners to d|sso|ve the
f|rst partnersh|p, upon the const|tut|on of the second one,
wh|ch they unm|stakab|y ca||ed an "Add|t|ona| Agreement"..
. Lxcept for the fact that they took |n one |ndustr|a| partner,
gave h|m an equa| share |n the prof|ts and f|xed the term of
the second partnersh|p to th|rty (30) years, everyth|ng e|se
was the same.
1hus, they adopted the same name, LAS1CCAS1
DLVLLCMLN1 LN1LkkISLS, they pursued the same
purposes and the cap|ta| contr|but|ons of ko[as and Mag|ana
as st|pu|ated |n both partnersh|ps ca|| for the same amounts.
Iust as |mportant |s the fact that a|| subsequent renewa|s of
1|mber L|cense No. 3S-36 were secured |n favor of the I|rst
artnersh|p, the or|g|na| ||censee. 1o a|| |ntents and purposes
therefore, the I|rst Art|c|es of artnersh|p were on|y
amended, |n the form of Supp|ementary Art|c|es of
Co-artnersh|p . . . wh|ch was never r eg| st er ed . . . .
Ctherw|se stated, even dur|ng the ex|stence of the second
partnersh|p, a|| bus|ness transact|ons were carr|ed out under
the du|y reg|stered art|c|es. As found by the tr|a| court, |t |s
an adm|tted fact that even up to now, there are st|||
subs|st|ng ob||gat|ons and contracts of the | at t er . . . . No
r|ghts and ob||gat|ons accrued |n the name of the second
partnersh|p except |n favor of ahamotang wh|ch was fu||y
pa|d by the du|y reg|stered partnersh|p
6

]RS'./ at pp. 117-118, 7$65,)') )866R'7.3

1he Court dec|ared the partnersh|p to be one at w|||, under the
terms of the reg|stered art|c|es of co-partnersh|p, and ru|ed that the
shar|ng scheme between Mag|ana and ko[as on the prof|ts and |oses of
the venture wou|d have to comp|y w|th that st|pu|ated |n the reg|stered
art|c|es of co-partnersh|p:
And |n whatever way he may v|ew the s|tuat|on, the
conc|us|on |s |nev|tab|e that ko[as and Mag|ana )5,RR S7
+8'.7. '- *57 R'g8'.,*'"- "& *57 6,(*-7()5'6 S% *57 6("T')'"-)
"& '*) .8R% (7+')*7(7. B(*'PR7) "& <"VK,(*-7()5'6^/ that |s, a||
prof|ts and |osses of the partnersh|p sha|| be d|v|ded "share
and share a||ke" between the partners, W W W Consequent|y,
except as to the |ega| re|at|onsh|p of the partners after the
w|thdrawa| of ahamatong b5'P5 ') 8-g87)*'"-,SR% ,
P"-*'-8,*'"- "& *57 .8R% (7+')*7(7. 6,(*-7()5'6 and the
shar|ng of prof|ts and |osses wh|ch shou|d be on the bas|s of
share and share a||ke as prov|ded for |n the du|y reg|stered
Art|c|es of Co-artnersh|p, no p|aus|b|e reason cou|d be
found to d|sturb the f|nd|ngs and conc|us|ons of the tr|a|
court.
7

In G"X,)/ the Court refers to a partnersh|p arrangement that |s not
covered by du|y reg|stered art|c|es of co-partnersh|p as a O.7 &,P*"
partnersh|p," the |mp||cat|on |s that when a partnersh|p has comp||ed
w|th the forma||t|es and reg|strat|on requ|red under Art|c|es 1771 and
1772, |t wou|d proper|y be termed as a O.7 X8(7 partnersh|p."
1he |esson that can be drawn from G"X,) |s that comp||ance w|th
the forma| requ|rements mandated under the Law on artnersh|ps
|ndeed has a very usefu| |ega| purpose: the du|y reg|stered art|c|es of
co-partnersh|p sha|| serve to b|nd the partners as to the|r contractua|
|ntent, and the defau|t ru|es prov|ded for under the Law on artnersh|ps
|n New C|v|| Code cannot app|y to overcome the prov|s|ons of the
art|c|es of co-partnersh|p that |s du|y reg|stered w|th the SLC, except by
another |nstrument that seeks to amend or mod|fy the same and du|y
reg|stered a|so w|th the SLC.
N
FS'./ at p. 119, 7$65,)') )866R'7.3

S24
2. When Immovab|e roperty Contr|buted
a. n|stor|ca| 8ackground of Art|c|e 1773
ku||ng under the prov|s|ons of the Code of Commerce and the o|d
C|v|| Code wh|ch prescr|bed forma||t|es for the format|on of a
partnersh|p where rea| property |s contr|buted, the Court he|d |n :"(X,
T3 B..')"-,
8
that "know|edge of the ex|stence of the new partnersh|p or
commun|ty of property must, at |east, be brought home to th|rd persons
dea||ng w|th the surv|v|ng husband |n regard to commun|ty rea|
property |n order to b|nd them by the commun|ty agreement."
9

Consequent|y under the o|d sett|ng, th|rd part|es w|thout know|edge of
the ex|stence of the partnersh|p who dea| w|th the property st|||
reg|stered |n the name of one of the partners have a r|ght to expect fu||
effect|v|ty of such transact|on on the property, |n sp|te of the
protestat|on of the other partners and perhaps even the partnersh|p
cred|tors.
b. Importance of Immovab|e roperty |n the
artnersh|p Scheme
1he |mportance that the |aw p|aces upon |mmovab|e propert|es
wh|ch const|tute part of the assets of the partnersh|p |s
8
44 h||. 89S
( )
l
RS'./ at p. 907.

ICkMAL kLUIkLMLN1S ICk Ak1NLkSnIS S2S
not on|y shown by the forma| requ|rements mandated under Art|c|e
1773 of New C|v|| Code, wh|ch requ|res the execut|on of the |nventory
cover|ng such propert|es to be attached to the pub||c |nstrument ='373/
the art|c|es of |ncorporat|on) that shou|d be reg|stered w|th the SLC, but
a|so by what seems to be a superf|uous Art|c|e 1774 of New C|v|| Code
wh|ch re|terates the obv|ous |ega| capac|ty of a partnersh|p to own
propert|es as a [ur|d|ca| person, where |t prov|des that "Any |mmovab|e
property or an |nterest there|n may be acqu|red |n the partnersh|p
name. 1|t|e so acqu|red can be conveyed on|y |n the partnersh|p name."
1hen a|so, we have the |ong prov|s|ons of Art|c|e 1819 of New C|v||
Code, wh|ch deta|| how rea| property owned by the partnersh|p may be
|ega||y dea|t w|th, under var|ous c|rcumstances where t|t|e |s not
reg|stered |n the name of the partnersh|p.
c. When Immovab|e roperty Deemed Contr|buted
B+,. T3 0,S,*", rem|nds us that |t |s not the purpose c|ause of
the art|c|es of partnersh|p or the des|gnated bus|ness to be engaged |n,
that determ|ne whether there shou|d be deemed contr|buted
|mmovab|e propert|es to the venture to tr|gger the app||cat|on of Art|c|e
1773 of New C|v|| Code. 1he Court he|d |n B+,. that s|nce the art|c|es of
partnersh|p |nd|cated that the partners were go|ng to contr|bute cash
|nto the venture, then the fact that the partnersh|p was express|y
organ|zed "to operate f|shpond," d|d not necessar||y mean that e|ther a
f|shpond or a rea| r|ght to any f|shpond was contr|buted |nto the
venture.
1he ru||ng wou|d a|so support the pos|t|on that [ust because the
partnersh|p venture owns or operates |mmovab|es does not mean |t
comes |nto the operat|on of Art|c|e 1773, as when such |mmovab|es
were not contr|buted by the partners but were purchased dur|ng the
operat|ons of the partnersh|p bus|ness.
10
23 SCkA 1223 (1968).

S26
d. kat|ona|e 8eh|nd the Iorma| kequ|rements under
Art|c|e 1773
It Is when |mmovab|e property |s contr|buted |nto the cap|ta| of
the partnersh|p that the tw|n requ|rements of pub||c document and SLC
reg|strat|on come |nto p|ay together w|th the requ|rement of an
|nventory to be prepared, s|nce Art|c|e 1773 prov|des that "A contract
of partnersh|p |s vo|d, whenever |mmovab|e property |s contr|buted
thereto, |f an |nventory of sa|d property |s not made, s|gned by the
part|es, and attached to the pub||c |nstrument."
4"7) *57 .7PR,(,*'"- "& -8RR'*% "& *57 6,(*-7()5'6 8-.7( B(*'PR7
`NN[ "& *57 97b <'T'R <".7 &"( &,'R8(7 *" P"$6R% b'*5 *57 &"($,R'*'7)
*57(7'- (7&7( *" *57 '-*(,V6,(*-7()5'6 (7R,*'"-) "& *57 6,(*-7() ,$"-+
*57$)7RT7) ,-. *57 6,(*-7()5'6/ or *" *57 7W*(,V6,(*-7()5'6 (7R,*'"-)5'6
b'*5 *57 P(7.'*"()/ "( *" S"*5r 1he dec|s|on |n !"((7) T3 <"8(* "&
B667,R)/O shou|d be |nstruct|ve |n address|ng these |ssues.
In !"((7)/ a "Io|nt Venture Agreement" was executed among the
co-venturers cover|ng the terms for the deve|opment of a subd|v|s|on
pro[ect, the contr|but|ons of the co-venturers and the manner of
d|str|but|on of the prof|ts. Spec|f|ca||y, the agreement requ|red from the
cap|ta||st partners to contr|bute the parce|s of |and upon wh|ch the
pro[ect was to be deve|oped. No art|c|es of partnersh|p was reg|stered
w|th the SLC, much |ess was the requ|s|te |nventory mandated under
Art|c|e 1773 of New C|v|| Code executed and attached to the pub||c
document. In ru||ng aga|nst the content|on of the cap|ta||st partners
that the partnersh|p was vo|d, the Court he|d
.. . I|rst, Art|c|e 1773 was |ntended pr|mar||y to protect
th|rd persons. 1hus, the em|nent Arturo M. 1o|ent|no states
that under the aforec|ted prov|s|on wh|ch |s a comp|ement
of Art|c|e 1771, "the execut|on of a pub||c |nstrument wou|d
be use|ess |f there |s no |nventory of the property
contr|buted, because w|thout |ts des|gnat|on and
descr|pt|on |n the keg|stry of roperty, and the|r
contr|but|on cannot pre[ud|ce
"320 SCkA 428 (1999).

th|rd persons. 1h|s w||| resu|t |n fraud to those who contract
w|th the partnersh|p |n the be||ef [|n] the eff|cacy of the
guaranty |n wh|ch the |mmovab|es may cons|st. 1hus, the
contract |s dec|ared vo|d by |aw when such |nventory |s
made. 1he case at bar does not |nvo|ve th|rd part|es who
may be pre[ud|ced.
Second, pet|t|oners themse|ves |nvoke the a||eged|y vo|d
contract as bas|s for the|r c|a|m that respondent shou|d pay
them 60 percent of the va|ue of the property. 1hey cannot |n
one breath deny the contract and |n another recogn|ze |t,
depend|ng on what momentar||y su|ts the|r purpose. art|es
cannot adopt |ncons|stent pos|t|ons |n regard to a contract
and courts not to|erate, much |ess approve, such pract|ce.
In short, the a||eged nu|||ty of the partnersh|p w||| not
prevent courts from cons|der|ng the Io|nt Venture
Agreement an ord|nary contract from wh|ch the part|es'
r|ghts and ob||gat|ons to each other may be |nferred and
enforced.
12

It |s c|ear from !"((7) that the forma||t|es mandated under Art|c|e
1773 are meant to be for the protect|on of the partnersh|p cred|tors, and
that the dec|arat|on that the "partnersh|p |s vo|d" does not affect the
|ntra-partnersh|p re|at|onsh|p between and among the partners and
between the partners and the partnersh|p |tse|f. 1hus, !"((7) he|d that
the "a||eged nu|||ty of the partnersh|p w||| not prevent courts from
cons|der|ng the Io|nt Venture Agreement [or any contract of
partnersh|p] an ord|nary contract from wh|ch the part|es' r|ghts and
ob||gat|ons may be |nferred and enforced." 1herefore, from the
|ntra-partnersh|p po|nt of v|ew, there are no d|re consequences that
befa|| the partners and the partnersh|p for fa|||ng to comp|y w|th the
forma||t|es mandated under Art|c|e 1773 of New C|v|| Code. If we fo||ow
therefore the !"((7) reason|ng that the forma||t|es mandated under
Art|c|e 1773 are meant to protect partnersh|p cred|tors, we do not see
how the |mpos|t|on of the ru|e "partnersh|p |s vo|d," cou|d be benef|c|a|
or protect|ve of the r|ghts of partnersh|p cred|tors, for the fo||ow|ng
reasons:
OFS'./ at p. 438.
L'()*R%/ the dec|arat|on of nu|||ty of the partnersh|p cannot be
ascr|bed to the extra-partnersh|p re|at|onsh|p between the partners and
partnersh|p on one hand, and the partnersh|p cred|tors on the other
hand, for to do so wou|d adverse|y affect the contractua| r|ghts and
stand|ng of the cred|tors T')V,VT') the partners on the|r un||m|ted ||ab|||ty
ru|e and the partnersh|p, wh|ch must be deemed to ex|st to protect the
|ntegr|ty of the contracts entered |n |ts name.
;7P"-.R%/ dec|ar|ng the partnersh|p vo|d means that a||
contr|buted and earned assets of the partnersh|p perta|n to the partners
d|rect|y as co-owners, s|nce no contract of partnersh|p ex|st between
them (|t |s vo|d and |nex|stent), and no partnersh|p person has ar|sen
w|th a [ur|d|ca| persona||ty separate and d|st|nct from each of the
partners. Not on|y does th|s scenar|o affect the |ntegr|ty of the contracts
entered |nto d|rect|y w|th the partnersh|p, but |t a|so means that the
contr|buted and earned partnersh|p assets perta|n d|rect|y to the
persons of the partners and pr|or|ty as to them perta|ns to the|r
separate cred|tors and not to the partnersh|p cred|tors.
Ne|ther of the afore-descr|bed scenar|os seem to promote the
|nterests or protect the r|ghts of the cred|tors of the partnersh|p.
e. Suggested Adverse Lffect of Ia||ure to Comp|y keg|strat|on
kequ|rements of Art|c|e 1773
1he !"((7) ru||ng has therefore removed any "force" or "teeth" on
the dec|arat|on of nu|||ty of the partnersh|p under Art|c|e 1773: |t cannot
hurt but must protect the partnersh|p cred|tors, and yet |t has no
bear|ng or app||cat|on to the partners and the partnersh|p |n the|r
|ntra-partnersh|p re|at|onsh|p.
1he author's pos|t|on, as a resu|t of reso|v|ng th|s |ssue |n c|ass
d|scuss|ons, |s that contrary to the !"((7) ru||ng, the forma||t|es under
Art|c|e 1773 shou|d be understood as to create adverse consequences
for the partners who refuse to comp|y w|th the requ|rements T')VeVT')
the|r re|at|onsh|p w|th partnersh|p cred|tors.

When the partners fa|| to comp|y w|th the forma||t|es under Art|c|e
1773, |t ought to mean that they cannot ava|| of any advantage that the
partnersh|p med|um affords them. 1he pr|mary advantage that the
partners have under a .7 X8(7 partnersh|p sett|ng |s that the|r persona|
||ab|||ty to partnersh|p cred|tors for assets that have not been
contr|buted to the f|rm |s on|y [o|nt and subs|d|ary, s|nce they have the
benef|t of excuss|on.
Consequent|y, when partners do not comp|y w|th the forma||t|es
under Art|c|e 1773, the "partnersh|p |s vo|d" |n the sense that the
partners are deemed to be act|ng for themse|ves when they entered |nto
partnersh|p contracts and transact|ons, and that, s|m||ar to the pr|nc|p|e
|n Agency Law that makes the agent pr|mar||y ||ab|e for contracts
entered |nto |n beha|f of an |nex|stent pr|nc|pa|, then partners can be
he|d d|rect|y ||ab|e by partnersh|p cred|tors for a|| contracts entered |nto,
and a|| ob||gat|ons assumed, |n the name of a partnersh|p wh|ch |s
dec|ared vo|d.
1he |andscape has become more comp||cated w|th the recent
ru||ng |n @'*"-X8,/ J(3 T3 @'*"-X8,/ Sr.,
13
where presented |n ev|dence was a
typewr|tten note (referred to as Annex "A-1") whereby the e|der brother
purported|y prom|sed to the younger brother that "I w||| make sure that
you get CNL MILLICN LSCS (1,000,000.00) or ten percent (10)
equ|ty, wh|chever |s greater," of the bus|ness that the younger brother
wou|d he|p manage, cons|st|ng of theatre bus|ness and other rea| estate
propert|es. 1he typewr|tten note was not s|gned by the e|der brother,
who den|ed |ts authent|c|ty dur|ng tr|a|.
1he ma|n |ssue reso|ved |n @'*"-X8, was whether a contract of
partnersh|p or [o|nt venture arrangement ex|sted between the s|b||ngs, a
pure|y |ntra-partnersh|p |ssue that essent|a||y d|d not |nvo|ve the r|ghts
of th|rd part|es dea||ng w|th the bus|ness enterpr|se. et, the Supreme
Court d|d not at a|| a||ude to |ts dec|s|ons |n !"((7) or |n B-+7R7), where |t
he|d that the prov|s|ons of Art|c|es 1771 to 1773 of New C|v|| Code, as to
the forma| requ|rements for partnersh|ps, app||ed on|y for the protect|on
of
13
477 SCkA S76 (200S).

S30
th|rd part|es dea||ng w|th the partnersh|p. In reso|v|ng that there was
const|tuted no partnersh|p or [o|nt venture between the s|b||ngs, or that
the same |s vo|d, the Court, after quot|ng Art|c|es 1771 to 1773, he|d |n
@'*"-X8, that
Annex "A-1," on |ts face, conta|ns typewr|tten entr|es,
persona| |n tone, S8* ') 8-)'+-7. ,-. 8-.,*7.3 As an
uns|gned document, there can be no qu|bb||ng that Annex
"A-1" ."7) -"* $77* *57 68SR'P '-)*(8$7-*,*'"-
(7g8'(7$7-*) 7W,P*7. 8-.7( B(*'PR7 `NN` "& *57 <'T'R <".73
Moreover, be|ng uns|gned ,-. ."8S*R7)) (7&7(('-+ *" ,
6,(*-7()5'6 '-T"RT'-+ $"(7 *5,- K[/ccc3cc '- $"-7% "(
6("67(*%/ B--7W OBVÒ P,--"* S7 6(7)7-*7. &"( -"*,('\,*'"-/
R7* ,R"-7 (7+')*7(7. b'*5 *57 ;7P8('*'7) ,-. DWP5,-+7
<"$$'))'"- =;D<H/ ,) P,RR7. &"( 8-.7( *57 B(*'PR7 ``NY "& *57
<".73 And |nasmuch as the |nventory requ|rement under the
succeed|ng Art|c|e 1773 goes |nto the matter of va||d|ty
when |mmovab|e property |s contr|buted to the partnersh|p,
the next |og|ca| po|nt of |nqu|ry turns on the nature of
pet|t|oner's contr|but|on, |f any, to the supposed
partnersh|p.
14

It |s c|ear from the afore-quoted passage that @'*"-X8, cons|dered
as b|nd|ng and effect|ve to pure|y |ntra-partnersh|p |ssues the
mandatory prov|s|ons of Art|c|es 1771 and 1773 of New C|v|| Code that
requ|re that even when there |s no |ssue that the meet|ng of the m|nds
|nvo|ves the format|on of a partnersh|p _'373/ the typewr|tten note
"doubt|ess referr|ng to a partnersh|p |nvo|v|ng more than 3,000.00 |n
money or property") then the requ|rement that the contract be cast |n a
pub||c |nstrument and reg|stered w|th the SLC were deemed to be
essent|a| to susta|n a c|a|m tha| a contract of partnersh|p ex|st between
the part|es, otherw|se the purported contract |s deemed to be
8-7-&"(P7,SR73
1he doctr|ne that fa||ure to comp|y w|th the pub||c |nstrument and
SLC-reg|strat|on requ|rements under Art|c|e 1772 of New C|v|| Code
renders the contract of partnersh|p as 8-7-&"(P7,SR7 can be deduced
from the fo||ow|ng port|on of the @'*"-X8, dec|s|on wh|ch re||ed on
prov|s|on of the Statute of Irauds, thus:
8
RS'./ at p. S8S, 7$65,)') )866R'7.3

It |s at once apparent that what respondent Lduardo
|mposed upon h|mse|f under the above passage, |f he |ndeed
wrote Annex OBV`/O |s a prom|se wh|ch |s not to be
performed w|th|n one year from "contract" execut|on on
Iune 22,1973. Accord|ng|y, the agreement embod|ed |n
Annex
**
BVÒ |s covered by the Statute of Irauds and 7(+"
unenforceab|e for non-comp||ance therew|th. 8y force of the
statute of frauds, an agreement that by |ts terms |s not to be
performed w|th|n a year from the mak|ng thereof sha|| be
unenforceab|e by act|on, un|ess the same, or some note or
memorandum thereof, be |n wr|t|ng and )8S)P('S7. by the
party charged. Coro||ar||y, no act|on can be proved un|ess the
requ|rement exacted by the statute of frauds |s comp||ed
w|th.
1S

Unfortunate|y, the Court fa||ed to cons|der the fact that even under
the Statute of Irauds, the "unenforceab|||ty" of covered contracts |s
||fted the moment there |s part|a| or fu|| execut|on of the terms of the
contract. 1hus, |n the future |t can be ant|c|pated that the ru|e of part|a|
execut|on, ='373/ the actua| contr|but|on made to the partnersh|p, the
pursu|t of the bus|ness enterpr|se, 7*P3H/ wou|d m|t|gate aga|nst the
de|eter|ous effect of non-comp||ance w|th the pub||c |nstrument and
SLC-reg|strat|on requ|rement under Art|c|es 1771 and 1772 of New C|v||
Code.
In any event, what rendered the purported contract of partnersh|p
vo|d |n @'*"-X8, was that s|nce the note |nd|cated that there wou|d be
contr|buted rea| property to the partnersh|p, then there was fa||ure to
comp|y w|th the requ|rements |a|d.down |n Art|c|e 1773 of New C|v||
Code, for the render|ng of the proper |nventory and attach|ng |t to the
pub||c |nstrument reg|stered w|th the SLC, thus:
Lest |t be over|ooked, the contract-va||dat|ng |nventory
requ|rement under Art|c|e 1773 of the C|v|| Code app||es as
|ong [as] rea| property or rea| r|ghts are |n|t|a||y brought |nto
the partnersh|p. In short, |t |s rea||y of no moment wh|ch of
the partners, or, |n th|s case, who between pet|t|oner and h|s
brother Lduardo, contr|buted |mmovab|es. In context,
p
RS'./ at p. S90.

S32
the more Important cons|derat|on |s that rea| property was
contr|buted, |n wh|ch case an |nventory of the contr|buted
property du|y s|gned by the part|es shou|d be attached to the
pub||c |nstrument, e|se there |s |ega||y no partnersh|p to
speak of.
18

@'*"-X8, therefore g|ves the "d|re consequences" faced by partners
who do not comp|y w|th the forma| requ|rements mandated under
Art|c|es 1771 to 1773 of New C|v|| Code. It wou|d have been better |f
@'*"-X8, had express|y set as|de |ts ru||ngs |n !"((7) and B-+7R7)/ so that
|ts doctr|ne wou|d have been the c|ear gu|de to |ega| pract|t|oners.
1he author pos|ts that the !"((7) and B-+7R7) ru||ngs wh|ch have
the|r bas|s [ur|sprudence under the o|d C|v|| Code and the Code of
Commerce, w||| cont|nue to preva||, and that the @'*"-X8, doctr|ne of
render|ng the contract of partnersh|p vo|d for fa||ure to comp|y w|th the
requ|rements under Art|c|e 1773 of New C|v|| Code, app||cab|e on|y to
s|tuat|ons where the c|a|mant that a contract of partnersh|p has been
du|y const|tuted re||es on|y upon a note or |nstrument, and does not
have other ev|dence to prove that |ndeed a contract of partnersh|p has
been const|tuted, such as h|s exerc|se w|th the to|erance of the other
partners, of acts of ownersh|p, demand|ng for an account|ng,
part|c|pat|on |n the prof|t, etc. Indeed, |n @'*"-X8, the best ev|dence
presented by the younger brother to prove a contract of partnersh|p
had been const|tuted was the uns|gned typewr|tten note, and he fa||ed
to prove the essent|a| e|ements of the contract of partnersh|p, as
observed by the Court, thus:
Lest |t be over|ooked, pet|t|oner |s the |ntended benef|c|ary
of the 1 M||||on or 10 equ|ty of the fam||y bus|nesses
supposed|y prom|sed by Lduardo to g|ve |n the near future.
Any suggest|on that the stated amount or the equ|ty
component of the prom|se was |ntended to go to a common
fund wou|d be to read someth|ng not wr|tten |n Annex OBVÒ
!58)/ 7T7- *5') ,-+R7 ,R"-7 ,(+87) ,+,'-)* *57 T7(% '.7, "&
, 6,(*-7()5'6/ *57 P(7,*'"- "& b5'P5
è
FS'., at p. S86.

requlres Lwo or more conLracLlng mlnds muLually agreelng Lo
conLrlbuLe money, properLy or lndusLry Lo a common fund
wlLh Lhe lnLenLlon of dlvldlng Lhe proflLs beLween or among
Lhemselves
erhaps the afore-quoted passage |s the best way to apprec|ate
the dec|s|on |n @'*"-X8,/ that |n the end no contract of partnersh|p
arose between the L|ton[ua s|b||ngs even on the bas|s of the
arrangement purported, s|nce |t |acked the essent|a| e|ement of
"contr|but|ng to a common fund." 1hus, the ru||ngs on the fa||ure to
comp|y w|th the prov|s|ons of Art|c|e 1771 to 1773 of New C|v|| Code
ought to be cons|dered as "S'*7( .'P*8$3
f. Art|c|e 1773 Shou|d 8e Cons|dered w|th r|or|ty ku|es for
C|a|ms of artnersh|p Cred|tors and Separate Debtors of
the artners
1he proper reg|strat|on of rea| property contr|buted |nto the
partnersh|p wou|d have much to do w|th the pr|or|ty ru|es set under
the Law on artnersh|ps between c|a|ms of partnersh|p cred|tors and
those of the separate cred|tors of the each of the partners.
Ia||ure to comp|y w|th the |nventory and pub||c documents
requ|rements may adverse|y affect the r|ghts of the partners, the
partnersh|p and the partnersh|p cred|tors, when |t comes to the
b|nd|ng effect of transact|ons re|at|ng to rea| estate and other
|mmovab|es where the contro|||ng doctr|ne |s that such transact|ons do
not b|nd the pub||c un|ess they are found |n a pub||c document, and
du|y reg|stered.
1hus, |n ;7P8%, T3 2.,3 .7 Se]ma,
18
the Court he|d that wh||e the
sa|e of |and appear|ng |n a pr|vate deed |s b|nd|ng between the part|es,
|t cannot be cons|dered b|nd|ng on th|rd persons |f |t |s not embod|ed
|n a pub||c |nstrument and recorded |n the keg|stry of Deeds. When |t
comes to contr|but|ons of rea| estate to a partnersh|p, espec|a||y when
|t covers reg|stered |and, then
`N
FS'., at pp. S90-S91, 7$65,)')
R' .
18
326 SCkA 244 (2000).
the peremptory prov|s|ons of the roperty keg|strat|on Decree (res.
Decree No. 14S9) w||| preva|| as to who has a better c|a|m, r|ght or ||en
on the property, s|nce "reg|strat|on |n good fa|th and for va|ue," |s the
operat|ve ru|e under the 1orrens system.
Under Art|c|e 1839(8) of the New C|v|| Code, "When partnersh|p
property and the |nd|v|dua| propert|es of the partners are |n possess|on
of a court for d|str|but|on, partnersh|p cred|tors sha|| have pr|or|ty on
partnersh|p property and separate cred|tors on |nd|v|dua| property,
sav|ng the r|ghts of ||en or secured cred|tors."
Aga|n, under Art|c|e 1839(9) of the New C|v|| Code, "Where a
partner has become |nso|vent or h|s estate |s |nso|vent, the c|a|ms
aga|nst h|s separate property sha|| rank |n the fo||ow|ng order:
"(a) 1hose ow|ng to separate cred|tors,
"(b) 1hose ow|ng to partnersh|p cred|tors,
"(c) 1hose ow|ng to partners by way of contr|but|on..."
;'-P7 !"((7) )67P'&'P,RR% 57R. *5,* *57 (8R7) "& '-T7-*"(%/ 68SR'P
'-)*(8$7-* ,-. ;D< (7+')*(,*'"- 8-.7( B(*'PR7) `NNY ,-. `NN[ "& 97b
<'T'R <".7 ,(7 $7,-* *" 6("*7P* 6,(*-7()5'6 P(7.'*"()/ ,-. ,) *" *57$
*57 6,(*-7()5'6 )5,RR S7 P"-)'.7(7. T"'. '& '* ') -7P7)),(% *" 6("*7P* *57'(
'-*7(7)*)/ b5,* 5,667-) *57- *" (7,R 6("67(*% P"-*('S8*'"-) *5,* 5,T7
-"* P"$6R'7. b'*5 *57 )*,*8*"(% &"($,R'*'7)r I"8R. &'()* 6('"('*% "T7(
*57$ 67(*,'- *" *57 )76,(,*7 P(7.'*"() "& *57 P"-*('S8*'-+ 6,(*-7(r
We can on|y specu|ate on the answers to these |ssues.
kLUIkLMLN1S 1ILD 1C Ak1NLkSnI NAML
Ak1. 181S. Lvery partnersh|p sha|| operate under a f|rm
name, wh|ch may or may not |nc|ude the name of one or
more of the partners.

1hose who, not be|ng members of the partnersh|p,
|nc|ude the|r names |n the f|rm name, sha|| be sub[ect to the
||ab|||ty of a partner, (n)
Art|c|e 181S of the New C|v|| Code prov|des that "Lvery
partnersh|p sha|| operate under a f|rm name, wh|ch may or may not
|nc|ude the name of one or more of the partners. 1hose who, not be|ng
members of the partnersh|p, |nc|ude the|r names |n the f|rm, sha|| be
sub[ect to the ||ab|||ty of a partner."
1he |anguage of Art|c|e 181S shows unm|stakab|y that |ts not an
ob||gat|on of the partners to |nc|ude the|r names |n the partnersh|p
name, but that |f an |nd|v|dua| |nc|udes h|s name |n the f|rm name, then
he becomes bound to th|rd part|es who re|y thereon to the same
||ab|||t|es as the partners |n the partnersh|p.
Art|c|e 181S |s the f|rst art|c|e under the sect|on wh|ch |s capt|oned
as O?SR'+,*'"-) "& *57 K,(*-7() b'*5 G7+,(. *" !5'(. K7()"-)/O wh|ch
|nd|cates c|ear|y the essence of hav|ng a f|rm name: that s|nce a
partnersh|p |s g|ven a separate [ur|d|ca| persona||ty wh|ch g|ves |t |ega|
capac|ty to dea|, and enter |nto contracts, w|th the pub||c, then |t must
adopt a f|rm name by wh|ch |t can be |dent|f|ed as the party to a
contract.
It must be noted that under Art|c|e 181S, the mere |nc|us|on by a
non-partner of h|s name |n the partnersh|p name wou|d make h|m ||ab|e
to partnersh|p debts, even when under the terms of the art|c|es of
partnersh|p he |s not ||sted forma||y as one of the partners of the
partnersh|p. 1h|s wou|d |mp|y that the pub||c |s not bound by the terms
of the art|c|es of |ncorporat|on, even when they are forma||y reg|stered
w|th the SLC.
1. n|stor|ca| 8as|s of Art|c|e 181S
A|though the coda| prov|s|on |nd|cates that Art|c|e 181S |s a new
["(n)"] prov|s|on |n New C|v|| Code, accord|ng to 1o|ent|no |t was taken
from Art|c|e 126 of the Code of Commerce.
19
et the pr|nc|p|e on
partnersh|p name under Art|c|e 126 was qu|te
19
1CLLN1INC, at p. 3S3.

d|fferent, for |t actua||y requ|red that the partnersh|p name shou|d be
reg|stered conta|n|ng a|| the names of the partners.
20

In J" <58-+ <,-+ T3 K,P'&'P <"$$7(P',R Co.,
21
the Court he|d that
the ob[ect of Art|c|e 126 |n requ|r|ng a genera| partnersh|p to transact
bus|ness under the name of a|| |ts members, of severa| of them, or of
one on|y, was to protect the pub||c from |mpos|t|on and fraud, and that
Art|c|e 126 was for the protect|on of the cred|tors rather than of the
partners themse|ves. J" <58-+ <,-+ he|d that the |ega| requ|rement as
to f|rm name must be construed as render|ng contracts made |n
v|o|at|on thereof un|awfu| and unenforceab|e on|y as between the
partners and at the |nstance of the v|o|at|ng party, but not |n the sense
of depr|v|ng |nnocent part|es of the|r r|ghts who may have dea|t w|th the
offenders |n |gnorance of the |atter hav|ng v|o|ated the |aw, and that
contracts entered |nto by commerc|a| assoc|at|ons defect|ve|y organ|zed
are va||d when vo|untar||y executed by the part|es, and the on|y
quest|on was whether or not they comp||ed w|th the agreement.
In essence J" <58-+ <,-+ ru|ed that partners cannot avo|d the
consequences of a partnersh|p contract entered |nto by |nvok|ng |n the|r
defense the anoma|y |n the f|rm name wh|ch they themse|ves adopted.
1he ru||ng was re|terated |n K5'R'66'-7 9,*'"-,R :,-1 T3 @"3
YY

1he ear||er dec|s|on ||| >8-+V0,-VA"P T3 p'7-+V<5'"-+V ;7-+/
Y[

he|d that fa||ure to reg|ster a commerc|a| partnersh|p wou|d mean that
there |s no partnersh|p const|tuted and that the ru|e app||cab|e to
protect part|es who have dea|t |n good fa|th w|th the enterpr|se was the
app||cat|on of Art|c|e 120 of the Code of Commerce, that the r|ght of
act|on wou|d be aga|nst the person |n charge of the management of the
assoc|at|on.
J" <58-+ <,-+ refused to app|y the ru||ng |n >8-+V0,-V A"P
because there was actua| reg|strat|on of the partnersh|p, and
consequent|y decreed that a genera| partnersh|p had been const|tuted
as to make the partners thereof so||dar||y ||ab|e for
Ârt|c|e 126, Code of

21
4S h||. 142 (1923).
^S0 h||. 802(1927).
6 h||. 498 (1906).

partnersh|p debt |n the event the partnersh|p |tse|f becomes |nso|vent.
BR*5"8+5 &,'R8(7 *" P"$6R% b'*5 *57 $,-.,*"(% (7+')V*(,*'"-
6("T')'"-) "& *57 <".7 "& <"$$7(P7 .'. -"* ,&&7P* *57 P,8)7 "& ,P*'"- "&
P(7.'*"() *" 7-&"(P7 *57'( P"-*(,P*) ,+,'-)* *57 6,(*-7()5'6/ .'. '* $7,-
*57- *5,* ,) , P"-)7g87-P7/ '& '* b7(7 *57 6,(*-7() ,-. 6,(*-7()5'6
)771'-+ *" 7-&"(P7 )8P5 P"-*(,P*)/ b"8R. *57% S7 S,((7. &("$ ."'-+ )"
,) , P"-)7g87-P7 "& *57'( &,'R8(7 *" P"$6R% b'*5 *57 (7+')*(,*'"-
(7g8'(7$7-*) 8-.7( *57 R,br No categor|ca| ru||ng was made on th|s
|ssue |n J" <58-+ <,-+ a|though |t d|d quote a ru||ng from the Supreme
Court of M|ch|gan on the common |aw ru|e, thus:
As th|s acts |nvo|ves pure|y bus|ness transact|ons, and
affects on|y money |nterests, we th|nk |t shou|d be
construed as render|ng contracts made |n v|o|at|on of |t
un|awfu| and unenforceab|e at the |nstance of the offend|ng
party on|y, but not as des|gned to take away the r|ghts of
|nnocent part|es who may have dea|t w|th the offenders |n
|gnorance of the|r hav|ng v|o|ated the statute.
24

1o prevent such members of a commerc|a| partnersh|p from
recover|ng on the contracts entered |nto on the ground that there was
no va||d reg|strat|on or that |t d|d not comp|y w|th the ru|e on f|rm name
wou|d const|tute un[ust enr|chment. Lventua||y, the Court app||ed |n
<"$6,5', B+('P"R, .7 ER*(,$,( T3 G7%7)/
[Z
the pr|nc|p|es of corporat|on
by estoppe| doctr|ne,
26
even as to unreg|stered partnersh|ps, thus:
Ya
FS'., at pp. 1S4-1SS, P'*'-+ <,)5'-+ T3 KR'*7(/ 168 M|ch 386, Ann.
Cas. (1913-C), 67 (1912), 8-.7()P"('-+ )866R'7.3
2S
4 h||. 2 (1904).
26
Sec. 21, Corporat|on Code: "SLC. 21. <"(6"(,*'"- S% 7)*"667R3 - A||
persons who assume to act as a corporat|on know|ng |t to be w|thout
author|ty to do so sha|| be ||ab|e as genera| partners for a|| debts
||ab|||t|es and damages |ncurred or ar|s|ng as a resu|t thereof: K("T'.7./
5"b7T7(/ 1hat when any such ostens|b|e corporat|on |s sued on any tort
comm|tted by |t as such, |t sha|| not be a||owed to use as a defense |ts
|ack of corporate persona||ty.
"Cne who assumes an ob||gat|on to an ostens|b|e corporat|on as
such, cannot res|st performance thereof on the ground that they was |n
f ( )"

S38
ersons who assume to form a corporat|on or bus|ness
assoc|at|on, and exerc|se corporate funct|ons, and enter
|nto bus|ness re|at|ons w|th th|rd persons, are estopped
from deny|ng that they const|tute a corporat|on. So a|so are
the th|rd persons who dea| w|th such a .7 &,P*" assoc|at|on
or corporat|on, recogn|z|ng |t as such and thereby |ncurr|ng
||ab|||t|es, estopped, when an act|on |s brought on such
ob||gat|ons, from deny|ng the [ur|st|c persona||ty of such
corporat|ons or assoc|at|ons.
27
xxx.
Where a shareho|der of an assoc|at|on |s ca||ed upon
to respond to a ||ab|||ty as such, and where a party has
contracted w|th a corporat|on and |s sued upon the
contract, ne|ther |s perm|tted to deny the ex|stence or the
|ega| va||d|ty of such corporat|on. 1o ho|d otherw|se wou|d
be contrary to the p|a|nest pr|nc|p|es of reason and good
fa|th. art|es must take the consequences of the pos|t|on
they assume.
28

1he quest|on that ar|ses from the J" <58-+ <,-+/ K9: and
<"$6,-', B+('P"R, ru||ngs was that |f the prov|s|ons of Art|c|e 126 of
the Code of Commerce were mandatory |n the sense that they were
addressed to the partners and partnersh|p more for the protect|on of
partnersh|p cred|tors, and non-comp||ance therew|th cou|d not
pre[ud|ce cred|tors, then what wou|d be the|r usefu|ness |f no adverse
consequence v|s|ts the partners and the partnersh|p?
1here |s no doubt that there were ser|ous d|ff|cu|t|es w|th
enforc|ng the mandatory prov|s|ons on reg|strat|on and f|rm name for
commerc|a| partnersh|ps under the Code of Commerce. 1he present
ru|e under Art|c|e 181S of New C|v|| Code wh|ch essent|a||y a||ows the
partners and the partnersh|p to adopt any f|rm name they fancy |s a
more market-fr|end|y ru|e s|nce:
(a) Cne who opts to have h|s name |nc|uded |n the f|rm
name runs the r|sk of be|ng made ||ab|e for partnersh|p
debts,
YN
FS'./ at
2
m|d, at p.
3
(b) 1he art|c|es of partnersh|p, when reg|stered
prov|des anyway for the ||st|ng of the partners of
the partnersh|p enterpr|se, and
(c) More |mportant|y, the ar|s|ng of the separate
[ur|d|ca| persona||ty of the partnersh|p comes w|th
the perfect|on of the contract of partnersh|p, and
not w|th reg|strat|on thereof.
2. SLC ku|es on artnersh|p Name
SLC Memorandum C|rcu|ar No. S, s. 2008, prov|des for the
fo||ow|ng ru|es when |t comes to partnersh|p names:
(a) 1he partnersh|p name sha|| bear the word "Com-
pany" or "Co." and |f |t |s a ||m|ted partnersh|p, the
word "L|m|ted" or "Ltd."
(b) A profess|ona| partnersh|p name may bear the
word "Company," "Assoc|ates," or "artners," or
other s|m||ar descr|pt|ons.
(c) 1he name to be adopted by a partnersh|p shou|d
not be |dent|ca|, m|s|ead|ng or confus|ng|y s|m||ar
to a corporate or partnersh|p name reg|stered w|th
the SLC, or w|th the Department of 1rade and
Industry, |n the case of so|e prorpr|etorsh|ps.
(d) If the name app||ed for |s s|m||ar to that of a reg-
|stered corporat|on or partnersh|p, the app||cant
sha|| add one or more d|st|nct|ve words to the pro-
posed name to remove the s|m||ar|ty or d|fferent|-
ate |t from the reg|stered name.
nowever, punctuat|on marks, spaces, s|gns,
symbo|s and other s|m||ar characters, regard|ess
of the|r form or arrangement, sha|| not be
acceptab|e as d|st|ngu|sh|ng words for purposes of
d|fferent|at|ng a proposed name from a reg|stered
name,

(e) 8us|ness or trade name wh|ch |s d|fferent from the
partnersh|p name sha|| be |nd|cated |n the art|c|es of
partnersh|p, and a company may have more than one
bus|ness or trade name.
29

(f) A tradename or trademark reg|stered w|th the
Inte||ectua| roperty Cff|ce may be used as part of the
partnersh|p name of a party other that |ts owner |f the
|atter g|ves |ts consent to such use.
(g) 1he fu|| name or surname of a person may be used |n a
partnersh|p name |f he or she |s a partner of the sa|d
ent|ty and has consented to such use, |f the person |s
a|ready deceased, the consent sha|| be g|ven by h|s or
her estate, under the fo||ow|ng terms:
(i) 1he SLC may requ|re a reg|strant to exp|a|n to |ts
sat|sfact|on the reason for the use of a person's
name,
(ii) 1he mean|ng of |n|t|a|s |n a name sha|| be stated by
the reg|strant |n the Art|c|es of artnersh|p or |n a
separate document s|gned by a partner.
(h) 1he name of a |oca| geograph|ca| un|t, s|te or |ocat|on
cannot be used as a partnersh|p name un|ess |t |s
accompan|ed by a descr|pt|ve word or phrase, 73+3/
asay Iood Store, Inc.,
(i) ursuant to ex|st|ng |aws, the fo||ow|ng words and
phrases can be used a partnersh|p name on|y |n the
manner enumerated be|ow:
- "I|nance Company," "I|nanc|ng Company," I|nance
and Leas|ng Company" and "Leas|ng Company"
|nvestment Company," "Investment nouse" - by
ent|t|es engaged |n the f|nanc|ng or |nvestment
house bus|ness (k.A. 8SS6 and res. Decree 129),
"Amended under SLC Memorandum dated 23 December 2008.
"Lend|ng Company" and "Lend|ng Investor" - by
|end|ng compan|es (k.A. 9474), or "awnshop" - by
ent|t|es author|zed to operate pawnshops (.D.
114),
"8ank," "8ank|ng," "8anker," "Sav|ngs and Loan
Assoc|at|on," (k.A. 8367) "1rust Corporat|on,"
"1rust Company" or words of s|m||ar mean|ng - by
ent|t|es engaged |n the bank|ng or trust bus|ness
(k.A. 8791),
"Un|ted Nat|ons," "UN," |n fu|| or abbrev|ated form
- exc|us|ve|y by the Un|ted Nat|ons and |ts attached
agenc|es (k.A. 247),
"8onded" - by ent|t|es w|th ||censed warehouses
(k.A. 247),
"SV-AMC" - by corporat|ons author|zed to act as
spec|a| purpose veh|c|e (k.A. 9182),
1he pract|ce of a profess|on regu|ated by a spec|a| |aw
wh|ch among others prov|des for the perm|ss|b|e use of
the profess|on's name |n a f|rm, partnersh|p or
assoc|at|on sha|| govern the use of the name, 73+3/
"Lng|neer" or "Lng|neer|ng" (k.A. 1S82), "Arch|tect"
(k.A. 9266), or Geodet|c Lng|neer" (k.A. 8S60),
Notw|thstand|ng the ||m|tat|ons ment|oned
above, any assoc|at|on reg|stered by ent|t|ed engaged |n
the ||sted act|v|t|es may use the profess|ona|'s name,
73+3/ Assoc|at|on of Lng|neers of the h|||pp|nes, Inc.,
Un|ess otherw|se author|zed by the SLC, the words and
phrases enumerated b|ow can be used on|y by the
ent|t|es ment|oned:
"Investment(s)" or "Cap|ta|" - by ent|t|es organ|zed
as |nvestment house, |nvestment company or
ho|d|ng company,
"Asset]Investment]Iund]I|nanc|a| Management,"
or "Asset]Investment]Iund]I|nanc|a| Adv|ser," or
S42
any s|m||ar words or phrases by ent|t|es orga-
n|zed as |nvestment company adv|ser or ho|ders of
|nvestment management act|v|t|es (IMA) ||cense
from the 8angko Sentra| ng |||p|nas,
"Nat|ona|," "8ureau," "Comm|ss|on," "State," and
other words, acronyms, abbrev|at|ons that have
ga|ned w|de acceptance |n the h|||pp|nes by
ent|t|es that perform governmenta| funct|ons,
"Assoc|at|on" and "Crgan|zat|on" or s|m||ar words
wh|ch perta|n to non-stock corporat|ons - by ent|-
t|es pr|mar||y engaged |n non-prof|t act|v|t|es,
"Stock Lxchange]Iutures Lxchange]Der|vat|ves
Lxchange," "Stock 8roker]Secur|t|es 8roker]Der|v-
at|ves 8roker," "Commod|ty]I|nanc|a| Iutures
Merchant]8roker," "Secur|t|es C|ear|ng
Agency]Stock C|ear|ng Agency," "|ans" or any
s|m||ar words or phrases - by ent|t|es organ|zed as
an exchange, broker dea|er, commod|ty futures
broker, c|ear|ng agency, or pre-need company
under the Secur|t|es kegu|at|on Code (k.A. 8799).
(I) Notw|thstand|ng the forego|ng, the SLC sha||, for the
protect|on of the pub||c |nterest and other [ust|f|ab|e
causes, d|sa||ow the use of names, that, |n |ts [udgment,
are m|s|ead|ng, decept|ve, confus|ng|y s|m||ar to a
reg|stered name, or contrary to pub||c mora|s, good
customs or pub||c po||cy,
(m) 1he name of a partnersh|p that has been d|sso|ved or
whose reg|strat|on has been revoked sha|| not be used
by another partnersh|p w|th|n three years from the
approva| of the d|sso|ut|on or s|x years from the date or
revocat|on, un|ess |ts use has been a||owed at the t|me
of the d|sso|ut|on or revocat|on by the partners who
represent a ma[or|ty of the membersh|p of the
d|sso|ved partnersh|p,
(n) At the t|me of |ts reg|strat|on, a partnersh|p sha|| subm|t
an aff|dav|t, s|gned by at |east two partners |n the form
prescr|bed by the SLC, conta|n|ng an unqua||f|ed
undertak|ng to change |ts name

|mmed|ate|y upon rece|pt of not|ce or d|rect|ve from
the SLC that another corporat|on or partnersh|p or
person has acqu|red a pr|or r|ght to the use of that
name or that the name has been dec|ared as
m|s|ead|ng, decept|ve, confus|ng|y s|m||ar to a
reg|stered name, or contrary to pub||c mora|s, good
customs or pub||c po||cy.
In a 1984 op|n|on,
30
the SLC ru|ed that partners cannot opt to use
the work "Un||m|ted" |n p|ace of "Company" for a partnersh|p name:
"It |s re|terated that the on|y |nstance when a domest|c partnersh|p
name may be recorded |n th|s Comm|ss|on w|thout the use of the word
'Company' |s when the pr|mary purpose for wh|ch the partnersh|p |s
organ|zed |s to engage |n the pract|ce of profess|ona| of a part|cu|ar
d|sc|p||ne."
kLGIS1kA1ICN CI LI11LL USLIULNLSS IN Ak1NLkSnI LAW: A
SUMMA1ICN
1he essence of what const|tutes a partnersh|p contract |s sp||t
|nto two doctr|na| |eve|s |n h|||pp|ne artnersh|p Law, name|y:
(a) B) S7*b77- ,-. ,$"-+ *57 6,(*-7()/ |t |s the po|nt of
perfect|on of the contract of partnersh|p, when two or
more part|es have come to a meet|ng of m|nds to
const|tute a common fund and the d|str|but|on of
prof|ts and |osses among themse|ves, and
(b) F- (7R,*'"- *" *5'(. 6,(*'7) b5" .7,R b'*5 , S8)'-7))
7-*7(6(')7/ when a contract or transact|on |s entered
|nto w|th a th|rd party under the representat|on that
such th|rd party |s contract|ng w|th a partnersh|p, or |s
dea||ng w|th a partner to of partnersh|p enterpr|se.
^SLC ru||ng addressed to Atty. ker|ato I. Sant|ago, dated 19 Cctober 1984.
1. Intra-artnersh|p ke|at|onsh|p
W|th|n the |ntra-partnersh|p re|at|onsh|p, the ma|n doctr|ne that
app||es |s that un|ess there |s a meet|ng of m|nds as to the e|ements of
common fund and d|str|but|on of prof|ts, then there can be no contract
of partnersh|p between the part|es |nvo|ved. Cn the other hand, once
there |s such a meet|ng of m|nds, the partnersh|p contract ar|ses, and
needs no part|cu|ar form |n order to be va||d, b|nd|ng and enforceab|e.
1hus, Art|c|e 1784 of the New C|v|| Code prov|des that "A
partnersh|p beg|ns from the moment of the execut|on of the contract,
un|ess |t |s otherw|se st|pu|ated." 1he partnersh|p agreement may be
proved by competent ev|dence, whether wr|tten or ora|, or from the
acts and actuat|ons of the part|es. So strong |s the "consensua|" nature
of the contract of partnersh|p that the fa||ure to comp|y w|th the forma|
requ|rement of |nventory of |mmovab|e contr|buted, pub||c |nstrument
and reg|strat|on w|th the SLC, br|ngs no de|eter|ous effect on the
partnersh|p |tse|f, and between and among the partners.
Under Art|c|e 1771 of New C|v|| Code, a|though |t recogn|zes the
genera| pr|nc|pa| that "A partnersh|p may be const|tuted |n any form,"
yet |t prov|des express|y that "where |mmovab|e property or rea| r|ghts
are contr|buted thereto, |n wh|ch case a pub||c |nstrument sha|| be
necessary." 1h|s |s fo||owed up |n Art|c|e 1773 wh|ch prov|des that "A
contract of partnersh|p |s vo|d, whenever |mmovab|e property |s
contr|buted thereto, |f an |nventory of sa|d property |s not made, s|gned
by the part|es, and attached to the pub||c |nstrument." In sp|te of the
c|ear |n[unct|on of the statutory prov|s|ons and the |ay|ng down of the
consequences of fa||ure to comp|y w|th the requ|s|tes forms of pub||c
document and |nventory of the contr|buted |mmovab|e, the Supreme
Court has a|ways ru|ed that such requ|rements are meant for the
protect|on of th|rd part|es who dea| w|th the partnersh|p, and
consequent|y, when no th|rd party |nterests are |nvo|ved |n a su|t,
ne|ther the partnersh|p nor any of the partners can |nvoke fa||ure to
comp|y w|th such requ|rements, to ga|n any advantage or to avo|d the
||ab|||ty consequences of be|ng a partner |n a partnersh|p.
In the same manner, under Art|c|e 1772 of New C|v|| Code, "Lvery
contract of partnersh|p hav|ng a cap|ta| of three thousand pesos or
more, |n money or property, sha|| appear |n a pub||c |nstrument, wh|ch
must be recorded |n the Cff|ce of the Secur|t|es and Lxchange
Comm|ss|on." Not on|y does Art|c|e 1772 dec|are the c|ear|y non-|etha|
consequence of fa||ure to comp|y w|th the pub||c |nstrument and SLC
reg|strat|on requ|rements: "Ia||ure to comp|y w|th the requ|rements of
the preced|ng paragraph sha|| not affect the ||ab|||ty of the partnersh|p
and the members thereof to th|rd persons," but the Supreme Court has
cons|stent|y dec|ared that the purpose of Art|c|e 1772 |s mere|y to a||ow
a partner |n an ora| partnersh|p to have a cause of act|on to have the
partnersh|p const|tuted |n a manner that a||ows |ts terms and cond|t|ons
be made known to the pub||c through a pub||c |nstrument and
reg|strat|on w|th the SLC.
Ia||ure to comp|y w|th the requ|rements under Art|c|e 1772 may
a|so be bas|s for the SLC to refuse to g|ve support|ve a|d to partners who
have not reg|stered the|r agreement w|th the SLC.
2. Dea||ngs w|th 1h|rd art|es
1here are bas|ca||y two areas that are |mportant to cons|der when
|t comes to partnersh|p dea||ngs w|th th|rd part|es, name|y:
(a) 1he va||d|ty and enforceab|||ty of contracts entered |nto
w|th a purported partner of an ex|st|ng partnersh|p or
w|th purported partnersh|p that has not been |ega||y
const|tuted, and
(b) 1he stand|ng of partnersh|p cred|tors to enforce
partnersh|p ||ab|||ty persona||y aga|nst the partners.
1he genera| pr|nc|p|e |n h|||pp|ne artnersh|p Law |s that a
member of the pub||c who dea|s |n good fa|th w|th a purported partner
or purported partnersh|p |n the ord|nary course of bus|ness of such
partnersh|p, has a r|ght to expect that h|s contract can be enforced, and
that |ntra-partnersh|p and techn|ca| |ssues
perta|n|ng to the partnersh|p or on the d|str|but|on of power and
author|ty between the partners cannot genera||y be ra|sed aga|nst such
th|rd party to underm|ne the enforceab|||ty of h|s contractua| dea||ngs
w|th the corporat|on.
Var|ous statutory prov|s|ons |n the New C|v|| Code support th|s
doctr|ne of "(7R',-P7 S% *5'(. 6,(*'7) .7,R'-+ '- +"". &,'*5 b'*5 *57
68(6"(*7. 6,(*-7( "( 68(6"(*7. 6,(*-7()5'6/O thus:
(a) Under Art|c|e 181S, "1hose who, not be|ng members of
the partnersh|p, |nc|ude the|r names |n the f|rm name,
sha|| be sub[ect to the ||ab|||ty of partner,"
(b) Under Art|c|e 1818, "Lvery partner |s an agent of the
partnersh|p for the purpose of |ts bus|ness, and the act
of every partner, |nc|ud|ng the execut|on |n the
partnersh|p name of any |nstrument, for apparent|y
carry|ng on |n the usua| way the bus|ness of the
partnersh|p . . . b|nds the partnersh|p, un|ess the
partner so act|ng has |n fact no author|ty to act for the
partnersh|p |n the part|cu|ar manner, and the person
w|th whom he |s dea||ng w|th has know|edge of the fact
that he has no such author|ty,"
(c) Under Art|c|e 1834, partnersh|p cred|tors who extend
cred|t to the partnersh|p even after there has been
d|sso|ut|on can can c|a|m payment thereof aga|nst a||
the partners, when such cred|tors have "no know|edge
or not|ce of the d|sso|ut|on."
In fact, even when a partnersh|p has been du|y reg|stered w|th the
SLC, the estab||shed doctr|ne |s that th|rd part|es who dea| w|th the
partnersh|p are not bound by the terms of the reg|stered art|c|es of
partnersh|p, and un|ess they have actua| know|edge thereof, they have
a r|ght to re|y upon what |s the norma| r|ght and author|ty of every
partner to genera||y b|nd the partnersh|p and the other partners.

1hus, @'**"- T3 >'RR Q <7("-/O |a|d down the ru|e that -
1h|rd persons... are not bound |n enter|ng |nto a
contract w|th any of the two partners, to ascerta|n whether
or not th|s partner w|th whom the transact|on |s made has
the consent of the other partner. 1he pub||c need not make
|nqu|r|es as to the agreements had between the partners.
Its know|edge |s enough that |t |s contract|ng w|th the
partnersh|p wh|ch |s represented by one of the manag|ng
partners.
32

1h|s ru||ng was re|terated |n C"g8'"R,% T3 ;%P'6wh|ch he|d that the
statutory ru|e on how management power |s d|str|buted or exerc|sed
w|th|n the partnersh|p, and the consequences of fa||ure to comp|y w|th
such statutory ru|e |s "an ob||gat|on that |s |mposed by |aw on the
partners among themse|ves, that does not necessar||y affect the va||d|ty
of the acts of a partner, wh||e act|ng w|th|n the scope of the ord|nary
course of bus|ness of the partnersh|p, as regards th|rd persons w|thout
not|ce. 1he |atter may r|ghtfu||y assume that the contract|ng partner was
du|y author|zed to contract for and |n beha|f of the f|rm and that,
furthermore, he wou|d not ord|nar||y act to the pre[ud|ce of h|s
co-partners. 1he regu|ar course of bus|ness procedure does not requ|re
that each t|me a th|rd person contracts w|th one of the manag|ng
partners, he shou|d |nqu|re as to the |atter's author|ty to do so, or that
he shou|d f|rst ascerta|n whether or not the other partners ha[ve] g|ven
the|r consent thereto."
34

1he reason why the genera| ru|e |n Agency Law that a person
dea||ng w|th an agent must ascerta|n the extent of the power of the
agent does not norma||y app|y w|th the same effect |n artnersh|p Law
was a|so exp|a|ned |n C"g8'"R,% |n the fo||ow|ng manner:
It |s argued that the author|ty g|ven by Goqu|o|ay to the
w|dow kong Cha| |n was on|y to manage the property,
31
67 h||. S09
( )
m|d, at p. S13.
M
108 h||. 947
$'./ at p. 9S7.

and that |t d|d not |nc|ude the power to a||enate . . . What
th|s argument over|ooks |s that the w|dow was not a mere
agent, because she had become a partner upon her
husband's death, as express|y prov|ded by the art|c|es of
co-partnersh|p."
3S
8e|ng therefore a partner, the genera|
ru|e of artnersh|p Law, every partner had the power to
d|spose of partnersh|p property even of |ts rea| estate,
wh|ch |s |n the norma| course of the partnersh|p bus|ness of
dea||ng w|th rea| property: "where the avowed purpose of
the partnersh|p |s to buy and se|| rea| estate (as |n the
present case), the |mmovab|es thus acqu|red by the f|rm
form part of the |ts stock-|n-trade, and the sa|e thereof |s |n
pursuance of partnersh|p purposes, hence w|th|n the
ord|nary powers of the partner.
38

In other words, s|nce mutua| agency |s an |ntegra| facet of every
partnersh|p sett|ng, then the dea||ng pub||c |s no |onger mandated to
ascerta|n whether a partner |s author|zed to b|nd the partners, and |n
fact |n the absence of c|ear |nd|cat|ons to the contrary, every partner,
be|ng a co-owner of the assets of the partnersh|p, |s deemed to have
fu|| author|ty to act on beha|f of the partnersh|p and to b|nd the other
partners |n transact|ons that are w|th|n the regu|ar course of bus|ness.
3. Va|ue of the Statutory kequ|rements on Iorm and
keg|strat|on
If non-comp||ance w|th the forma| and reg|strat|on requ|rements
under the New C|v|| Code does not render the partnersh|p vo|d, nor
does |t underm|ne the enforceab|||ty of contracts entered |nto |n the
partnersh|p name, and does not genera||y |mpose |ega| consequences
on the partners for non-comp||ance, then what |s the usefu|ness of
such statutory prov|s|ons?
1he answer had been addressed ear|y |n our [ur|sd|ct|on |n
!58-+, <58' T3 U87 :7-*7Pwh|ch app||ed Art|c|e 1279 of the
$'./ at p. 96S.
m|d, at p. 969.
37
2 h||. S61
( 903)

o|d C|v|| Code, now found as Art|c|e 13S7 of the new C|v|| Code, wh|ch
reads:
If the |aw requ|res a document or other spec|a| form, as
|n the acts and contracts enumerated |n the fo||ow|ng
art|c|es, the contract|ng part|es may compe| each other to
observe that form, once the contract has been perfected.
1h|s r|ght may be exerc|sed s|mu|taneous|y w|th the act|on
upon the contract.
In !58-+, <58'/ the Court further he|d
Art|c|e 1279 [now Art|c|e 13S6 of the New C|v|| Code]
does not |mpose an ob||gat|on, but confers a pr|v||ege upon
both contract|ng part|es, and the fact that p|a|nt|ff has not
made use of same does not bar h|s act|on, x x x . Art|c|e
1279 [now Art|c|e 13S6], far from mak|ng the enforceab|||ty
of the contract dependent upon any spec|a| extr|ns|c form,
recogn|zes |ts enforceab|||ty by the mere act of grant|ng to
the contract|ng part|es an adequate remedy whereby to
compe| the execut|on of a pub||c wr|t|ng, or any other
spec|a| form, whenever such form |s necessary |n order that
the contract may produce the effect wh|ch |s des|red,
accord|ng to whatever may be |ts ob[ect.
38

Not on|y |s the genera| ru|e under h|||pp|ne artnersh|p Law that
partnersh|p cred|tors do not have an ob||gat|on to ver|fy the author|ty
of a purported partner act|ng |n the ord|nary course of partnersh|p
bus|ness, nor to rev|ew the reg|strat|on papers of the partnersh|p, the
ru|e |s that any |mportant changes |n partnersh|p re|at|onsh|p must be
brought to the know|edge of the partnersh|p cred|tors |n order to be
b|nd|ng on the |atter.
1hus, |n ;'-+)"- T3 F),S7R, ;,b$'RR, the Court he|d that the
fa||ure of a partner to have pub||shed her w|thdrawa| from the
partnersh|p, and her agree|ng to have the rema|n|ng partners proceed
w|th runn|ng the partnersh|p bus|ness |nstead of |ns|st|ng on the
||qu|dat|on of the partnersh|p, w||| not re||eve such
mFS'./ at pp.

"88 SCkA 623
( )

SS0 NCN-CCkCkA1L MLDIA CI DCING 8USINLSS
w|thdraw|ng partner from her ||ab|||ty to the partnersh|p cred|tors.
1he Court he|d that even |f the w|thdraw|ng partner acted |n good
fa|th, th|s cannot overcome the pos|t|on of partnersh|p cred|tors who
a|so acted |n good fa|th, w|thout know|edge of her w|thdrawa| from
the partnersh|p. In part|cu|ar, ;'-+)"- ru|ed that when the partnersh|p
executes a chatte| mortgage over |ts propert|es |n favor of a
w|thdraw|ng partner, and the w|thdrawa| was not pub||shed to b|nd
the partnersh|p cred|tors, and |n fact the partnersh|p |tse|f was not
d|sso|ved but a||owed to be operated as a go|ng concern by the
rema|n|ng partners, the partnersh|p cred|tors have stand|ng to seek
the annu|ment of the chatte| mortgage for hav|ng been entered |nto
adverse to the|r |nterests.
erhaps the best argument to support the commerc|a| va|ue of
comp|y|ng w|th the forma| requ|rements under Art|c|es 1771 to 1773
of New C|v|| Code wou|d be |n c|t|ng the observat|on of the Supreme
Court |n >7'() "& !,- D-+ p77 T3 <"8(* "& B667,R)/]
c
where the ma|n
|ssue to be reso|ved was whether a partnersh|p had been const|tuted
between two brothers, thus:
Undoubted|y, the best ev|dence wou|d have been the
contract of partnersh|p |tse|f, or the art|c|es of partnersh|p,
but there |s none. 1he a||eged partnersh|p, though, was
never forma||y organ|zed. In add|t|on, pet|t|oners po|nt out
that the New C|v|| Code was not yet |n effect when the
partnersh|p was a||eged|y formed somet|me |n 194S,
a|though the contrary may we|| be argued that noth|ng
prevented the part|es from comp|y|ng w|th the prov|s|ons
of the New C|v|| Code when |t took effect on August 30,
19S0. 8ut a|| that |s |n the past. 1he net effect, however, |s
that we are asked to determ|ne whether a partnersh|p
ex|sted based pure|y on c|rcumstant|a| ev|dence.
41

Cn recent|y, |n >7'() "& J")7 @'$ T3 E(-dthe Supreme Court
re|terated the pr|nc|p|e that "Undoubted|y, the best ev|dence [to
support the ex|stence of a partnersh|p] wou|d have been the
40
341 SCkA 740
(2000)
41
At p. 7S4.
"614 SCkA 141
(2010)

ICkMAL kLUIkLMLN1S ICk Ak1NLkSnIS SS1
contract of partnersh|p or the art|c|es of partnersh|p."
43
1he Court he|d
that genera||y test|mon|a| ev|dence to prove the ex|stence of a
partnersh|p that |s den|ed by the other a||eged partners |s weak
ev|dence s|nce "In c|v|| cases, the party hav|ng the burden of proof
must estab||sh h|s case by a preponderance of ev|dence."
44

at p.
148
OFS'.3
CnA1Lk 6
CLASSLS CI Ak1NLkS AND Ak1NLkSnIS
In order to have a better understand|ng of the var|ous |ega|
re|at|onsh|ps created w|th|n the partnersh|p arrangement, and the
consequent r|ghts and ob||gat|ons ar|s|ng from such var|ed
re|at|onsh|ps, |t may be he|pfu| to determ|ne the c|asses of partners
and partnersh|ps def|ned under the New C|v|| Code.
kINDS CI Ak1NLkSnIS
Ak1. 1776. As to |ts ob[ect, a partnersh|p |s e|ther
un|versa| or part|cu|ar.
As regards the ||ab|||ty of the partners, a partnersh|p may
be genera| or ||m|ted. (1671a)
Ak1. 1777. A un|versa| partnersh|p may refer to a|| the
present property or to a|| the prof|ts. (1672)
Ak1. 1778. A partnersh|p of a|| present property |s that |n
wh|ch the partners contr|bute a|| the property wh|ch actua||y
be|ongs to them to a common fund, w|th the |ntent|on of
d|v|d|ng the same among themse|ves, as we|| as a|| the prof|ts
wh|ch they may acqu|re therew|th. (1673)
Ak1. 1779. In a un|versa| partnersh|p of a|| present
property, the property wh|ch be|onged to each
SS2

CLASSLS CI Ak1NLkS AND Ak1NLkSnIS SS3
of the partners at the t|me of the const|tut|on of the
partnersh|p, becomes the common property of a|| the
partners, as we|| as a|| the prof|ts wh|ch they may acqu|re
therew|th.
A st|pu|at|on for the common en[oyment of any other
prof|ts may a|so be made, but the property wh|ch the
partners may acqu|re subsequent|y by |nher|tance, |egacy, or
donat|on cannot be |nc|uded |n such st|pu|at|on, except the
fru|ts thereof (1674a)
Ak1. 1780. A un|versa| partnersh|p of prof|ts compr|ses a||
that the partners may acqu|re by the|r |ndustry or work dur|ng
the ex|stence of the partnersh|p.
Movab|e or |mmovab|e property wh|ch each of the
partners may posses at the t|me of the ce|ebrat|on of the
contract sha|| cont|nue to perta|n exc|us|ve|y to each, on|y the
usufruct pass|ng to the partnersh|p. (167S)
Ak1. 1781. Art|c|es of un|versa| partnersh|p, entered |nto
w|thout spec|f|cat|on of |ts nature, on|y const|tute a un|versa|
partnersh|p of prof|ts. (1676)
Ak1. 1782. ersons who are proh|b|ted from g|v|ng each
other any donat|on or advantage cannot enter |nto un|versa|
partnersh|p. (1677)
Ak1. 1783. A part|cu|ar partnersh|p has for |ts ob[ect
determ|nate th|ngs, the|r use or fru|ts, or spec|f|c undertak|ng,
orthe exerc|se of a profess|on or vocat|on. (1678)
1. As to Cb[ect: Un|versa| artnersh|p T7()8) art|cu|ar
artnersh|p
When |t comes to the ob[ect or purpose, or the nature of the
bus|ness enterpr|se to be pursued, under Art|c|e 1776 of the New C|v||
Code, a partnersh|p |s e|ther:

(a) E-'T7(),R K,(*-7()5'6, or
(b) K,(*'P8R,( K,(*-7()5'63
A 8-'T7(),R 6,(*-7()5'6 |s one where the contract of partnersh|p
encompasses e|ther a|| the present propert|es of the partners or to a||
of the prof|ts.
1

A un|versa| partnersh|p of a|| present property |s one where "the
partners contr|bute a|| the property wh|ch actua||y be|ongs =)'PH to
them to a common fund, w|th the |ntent|on of d|v|d|ng the same
among themse|ves, as we|| as a|| the prof|ts they may acqu|re
therew|th."
2
1h|s means that "the property wh|ch be|onged to each of
the partners at the t|me of the const|tut|on of the partnersh|p,
becomes the common property of a|| the partners, as we|| as a|| the
prof|ts wh|ch they may acqu|re therew|th."
3
1he New C|v|| Code
further c|ar|f|es that "A st|pu|at|on for the common en[oyment of any
other prof|ts may a|so be made, but the property wh|ch the partners
may acqu|re subsequent|y by |nher|tance, |egacy, or donat|on cannot
be |nc|uded |n such st|pu|at|ons, except the fru|ts thereof."
4

In a un|versa| partnersh|p of prof|ts "a|| that the partners may
acqu|re by the|r |ndustry or work dur|ng the ex|stence of the part-
nersh|p," as we|| as the usufruct of a|| "[m[ovab|e or |mmovab|e
property wh|ch each of the partner may possess at the t|me of the
ce|ebrat|on of the contract" of partnersh|p, sha|| a|| perta|n to the
partnersh|p.
S

1he defau|t ru|e under Art|c|e 1781 of New C|v|| Code |s that
when the "Art|c|es of un|versa| partnersh|p [are] entered |nto w|thout
spec|f|cat|on of |ts nature, [|t w|||] on|y const|tute a un|versa|
partnersh|p of prof|ts."
1he essent|a| quest|on that must be asked |s: I57- ') ,
6,(*-7()5'6 ,+(77$7-* .77$7. *" S7 7T7- , O8-'T7(),R 6,(*-7(
1
Art. 1777, New C|v||
d
2

3

4

S
d

CLASSLS CI Ak1NLkS AND Ak1NLkSnIS SSS
)5'6O &"( *57 .7&,8R* (8R7 8-.7( B(*'PR7 `Nj` *" ,66R%r 1he |ssue |s
re|evant because under Art|c|e 1782, "ersons who are proh|b|ted from
g|v|ng each other any donat|on or advantage cannot enter |nto un|versa|
partnersh|p."
Cn the other hand, Art|c|e 1783 of New C|v|| Code def|nes a
6,(*'P8R,( 6,(*-7()5'6 to be one that "has for |ts ob[ect determ|nate
th|ngs, the|r use or fru|ts, or a spec|f|c undertak|ng, or the exerc|se of a
profess|on or vocat|on." 1here |s no doubt then that every profess|ona|
partnersh|p and [o|nt venture arrangement wou|d const|tute a part|cu|ar
partnersh|p.
1he next quest|on wou|d then be: I5,* ') *57 6(,P*'P,R ,-. R7+,R
'$6"(*,-P7 "& .')*'-+8')5'-+ S7*b77- 8-'T7(),R ,-. 6,(*'P8R,(
6,(*-7()5'6)r 1wo po|nts must be cons|dered |n answer|ng the quest|on:
L'()*R%/ statutor||y, the on|y cr|t|ca| usefu|ness of the d|st|nct|on |s
that persons who are d|squa||f|ed from donat|ng to one another (||ke
spouses under Art|c|e 187 of the Iam||y Code), cannot enter |nto a
un|versa| partnersh|p of any sort. F) '* *57(7&"(7 &,'( *" P"-PR8.7 *5,*
)6"8)7) P,- T,R'.R% 7-*7( '-*" , 6,(*'P8R,( 6,(*-7()5'6 S7*b77- 7,P5
"*57(/ b57- ,P*8,RR% *57'( 6("67(*% (7R,*'"-) ,(7 +"T7(-7. ,R(7,.% S% ,
R7+,R 6("67(*% (7+'$7r
In <"$$'))'"-7( "& F-*7(-,R G7T7-87 T3 ;8*7(] the Court he|d that
the proh|b|t|on under now Art|c|e 1782 of the New C|v|| Code does not
app|y when the partners entered |nto a ||m|ted partnersh|p, the man
be|ng the genera| partner and two women be|ng the ||m|ted partners,
and a year |ater the man marr|ed one of the ||m|ted partners, and the
spouse bought out the |nterest of the ||m|ted partner.
;7P"-.R%/ the r|ghts and ob||gat|ons that may ar|se from
subsequent ventures pursued by the partners wou|d be determ|ned on
whether they are bound under a un|versa| or part|cu|ar type of
partnersh|p. 1he reso|ut|on of the |ssue |s best exemp||f|ed |n the
dec|s|on |n @%"-) T3 G")7-*"P13
N

6
27 SCkA 1S2
( )
7
S6 h||.
( )
In @%"-), the two partners had been together |n two prev|ous rea|
estate pro[ects. Wh||e one partner was abroad, the other partner se|zed
upon a potent|a||y |ucrat|ve p|ece of property (the San Iuan estate) and
a|though he had tr|ed h|s best to conv|nce h|s partner abroad to comm|t
to be part of the new venture, the |atter dec||ned. In any event, when
the property was purchased by the |oca| partner he had temporar||y
used a partnersh|p property |n the prev|ous venture to secure the |oan
drawn by the |oca| partner |n h|s own name, but |ater re|eased |t and
had h|s own property mortgaged when |t was c|ear that the partner
abroad d|d not change h|s m|nd about not [o|n|ng the venture. In any
event, the San Iuan estate pro[ect proved very successfu|, and after the
|oca| partner d|ed, the partner abroad sought to recover one-ha|f of the
prof|ts of the venture on the ground that he was a partner there|n, |n
sp|te of h|s prev|ous refusa| to be part of |t, and ma|n|y because
partnersh|p property was used as secur|ty for the |oan obta|ned by the
|oca| partner to f|nance h|s acqu|s|t|on of the estate.
In reso|v|ng that the partner abroad was not ent|t|ed to any prof|ts
der|ved from the San Iuan estate pro[ect because he was never a
partner thereto, @%"-) reso|ut|on revo|ved around the pr|nc|p|e that the
two partners never were part of a un|versa| partnersh|p, but that they
were at best partners |n part|cu|ar partnersh|ps for the prev|ous pro[ects
entered |nto before the San Iuan estate pro[ect, thus
In the pure|y |ega| aspect of the case, the pos|t|on of
the appe||ant |s, |n our op|n|on, untenab|e.... Cf course, |f an
actua| re|at|on of partnersh|p had ex|sted |n the money
used, the case m|ght be d|fferent, and much emphas|s |s
|a|d |n the appe||ant's br|ef upon the re|at|on of partnersh|p
wh|ch, |t |s c|a|med, ex|sted. 8ut there was c|ear|y no
genera| re|at|on of partnersh|p between the part|es, and
the most that can be sa|d |s that L|ser and Lyons had been
copart|c|pants |n var|ous transact|ons |n rea| estate. No
ob[ect|on can be made to the use of the word partnersh|p
as a term descr|pt|ve of the re|at|on |n those part|cu|ar
transact|ons, but |t must be remembered that |t was |n each
case a part|cu|ar partnersh|p, under Art|c|e 1678 of the C|v||
Code. It |s c|ear

that L|ser, |n buy|ng the San Iuan Lstate, was not act|ng for
any partnersh|p composed |nto a propos|t|on wh|ch wou|d
make Lyons a part|c|pant |n th|s dea| contrary to h|s express
determ|nat|on.
8

1he other conc|us|on we can draw from @%"-) |s that a un|versa|
partnersh|p |s never presumed, not even from var|ous transact|ons or
ventures conc|uded between the partners. 1he defau|t ru|e therefore
shou|d be that un|ess the part|es so st|pu|ate |n the|r art|c|es of
partnersh|p that they are enter|ng |nto a un|versa| partnersh|p, |t wou|d
be presumed that they have ex|st|ng between them mere|y a part|cu|ar
partnersh|p.
Apart from the forego|ng, the concept and med|um of un|versa|
partnersh|p serves no reasonab|e commerc|a| purpose, for |ega||y |t can
on|y come about when |t |s so express|y st|pu|ated |n contract of
partnersh|p, and pract|ca||y, |t |s d|ff|cu|t to see how two or more
persons not bounded by marr|age, fa|th or vocat|on (wh|ch makes the
partnersh|p a part|cu|ar one), wou|d comm|t to one another a|| that they
have and a|| the fru|ts of what they do.
1he other |mportant quest|on that may be asked wou|d be: :%
.7&'-'*'"- 8-.7( B(*'PR7 `NNe *5,* *57(7 P,- S7 , T,R'. 6,(*-7()5'6 &"(
*57 6(,P*'P7 "& , 6("&7))'"-/ b5% b"8R. B(*'PR7 `Nj[/ '- .7&'-'-+ ,
6,(*'P8R,( 6,(*-7()5'6/ '-PR8.7 *57 ^7W7(P')7 "& , T"P,*'"-^b5'P5 $,% -"*
'-PR8.7 "-7 *5,* )771) *" 6("T'.7 , R'T7R'5"". &"( *57 )"VP,RR7. 6,(*-7()/
)8P5 ,) (7R'+'"8) "( P'T'P T"P,*'"-r
2. As to Durat|on
When |t comes to the partnersh|p term or ||fe, the |aw
d|st|ngu|shes between:
(a) K,(*-7()5'6 b'*5 L'W7. !7($d
(b) K,(*-7()5'6 &"( , K,(*'P8R,( E-.7(*,1'-+, and
(c) K,(*-7()5'6 ,* I'RR3
]RS'./ at pp. 641-642.

8oth 6,(*-7()5'6) b'*5 &'W7. *7($ and &"( , 6,(*'P8R,(
8-.7(*,1'-+ are automat|ca||y d|sso|ved upon the exp|rat|on of the
st|pu|ated term or the ach|evement of the part|cu|ar undertak|ng
st|pu|ated |n the contract of partnersh|p, whereas, |n a partnersh|p at
w|||, the partnersh|p has an |ndef|n|te term and |t wou|d be d|sso|ved
on|y when an act or cause of d|sso|ut|on happens or ar|ses.
Nonethe|ess, under Art|c|e 178S of New C|v|| Code, when a partnersh|p
for a f|x term or part|cu|ar undertak|ng |s cont|nued after |t has
term|nated w|thout any express agreement, partnersh|p then become
one at w||| and "the r|ghts and dut|es of the partners rema|n the same
as they were at such term|nat|on, so far as |s cons|stent w|th a
partnersh|p at w|||." 1he art|c|e a|so prov|des that "A cont|nuat|on of
the bus|ness by the partners or such of them as hab|tua||y acted
there|n dur|ng the term, w|thout any sett|ement or ||qu|dat|on of the
partnersh|p affa|rs, |s 6('$, &,P'7 ev|dence of a cont|nuat|on of the
partnersh|p."
In ?(*7+, T3 <"8(* "& B667,R)/
e
the Court descr|bed the
character|st|cs of a partnersh|p at w||| |n the fo||ow|ng manner, thus:
1he b|rth and ||fe of a partnersh|p at w||| |s pred|cated
on the mutua| des|re and consent of the partners. 1he r|ght
to choose w|th whom a person w|shes to assoc|ate h|mse|f
|s the very foundat|on and essence of that partnersh|p. Its
cont|nued ex|stence |s, |n turn, dependent on the constancy
of that mutua| reso|ve, a|ong w|th each partner's capab|||ty
to g|ve |t, and the absence of a cause for d|sso|ut|on
prov|ded by |aw |tse|f. Ver||y, any one of the partners may,
at h|s so|e p|easure, d|ctate a d|sso|ut|on of the partnersh|p
at w|||. ne must, however, act |n good fa|th, not that the
attendance of bad fa|th can prevent the d|sso|ut|on of the
partnersh|p but that |t can resu|t |n a ||ab|||ty for damages.
10

Nonethe|ess, by way of "S'*7(/ ?(*7+, a|so descr|bed the ab|||ty
of every partner even |n a partnersh|p w|th f|xed term or for a
part|cu|ar undertak|ng, to be ab|e to d|sso|ve the partnersh|p
9
24S SCkA S29
( 99 )
m|d, at pp.
3 36

upon the app||cat|on of the pr|nc|p|es of mutua| agency and .7R7P*8)
67()"-,7, thus
In pass|ng, ne|ther wou|d the presence of a per|od for
|ts spec|f|c durat|on or the statement of a part|cu|ar purpose
for |ts creat|on prevent the d|sso|ut|on of any partnersh|p by
an act or w||| of a partner. Among partners, mutua| agency
ar|ses and the doctr|ne of .7R7P*8) 67()"-,7 a||ows them to
have the power, a|though not necessar||y the r|ght, to
d|sso|ve the partnersh|p. An un[ust|f|ed d|sso|ut|on by the
partner can sub[ect h|m to a poss|b|e act|on for damages.
11

?(*7+, a|so c|ar|f|ed that the des|gnat|on of the purpose |n the
art|c|es does not prevent |t from be|ng a partnersh|p at w|||, thus:
1he "purpose" of the partnersh|p |s not the spec|f|c
undertak|ng referred to |n the |aw. Ctherw|se, a|| partner-
sh|ps, wh|ch necessar||y must have a purpose, wou|d a|| be
cons|dered as partnersh|ps for a def|n|te undertak|ng. 1here
wou|d therefore be no need to prov|de for art|c|es on
partnersh|p at w||| as none wou|d so ex|st. Apparent|y what
the |aw contemp|ates, |s a spec|f|c undertak|ng or "pro[ect"
wh|ch has a def|n|te or def|nab|e per|od of comp|et|on.
In G"X,) T3 0,+R,-,,
12
the Court he|d that where there has been
du|y reg|stered art|c|es of partnersh|p, and subsequent|y the or|g|na|
partners accept an |ndustr|a| partner but do not reg|ster a new
partnersh|p, and thereafter the |ndustr|a| partner ret|res from the
bus|ness, and the or|g|na| partners cont|nue under the same set-up as
the or|g|na| partnersh|p, then a|though the second partnersh|p was
d|sso|ved w|th the w|thdrawa| of the |ndustr|a| partner, there resu|ted
a revers|on back |nto the or|g|na| partnersh|p under the terms of the
reg|stered art|c|es of partnersh|p. In effect, the Court |n G"X,) he|d that
there |s no new partnersh|p at w||| const|tuted.
OFS'./ at p. S36.
12
192 SCkA 110
( )

3. As to Lxtent of artners' L|ab|||t|es
When |t comes to the k|nds of ||ab|||t|es that the partners may be
exposed to for partnersh|p debts and ob||gat|ons, the New C|v|| Code
d|st|ngu|shes between:
(a) C7-7(,R K,(*-7()5'6, where a|| the partners are
un||m|ted|y ||ab|e, and
(b) @'$'*7. K,(*-7()5'6, where there |s one or more
genera| partners who are un||m|ted|y ||ab|e, w|th one
or more ||m|ted partners, who are ||ab|e for
partnersh|p debts on|y to the extent of the|r st|pu|ated
contr|but|ons under the art|c|es of partnersh|p.
In h|s concurr|ng op|n|on |n @'$ !"-+ @'$ T3 K5'R'66'-7 L')5'-+
C7,( F-.8)*('7)/ F-P3/o Iust|ce V|tug summar|zed the nature of the
||ab|||t|es of genera| partners, thus:
. . . 1he ||ab|||ty of genera| partners (|n a genera|
partnersh|p as so opposed to a ||m|ted partnersh|p) |s |a|d
down |n Art|c|e 1816 wh|ch pos|ts that a|| partners sha|| be
||ab|e pro rata beyond the partnersh|p assets for a|| the
contracts wh|ch may have been entered |nto |n |ts name,
under |ts s|gnature, and by a person author|zed to act for
the partnersh|p. 1h|s ru|e |s to be construed a|ong w|th
other prov|s|ons of the C|v|| Code wh|ch postu|ate that the
partners can be he|d so|dar||y ||ab|e w|th the partnersh|p
spec|f|ca||y |n these |nstances (1) where, by any wrongfu|
act or om|ss|on of any partner act|ng |n the ord|nary course
of the bus|ness of the partnersh|p or w|th the author|ty of
h|s co-partners, |oss or |n[ury |s caused to any person, not
be|ng a partner |n the partnersh|p, or any pena|ty |s
|ncurred, the partnersh|p |s ||ab|e therefor to the same
extent as the partner so act|ng or om|tt|ng to act, (2) where
one partner act|ng w|th|n the scope of h|s apparent
author|ty rece|ves money or property of a th|rd person and
th t | d |
13
317 SCkA 728 (1999).

CLASSLS CI Ak1NLkS AND Ak1NLkSnIS S61
m|sapp||ed by any partner wh||e |t |s |n the custody of the
partnersh|p cons|stent|y w|th the ru|es on the nature of
c|v|| ||ab|||ty |n de||cts and quas|-de||cts.
14

kINDS CI Ak1NLkS
Cther than the genera| and ||m|ted partners that have been
prev|ous|y d|scussed, there are two k|nds of partners when |t comes to
the nature of the|r contr|but|ons:
(a) <,6'*,*')* K,(*-7(/ and
(b) F-.8)*(',R K,(*-7(3
A P,6'*,R')* 6,(*-7( contr|butes money and]or property to the
partnersh|p, wh||e an '-.8)*(',R 6,(*-7( contr|butes on|y h|s |ndustry or
h|s serv|ce. 1he |aw does not spec|fy the k|nd of |ndustry a partner may
contr|bute |nto the partnersh|p.
1S

1he |mportance of such d|st|nct|on |s essent|a||y on the nature of
the ob||gat|ons and ||ab|||t|es that they must assume, |n that:
(a) 1he cap|ta||st partner |s ||ab|e for the |osses susta|ned by
the bus|ness and any st|pu|at|on to the contrary wou|d
be vo|d,
18
whereas, the |ndustr|a| partner |s not ||ab|e
for |osses of the partnersh|p venture,
17

(b) 1he cap|ta||st partner may not engage |n bus|ness or
commerc|a| undertak|ng wh|ch |s compet|ng w|th that
of the partnersh|p bus|ness,
18
whereas, the |ndustr|a|
partner cannot engage |n any other
OFS'./ at pp. 746-747.
p
DT,-+7'')*, Q <"3 T3 BS,. ;,-*")/ S1 SCkA 416

18
Arts. 1791,1797, and 1799, New C|v|| Code.
"Art. 1797, New C|v|| Code.
18

S62
form of bus|ness or commerc|a| undertak|ng at a||
dur|ng h|s tenure as |ndustr|a| partner,
19
and
(c) Whereas a cap|ta||st partner |s bound to make add|t|ona|
contr|but|ons to the partnersh|p |n case of an |mm|nent
|oss of the bus|ness of the partnersh|p, the |ndustr|a|
partner has no such ob||gat|on.
20

h|||pp|ne artnersh|p Law a|so d|st|ngu|shes between the
||ab|||t|es assumed by an:
(a) ?('+'-,R K,(*-7( who |s w|th the partnersh|p at the t|me
of |ts const|tut|on,
(b) ;8S)7g87-* "( F-P"$'-+ K,(*-7()/ who come |n dur|ng
the ||fe of a pre-ex|st|ng partnersh|p.
In the case of an |ncom|ng partner, h|s ||ab|||ty w|th respect to the
partnersh|p ob||gat|ons wh|ch were |ncurred pr|or to h|s adm|ss|on |nto
the partnersh|p sha|| be sat|sf|ed on|y out of partnersh|p property,
un|ess |t |s otherw|se st|pu|ated.
21

4
artnersh|p Law a|so refers to the fo||ow|ng types of partners:
0,-,+'-+ K,(*-7( who has been g|ven the
management of the partnersh|p enterpr|se,
22

@'g8'.,*'-+ K,(*-7(/ who takes charge of the
||qu|dat|on and w|nd|ng-up of partnersh|p affa|rs,
23

G7*'('-+ K,(*-7(/ who ceases to be part of the
partnersh|p wh|ch |s cont|nued after d|sso|ut|on, as
compared w|th the partners who rema|n w|th the
venture as <"-*'-8'-+ K,(*-7()/
Y
] and
19
Ârt. 1791, New C|v|| Code.
21
"Arts. 1800 and 1801, New C|v|| Code.
24
Arts. 1837,1839,1840 and 1841, New C|v||
C d

- Portner by stoppe/, who |s not a forma| partner |n an
ex|st|ng partnersh|p, but by h|s act he has |ed
th|rd-part|es dea||ng w|th the partnersh|p to be||eve he
|s a partner, and thereby becomes ||ab|e as a regu|ar
partner as to such re|y|ng cred|tors.
2S

SLCIAL ISSULS CI WnC MA VALIDL 8LCCML Ak1NLkS
1. May Spouses Va||d|y Lnter |nto a artnersh|p ke|at|on?
a. Spouses Cannot Lnter |nto a
Un|versa| artnersh|p
1he ma|n statutory prov|s|on |nvoked when |t comes to the |ssue of
whether spouses can enter between themse|ves |nto a partnersh|p
agreement |s Art|c|e 1782 of New C|v|| Code wh|ch prov|des that
"ersons who are proh|b|ted from g|v|ng each other any donat|on or
advantage cannot enter |nto un|versa| partnersh|p."
It has thus been op|ned that s|nce under Art|c|e 133 of New C|v||
Code "Lvery donat|on between the spouses dur|ng the marr|age sha|| be
vo|d," then spouses are proh|b|ted from enter|ng |nto a un|versa|
partnersh|p, but not necessar||y a part|cu|ar or ||m|ted partnersh|p.
Art|c|e 133 of New C|v|| Code has now been rep|aced by Art|c|e 87 of the
Iam||y Code, wh|ch reads:
Art. 87. Lvery donat|on or grant of gratu|tous
advantage, d|rect or |nd|rect, between the spouses, dur|ng
the marr|age shou|d be vo|d, except moderate g|fts wh|ch
the spouse may g|ve each other on the occas|on of any
fam||y re[o|c|ng. 1he proh|b|t|on sha|| a|so app|y to persons
||v|ng together as husband and w|fe w|thout a va||d
marr|age.
Ârt. 181S, New C|v|| Code.

8aut|sta d|scussed the rat|ona|e of the proh|b|t|on under Art|c|e
1782 as to be "founded on the theory that a contract of un|versa|
partnersh|p |s for a|| purposes a donat|on. Its purpose, therefore, |s to
prevent persons d|squa||f|ed from mak|ng donat|ons to each other from
do|ng |nd|rect|y what the |aw proh|b|ts them from do|ng d|rect|y."
Irom the p|acement of Art|c|e 1782 (com|ng after the two art|c|es
cover|ng the def|n|t|on, nature and effects of un|versa| partnersh|ps, and
|mmed|ate|y before the art|c|e def|n|ng part|cu|ar partnersh|ps), |t seems
we|| |mp||ed that spouses, whatever the reg|me of property re|at|ons
preva||s |n the|r marr|age, are d|squa||f|ed from enter|ng |nto any sort of
un|versa| partnersh|p, and consequent|y, spouses may va||d|y become
partners to one another |n a part|cu|ar partnersh|p, wh|ch wou|d |nc|ude
a profess|ona| partnersh|p, and both genera| and ||m|ted partnersh|ps.
1he cr|t|ca| quest|on wh|ch must be asked: <,- )6"8)7) X8)*
S7*b77- *57$)7RT7) "( b'*5 *5'(. 6,(*'7) T,R'.R% 7-*7( '-*" , P"-*(,P* "&
6,(*-7()5'6 &"( +,'- 6("T'.7. *57 (7)8R*'-+ 6,(*-7()5'6 ') -"* ,
8-'T7(),R 6,(*-7()5'6r If one refers on|y to the prov|s|on of Art|c|e 1782,
the answer wou|d be |n the aff|rmat|ve.
In <"$$'))'"-7( "& F-*7(-,R G7T7-87 T3 ;8*7(, wh|ch current|y |s
the on|y dec|s|on to dea| w|th the |ssue, the Supreme Court aff|rmed th|s
part|cu|ar v|ew, re|y|ng on|y on the prov|s|ons of Art|c|e 1677 of the o|d
C|v|| Code (now Art|c|e 1782 of the New C|v|| Code), that s|nce the
proh|b|t|on for spouses covers express|y on|y un|versa| partnersh|ps,
then they can va||d|y be partners |n a ||m|ted partnersh|p, w|th the
husband be|ng the genera| partner and the w|fe be|ng the ||m|ted
partner.
Cn th|s part|cu|ar |ssue, 8aut|sta ||m|ted h|s comment to the effect
that the prov|s|ons of Art|c|e 1782 d|squa||f|es "spouses, w|th respect to
any contract of un|versa| partnersh|p made between them dur|ng the
marr|age," and other than report|ng the re|evant port|ons of the
dec|s|on |n ;8*7(/ he d|d not comment on whether spouses can va||d|y
enter |nto other forms of partnersh|p
27 SCkA 1S2 (1969).

CLASSLS CI Ak1NLkS AND Ak1NLkSnIS S6S
for ga|ns. 1o|ent|no does not comment on the prov|s|ons of Art|c|e 1782,
a|though h|s d|scuss|on on the matter under h|s o|d work under the Code
of Commerce was quoted |n ;8*7(3
It seems to the wr|ter that |n address|ng the |ssue ra|sed, |t wou|d
be error to base the reso|ut|on on|y on Art|c|e 1782 of the New C|v||
Code. Certa|n|y Art|c|e 1782 const|tutes an |mportant statutory prov|s|on
to reso|ve that |ssue, but there are other statutory prov|s|ons more
pr|mord|a| |n address|ng the |ssue.
;8*7(/ wh|ch was dec|ded under the terms of the o|d C|v|| Code and
the Code of Commerce, |s qu|te pecu||ar |n |ts facts because the contract
of partnersh|p started out where there was no |ega| obstac|e w|th the
part|es enter|ng |nto a du|y reg|stered ||m|ted partnersh|p: Suter as the
genera| partner, w|th Sp|r|g and Car|son, as ||m|ted partners. Lventua||y,
Suter and Sp|r|g were marr|ed, and bought out the |nterest of Car|son.
Under the prov|s|ons of the 1ax Code, the Comm|ss|oner of Interna|
kevenue then sought to recover |ncome taxes |nd|v|dua||y aga|nst Suter
for partnersh|p |ncome under the theory that the separate [ur|d|ca|
persona||ty of the partnersh|p by wh|ch |t was taxed separate|y as a
corporate taxpayer, was ext|ngu|shed w|th the marr|age of Suter and
Sp|r|g, who ended up as the on|y partners |n the venture. 1he Court he|d:
"1he theory of the pet|t|oner, Comm|ss|oner of Interna| kevenue, |s that
the marr|age of Suter and Sp|r|g and the|r subsequent acqu|s|t|on of the
|nterests of rema|n|ng partner Car|son |n the partnersh|p d|sso|ved the
||m|ted partnersh|p, and |f they d|d not, the f|ct|on of [ur|d|ca| persona||ty
of the partnersh|p shou|d be d|sregarded for |ncome tax purposes
because the spouses have exc|us|ve ownersh|p and contro| of the
bus|ness."
27

1he Court found no mer|t |n the pos|t|on of the Comm|ss|oner, and
quoted from the commentar|es of 1o|ent|no, thus:
A husband and a w|fe may not enter |nto a contract of
genera| copartnersh|p, because under the C|v|| Code, wh|ch
app||es |n the absence of express prov|s|on |n the Code of
Commerce, persons proh|b|ted from mak|ng donat|ons to
YN
FS'./ at p. 1S6.

each other are proh|b|ted from enter|ng |nto un|versa| part-
nersh|ps.
28
It fo||ows that the marr|age of partners
necessar||y br|ngs about the d|sso|ut|on of a pre-ex|st|ng
partnersh|p.
29

1hus, the Court he|d that the partnersh|p at |ssue "was not a
un|versa| partnersh|p, but a part|cu|ar one . . . s|nce the contr|but|ons of
the partners were f|xed sums of money, . . . and ne|ther one of them
was an |ndustr|a| partner. It fo||ows that [ | t ] . . . was not a partnersh|p
that [the] spouses were forb|dden to enter under Art|c|e 1677 of New
C|v|| Code of 1889 [now Art|c|e 1782]." In essence, ;8*7( ho|ds that
spouses are not d|squa||f|ed from becom|ng partners |n a ||m|ted
partnersh|p, prov|ded both of them are ||m|ted partners, or at |east both
of them |s a ||m|ted partner.
b. Spouses Are Not ua||f|ed to Lnter |nto Cther Iorms of
artnersh|p for Ga|n
It |s the wr|ter's pos|t|on that apart from a profess|ona|
partnersh|p, spouses cannot enter |nto any form of partnersh|p, be |t
un|versa| or part|cu|ar, genera| or ||m|ted partnersh|p, as a separate
property arrangement apart from the property reg|me preva|||ng |n the|r
marr|age, for the reasons d|scussed be|ow.
L'()*R%/ apart from a un|versa| partnersh|p, every form of
partnersh|p, |nc|ud|ng a ||m|ted partnersh|p, effect|ve|y makes partners
"donors" to one another of the|r contr|but|ons |n the partnersh|p.
A|though a partnersh|p wou|d have a persona||ty separate and d|st|nct
from each of the partners, so that |t can ho|d contr|buted property |n |ts
name, nonethe|ess, partners are express|y granted by artnersh|p Law
co-ownersh|p |nterest |n the partnersh|p property as to then have a
d|rect co-ownersh|p |nterest there|n.
30
Lffect|ve|y, even |n a ||m|ted
partnersh|p (such as the ;8*7( s|tuat|on), the contr|but|on of the ||m|ted
partner
Y:
<'*'-+ 2 Lchaverr| 196.
29
27 SCkA 1S2, 1S7, g8"*7. &("$ 1CLLN1INC, CCMMLN1AkILS AND
IUkISkUDLNCL CN CCMMLkCIAL LAWS CI 1nL nILIINLS, Vo|. 1, 4th ed., at p.
S8, P'*'-+ 1 Guy de Monte||a S8.
M
w|fe be|onged to the partnersh|p wh|ch wou|d then be under the contro|
and management of the genera| partner husband. A partnersh|p
arrangement between spouses wou|d thereby be an |nd|rect v|o|at|on of
the prov|s|ons of Art|c|e 87 of the Iam||y Code wh|ch prov|des that
"Lvery donat|on or grant of gratu|tous advantage, d|rect or |nd|rect,
between the spouses dur|ng the marr|age sha|| be vo|d."
A|though |t can be argued that contr|but|ons to a partnersh|p are
not |n the nature of "donat|ons" or "gratu|tous advantage," because a
contract of partnersh|p |s essent|a||y an onerous and commutat|ve
contract, whereby the contr|but|ons comes w|th a cost (e.g., becom|ng
un||m|ted|y ||ab|e for partnersh|p ob||gat|ons), neverthe|ess, such
contr|but|ons wou|d then v|o|ate the prov|s|ons of Art|c|e 1490 of New
C|v|| Code, wh|ch proh|b|ts sa|es or any other form of onerous
d|spos|t|ons, between spouses not governed by the comp|ete separat|on
of property reg|me.
;7P"-.R%, there |s c|ear |mp||cat|on under the Iam||y Code, that the
property reg|me that must govern spouses must be |n accordance w|th
the prov|s|ons of sa|d Code, and cannot be the sub[ect of regu|ar
partnersh|p ru|es under the artnersh|p Law of the New C|v|| Code.
=`H ;6"8)7) C"T7(-7. S% *57 BS)"R8*7 <"$$8-'*% "&
K("67(*% G7+'$7
1o beg|n w|th, the Iam||y Code sets the abso|ute commun|ty of
property reg|me as the defau|t ru|e for marr|ages, and consequent|y, |t
cannot ex|st cons|stent|y w|th another set of ru|es govern|ng
partnersh|ps for ga|ns under the artnersh|p Law of New C|v|| Code.
A|though Art|c|e 1782 prov|des that "ersons who are proh|b|ted from
g|v|ng each other any donat|on or advantage cannot enter |nto a
un|versa| partnersh|p," wh|ch beyond doubt shou|d |nc|ude spouses, yet
under Art|c|e 7S of the Iam||y Code, "In the absence of marr|age
sett|ements, or when the reg|me agreed upon |s vo|d, the system of
abso|ute commun|ty of property as estab||shed |n th|s Code sha||
govern," and wh|ch under Art|c|e 88 of the Iam||y Code, "sha||
commence at the prec|se moment that the marr|age |s ce|ebrated [and
that

any] st|pu|at|on, express or |mp||ed, for the commencement of the
commun|ty reg|me at any other t|me sha|| be vo|d."
1he abso|ute commun|ty of property reg|me actua||y estab||shes a
sort of "un|versa| partnersh|p" between the spouses, |n that |t |nc|udes
"a|| property owned by the spouses at the t|me of the ce|ebrat|on of the
marr|age or acqu|red thereafter."
31

<,- )6"8)7) +"T7(-7. S% *57 ,S)"R8*7 P"$$8-'*% "& 6("67(*%
(7+'$7/ T,(% *57 7&&7P*) S7*b77- *57$ "- P7(*,'- P"$$8-'*% 6("67(*%/
S% P"-*('S8*'-+ *57$ '-*" , 6,(*'P8R,( 6,(*-7()5'6 &"( +,'-r 1he answer
ought to be |n the negat|ve, and such a partnersh|p agreement wou|d be
vo|d, s|nce under Art|c|e 89 of the Iam||y Code "No wa|ver of r|ghts,
|nterest, shares and effects of the abso|ute commun|ty of property
dur|ng the marr|age can be made except |n case of [ud|c|a| separat|on of
property." In other words, Art|c|e 1782 of the New C|v|| Code |s not the
ma|n ru|e on regu|at|ng property r|ghts between spouses, but mere|y
supp|e- tory to the pr|mary ru|es set out by the Iam||y Code.
=YH ;6"8)7) C"T7(-7. S% *57 <"-X8+,R K,(*-7()5'6 "& C,'-)
1ake then the case of spouses governed by the con[uga|
partnersh|p of ga|ns, wh|ch under Art|c|e 10S of the Iam||y Code, can
come |nto p|ay between spouses on|y when |t has been so st|pu|ated |n
the marr|age sett|ements.
0,% )6"8)7) *57(7&"(7 7-*7( '-*" , P"-*(,P* "& 6,(*'P8R,(
6,(*-7()5'6 &"( +,'- S% P"-*('S8*'-+ *57(7*" 7'*57( P"-X8+,R 6("67(*%/ "(
*57'( )76,(,*7 6("67(*'7)r When |t comes to con[uga| property, the
answer ought to be |n the negat|ve, s|nce the effect |s that spouses
wou|d be donat|ng to one another, as d|scussed be|ow, contrary to the
prov|s|ons of Art|c|e 87 of the Iam||y Code. In add|t|on, by enter|ng |nto a
contract of part|cu|ar partnersh|p and thereby |nvok|ng the prov|s|ons of
the artnersh|p Law of New C|v|| Code on the con[uga| property
contr|buted, that wou|d
31
Art. 91, Iam||y Code.
|n effect be amend|ng, or perhaps even contraven|ng, the prov|s|ons of
the marr|age sett|ements |nvok|ng the Iam||y Code ru|es cover|ng
con[uga| partnersh|p of ga|ns. Art|c|e 108 of the Iam||y Code prov|des
that "1he con[uga| partnersh|p sha|| be governed by the ru|es on the
contract of partnersh|p |n a|| that |s not |n conf||ct w|th what |s express|y
determ|ned |n th|s Chapter or by the spouses |n the|r marr|age
sett|ements." 1h|s shows the pr|macy of the Iam||y Code prov|s|ons on
govern|ng the con[uga| partnersh|p between the spouses, and any
attempt to govern con[uga| propert|es under a contract of part|cu|ar
partnersh|p wou|d underm|ne such pr|macy and therefore vo|d.
Ior the same reasons, spouses governed by the con[uga|
partnersh|p of ga|ns cannot a|so va||d|y enter |nto a contract of part|cu|ar
partnersh|p for ga|n, even when they contr|bute thereto the|r separate
propert|es, because that wou|d |n effect const|tute donat|ons to one
another as d|scussed be|ow, and wou|d underm|ne the ru|es of the
Iam||y Code on how such separate propert|es shou|d answer for the
charges on fam||y affa|rs.
=[H ;6"8)7) C"T7(-7. S% *57 <"$6R7*7 ;76,(,*'"- "& K("67(*%
G7+'$7
0,% )6"8)7) +"T7(-7. S% *57 P"$6R7*7 )76,(,*'"- "& 6("67(*%
(7+'$7 T,R'.R% 7-*7( '-*" , P"-*(,P* "& 6,(*'P8R,( 6,(*-7()5'6r 1he
answer ought to be |n the negat|ve, for the contr|but|on of any of the|r
separate propert|es |nto the partnersh|p for ga|n wou|d amount to
donat|on, and under Art|c|e 87 of the Iam||y Code, wh|ch proh|b|ts any
form of donat|on or gratu|tous advantage between spouses dur|ng
marr|age, makes no d|st|nct|on, much |ess an except|on, for spouses
governed by the comp|ete separat|on of property reg|me.
c. Contract of artnersh|p May Cffend Aga|nst the
rov|s|ons of the Iam||y Code
A contract of partnersh|p between spouses entered |nto dur|ng
marr|age wou|d be vo|d because |t wou|d contravene the ru|es under
Art|c|es 76 and 77 of the Iam||y Code that proh|b|t "any

mod|f|cat|on |n the marr|age sett|ements" after the "ce|ebrat|on of the
marr|age," and wh|ch prov|de that "1he marr|age sett|ement and any
mod|f|cat|on thereof sha|| be |n wr|t|ng, s|gned by the part|es and
executed before the ce|ebrat|on of the marr|age."
In essence, the artnersh|p Law under the New C|v|| Code, wh|ch
shou|d be cons|dered genera| prov|s|ons, cannot overcome the more
spec|f|c prov|s|ons on the Law on Marr|ages under the Iam||y Code,
wh|ch govern spec|f|ca||y the property reg|me that shou|d preva||
between spouses. 1he prov|s|ons of artnersh|p Law are geared towards
prov|d|ng for the a contractua| re|at|onsh|p that seeks to undertake a
bus|ness venture, whereas, the Iam||y Code prov|s|ons govern|ng the
property reg|me preva|||ng between spouses have cons|derat|ons that
transcend prof|t mot|ves, and seek to strengthen the |nst|tut|ons of
marr|age and the fam||y. Consequent|y, a contract of partnersh|p
between spouses shou|d be he|d vo|d |n that |t seeks to overcome or
underm|ne the mandatory prov|s|ons of the Iam||y Code.
1here are severa| areas where there ar|ses rea| conf||ct between
doctr|nes under artnersh|p Law and those under the Iam||y Code.
=`H F))87 "- <"-*("R ,-. :'-.'-+ D&&7P*) "& BP*) "&
K,(*-7()
We take the area of contro| and b|nd|ng effect of the acts of
partners aga|nst other partners and the partnersh|p |tse|f. Under
artnersh|p Law, every partner |s an agent of the partnersh|p and for the
other partners when |t comes to transact|ons that perta|n to partnersh|p
affa|rs, thus, the act of one partner b|nds the other partners and the
partnersh|p property.
32
Cn the other, the genera| ru|e under the Iam||y
Code, when |t comes to abso|ute commun|ty of property reg|me (Art|c|e
96, Iam||y Code) and con[uga| partnersh|p of ga|ns (Art|c|e 124, Iam||y
Code), |s that both spouses are co-adm|n|strators of the con[uga| proper-
t|es, and any contract, espec|a||y an act of d|spos|t|on or encumbrance of
the commun|ty or the con[uga| property, done by one
Ârts. 1803(1) and 1818, New C|v|| Code.

w|thout the consent of the other partner, wou|d be vo|d.
33
1ake the
case of a||ow|ng the spouses to enter |nto a part|cu|ar partnersh|p, and
they both contr|bute commun|ty or con[uga| propert|es thereto, wou|d
the ru|es under artnersh|p Law therefore a||ow one spouse, w|thout
the consent of the other spouse, to d|spose of such property pursuant
to partnersh|p affa|rs?
Art|c|e 14S, Iam||y Code prov|des that "Lach spouse sha|| own,
d|spose of, possess, adm|n|ster and en[oy h|s or her own separate
estate, w|thout need of the consent of the other. 1o each spouse sha||
be|ong a|| earn|ngs from h|s or her profess|on, bus|ness or |ndustry and
a|| fru|ts, natura|, |ndustr|a| or c|v||, due or rece|ved dur|ng the marr|age
from h|s or her separate property." Under a comp|ete separat|on of
property reg|me, spouses separate|y manage and contro| the|r
separate propert|es. Can spouses who are governed by the reg|me of
separat|on of property, thereby part|a||y overcome the govern|ng
prov|s|ons of the Iam||y Code, by be|ng a||owed to va||d|y enter |nto a
part|cu|ar partnersh|p agreement?
=YH <5,(+7) *" K,(*-7()5'6 K("67(*'7)
We shou|d |ook a|so |nto the areas of charges aga|nst the
partnersh|p propert|es and the effects of d|sso|ut|on. Under
artnersh|p Law, partnersh|p propert|es wou|d be chargeab|e aga|nst
any c|a|m or contract entered |nto pursuant to partnersh|p affa|rs. Cn
the other hand, under both the abso|ute commun|ty of property
reg|me and the con[uga| partnersh|p of ga|ns, there are spec|f|c ||st|ngs
of what shou|d f|rst be chargeab|e aga|nst the commun|ty property,
34

or the con[uga| property,
3S
||ke support and debts contracted for the
benef|t of the marr|age. Under a reg|me of separate property, both
spouses sha|| bear the fam||y expenses |n proport|on to the|r |ncome,
or, |n case of |nsuff|c|ency
[[
C8',-+ T3 <"8(* "& B667,R)/ 291 SCkA 372 (1998), <'(7R") T3
>7(-,-.7\/ 490 SCkA 62S (2006), :,8*')*, T3 ;'RT,/ S02 SCkA 334 (2006).
M
Arts. 94 and 9S, Iam||y Code.
Ârts. 121 to 123, Iam||y Code.

or defau|t thereof, to the current market va|ue of the|r separate
propert|es.
36

When commun|ty, con[uga| or separate property |s a||owed to be
contr|buted |nto the partnersh|p for ga|n, the ru|es of f|rst preference
of partnersh|p cred|tors to partnersh|p property wou|d underm|ne the
c|a|ms of persona| cred|tors of spouses, as we|| as the ab|||ty of
marr|age propert|es to proper|y prov|de for the fam||y support and
upkeep. In add|t|on, contr|but|ons by spouses of marr|age property
|nto a partnersh|p for ga|n wou|d certa|n|y a||ow a means by wh|ch
spouses may defraud the|r marr|age cred|tors, by mak|ng certa|n
marr|age propert|es sub[ect to greater c|a|ms outs|de of marr|age
affa|rs.
d. rofess|ona| artnersh|ps
0,% )6"8)7) S% *57$)7RT7)/ "( *"+7*57( b'*5 "*57( 6("&7))'"-,R)/
7-*7( T,R'.R% '-*" , P"-*(,P* "& 6("&7))'"-,R 6,(*-7()5'6/ b5'P5 S%
.7&'-'*'"- "& B(*'PR7 `Nj[ "& 97b <'T'R <".7 ') ,Rb,%) , 6,(*'P8R,(
6,(*-7()5'6r 1he answer seems to be |n the aff|rmat|ve. 1he reason |s
that a profess|ona| partnersh|p essent|a||y cover|ng the contr|but|on of
serv|ce by the spouses, does not pr|mar||y b|nd actua| commun|ty or
con[uga| propert|es, and therefore does not operate |n v|o|at|on of the
property ru|es govern|ng marr|age property reg|mes.
More |mportant|y, profess|ona| partnersh|p are not rea||y
pursued for prof|t, but more for c|v|c or vocat|ona| ends and therefore
do not address propr|etary ends, but rather, the exerc|se of a
profess|on, even |n the partnersh|p med|um, has more to do w|th the
express|on of |dea|s he|d by an |nd|v|dua| or towards ach|ev|ng a
fru|tfu| ||fe |n the mundane wor|d. 1h|s fact |s recogn|zed even under
the Iam||y Code, where Art|c|e 73 prov|des that "L|ther spouse may
exerc|se any |eg|t|mate profess|on, occupat|on, bus|ness or act|v|ty
w|thout the consent of the other."
"Art. 146, Iam||y Code.

2. May Corporat|ons Va||d|y ua||fy to 8ecome artners?
1he preva|||ng ru|e |n the Un|ted States |s that
Un|ess |t |s express|y author|zed by statute or charter, a
corporat|on cannot ord|nar||y enter |nto partnersh|ps w|th
other corporat|ons or w|th |nd|v|dua|s, for, |n enter|ng |nto a
partnersh|p, the |dent|ty of the corporat|on |s |ost or
merged w|th that of another and the d|rect|on of the affa|rs
|s p|aced |n other hands than those prov|ded by |aw of |ts
creat|on... A corporat|on can act on|y through |ts du|y
author|zed off|cers and agents and |s not bound by the acts
of anyone e|se, wh||e |n a partnersh|p each member b|nds
the f|rm when act|ng w|th|n the scope of the partnersh|p.
37

1he doctr|ne |s grounded on the theory that the stockho|ders of a
corporat|on are ent|t|ed, |n the absence of any not|ce to the contrary |n
the art|c|es of |ncorporat|on, to assume that the|r d|rectors w||| conduct
the corporate bus|ness w|thout shar|ng that duty and respons|b|||ty w|th
others.
38

a. Iur|sprudent|a| ku|e
!8,)"- T3 :"R,-"),
M
recogn|zed at that t|me |n h|||pp|ne
[ur|sd|ct|on the doctr|ne |n Ang|o-Amer|can [ur|sprudence that "a
corporat|on has no power to enter |nto a partnersh|p."
40
Neverthe|ess,
!8,)"- ru|ed that a corporat|on may va||d|y enter |nto a [o|nt venture
agreement, "where the nature of that venture |s |n ||ne w|th the bus|ness
author|zed by |ts charter."
41

A [o|nt venture |s essent|a||y a partnersh|p arrangement, a|though
of a spec|a| type, s|nce |t perta|ns to a part|cu|ar pro[ect or undertak|ng.
42

37
ILL1CnLk CC. CCkCkA1ICNS (erm. Ld.) 2S20.
^8AU1IS1A, at p. 9.
OlZ h||. 106 (19S4).
ac
FS'., at p. 109.
OFS'./ g8"*'-+ &("$ I%"$'-+VF-.',-, ?'R C,) <"3 T3 I7)*"-/ 80
A.L.k., 1043, P'*'-+ ILL1CnLk CC. CI CCk., Sec. 1082.
42
8AU1IS1A, )86(,/ at p. S0.

S74
In !"((7) T3 <"8(* "& B667,R)/
a[
the Supreme Court he|d
unequ|voca||y that a [o|nt venture agreement for the deve|opment and
sa|e of a subd|v|s|on pro[ect wou|d const|tute a partnersh|p pursuant
to the e|ements thereof under Art|c|e 1767 of New C|v|| Code that
def|nes when a partnersh|p ex|sts.
A|though !8,)"- does not e|aborate on why a corporat|on may
become a co-venturer or partner |n a [o|nt venture arrangement, |t
wou|d seem that the po||cy beh|nd the proh|b|t|on on why a
corporat|on cannot be made a partner do not app|y |n a [o|nt venture
arrangement. 8e|ng for a part|cu|ar pro[ect or undertak|ng, when the
board of d|rectors of a corporat|on eva|uate the r|sks and
respons|b|||t|es |nvo|ved, they can more or |ess exerc|se the|r own
bus|ness [udgment |s determ|n|ng the extent by wh|ch the corporat|on
wou|d be |nvo|ved |n the pro[ect and the ||ke|y ||ab|||t|es to be
|ncurred. Un||ke |n an ord|nar||y partnersh|p arrangement wh|ch may
expose the corporat|on to any and var|ous ||ab|||t|es and r|sks wh|ch
cannot be eva|uated and ant|c|pated by the board of d|rectors, the
s|tuat|on therefore |n a [o|nt venture arrangement, a||ows the board of
d|rectors to fu||y b|nd the corporat|on to matters essent|a||y w|th|n the
board's bus|ness apprec|at|on and ant|c|pat|on. It |s c|ear therefore
that what makes a pro[ect or undertak|ng a "[o|nt venture" to
author|ze a corporat|on to be a co-venturer there|n |s not the name or
nomenc|ature g|ven to the undertak|ng, but the very nature and
essence of the undertak|ng that ||m|ts |t to a part|cu|ar pro[ect wh|ch
a||ows the board of d|rectors of the part|c|pat|ng corporat|on to
proper|y eva|uate a|| the consequences and ||ke|y ||ab|||t|es to wh|ch
the corporat|on wou|d be he|d ||ab|e for.
b. SLC ku|es
In a number of op|n|ons,
44
the SLC has recogn|zed the genera|
ru|e that a corporat|on cannot enter |nto a contract of partnersh|p
w|th an |nd|v|dua| or another corporat|on on the
43
278 SCkA 793.
"SLC CINICN, 22 December 1966, SLC ICLIC 1960-1976, at p. 278, c|t-
|ng 13 AM. IUk. Sec. 823 (1938), 6 ILL1CnLk CC. CCk., LkM. LD. kLV. kLL.
19S0, at p. 2S20.

prem|se that |t wou|d be bound by the acts of the persons who are not
|ts du|y appo|nted and author|zed agents and off|cers, wh|ch |s
|ncons|stent w|th the po||cy of the |aw that the corporat|on sha||
manage |ts own affa|rs separate|y and exc|us|ve|y.
nowever, the SLC has on spec|a| occas|ons a||owed except|ons to
the genera| ru|e when the fo||ow|ng cond|t|ons are comp||ed w|th:
(a) 1he author|ty to enter |nto a partnersh|p re|at|on |s
express|y conferred by the charter or the art|c|es of
|ncorporat|on of the corporat|on, and the nature of
the bus|ness venture to be undertaken by the
partnersh|p |s |n ||ne w|th the bus|ness author|zed by
the charter or art|c|es of |ncorporat|on of the
corporat|on |nvo|ved,
4S

(b) 1he agreement on the art|c|es of partnersh|p must
prov|de that a|| the partners sha|| manage the
partnersh|p, and the art|c|es of partnersh|p must
st|pu|ate that a|| the partners sha|| be [o|nt|y and
severa||y ||ab|e for a|| the ob||gat|ons of the part-
nersh|p.
46

1he second cond|t|on set by the SLC wou|d have the effect of
a||ow|ng a corporat|on to enter as a genera| partner |n genera|
partnersh|p, wh|ch wou|d st||| have contravened the doctr|ne of
mak|ng the corporat|on un||m|ted|y ||ab|e for the acts of the other
partners who are not |ts author|zed off|cers or agents. 1h|s
|nterpretat|on of the second cond|t|on was conf|rmed by the SLC |n
1994, to mean that a partnersh|p of corporat|ons shou|d be organ|zed
as a "genera| partnersh|p" where|n a|| the partners are "genera|
partners so that a|| corporate partners sha|| take part |n the
management and thus be [o|nt|y and severa||y ||ab|e w|th the other
partners."
47

^SLC Cp|n|on, 29 Iebruary 1980.
$'.3
47
SLC Cp|n|on, dated 23 Iebruary 1994, kkVII SLC UAk1LkL 8ULLL1IN
18
(No 3 Sept 1994)

1he rat|ona|e g|ven by the SLC for the second cond|t|on was that
|f the corporat|on |s a||owed to be a ||m|ted partner on|y, there |s no
assurance that the corporate partner sha|| part|c|pate |n management
of the partnersh|p wh|ch may create a s|tuat|on where|n the
corporat|on may not be bound by the acts of the partnersh|p |n the
event that, as a ||m|ted partner, the corporat|on chooses not to
part|c|pate |n the management.
48

nowever, |n 199S, the SLC reversed such |nterpretat|on and
pract|ca||y dropped the second requ|rement, when |t adm|tted the
fo||ow|ng reason|ng for a||ow|ng a corporat|on to |nvest |n a ||m|ted
partnersh|p, thus:
1. Iust as a corporate |nvestor has the power to make
pass|ve |nvestments |n other corporat|ons by purchas|ng
stock, a corporate |nvestor shou|d a|so be a||owed to make
pass|ve |nvestments |n partnersh|ps as a ||m|ted partner,
who wou|d then not be bound beyond the amount of |ts
|nvestment by the acts of the other partners who are not |ts
du|y appo|nted and author|zed agents and off|cers. nence,
the very reason why as a genera| ru|e, a corporat|on cannot
enter |nto a contract of partnersh|p, as stated |n the 1966
SLC op|n|on, wou|d no |onger be present, as the
corporat|on, wh|ch |s mere|y a ||m|ted partner, w||| now be
protected from the un||m|ted ||ab|||ty of the other partners
who are not agents or off|cers of the corporat|on,
2. Sect|on 42 of the Corporat|on Code wh|ch perm|ts a
corporat|on to |nvest |ts funds |n another corporat|on or
bus|ness, does not requ|re that the |nvest|ng corporat|on be
|nvo|ved |n the management of the |nvestee corporat|on
w|th a v|ew to protect |ts |nvestment there|n. 8y enter|ng
|nto a contract of ||m|ted partnersh|p, a corporat|on wou|d
cont|nue to manage |ts own corporate affa|rs wh||e va||d|y
absta|n|ng from part|c|pat|on |n the management of the
ent|ty |n wh|ch |t has |nvested. Accord|ng|y, as there |s
genera||y no threat that a corporate ||m|ted partner wou|d
be so||dar|ty ||ab|e w|th the partnersh|p, there wou|d be no
reason for requ|r|ng a corporate partner to actua||y manage
the partnersh|p, |f |t makes the bus|ness dec|s|on not to do
so and opts to become a ||m|ted partner, and
aj
FS'.3

3. 1he SLC po||cy that a corporat|on cannot enter |nto a
||m|ted partnersh|p, |s an offshoot of the outdated v|ew |n
the U.S., that, as a genera| ru|e, corporat|ons cou|d not form
a partnersh|p, that corporat|ons cannot become ||m|ted
partners, |s based on an assumpt|on wh|ch |s no |onger cur-
rent. Iur|sprudence and common commerc|a| pract|ce |n the
U.S., |nd|cate that corporat|ons are not barred from act|ng
as ||m|ted partners. Current Amer|can |aws support the
pos|t|on that a corporat|on can enter |nto a contract of
||m|ted partnersh|p. Ior examp|e, the kev|sed Un|form
L|m|ted artnersh|p Act of 1976 (as amended |n 198S),
spec|f|ca||y conf|rms, that corporat|ons may act as ||m|ted
partners. A|most a|| states |n the U.S. have adopted ||m|ted
partnersh|p |aws wh|ch prov|de, |n the same manner as the
kev|sed Un|form L|m|ted artnersh|p Act, that corporat|ons
may act as ||m|ted partners. 1h|s |nd|cates that many other
[ur|sd|ct|ons s|mp|y fo||ow the broad |anguage of the
kev|sed Mode| 8us|ness Corporat|ons Act wh|ch suggests
that corporat|ons may act as ||m|ted partners and |n no
event proh|b|ts that act|v|ty. 1hese statutes reaff|rm what |s
|nd|cated by the commerc|a| pract|ce |n the U.S., that
corporat|ons can act as ||m|ted partners. 1he pro||ferat|on of
statutes revers|ng the doctr|ne forb|dd|ng corporat|ons to
become partners |s proof of the unsoundness of and
d|ssat|sfact|on w|th such doctr|ne.
49

In that op|n|on, the SLC conceded on the po|nts ra|sed by
conf|rm|ng that "|nasmuch as there |s no ex|st|ng h|||pp|ne |aw that
express|y proh|b|ts a corporat|on from becom|ng a ||m|ted partner |n a
partnersh|p, the Comm|ss|on |s |nc||ned to adopt your v|ew on the
matter,"
S0
prov|ded that the power to enter |nto a partnersh|p |s
prov|ded for |n the corporat|on's charter. 1he SLC went on to ru|e:
"We agree w|th your statements that a recons|derat|on
of the present po||cy of the Comm|ss|on on the matter |s
t|me|y |n order to perm|t the h|||pp|ne commerc|a| env|ron
49
SLC CINICN, 17 August 199S, kkk SLC UAk1LkL 8ULLL1IN 8-9 (No. 1,
Iune 1996), SLC CINICN, 17 August 199S, kkk SLC UAk1LkL 8ULLL1IN 8-9
(No. 1, Iune 1996).
$'.3

ment to ma|nta|n |ts pace |n terms of |ega| |nfrastructure
w|th s|m||ar deve|opments |n the |nternat|ona| arena w|th a
v|ew to encourag|ng and fac|||tat|ng greater domest|c and
fore|gn |nvestments |n h|||pp|ne bus|ness enterpr|se.
S1

Ak1NLkSnI DIS1INGUISnLD IkCM C1nLk 8USINLSS MLDIA
1. D|st|ngu|shed from "Io|nt Venture"
8aut|sta, a|though conf|rm|ng that a [o|nt venture "|s an
assoc|at|on of two or more persons to carry out a s|ng|e bus|ness
enterpr|se for prof|t. . . [and] embod|es severa| of the essent|a|
e|ements or character|st|cs of a partnersh|p and bears such a c|ose
resemb|ance to |t that the r|ghts and ||ab|||t|es of [o|nt adventures are
|arge|y governed by ru|es app||ed to partnersh|p,"
S2
neverthe|ess
wou|d d|st|ngu|sh a partnersh|p and a [o|nt venture |n the fo||ow|ng
manner:
(a) "[A] [o|nt venture |s ord|nar||y ||m|ted to a s|ng|e
transact|on [and] not |ntended to pursue a cont|nuous
bus|ness," whereas a partnersh|p, "though |t may
ex|st for a s|ng|e transact|on, usua||y contemp|ates the
undertak|ng of a genera| and cont|nuous bus|ness of a
part|cu|ar k|nd wh|ch necessar||y |nvo|ves a ser|es of
transact|ons,"
S3

(b) In a [o|nt venture, "the property used rema|ns the
und|v|ded property of |ts contr|butor, whereas |n a
partnersh|p the same, as a ru|e, becomes the property
of the bus|ness ent|ty and hence of a|| the partners,"
S4

$'.3
"8AU1IS1A, at pp.
41-42.
m|d, at p. 42.
$'.

(c) In a [o|nt venture, none of the co-venturers "can b|nd
the [o|nt adventure or h|s co-adventurers, wh||e a
partner, when act|ng |n pursuance of the f|rm bus|ness,
b|nds not on|y h|mse|f as a pr|nc|pa| but, as the|r agent
as we||, a|so the partnersh|p and h|s co-partners,"
SS
and
(d) A "[o|nt adventure has no f|rm name, wh||e a part-
nersh|p |s requ|red to operate under a f|rm name."
S6

1o the wr|ter, the forego|ng d|st|nct|ons on|y aff|rm the fact that a
[o|nt venture |s a spec|es of the genus partnersh|p as def|ned under
Art|c|e 1767 of New C|v|| Code, s|nce |t conta|ns the two essent|a|
e|ements of the creat|on of a common fund and undertak|ng to d|v|de
prof|ts, that |n fact |t |s a part|cu|ar partnersh|p for a spec|f|c undertak|ng
fu||y recogn|zed under Art|c|e 1783 cover|ng "a spec|f|c undertak|ng,"
and Art|c|e 1830 that recogn|zes the d|sso|ut|on of a partnersh|p "8y the
term|nat|on of the . . . part|cu|ar undertak|ng spec|f|ed |n the
agreement." 1he pos|t|on that |n a [o|nt venture the co-venturers do not
become mutua| agents |s a conc|us|on that can on|y be drawn |f we
prem|se that a co-venture |s not a spec|es of partnersh|ps. I|na||y, that a
partnersh|p adopts no f|rm name does not make |t vo|d as a contract
or
7
a partnersh|p, so a|so w|th a [o|nt venture.
In any event. the d|st|nct|on between a [o|nt venture as a bus|ness
med|f[m not fa|||ng w|th|n the amb|t of artnersh|p Law,
onas-nofconst|tut|ng a spec|es of partnersh|ps, has rea||y become moot
s|nce |n p'R")S,%,-/ F-P3 T3 C8'-+"-,/ J(3/
ZN
|t was he|d:
Io|nt venture |s def|ned as an assoc|at|on of persons or
compan|es [o|nt|y undertak|ng some commerc|a| enterpr|se,
genera||y a|| contr|bute assets and share r|sks. It requ|res a
commun|ty of |nterest |n the performance of the sub[ect
matter, a r|ght to d|rect and govern the po||cy |n connect|on
ZZ
RS'.3
W
RS'.3
;N
Y[Y SCkA
( )

therew|th, and duty, wh|ch may be a|tered by agreement to
share both |n prof|t and |osses. 1he acts of work|ng together
|n a [o|nt pro[ect.
88

In !"((7) T3 <"8(* "& B667,R)/
Zl
the Court took no except|on to
def|n|ng the terms, r|ghts and ob||gat|ons of the part|es to a "Io|nt
Venture Agreement" cover|ng the deve|opment of a subd|v|s|on
pro[ect under prov|s|ons of New C|v|| Code govern|ng partnersh|ps.
1he sect|on on K5'R'66'-7 J"'-* 27-*8(7) prov|des for a more thorough
d|scuss|on of the [o|nt venture as a med|um of do|ng bus|ness under
h|||pp|ne sett|ng.
2. D|st|ngu|shed from Co-Cwnersh|p
A|though the Law on artnersh|ps recogn|zes that partners have
co-ownersh|p |nterest |n the partnersh|p propert|es,
60
nonethe|ess a
co-ownersh|p const|tutes mere|y a property re|at|on whereby two or
more persons own 6("V'-.'T')" a property, but the re|at|onsh|p does
not seek the bus|ness or mercant||e pursu|t of the property
re|at|onsh|p. In other words, a co-ownersh|p s|tuat|on comes about
other than by a contractua| |ntent to pursue a bus|ness venture |n
common, and consequent|y, no separate [ur|d|ca| persona||ty ar|ses
from a pure|y co-ownersh|p re|at|onsh|p.
W|thout the contractua| |ntent to pursue a bus|ness venture
through a common fund, the fact that co-owners happen to share |n
the prof|ts that may be produced by the property owned |n common,
there |s st||| no partnersh|p arrangement. 1hus, Art|c|e 1769 of New
C|v|| Code prov|des that "In determ|ng whether a partnersh|p ex| sts
. . . Co-ownersh|p or co-possess|on does not of |tse|f estab||sh a
partnersh|p, whether such co-owners or co- possessors do or do not
share any prof|ts made by the use of the property."
mFS'./ P'*'-+ 8LACk'S LAW DIC1ICNAk, S|xth ed.,
839
S9
320 SCkA 428 (1999).
-"Art. 1811, New C|v|| Code.

3. D|st|ngu|shed from Io|nt Account =;"P'7.,. .7 <87-*,) 7-
K,(*'P'6,*'"-H
A [o|nt account |s governed under Art|c|e 239 of the Code of
Commerce, and st||| referred to as a corporate taxpayer under the
Nat|ona| Interna| kevenue Code. 8ut |ts use |s a rar|ty |n our [ur|sd|ct|on
because |t does not |end |tse|f to commerc|a| or bus|ness eff|c|ency, as
shown by the d|scuss|on of |ts features |n :"8(-) T3 <,($,-/O thus
. . . Apartnersh|p const|tuted |n such manner, the
ex|stence of wh|ch was on|y known to those who had an
|nterest |n the same, there be|ng no mutua| agreement
between the partners, and w|thout a corporate name
|nd|cat|ng to the pub||c |n some way that there were other
peop|e bes|de the one who ostens|b|y managed and
conducted the bus|ness, |s exact|y the acc|denta|
partnersh|p of P87-*,) 7- 6,(*'P'6,*'"- def|ned |n Art|c|e
239 of the Code of Commerce.
1hose who contract w|th the person under whose name
the bus|ness of such partnersh|p of P87-*,) 7- 6,(*'P'6,*'"-
|s conducted, sha|| have on|y a r|ght of act|on aga|nst such
person and not aga|nst the other persons |nterested, and
the |atter, on the other hand, sha|| have no r|ght of act|on
aga|nst the th|rd person who contracted w|th the manager
un|ess such manager forma||y transfers h|s r|ght to them.
(Art. 242 of the Code of Commerce).
62

4. D|st|ngu|shed from Agency
In a pure agency agreement, the agent |s mere|y a |ega| extens|on
of the persona||ty of the pr|nc|pa| and thereby under the comp|ete
contro| of the pr|nc|pa|.
1he partnersh|p re|at|onsh|p among the partners make them
mutua| agents of one another, and thereby the contro| that a pr|nc|pa|
has over h|s agent does not perta|n between and among the partners.
L|kew|se, un||ke |n a pure agency re|at|onsh|p where
61
7 h||.
( 906)
t
Y
RS'./ at pp.
9 20

the agent who acts w|th|n the scope of h|s author|ty does not b|nd
h|mse|f to the contract or transact|on he enters |nto, |n a partnersh|p
s|tuat|on, the partner b|nds not on|y the other partners and the
partnersh|p, but a|so h|mse|f |n the pursu|t of the partnersh|p
enterpr|se.
In :'-+R,-+,b, T3 <"-)*,-*'-"/
e[
the Court he|d that [ust because
a du|y appo|nted agent has made persona| advances for the expenses
of the bus|ness venture that he had been des|gnated to adm|n|ster,
does not make h|m a partner of h|s pr|nc|pa|.
In E-'*7. ;*,*7) T3 085-
ea
|t was he|d that the agent cannot
escape the cr|m|na| ||ab|||t|es of the cr|me of estafa for convers|on of
the funds g|ven to h|m by h|s pr|nc|pa| by c|a|m|ng that he had become
a partner when the books of accounts kept for the bus|ness showed
that the amount was charged to h|m s|nce the same was "mere|y a
method of keep|ng an account of the bus|ness, so that the part|es
wou|d know how much money had been |nvested and what the
cond|t|on thereof was at any part|cu|ar t|me."
6S

a. D|st|ngu|sh|ng Agency r|nc|p|es from the Doctr|ne of
Mutua| Agency |n the artnersh|p Sett|ng
;'-P7 *57 ,**('S8*7 "& $8*8,R ,+7-P% ') ,Rb,%) ,- '-*7+(,R &7,*8(7
'- 7T7(% 6,(*-7()5'6 ,((,-+7$7-*/ P,- b7 *57(7&"(7 6(7)8$7 *5,* *57
P"-*('S8*'"- "& )7(T'P7 ') ,- '$6R'P'* "SR'+,*'"- "& 7T7(% 6,(*-7( '- ,
6,(*-7()5'6 )7**'-+r 1he answer wou|d be |n the negat|ve. Under the
Law on artnersh|ps, part|cu|ar|y Art|c|e 1797 of the New C|v|| Code, a||
partners are ent|t|ed to share |n the prof|ts of the partnersh|p bus|ness
based not on the|r render|ng of serv|ce to the partnersh|p bus|ness,
but pr|mar||y on the bas|s of the|r contr|but|ons, thus: "In the absence
of st|pu|at|on, the share
"| 09 h||. 168
( 960)
w
6 h||. 164
mFS'./ at p. 166.
of each partner |n the prof|ts and |osses sha|| be |n proport|on to
what he may have contr|buted."
It |s on|y the |ndustr|a| partner whose serv|ce to the
partnersh|p becomes the bas|s by wh|ch he can part|c|pate |n
the prof|ts, s|nce Art|c|e 1797 prov|des: "As for the prof|ts, the
|ndustr|a| partner sha|| rece|ve such share as may be [ust and
equ|tab|e under the c|rcumstances. If bes|des h|s serv|ces, he
has contr|buted cap|ta|, he sha|| a|so rece|ve a share |n the prof|ts
|n proport|on to h|s cap|ta|."
In essence, the d|fference between the pr|nc|p|es of repre-
sentat|on |n Agency Law and those perta|n|ng to the doctr|ne of
mutua| agency |n a partnersh|p arrangement are as fo||ows:
(a) S|nce |n agency the sub[ect matter of the con-
tractua| re|at|onsh|p |s the )7(T'P7 of the agent,
then essent|a||y the agent earns the comm|ss|on
or remunerat|on agreed upon on|y when he |s ab|e
to render for the benef|t of the pr|nc|p|e the serv|ce
that he contracted to g|ve,
Whereas, |n a partnersh|p, partners, other
than |ndustr|a| partners, are ent|t|ed to part|c|pate
|n the prof|ts of the venture, not by reason of the
serv|ce they g|ve or render, but by reason of the|r
equ|ty stand|ng |n the venture,
(b) In an agency re|at|onsh|p, the agent must enter
|nto contracts and transact|ons |n the name of
the pr|nc|pa| for the |atter to be bound thereby,
whereas, |n a partnersh|p arrangement, even
when a partner enters |nto a contract |n h|s own
name but |n the pursu|t of partnersh|p bus|ness,
the other partners and the partnersh|p |tse|f wou|d
st||| be bound thereby.
S. D|st|ngu|shed from the 8us|ness 1rust
As compared to a partnersh|p, a bus|ness trust |s const|tuted
by deed of trust wh|ch |s eas|er and |ess expens|ve to const|tute

S84
for |t |s not bounded by any |ega| requ|rements ||ke the reg|strat|on
requ|rements for partnersh|ps where the rea| property or more than
3.000 worth of property |s contr|buted to the partnersh|p.
1he creat|on of a bus|ness trust does not g|ve r|se to a separate
[ur|d|ca| persona||ty, and |s ma|n|y governed by contractua| doctr|nes
and the common |aw pr|nc|p|es on trust. 1here |s no e|ement of
mutua| agency or co-ownersh|p |n a bus|ness trust re|at|onsh|p, and |n
fact the trust re|at|onsh|p |s centered upon the sp||tt|ng |n the
propert|es contr|buted (the P"(68)H of the |ega| or naked t|t|e |n the
trustee who then manages and contro| the propert|es, and benef|c|a|
or equ|tab|e t|t|e |n the benef|c|ary and for whose benef|t the trustee
sha|| manage and contro| the propert|es of the P"(68)3
6. D|st|ngu|shed from the Corporat|on
1he most |mportant d|st|nct|on between the corporat|on and the
partnersh|p are the|r |ega| capac|t|es. W|th the r|ght of success|on, a
corporat|on has a stronger |ega| persona||ty, enab||ng |t to cont|nue
desp|te the death, |ncapac|ty, w|thdrawa| or |nso|vency of any of |ts
stockho|ders or members. In a partnersh|p, the w|thdrawa|, death,
|ncapac|ty or |nso|vency of any partner wou|d automat|ca||y br|ng
about the d|sso|ut|on of the partnersh|p.
66

L|m|ted ||ab|||ty |s a ma|n feature |n a corporate sett|ng, whereas
partners are ||ab|e persona||y for partnersh|p debts not on|y to what
they have |nvested |n the partnersh|p but even as to the|r other
propert|es.
67

Genera||y, every partner |s an agent of the partnersh|p,
68
and by
h|s so|e act, he can b|nd the partnersh|p
69
whereas |n a corporat|on,
on|y the 8oard of D|rectors or |ts du|y author|zed agents can b|nd the
corporat|on.
Ârts. 1828 and 1830, New C|v|| Code.
Ârts. 1816,1817,1824, and 1839, New C|v||
Ârts. 1803(1), 1818, and 1819, New C|v||
Ârts. 1822 and 1823, New C|v|| Code.

In a partnersh|p sett|ng, a|though a partner has the power to se||
or d|spose of h|s cap|ta| |nterest or propr|etary |nterest, the buyer or
transferee does not assume transferor's pos|t|on as partner, but
mere|y has a r|ght to demand for account|ng or d|str|but|on of the
prof|ts perta|n|ng thereto.
70
In a corporate sett|ng, every stockho|der
has the r|ght to transfer h|s shares |n the corporat|on, and the buyer or
transferee assumes the ro|e of stockho|der of sa|d shares when the
transfer has been du|y reg|stered |n the corporate books Sect|on 63,
Corporat|on Code. In other words, the pos|t|on of be|ng partner |s
|nherent|y not transferab|e, whereas, shares are free|y transferab|e |n
the corporate sett|ng.
a. Does a Defect|ve Incorporat|on rocess kesu|t |nto a
artnersh|p?
1he c|ear d|st|nct|ons between the corporat|on and partnersh|p
can best be |||ustrated by d|scuss|ng the |ssue of whether a defect|ve
|ncorporat|on process that does not resu|t |nto a corporate ent|ty,
wou|d at |east resu|t |nto a partnersh|p.
It |s a |ega| pr|nc|p|e that when part|es come together and a|| the
e|ements of a part|cu|ar contract are present, a|though the part|es may
have nom|nated |t otherw|se, the |aw w||| |mpose such contractua|
re|at|onsh|p upon them. In other words, the contract or re|at|onsh|p |s
what the |aw says |t |s, not how the part|es w|sh to ca|| |t. 1herefore, |t
may agreed when f|ve or more persons come together to contr|bute
money or property to a common venture or fund, w|th the |ntent|on of
d|v|d|ng the prof|ts among themse|ves, the part|es may w|sh to ca|| |t
otherw|se, however, under the def|n|t|on of the Art|c|e 1767 of New
C|v|| Code, |t wou|d st||| be a partnersh|p, even |f the part|es had
|ntended a corporat|on but d|d not mater|a||ze because of certa|n
reg|strat|on def|c|enc|es.
If the part|es have |n fact pursued the |ncorporat|on process, by
execut|ng and f|||ng w|th the SLC the art|c|es of |ncorporat|on, then
there shou|d be no resu|t|ng partnersh|p |n the event that
70
the |ncorporat|on process does not bear fru|t|on, based on the
fo||ow|ng grounds:
L'()*R%/ both corporate and partnersh|p re|at|onsh|ps are
fundamenta||y contractua| re|at|onsh|p created by the co- venturers
who consent to come together under sa|d re|at|onsh|ps. If the part|es
had |ntended to create an assoc|at|on |n the form of a corporat|on, a
partnersh|p cannot be created |n |ts stead s|nce such |s not w|th|n the|r
|ntent, and therefore does not const|tute a part of the|r consent to the
contractua| re|at|onsh|p.
More |mportant|y, wh||e partnersh|p ||es essent|a||y w|th|n the
norms of Contract Law, the corporat|on gets |t essence from a
part|cu|ar state-grant of separate [ur|d|ca| persona||ty. In other words,
part|es to a corporate venture are fu||y aware that |t |s the process of
|ncorporat|on and the |ssuance of the cert|f|cate of |ncorporat|on by
wh|ch the corporate ent|ty comes |nto be|ng. 1here |s therefore no
doubt |n the m|nds of |ncorporators that they cou|d effect a venture
under a [ur|d|ca| be|ng, and thereby ach|eve both the advantages and
suffer the burdens assoc|ated w|th such corporate med|um, by the
mere meet|ng of m|nds.
;7P"-.R%/ the |mportant d|fferences between the corporat|on
and the partnersh|p cannot |ead one to the conc|us|on that |n the
absence of the f|rst, the contract|ng part|es wou|d have gone a|ong
w|th the |atter. L|m|ted ||ab|||ty, centra||zed management and easy
transferab|||ty of the un|ts of ownersh|p |n a corporat|on are by
themse|ves strong factors for part|es' |ntent|on to be bound |n the
corporate re|at|onsh|p, and one cannot presume that |f these features
are not met that they wou|d |n the a|ternat|ve w|sh to be covered by a
partnersh|p re|at|onsh|p, wh|ch has genera||y wou|d |nvo|ve un||m|ted
||ab|||ty, mutua| agency among the partners, and the .7R7P*8) 67()"-,7
feature.
1he essence of what const|tutes the contractua| re|at|onsh|p of
partnersh|p under Art|c|e 1767 |s the com|ng "together" or what |s
known |n artnersh|p Law as".7R7P*8) 67()"-,7O and not [ust the
[o|nt venture. 1he essence of partnersh|p |s the persona| re|at|onsh|p,
'373/ that each wou|d-be partner goes |nto the venture prec|se|y
because he wants the other co-venturers, and no other person, to be
w|th h|m |n the venture. A venturer who

seeks to enter |nto a corporate re|at|onsh|p perhaps does not even
care about the persona||ty of the other co-venturers, and fu||y aware
that he h|mse|f and others have the ab|||ty to transfer the|r
|nvestments to outs|ders.
Nonethe|ess, there are |nd|cat|ons of a contrary v|ew to the
above. Under Sect|on 21 of the Corporat|on Code, when part|es act and
pretend to be a corporat|on, when |n fact none ex|st, the |aw wou|d
|mpute to them a [ur|d|ca| persona||ty to va||date the contract under
the corporat|on by estoppe| doctr|ne, however, |t wou|d treat the
part|es as partners s|nce |t express|y makes them ||ab|e as "genera|
partners."
Under such contrary v|ew, the ma|n |ssue wou|d be the pr|or|ty
between the persona| cred|tors of the "partners" |n a corporat|on by
estoppe| doctr|ne, and the "corporate" cred|tors of the corporat|on by
estoppe|, as to the assets |nvested |nto the venture. 1he author wou|d
presume that |t wou|d have to be the corporate cred|tors that wou|d
have pr|or|ty over the "corporate" assets as th|s seems to be the
mov|ng sp|r|t of the corporat|on by estoppe| doctr|ne.
1h|s pos|t|on of the author has been part|a||y [ust|f|ed by the
d|scuss|ons of |n K'"-77( F-)8(,-P7 Q ;8(7*% <"(63 T3 <"8(* "& B667,R)/
N
^
when |t reso|ved the part|cu|ar |ssue ra|sed: OI5,* R7+,R (8R7) +"T7(-
*57 (7R,*'"-)5'6 ,$"-+ P"V'-T7)*"() b5")7 ,+(77$7-*) b,) *" ."
S8)'-7)) *5("8+5 *57 P"(6"(,*7 T75'PR7 S8* b5" &,'R7. *" '-P"(6"(,*7 *57
7-*'*% '- b5'P5 *57% 5,. P5")7- *" '-T7)*rO
NY

uot|ng from Amer|can [ur|sprudence, the Supreme Court |n
K'"-77( F-)8(,-P7 he|d that "there has been the pos|t|on that as among
themse|ves the r|ghts of the stockho|ders |n a defect|ve|y |ncorporated
assoc|at|on shou|d be governed by the supposed charter and the |aws
of the state re|at|ng thereto and not by the ru|es govern|ng partners,
73

neverthe|ess |t has been he|d that
71
17S SCkA 668 (1989).
NY
RS'./ at p. 681.
N[
U8"*'-+ &("$ CCkUS IUkIS SLCUNDUM P'*'-+ <,--"- T3 :(8)5
DR7P*('P Co., S4 A. 121, 96 Md. 446, 94 Am. S.k. S84.

"ord|nar||y persons who attempt, but fa||, to form a corporat|on and
who carry on bus|ness under the corporate name occupy the pos|t|on of
partners '-*7( )7
74
and the|r r|ghts as members of the company to the
property acqu|red by the company w||| be recogn|zed."
7S

Notw|thstand|ng the forego|ng, the Court took the pos|t|on that
such partnersh|p re|at|onsh|p does not ex|st, "for ord|nar||y persons
cannot be made to assume the re|at|on of partners, as between
themse|ves, when the|r purpose |s that no partnersh|p sha|| ex|st . . . and
|t shou|d be |mp||ed on|y when necessary to do [ust|ce between the
part|es, thus, one who takes no part except to subscr|be for stock |n a
proposed corporat|on wh|ch |s never |ega||y formed does not become a
partner w|th other subscr|bers who engage |n bus|ness under the name
of the pretended corporat|on, so as to be ||ab|e as such |n an act|on for
sett|ement of the a||eged partnersh|p and contr|but|ons. . . A
partnersh|p re|at|on between certa|n stockho|ders and other
stockho|ders, who were a|so d|rectors, w||| not be |mp||ed |n the absence
of an agreement, so as to make the former ||ab|e to contr|bute for
payment of debts |||ega||y contracted by the |atter.
76
Nor w||| |t make the
|nvestor to a wou|d-be corporat|on ||ab|e for |osses susta|ned from |ts
operat|ons under a partnersh|p '-*7( )7 theory."
77
1he key e|ements |n
reso|v|ng the |ssue seem to have been |n K'"-77( F-)8(,-P7 those of
|ntent and part|c|pat|on |n bus|ness act|v|t|es.
1he doctr|na| pronouncement |n K'"-77( F-)8(,-P7 can be
summar|zed as fo||ows: When part|es come together |ntend|ng to form
a corporat|on, but no corporat|on |s formed due to some |ega| cause,
then:
(a) art|es who had |ntended to part|c|pate or actua||y
part|c|pated |n the bus|ness affa|rs of the proposed
NB
RS'./ P'*'-+ @%-P5 T3 K7((%$,-/ 119 . 229, 29 Ck|. 61S, Ann. Cas.
1913
A 106S
NZ
RS'./ P'*'-+ ;$'*5 T3 ;P5""."P K"-. K,P1'-+ <"3/ 84 A, 268m 109
Me. SSS, I5'66R7 T3 K,(17(/ 29 M|ch 369.
-
RS'./ at p.683, g8"*'-+ &("$ CCkUS IUkIS SLCUNDUM, Vo|. 68, p. 464.
NN
FS'./ at p. 68S.

corporat|on wou|d be cons|dered as partners under a .7
&,P*" partnersh|p, and wou|d be ||ab|e as such |n an
act|on for sett|ement of partnersh|p ob||gat|ons,
- Whereas -
(b) art|es who took no part except to subscr|be to shares of
stock |n a proposed corporat|on, do not become
partners w|th other subscr|bers who engaged |n
bus|ness under the name of the pretended corporat|on,
and are not ||ab|e for act|on for sett|ement of the
a||eged partnersh|p contr|but|on.
1he doctr|na| pronouncements |n K'"-77( F-)8(,-P7 are cons|stent
w|th the d|st|nct|ons between an |nvestor |n partnersh|p venture, where
there |s a c|ear |ntent to part|c|pate |n the management of the
partnersh|p bus|ness and for wh|ch ||m|ted ||ab|||ty |s not afforded by
|aw, and an |nvestor |n a corporat|on, where under the pr|nc|pa| of
P7-*(,R'\7. $,-,+7$7-*/ there |s no |ntent to part|c|pate |n the
corporate operat|ons, and for wh|ch ||m|ted ||ab|||ty |s afforded by |aw.
Cn the other hand, where the part|es to a venture mere|y use a
bus|ness name that pretends there |s a corporat|on, when |n fact there
was no |ntent|on among the co-venturers to forma||y |ncorporate a
[ur|d|ca| ent|ty, then there can be no doubt that what was rea||y the
meet|ng of m|nds among them was a partnersh|p, for |n essence they
agreed to set up a common fund _'373/ pursue a bus|ness venture), w|th
c|ear |nd|cat|on to d|v|de the prof|ts among themse|ves.
1h|s |s exact|y the s|tuat|on covered |n the dec|s|on |n @'$ !"-+ @'$
T3 K5'R'66'-7 L')5'-+ C7,( F-.8)*('7)/ F-P3/
Ne
where the ||ab|||t|es of the
part|es were ad[udged under the corporat|on by estoppe| doctr|ne.
In @'$ !"-+ @'$/ the Court found that three co-venturers agreed
"to engage |n a f|sh|ng bus|ness, wh|ch they started
"317 SCkA 728 (1999).

S90
by buy|ng boats worth 3.3S m||||on, f|nanced by a | oan . . . I n the|r
Comprom|se Agreement, they subsequent|y revea|ed the|r |ntent|on to
pay the |oan w|th the proceeds of the sa|e of the boats, and to d|v|de
equa||y among themse|ves the excess or | oss. . . 1hese boats, the
purchase and the repa|r of wh|ch were f|nanced w|th borrowed money,
fe|| under the term 'common fund' under Art|c|e 1767. 1he contr|but|on
to such fund need not be cash or f|xed assets, |t cou|d be an |ntang|b|e
||ke cred|t or |ndustry. 1hat the part|es agreed that any |oss or prof|t
from the sa|e and operat|on of the boats wou|d be d|v|ded equa||y
among them a|so shows that they had |ndeed formed a partnersh|p."
79

1he on|y comp||cat|on |n @'$ !"-+ @'$ was that the transact|on
upon wh|ch the persona| ||ab|||t|es of the co-venturers was be|ng
pursued, was entered |nto on beha|f of "Ccean uest I|sh|ng
Corporat|on," a|though no such corporat|on ex|sted nor was there any
attempt to |ncorporate such ent|ty. Consequent|y, both the un||m|ted
||ab|||ty pr|nc|p|e under artnersh|p Law and the corporat|on by estoppe|
doctr|ne |n Corporate Law were app||ed to determ|ne the persona|
||ab|||ty of each of the partners |n the bus|ness venture, wh|ch resu|ted |n
|ega| |ncongruence
In a partnersh|p, as a |ega| consequence of the app||cat|on of the
doctr|ne of mutua| agency, every partner sha|| be persona||y ||ab|e for
partnersh|p debts and ||ab|||t|es, even when the under|y|ng transact|on
was effected by another partner, or even when a partner does not
part|c|pate at a|| |n the affa|rs of the partnersh|p. Cn the other hand,
under the corporat|on by estoppe| doctr|ne now embod|ed |n Sect|on 21
of the Corporat|on Code, |t |s on|y the act|ve or manag|ng off|cers who
assume the ||ab|||ty of a genera| partner, thus: "A|| persons who assume
to act as a corporat|on know|ng |t to be w|thout author|ty to do so sha||
be ||ab|e as genera| partners, for a|| debts, ||ab|||t|es and damages
|ncurred or ar|s|ng as a resu|t thereof," and that consequent|y, pass|ve
stockho|ders are not deemed to be persona||y ||ab|e for debts |ncurred
on beha|f of the ostens|b|e corporat|on.
-
RS'./ at p. 739.

1h|s was In fact the defense ra|sed by the pet|t|oner |n @'$ !"-+
@'$/ where he he|d that s|nce he d|d not part|c|pate act|ve|y |n the
bus|ness venture, then under the pr|nc|p|es of corporat|on by estoppe|
doctr|ne, he cannot be made persona||y ||ab|e for the debts |ncurred |n
pursu|ng the bus|ness venture. Instead of ho|d|ng that the pr|mary
doctr|ne to app|y wou|d be the ru|es of un||m|ted ||ab|||ty s|nce there was
du|y const|tuted a va||d partnersh|p, the Court |nstead humored the
argument and went on to a|so app|y the corporat|on by estoppe|
doctr|ne w|th a [ur|sprudent|a| tw|st when |t he|d
1he doctr|ne of corporat|on by estoppe| may app|y to
the a||eged corporat|on and to a th|rd party. . . . a th|rd
party who, know|ng an assoc|at|on to be un|ncorporated,
nonethe|ess treated |t as a corporat|on and rece|ved
benef|ts from |t, may be barred from deny|ng |ts corporate
ex|stence |n a su|t brought aga|nst the a||eged corporat|on.
In such case, a|| those who benef|ted from the transact|on
made by the ostens|b|e corporat|on, desp|te know|edge of
|ts |ega| defects, may be he|d ||ab|e for contracts they
|mp||ed|y assented to or took advantage of.
80

1he resu|t |s that by m|x|ng pr|nc|p|es |n artnersh|p Law and
Corporate Law |n @'$ !"-+ @'$, the corporat|on by estoppe| doctr|ne has
grown out of the conf|nes of Sect|on 21 of the Corporat|on Code, as to
make ||ab|e as genera| partners, not on|y those part|es to acted for the
ostens|b|e corporat|on, but a|so a|| pass|ve part|es who know|ng there |s
no such corporat|on sat back and benef|ted from the venture.
7. D|st|ngu|shed from Cooperat|ves
A cooperat|ve |s a du|y reg|stered assoc|at|on of persons, w|th a
common bond of |nterest, who have vo|untar||y [o|ned together to
ach|eve |awfu| common soc|a| or econom|c end, mak|ng equ|tab|e
contr|but|ons to the cap|ta| requ|red and accept|ng
m|d, at p. 743.

a fa|r share of the r|sks and benef|ts of the undertak|ng |n accordance
w|th un|versa||y accepted cooperat|ve pr|nc|p|es.
81

A cooperat|ve, ||ke an ord|nary corporat|on and a partnersh|p,
has a [ur|d|ca| persona||ty separate and d|st|nct from |ts members, and
has ||m|ted ||ab|||ty feature.
82

1he 1ax Code def|nes a cooperat|ve as an assoc|at|on conducted
by the members thereof w|th the money co||ected from among
themse|ves and so|e|y for the|r own protect|on and not for prof|t.
83

Un||ke ord|nary corporat|ons, cooperat|ves are governed by
pr|nc|p|es of democrat|c contro| where the members |n pr|mary
cooperat|ves sha|| have equa| vot|ng r|ghts on a one-member- one-vote
pr|nc|p|e,
84
where the 8oard of D|rectors manages the affa|rs of the
cooperat|ve, but |t |s the genera| assemb|y of fu|| membersh|p that
exerc|ses a|| the r|ghts and performs a|| of the ob||gat|ons of the
cooperat|ve,
8S
and are under the superv|s|on and contro| of the
Cooperat|ve Deve|opment of Author|ty, and not the SLC.
Un||ke a partnersh|p wh|ch shou|d be organ|zed for prof|t, and a
non-stock corporat|on wh|ch can be organ|zed for any e|eemosynary
purpose and no part of the net |ncome |s to be d|str|buted to the off|cers
and members thereof, the pr|mary ob[ect|ve of every cooperat|ve |s
se|f-he|p: "to prov|de goods and serv|ces to |ts members and thus
enab|e them to atta|n |ncreased |ncome and sav|ngs, |nvestments,
product|v|ty, and purchas|ng power and promote among them
equ|tab|e d|str|but|on of net surp|us through max|mum ut|||zat|on of
econom|es of sca|e, cost- shar|ng and r|sk-shar|ng w|thout conduct|ng
the affa|rs of the cooperat|ve for e|eemosynary or char|tab|e
purposes."
88

81
Art. 3, Cooperat|ve Deve|opment Author|ty Act (k.A. 6938).
Ârts. 12 and 30, k.A. 6938.
j[
G768SR'P T3 ;8-R'&7 B))8(,-P7 <"$6,-% "& <,-,.,/ 473 SCkA 129
(200S).
"Art. 4(2), k.A. 6938.
"Arts. S(3) and 34, k.A. 6938.
"'Art. 7, k.A. 6938.

S93
1he Law on Cooperat|ves dec|ares |t a po||cy of the State to foster
the creat|on and growth of cooperat|ves as a pract|ca| veh|c|e for
promot|ng se|f-re||ance and harness|ng peop|e power towards the
atta|nment of econom|c deve|opment and soc|a| [ust|ce.
87
In one case,
the Court he|d that cooperat|ves are estab||shed to prov|de a strong
soc|a| and econom|c organ|zat|on to ensure that the tenant-farmers w|||
en[oy on a |ast|ng bas|s the benef|ts of agrar|an reforms.
88

0C0
""Art. 2, k.A. 6938.
w]<"(68\ T3 C(")67/ 333 SCkA 42S
(2000).

CnA1Lk 7
kIGn1S, CWLk AND
AU1nCkI1 CI Ak1NLkS
kCLk1 kIGn1S CI LVLk Ak1NLk
Ak1. 1810. 1he property r|ghts of a partner are:
(1) n|s r|ghts |n spec|f|c partnersh|p property,
(2) n|s |nterest |n the partnersh|p, and
(3) n|s r|ght to part|c|pate |n the management, (n)
Art|c|e 1810 of the New C|v|| Code prov|des that the property r|ghts of
every partner |n the partnersh|p set-up to be as fo||ows:
(a) MANAGLMLN1 CWLk, "( *57 G'+5* *" K,(*'P'6,*7 '- *57
0,-,+7$7-* "& *57 K,(*-7()5'6d
(b CC-CWNLkSnI CWLk, "( *57 G'+5* '- ;67P'&'P K,(*-7()5'6 K("67(*%d
and
(c) LUI1 IN1LkLS1 '- *57 K,(*-7()5'6 :8)'-7)) D-*7(6(')73
1he enumerat|on under Art|c|e 1810 of the New C|v|| Code of the
"property r|ghts" of a partner def|nes the three-fo|d ro|e that every
partner assumes under a contract of partnersh|p: as an equ|ty ho|der
(|nvestor), a manager of the bus|ness enterpr|se (a co-propr|etor of the
bus|ness enterpr|se), and as an agent of
S94

kIGn1S, CWLk AND AU1nCkI1 CI Ak1NLkS S9S
the partnersh|p [ur|d|ca| person and of the other partners. 1he
mu|t|-|eve| pos|t|ons assumed by partners under a partnersh|p
arrangement are potent|a||y wrought w|th conf||ct-of-|nterest s|tuat|ons.
Consequent|y, two |mportant doctr|na| approaches an|mate the Law on
artnersh|ps as a consequence of such mu|t|-|eve| pos|t|ons of partners.
L'()*R%, the Law on artnersh|ps character|zes the contract of
partnersh|p and the contractua| re|at|onsh|ps between and among the
partners as of the h|ghest f|duc|ary and persona| |eve| =.7R7P*8)
67()"-,7H/ wh|ch therefore ensures that partners share the partnersh|p
bed on|y w|th part|es w|th whom they contracted and there |s no
occas|on |n the future for a stranger to be a||owed to [o|n the group
w|thout the|r unan|mous consent, and that every partner |s afforded the
ab|||ty to w|thdraw from the contractua| re|at|onsh|p whenever he
becomes uncomfortab|e w|th any or a|| of the other partners.
;7P"-.R%, |t separate|y treats each of the "property r|ghts" of
partners as enumerated under Art|c|e 1810, to ensure that those r|ghts
that perta|n to agency and persona| re|at|ons are not affected by
dea||ngs on those wh|ch are str|ct|y propr|etary |n nature. In other words,
the bund|e of "property r|ghts" of a partner |s not |nd|v|s|b|e, and |n fact
the ph||osophy under h|||pp|ne artnersh|p Law |s to cons|der them
d|v|s|b|e, and capab|e of be|ng treated and transacted separate|y.
1he forego|ng doctr|na| approaches sha|| an|mate the d|scuss|ons
hereunder on the r|ghts and ob||gat|ons of partners |n the partnersh|p
arrangement.
Ak1NLk'S kIGn1 1C MANAGL 1nL Ak1NLkSnI 1. Genera| ku|e on
artnersh|p Management
Ak1. 1803. When the manner of management has not
been agreed upon, the fo||ow|ng ru|es sha|| be observed:
(1) A|| the partners sha|| be cons|dered agents and
whatever any one of them may do a|one sha|| b|nd the
partnersh|p, w|thout pre[ud|ce to the prov|s|ons of Art|c|e
1801.
xxx. (169Sa)
Ak1. 1818. Lvery partner |s an agent of the partnersh|p for
the purpose of |ts bus|ness, and the act of every partner,
|nc|ud|ng the execut|on |n the partnersh|p name of any
|nstrument, for apparent|y carry|ng on |n the usua| way the
bus|ness of the partnersh|p of wh|ch he |s a member b|nds
the partnersh|p, un|ess the partner so act|ng has |n fact no
author|ty to act for the partnersh|p |n the part|cu|ar matter,
and the person w|th whom he |s dea||ng has know|edge of
the fact that he has no such author|ty.
An act of a partner wh|ch |s not apparent|y for the
carry|ng on of bus|ness of the partnersh|p |n the usua| way
does not b|nd the partnersh|p un|ess author|zed by the other
partners.
Lxcept when author|zed by the other partners or un|ess
they have abandoned the bus|ness, one or more but |ess than
a|| the partners have no author|ty to:
(1) Ass|gn the partnersh|p property |n trust for cred|tors
or on the ass|gnee's prom|se to pay the debts of the
partnersh|p,
(3) Do any other act wh|ch wou|d make |t |mposs|b|e to
carry on the ord|nary bus|ness of a partnersh|p,
(5) Lnter |nto a comprom|se concern|ng a partnersh|p
c|a|m or ||ab|||ty,
kIGn1S, CWLk AND AU1nCkI1 CI Ak1NLkS S97
(6) Subm|t a partnersh|p c|a|m or ||ab|||ty to arb|trat|on,
No act of a partner |n contravent|on of a restr|ct|on on
author|ty sha|| b|nd the partnersh|p to persons hav|ng
know|edge of the restr|ct|on, (n)
Ak1. 1820. An adm|ss|on or representat|on made by any
partner concern|ng partnersh|p affa|rs w|th|n the scope of h|s
author|ty |n accordance w|th th|s 1|t|e |s ev|dence aga|nst the
partnersh|p, (n)
Ak1. 1821. Not|ce to any partner of any matter re|at|ng to
partnersh|p affa|rs, and the know|edge of the partner act|ng |n
the part|cu|ar matter, acqu|red wh||e a partner or then
present to h|s m|nd, and the know|edge of any other partner
who reasonab|y cou|d and shou|d have commun|cated |t to
the act|ng partner, operate as not|ce to or know|edge of the
partnersh|p, except |n the case of fraud on the partnersh|p,
comm|tted by or w|th the consent of that partner, (n)
Ak1. 1822. Where, by any wrongfu| act or om|ss|on of any
partner act|ng |n the ord|nary course of the bus|ness of the
partnersh|p or w|th the author|ty of co-partners, |oss or |n[ury
|s caused to any person, not be|ng a partner |n the
partnersh|p, or any pena|ty |s |ncurred, the partnersh|p |s
||ab|e therefor to the same extent as the partner so act|ng or
om|tt|ng to act. (n)
Ak1. 1823. 1he partnersh|p |s bound to make good the
|oss:
(1) Where one partner act|ng w|th|n the scope of h|s
apparent author|ty rece|ves money or property of a th|rd
person and m|sapp||es |t, and
(2) Where the partnersh|p |n the course of |ts bus|ness
rece|ves money or property of a th|rd

person and the money or property so rece|ved |s m|sapp||ed
by any partner wh||e |t |s |n the custody of the partnersh|p, (n)
Ak1. 1824. A|| partners are ||ab|e so||dar||y w|th the
partnersh|p for everyth|ng chargeab|e to the partnersh|p
under Art|c|es 1822 and 1823. (n)
a. Defau|t ku|e: Lvery artner nas a k|ght to Manage
Art|c|e 1818 of the New C|v|| Code prov|des that "Lvery partner |s
an agent of the partnersh|p for the purpose of |ts bus|ness, and the act of
every partner, |nc|ud|ng the execut|on |n the partnersh|p name of any
the partnersh|p of wh|ch he |s a member b|nds the partnersh|p." 1h|s
pr|nc|p|e |s supported by Art|c|e 1803 wh|ch prov|des "When the manner
of management has not been agreed upon. .. A|| the partners sha|| be
cons|dered agents and whatever any one of them may do a|one sha||
b|nd the partnersh|p." Art|c|e 1818 goes on to prov|de that "An act of a
partner wh|ch |s not apparent|y for the carry|ng on of the bus|ness of the
partnersh|p |n the usua| way does not b|nd the partnersh|p un|ess
author|zed by the other partners."
Lmbod|ed c|ear|y w|th the |anguage of Art|c|e 1818 |s the O."P*('-7
"& ,66,(7-* ,8*5"('*%O wh|ch a||ows a th|rd party dea||ng w|th a [ur|d|ca|
ent|ty to re|y upon the va||d|ty and enforceab|||ty of contracts entered
|nto w|th an off|cer or representat|ve who has been by pract|ce
endowed w|th apparent author|ty to act for the [ur|d|ca| person. In every
partnersh|p, there |s a presumpt|on of apparent author|ty for every
partner to act for and thereby b|nd the partnersh|p |n a|| that |s
"apparent|y for the carry|ng on of the bus|ness of the partnersh|p |n the
usua| way." 1hus, the Court he|d |n 08(',)g87 T3 <"8(* "& B667,R)/] that
a presumpt|on ex|sts that each partner |s an author|zed agent for the
f|rm and that he has author|ty to b|nd |t |n carry|ng on the partnersh|p
transact|on.
'139 SCkA S33 (198S).
kIGn1S, CWLk AND AU1nCkI1 CI Ak1NLkS S99
1he r|ght of a partner to manage the affa|rs of the partnersh|p or to
act as an agent of the partnersh|p |s express|y aff|rmed by the fo||ow|ng
statutory prov|s|ons:
(a) ?- B.$'))'"-) ,-. G76(7)7-*,*'"-) 0,.7 S%
K,(*-7()k Art|c|e 1820 prov|des that an adm|ss|on or
representat|on made by any partner concern|ng
partnersh|p affa|rs w|th|n the scope of h|s author|ty |s
ev|dence aga|nst the partnersh|p,
(b) ?- 9"*'P7 G7P7'T7. S% K,(*-7()k Art|c|e 1821 prov|des
that not|ce to any partner of any matter re|at|ng to
partnersh|p affa|rs, and the know|edge of partner act|ng
|n the part|cu|ar matter, acqu|red wh||e a partner or
then present to h|s m|nd, and the know|edge of any
other partner who reasonab|y cou|d and shou|d have
commun|cated |t to the act|ng partner, operate as
not|ce or know|edge of the partnersh|p (except |n case
of a fraud on the partnersh|p),
(c) ?- !"(* <"$$'**7. S% K,(*-7()k Art|c|e 1822 prov|des
that any |oss or |n[ury caused to any th|rd person or any
pena|ty |ncurred by reason of any wrongfu| act or
om|ss|on of a partner act|ng |n the ord|nary course of
the bus|ness of the partnersh|p or w|th the author|ty of
h|s co-partners, sha|| make the partnersh|p ||ab|e
therefore, and
(d) ?- *57 L(,8.8R7-* BP*) "& K,(*-7()k Art|c|e 1823
prov|des that the partnersh|p |s bound to make good
the |oss caused by the m|sapp||cat|on by a partner
act|ng w|th|n the scope of h|s apparent author|ty of
money or property be|ong|ng to, or rece|ved by the
partnersh|p from, a th|rd person.
In the cases of the tortuous or fraudu|ent acts comm|tted by
partners |n the pursu|t of partnersh|p affa|rs, Art|c|e 1824 of New C|v||
Code prov|des express|y that "A|| partners are ||ab|e

600
so||dary w|th the partnersh|p for everyth|ng chargeab|e to the
partnersh|p."
b. Cverturn|ng of the ku||ng |n <"8-P'R "& G7. 07-
We shou|d therefore cons|der the o|d ru||ng |n <"8-P'R "&
G7. 07- T3 27*7(,-) B($%/
Y
where the Court |nterpreted the
or|g|na| prov|s|on of Art|c|e 1803 of New C|v|| Code (then Art|c|e
169S of the o|d C|v|| Code), that a||owed one partner to act to b|nd
the partnersh|p, to app|y on|y when there has been no prov|s|on
at a|| |n the art|c|es of partnersh|p on the exerc|se of power or
management, thus:
?-7 6,(*-7(/ *57(7&"(7/ ') 7$6"b7(7. *" P"-*(,P* '- *57
-,$7 "& *57 6,(*-7()5'6 "-R% b57- *57 ,(*'PR7) "&
6,(*-7()5'6
$,17 -" 6("T')'"- &"( *57 $,-,+7$7-* "& *57 6,(*-7()5'6
S8)'-7))3 In the case at bar we th|nk that the art|c|es of the
Veteran Army of the h|||pp|nes do so prov|de. It |s true that
an express d|spos|t|on to that effect |s not found there|n, but
we th|nk one may be fa|r|y deduced from the contents of
those art|c|es. 1hey dec|are what the dut|es of the severa|
off|cers are. In these var|ous prov|s|ons there |s noth|ng sa|d
about the power of mak|ng contracts, and that facu|ty |s not
express|y g|ven to any off|cer. We th|nk that |t was, therefore,
reserved to the department as a who|e, that |s, that |n any
case not covered express|y by the ru|es prescr|b|ng the
dut|es of the off|cers, the department were present. F* ')
5,(.R%
P"-P7'T,SR7 *5,* *57 $7$S7() b5" &"($7. *5') "(+,-'\,*'"-
)5"8R. 5,T7 5,. *57 '-*7-*'"- "& +'T'-+ *" ,-% "-7 "& *57
)'W*77- "( $"(7 67()"-) b5" P"$6")7. *57 .76,(*$7-* *57
6"b7( *" $,17 ,-% P"-*(,P* (7R,*'-+ *" *57 )"P'7*% b5'P5
*5,*
6,(*'P8R,( "&&'P7( ),b &'* *" $,17/ "( *5,* , P"-*(,P* b57- )"
$,.7 b'*5"8* P"-)8R*,*'"- b'*5/ "( 1-"bR7.+7 "& *57 "*57(
$7$S7() "& *57 .76,(*$7-* )5"8R. S'-. '*3 We therefore,
ho|d
that no contract, such as the one |n quest|on, |s b|nd|ng on
the Veteran Army of the h|||pp|nes un|ess |t was author|zed

2
7 h||. 68S (1907).

kIGn1S, CWLk AND AU1nCkI1 CI Ak1NLkS 601
was ent|re|y between Apache 1r|be, No. 1, and the Lawton
ost, and there |s noth|ng to show that any member of the
department ever knew anyth|ng about |t, or had anyth|ng to
do w|th |t. 1he ||ab|||ty of the Lawton ost |s not presented |n
th|s appea|.
3

We are of the strong pos|t|on that the doctr|ne |n <"8-P'R "& G7.
07-/ rendered at a t|me when our |ega| [ur|sd|ct|on was st||| dec|d|ng
the proper formu|at|on of the doctr|nes |n h|||pp|ne artnersh|p Law,
no |onger app||es.
L'()*R%/ the preva|||ng doctr|ne now embod|ed |n Art|c|es 1803[1]
and 1818 of New C|v|| Code |s that every partner has the apparent
author|ty to act for and |n beha|f of the partnersh|p |n carry|ng on the
ord|nary or usua| bus|ness of the partnersh|p.
;7P"-.R%/ the ru||ng |n <"8-P'R "& G7. 07- was based on the
pr|nc|p|e that the spec|a| ru|es of management of partnersh|p affa|rs
prov|ded for |n the art|c|es of partnersh|p |s b|nd|ng on the pub||c, or at
|east on every person dea||ng w|th the partnersh|p. 1h|s |s not the ru|e
under h|||pp|ne artnersh|p Law wh|ch character|zes the contract of
partnersh|p and the ar|s|ng of the partnersh|p [ur|d|ca| person, as be|ng
mere|y consensua| w|th no spec|f|c forma||t|es be|ng requ|red |n genera|.
1hus, even when the art|c|es of partnersh|p has been forma||y executed
and reg|stered w|th the SLC, the same |s not cons|dered to be a pub||c
document b|nd|ng on the pub||c. 1herefore, notw|thstand|ng what
spec|f|c prov|s|ons may be found |n the art|c|es of partnersh|p on the
management of the partnersh|p bus|ness, the same |s b|nd|ng '-*7( )7
among the partners, but does not pre[ud|ce the r|ghts of a th|rd party
who dea|s |n good fa|th w|th the partners w|thout actua| know|edge of
the content of the art|c|es of partnersh|p.
c. Lffect of Interna| and Non-ub||c Arrangement of
artnersh|p Management
A|though spec|a| management arrangements may be made among
partners, and even when so forma||zed w|th|n the terms of
[
RS'./ at pp. 688-689, 7$65,)') )866R'7.3

the art|c|es of partnersh|p, genera||y such spec|a| arrangements do not
b|nd or pre[ud|ce th|rd part|es who dea| w|th the partnersh|p bus|ness
w|thout know|edge of such spec|a| arrangement, and who are not
mandated to seek forma| author|ty and that |n fact are deemed to have
a r|ght to expect, un|ess otherw|se |nd|cated, that the|r dea||ngs w|th the
manag|ng partner shou|d b|nd the partnersh|p.
1h|s s|tuat|on |s best exemp||f|ed |n the dec|s|on |n @'**"- T3 >'R' Q
<7("-/] where an ob||gat|on |n a sum of money was sought to be
recovered from the partnersh|p n||| & Ceron |n whose name |t was
entered |nto by one of the manag|ng partners, when |n fact the art|c|es
of partnersh|p prov|ded express|y that: "S|xth. 1hat the management of
the bus|ness affa|rs of the co-partnersh|p sha|| be entrusted to both
copartners who sha|| [o|nt|y adm|n|ster the bus|ness affa|rs, transact|ons
and act|v|t|es of the co-partnersh|p." In ru||ng that the act of [ust one of
the manag|ng partners shou|d proper|y make the partnersh|p ||ab|e for
the payment of the debt, the Court he|d
It fo||ows from the s|xth paragraph of the art|c|es
partnersh|p of n||| & Ceron above quoted that the
management of the bus|ness of the partnersh|p has been
entrusted to both partners thereof, but we d|ssent from the
v|ew of the Court of Appea|s that for one of the partners to
b|nd the partnersh|p the consent of the other |s necessary.
!5'(. 67()"-)/ R'17 *57 6R,'-*'&&/ ,(7 -"* S"8-. '- 7-*7('-+
'-*" , P"-*(,P* b'*5 ,-% "& *57 *b" 6,(*-7()/ *" ,)P7(*,'-
I57*57( "( -"* *5') 6,(*-7( b'*5 b5"$ *57 *(,-),P*'"- ')
$,.7 5,) *57 P"-)7-* "& *57 "*57( 6,(*-7(3 !57 68SR'P -77.
-"* $,17 '-g8'('7) ,) *" *57 ,+(77$7-*) 5,. S7*b77- *57
6,(*-7()3 F*) 1-"bR7.+7 ') 7-"8+5 *5,* '* ') P"-*(,P*'-+ b'*5
*57 6,(*-7()5'6 b5'P5 ') (76(7)7-*7. S% "-7 "& *57
$,-,+'-+ 6,(*-7()3
Z

@'**"- he|d that there |s a genera| presumpt|on that each |nd|v|dua|
partner |s an author|zed agent for the f|rm and that
<67 h||. S09(193S).
)
RS'./ at p. S13, 7$65,)')
)866R'7.

he has author|ty to b|nd the f|rm |n carry|ng on the partnersh|p
transact|on, and that the presumpt|on |s suff|c|ent to perm|t th|rd
persons to ho|d the f|rm ||ab|e on transact|ons entered |nto by one of the
members of the f|rm act|ng apparent|y |n |ts beha|f and w|th|n the scope
of h|s author|ty. 1h|s was espec|a||y true under the c|rcumstances |n
@'**"- where the transact|on wh|ch gave r|se to the partnersh|p
ob||gat|on was |n the ord|nary course of the partnersh|p's bus|ness.
@'**"- a|so supports the |ega| pos|t|on that even w|th the
reg|strat|ons of the art|c|e of partnersh|p w|th the SLC, the same does
not const|tute a pub||c document that b|nds those who dea| w|th the
partnersh|p enterpr|se. In other words, even a reg|stered art|c|es of
partnersh|p const|tutes f|rst and foremost a |ntra-partnersh|p document
that |s b|nd|ng upon the partners, and a th|rd party act|ng |n good fa|th
w|thout actua| know|edge of the contents thereof |s not bound by the
terms of the art|c|es of partnersh|ps.
In ;$'*5/ :7RR Q <"3 T3 B\-,(,
6
the Court he|d that |n a transact|on
cover|ng the purchase and de||very of merchand|se w|th|n the ord|nary
course of the partnersh|p bus|ness effected by the |ndustr|a| partner
w|thout the consent of the cap|ta||st partner, the prov|s|ons |n the
art|c|es of partnersh|p that the |ndustr|a| partner "sha|| manage, operate
and d|rect the affa|rs, bus|nesses and act|v|t|es of the partnersh|p,"
const|tute suff|c|ent author|ty to make such transact|on b|nd|ng aga|nst
the partnersh|p, as aga|nst another prov|s|on of the art|c|es by wh|ch the
|ndustr|a| partner |s author|zed "1o make, s|gn, sea|, execute and de||ver
contracts . . . upon terms and cond|t|ons acceptab|e to h|m du|y
approved |n wr|t|ng by the cap|ta||st partner," wh|ch must cover on|y the
execut|on of forma| contracts |n wr|t|ng and not necessar||y to rout|ne
transact|ons such as ord|nary purchases and sa|e of merchand|se.
In add|t|on, B\-,(,66I7. the O."P*('-7 "& ,66,(7-* ,8*5"('*%O
and the O7)*"667R ."P*('-7O when |t he|d that "1he ev|dence a|so shows
that prev|ous purchases made by [the |ndustr|a| partner] |n the name of
the Aznar & Company from the same p|a|nt|ff
6
40 C.G. 1881 (1941).

were honored and pa|d for by the sa|d f|rm, and we may we|| a|so
assume that the goods here|n |n quest|on wh|ch were de||vered to
defendant f|rm were made use of by the |atter. It |s, therefore, but [ust
that the f|rm answer for the|r va|ue."
7

In C"g8'"R,%T3 ;%P'6] the Court even took |nto cons|derat|on the
prov|s|ons of Art|c|e 129 of the Code of Commerce to the effect that "If
the management of the genera| partnersh|p has not been ||m|ted by
spec|a| agreement to any of the members, a|| sha|| have the power to
take part |n the d|rect|on and management of the common bus|ness,
and the members present sha|| come to an agreement for a|| contracts
or ob||gat|ons wh|ch may concern the assoc|at|on." It |a|d down the ru|e
that |s re|evant under the current prov|s|ons of the New C|v|| Code that
def|nes the necess|ty of concurrence of partners' vote on any
partnersh|p act or contract, thus:
. . . but th|s ob||gat|on |s one |mposed by |aw on the
partners among themse|ves, that does not necessar||y affect
the va||d|ty of the acts of a partner, wh||e act|ng w|th|n the
scope of the ord|nary course of bus|ness of the partnersh|p,
as regards th|rd persons w|thout not|ce. 1he |atter may
r|ghtfu||y assume that the contract|ng partner was du|y
author|zed to contract for and |n beha|f of the f|rm and that,
furthermore, he wou|d not ord|nar||y act to the pre[ud|ce of
h|s co-partners. 1he regu|ar course of bus|ness procedure
does not requ|re that each t|me a th|rd person contracts w|th
one of the manag|ng partners, he shou|d |nqu|re as to the
|atter's author|ty to do so, or that he shou|d f|rst ascerta|n
whether or not the other partners had g|ven the|r consent
thereto. In fact, Art|c|e 130 of the same Code of Commerce
prov|des that even |f a new ob||gat|on was contracted aga|nst
the express w||| of one of the manag|ng partners, "|t sha|| not
be annu||ed for such reason, and |t sha|| produce |ts effects
w|thout pre[ud|ce to the respons|b|||ty of the member or
members who contracted |t, for the damages they may have
caused to the common fund."
9

N
RS'.3
108 h||. 947
(1960).
hRS'. t 9S7

kIGn1S, CWLk AND AU1nCkI1 CI Ak1NLkS 60S
2. 1ransact|ons Not |n the Crd|nary Course of artnersh|p
8us|ness
Art|c|e 1818 of the New C|v|| Code enumerates what are certa|n|y
not "apparent|y for the carry|ng on of the bus|ness of the partnersh|p |n
the usua| way," and w||| not therefore be va||d transact|ons of the
partnersh|p, un|ess done by or approved by a|| the partners, thus:
(a) Ass|gn|ng of partnersh|p property |n trust for cred|tors
or on the ass|gnee's prom|se to pay the debts of the
partnersh|p,
(b) D|spos|t|on of the goodw||| of the bus|ness,
(c) Confess|on of a [udgment,
(d) Lnter|ng |nto a comprom|se concern|ng a partnersh|p
c|a|m or ||ab|||ty,
(e) Subm|tt|ng a partnersh|p c|a|m or ||ab|||ty to arb|trat|on,
or
(f) kenounc|ng a partnersh|p c|a|m.
1he forego|ng cases are not mere|y acts of adm|n|strat|on, but
rather acts of ownersh|p wh|ch can on|y be effected by the concurrence
of a|| the partners who are co||ect|ve|y deemed to be the "owners" of
the partnersh|p and |ts bus|ness enterpr|se. In add|t|on, |n any of the
above |nd|cated partnersh|p acts, by reason of the|r ser|ous character,
they wou|d not be cons|dered to be covered by the doctr|ne of apparent
author|ty.
Cne wou|d cons|der therefore that when the transact|on |nvo|ves
the sa|e, transfer or encumbrance of the ent|re partnersh|p bus|ness
enterpr|se, |t wou|d const|tute an act of str|ct ownersh|p or an act of
a|terat|on, wh|ch cannot be cons|dered as w|th|n the ord|nary course of
bus|ness that wou|d come w|th|n the apparent author|ty of one partner.
And yet |n the ear|y case of C"g8'"R,% T3 ;%P'6,
10
sa|e of the partnersh|p's bus|ness
10
108 h||. 947 (1960).

enterpr|se can be cons|dered to be w|th|n the power of the manag|ng
partner, thus:
Appe||ants a|so quest|on the va||d|ty of the sa|e cover|ng
the ent|re f|rm rea|ty, on the ground that |t, |n effect, threw
the partnersh|p |nto d|sso|ut|on, wh|ch requ|res consent of a||
the partners. 1h|s v|ew |s untenab|e. 1hat the partnersh|p
was |eft w|thout the rea| property |t or|g|na||y had w||| not
work |ts d|sso|ut|on, s|nce the f|rm was not organ|zed to
exp|o|t these prec|se |ots but to engage |n buy|ng and se|||ng
rea| estate, and "|n genera| rea| estate agency and brokerage
bus|ness." Inc|denta||y, |t |s to be noted that the payment of
the so||dary ob||gat|on of both the partnersh|p and the |ate
1an S|n An, |eaves open the quest|on of account|ng and
contr|but|on between the co-debtors, that shou|d be
vent||ated separate|y.
11

erhaps C"g8'"R,% was dec|ded at an ear||er t|me |n our
[ur|sd|ct|on when the concept and doctr|nes perta|n|ng to "bus|ness
enterpr|se transfers" were not yet deve|oped, much |ess apprec|ated.
Cn ru||ng on the mot|on for recons|derat|on, the reso|ut|on of
C"g8'"R,% T3 ;%P'6,
12
returned on th|s po|nt and c|ar|f|ed the app||cab|e
doctr|ne as fo||ows:
It |s next urged that the w|dow, even as a partner, had no
author|ty to se|| the rea| estate of the f|rm. 1h|s argument |s
|amentab|y superf|c|a| because |t fa||s to d|fferent|ate
between rea| estate acqu|red and he|d as stock-|n-trade and .
rea| estate he|d mere|y as bus|ness s|te (V|vante's "ta||er o
banco soc|a|") for the partnersh|p. Where the partnersh|p
bus|ness |s to dea| |n merchand|se and goods, '373/ movab|e
property, the sa|e of |ts rea| property (|mmovab|es) |s not
w|th|n the ord|nary powers of a partner, because |t |s not |n
||ne w|th the norma| bus|ness of the f|rm. 8ut where the
express and avowed purpose of the partnersh|p |s to buy and
se|| rea| estate (as |n the present case), the |mmovab|es thus
acqu|red by the f|rm from part of |ts stock-|n-trade, and
OFS'./ at p. 960.
12
9 SCkA 663
( )

the sa|e thereof |s |n pursuance of partnersh|p purposes,
hence w|th|n the ord|nary powers of the partner.. ,
13

1he forego|ng d|scuss|ons |n C"g8'"R,% certa|n|y began to
apprec|ate an act or transact|on |n the ord|nary course of bus|ness, wh|ch
bas|ca||y may |nvo|ve on|y a sa|e of assets, from an extraord|nary act or
contract, wh|ch e|ther d|sposes of the bus|ness enterpr|se or has the
effect of prevent|ng the pursu|t of the bus|ness enterpr|se.
3. Spec|f|c Mod|f|cat|ons on the ower of Management
Ak1. 1800. 1he partner who has been appo|nted manager
|n the art|c|es of partnersh|p may execute a|| acts of
adm|n|strat|on desp|te the oppos|t|on of h|s partners, un|ess
he shou|d act |n bad fa|th, and h|s power |s |rrevocab|e
w|thout [ust or |awfu| cause. 1he vote of the partners
represent|ng the contro|||ng |nterest sha|| be necessary for
such revocat|on of power.
A power granted after the partnersh|p has been
const|tuted may be revoked at any t|me. (1692a)
Ak1. 1801. If two or more partners have been |ntrusted
w|th the management of the partnersh|p w|thout
spec|f|cat|on of the|r respect|ve dut|es, or w|thout a
st|pu|at|on that one of them sha|| not act w|thout the consent
of a|| the others, each one may separate|y execute a|| acts of
adm|n|strat|on, but |f any of them shou|d oppose the acts of
the others, the dec|s|on of the ma[or|ty sha|| preva||. In case of
? t|e, the matter sha|| be dec|ded by the partners own|ng the
contro|||ng |nterest. (1693a)
$'./ at pp. 671-672.

Ak1. 1802. In case |t shou|d have been st|pu|ated that
none of the manag|ng partners sha|| act w|thout the consent
of the others, the concurrence of a|| sha|| be necessary for the
va||d|ty of the acts, and the absence or d|sab|||ty of any one of
them cannot be a||eged, un|ess there |s |mm|nent danger of
grave or |rreparab|e |n[ury to the partnersh|p. (1694)
It |s a po||cy under h|||pp|ne artnersh|p Law for the partners to
be a||owed to express|y contract around the defau|t pr|nc|p|e of "mutua|
agency" ='373/ that the partners are a|| managers of the partnersh|p
enterpr|se). 1hus, under Art|c|e 1800 of New C|v|| Code |t |s poss|b|e to
appo|nt on|y one manag|ng partner |n the art|c|es of partnersh|p, |n
wh|ch case the manag|ng partner "may execute a|| acts of
adm|n|strat|on desp|te the oppos|t|on of h|s partners," and h|s powers
are |rrevocab|e w|thout [ust or |awfu| cause. 1he same ru|e wou|d app|y
when a partner |s des|gnated as manag|ng partner outs|de of the art|c|es
of |ncorporat|on, but |n such case h|s des|gnat|on as manag|ng partner |s
essent|a||y revocab|e.
1hus, the Supreme Court has he|d that a manager of a partnersh|p
can execute acts of adm|n|strat|on w|thout need of consent of the
partners, |nc|ud|ng the power to purchase goods |n the ord|nary course
of bus|ness,
14
to h|re emp|oyees,
1S
as we|| to d|sm|ss emp|oyees,
18
to
secure a |oan to f|n|sh the construct|on of the boat of the partnersh|p,
17

to emp|oy a bookkeeper by h|s so|e author|ty,
18
and to commence a su|t
|n the name of the partnersh|p aga|nst partnersh|p debtors.
19
Cur|ous|y
though, the
O;$'*5/ :7RR Q <"3 T3 B\-,(/ 40 C.G. 1882 (1941).
`Z
C,(P', G"- T3 @, <"$6,-', .7 0'-,) .7 :,*,8/ 12 h||. 130

`j
0,(*'-7\ T3 <"(."S, Q <"-.7/ S h||. S4S (1906).
`N
B+8)*', T3 0"P7-P'"/ 9 h||. 13S (1907).
oL"(*') T3 C8*'7((7\ >7($,-")/ 6 h||. 100 (1906).
`j
7a]' !"-+ <58,P57 Q <"3 T3 F-)8(,-P7 <"$$'))'"-/ 1S8 SCkA
366 ( 988)

Court has a|so he|d that the manag|ng partner has no power to purchase
"barge, a truck and an add|ng mach|ne" |n the name of the partnersh|p
|nasmuch as none of the propert|es were cons|dered to be "supp||es for
partnersh|p bus|ness."
20
1he o|d ru||ng |s contrary to the doctr|ne of
apparent author|ty |n the usua| or norma| pursu|t of the bus|ness of the
partnersh|p embod|ed |n Art|c|e 1818 of New C|v|| Code, espec|a||y when
|t comes to the add|ng mach|ne.
Under Art|c|e 1801 of New C|v|| Code, |f two or more partners have
bee entrusted w|th the management of the partnersh|p affa|rs w|thout
spec|f|cat|on of the|r respect|ve dut|es, or w|thout st|pu|at|on that one of
them sha|| not act w|thout the consent of a|| the others, each one may
separate|y execute a|| acts of adm|n|strat|on, but |f any of them shou|d
oppose the acts of the others, the dec|s|on of the ma[or|ty sha|| preva||,
and |n case of a t|e, the matter sha|| be dec|ded by the partner own|ng
the contro|||ng |nterest.
Cn the other hand, under Art|c|e 1802 of the New C|v|| Code, |f |t
has been st|pu|ated that none of the manag|ng partners sha|| act w|thout
the consent of the others, the concurrence of a|| sha|| be necessary for
the va||d|ty of the acts, and the absence or d|sab|||ty of any one of them
cannot be a||eged, un|ess there |s |mm|nent danger of grave or
|rreparab|e |n[ury to the partnersh|p.
It shou|d be emphas|zed that the prov|s|ons of Art|c|es 1800 to
1802 shou|d be cons|dered to be |ntramura| ru|es that govern the
re|at|onsh|p between and among the partners, and the breach of wh|ch
can br|ng about a cause of act|on aga|nst the breach|ng partners. 1he
ru|es prov|ded there|n do not b|nd nor app|y to |nva||date the contract
and transact|ons had w|th th|rd part|es act|ng |n good fa|th and under
the doctr|ne of apparent author|ty prov|ded under Art|c|e 1818.
Yc
!7,+87 T3 0,(*'-/ S3 h||. S04 (1929).
Spec|f|c ku|es on Dea||ngs w|th Immovab|e ropert|es of
the artnersh|p
Ak1. 1774. Any |mmovab|e property or an |nterest there|n
may be acqu|red |n the partnersh|p name. 1|t|e so acqu|red
can be conveyed on|y |n the partnersh|p name, (n)
Ak1. 1803. When the manner of management has not
been agreed upon, the fo||ow|ng ru|es sha|| be observed:
(1) A|| the partners sha|| be cons|dered agents and
whatever any one of them may do a|one sha|| b|nd the
partnersh|p, w|thout pre[ud|ce to the prov|s|ons of Art|c|e
1801.
(2) None of the partners may, w|thoutthe consent of the
others, make any |mportant a|terat|on |n the |mmovab|e
property of the partnersh|p, even |f |t may be usefu| to the
partnersh|p. 8ut |f the refusa| of consent by the other
partners |s man|fest|y pre[ud|c|a| to the |nterest of the
partnersh|p, the court's |ntervent|on may be sought. (169Sa)
Ak1. 1819. Where t|t|e to rea| property |s |n the
partnersh|p name, any partner may convey t|t|e to such
property by a conveyance executed |n the partnersh|p name,
but the partnersh|p may recover such property un|ess the
partner's act b|nds the partnersh|p under the prov|s|ons of the
f|rst paragraph of Art|c|e 1818, or un|ess such property has
been conveyed by the grantee or a person c|a|m|ng through
such grantee to a ho|der for va|ue w|thout know|edge that
the partner, |n mak|ng the conveyance, has exceeded h|s
author|ty.
Where t|t|e to rea| property |s |n the name of the
partnersh|p, a conveyance executed by a partner, |n h|s own
name, passes the equ|tab|e |nterest of

the partnersh|p, prov|ded the act |s one w|th|n the author|ty
of the partner under the prov|s|ons of the f|rst paragraph of
Art|c|e 1818.
Where t|t|e to rea| property |s |n the name of one or more
but not a|| the partners, and the record does not d|sc|ose the
r|ght of the partnersh|p, the partners |n whose name the t|t|e
stands may convey t|t|e to such property, but the partnersh|p
may recover such property |f the partners' act does not b|nd
the partnersh|p under the prov|s|ons of the f|rst paragraph of
Art|c|e 1818, un|ess the purchaser or h|s ass|gnee, |s a ho|der
for va|ue, w|thout know|edge.
Where the t|t|e to rea| property |s |n the name of one or
more or a|| the partners, or |n a th|rd person |n trust for the
partnersh|p, a conveyance executed by a partner |n the
partnersh|p name, or |n h|s own name, passes the equ|tab|e
|nterest of the partnersh|p, prov|ded the act |s one w|th|n the
author|ty of the partner under the prov|s|ons of the f|rst
paragraph of Art|c|e 1818.
Where the t|t|e to rea| property |s |n the name of a|| the
partners a conveyance executed by a|| the partners passes a||
the|r r|ghts |n such property, (n)
A|though Art|c|e 1774 of the New C|v|| Code prov|des that
|mmovab|e property or an |nterest there|n may be acqu|red |n the
partnersh|p name, the partnersh|p t|t|e |s not rendered vo|d |f the
reg|strat|on thereof |s not |n the name of the partnersh|p but |n one or
more, or a||, of the partners' names (or for that matter |n the name of a
th|rd-party who ho|ds |t |n trust for the partnersh|p).
1he treatment of partnersh|p |mmovab|es |s so set apart from
other management areas, that Art|c|e 1803 of the New C|v|| Code
prov|des for d|fferent set of management prerogat|ves for |mmovab|e
propert|es of the partnersh|p: Whereas, |n the absence of spec|f|c
agreement on the matter "A|| the partners sha|| be
cons|dered agents and whatever any one of them may do a|one sha||
b|nd the partnersh|p," yet when |t comes to |mmovab|e propert|es of
the partnersh|p, "None of the partners may, w|thout the consent of the
others, make any |mportant a|terat|on |n the |mmovab|e property of the
partnersh|p, even |f |t may be usefu| to the partnersh|p." If the refusa| of
consent by the other partners |s man|fest|y pre[ud|c|a| to the |nterest of
the partnersh|p, the courts' |ntervent|on may be sought.
Art|c|e 1819 of the New C|v|| Code sets spec|f|c ru|es on how
partners may b|nd rea| propert|es perta|n|ng to the partnersh|p,
depend|ng on the manner by wh|ch such t|t|e was reg|stered, thus:
(a) Where 1|t|e Is |n the artnersh|p Name:
(i) Any partner may convey t|t|e to such property by a
conveyance executed |n the partnersh|p name, the
partnersh|p may recover such property on|y when
the partner so convey|ng has no such power to so
convey, but not aga|nst a transferee |n good fa|th
and for va|ue,
(ii) A partner who conveys the property but |n h|s own
name passes the equ|tab|e |nterest of the
partnersh|p on|y when the partner so convey|ng
acted w|th author|ty, otherw|se, no t|t|e at a|| to the
|mmovab|e property passes to the transferee.
1he |mmed|ate|y preced|ng ru|e |s cons|stent w|th
the prov|s|on of Art|c|e 1774 of the New C|v|| Code
wh|ch states that t|t|e to |mmovab|e property
acqu|red |n the partnersh|p name can be conveyed
on|y |n the partnersh|p name.
(b) Where 1|t|e Is Not |n artnersh|p Name (|.e., 1|t|e |n the
Name of Cne or More, or A|| the artners, or a 1h|rd
erson |n 1rust for the artnersh|p):
(|) A conveyance executed by a partner |n the name of
the partnersh|p or |n h|s own name
on|y passes equ|tab|e |nterest of the partner-
sh|p, on|y when the partner convey|ng acted
w|th author|ty,
(||) A conveyance executed by a partner |n the
name of the partnersh|p or |n h|s own name
does not even pass anyth|ng (not even
equ|tab|e |nterest of the partnersh|p) when the
partner so convey|ng acted w|thout author|ty,
(c) Where 1|t|e Is |n the Name of Cne or More 8ut
Not A|| the artners:
(i) When the records d|sc|ose partnersh|p |n-
terests, the partners |n whose name the t|t|e
stands may convey t|t|e to such property, and
the partnersh|p may recover on|y when the
partners so convey|ng acted w|thout author|ty,
but not aga|nst a purchaser |n good fa|th and
for va|ue,
(ii) When the records do not d|sc|ose the r|ght of
the partnersh|p, the partners |n whose name
the t|t|e stands may convey t|t|e to such prop-
erty, and the partnersh|p may recover aga|nst
any transferee when the partners so convey|ng
acted w|thout author|ty,
(d) Where 1|t|e Is |n the Name of A|| of the artners:
(|) Conveyance executed by a|| the partners (|n
whose ever name so conveyed) passes a||
the|r r|ghts |n such property. In th|s case the w|||
of a|| the partners |s the w||| of the partnersh|p.
Ak1NLk'S kIGn1 1C SLCIIIC Ak1NLkSnI kCLk1
Ak1. 1811. A partner |s co-owner w|th h|s part-
ners of spec|f|c partnersh|p property. 1he |nc|dents
of th|s co-ownersh|p are such that:

(1) A partner, sub[ect to the prov|s|ons of th|s 1|t|e and to
any agreement between the partners, has an equa| r|ght w|th
h|s partners to possess spec|f|c partnersh|p property for
partnersh|p purposes, but he has no r|ght to possess such
property for any other purpose w|thout the consent of h|s
partners,
(2) A partner's r|ght |n spec|f|c partnersh|p property |s
not ass|gnab|e except |n connect|on w|th the ass|gnment of
r|ghts of a|| the partners |n the same property,
not sub[ect to attachment or execut|on, except on a c|a|m
aga|nst the partnersh|p. When partnersh|p property |s
attached for a partnersh|p debt the partners, or any of them,
or the representat|ves of a deceased partner, cannot c|a|m
any r|ght under the homestead or exempt|on |aws,
not sub[ect to |ega| support under Art|c|e 291. (n)
1. artners' Spec|f|c k|ght to artnersh|p roperty L|m|ted to ursu|ng the
artnersh|p 8us|ness
A|though Art|c|e 1811 of New C|v|| Code def|nes or exp|a|ns a
partner's "r|ght |n spec|f|c partnersh|p property" to mean that "A
partner |s [mere|y a] co-owner w|th h|s partners of spec|f|c partnersh|p
property," and the enumerat|on of the "|nc|dents of th|s co-ownersh|p"
wou|d show that what |s be|ng def|ned |s mere|y an |mp|ementat|on of
the pr|nc|p|e of mutua| agency, thus:
(a) "A partner... has an equa| r|ght w|th h|s partners to
possess spec|f|c partnersh|p property for partnersh|p
purposes,"

(b) "A partner's r|ght |n spec|f|c partnersh|p property |s not
ass|gnab|e except |n connect|on w|th the ass|gnment of
r|ghts of a|| the partners |n the same property,"
(c) "A partner's r|ght |n spec|f|c partnersh|p property |s not
sub[ect to attachment or execut|on, except on a c|a|m
aga|nst the partnersh|p," and
(d) "A partner's r|ght |n spec|f|c partnersh|p property |s not
sub[ect to |ega| support."
Un||ke the propr|etary r|ght of an ord|nary co-owner to "use the
th|ng owned |n common, prov|ded he does so |n accordance w|th the
purpose for wh|ch |t |s |ntended and |n such a way as not to |n[ure the
|nterest of the co-ownersh|p or prevent the other co- owners from us|ng
|t accord|ng to the|r r|ghts,"
21
the r|ght of every partner |n spec|f|c
partnersh|p property |s mere|y an extens|on of h|s r|ght to part|c|pate |n
the management of the partnersh|p affa|rs, and bears no propr|etary
t|t|e to h|mse|f persona||y apart from pursu|ng the partnersh|p affa|rs.
It may a|so be observed that the recogn|t|on by the Law on
artnersh|ps of the partners' purported co-ownersh|p |nterests |n
spec|f|c partnersh|p property wou|d be |n def|ance of the grant of a
separate [ur|d|ca| persona||ty to every partnersh|p organ|zed under New
C|v|| Code. Nonethe|ess, the purported co- ownersh|p |nterest of
partners |s essent|a||y for the furtherance of the partnersh|p affa|rs, and
emphas|zes the fact that |n the partnersh|p sett|ng equ|ty ownersh|p |s
merged w|th management prerogat|ves, equ|va|ent to the recogn|t|on of
the fu||-ownersh|p by the partners, as co||ect|ve so|e-propr|etors
so-to-speak, of the partnersh|p enterpr|se and |ts assets.
Another way of |ook|ng at the purported co-ownersh|p r|ghts of
partners to spec|f|c partnersh|p property |s to cons|der that the |aw
const|tute the partners as trustees of the corporate propert|es, whereby
they ho|d naked t|t|e to the partnersh|p propert|es, w|th
21

fu|| power to manage and contro| the same for the benef|t of the
partnersh|p venture, thus, "A partner... has equa| r|ght w|th h|s
partners to possess spec|f|c partnersh|p property for partnersh|p
purposes."
1hus, |n <,*R,- T3 C,*P5,R',(*] |t was he|d that when partnersh|p
rea| property had been mortgaged and forec|osed, the redempt|on by
any of the partners, even when us|ng h|s separate funds, does not a||ow
such redempt|on to be |n h|s so|e favor: "Under the genera| pr|nc|p|e of
|aw, a partners |s an agent of the partnersh|p.
23
Iurthermore, every
partner becomes a trustee for h|s copartner w|th regard to any benef|ts
or prof|ts der|ved from h|s act as a partner (Art|c|e 1807, new C|v|| Code).
Consequent|y, when Cata|an redeemed the propert|es |n quest|on he
became a trustee and he|d the same |n trust for h|s copartner
Gatcha||an, sub[ect of course to h|s r|ght to demand from the |atter h|s
contr|but|on to the amount of redempt|on."
24

1h|s |s a|so the reason why Art|c|e 1811(2) of the New C|v|| Code
prov|des express|y that "A partner's r|ght |n spec|f|c partnersh|p
property |s not ass|gnab|e except |n connect|on w|th the ass|gnment of
r|ghts of a|| the partners |n the same property." 8aut|sta had wr|tten
that the reasons why a partner's r|ght |n partnersh|p property |s
non-ass|gnab|e are as fo||ows:
(a) |t wou|d effect|ve|y a||ow a th|rd party (the ass|gnee) to
part|c|pate |n the affa|rs of the partnersh|p, and wou|d
bas|ca||y have a stranger become a partner w|thout the
consent of a|| the other partners, and
(b) |t wou|d |nterfere w|th the r|ghts of the other partners
and the partnersh|p cred|tors to have a|| partnersh|p
propert|es app||ed d|rect|y to the payment of
partnersh|p debts, and
^10S h||. 1270
(19S9). Ârt. 1818,
| || d
24
10S h||. 1270,1271.

(c) |t wou|d |nd|rect|y go aga|nst the pr|nc|p|e that partner's
r|ght |n spec|f|c partnersh|p property cannot be
attached or |ev|ed upon,"
2S
as prov|ded |n paragraph (3)
of Art|c|e 1811. In ||ne w|th the same rat|ona|e,
paragraph numbered (4) of Art|c|e 1811 a|so prov|des
that a partner's r|ght |n spec|f|c partnersh|p property |s
a|so not sub[ect to support.
8aut|sta rem|nded us |n h|s treat|se that the who|e of Art|c|e 1811
of the New C|v|| Code was taken from the Un|form artnersh|p Act
wh|ch, based on common |aw, adheres to the "aggregate theory of
partnersh|p under wh|ch, because |t |s not cons|dered an ent|ty or a |ega|
person, a partnersh|p cannot ho|d t|t|e and hence partnersh|p property
|s deemed he|d or owned |n common by the partners for the benef|t of
the partnersh|p,"
28
as opposed to New C|v|| |aw doctr|ne that affords the
partnersh|p a separate [ur|d|ca| persona||ty.
2. artners' Contr|buted roperty to the artnersh|p Can 8e Dea|t W|th
Cn|y for artnersh|p urposes
Lven when a spec|f|c property can be |dent|f|ed as hav|ng been
contr|buted by a partner to the partnersh|p, once contr|buted, |t no
|onger |s sub[ect to the so|e w||| and d|scret|on of the contr|but|ng
partner who ceases to be the so|e owner thereof.
As ear|y as |n <R7$7-*7 T3 C,RT,-/ the Supreme Court has he|d that
when propert|es are contr|buted to the partnersh|p, they wou|d be|ong
to the partnersh|p as a separate [ur|d|ca| persona||ty, and that as
propert|es of the partnersh|p, they cou|d no |onger be d|sposed of by the
party contr|but|ng the same w|thout the consent or approva| of the
partnersh|p or of the other partners.
27
In <R7$7-*7/ the Court he|d as
vo|d the mortgage executed by a partner on the propert|es he had
contr|buted to the
2S
8AU1IS1A, at p. 162
26
8AU1IS1A, at pp. 147-148.
YN
4"P*('-,R R,-+8,+7 "& <R7$7-*7 ,) )8$$,('\7. '- @"\,-, T3
107 h||. 728, 732 (1960).

618
partnersh|p after the partnersh|p had ceased to do bus|ness but before
||qu|dat|on, thus: "1he ev|dence of record shows that the mach|nes |n
content|on or|g|na||y be|onged to the defendant and from h|m were
transferred to the partnersh|p Ga|van Compan|a. 1h|s be|ng the case,
sa|d mach|nes be|ong to the partnersh|p and not to h|m, and sha||
be|ong to |t unt|| part|t|on |s effected accord|ng to the resu|t thereof
after the ||qu|dat|on."
28

In @"\,-, T3 476,1,1'S"/o the Court he|d that propert|es
contr|buted by a partner to the partnersh|p cannot be va||d|y d|sposed
by the contr|but|ng partner through a deed of d|spos|t|on even when
the partnersh|p |tse|f has ceased to be operat|ona|: "S|nce the court
be|ow had found that the p|a|nt|ff had actua||y contr|buted one eng|ne
and 70 posts to the partnersh|p, |t necessar||y fo||ows that the 8uda
d|ese| eng|ne contr|buted by the p|a|nt|ff had become the property of
the partnersh|p. As propert|es of the partnersh|p, the same cou|d not be
d|sposed of by the party contr|but|ng the same w|thout the consent or
approva| of the partnersh|p or of the other partner."
30

LUI1 kIGn1S CI Ak1NLkS
Ak1. 1812. A partner's |nterest |n the partnersh|p |s h|s
share of the prof|ts and surp|us, (n)
Ak1. 1813. A conveyance by a partner of h|s who|e
|nterest |n the partnersh|p does not of |tse|f d|sso|ve the
partnersh|p, or, as aga|nst the other partners |n the absence
of agreement, ent|t|e the ass|gnee, dur|ng the cont|nuance of
the partnersh|p, to |nterfere |n the management or adm|n|s-
trat|on of the partnersh|p bus|ness or affa|rs, or to
28
67 h||. S6S, S69.
107 h||. 728 (1960).
mFS'./ at p. 732.
requ|re any |nformat|on or account of partnersh|p
transact|ons, or to |nspect the partnersh|p books, but |t mere|y
ent|t|es the ass|gnee to rece|ve |n accordance w|th h|s contract
the prof|ts to wh|ch the ass|gn|ng partner wou|d otherw|se be
ent|t|ed. nowever, |n case of fraud |n the management of the
partnersh|p, the ass|gnee may ava|| h|mse|f of the usua|
remed|es.
In case of a d|sso|ut|on of the partnersh|p, the ass|gnee |s
ent|t|ed to rece|ve h|s ass|gnor's |nterest and may requ|re an
account from the date on|y of the |ast account agreed to by a||
the partners, (n)
Ak1. 1814. W|thout pre[ud|ce to the preferred r|ghts of
partnersh|p cred|tors under Art|c|e 1827, on due app||cat|on to
a competent court by any [udgment cred|tor of a partner, the
court wh|ch entered the [udgment, or dny other court, may
charge the |nterest of the debtor partner w|th payment of the
unsat|sf|ed amount of such [udgment debt w|th |nterest
thereon, and may then or |ater appo|nt a rece|ver of h|s share
of the prof|ts, and of any other money due or to fa|| due to
h|m |n respect of the partnersh|p, and make a|| other orders,
d|rect|ons, accounts and |nqu|r|es wh|ch the debtor partner
m|ght have made, or wh|ch the c|rcumstances of the case may
requ|re.
1he |nterest charged may be redeemed at any t|me
before forec|osure, or |n case of a sa|e be|ng d|rected by the
court, may be purchased w|thout thereby caus|ng a
d|sso|ut|on:
(1) W|th separate property, by any one or more of the
partners, or
(2) W|th partnersh|p property, by any one or more of the
partners w|th the consent of a|| the partners whose |nterests
are not so charged or so|d.

620
Noth|ng |n th|s 1|t|e sha|| be he|d to depr|ve a partner of
h|s r|ght, |f any, under the exempt|on |aws, as regards h|s
|nterest |n the partnersh|p, (n)
Art|c|e 1812 of New C|v|| Code def|nes a "partner's |nterest |n the
partnersh|p" essent|a||y as h|s equ|ty |nterest, thus: "h|s share of the
prof|ts and surp|us." A partner's |nterest |n the partnersh|p def|nes h|s
equ|ty pos|t|on as a co-propr|etor of the partnersh|p enterpr|se, wh|ch
ent|t|es h|m '6)" &,P*" to share |n the prof|ts and to share |n the |osses
of the venture.
"rof|ts" represent the excess of rece|pts over expenses or the
excess of the va|ue of returns over the va|ue of advances,
31
whereas,
"surp|us" has been def|ned as the excess of assets over ||ab|||t|es.
32

8aut|sta wrote that "1he |nterest of the partner |n the partnersh|p
has thus been otherw|se descr|bed as the net ba|ance rema|n|ng to h|m,
after a|| partnersh|p debts or c|a|ms aga|nst |t have been pa|d and the
equ|t|es and accounts between such partner and h|s co-partners have
been ad[usted."
33

1. Ass|gnment of a artner's Lqu|ty k|ght
A partner's equ|ty |nterest |n the partnersh|p tru|y represents a
propr|etary |nterest for h|s exc|us|ve benef|t as an owner of such
|ntang|b|e r|ght. L|ke any other property r|ght, a partner's equ|ty |s
genera||y transferab|e or ass|gnab|e. Nonethe|ess under Art|c|e 1813 of
New C|v|| Code, the transfer or ass|gnment of a partner's equ|ty does not
make the transferee or ass|gnee step
[`
<'*'\7-) 9,*'"-,R :,-1 T3 Corf. 33 S.L.2d 613, 616 (194S), L,'(P5'R.
T3 C(,%/ 242 N..S. 192 (1930), <(,b&"(. T3 ;8(7*% F-)8(,-P7 <"3/ 139 .
481, 484 (1970).
[Y
!8667(T/k p("P/ 492 . 2d 127S (1972), B-.7()"- T3 E3;3/ 131
I.Supp. S01 (19SS), :,R,S,- T3 :,-1 "& 97T,.,/ 477 .2d 860 (1970).
"8AU1IS1A, at p. 176, P'*'-+ <R,8.7 T3 <R,8.7/ 228 .2d 776 (19S1),
K(7*"- T3 ;*,*7 F-.8)*(',R BPP'.7-* <"$$'))'"-/ 149 .2d 27S (1944),
;b'()1% T3 >"(V b'P5/ 47 N.L.2d 4S2 (1943), <8--'-+5,$ T3 <8--'-+5,$/
13S N L 21 (1922)
|nto the shoes of the partner |n h|s persona| capac|ty as such |n re|at|on
to the other partners, thus:
A conveyance by a partner of h|s who|e |nterest |n the
partnersh|p does not of |tse|f d|sso|ve the partnersh|p, or, as
aga|nst the other partners |n the absence of agreement,
ent|t|e the ass|gnee, dur|ng the cont|nuance of the
partnersh|p, to |nterfere |n the management or
adm|n|strat|on of the partnersh|p bus|ness or affa|rs, or to
requ|re any |nformat|on or account of partnersh|p
transact|ons, or to |nspect the partnersh|p books.
In other words, under Art|c|e 1813 of the New C|v|| Code, the on|y
th|ng that can be conveyed by a partner as an equ|ty ho|der, |s the so|e
r|ght to rece|ve prof|ts and surp|us assets upon the d|sso|ut|on of the
partnersh|p, thus: "|t mere|y ent|t|es the ass|gnee to rece|ve |n
accordance w|th h|s contract the prof|ts to wh|ch the ass|gn|ng partners
wou|d otherw|se be ent|t|ed." 1he on|y |nstance under sa|d prov|s|on
that the transferee or ass|gnee may ava|| h|mse|f of the usua| remed|es
afforded to a partner |s "|n case of fraud |n the management of the
partnersh|p."
Un||ke |n Corporate Law where the ru|e |s that equ|ty |nterest ='373/
shares of stock) |s that they are essent|a||y transferab|e, |n artnersh|p
Law, equ|ty |nterests of partners are not essent|a||y transferab|e. 1h|s
statement |s not even accurate because |f one |ooks at the |anguage of
Art|c|e 1813 the proper ru|e wou|d be, every partner sha|| have an
abso|ute r|ght to transfer or ass|gn h|s equ|ty |nterest, but such
transact|on w||| not transfer h|s other r|ghts as a partner. 1he art|c|e a|so
recogn|zes that [ust because a partner "cashes |n" on h|s equ|ty r|ghts |n
the partnersh|p, wh|ch he has every r|ght to do, the same does not mean
that he ceases to be a party to the partnersh|p contract nor does |t
tr|gger the d|sso|ut|on of the partnersh|p, wh|ch means that w|th respect
to h|s other r|ght to management the partnersh|p affa|rs and act as agent
of the other partners, these rema|n |n tact |n the person of the
transferr|ng partner.
So separate and d|v|s|b|e |s a partner's equ|ty r|ghts from h|s other
r|ghts as a partner that Art|c|e 1814 of New C|v|| Code

a||ows the persona| [udgment cred|tors of a partner to "charge the
|nterest of the debtor partner w|th payment of the unsat|sf|ed amount
of such [udgment debt w|th |nterest thereon, and may then or |ater
appo|nt a rece|ver of h|s share of the prof|ts, and of any other money
due or to fa|| due to h|m |n respect of the partnersh|p." 1he art|c|e a||ows
of the partners or the partnersh|p |tse|f to e|ther to redeem or to
purchase the equ|ty executed "w|thout thereby caus|ng a d|sso|ut|on" of
the partnersh|p.
8aut|sta wrote that Art|c|e 1814 was taken from the Un|form
artnersh|p Act, and patterned after the Lng||sh artnersh|p Act of 1890,
and |t was adopted forma||y to a dec|ded purpose of prov|d|ng a means
by wh|ch the separate cred|tors of a partner may se|ze upon h|s property
r|ghts w|thout hav|ng to d|srupt the operat|ons of the partnersh|p
enterpr|se or effect|ve|y force the d|sso|ut|on of the partnersh|p.
34
1hus,
Art|c|e 1814, wh|ch a||ows the attachment or execut|on of a partner's
equ|ty r|ghts |n a partnersh|p |s the remedy g|ven to a partner's separate
cred|tors |n ||eu of the express proh|b|t|on of seek|ng an attachment or
|evy upon the partnersh|p assets and propert|es themse|ves to cover the
partner's r|ght to spec|f|c partnersh|p property.
Under Art|c|e 1827 of the New C|v|| Code, the separate cred|tors of
each partner may ask for the attachment and pub||c sa|e of the share of
the partner |n the partnersh|p assets, wh|ch must be upon d|sso|ut|on
and on|y after the partnersh|p cred|tors have been fu||y sat|sf|ed. 1o
construe the prov|s|on of Art|c|e 1827 ||tera||y wou|d mean that |t wou|d
run counter to the prov|s|on under Art|c|e 1811(3) wh|ch prov|des that
"A partner's r|ght |n spec|f|c partnersh|p property |s not sub[ect to
attachment or execut|on."
Under Amer|can [ur|sprudence, s|nce an equ|ty r|ght |n partnersh|p
|s a present, ex|st|ng, and not a mere cont|ngent, r|ght, |t can be
ass|gned, neverthe|ess, the partners may agree that one of them cannot
se|| or ass|gn h|s |nterest w|thout the consent of
"8AU1IS1A, at pp. 184-18S.

the other or others,
3S
or they may enter |nto an agreement proh|b|t|ng
such ass|gnment a|together.
36

A good |||ustrat|on of the sheer d|v|s|b|||ty between the property
r|ghts of a partner |s shown |n the dec|s|on |n C"g8'"R,% T3 ;%P'6,
37
where
the part|cu|ar prov|s|on on success|on |n the art|c|es of partnersh|p
spec|f|ca||y prov|ded as fo||ows: "In the event of the death of any of the
partners at any t|me before the exp|rat|on of sa|d term, the
copartnersh|p sha|| not be d|sso|ved but w||| have to be cont|nued and
the deceased partner sha|| be represented by h|s he|rs or ass|gns |n sa|d
copartnersh|p."
38
When the du|y des|gnated so|e manag|ng partner
under the art|c|es d|ed and was succeeded by h|s w|dow, |t was
contended that under the terms of the art|c|es she a|so succeeded to the
so|e management of the partnersh|p. In ru||ng aga|nst such a conc|us|on,
the Court he|d
. . . Wh||e, as we prev|ous|y stated |n our narrat|on of
facts, the Art|c|es of Copartnersh|p and the power of
attorney... conferred upon the [the so|e manag|ng
partner] the exc|us|ve management of the bus|ness, such
power, prem|sed as |t |s upon trust and conf|dence, was a
mere persona| r|ght that term|nated upon [the so|e manag|ng
partner's] dem|se. 1he prov|s|on |n the art|c|es stat|ng that "|n
the event of death of any one of the partners w|th|n the
10-year term of the partnersh|p, the deceased partner sha||
be represented by h|s he|rs," cou|d not have referred to the
manager|a| r|ght g|ven to [the deceased husband], more
appropr|ate|y, |t re|ated to the success|on |n the propr|etary
|nterest of each partner.
39

mK"1(\%b-'P1' T3 p"\,1/ 47 A.2d 144 (1946).
o<5,'17- T3 D$6R"%$7-* ;7P8('*% <"$$'))'"-/ 274 A.2d

37
108 h||. 947 (1960).
m|d, at p. 9S0.
m|d, at pp. 9S4-9SS.

2. k|ght to art|c|pate |n rof|ts, Cb||gat|on to art|c|pate |n
Losses
Ak1. 1797. 1he |osses and prof|ts sha|| be d|str|buted |n
conform|ty w|th the agreement. If on|y the share of each
partner |n the prof|ts has been agreed upon, the share of each
|n the |osses sha|| be |n the same proport|on.
In the absence of st|pu|at|on, the share of each partner |n
the prof|ts and |osses sha|| be |n proport|on to what he may
have contr|buted, but the |ndustr|a| partner sha|| not be ||ab|e
for the |osses. As for the prof|ts, the |ndustr|a| partner sha||
rece|ve such share as may be [ust and equ|tab|e under the
c|rcumstances. If bes|des h|s serv|ces he has contr|buted
cap|ta|, he sha|| a|so rece|ve a share |n the prof|ts |n
proport|on to h|s cap|ta|. (1689a)
Ak1. 1798. If the partners have agreed to |ntrust to a th|rd
person the des|gnat|on of the share of each one |n the prof|ts
and |osses, such des|gnat|on may be |mpugned on|y when |t |s
man|fest|y |nequ|tab|e. In no case may a partner who has
begun to execute the dec|s|on of the th|rd person, or who has
not |mpugned the same w|th|n a per|od of three months from
the t|me he had know|edge thereof, comp|a|n of such
dec|s|on.
1he des|gnat|on of |osses and prof|ts cannot be |ntrusted
to one of the partners. (1690)
Ak1. 1799. A st|pu|at|on wh|ch exc|udes one or more
partners from any share |n the prof|ts or |osses |s vo|d. (1691)
1he r|ghts of an equ|ty ho|der are essent|a||y ||nked to the
operat|ons of the bus|ness enterpr|se, and as he takes the r|sk
connected w|th bus|ness down-turn, then to h|m wou|d a|so accrue the
prof|ts of the enterpr|se. Cne who mere|y part|c|pates |n the shar|ng of
gross returns of an enterpr|se, as |nd|cated |n Art|c|e 1769(3) of New C|v||
Code, does not necessar||y mean that he |s an equ|ty ho|der, for he does
not expose h|m to the expenses and |osses of the bus|ness, |n contrast to
one who shares |n the net prof|ts, who under Art|c|e 1769(4) |s 6('$,
&,P'7 ev|dence that he |s a partner |n the bus|ness, |f such part|c|pat|on |s
not ||nked to some other c|ear contractua| arrangement.
Under Art|c|e 1767 of New C|v|| Code, the essence of a partnersh|p
arrangement |s the ex|stence of a common fund or a bus|ness enterpr|se,
and wh|ch under Art|c|e 1770 must be "estab||shed for the common
benef|t or |nterest of the partners," and wh|ch |s the reason why under
Art|c|e 1799, a st|pu|at|on |n the contract of partnersh|p wh|ch exc|udes
one or more of the partners from any share |n the prof|ts or |osses |s
vo|d, but the partnersh|p arrangement rema|ns subs|st|ng.
Art|c|e 1797 of the New C|v|| Code prov|des for the ru|es govern|ng
the d|str|but|on of prof|ts and |osses |n the partnersh|p bus|ness, thus:
(a) rof|ts and |osses sha|| be d|str|buted |n conform|ty w|th
the agreement between the partners,
(b) If on|y the share of each partner |n the prof|ts has been
agreed upon, the share of each |n the |osses sha|| be |n
the same proport|on,
(c) In the absence of any such agreement, the share of
each partner |n the prof|ts and |osses sha|| be |n
proport|on to what he may have contr|buted,
(d) Lxcept that the |ndustr|a| partner:
(i) sha|| not be ||ab|e for the |osses,
(ii) as to the prof|ts, he sha|| rece|ve such share as
may be [ust and equ|tab|e under the c|r-
cumstances, and
(iii) |f he contr|buted a|so cap|ta|, he sha|| a|so rece|ve
a share |n the prof|ts |n proport|on to h|s cap|ta|.

Art|c|e 1798 of the New C|v|| Code prov|des that |f the partners
have entrusted to a th|rd person the des|gnat|on of prof|ts and |osses,
such des|gnat|on may be |mpugned on|y when |t |s man|fest|y
|nequ|tab|e, and |n no case may a partnersh|p who has begun to execute
the dec|s|on of th|rd person, or who has not |mpugned the same w|th|n
three (3) months from the t|me he had know|edge thereof, comp|a|n of
such dec|s|on.
Art|c|e 1798 a|so prov|des that the des|gnat|on of |osses and prof|ts
cannot be entrusted to one of the partners. I5,* 5,667-) b57- "-7 "(
$"(7 "& *57 6,(*-7() ,(7 .7)'+-,*7. *" .')*('S8*7 6("&'*) ,-. R"))7)? It
wou|d have to mean that the des|gnat|on and the exerc|se thereof
wou|d both be vo|d. It shou|d be noted that under Art|c|e 1797 of the
New C|v|| Code |n the case of an |ndustr|a| partner, h|s share |n the
prof|ts wou|d be |n accordance w|th what the he and cap|ta||st partners
v|ew as be|ng "[ust and equ|tab|e under the c|rcumstances."
a. No Guarantee as to rof|ts
In 0"(,-/ J(3 T3 <"8(* "& B667,R)/]
c
even as the Supreme Court
aff|rmed the doctr|ne that |n "a contract of partnersh|p, each partner
must share |n the prof|ts and |osses of the venture. 1hat |s the essence of
a partnersh|p,"
41
nonethe|ess, |t he|d that any st|pu|at|on guarantee|ng
to a partner the rece|pt of prof|ts wou|d be aga|nst pub||c po||cy, s|nce |t
wou|d exempt such partner from part|c|pat|ng |n |osses, thus: "And even
w|th an assurance made by one of the partners that they wou|d earn a
huge amount of prof|ts, |n the absence of fraud, the other partner
cannot c|a|m a r|ght to recover the h|gh|y specu|at|ve prof|ts. It |s a rare
bus|ness venture guaranteed to g|ve 100 prof|ts."
42

0"(,-/ J(3 a|so he|d that w|th respect to the prov|s|on |n the
art|c|es of partnersh|p to g|ve pr|vate respondent a month|y
comm|ss|on, the same cou|d not be enforced |f they were guaranteed
beyond the po|nt of prof|tab|||ty thus: "1he partnersh|p agreement
st|pu|ated that the pet|t|oner wou|d g|ve the pr|vate
40
133 SCkA 88
(1984).
41
to]d, at p.
9S.
aY
RS'./ at p. 9S.

respondent a month|y comm|ss|on of 1,000.00 from Apr|| 1S, 1971 to
December 1S, 1971 for a tota| of e|ght (8) month|y comm|ss|ons. 1he
agreement does not state the bas|s of the comm|ss|on. 1he payment of
the comm|ss|on cou|d on|y have been pred|cated on re|at|ve|y
extravagant prof|ts. 1he part|es cou|d not have |ntended the g|v|ng of a
comm|ss|on |nsp|te =)'PH of |oss or fa||ure of the venture. S|nce the
venture was a fa||ure, the pr|vate respondent |s not ent|t|ed to the
8,000.00 comm|ss|on."
43

b. When the k|ght to rof|ts Accrues
Cuts|de of d|sso|ut|on and ||qu|dat|on proceed|ngs and |n the
absence of a st|pu|at|on on per|od|c d|str|but|on of prof|ts under the
art|c|es of partnersh|p, the r|ght to share |n the prof|ts of the partnersh|p
bus|ness perta|ns on|y to "net prof|ts," wh|ch means on|y when there
has been a proper account|ng of the |ncome and expenses perta|n|ng to
the bus|ness.
1hus, |n ;')"- T3 0PU8,'. t a comp|a|nt brought by a partner
aga|nst the other partner to recover h|s one-ha|f share |n the proceeds of
a transact|on w|th the government, was he|d to be w|thout any cause of
act|on, thus:
. . . |a|nt|ff seeks to recover from defendant one-ha|f of
the purchase pr|ce of |umber so|d by the partnersh|p to the
Un|ted States Army. 8ut h|s comp|a|nt does not show why he
shou|d be ent|t|ed to the sum he c|a|ms. It does not a||ege
that there has been a ||qu|dat|on of the partnersh|p bus|ness
and the sa|d sum has been found to be due h|m as h|s share
of the prof|ts. 1he proceeds from the sa|e of a certa|n amount
of |umber cannot be cons|dered prof|t unt|| costs and
expenses have been deducted. Moreover, the prof|ts of a
bus|ness cannot be determ|ned by tak|ng |nto account the
resu|t of one part|cu|ar transact|on |nstead of a|| the
transact|ons had. nence, the need for a genera| ||qu|dat|on
before a member of a partnersh|p may c|a|m a spec|f|c sum
as h|s share of the prof|ts.
4S

43
]b]'d, at p.

"94 h||. 201
OFS'./ at p. 204.

1he rece|pt by a partner of h|s contr|but|on to the partnersh|p,
there be|ng no |nd|cat|on that there was a term|nat|on of the
partnersh|p or a w|thdrawa| therefrom, does not ext|ngu|sh the r|ght of
such rece|v|ng partner to the prof|ts earned by the partnersh|p bus|ness
or h|s r|ght to an account|ng, and that |ndeed h|s rema|n|ng |nterest |n
the partnersh|p can on|y be determ|ned upon f|na| ||qu|dat|on.
46

Cn the other hand, when there has been an account|ng and
||qu|dat|on made of the operat|ons of the partnersh|p, and the partners
have rece|ved such account|ng w|thout ob[ect|ons thereto |nc|ud|ng the
rece|pt of the|r share of the prof|ts, |s no |onger ent|t|ed to demand a
further ||qu|dat|on un|ess he |s ab|e to prove that there has been fraud,
dece|t, error or m|stake |n g|v|ng such approva|.
47

I|na||y, when the books of account of the partnersh|p are kept by a
partner |n h|s custody, such partner |s bound by the entr|es |n such books
of account wh|ch const|tute an adm|ss|on of the facts stated there|n,
espec|a||y on the c|a|ms and |nterests of the partners |n the
partnersh|p.
48

C1nLk kIGn1S CI A Ak1NLk
1. k|ght to 8e ke|mbursed for Lxpenses Incurred on 8eha|f of the
artnersh|p
Ak1. 1796. 1he partnersh|p sha|| be respons|b|e to every
partner for the amounts he may have d|sbursed on beha|f of
the partnersh|p and for the correspond|ng |nterest, from the
t|me the expense are made, |t sha|| a|so answer to each
partner for
mL7(-,-.7\ T3 47R, G"),/ 1 h||. 671
(1902).
aN
?(-8$ T3 @,),R,/ 74 h||. 242
( 9 3)
ae
:75-/ 07%7( Q <"3 T3 G"),*\'-/ Z h||. 660 (1906), C,(('." T3
B ' 10 h||. 691 (1908).

the ob||gat|ons he may have contracted |n good fa|th |n the
|nterest of the partnersh|p bus|ness, and for r|sks |n
consequence of |ts management. (1688a)
Art|c|e 1796 of New C|v|| Code prov|des that the partnersh|p sha||
be respons|b|e to every partner for the amounts he may have d|sbursed
on beha|f of the partnersh|p and for the correspond|ng |nterest, from the
t|me the expenses are made. 1he prov|s|on |s meant to grant to every
partner the r|ght to demand from the partnersh|p re|mbursement of
advances made on beha|f of the partnersh|p bus|ness.
Art|c|e 1796 as |t treats every partner to be an agent of the
partnersh|p under the attr|bute of mutua| agency, para||e|s the same
r|ght granted to every agent |n the Law on Agency, part|cu|ar|y Art|c|e
1912, wh|ch prov|des that "Shou|d the agent have advanced [sums
necessary for the execut|on of the agency], the pr|nc|pa| must re|mburse
h|m therefore, even |f the bus|ness or undertak|ng was not successfu|,
prov|ded the agent |s free from a|| fau|t."
2. k|ght to Inspect
Ak1. 180S. 1he partnersh|p books sha|| be kept, sub[ect to
any agreement between the partners, at the pr|nc|pa| p|ace of
bus|ness of the partnersh|p, and every partner sha|| at any
reasonab|e hour have access to and may |nspect and copy any
of them, (n)
Under Art|c|e 180S of New C|v|| Code, the partnersh|p books sha||
be kept, sub[ect to any agreement between the partners, at the pr|nc|pa|
p|ace of bus|ness of the partnersh|ps, and every partner sha|| at any
reasonab|e hour have access to and may |nspect and copy any of them.

In Corporate Law, the r|ght of a stockho|der or member to |nspect
and copy corporate records |s cons|dered to be a common |aw r|ght, and
a r|ght of such |mportance that |ts enforcement can be by an act|on
$,-.,$8)3 1he r|ght to |nspect |s cr|t|ca| to safeguard|ng a|| other r|ghts
of stockho|ders or members |n the corporat|on.
1he same pr|nc|p|es are app||cab|e to a partner's r|ght to |nspect
and to demand true and fu|| |nformat|on on partnersh|p matters.
3. k|ght to Demand 1rue and Iu|| Informat|on
Ak1. 1806. artners sha|| render on demand true and fu||
|nformat|on of a|| th|ngs affect|ng the partnersh|p to any
partner or the |ega| representat|ve of any deceased partner or
of any partner under |ega| d|sab|||ty, (n)
Art|c|e 1806 of New C|v|| Code prov|des that every partner or h|s
|ega| representat|ve may demand true and fu|| |nformat|on from other
partners of a|| th|ngs affect|ng the partnersh|p.
Consequent|y, |n consonance w|th the f|duc|ary re|at|onsh|p
ex|st|ng between and among partners, every partner has the ob||gat|ons
to render true and fu|| |nformat|on to other partners of a|| th|ngs
affect|ng the partnersh|p.
4. k|ght to Demand Account|ng
Ak1. 1809. Any partner sha|| have the r|ght to a forma|
account as to partnersh|p affa|rs:
(1) If he |s wrongfu||y exc|uded from the partnersh|p
bus|ness or possess|on of |ts property by h|s co-partners,

(2) If the r|ght ex|sts under the terms of any
agreement,
(3) As prov|ded by Art|c|e 1807,
(4) Whenever other c|rcumstances render |t
[ust and reasonab|e, (n)
Under Art|c|e 1807 of the New C|v|| Code, every partner may
demand from every other partner an account|ng to the partnersh|p for
any benef|t, and ho|d as trustee for |t any prof|ts der|ved by h|m w|thout
the consent of the other partners from any transact|on connected w|th
the format|on, conduct, or ||qu|dat|on of the partnersh|p or from any use
by h|m of |ts property.
Under Art|c|e 1809 of the New C|v|| Code, any partner sha|| have
the r|ght to a forma| account as to partnersh|p affa|rs, when he |s
wrongfu||y exc|uded from the partnersh|p bus|ness or possess|on of |ts
property, |f the r|ght ex|sts under the terms of the partnersh|p
agreement, whenever c|rcumstances render |t [ust and reasonab|e.
In L87 @78-+ T3 F-*7($7.',*7 B667RR,*7 <"8(*/]
l
the Supreme
Court he|d that a partner's r|ght to account|ng ex|sts as |ong as the
partnersh|p ex|sts, and that prescr|pt|on beg|ns to run on|y upon the
d|sso|ut|on of the partnersh|p and f|na| account|ng |s done.
Cn the other hand, |n >,-R"- T3 >,8))7($,-- ,-. :7,$ f the
Court ru|ed that former partners |n a [o|nt undertak|ng to rehab|||tate a
m|n|ng p|ant have no r|ght to demand account|ng for the prof|ts of such
undertak|ng when the partnersh|p arrangement had been term|nated
w|th the fa||ure of the c|a|m|ng partners to ra|se the prom|sed
|nvestments |nto the enterpr|se, and that the other two partners
pursued the venture on the|r own account and on|y after the partnersh|p
arrangement had term|nated.
"
1
6

632
In @'$ !,-58 T3 G,$"R7*7,
S1
the Court he|d that a partner's r|ght to
account|ng for propert|es of the partnersh|p that are w|th|n the custody
or contro| of the other partners sha|| app|y on|y when there |s proof that
such propert|es, reg|stered |n the |nd|v|dua| names of the other
partners, have been acqu|red from the use of partnersh|p funds, thus:
"Accord|ng|y, the defendants have no ob||gat|on to account to anyone
for such acqu|s|t|ons |n the absence of c|ear proof that they had v|o|ated
the trust of [one of the partners] dur|ng the ex|stence of the
partnersh|p."
S2

S. k|ght to D|sso|ve the artnersh|p
1he near-abso|ute |ega| power of any partner to demand the
d|sso|ut|on of the partnersh|p |s |n consonance w|th the doctr|ne of
.7R7P*8) 67()"-,7 that estab||shes a f|duc|ary re|at|onsh|p between and
among the partners.
In G"X,) T3 0,+R,-,the Court conf|rmed the r|ght of a partner to
"un||atera||y d|sso|ve the partnersh|p," by a not|ce of d|sso|ut|on, wh|ch
|n effect |s a not|ce of w|thdrawa| from the partnersh|p, thus: "Under
Art|c|e 1830(2) of the New C|v|| Code, even |f there |s a spec|f|ed term,
one partner can cause |ts d|sso|ut|on by express|y w|thdraw|ng even
before the exp|rat|on of the per|od, w|th or w|thout [ust|f|ab|e cause. Cf
course, |f the cause |s not [ust|f|ed or no cause was g|ven, the
w|thdraw|ng partner |s ||ab|e for damages but |n no case can he be
compe||ed to rema|n |n the f|rm. W|th h|s w|thdrawa|, the number of
members |s decreased, hence, the d|sso|ut|on."
S4

1he r|ght of a partner to d|sso|ve the partnersh|p |s d|scussed |n
more deta||s |n Chapter 9 on 4'))"R8*'"-/ I'-.'-+V86 ,-. !7($'-,*'"-3
S1
66 SCkA 42S
( )
OFS'./ at p. 477.
S3
192 SCkA 110

Za
FS'./ at pp.
8 9
C8LIGA1ICNS CI 1nL Ak1NLkSnI 1C 1nIkD Ak1ILS
Ak1. 1768. 1he partnersh|p has a [ur|d|ca| persona||ty
separate and d|st|nct from that of each of the partners, even
|n case of fa||ure to comp|y w|th the requ|rements of Art|c|e
1772, f|rst paragraph. (n)
Ak1. 181S. Lvery partnersh|p sha|| operate under a f|rm
name, wh|ch may or may not |nc|ude the name of one or
more of the partners.
1hose who, not be|ng members of the partnersh|p,
|nc|ude the|r names |n the f|rm name, sha|| be sub[ect to the
||ab|||ty of a partner, (n)
Ak1. 1818. Lvery partner |s an agent of the partnersh|p for
the purpose of |ts bus|ness, and the act of every partner,
|nc|ud|ng the execut|on |n the partnersh|p name of any
|nstrument, for apparent|y carry|ng on |n the usua| way the
bus|ness of the partnersh|p of wh|ch he |s a member b|nds the
partnersh|p, un|ess the partner so act|ng has |n fact no
author|ty to act for the partnersh|p |n the part|cu|ar matter,
and the person w|th whom he |s dea||ng has know|edge of the
fact that he has no such author|ty.
An act of a partner wh|ch |s not apparent|y for the
carry|ng on of bus|ness of the partnersh|p |n the usua| way
does not b|nd the partnersh|p un|ess author|zed by the other
partners.
Lxcept when author|zed by the other partners or un|ess
they have abandoned the bus|ness, one or more but |ess than
a|| the partners have no author|ty to:
(1) Ass|gn the partnersh|p property |n trust for cred|tors or
on the ass|gnee's prom|se to pay the debts of the partnersh|p,

(3) Do any other act wh|ch wou|d make |t
|mposs|b|e to carry on the ord|nary bus|ness of a
partnersh|p,
(5) Lnter |nto a comprom|se concern|ng a part-
nersh|p c|a|m or ||ab|||ty,
(6) Subm|t a partnersh|p c|a|m or ||ab|||ty to
arb|trat|on,
No act of a partner |n contravent|on of a restr|c-
t|on on author|ty sha|| b|nd the partnersh|p to per-
sons hav|ng know|edge of the restr|ct|on, (n)
Ak1. 1796. 1he partnersh|p sha|| be respons|b|e
to every partner for the amounts he may have
d|sbursed on beha|f of the partnersh|p and for the
correspond|ng |nterest, from the t|me the expenses
are made, |t sha|| a|so answer to each partner for
the ob||gat|ons he may have contracted |n good
fa|th |n the |nterest of the partnersh|p bus|ness,
and for r|sks |n consequence of |ts management.
(1688a)
h|||pp|ne artnersh|p Law, part|cu|ar|y under Art|c|e 1768, accords
to the partnersh|p venture a separate [ur|d|ca| persona||ty, pr|mar||y to
a||ow a more feas|b|e and eff|c|ent manner by wh|ch to dea| w|th the
pub||c and to organ|ze the venture |nto a enterpr|se that prov|des for a
c|ear de||neat|on of ||ab|||ty and a h|erarchy of c|a|ms aga|nst |ts assets.
Art|c|e 1796 of New C|v|| Code prov|des that the partnersh|p "sha||
a|so answer to each partner for the ob||gat|ons such partner may have
contracted |n good fa|th |n the |nterest of the partnersh|p bus|ness, and
for the r|sks and consequence of |ts management."

1. L|ab|||ty Ar|s|ng from the I|rm Name
1he name of a partnersh|p venture becomes essent|a| |n |ts
commerc|a| dea||ngs because |t |dent|f|es the person of the partnersh|p
wh|ch |s deemed to be party bound |n each of the contracts entered |nto.
1hus, under Art|c|e 181S of New C|v|| Code, "Lvery partnersh|p sha||
operate under a f|rm name, wh|ch may or may not |nc|ude the name of
one or more of the partners." 1he |nc|us|on of the name of a person |n
the partnersh|p name becomes a conc|us|ve presumpt|on to the pub||c
who dea|s |n good fa|th w|th the f|rm that he |s a partner thereto.
Consequent|y, under sa|d art|c|e, "1hose who, not be|ng members of the
partnersh|p, |nc|ude the|r names |n the f|rm name, sha|| be sub[ect to the
||ab|||ty of a partner."
/
2. L|ab|||ty Ar|s|ng from the Acts of the Agent
S|nce the partnersh|p venture |s accorded a separate [ur|d|ca|
persona||ty, under Art|c|e 1818 of the New C|v|| Code the ||ab|||ty that |t
|ncurs w|th the pub||c that |t dea|s w|th can on|y ar|se from the acts of
the partnersh|p's author|zed agent or agents, wh|ch by defau|t ru|e
wou|d be every partner.
1he ||ab|||ty that the partnersh|p must bear from the acts of the
partners pursuant to partnersh|p bus|ness app||es on|y to a th|rd person
who dea|s |n good fa|th w|th the partnersh|p, 1hus, a th|rd person who
knows of the |ack of author|ty of the partner act|ng |n a partnersh|p
transact|ons genera||y cannot ]c|a|m aga|nst the partnersh|p, thus:
(a) When "the partner so act|ng has |n fact no author|ty to act
for the partnersh|p |n the part|cu|ar matter, and the
person w|th whom he |s dea||ng has know|edge of the
fact that he has no such author|ty,"
SS
and
k

(b) "An act of a partner wh|ch |s not apparent|y for the
carry|ng on of the bus|ness of the partnersh|p |n the
usua| way does not b|nd the partnersh|p un|ess
author|zed by the other partners,"
66
and
(c) "No act of a partner |n contravent|on of a restr|ct|on
on author|ty sha|| b|nd the partnersh|p to persons
hav|ng know|edge of the restr|ct|on."
S7

0C0
"
A

CnA1Lk 8
DU1ILS AND C8LIGA1ICNS CI
Ak1NLkS
C8LIGA1ICN 1C CCN1kI8U1L 1C 1nL CCMMCN IUND
Ak1. 1786. Lvery partner |s a debtor of the
partnersh|p for whatever he may have prom|sed to
contr|bute thereto.
xxx. (1681a)
Ak1. 1790. Un|ess there |s a st|pu|at|on to the
contrary, the partners sha|| contr|bute equa| shares
to the cap|ta| of the partnersh|p, (n)
S|nce the agreement to contr|bute to a common fund |s an
essent|a| e|ement for a va||d contract of partnersh|p to ar|se, h|||pp|ne
artnersh|p Law prov|des for c|ear statutory prov|s|ons govern|ng such
ob||gat|ons.
In Corporate Law, equ|ty ob||gat|ons ='373, the ob||gat|on to pay
subscr|pt|ons to cap|ta| stock) are not treated as debt ob||gat|ons, and
the rece|vab|es ar|s|ng therefrom are not cons|dered as form|ng part of
the ord|nary assets of the corporat|on. 1he ru|e takes |t rat|ona|e from
the O*(8)* &8-. ."P*('-7," that the assets of the corporat|on
correspond|ng to |ts cap|ta| stock are treated as a trust fund preserved
for the protect|on of the c|a|ms of the corporate cred|tors who can, are
under the corporate "||m|ted ||ab|||ty" ru|e,
637

recover on the|r ||ab|||t|es to the assets of the corporat|on and the
|nvestments and prom|sed |nvestments of the stockho|ders.
1
Consequent|y, cap|ta| contr|but|ons and ob||gat|ons to contr|bute cap|ta|
='373/ subscr|pt|on contracts and subscr|pt|on rece|vab|es) cannot be
treated ||ke ord|nary contracts and debts, and are not sub[ect to
resc|ss|on, set-off, or condonat|on, |n order to ensure the|r co||ect|b|||ty
for the benef|t of the corporate cred|tors.
Cn th|s matter, the ru|e under h|||pp|ne artnersh|p Law |s qu|te
d|fferent |n that Art|c|e 1786 of the New C|v|| Code prov|des that "Lvery
partner |s a debtor of the partnersh|p for whatever he may have
prom|sed to contr|bute thereto." 1he reason for th|s ru|e |s that |n
h|||pp|ne artnersh|p Law the preva|||ng doctr|ne |s "un||m|ted ||ab|||ty"
on the part of the partners, and there |s no need to cons|der the|r cap|ta|
accounts and prom|sed contr|but|on as a "trust fund" for the protect|on
of the partnersh|p cred|tors, who have the |ega| r|ght to seek sat|sfact|on
of the|r c|a|ms even aga|nst the separate propert|es of each of the
partners not contr|buted or prom|sed to the partnersh|p.
1h|s |s not to say that some of the e|ements of the trust fund
doctrme do not app|y to the partnersh|p sett|ng, for they do, such as tne
ru|e that cred|tors have preference over partners aga|nst '56
partnersh|p propert|es. 1hus, Art|c|e 1826 of the New C|v|| Code prov|des
that "1he cred|tors of the partnersh|p sha|| be preferred to those of each
partner as regards the partnersh|p property."
I5% ') '* *57- -7P7)),(% &"( K5'R'66'-7 K,(*-7()5'6 @,b *"
.7PR,(7v7W6(7))R% *5,* , 6,(*-7( ') , .7S*"( "& *57 6,(*-7()5'6 &"(
b5,*7T7( 57 $,% 5,T7 6("$')7. *" P"-*('S8*7 *57(7*"r 1he answer ||es
|n the pr|mary pr|nc|p|e wh|ch artnersh|p Law seeks to promote: 1hat
the prom|se or ob||gat|on to contr|bute to the common fund |s of the
essence of the contract of partnersh|p and b|nds the partners to one
another as the very pr|v|ty of the|r re|at|onsh|p, and the breach of wh|ch
wou|d break the contractua|
`
:"$,- D-T'("-$7-*,R 47T3 <"(63 T3 <"8(* "& B667,R)/ 167 SCkA
S40 (1988), <"$$'))'"-7( "& F-*7(-,R G7T7-87 T3 <"8(* "& B667,R)/ 301
SCkA 1S2 (1999), ?-+ A"-+ T3 778/ 401 SCkA 1 (2003), 9!< T3 <"8(* "&
B667,R)/ SCkA S08 (1999).

DU1ILS AND C8LIGA1ICNS CI Ak1NLkS
639
bond (.7R7P*8) 67()"-,7H3 1he po|nt |s best |||ustrated by the fo||ow|ng
doctr|nes found |n prov|s|ons, of and [ur|sprudence under the New C|v||
Code, thus:
(a) Under Art|c|e 1788 when a partner fa||s to de||ver h|s
prom|sed contr|but|on to the partnersh|p, he becomes
||ab|e for |nterests and damages from the t|me he
shou|d have comp||ed w|th h|s ob||gat|on,
(b) Under Art|c|e 1790 "Un|ess there |s a st|pu|at|on to the
contrary, the partners sha|| contr|bute equa| shares to
the cap|ta| of the partnersh|p,"
(c) Under Art|c|e 1830(4), the partnersh|p |s automat|ca||y
d|sso|ved "When a spec|f|c th|ng, wh|ch a partner had
prom|sed to contr|bute to the partnersh|p, per|shes
before the de||very,"
(d) 1he remed|es ava||ab|e to the partnersh|p and the other
partners w|th respect to the fa||ure or refusa| to comp|y
w|th contr|but|on ob||gat|on takes the norma| remed|es
of |nterest and damages, |nc|ud|ng compensatory
damages const|tut|ng h|s shares of the prof|ts that were
not rea||zed but wh|ch c|ear|y cou|d have been earned
for the company,
2

(e) When a partner fa||s to comp|y w|th h|s ob||gat|on to
de||ver what he prom|sed to contr|bute to the
partnersh|p, and there |s no des|re to d|sso|ve the
partnersh|p, the remedy that |s ava||ab|e to the other
partners cannot be resc|ss|on, but rather one for spec|f|c
performance,
3
and
(f) 1he property contr|buted by a partner becomes the
property of the partnersh|p and cannot be
Y
E% T3 K8\"-/ 79 SCkA S98 (1977), 0"(,-/ J(3 T3 <"8(* "& B667,R)/
133 SCkA 88 (1986).
[
;,-P5" T3 E\,((,+,/ SS h||. 60 (1930), E%T3 K8\"-/ 79 SCkAS98
(1977)

d|sposed of w|thout the consent of the other
partners.
4

1. When rom|sed Contr|but|on Is a Sum of Money
Ak1. 1788. A partner who has undertaken to contr|bute a
sum of money and fa||s to do so becomes a debtor for the
|nterest and damages from the t|me he shou|d have comp||ed
w|th h|s ob||gat|on.
1he same ru|e app||es to any amount he may have taken
from the partnersh|p coffers, and h|s ||ab|||ty sha|| beg|n from
the t|me he converted the amount to h|s own use. (1682)
Art|c|e 1788 of the New C|v|| Code prov|des that "A partner who
has undertaken to contr|bute a sum of money to the partnersh|p
venture [and fa||s to do so,] becomes a debtor for the |nterest and
damages from the t|me he shou|d have comp||ed w|th h|s ob||gat|on."
1he art|c|e a||ows the partners and the partnersh|p to recover
from the defau|t|ng partner not on|y |nterest due (at the rate st|pu|ated
or |n defau|t thereof, the |ega| |nterest), but damages, |nc|ud|ng |oss
opportun|ty, shown to have been susta|ned by the partnersh|p by
reason of the fa||ure of the partner to pay |n h|s contr|but|on.
In E% T3 K8\"-,
s
the Supreme Court aff|rmed the tr|a| court's
award of a partner's share |n the prof|ts wh|ch the partnersh|p fa||ed to
earn from |ts construct|ons contracts brought about by the refusa| of
the pr|mary partner to rem|t h|s prom|sed
]@"\,-, T3 476,1,1'S"/ 107 h||. 728
(1960)
S
79 SCkA S98 (1977).

DU1ILS AND C8LIGA1ICNS CI Ak1NLkS 641
contr|but|ons to the partnersh|p and h|s d|vers|on of the rece|pts
from the pro[ects away from the partnersh|p coffers, thus
nad the appe||ant not been rem|ss |n h|s ob||gat|on as
partner and as pr|me contractor of the construct|on pro[ects
|n quest|on as he was bound to perform pursuant to the part-
nersh|p and subcontract agreements, and cons|der|ng the
fact that the tota| contract amount of these two pro[ects |s
2,327,33S.76, |t |s reasonab|e to expect that the partner-
sh|p wou|d have earned much more than the 334,2SS.61
We have here|nabove |nd|cated. 1he award, therefore,
made by the tr|a| court of the amount of 200,000.00, as
compensatory damages, |s not specu|at|ve, but based on
reasonab|e est|mate.
6

|n contrast, |n 0"(,-/ J(3 T3 <"8(* "& B667,R)/
N
the Supreme
Court refused to susta|n the tr|a| court's grant of compensatory
damages aga|nst the partner who had not comp||ed w|th h|s
ob||gat|on to contr|bute, when |t was c|ear that "In the |nstant
case, there |s no ev|dence whatsoever that the partnersh|p
between the pet|t|oner and the pr|vate respondent wou|d have
been a prof|tab|e venture. In fact, |t was a fa||ure doomed from
the start. 1here |s therefore no bas|s for the award of specu|at|ve
damages |n favor of the pr|vate respondent."
8

2. When rom|sed Contr|but|on Is ropertyIn Genera|
Ak1. 1786. Lvery partner |s a debtor of the partnersh|p for
whatever he may have prom|sed to contr|bute thereto.
ne sha|| a|so be bound for warranty |n case of ev|ct|on
w|th regard to spec|f|c and determ|nate th|ngs wh|ch he may
have contr|buted to the partnersh|p, |n the same cases and |n
the same manner
]RS'./ at p. 61S.
7
133 SCkA 88

7
RS'./ at p. 9S.

642
as the vendor |s bound w|th respect to the vendee. ne sha||
a|so be ||ab|e for the fru|ts thereof from the t|me they shou|d
have been de||vered, w|thout the need of any demand.
(1681a)
Ak1. 179S. 1he r|sk of spec|f|c and determ|nate th|ngs,
wh|ch are not fung|b|e, contr|buted to the partnersh|p so that
on|y the|r use and fru|ts may be for the common benef|t, sha||
be borne by the partner who owns them.
If the th|ngs contr|buted are fung|b|e, or cannot be kept
w|thout deter|orat|ng, or |f they were contr|buted to be so|d,
the r|sk sha|| be borne by the partnersh|p. In the absence of
st|pu|at|on, the r|sk of the th|ngs brought and appra|sed |n the
|nventory, sha|| a|so be borne by the partnersh|p, and |n such
case the c|a|m sha|| be ||m|ted to the va|ue at wh|ch they were
appra|sed. (1687)
Under Art|c|e 1786 of the New C|v|| Code, whenever a partner has
bound h|mse|f to contr|bute a spec|f|c or determ|nate th|ng to the
partnersh|p, he thereby assumes the pos|t|on of be|ng a se||er of
determ|nate property contr|buted |nto the partnersh|p |n that he |s
||ab|e for:
(a) A breach of the warranty aga|nst ev|ct|on,
(b) 1he fru|ts thereof from the t|me he ob||ged h|mse|f to
de||ver the determ|nate th|ng, and w|thout need of
demand.
In add|t|on, Art|c|e 179S of the New C|v|| Code estab||shes the
ru|es on who assumes [t]he r|sk of spec|f|c and determ|nate th|ngs ...
contr|buted to the partnersh|p," thus:
(a) "If they are not fung|b|e, so that on|y the|r use and fru|ts
may be for the common benef|t, the r|sk sha|| be borne
by the partner who owns them,

(b) If the th|ngs contr|buted:
(i) are fung|b|e,
(ii) cannot be kept w|thout deter|orat|ng, or
(iii) |f they were contr|buted to be so|d, the
r|sk sha|| be borne by the partnersh|p.
(c) "In the absence of st|pu|at|on, the r|sk of th|ngs brought
and appra|sed |n the |nventory, sha|| a|so be borne by
the partnersh|p, and |n such case the c|a|m sha|| be
||m|ted to the va|ue at wh|ch they were appra|sed."
As to who bears the r|sk of |oss of determ|nate th|ngs prom|sed to
be contr|buted but pr|or to actua| de||very to the partnersh|p, the
preva|||ng v|ew seems to be that |t wou|d be the partner who before
actua| de||very reta|ns ownersh|p thereof.
9
In such case, under Art|c|e
1829(4),
u
[w]hen a spec|f|c th|ng wh|ch a partner had prom|sed to
contr|bute to the partnersh|p, per|shes before the de||very," |t d|sso|ves
the partnersh|p.
3. When Contr|but|on |n Goods
Ak1. 1787. When the cap|ta| or a part thereof wh|ch a
partner |s bound to contr|bute cons|sts of goods, the|r
appra|sa| must be made |n the manner prescr|bed |n the
contract of partnersh|p, and |n the absence of st|pu|at|on, |t
sha|| be made by experts chosen by the partners, and
accord|ng to current pr|ces, the subsequent changes thereof
be|ng for account of the partnersh|p, (n)
9
8AU1IS1A, at p. 91, c|t|ng IkANCISCC, Ak1NLkSnIS, at p. 1S0 (19S8).

644
Under Art|c|e 1787 of the New C|v|| Code, "When the cap|ta| or a
part thereof wh|ch a partner |s bound to contr|bute cons|sts of goods,
the|r appra|sa| must be made |n the manner prescr|bed |n the contract
of partnersh|p, and |n the absence of st|pu|at|on, |t sha|| be made by
experts chosen by the partners, and accord|ng to the current pr|ces, the
subsequent changes thereof be|ng for the account of the partnersh|p."
1he requ|rements of the prov|s|on are made to ensure that the
cap|ta| account of a partner |s proper|y cred|ted w|th the correct va|ue of
a property contr|buted.
4. When Contr|but|on |n kea| roperty
Ak1. 1771. A partnersh|p may be const|tuted |n any form
be necessary (1667a)
of three thousand pesos or more, |n money or property, sha||
paragraph sha|| not affect the ||ab|||ty of the partnersh|p and
the members thereof to th|rd person, (n)
Under Art[c|e 1773 of the New C|v|| Code, a contract of partnersh|p
wou|d be vo|d, whenever |mmovab|e property |s
DU1ILS AND C8LIGA1ICNS CI Ak1NLkS 64S
contr|buted, |f an |nventory of sa|d property |s not made, s|gned by the
part|es, and attached to the pub||c |nstrument mandated under Art|c|e
1771 of the New C|v|| Code, wh|ch requ|res |n such case that the contract
of partnersh|p must be |n a pub||c |nstrument, and wh|ch under Art|c|e
1772 of the New C|v|| Code wou|d have to be f||ed w|th the SLC because
|t wou|d a|most a|ways mean a cap|ta| of more than 3,000.00.
A more deta||ed d|scuss|on of the effects on the nonfu|f|||ment
w|th the requ|rements mandated by |aw can be found on the Chapter S
on L"($,R G7g8'(7$7-*) &"( K,(*-7()5'6)3
S. Contr|but|on of Serv|ce or Industry, the Industr|a|
artner
Ak1. 1789. An |ndustr|a| partner cannot engage |n bus|ness
for h|mse|f, un|ess the partnersh|p express|y perm|ts h|m to do
so, and |f he shou|d do so, the cap|ta||st partners may e|ther
exc|ude h|m from the f|rm or ava|| themse|ves of the benef|ts
wh|ch he may have obta|ned |n v|o|at|on of th|s prov|s|on,
w|th a r|ght to damages |n e|ther case, (n)
Ak1. 1797. 1he |osses and prof|ts sha|| be d|str|buted |n
conform|ty w|th the agreement. If on|y the share of each
partner |n the prof|ts has been agreed upon, the share of each
|n the |osses sha|| be |n the same proport|on.
In the absence of st|pu|at|on, the share of each partner |n
the prof|ts and |osses sha|| be |n proport|on to what he may
have contr|buted, but the |ndustr|a| partner sha|| not be ||ab|e
for the |osses. As for the prof|ts, the |ndustr|a| partner sha||
rece|ve such share as may be [ust and equ|tab|e under the
c|rcumstances. If bes|des h|s serv|ces he has con

tr|buted cap|ta|, he sha|| a|so rece|ve a share |n the
prof|ts |n proport|on to h|s cap|ta|. (1689a)
1here can be no doubt that once the contract of partnersh|p |s
const|tuted, the |ndustr|a| partner |s from then bound to devote h|s t|me
towards fu|f||||ng the nature of the serv|ce he has contracted h|mse|f to
contr|bute.
1he d|ff|cu|ty ar|ses from the fact that the ob||gat|on essent|a||y
|nvo|ves the persona| ob||gat|on "to do," and genera||y an |ndustr|a|
partner who does not contr|bute the serv|ces prom|sed cannot be
compe||ed to do so, otherw|se, spec|f|c performance on the matter
wou|d v|o|ate the pub||c po||cy aga|nst |nvo|untary serv|tude.
1he other d|ff|cu|ty that ar|ses |s that even non-|ndustr|a| partners,
be|ng mutua| agents w|th one another and genera||y empowered to
[o|nt|y manage the partnersh|p affa|rs, a|so contr|bute the|r serv|ces to
the partnersh|p for wh|ch they do not obta|n a compensat|on therefor,
un|ess otherw|se st|pu|ated.
1he Amer|can case of 0,()5^)^B667,R/^
c
d|scusses these po|nts
as fo||ows:
... 1he on|y quest|on |n th|s case |s whether a partner
who neg|ects and refuses, w|thout reasonab|e cause, to
perform the persona| serv|ces wh|ch he has st|pu|ated to
render the partnersh|p, |s ||ab|e to account to the f|rm for the
va|ue of the serv|ces |n the sett|ement of the partnersh|p
accounts. . . . It |s undoubted|y true, as a genera| ru|e, that
partners are not ent|t|ed to charge each other, or the f|rm of
wh|ch they are members for the|r serv|ces |n the
copartnersh|p bus|ness, un|ess there |s a spec|a| agreement
to that effect, or such agreement can be |mp||ed from the
course of dea||ng between them. 8y the we||-sett|ed |aw of
partnersh|p, every partner |s bound to work to the extent of
h|s ab|||ty for the
10
69 a. St. 30.

benef|t of the who|e, w|thout regard to the serv|ces of h|s
copartners, and w|thout compar|son of va|ue, for serv|ces to
the f|rm cannot, from the|r very nature, be est|mated and
equa||zed by compensat|on of d|fferences..
. . . 1he p|a|nt|ffs are not seek|ng compensat|on for the
serv|ces they rendered the partnersh|p. 1hey are s|mp|y
seek|ng to charge the defendant w|th the |oss occas|oned the
partnersh|p by th|s refusa| to render the serv|ces wh|ch he
agreed to perform. If the partnersh|p has suffered |oss by h|s
breach of the agreement, why shou|d he no[t make good the
|oss, and put the f|rm |n the same cond|t|on |t wou|d have
been |f he had not broken the agreement? .. . If, says Mr.
Iust|ce Story, the partnersh|p suffers any |oss from the gross
neg||gence, unsk|||fu|ness, fraud, or wanton m|sconduct of
any partner |n the court of partnersh|p bus|ness, he w|||
ord|nar||y be respons|b|e over to the other partners\for a||
the |osses and |n[ur|es, and damages susta|ned thereby,
whether d|rect|y or through the|r own ||ab|||ty to th|rd
persons':.. If th|s be the |aw, why shou|d not the defendant
be answerab|e to the partnersh|p for breach of the
agreement to perform the serv|ces st|pu|ated?
11

It |s c|ear therefore, that when an |ndustr|a| partner has fa||ed to
render the proper serv|ce he |s ob||ged to render to the bus|ness of the
f|rm, he can be made ||ab|e for the damages susta|ned by the f|rm for
such fa||ure. In add|t|on, the breach by an |ndustr|a| partner of h|s
pr|mary ob||gat|on to render serv|ce to the partnersh|p wou|d have
repercuss|on on h|s share |n the net prof|ts of the company. Under
Art|c|e 1797 of the New C|v|| Code, "As for prof|ts, the |ndustr|a| partner
sha|| rece|ve such share as may be [ust and equ|tab|e under the
c|rcumstances."
1he f|duc|ary dut|es of an |ndustr|a| partner are d|scussed more |n
deta|| hereunder.
OU8"*7. '- 8AU1IS1A, at pp. 92-94.

6. Cb||gat|on for "Add|t|ona| Contr|but|on"
Ak1. 1791. If there |s no agreement to the contrary, |n
case of an |mm|nent |oss of the bus|ness of the partnersh|p,
any partner who refuses to contr|bute an add|t|ona| share to
the cap|ta|, except an |ndustr|a| partner, to save the venture,
sha|| be ob||ged to se|| h|s |nterest to the other partners, (n)
S|nce the nexus of the ob||gat|on of a partner ar|ses from the
contract of partnersh|p, there |s genera||y no ob||gat|on for any partner
to contr|bute beyond what was or|g|na||y st|pu|ated |n the art|c|es of
partnersh|p, un|ess there |s a st|pu|at|on prov|d|ng for add|t|ona|
contr|but|ons.
Lven |n the case where add|t|ona| contr|but|on to cap|ta| becomes
necessary "|n case of an |mm|nent |oss of the bus|ness of the
partnersh|p," no partner can be compe||ed to g|ve add|t|ona|
contr|but|on, but the |ega| consequence under Art|c|e 1791 of the New
C|v|| Code, |s that "any partner who refuses to contr|bute an add|t|bna|
share to the cap|ta|, except an |ndustr|a| partner, to save th venture,
sha|| be ob||ged to se|| h|s |nterest to the other partners." Lven such a
pena|ty cannot be app||ed accord|ng to Art|c|e 1791 "|f there |s an
agreement to the contrary," that |s a st|pu|at|on |n the contract of
partnersh|p that even |n case of necess|ty to the save the venture,
partners cannot be compe||ed to make add|t|ona| contr|but|on, |n wh|ch
case the forfe|ture of the|r |nterest cannot even be enforced.
7. kemed|es When 1here Is Defau|t |n Cb||gat|on to Contr|bute
Norma||y, the contract of partnersh|p be|ng one const|tuted of
b||atera| ob||gat|ons, the remedy to the other partners when one of
them fa||s to comp|y w|th h|s ob||gat|on to contr|bute, wou|d e|ther be
spec|f|c performance or resc|ss|on. Under the prov|s|ons

of the o|d C|v|| Code, the Court he|d |n ;,-P5" T3 @'\,((,+,/
`Y
that the
remedy of resc|ss|on of the contract of partnersh|p wh|ch wou|d mean
the return of the contr|but|on of the comp|a|n|ng partner w|th |nterest
and damages proven, |s not ava||ab|e because then Art|c|es 1681 and
1682 [now Art|c|es 1786 and 1788 of the New C|v|| Code] prov|ded for
spec|f|c remed|es to the contract of partnersh|p, thus:
Cw|ng to the defendant's fa||ure to pay to the
partnersh|p the who|e amount wh|ch he bound h|mse|f to
pay, he became |ndebted to |tfor the rema|nder, w|th
|nterest and any damages occas|oned thereby, but the
p|a|nt|ff d|d not thereby acqu|re the r|ght to demand
resc|ss|on of the partnersh|p contract accord|ng to Art|c|e
1124 of the Code. 1h|s art|c|e cannot be app||ed to the case |n
quest|on, because |t refers to the reso|ut|on of ob||gat|ons |n
genera|, whereas Art|c|es 1681 and 1682 spec|f|ca||y refer to
the contract of partnersh|p |n part|cu|ar. And |t |s a we||
known pr|nc|p|e that spec|a| prov|s|ons preva|| over genera|
prov|s|ons.
13

In ;,-P5"/ the Court aff|rmed the dec|s|on of the |ower court
wh|ch effect|ve|y den|ed the prayer for resc|ss|on, and |nstead d|rected
the d|sso|ut|on of the partnersh|p, the account|ng and ||qu|dat|on of |ts
affa|rs. In other words, the remedy of resc|ss|on, wh|ch seeks to
ext|ngu|sh the contractua| re|at|onsh|p and effect mutua| rest|tut|on, |s
not a||owed under the contract of partnersh|p. 1he proper remed|es
wou|d be to seek a co||ect|on of the prom|sed contr|but|on, w|th
recovery of |nterests and damages as prov|ded for |n Art|c|es 1786 and
1788, or seek the d|sso|ut|on of the partnersh|p under Art|c|e 1831 of the
New C|v|| Code.
It may be sa|d that d|sso|ut|on |s a form of resc|ss|on un|que to
partnersh|ps (a|so for corporat|ons, espec|a||y c|ose corporat|ons), wh|ch
on|y has a prospect|ve effect of term|nat|ng the contractua| re|at|onsh|p,
and thus not produce the retroact|ve effect of ext|ngu|sh|ng the contract
as though |t never ex|sted and prov|d|ng for mutua| rest|tut|on.
12
SS h||. 601
( )
OFS'./ at pp.

1h|s spec|a| type of remedy |s |nd|cat|ve of the essent|a| nature of
the contract of partnersh|p as a 6(76,(,*"(% ,-. 6("+(7))'T7 P"-*(,P*/
|n that |t |s entered |nto to pursue a transact|on or ser|es of transact|ons
='373/ to operate a bus|ness enterpr|se) that changes the nature and
content of the th|ngs that have been contr|buted thereto, such that |t
becomes near|y |mposs|b|e to return the part|es back to the|r or|g|na|
pos|t|on.
1he ru||ng |s a|so cons|stent w|th the ru|e that once a partner g|ves
a contr|but|on to the partnersh|p, he |oses d|rect ownersh|p over sa|d
property wh|ch |s now owned by the partnersh|p as a separate [ur|d|ca|
person, and that |t |s |ntegrated |nto the partnersh|p bus|ness enterpr|se,
wh|ch upon app||cat|on of the trust fund doctr|ne, means that |t sha|| be
the partnersh|p cred|tors who sha|| f|rst have pr|or|ty over the
partnersh|p assets before any partner can be ent|t|ed to recover from
the net assets.
LkSCNAL C8LIGA1ICNS ICk Ak1NLkSnI DL81S, DCC1kINL CI UNLIMI1LD
LIA8ILI1
1. Un||m|ted L|ab|||ty of Lx|st|ng artners
Ak1. 1816. A|| partners, |nc|ud|ng |ndustr|a| ones, sha|| be
||ab|e pro (,*, w|th a|| the|r property and after a|| the
partnersh|p assets have been exhausted, for the contracts
wh|ch may be entered |nto |n the name and for the account
of the partnersh|p, under |ts s|gnature and by a person
author|zed to act for the partnersh|p. nowever, any partner
may enter |nto a separate ob||gat|on to perform a partnersh|p
contract, (n)
Ak1. 1817. Any st|pu|at|on aga|nst the ||ab|||ty |a|d down
|n the preced|ng art|c|e sha|| be vo|d, except as among the
partners, (n)
DU1ILS AND C8LIGA1ICNS CI Ak1NLkS 6S1
1he "un||m|ted ||ab|||ty" feature |n the partnersh|p sett|ng makes
partners persona||y ||ab|e for partnersh|p debts, notw|thstand|ng the
separate [ur|d|ca| ent|ty of the partnersh|p. nowever, such ||ab|||t|es of
partners are better covered |n the Chapter 9 on 4'))"R8*'"-/ I'-.'-+ E6
,-. !7($'-,*'"-/ because the tr|gger|ng mechan|sm wou|d |n effect be
on|y |f the partnersh|p becomes |nso|vent. 8ut th|s |s not to mean that
the |nso|vency of the partnersh|p necessar||y wou|d tr|gger |ts
d|sso|ut|on, for |t may happen that the partners cont|nue to pursue the
bus|ness venture |n the hope that there may st||| be a turn-around.
Art|c|e 1816 of the New C|v|| Code prov|des that "A|| partners,
|nc|ud|ng |ndustr|a| ones, sha|| be ||ab|e 6(" (,*, w|th a|| the|r property
and after a|| the partnersh|p assets have been exhausted, for the
contracts wh|ch may be entered |nto |n the name and for the account of
the partnersh|p." Art|c|e 1817 of the New C|v|| Code prov|des that "Any
st|pu|at|on aga|nst the ||ab|||ty |a|d down |n [Art|c|e 1816] sha|| be vo|d,
except as among the partners." k|ght|y stated, |t |s the exhaust|on of
partnersh|p assets to answer for partnersh|p ||ab|||t|es that tr|ggers the
enforcement of un||m|ted ||ab|||ty mechan|sm as aga|nst partners and
the|r separate assets. And the 6(" (,*, ob||gat|on of the partners does
not mean that they become persona||y ||ab|e proport|onate|y |n re|at|on
to the|r contr|but|ons |n the partnersh|p, but actua||y means they are
||ab|e [o|nt|y.
1he subs|d|ary and 6(" (,*, ||ab|||ty feature under the o|d C|v||
Code was reta|ned under the new C|v|| Code, wh|ch does not adopt the
pr|mary and so||dary ||ab|||ty feature for commerc|a| partners under the
Code of Commerce.
2. Cb||gat|on of Subsequent|y Adm|tted artners
Under Art|c|e 1826 of the New C|v|| Code, a person adm|tted as a
partner |nto an ex|st|ng partnersh|p |s ||ab|e for a|| the ob||gat|ons of the
partnersh|p ar|s|ng before h|s adm|ss|on as though he had been a
partner when such ob||gat|ons were |ncurred, except that th|s ||ab|||ty
sha|| be sat|sf|ed on|y out of the partnersh|p property, un|ess there |s a
st|pu|at|on to the contrary.
6S2
1h|s |s the on|y aspect of "||m|ted ||ab|||ty" |n a genera| part-
nersh|p sett|ng.
3. Cb||gat|ons of Non-artners
Under the New C|v|| Code, the on|y t|me when non-partners
become ||ab|e for the partner debts and ob||gat|on |s when there
|s estoppe|, or when the pub||c |s made to be||eve that one per-
son |s a partner of the partnersh|p when |n fact he |s not, thus:
(a) Under Art|c|e 181S, those who, not be|ng mem-
bers of the partnersh|p, |nc|ude the|r names |n the
f|rm name, sha|| be sub[ect to the ||ab|||ty of a part-
ner,
(b) Under Art|c|e 182S, when a person by word or
conduct, represents h|mse|f, or consents to an-
other represent|ng h|m to anyone, as a partner
|n an ex|st|ng partnersh|p or w|th one or more
persons not actua| partners, he |s ||ab|e to any
such persons to whom such representat|on has
been made, who has, on the fa|th of such repre-
sentat|on, g|ven cred|t to the actua| or apparent
partnersh|p,
(c) Under Art|c|e 182S, when such a person has
made such representat|on or consent to |ts
be|ng made |n a pub||c manner he |s ||ab|e to
such person, whether the representat|on has
or has not been made or commun|cated to such
person so g|v|ng cred|t by or w|th the know|edge of
the apparent partner mak|ng the representat|on
or consent|ng to |ts be|ng made,
(d) Under Art|c|e 182S, when a person has been
thus represented to be a partner |n an ex|st|ng
partnersh|p, or w|th one or more persons not actua|
partners, he |s an agent of the persons consent|ng
to such representat|on to b|nd them to the same
extent and |n the same manner as though he were
a partner |n fact, and

(e) Under Art|c|e 182S, when a|| the members of the ex|st|ng
partnersh|p consent to the representat|on, a
partnersh|p act or ob||gat|on resu|ts, but |n a|| other
cases |t |s the [o|nt act or ob||gat|on of the person act|ng
and persons consent|ng to the representat|on.
IIDUCIAk DU1ILS CI Ak1NLkS
1he genera| ru|e |s that partners have the duty to act for the
common benef|t of a|| the partners |n a partnersh|p sett|ng. 1h|s has
been set out c|ear|y |n |n K,-+ @'$ ,-. C,RT7\ T3 @" ;7-+/O where the
Supreme Court he|d
Above a|| other persons |n bus|ness re|at|ons, partners
are requ|red to exh|b|t towards each other the h|ghest degree
of good fa|th. In fact the re|at|on between partners |s
essent|a||y f|duc|ary, each be|ng cons|dered |n |aw, as he |s |n
fact, the conf|dent|a| agent of the other. It |s therefore
accepted as fundamenta| |n equ|ty [ur|sprudence that one
partner cannot, to the detr|ment of another, app|y
exc|us|ve|y to h|s own benef|t the resu|ts of the know|edge
and |nformat|on ga|ned |n the character of partner.
1S

1he f|duc|ary dut|es of the partners among one another and to the
partnersh|p subs|st on|y wh||e the partnersh|p subs|sts, consequent|y
the term|nat|on of the partnersh|p re|at|on (as d|st|ngu|shed from mere
d|sso|ut|on) a|so term|nates the f|duc|ary ob||gat|ons of the partners to
one another and to the partnersh|p.
|n >,-R"- T3 >,8))7($,--,
16
four contract|ng part|es agreed to a
[o|nt enterpr|se to rehab|||tate a m|n|ng p|ant, where the engagement of
the three of them was ||m|ted to ra|s|ng money w|th|n a stated per|od by
subscr|b|ng to or se|||ng shares of the m|n|ng company. Cne of the
part|es defau|ted, and under the
"42 h||. 282
(1921).
p
RS'./ at
288
16
40 h||. 796
( )

express reso|utory cond|t|ons of the contract the two other part|es were
d|scharged. Subsequent|y, the two part|es thus d|scharged, who were at
the same t|me stockho|ders and off|c|a|s of the m|n|ng company, procured
a contract from the m|n|ng company by wh|ch they proceeded to restore
the m|n|ng p|ant upon the|r own account. 1he other two members of the
or|g|na| enterpr|se sued to recover shares |n the m|n|ng company and
d|v|dends dec|ared upon such shares on the ground that they were
earned pursuant to the [o|nt enterpr|se to wh|ch they were ent|t|ed to
rece|ve the|r shares. In deny|ng the c|a|ms, the Court he|d
After the term|nat|on of an agency, partnersh|p, or [o|nt
adventure, each of the part|es |s free to act |n h|s own
|nterest, prov|ded he has done noth|ng dur|ng the
cont|nuance of the re|at|on to |ay a foundat|on for an undue
advantage to h|mse|f. 1o act as agent for another does not
necessar||y |mp|y the creat|on of a permanent d|sab|||ty |n
the agent to act for h|mse|f |n regard to the same
sub[ect-matter, and certa|n|y no case has been ca||ed to our
attent|on |n wh|ch the equ|tab|e doctr|ne above referred to
has been so app||ed as to prevent an owner of property from
do|ng what he p|eased w|th h|s own after such a contract [of
partnersh|p] between the part|es to th|s |awsu|t had
|apsed.
17

L|kew|se, |n @'$ !,-58 T3 kemo]ete,
18
the Court he|d that former
partners have no ob||gat|on to account for how they acqu|red propert|es
|n the|r names, when such acqu|s|t|on were effected "|ong after the
partnersh|p had been automat|ca||y d|sso|ved as a resu|t of the death of
o Chuan [the pr|mary manag|ng partner]. Accord|ng|y, defendants have
no ob||gat|on to account to anyone for such acqu|s|t|ons |n the absence of
c|ear proof that they had v|o|ated the trust of o Chuan dur|ng the
ex|stence of the partnersh|p."
19

OFS'./ at p. 818.
18
66 SCkA 42S
oRS'./ at p. 476. u

6SS
1. Duty of D|||gence
Ak1. 1794. Lvery partner |s respons|b|e to the partnersh|p
for damages suffered by |t through h|s fau|t, and he cannot
compensate them w|th the prof|ts and benef|ts wh|ch he may
have earned for the partnersh|p by h|s |ndustry. nowever, the
courts may equ|tab|y |essen th|s respons|b|||ty |f through the
partner's extraord|nary efforts |n other act|v|t|es of the
partnersh|p, unusua| prof|ts have been rea||zed. (1686a)
Ak1. 1800. 1he partner who has been appo|nted manager
|n the art|c|es of partnersh|p may execute a|| acts of
adm|n|strat|on desp|te the oppos|t|on of h|s partners, un|ess
he shou|d act |n bad fa|th, and h|s power |s |rrevocab|e
w|thout [ust or |awfu| cause. 1he vote of the partners
represent|ng the contro|||ng |nterest sha|| be necessary for
such revocat|on of power.
A power granted after the partnersh|p has been
const|tuted may be revoked at any t|me. (1692a)
Art|c|e 1794 of the New C|v|| Code covers a partner's duty of
d|||gence to the partnersh|p affa|rs as |t prov|des that "Lvery partner |s
respons|b|e to the partnersh|p for damages suffered by |t through h|s
fau|t, and he cannot compensate them w|th the prof|ts and benef|ts
wh|ch he may have earned for the partnersh|p by h|s |ndustry.
nowever, the courts may equ|tab|e |essen th|s respons|b|||ty |f through
the partner's extraord|nary efforts |n other act|v|t|es of the partnersh|p,
unusua| prof|ts have been rea||zed."
Under Art|c|e 1800 of the New C|v|| Code, a du|y des|gnated
manag|ng partner who acts |n bad fa|th, h|s part|cu|ar exerc|se of power
adm|n|strat|on may effect|ve|y be opposed by the other partners. When
he acts w|thout [ust or |awfu| cause, then h|s

power may be revoked, except of course when he has been
appo|nted the manag|ng partner under the terms of the art|c|es
of partnersh|p.
2. Duty of Loya|ty
Ak1. 1792. If a partner author|zed to manage co||ects a
demandab|e sum wh|ch was owed to h|m |n h|s own name,
from a person who owed the partnersh|p another sum a|so
demandab|e, the sum thus co||ected sha|| be app||ed to the
two cred|ts |n proport|on to the|r amounts, even though he
may have g|ven a rece|pt for h|s own cred|t on|y, but shou|d
he have g|ven |t for the account of the partnersh|p cred|t, the
amount sha|| be fu||y app||ed to the |atter.
1he prov|s|ons of th|s art|c|e are understood to be
w|thout pre[ud|ce to the r|ght granted to the other debtor by
Art|c|e 12S2, but on|y |f the persona| cred|t of the partner
shou|d be more onerous to h|m. (1684)
In the event a partner takes any amount from the partnersh|p
funds for h|mse|f, he becomes a debtor of the partnersh|p, as we|| for
the |nterests and damages, wh|ch ||ab|||ty under Art|c|e 1789 of the New
C|v|| Code "sha|| beg|n from the t|me he converted the amount to h|s
own use."
An aspect of a partner's duty of |oya|ty |s man|fested |n Art|c|e
1792 of the New C|v|| Code, wh|ch prov|des that when a partner
author|zed to manage co||ects a demandab|e sum wh|ch was owed to
h|m |n h|s own name, but from a person who owned the partnersh|p
another sum a|so demandab|e, the sum thus co||ected sha|| be app||ed
to the two cred|ts |n proport|on to the|r amounts, even though he may
have g|ven a rece|pt for h|s own

6S7
cred|t on|y, but shou|d the partner have g|ven |t for the account of
the partnersh|p cred|t, the amount sha|| be fu||y app||ed for the account
of the partnersh|p. 1he art|c|e prov|des for an except|on to |ts
app||cat|on: "1he prov|s|ons of th|s art|c|e are understood to be w|thout
pre[ud|ce to the r|ght granted to the debtor by Art|c|e 12S2 [on r|ght of
debtor to st|pu|ate the app||cat|on of payment], but on|y |f the persona|
cred|t of the partner shou|d be more onerous to h|m."
Another aspect of a partner's duty of |oya|ty |s shown |n Art|c|e
1793 of the New C|v|| Code, wh|ch prov|des that a partner who has
rece|ved |n who|e or |n part, h|s share of a partnersh|p cred|t, when the
other partners have not co||ected the|rs, sha|| be ob||ged, |f the debtor
shou|d thereafter become |nso|vent, to br|ng to the partnersh|p cap|ta|
what he rece|ved even though he may have g|ven a rece|pt for h|s share
on|y.
In <,*,R,- T3 C,*P5,R',-, the Court ru|ed that when partnersh|p
rea| property had been mortgaged and forec|osed, the redempt|on by
any of the partners, even when us|ng h|s separate funds, does not a||ow
such redempt|on to be |n h|s so|e favor. 1he summary report reads |n
part as fo||ows:
. . . Under the genera| pr|nc|p|e of |aw, a partner |s an
agent of the partnersh|p.
21
Iurthermore, every partner
becomes a trustee for h|s copartner w|th regard to any
benef|ts or prof|ts der|ved from h|s act as a partner.
22
Consequent|y, when Cata|an redeemed the propert|es |n
quest|on he became a trustee and he|d the same |n trust for
h|s copartner Gatcha||an, sub[ect of course to h|s r|ght to
demand from the |atter h|s contr|but|on to the amount of
redempt|on.
23

M
10S h||.
2 0( 9 9)
21

a
m|d, at p. 1271.

3. Duty to Account
Ak1. 1806. artners sha|| render on demand true
and fu|| |nformat|on of a|| th|ngs affect|ng the part-
nersh|p to any partner or the |ega| representat|ve
of any deceased partner or of any partner under
|ega| d|sab|||ty, (n)
Ak1. 1807. Lvery partner must account to the
partnersh|p for any benef|t, and ho|d as trustee for
|t any prof|ts der|ved by h|m w|thout the consent
of the other partners from any transact|on con-
nected w|th the format|on, conduct, or ||qu|dat|on
of the partnersh|p or from any use by h|m of |ts
property, (n)
S|nce the partners are mutua| agents to one another and to the
partnersh|p, then necessar||y they are ob||ged by such f|duc|ary
re|at|onsh|p to render a fu|| account|ng on matters they undertake for
the partnersh|p affa|rs, and are proh|b|ted from obta|n|ng secret benef|ts
for themse|ves therefrom. 1he duty |s c|ose|y ||nked to the duty of
|oya|ty.
Under Art|c|e 1806 of the New C|v|| Code, partners sha|| render on
demand true and fu|| |nformat|on of a|| th|ngs affect|ng the partnersh|ps
to any partner or the |ega| representat|ve of any deceased partner or of
any partner under d|sab|||ty.
Under Art|c|e 1807 of the New C|v|| Code, "Lvery partner must
account to the partnersh|p for any benef|t, and ho|d as trustee for |t any
prof|ts der|ved by h|m w|thout the consent of the other partners from
any transact|on connected w|th the format|on, conduct, or ||qu|dat|on of
the partnersh|p or from any use by h|m of |ts property."
As|de from the remedy of recover|ng the prof|ts der|ved by a
partner from partnersh|p affa|rs, the same may be a ground to seek
[ud|c|a| d|sso|ut|on of the partnersh|p under Art|c|e 1831 of the New C|v||
Code.
,I

4. Spec|f|c I|duc|ary Dut|es of Industr|a| artner
Ak1. 1789. An |ndustr|a| partner cannot engage |n bus|ness
for h|mse|f, un|ess the partnersh|p express|y perm|ts h|m to
do so, and |f he shou|d do so, the cap|ta||st partners may
e|ther exc|ude h|m from the f|rm or ava|| themse|ves of the
benef|ts wh|ch he may have obta|ned |n v|o|at|on of th|s
prov|s|on, w|th a r|ght to damages |n e|ther case, (n)
Under Art|c|e 1789 of the New C|v|| Code, an |ndustr|a| partner |s
proh|b|ted from engag|ng |n bus|ness for h|mse|f, un|ess the partnersh|p
express|y perm|ts h|m to do so. S|nce even cap|ta||st partners are
expected (a|though not ob||ged) to contr|bute serv|ce to the partnersh|p
enterpr|se, when they do so they are not ent|t|ed to separate
compensat|on (un|ess otherw|se st|pu|ated). In order to make the
contr|but|on of serv|ce an |ndustr|a| partner more mean|ngfu| and tru|y
an ob||gat|on, |t must mean that |s sadd|ed w|th more burdens or
proh|b|t|ons. 1he coverage of Art|c|e 1789 shou|d mean a|so that:
(a) S|nce h|s ma|n contr|but|on to the partnersh|p |s h|s
|ndustry, then an |ndustr|a| partner owes to the venture
and h|s fe||ow partners the ob||gat|on to devote h|s
|ndustry towards the partnersh|p bus|ness.
(b) Lven |f the partnersh|p |s engaged |n a part|cu|ar form of
bus|ness, an |ndustr|a| partner cannot devote h|s
|ndustry to another type of undertak|ng for prof|t even
when |t |s |n a d|fferent ||ne of bus|ness not |n
compet|t|on w|th that of the partnersh|p.
If an |ndustr|a| partner breaches th|s duty, Art|c|e 1789 prov|des
that the cap|ta||st partners may e|ther:

(a) exc|ude h|m from the f|rm, or
(b) ava|| themse|ves of the benef|ts wh|ch the |ndustr|a|
partner may have obta|ned |n v|o|at|on of such duty,
w|th a r|ght to damages |n e|ther case.
It seems c|ear from [ur|sprudence that |n order for an |ndustr|a| to
be he|d ||ab|e for breach of duty under Art|c|e 1789, he must have
engaged dur|ng the term of the partnersh|p |nto another bus|ness or an
act|v|ty that |s essent|a||y for prof|t.
In DT,-+7R')*, Q <"3 T3 BS,. ;,-*")/
Y
] an art|c|e of copartnersh|p
was executed between three cap|ta||st partners on one hand, and Iudge
Abad Santos, as an |ndustr|a| partner on the other hand, w|th the
cap|ta||st partners be|ng ent|t|ed to 70 of the prof|ts, wh||e the
|ndustr|a| partner was ent|t|ed to 30 thereof. Severa| years |nto the
partnersh|p term, Iudge Abad Santos sought to have an account|ng of
the partnersh|p affa|rs and to be g|ven her share of the prof|ts of the
company wh|ch had been d|str|buted on|y among the cap|ta||st
partners. 1he cap|ta||st partners sought to have the re|at|onsh|p
dec|ared as not a true partnersh|p on the ground that the art|c|es were
drawn-up mere|y to cover the spec|a| arrangement ent|t|ement by
wh|ch Iudge Abad Santos had arranged for a |oan f|nanc|ng for the
company to be pa|d on|y after the |oan has been fu||y pa|d, and that |n
fact be|ng an |ncumbent [udge she rendered to serv|ce to the company,
thus:
It |s an adm|tted fact that s|nce before the exe-cut|on of
the amended art|c|es of partnersh|p... the appe||ee Lstre||a
Abad Santos has been, and up to the present t|me st||| |s, one
of the [udges of the C|ty Court of Man||a, devot|ng a|| her
t|me to the performance of the dut|es of her pub||c off|ce.
1h|s fact proves beyond peradventure that |t was never
contemp|ated between the part|es, for she cou|d not |awfu||y
contr|bute her fu|| t|me and |ndustry wh|ch |s the ob||gat|on
of an |ndustr|a| partner pursuant to Art. 1789 of the C|v||
Code.
24
S1 SCkA 416 (1973).
n
1he Court ru|ed as fo||ows:
. Cne cannot read appe||ee's test|mony [ust quoted
w|thout ga|n|ng the very def|n|te |mpress|on that, even as she
was and st||| |s a Iudge of the C|ty Court of Man||a, she has
rendered serv|ces for appe||ants w|thout wh|ch they wou|d
not have had the wherew|tha| to operate the bus|ness for
wh|ch appe||ant company was organ|zed... xxx.
It |s not d|sputed that the proh|b|t|on aga|nst an
|ndustr|a| partner engag|ng |n bus|ness for h|mse|f seeks to
prevent any conf||ct of |nterest between the |ndustr|a|
partner and the partnersh|p, and to |nsure fa|thfu|
comp||ance by sa|d partner w|th h|s prestat|on. 1here |s no
pretense, however, even on the part of appe||ants that
appe||ee |s engaged |n any bus|ness antagon|st|c to that of
appe||ant company, s|nce be|ng a Iudge of one of the
branches of the C|ty Court of Man||a can hard|y be
character|zed as a bus|ness. 1hat appe||ee has fa|thfu||y
comp||ed w|th her prestat|on w|th respect to appe||ants |s
c|ear|y shown by the fact that |t was on|y after the f|||ng of
the comp|a|nt |n th|s case and the answer thereto that
appe||ants exerc|sed the|r r|ght of exc|us|on under [Art|c|e
1789]... after around n|ne (9) years ...
1hat subsequent to the f|||ng of defendants' answer to
the comp|a|nt, the defendants reached an agreement where-
by the here|n p|a|nt|ff has been exc|uded from, and depr|ved
of, her a||eged share, |nterest or part|c|pat|on, as an a||eged
|ndustr|a| partner, |n the defendant partnersh|p and]or |n |ts
net prof|ts or |ncome, on the ground that p|a|nt|ff has never
contr|buted her |ndustry to the partnersh|p, and |nstead she
has been and st||| |s a [udge of the C|ty Court (former|y Mu-
n|c|pa| Court) of the C|ty of Man||a, devot|ng her t|me to the
performance of her dut|es as such [udge and en[oy|ng the
pr|v||eges and emo|uments apperta|n|ng to the sa|d off|ce,
as|de from teach|ng |n |aw schoo| |n Man||a, w|thout the ex-
press consent of the here|n defendants'... nav|ng a|ways
known appe||ee as a C|ty Iudge even before she [o|ned ap-
pe||ant company ___ as an |ndustr|a| partner, why d|d |t take
appe||ants so many years before exc|ud|ng her from sa|d
company as per aforequoted a||egat|ons? And 'how can they
reconc||e such exc|us|on w|th the|r ma|n theory that appe||ee
has never been such a partner because 1he rea| agreement

662
ev|denced by Lxh|b|t 'A' was to grant the appe||ee a share of
30 of the net prof|ts wh|ch the appe||ant partnersh|p may
rea||ze ____ unt|| the mortgage |oan of 30.000.00 obta|ned
from the kehab|||tat|on I|nance Corporat|on sha|| have been
fu||y pa|d.
1he |anguage of the dec|s|on |n DT,-+7R')*, Q <"3 |eads to severa|
observat|ons on the nature of the ob||gat|on of an |ndustr|a| partner.
L'()*R%/ un|ess otherw|se st|pu|ated, an |ndustr|a| partner need not
devote h|s ent|re work|ng hours to the partnersh|p affa|rs, and he |s |n
fact not proh|b|ted from engag|ng |n other act|v|t|es wh|ch must be
non-bus|ness |n character.
;7P"-.R%/ |t |s poss|b|e that the persona| c|rcumstances that a
wou|d-be |ndustr|a| partner as known to the cap|ta||st partners at the
t|me they entered |nto the contract of partnersh|p, wou|d prevent the
|ndustr|a| partner from devot|ng fu||-t|me to the partnersh|p affa|rs,
wou|d const|tute an |ntegra| part of the manner and nature of what
type of serv|ce or |ndustry he shou|d devote to partnersh|p affa|rs.
L'-,RR%/ even when an |ndustr|a| partner fa||s to ||ve-up to the
comm|tment of serv|ce he ob||ged h|mse|f, the matter must be ra|sed
w|th|n a reasonab|e per|od by the other partners as the bas|s for the
remed|es of exc|us|on or forfe|ture of benef|ts as prov|ded |n Art|c|e
1789, otherw|se, such grounds are deemed wa|ved by reason by
estoppe| by |aches.
S. Spec|f|c Duty of Loya|ty of Cap|ta||st artners
Ak1. 1808. 1he cap|ta||st partners cannot engage for the|r
own account |n any operat|on wh|ch |s of the k|nd of bus|ness
|n wh|ch the partnersh|p |s engaged, un|ess there |s a
st|pu|at|on to the contrary.

Any cap|ta||st partner v|o|at|ng th|s proh|b|t|on sha|| br|ng
to the common funds any prof|ts accru|ng to h|m from h|s
transact|ons, and sha|| persona||y bear a|| the |osses, (n)
Under Art|c|e 1808 of the New C|v|| Code, "1he cap|ta||st partners
cannot engage for the|r own account |n any operat|on wh|ch |s of the
k|nd of bus|ness |n wh|ch the partnersh|p |s engaged, un|ess there |s a
st|pu|at|on to the contrary." If a cap|ta||st partner breaches th|s duty of
|oya|ty, then "he sha|| br|ng to the common funds any prof|ts accru|ng to
h|m from h|s transact|ons, and sha|| persona||y bear a|| the |osses."
0C0

CnA1Lk 9
DISSCLU1ICN, WINDING-U AND
1LkMINA1ICN
IN1kCDUC1ICN AND DLIINI1ICN CI 1LkMS
Ak1. 1828. 1he d|sso|ut|on of a partnersh|p |s the change
|n the re|at|on of the partners caused by any partner ceas|ng to
be assoc|ated |n the carry|ng on as d|st|ngu|shed from the
b|nd|ng up of the bus|ness, (n)
Ak1. 1829. Cn d|sso|ut|on the partnersh|p |s not
term|nated, but cont|nues unt|| the w|nd|ng up of partnersh|p
affa|rs |s comp|eted, (n)
A proper understand|ng under h|||pp|ne artnersh|p Law of the
terms ".'))"R8*'"-/OOb'-.'-+V86" and "*7($'-,*'"-" wou|d he|p c|ar|fy
the mu|t|-faceted |ega| re|at|onsh|ps that ex|st |n the partnersh|p sett|ng.
Art|c|e 1829 of New C|v|| Code |mp||c|t|y d|st|ngu|shes the three
terms when |t prov|des that "Cn d|sso|ut|on the partnersh|p |s not
term|nated, but cont|nues unt|| the w|nd|ng up of the partnersh|p affa|rs
|s comp|eted."
O4'))"R8*'"-" |s the term that perta|ns pr|mar||y to the P"-*(,P* "&
6,(*-7()5'6/ the break|ng of the T'-P8R8$ X8(')/ so to speak,
664

DISSCLU1ICN, WINDING-U AND 1LkMINA1ICN 66S
between and among the partners |n the partnersh|p arrangement.
Art|c|e 1828 of New C|v|| Code, def|nes ".'))"R8*'"-O as "the change |n
the re|at|on of the partners caused by any partner ceas|ng to be
assoc|ated |n the carry|ng on as d|st|ngu|shed from the w|nd|ng up of the
bus|ness." It |s equ|va|ent to the terms "resc|ss|on" and
"ext|ngu|shment" of contract of partnersh|p |n the Law on Contracts.
O!7($'-,*'"-O perta|ns essent|a||y to the 6,(*-7()5'6 ,) , S8)'-7))
7-*7(6(')7/ and def|nes the t|me when a|| matters perta|n|ng to the
bus|ness enterpr|se ='373/ the comp|et|on of pend|ng contracts, the
payment of a|| ob||gat|ons and the d|str|but|on, |f any, of the net assets
of the partnersh|p to the partners) have been comp|eted. 1he Court has
def|ned "term|nat|on" of a partnersh|p as the "po|nt |n t|me after a|| the
partnersh|p affa|rs have been wound up."
1

OI'-.'-+V86O |s therefore the 6("P7)) wh|ch |s commenced by the
d|sso|ut|on of the contract of partnersh|p between and among the
partners, and |s conc|uded upon the term|nat|on or comp|ete ||qu|dat|on
of the partnersh|p bus|ness enterpr|se. 1he Court has def|ned
"w|nd|ng-up" as "the process of sett||ng bus|ness affa|rs after
d|sso|ut|on,"
2
and |t c|tes as examp|es the fo||ow|ng: "the pay|ng of
prev|ous ob||gat|ons, the co||ect|ng of assets prev|ous|y demandab|e,
even new bus|ness |f needed to w|nd up, as the contract|ng w|th a
demo||t|on company for the demo||t|on of the garage used |n a 'used car'
partnersh|p."
3

D|sso|ut|on wh|ch breaks the contractua| pr|v|ty between and
among the partners, does not necessar||y g|ve r|se to w|nd|ng-up or
term|nat|on of partnersh|p bus|ness enterpr|se, as the d|sso|ut|on of an
ex|st|ng partnersh|p contract may actua||y |ead to the const|tut|on of a
new partnersh|p contract among the parthers who choose to proceed
w|th the partnersh|p bus|ness.
`
`.") T3 <"8(* "& B667,R)/ 296 SCkA 194,206 (1998), g8"*'-+ &("$
AkAS, CIVIL CCDL CI 1nL nILIINLS, Vo|. V, 7th ed., p. S16.
Y
R.") T3 <"8(* "& B667,R)/ 296 SCkA 194, 20S (1998), g8"*'-+ &("$
AkAS, CIVIL CCCL CI 1nL nILIINLS, Vo|. V, 7th ed., p. S16.
[
RS'.3
666
DISSCLU1ICN
Ak1. 1830. D|sso|ut|on |s caused:
(1) W|thout v|o|at|on of the agreement between the
partners:
(a) 8y the term|nat|on of the def|n|te term or
part|cu|ar undertak|ng spec|f|ed |n the agreement,
(b) 8y the express w||| of any partner, who must act
|n good fa|th, when no def|n|te term or part|cu|ar
undertak|ng |s spec|f|ed,
(c) 8y the express w||| of a|| the partners who have
not ass|gned the|r |nterests or suffered them to be
charged for the|r separate debts, e|ther before or after
the term|nat|on of any spec|f|ed term or part|cu|ar
undertak|ng,
(d) 8y the expu|s|on of any partner from the bus|ness
S"-, &'.7 |n accordance w|th such a power conferred by
the agreement between the partners,
(2) In contravent|on of the agreement between the
partners, where the c|rcumstances do not perm|t a
d|sso|ut|on under any other prov|s|on of th|s art|c|e, by the
express w||| of any partner at any t|me,
(3) 8y any event wh|ch makes |t un|awfu| for the
bus|ness of the partnersh|p to be carr|ed on for the members
to carry |t on |n partnersh|p,
(4) When a spec|f|c th|ng, wh|ch a partner had prom|sed
to contr|bute to the partnersh|p, per|shes before the de||very,
|n any case by the |oss of the th|ng, when the partner who
contr|buted |t hav|ng reserved the ownersh|p thereof, has
on|y
DISSCLU1ICN, WINDING-U AND 1LkMINA1ICN 667
transferred to the partnersh|p the use or en[oyment of the
same, but the partnersh|p sha|| not be d|sso|ved by the |oss of
the th|ng when |t occurs after the partnersh|p has acqu|red
the ownersh|p thereof,
(5) 8y the death of any partner,
(6) 8y the |nso|vency of any partner or of the
partnersh|p,
(7) 8y the c|v|| |nterd|ct|on of any partner,
(8) 8y decree of court under the fo||ow|ng art|c|e.
(1700a and 1701a)
Ak1. 1831. Cn app||cat|on by or for a partner the court
sha|| decree a d|sso|ut|on whenever:
(1) A partner has been dec|ared |nsane |n any [ud|c|a|
proceed|ngs or |s shown to be of unsound m|nd,
(2) A partner becomes |n any other way |ncapab|e of
perform|ng h|s part of the partnersh|p contract,
(3) A partner has been gu||ty of such conduct as tends to
affect pre[ud|c|a||y the carry|ng on of the bus|ness,
(4) A partner w|||fu||y or pers|stent|y comm|ts a breach
of the partnersh|p agreement, or otherw|se so conducts
h|mse|f |n matters re|at|ng to the partnersh|p bus|ness that |t
|s not reasonab|y pract|cab|e to carry on the bus|ness |n
partnersh|p w|th h|m,
(5) 1he bus|ness of the partnersh|p can on|y be carr|ed
on at a |oss,
(6) Cther c|rcumstances render a d|sso|ut|on equ|tab|e.

Cn the app||cat|on of the purchaser of a partner's
|nterest under Art|c|e 1813 or 1814,
(1) After the term|nat|on of the spec|f|ed term or
part|cu|ar undertak|ng,
(2) At any t|me |f the partnersh|p was a partnersh|p at
w||| when the |nterest was ass|gned or when the charg|ng
order was |ssued, (n)
h|||pp|ne artnersh|p Law c|ass|f|es the causes of d|sso|u-
t|on of partnersh|ps |nto the fo||ow|ng categor|es:
(I) DISSCLU1ICN FK;? JEGD WI1nCU1 NLLD CI CCUk1 DLCkLL:
(a) D|sso|ut|on Lffected W|thout V|o|at|on of
the artnersh|p Agreement:
1erm|nat|on of the term of the partnersh|p,
1erm|nat|on of the spec|f|c undertak|ng for
wh|ch the partnersh|p was const|tuted,
In a partnersh|p at w|||, d|sso|ut|on effected
by the w||| of any partner exerc|sed |n good
fa|th,
- Mutua| w|thdrawa| by a|| the partners,
- Lxpu|s|on of a partner S"-, &'.7 under
powers granted |n the partnersh|p agree-
ment.
(b) D|sso|ut|on Lffected |n Contravent|on of
the artnersh|p Agreement, Lffected by
the W||| of Any artner:
When the partnersh|p term has not exp|red,
- When the part|cu|ar undertak|ng for wh|ch
the partnersh|p has been const|tuted has
not yet term|nated,
At any t|me, |n a partnersh|p at w|||.
(c) D|sso|ut|on Caused by L"(P7 0,X78(7 or Cuts|de
the W||| of the artners:
Loss of the spec|f|c th|ng prom|sed to be
contr|buted,
artnersh|p bus|ness becom|ng un|awfu|,
Death, |nso|vency or c|v|| Interd|ct|on of any
partner,
Inso|vency of the partnersh|p.
(II) DISSCLU1ICN LIILC1LD 1nkCUGn A CCUk1 DLCkLL:
(a) When a partner has been dec|ared |nsane |n any
[ud|c|a| proceed|ng or |s shown to be of unsound
m|nd,
(b) When a partner becomes |ncapac|tated |n
perform|ng the partnersh|p contract,
(c) When a partner |s gu||ty of such conduct as tends
to affect pre[ud|c|a||y the carry|ng on of the
partnersh|p bus|ness,
(d) When a partner w|||fu||y or pers|stent|y comm|ts a
breach of the partnersh|p agreement, or
otherw|se so conducts h|mse|f |n matters re|at|ng
to the partnersh|p bus|ness that |t |s not
reasonab|y pract|cab|e to carry on the bus|ness |n
the partnersh|p w|th h|m,
(e) When the partnersh|p bus|ness can on|y be
carr|ed on at a |oss,
(f) Cther c|rcumstances that render d|sso|ut|on
equ|tab|e,
(g) Cn the app||cat|on of the purchaser of a partner's
|nterest |n the partnersh|p:
After term|nat|on of spec|f|ed term of the
partnersh|p,
After term|nat|on of the part|cu|ar under-
tak|ng for wh|ch the partnersh|p was
const|tuted,
At any t|me, |n a partnersh|p at w|||.
1. D|sso|ut|on |n the L|ght of the artnersh|p 8e|ng r|mar||y a Contractua|
ke|at|onsh|p
It shou|d be noted that Art|c|es 1830 and 1831 of the New C|v||
Code c|ear|y separate the causes of partnersh|p d|sso|ut|on between
those wh|ch may be effected extra[ud|c|a||y, and those wh|ch requ|re a
court decree |n order to be effect|ve.
artnersh|p be|ng pr|mar||y a contractua| re|at|onsh|p between
and among the partners, the var|ous modes of d|sso|ut|on are ak|n to
the genera| pr|nc|p|es cover|ng the 7W*'-+8')5$7-* "& P"-*(,P*)3
When |t comes to the f|rst category of causes of partnersh|p
d|sso|ut|on, name|y, those that are effected '6)" X8(7 or w|thout need of
any court decree, perhaps a good way of understand|ng the dynam|cs
beh|nd those causes of d|sso|ut|on |s to th|nk of d|sso|ut|on |n re|at|on to
terms very c|ose|y ||nked to pr|nc|p|es of O"SR'+,*"(% &"(P7O and
O(7R,*'T'*% perta|n|ng to contracts, name|y, the remedy of "(7)P'))'"-the
|ega| concepts of OS(7,P5 "& P"-*(,P* and the O5,667-'-+ "& (7)"R8*"(%
P"-.'*'"- "( *7($/O as we|| as the other modes of ext|ngu|shment of
contracts.
1ake the f|rst two causes for d|sso|ut|on, name|y, the term|nat|on
of the term or fu|f|||ment of the part|cu|ar undertak|ng for wh|ch the
partnersh|p has been const|tuted, wh|ch bas|ca||y take the character of
e|ther fu|| performance or fu|f|||ment of the reso|utory cond|t|on or
term. Whether |t be fu|| performance or the happen|ng of the reso|utory
cond|t|on or term, a contract |s deemed ext|ngu|shed '6)" X8(7/ and
there need not be any part|cu|ar act by wh|ch the |ega| effect comes
about. 1he same |ega| effect wou|d be the act of any partner dec|ar|ng
the term|nat|on of a partnersh|p |n a partnersh|p at w|||.
When a|| the partners |n a partnersh|p come to a unan|mous
agreement to term|nate the partnersh|p, th|s |s the same |ega|
effect as |n another other contract wh|ch |s ext|ngu|shed by mutua|
w|thdrawa|. I|na||y, when a partner |s expe||ed S"-, &'.7 from the
partnersh|p pursuant to the prov|s|ons grant|ng such power |n the
contract of partnersh|p, then th|s |s |n accordance w|th exerc|s|ng an
extra[ud|c|a| r|ght to resc|nd or cance| a contract, wh|ch conforms to the
sp|r|t of, and |s not |n breach, of the contractua| comm|tment.
Cn the other hand, when a partner, w|thout any |ega| or
contractua| bas|s, seeks the d|sso|ut|on of the partnersh|p, the same
wou|d |ndeed const|tute a OS(7,P5 "& P"-*(,P*O for wh|ch he becomes
persona||y ||ab|e for damages, and for wh|ch he |oses the r|ght to
w|nd-up |ts affa|rs, but neverthe|ess the d|sso|ut|on wou|d take |ega|
effect, |n the same manner as |n a|| contracts that embody persona|
ob||gat|ons to do (||ke agency), '373/ that they are essent|a||y revocab|e |n
sp|te of contractua| st|pu|at|ons to the contrary. In th|s case, there |s the
app||cat|on of the doctr|ne of .7R7P*8) 67()"-,7 |n the partnersh|p
sett|ng.
As has been d|scussed prev|ous|y, the pr|nc|p|e of .7R7P*8)
67()"-,7/ wh|ch treat of the contractua| re|at|onsh|p between and
among the partners of the most extreme persona| nature _'373/ the
pr|nc|p|e of O(7R,*'T'*%O |n Contract Law app||ed at |ts most extreme
norm), wou|d overr|de the pr|nc|p|e of O"SR'+,*"(% &"(P7O of contractua|
prov|s|ons. 1hus, even when the contract|ng part|es agree that the|r
partnersh|p contract wou|d be |rrevocab|e for say ten years, under the
pr|nc|p|e of .7R7P*8) 67()"-,7/ any partner even w|thout cause may
seek to term|nate h|s re|at|onsh|p by w|thdraw|ng from the partnersh|p
and thereby caus|ng |ts d|sso|ut|on. 1here |s no |ega| remedy a||owed to
the other partners to compe| the w|thdraw|ng partner to rema|n w|th
the partnersh|p arrangement w|th|n the rema|n|ng term of the
partnersh|p prov|ded |n |ts art|c|es of partnersh|p. Neverthe|ess, |n th|s
case the w|thdrawa| from the partnersh|p wou|d be |n breach of a
contractua| agreement, and wou|d sub[ect the w|thdraw|ng partnersh|p
to ||ab|||ty for damages.
When |t comes to d|sso|ut|ons caused by &"(P7 $,X78(7 or outs|de
the w||| of the partners, the|r |mportance ||e |n the sp|r|t of the Contract
Law pr|nc|p|e wh|ch prov|des that &"(P7 $,X78(7 excuses a contract|ng
party from h|s ob||gat|ons, and wou|d not
672
make h|m ||ab|e for damages for the occas|on does not const|tute a
breach of contract.
I|na||y, the causes of d|sso|ut|on wh|ch requ|re a court decree for
the|r effect|v|ty, usua||y cover causes of act|on wh|ch e|ther go |nto
OS(7,P5 "& P"-*(,P*O or O(,.'P,R P5,-+7 '- *57 P"-.'*'"-) "(
P'(P8$)*,-P7) 86"- b5'P5 *57 P"-*(,P* b,) 7-*7(7. '-*"O ='373/ *57
pr|nc|p|e of (7S8) )'P )*,-*'S8)H3 In e|ther case, the |ntervent|on of the
courts |s requ|red to estab||sh the factua| bas|s of the breach of contract,
or the rad|ca| change of the c|rcumstances b|nd|ng the partners together
|nto the contract of partnersh|p.
In essence, h|||pp|ne artnersh|p Law |s carefu| to c|ass|fy the
var|ous causes of d|sso|ut|on because of the vary|ng |ega| consequences
of d|sso|ut|on as an act of resc|ss|on or cance||at|on of the partnersh|p
agreement.
a. D|sso|ut|on Lffected w|th No V|o|at|on of the
artnersh|p Contract
Art|c|e 1830 of New C|v|| Code, |n enumerat|ng the causes for
partnersh|p d|sso|ut|on, d|st|ngu|shes f|rst between causes "w|thout
v|o|at|on of the agreement," and those causes that are "[|]n
contravent|on of the agreement." 1hose c|ass|f|ed as causes "w|thout
v|o|at|on of the agreement," are cons|stent w|th the agreed and |n
comp||ance w|th, the terms of the contract of partnersh|p, thus:
(a) 1erm|nat|on of the term or part|cu|ar undertak|ng
spec|f|ed |n the partnersh|p agreement,
(b) 8y the exerc|se |n good fa|th by any partner of the
power to w|thdraw |n a partnersh|p at w||| (no def|n|te
term or part|cu|ar undertak|ng spec|f|ed |n the
agreement),
(c) 8y the mutua| w|thdrawa| by a|| the partners from the
partnersh|p, and
(d) 8y the S"-, &'.7 expu|s|on of any partner |n accordance
w|th the power prov|ded for |n the partnersh|p
agreement.

In any of the forego|ng enumerated causes, there |s no breach or
contravent|on of the partnersh|p agreement, and the d|sso|ut|on of the
partnersh|p does not g|ve r|se to a ||ab|||ty for damages for breach of
contract. When |t comes to the f|rst three causes, there be|ng no
"partner at fau|t" means that none of the partners wou|d be d|squa||f|ed
from part|c|pat|ng |n the w|nd|ng- up of the affa|rs of the partnersh|p.
Whereas, |n the case of expu|s|on of a partner |n accordance w|th the
power prov|ded |n the partnersh|p agreement, s|nce |t can on|y be
exerc|sed S"-, &'.7, |t cou|d on|y mean that the partner was expe||ed
"for cause" and consequent|y, he wou|d be d|squa||f|ed from
part|c|pat|ng |n the w|nd|ng-up of the affa|rs of the partnersh|p bus|ness,
and e|ect|ng to cont|nue to pursue the partnersh|p bus|ness.
b. D|sso|ut|on Lffected |n V|o|at|on of the
artnersh|p Contract
In contrast, a|though any partner |s recogn|zed to have the power
to w|thdraw from the partnersh|p at any t|me, |t wou|d be "|n
contravent|on of the agreement between the partners, where the
c|rcumstances do not perm|t a d|sso|ut|on under the prov|s|ons" of
Art|c|e 1830 of the New C|v|| Code. In that case, the partner seek|ng the
d|sso|ut|on wou|d be ||ab|e for damages, and he |s w|thout r|ght to
cont|nue to pursue the partnersh|p bus|ness.
An examp|e of the consequences of an expu|s|on of a partner
effected |n bad fa|th |s demonstrated |n !"P," T3 <"8(* "& B667,R)/
a

where |n an ora| partnersh|p, the cap|ta||st partner 1ocao had exc|uded
the |ndustr|a| partner Anay from entrance |nto any of the bus|ness
prem|ses of the company or and severed any further dea||ngs she may
have w|th the bus|ness venture. In ru||ng that the exc|uded partner had a
r|ght to recover damages, to have a forma| account|ng of the bus|ness,
and to rece|ve her shares |n the net prof|ts, the Court ru|ed:
Undoubted|y, the pet|t|oner 1ocao un||atera||y exc|uded
pr|vate respondent [Anay] from the partnersh|p to reap for
4
342 SCkA 20 (2000).

herse|f and]or for pet|t|oner 8e|o f|nanc|a| ga|ns resu|t|ng
from pr|vate respondent's efforts to make the bus|ness ven-
ture a success . . . ner |nstruct|on ... not to a||ow pr|vate
respondent to ho|d off|ce |n both the Makat| and Cubao sa|es
off|ces concrete|y spoke of her percept|on that pr|vate re-
spondent was no |onger necessary |n the bus|ness operat|on,
and resu|ted |n a fa|||ng out between the two. nowever, a
mere fa|||ng out or m|sunderstand|ng between partners does
not convert the partnersh|p |nto a sham organ|zat|on. 1he
partnersh|p ex|sts unt|| d|sso|ved under the |aw. 1he
partnersh|p ... has no f|xed term and |s therefore a partner-
sh|p at w||| pred|cated on the|r mutua| des|re and consent, |t
may be d|sso|ved by the w||| of a partner... An un[ust|f|ed
d|sso|ut|on by a partner can sub[ect h|m to act|on for dam-
ages because by the mutua| agency that ar|ses |n a partner-
sh|p, the doctr|ne of .7R7P*8) 67()"-,7 a||ows the partners
to have the power, a|though not necessar||y the r|ght to d|s-
so|ve the partnersh|p.
In th|s case, pet|t|oner 1ocao's un||atera| exc|us|on of
pr|vate respondent from the partnersh|p... effected her own
w|thdrawa| from the partnersh|p and cons|dered herse|f as
hav|ng ceased to be assoc|ated w|th the partnersh|p |n the
carry|ng on of the bus|ness. Neverthe|ess, the partnersh|p
was not term|nated thereby, |t cont|nued unt|| the w|nd|ng
up of the bus|ness.
S

Lssent|a||y, the Court |n !"P," agreed w|th the dec|s|on of the tr|a|
court that "a partner who |s exc|uded wrongfu||y from a partnersh|p |s
an |nnocent partner. nence, the gu||ty partner must g|ve h|m h|s due
upon the d|sso|ut|on of the partnersh|p as we|| as damages or share |n
the prof|ts 'rea||zed from the appropr|at|on of the partnersh|p bus|ness
and goodw|||.' An |nnocent partner thus possesses 'pecun|ary |nterest |n
every ex|st|ng contract that was |ncomp|ete and |n the trade name of
the co-partnersh|p and assets at the t|me he was wrongfu||y expe||ed."'
6

)
RS'./ at pp.
36-38. ]RS'./ at
29

c. L"(P7 0,X78(7 and Cther S|m||ar Causes
A th|rd genera| category for causes of d|sso|ut|on recogn|zed under
Art|c|e 1830 of the New C|v|| Code are those wh|ch occur by reason of
&"(P7 $,X78(7 or events that are outs|de of the w||| of the partners:
(a) Lvents wh|ch makes un|awfu| the partnersh|p bus|ness,
(b) Loss of the spec|f|c th|ng prom|sed to be contr|buted to
the partnersh|p, and
(c) Death, |nso|vency or c|v|| |nterd|ct|on of any partner.
None of such causes of d|sso|ut|on const|tute a type of breach of
the partnersh|p agreement.
An |nterest|ng |ssue wou|d be: F& *57 R")) "& *57 )67P'&'P *5'-+
6("$')7. *" S7 P"-*('S8*7. *" *57 6,(*-7()5'6 b"8R. P,8)7 *57
.'))"R8*'"- "& *57 6,(*-7()5'6/ *57- b"8R. *57 (7*8(- *" , 6,(*-7( "& 5')
P"-*('S8*'"- S7 .77$7. *" 5,T7 .'))"RT7. *57 6,(*-7()5'6r
1he dec|s|on |n L7(-,-.7\ T3 47R, G"),] covered the |ssue of
whether the rece|v|ng back by a partner of h|s contr|but|on to the
partnersh|p amount to w|thdrawa| from the partnersh|p to have effected
a d|sso|ut|on thereof. 1he reso|ut|on of th|s |ssue was essent|a| |n
L7(-,-.7\ because |t determ|ned whether the partner so rece|v|ng h|s
contr|but|on had a r|ght to part|c|pate |n the prof|ts of the venture
earned after he had a||eged|y w|thdrawn. 1hus, the Court asked
spec|f|ca||y |n L7(-,-.7\: "D|d the defendant wa|ve h|s r|ght to such
|nterest as rema|ned to h|m |n the partnersh|p property by rece|v|ng the
money? D|d he by so do|ng wa|ve h|s r|ght to an account|ng of the prof|ts
a|ready rea||zed, |f any, and a part|c|pat|on |n them |n proport|on to the
amount he had or|g|na||y contr|buted to the common fund? Was the
partnersh|p d|sso|ved by the w||| or w|thdrawa| of one of the
7
1 h||. 671 (1902).

676
partners' under Art|c|e 170S of New C|v|| Code?"
8
1he Court he|d
. . . We th|nk these quest|ons must be answered |n the
negat|ve.
1here was no |ntent|on on the part of the p|a|nt|ff |n
accept|ng the money to re||nqu|sh h|s r|ghts as a partner, nor
|s there any ev|dence that by anyth|ng that he sa|d or by
anyth|ng that he om|tted to say he gave the defendant any
ground whatever to be||eve that he |ntended to re||nqu|sh
them. Cn the contrary he not|f|ed the defendant that he
wa|ved none of h|s r|ghts |n the partnersh|p. Nor was the
acceptance of the money an act wh|ch was |n |tse|f
|ncons|stent w|th the cont|nuance of the partnersh|p
re|at|on, as wou|d have been the case had the p|a|nt|ff
w|thdrawn h|s ent|re |nterest |n the partnersh|p. 1here |s,
therefore, noth|ng upon wh|ch a wa|ver, e|ther express or
|mp||ed, can be pred|cated. 1he defendant m|ght have
h|mse|f term|nated the partnersh|p re|at|on at any t|me, |f he
had chosen to do so, by recogn|z|ng the p|a|nt|ffs r|ght |n the
partnersh|p property and |n the prof|ts. nav|ng fa||ed to do
th|s he cannot be perm|tted to force a d|sso|ut|on upon h|s
copartner upon terms wh|ch the |atter |s unw||||ng to accept.
We see noth|ng |n the case wh|ch can g|ve the transact|on |n
quest|on any other aspect than that of the w|thdrawa| by
one partner w|th the consent of the other of a port|on of the
common cap|ta|."
9

d. Causes Lqu|va|ent to kesc|ss|on of the Contract
of artnersh|p
1he fourth genera| category covers the grounds whereby a partner
may seek court order for the d|sso|ut|on of the partners under Art|c|e
1831 of New C|v|| Code, thus:
(a) When a partner has been dec|ared |nsane |n any [ud|c|a|
proceed|ng or |s shown to be of unsound m|nd,
:
RS'./ at pp.
677-678. ]RS'./ at
678
(b) When a partner becomes |n any other way |ncapab|e of
perform|ng h|s part of the partnersh|p contract,
(c) When a partner has been gu||ty of conduct as tends to
affect pre[ud|c|a||y the carry|ng on of the bus|ness,
(d) When a partner w|||fu||y or pers|stent|y comm|ts a
breach of the partnersh|p agreement, or otherw|se so
conducts h|mse|f |n matters re|at|ng to the partnersh|p
bus|ness that |s not reasonab|y pract|cab|e to carry on
the bus|ness |n partnersh|p w|th h|m,
(e) When the bus|ness of the partnersh|p can on|y be
carr|ed on at a |oss,
(f) Cther c|rcumstances that render d|sso|ut|on equ|tab|e.
In add|t|on, Art|c|e 1831 of New C|v|| Code recogn|zes the stand|ng
of the ass|gnee of a partner's |nterest to seek [ud|c|a| d|sso|ut|on of the
partnersh|p when:
(a) 1erm|nat|on of the per|od upon wh|ch the partnersh|p
|s express|y const|tuted,
(b) 1erm|nat|on of the part|cu|ar undertak|ng upon wh|ch
the partnersh|p |s express|y const|tuted, or
(c) At any t|me, |n a partnersh|p at w|||.
1he forego|ng grounds enumerated |n Art|c|e 1831 of the New C|v||
Code, for wh|ch a court order of d|sso|ut|on may be sought need to be
cons|dered carefu||y, each represents a pub||c po||cy wh|ch takes |nto
cons|derat|on that the bus|ness purpose and future of a partnersh|p
wh|ch cannot be p|aced |n a re|at|ve|y c|ear v|s|on at the t|me the
contract of partnersh|p |s entered |nto. 1he art|c|e recogn|zes the
|nherent r|sk that bus|ness undertak|ngs are exposed to, many of wh|ch
cannot be ant|c|pated at the t|me the partnersh|p agreement |s entered
|nto. 1herefore, |t sets-up a

mechan|sm ='373/ an appropr|ate court proceed|ng for d|sso|ut|on) by
wh|ch the part|es may ask a tr|buna| to determ|ne that the
c|rcumstances have rendered the rat|ona|e of the partnersh|p
agreement |nut||e.
1ake the case of the ground "when the bus|ness of the partnersh|p
can on|y be carr|ed on at a |oss," the Supreme Court observed |n 0"(,-/
J(3 T3 <"8(* "& B667,R)/^
c
that even w|th the assurance by one of the
partners to the others that they wou|d earn a huge amount of prof|ts,
"|n the absence of fraud, the other partner cannot c|a|m a r|ght to
recover the h|gh|y specu|at|ve prof|ts. It |s a rare bus|ness venture
guaranteed to g|ve 100 prof|t."
11
0"(,-/ J(3 cons|dered |t |awfu| for
the manag|ng partner to c|ose down a partnersh|p venture when the
prospects were that |t wou|d on|y susta|n |osses. 1he Court further he|d:
"As a|ready ment|oned, there are r|sks |n any bus|ness venture and the
fa||ure of the undertak|ng cannot ent|re|y be b|amed on the manag|ng
partner a|one, spec|a||y |f the |atter exerc|sed h|s best bus|ness
[udgment, wh|ch seems to be true |n th|s case."
12

L|kew|se, each of the grounds prov|ded under Art|c|e 1831 wou|d
const|tute "substant|a| breach" of the ob||gat|ons assumed by the
partners, as the bas|s by wh|ch an act|on for resc|ss|on may be pursued,
consequent|y, the factua| bas|s upon wh|ch the substant|a| breach may
ar|se must be determ|ned to ex|st by the courts, and cannot be |eft to
the so|e determ|nat|on of any of the partners.
Cne wou|d th|nk that when a partner has been [ud|c|a||y dec|ared
|nsane, |t wou|d thereby '6)" X8(7 cause the d|sso|ut|on of the
partnersh|p, as |n the case of death, |nso|vency or c|v|| |nterd|ct|on of a
partner. et under Art|c|e 1831 |t wou|d requ|re a forma| pet|t|on |n
court to have the partnersh|p d|sso|ved. 1he |ega| |mp||cat|on |s that the
partnersh|p rema|ns unaffected by the [ud|c|a| dec|arat|on of |nsan|ty of
a partner, and the d|scret|on |s g|ven to the other partners to seek |ts
d|sso|ut|on. Iud|c|a| dec|arat|on of |nsan|ty, ||ke c|v|| |nterd|ct|on, wou|d
render the
10
133 SCkA 88
( 98 )
OFS'./ at p. 9S.
OFS'./ at p. 101.

partner w|thout |ega| capac|ty to contract, and yet the former does not
resu|t |n automat|c d|sso|ut|on of the partnersh|p.
erhaps |t |s because [ud|c|a| dec|arat|on of |nsan|ty does not
proceed from a cr|m|na| conv|ct|on as |n the case of c|v|| |nterd|ct|on, and
that the |aw recogn|zes that the |nsane partner st||| has an estate that
has a r|ght to benef|t from the propert|es and r|ghts to wh|ch a partner |s
ent|t|ed to, and the other partners are g|ven the opt|on to rema|n |n
partnersh|p w|th h|m to a||ow h|s estate to cont|nue to benef|t from the
partnersh|p bus|ness. After a||, a partner who turns out to be |nsane, may
be a better partner to rema|n w|th, rather than another partner who |s
sane but turns out to be |nsuperab|e. 1h|s |s the same rat|ona|e under
the second group for [ud|c|a| d|sso|ut|on: when a partner becomes |n any
other way |ncapab|e of perform|ng h|s part of the partnersh|p contract.
1he |ast four grounds to seek [ud|c|a| d|sso|ut|on (when a partner
has been gu||ty of conduct as tends to affect pre[ud|c|a||y the carry|ng on
of the bus|ness, when a partner w|||fu||y or pers|stent|y comm|ts a
breach of the partnersh|p agreement, or otherw|se so conducts h|mse|f
|n matters re|at|ng to the partnersh|p bus|ness that |s not reasonab|y
pract|cab|e to carry on the bus|ness |n partnersh|p w|th h|m, when the
bus|ness of the partnersh|p can on|y be carr|ed on at a |oss, and other
c|rcumstances that render a d|sso|ut|on equ|tab|e), |ook at the pr|mary
rat|ona|e for the partnersh|p agreement: to operate a bus|ness venture
for the benef|t of a|| the partners. When there are c|rcumstances
preva|||ng |n the partnersh|p sett|ng that endanger or underm|ne the
v|ab|||ty of the partnersh|p enterpr|se, any of the partners |s g|ven
stand|ng to seek for court determ|nat|on of the ex|stence of such
s|tuat|on and decree the d|sso|ut|on of the partnersh|p.
Ior examp|e, |n G"X,) T3 0,+R,-,] the Court he|d that when a
partner engages |n a separate bus|ness enterpr|se that |s compet|t|ve
w|th that of the partnersh|p and even w|thdraws equ|pment contr|buted
|nto the partnersh|p enterpr|se, the other
13
192 SCkA 110 (1990).
680
partner's w|thdrawa| from the partnersh|p becomes thereby [ust|f|ed
and for wh|ch the |atter cannot be he|d ||ab|e for damages. In such an
|nstance, a partner has v|o|ated h|s duty of |oya|ty, wh|ch under the
pr|nc|p|e of .7R7P*8) 67()"-,7 shou|d a||ow the other partners to break
any further t|es w|th h|m.
2. Lega| Lffects of D|sso|ut|on - In Genera|
Ak1. 1832. Lxcept so far as may be necessary to
w|nd up partnersh|p affa|rs or to comp|ete transac-
t|ons begun but not then f|n|shed, d|sso|ut|on ter-
m|nates a|| author|ty of any partner to act for the
partnersh|p:
(1) W|th respect to the partners:
(a) When the d|sso|ut|on |s not by the act,
|nso|vency or death of a partner, or
(b) When the d|sso|ut|on |s by such act,
|nso|vency or death of a partner, |n cases where
Art|c|e 1833 so requ|res,
(2) W|th respect to persons not partners, as
dec|ared |n Art|c|e 1834.
Ak1. 1833. Where the d|sso|ut|on |s caused
by the act, death or |nso|vency of a partner, each
partner |s ||ab|e to h|s co-partners for h|s share of
any ||ab|||ty created by any partner act|ng for the
partnersh|p as |f the partnersh|p had not been d|s-
so|ved un|ess:
(1) 1he d|sso|ut|on be|ng by act of any partner,
the partner act|ng for the partnersh|p had know|-
edge of the d|sso|ut|on, or
(2) 1he d|sso|ut|on be|ng the death or |nso|vency
of a partner, the partner act|ng for the partnersh|p
had know|edge or not|ce of the death or |nso|vency.
Ak1. 1834. After d|sso|ut|on, a partner can b|nd the
partnersh|p except as prov|ded |n the th|rd paragraph of th|s
art|c|e:
(1) 8y any act appropr|ate for w|nd|ng up partnersh|p
affa|rs or comp|et|ng transact|ons unf|n|shed at d|sso|ut|on,
(2) 8y any transact|on wh|ch wou|d b|nd the partnersh|p
|f d|sso|ut|on had not taken p|ace, prov|ded the other party to
the transact|on:
(a) nad extended cred|t to the partnersh|p pr|or to
d|sso|ut|on and had no know|edge or not|ce of the
d|sso|ut|on, or
(b) 1hough he had not so extended cred|t, had
neverthe|ess known of the partnersh|p pr|or to
d|sso|ut|on, and, hav|ng no know|edge or not|ce of
d|sso|ut|on, the fact of d|sso|ut|on had not been
advert|sed |n a newspaper of genera| c|rcu|at|on |n the
p|ace (or |n each p|ace |f more than one) at wh|ch the
partnersh|p bus|ness was regu|ar|y carr|ed on.
1he ||ab|||ty of a partner under the f|rst paragraph, No. 2,
sha|| be sat|sf|ed out of partnersh|p assets a|one when such
partner had been pr|or to d|sso|ut|on:
(1) Unknown as a partner to the person w|th whom the
contract |s made, and
(2) So far unknown and |nact|ve |n partnersh|p affa|rs
that the bus|ness reputat|on of the partnersh|p cou|d not be
sa|d to have been |n any degree due to h|s connect|on w|th |t.
1he partnersh|p |s |n no case bound by any act of a
partner after d|sso|ut|on:
(1) Where the partnersh|p |s d|sso|ved because |t |s
un|awfu| to carry on the bus|ness, un|ess
the act |s appropr|ate for w|nd|ng up partnersh|p affa|rs, or
(2) Where the partner has become |nso|vent, or
(3) Where the partner has no author|ty to w|nd up
partnersh|p affa|rs, except by a transact|on w|th one who
d|sso|ut|on and had no know|edge or not|ce of h|s want of
author|ty, or
(b) nad not extended cred|tto the partnersh|p pr|or
to d|sso|ut|on, and, hav|ng no know|edge or not|ce of h|s
want of author|ty, the fact of h|s want of author|ty has
not been advert|sed |n the manner prov|ded for
advert|s|ng the fact of d|sso|ut|on |n the f|rst paragraph,
No. 2(b).
Noth|ng |n th|s art|c|e sha|| affect the ||ab|||ty under Art|c|e
182S of any person who after d|sso|ut|on represents h|mse|f
or consents to another represent|ng h|m as a partner |n a
partnersh|p engaged |n carry|ng on bus|ness, (n)
Ak1. 183S. 1he d|sso|ut|on of the partnersh|p does not of
|tse|f d|scharge the ex|st|ng ||ab|||ty of any partner.
A partner |s d|scharged from any ex|st|ng ||ab|||ty upon
d|sso|ut|on of the partnersh|p by an agreement to that effect
between h|mse|f, the partnersh|p cred|tor and the person or
partnersh|p cont|nu|ng the bus|ness, and such agreement
may be |nferred from the course of dea||ng between the
cred|tor hav|ng know|edge of the d|sso|ut|on and the person
or partnersh|p cont|nu|ng the bus|ness.
1he |nd|v|dua| property of a deceased partner sha|| be
||ab|e for a|| ob||gat|ons of the partnersh|p |ncurred wh||e he
was a partner, but sub[ect to the pr|or payment of h|s
separate debts, (n)
Ak1. 1836. Un|ess otherw|se agreed, the partners who
have not wrongfu||y d|sso|ved the partnersh|p or the |ega|
representat|ve of the |ast surv|v|ng partner, not |nso|vent, has
the r|ght to w|nd up the partnersh|p affa|rs, prov|ded,
however, that any partner, h|s |ega| representat|ve or h|s
ass|gnee, upon cause shown, may obta|n w|nd|ng up by the
court, (n)
Ak1. 1837. When d|sso|ut|on |s caused |n any way, except
|n contravent|on of the partnersh|p agreement, each partner,
as aga|nst h|s co-partners and a|| persons c|a|m|ng through
them |n respect of the|r |nterests |n the partnersh|p, un|ess
otherw|se agreed, may have the partnersh|p property app||ed
to d|scharge |ts ||ab|||t|es, and the surp|us app||ed to pay |n
cash the net amount ow|ng to the respect|ve partners. 8ut |f
d|sso|ut|on |s caused by expu|s|on of a partner, bona f|de
under the partnersh|p agreement and |f the expe||ed partner
|s d|scharged from a|| partnersh|p ||ab|||t|es, e|ther by payment
or agreement under the second paragraph of Art|c|e 183S, he
sha|| rece|ve |n cash on|y the net amount due h|m from the
partnersh|p.
When d|sso|ut|on |s caused |n contravent|on of the
partnersh|p agreement the r|ghts of the partners sha|| be as
fo||ows:
(1) Lach partner who has not caused d|sso|ut|on
wrongfu||y sha|| have:
(a) A|| the r|ghts spec|f|ed |n the f|rst paragraph of
th|s art|c|e, and
(b) 1he r|ght, as aga|nst each partner who has
caused the d|sso|ut|on wrongfu||y, to damages for breach
of the agreement.
(2) 1he partners who have not cause the d|sso|ut|on
wrongfu||y, |f they a|| des|re to cont|nue the bus|ness |n the
same name e|ther by themse|ves
or [o|nt|y w|th others, may do so, dur|ng the agreed term for
the partnersh|p and for that purpose may possess the
partnersh|p property, prov|ded, they secure the payment by
bond approved by the court, or pay to any partner who has
cause the d|sso|ut|on wrongfu||y, the va|ue of h|s |nterest |n
the partnersh|p atthe d|sso|ut|on, |oss any damages
recoverab|e under the second paragraph, No. 1(b) of th|s
art|c|e, and |n ||ke manner |ndemn|fy h|m aga|nst a|| present
or future partnersh|p ||ab|||t|es.
(3) A partner who has caused the d|sso|ut|on wrongfu||y
sha|| have:
(a) If the bus|ness |s not cont|nued under the
prov|s|ons of the second paragraph, No. 2, a|| the r|ghts of
a partner under the f|rst paragraph, sub[ect to ||ab|||ty for
damages |n the second paragraph, No. 1(b) of th|s art|c|e.
(b) If the bus|ness |s cont|nued under the second
paragraph, No. 2, of th|s art|c|e, the r|ght as aga|nst h|s
co-partners and a|| c|a|m|ng through them |n respect of
the|r |nterests |n the partnersh|p, to have the va|ue of h|s
|nterest |n the partnersh|p, |ess any damage caused to h|s
co-partners by the d|sso|ut|on, ascerta|ned and pa|d to
h|m |n cash, or the payment secured by a bond approved
by the court, and to be re|eased from a|| ex|st|ng ||ab|||t|es
of the partnersh|p, but |n ascerta|n|ng the va|ue of the
partner's |nterest the va|ue of the goodw||| of the
bus|ness sha|| not be cons|dered, (n)
Ak1. 1838. Where a partnersh|p contract |s resc|nded on
the ground of the fraud or m|srepresentat|on of one of the
part|es thereto, the party ent|t|ed to resc|nd |s, w|thout
pre[ud|ce to any other r|ght, ent|t|ed:
(1) 1o a ||en on, or r|ght of retent|on of, the surp|us of the
partnersh|p property after sat|sfy|ng

the partnersh|p ||ab|||t|es to th|rd persons for any sum of
money pa|d by h|m for the purchase of an |nterest |n the
partnersh|p and for any cap|ta| or advances contr|buted by
h|m,
(2) 1o stand, after a|| ||ab|||t|es to th|rd persons have been
sat|sf|ed, |n the p|ace of the cred|tors of the partnersh|p for
any payment made by h|m |n respect of the partnersh|p
||ab|||t|es, and
(3) 1o be |ndemn|f|ed by the person gu||ty of the fraud or
mak|ng the representat|on aga|nst a|| debts and ||ab|||t|es of
the partnersh|p, (n)
a. Lffect of D|sso|ut|on on the artnersh|p Contract and
Iur|d|ca| ersona||ty
In Corporate Law, "d|sso|ut|on" |s the term|nat|on of the [ur|d|ca|
persona||ty of the corporat|on wh|ch was or|g|na||y const|tuted to pursue
new bus|ness, and that |n fact and |n |aw, the corporate [ur|d|ca|
persona||ty cont|nues to ex|st for three years w|th on|y the capac|ty to
w|nd-down the corporate affa|rs.
14
1he d|sso|ut|on of a corporat|on
affects d|rect|y the under|y|ng corporate bus|ness enterpr|se |n that |t
ceases to pursue bus|ness as a go|ng concern, and any contract entered
|nto as "new bus|ness" wou|d be cons|dered vo|d as hav|ng been
entered |nto w|th a non-ex|st|ng corporate party.
1S

In contrast, the concept of "d|sso|ut|on" |n artnersh|p Law focuses
|n the change of the contractua| re|at|onsh|p between and among the
partners (the resc|ss|on of the partnersh|p contract), as the term|nat|on
of the|r assoc|at|on |n carry|ng the bus|ness venture as a go|ng concern.
1he contract of partnersh|p rema|ns but on|y |n the concept of an
assoc|at|on to pursue ||qu|dat|on process.
OG768SR'P T3 !,-P'-P"/ 394 SCkA 386 (2002).
p
BR5,$S(, <'+,( T3 ;D</ 24 SCkA 269 (1968), K5'R'66'-7 9,*'"-,R
:,-1 T3 <"8(* "& L'()* F-)*,-P7 "& G'\,'/ K,)'+/ :(3 yyF/ 209 SCkA
( )
A d|rect effect of the d|sso|ut|on of the partnersh|p |s prov|ded |n
Art|c|e 1832 of New C|v|| Code, wh|ch ext|ngu|shes the r|ght and power
of the partners to represent one another to pursue the partnersh|p as a
go|ng concern: "Lxcept so far as may be necessary to w|nd up
partnersh|p affa|rs or to comp|ete transact|ons begun but not then
f|n|shed, term|nates a|| author|ty of any partner to act for the
partnersh|p." D|sso|ut|on of a partnersh|p does not therefore underm|ne
ex|st|ng contracts, nor mod|fy or ext|ngu|sh then ex|st|ng ob||gat|ons of
the partnersh|p and the partners, and that the comp|et|on or
performance of ex|st|ng contracts and the sett|ement of partnersh|p
ob||gat|ons are |n fact |ntegra| parts |n the w|nd|ng-up process.
S|nce the [ur|d|ca| persona||ty of a partnersh|p |s |nextr|cab|y ||nked
to the under|y|ng contract of partnersh|p, |t shou|d mean that the
d|sso|ut|on of the partnersh|p wou|d br|ng about the |mpa|rment of the
partnersh|p [ur|d|ca| person |n whose name the bus|ness |s pursued
rema|ns hover|ng.
b. Lffect on the artnersh|p 8us|ness Lnterpr|se
L|kew|se, |n a partnersh|p sett|ng the under|y|ng partnersh|p
bus|ness enterpr|se shou|d cease to ex|st as "as a go|ng concern," but
on|y |f the rema|n|ng partners do not w|sh to cont|nue the partnersh|p
bus|ness, whenever they are ent|t|ed under the |aw the opt|on to so
cont|nue.
D|sso|ut|on focuses ma|n|y on the break|ng-up of the contractua|
re|at|onsh|p of the partners among one another. 1hus, when Art|c|e
1832 of the New C|v|| Code prov|des that "Lxcept so far as may be
necessary to w|nd up partnersh|p affa|rs or to comp|ete transact|ons
begun but not then f|n|shed, d|sso|ut|on term|nates a|| author|ty of any
partner to act for the partnersh|p," |t means that the force of the
or|g|na| contract of partnersh|p between them as to be|ng mutua|
agents, as we|| as the enforceab|||ty of the doctr|ne of .7R7P*8)
67()"-,7/ are term|nated, w|thout pre[ud|ce to a new partnersh|p
arrangement be|ng const|tuted among the rema|n|ng partners.

c. Lffects on Contracts Lntered |nto W|th
1h|rd art|es
In Corporate Law, after d|sso|ut|on, a|| contracts entered |nto that
pursue new bus|ness for the corporate venture are vo|d even as to
persons who dea| w|th the corporat|on |n good fa|th. 1he reason for th|s
|s that the pub||c po||cy beh|nd the capac|ty of the corporate [ur|d|ca|
persona||ty pre-empts the cons|derat|on of protect|ng the pub||c that
dea| |n good fa|th w|th a purported|y va||d|y ex|st|ng corporat|on. F) *5')
*57 ),$7 6"R'P% b57- '* P"$7) *" P"-*(,P*) "- -7b S8)'-7)) 7-*7(7.
'-*" &"( ,-. '- S75,R& 6,(*-7()5'6 ,&*7( .'))"R8*'"- 5,) "PP8((7.r
In cover|ng the genera| |ega| effects of the d|sso|ut|on of a
partnersh|p, 8aut|sta c|ted Amer|can dec|s|ons, show|ng that upon
d|sso|ut|on the partnersh|p cont|nues to ex|st on|y for a ||m|ted purpose
of w|nd|ng |t affa|rs, and that no new bus|ness can be pursued.
16
We fee|
that under h|||pp|ne artnersh|p Law, wh|ch express|y recogn|zes that
the non-defau|t|ng partners can choose to cont|nue the bus|ness
enterpr|se, the answer to the quest|on ra|sed shou|d be |n the negat|ve,
because there |s no over-arch|ng pub||c po||cy of State superv|s|on and
contro| over the [ur|d|ca| persona||t|es of partnersh|ps. Under h|||pp|ne
artnersh|p Law, the partnersh|p [ur|d|ca| persona||ty |s mere|y an
"added feature" to the partnersh|p arrangement to |mprove the
eff|c|ency of partnersh|p transact|ons, and cannot overcome the more
|mportant pub||c po||cy cons|derat|ons, such as the |mperat|ve need to
protect the contractua| expectat|ons of the members of the pub||c who
dea| |n good fa|th w|th the partnersh|p venture.
We see the demonstrat|on of th|s pr|nc|p|e |n ;'-+)"- v. F),S7R)
;,b$'RR,
17
It |s true that the d|sso|ut|on of a partnersh|p |s caused by
any partner ceas|ng to be assoc|ated |n the carry|ng on of the
bus|ness. nowever, on d|sso|ut|on, the partnersh|p
16
8AU1IS1A, at p.

17
88 SCkA 623
( )

688
|s not term|nated but cont|nuous unt|| the w|nd|ng up of the
bus|ness.
1he rema|n|ng partners d|d not term|nate the bus|ness
of the partnersh|p 'Isabe|a Sawm|||.' Instead of w|nd|ng up
the bus|ness of the partnersh|p, they cont|nued the bus|ness
st||| |n the name of sa|d partnersh|p. It |s express|y st|pu|ated
|n the memorandum-agreement that the rema|n|ng partners
had const|tuted themse|ves as the partnersh|p ent|ty, the
"Isabe|a Sawm|||."
1here was no ||qu|dat|on of the assets of the partnersh|p.
1he rema|n|ng partners . . . used the propert|es of sa|d
partnersh|p.
x x x
It does not appear that the w|thdrawa| of [a partner]
from
the partnersh|p was pub||shed |n the newspapers. . . the
pub||c |n genera| had a r|ght to expect that whatever cred|t
they extended to [the rema|n|ng partners] do|ng the
bus|ness
|n the name of the partnersh|p "Isabe|a Sawm|||" cou|d be
f d | h | f |d h| "
18

In !"P," T3 <"8(* "& B667,R)/O the Court he|d that the fact that the
manag|ng partner exc|udes the |ndustr|a| partner from part|c|pat|on |n
the partnersh|p bus|ness d|d not mean that the partnersh|p was
ext|ngu|shed automat|ca||y:
nowever, a mere fa|||ng out or m|sunderstand|ng
between partners does not convert the partnersh|p |nto a
sham organ|zat|on. 1he partnersh|p ex|sts unt|| d|sso|ved
under the |aw. S|nce the partnersh|p created by pet|t|oners
and pr|vate respondent has no f|xed term and |s therefore a
partnersh|p at w||| pred|cated on the|r mutua| des|re and
consent, |t may be d|sso|ved by the w||| of a partner. W W W In
th|s case, pet|t|oner 1ocao's un||atera| exc|us|on of pr|vate
respondent from the partnersh|p effected her own
w|thdrawa| from the partnersh|p and cons|dered herse|f as
hav|ng ceased to be assoc|ated w|th the partnersh|p |n the
OFS'./ at p. 642.
19
342 SCkA 20
( )

carry|ng on of the bus|ness. Neverthe|ess, the partnersh|p |s
not term|nated thereby, |t cont|nues unt|| the w|nd|ng up of
the bus|ness.
20

d. Lffects on Determ|n|ng L|ab|||ty of artners for Damages
to Cne Another
In ;"-P8%, T3 47 @8-,,
21
|t was he|d that for purposes of
determ|n|ng whether a partner |s ent|t|ed to damages a||eged|y suffered
by reason of the supposed fraudu|ent management of the partnersh|p
by the manag|ng partner, |t |s f|rst necessary that a ||qu|dat|on of the
partnersh|p bus|ness must be made "to the end that the prof|t and
|osses may be known and the causes of the |atter and the respons|b|||ty
of the defendant as we|| as the damages wh|ch each partner may have
suffered, may be determ|ned."
22

3. Lffects of D|sso|ut|on Among the artners F-*7( ;7
We w||| now d|scuss the |ega| consequences of, and the r|ghts and
ob||gat|ons that wou|d govern the re|at|onsh|p of the partners under,
the var|ous causes of partnersh|p d|sso|ut|on.
a. When D|sso|ut|on Is Caused Not |n Contravent|on of the
artnersh|p Agreement
Under Art|c|e 1837 of New C|v|| Code, un|ess otherw|se agreed,
each partner, as aga|nst h|s co-partners and a|| persons c|a|m|ng through
them |n respect of the|r |nterests |n the partnersh|p, may have the
partnersh|p property app||ed to d|scharge |ts ||ab|||ty, and the surp|us
app||ed to pay |n cash the net amount ow|ng to the respect|ve partners.
In other words, when there has been no breach of the partnersh|p
agreement upon the d|sso|ut|on of a partnersh|p, every partner has a
r|ght to |ns|st upon the w|nd|ng-down of partnersh|p affa|rs.
$'./ at pp. 37-38.
21
67 h||. 646 (1939).
*At p. 647, P'*'-+ K" A7-+ <57" T3 @'$ p, A,$/ 44 h||. 172
( )
690
When d|sso|ut|on of the partnersh|p |s caused w|thout breach of
the contract of partnersh|p, the "rema|n|ng partners" have no opt|on to
cont|nue the partnersh|p bus|ness enterpr|se when the "w|thdraw|ng
partner" |ns|sts on w|nd|ng-up the partnersh|p affa|rs. Consequent|y, the
on|y way by wh|ch the rema|n|ng partners can hope to cont|nue the
partnersh|p bus|ness |s to come |nto a sett|ement of the ||qu|dat|on of
the w|thdraw|ng partner's equ|ty |nterests |n the partnersh|p. 1he
tendency therefore |s that the w|thdraw|ng partner may rece|ve a
prem|um or a h|gher pr|ce than the actua| ||qu|dat|on va|ue of h|s share
|n the net assets of the partnersh|p |n exchange for not demand|ng the
forma| w|nd|ng-up and term|nat|on of the partnersh|p bus|ness.
b. When D|sso|ut|on Is Caused by the :"-,
L'.7 Lxpu|s|on of a artner
Under Art|c|e 1837 of New C|v|| Code, when d|sso|ut|on |s caused
by the S"-, &'.7 expu|s|on of a partner pursuant to the terms of the
partnersh|p agreement, and '& the expe||ed partner |s d|scharged from
a|| partnersh|p ||ab|||t|es, e|ther by payment or by express agreement to
that effect between h|mse|f, the cred|tor and the rema|n|ng partners, as
prov|ded under the second paragraph of Art|c|e 183S of New C|v|| Code,
then such expe||ed partner sha|| rece|ve |n cash on|y the net amount due
h|m from the partnersh|p.
In other words, the expe||ed partner |s w|thout power or author|ty
to |ns|st upon the forma| w|nd|ng-up and ||qu|dat|on of the partnersh|p
bus|ness enterpr|se, and that the cho|ce whether to cont|nue w|th the
bus|ness enterpr|se or to forma||y w|nd-up and term|nate the
partnersh|p |s w|th the rema|n|ng partners.
c. When D|sso|ut|on Is Caused |n Contravent|on of the
artnersh|p Agreement
In the event the d|sso|ut|on of the partnersh|p |s |n contravent|on
of the partnersh|p agreement, there ex|sts |ega||y a forma| "breach of
contract," and the r|ghts and]or ||ab|||t|es of the partners sha|| be as
fo||ows:
(a) Lach partner who has not caused the d|sso|ut|on
wrongfu||y sha|| have the r|ght:
(i) to part|c|pate |n the net assets of the partnersh|p
after d|scharge of a|| partnersh|p ||ab|||t|es,
(ii) to damages for breach of the agreement, as
aga|nst each partner who caused the d|sso|ut|on
wrongfu||y,
(b) 1he partners who have not caused the d|sso|ut|on
wrongfu||y, may, |f they so des|re:
(i) cont|nue the bus|ness |n the same name e|ther by
themse|ves or [o|nt|y w|th others, dur|ng the rest
of the agreed term for the partnersh|p,
(ii) and for that purpose may possess the partnersh|p
property, prov|ded they secure the payment by
bond approved by the court, or pay to any partner
who has caused the d|sso|ut|on wrongfu||y, the
va|ue of h|s |nterest |n the partnersh|p at the
d|sso|ut|on, |ess any damages for breach of the
agreement and |n ||ke manner |ndemn|fy h|m
aga|nst a|| present or future partnersh|p ||ab|||t|es,
(c) A partner who has caused the d|sso|ut|on wrongfu||y
sha|| on|y have:
(i) F& *57 S8)'-7)) ') -"* P"-*'-87., a|| the
r|ghts of a partner for share |n the net assets of
the partnersh|p after payment of a|| |ts ||ab|||t|es,
sub[ect to ||ab|||ty for damages |ncurred due to
such wrongfu| d|sso|ut|on,
(ii) F& *57 S8)'-7)) ') P"-*'-87., the r|ght as aga|nst h|s
co-partners and a|| c|a|m|ng through them |n
respect of the|r |nterests |n the partnersh|p, to
have the va|ue of h|s
692
|nterest |n the partnersh|p, |ess any damage
caused to h|s co-partners by the d|sso|ut|on,
ascerta|ned and pa|d to h|m |n cash, or the
payment secured by a bond approved by the
court, and to be re|eased from a|| ex|st|ng
||ab|||t|es of the partnersh|p,
8ut |n ascerta|n|ng the va|ue of the partner's
|nterest, the va|ue of the goodw||| of the bus|ness sha||
not be cons|dered.
d. When D|sso|ut|on Caused by kesc|ss|on of the artnersh|p
Agreement Due to Iraud or M|srepresentat|on ='373/ 8y
Iud|c|a| Decree)
Under Art|c|e 1838 of New C|v|| Code, w|thout pre[ud|ce to any
other r|ght, the party ent|t|ed to resc|nd or seek the d|sso|ut|on of the
partnersh|p sha|| be ent|t|ed:
(a) 1o a ||en on, or r|ght of retent|on of, the surp|us of the
partnersh|p property after sat|sfy|ng the partnersh|p
||ab|||t|es to th|rd persons, for any sum of money pa|d
by h|m for the purchase of an |nterest |n the
partnersh|p and for any cap|ta| or advances contr|buted
by h|m,
(b) 1o stand, after a|| ||ab|||t|es to th|rd persons have been
sat|sf|ed, |n the p|ace of the cred|tors of the partnersh|p
for any payment made by h|m |n respect of the
partnersh|p ||ab|||t|es, and
(c) 1o be |ndemn|f|ed by the person gu||ty of the fraud or
mak|ng the representat|on aga|nst a|| debts and
||ab|||t|es of the partnersh|p.
4. Lffects of D|sso|ut|on on artnersh|p L|ab|||t|es Lx|st|ng or Accrued
at the 1hat 1|me
D|scuss|ons on partnersh|p d|sso|ut|ons ought to center around the
fourth attr|bute of partnersh|p of "un||m|ted ||ab|||ty," '373/ that a partner
sha|| be ||ab|e [o|nt|y w|th the other partners, for
partnersh|p debts wh|ch cannot be sett|ed from the partnersh|p assets.
In fact, |t |s the po|nt of d|sso|ut|on, that app||cat|on of the attr|bute of
un||m|ted ||ab|||ty becomes most cr|t|ca|.
a. Genera| ku|e on Lx|st|ng artnersh|p L|ab|||t|es
Under Art|c|e 183S of New C|v|| Code, the genera| ru|e |s that the
d|sso|ut|on of the partnersh|p does not of |tse|f d|scharge the ex|st|ng
||ab|||ty of any of the partners.
When |t comes to a deceased partner, Art|c|e 183S prov|des that
"1he |nd|v|dua| property of a deceased partner sha|| be ||ab|e for a||
ob||gat|ons of the partnersh|p |ncurred wh||e he was a partner, but
sub[ect to the pr|or payment of h|s separate debts."
b. D|scharge of a artner from Lx|st|ng artnersh|p
L|ab|||t|es
Art|c|e 183S of the New C|v|| Code prov|des that the on|y manner
by wh|ch a partner may be d|scharged from any ex|st|ng ||ab|||ty upon
d|sso|ut|on of the partnersh|p, |s by an agreement to that effect between
h|mse|f, the partnersh|p cred|tor and the person or partnersh|p
cont|nu|ng the bus|ness.
Such an agreement may be |nferred from the course of dea||ng
between the cred|tor hav|ng know|edge of the d|sso|ut|on and the
person or partnersh|p cont|nu|ng the bus|ness.
S. Lffects of D|sso|ut|on on artnersh|p L|ab|||t|es Contracted or
Incurred After D|sso|ut|on
1he ru|es when |t comes to ||ab|||t|es contracted or |ncurred on
beha|f of the partnersh|p after d|sso|ut|on shou|d be d|v|ded |nto the
fo||ow|ng categor|es:
(a) 1hose that were |ncurred pursuant to w|nd|ng-up
proceed|ngs,
(b) 1hose that were |ncurred |n the nature of "new
bus|ness" |n sp|te of the fact that the partnersh|p |s |n
w|nd|ng-up process, and
(c) 1hose that were |ncurred when the partnersh|p
enterpr|se has been cont|nued and no w|nd|ng-up
process have been pursued.
a. L|ab|||t|es Incurred ursuant to W|nd|ng-up
roceed|ngs
Art|c|e 1832 of New C|v|| Code c|ear|y |mp||es that even w|th the
d|sso|ut|on of the partnersh|p, the partners not at fau|t have fu||
author|ty to act for the partnersh|p |n a|| matters that "may be
necessary to w|nd up partnersh|p affa|rs or to comp|ete transact|ons
begun but not then f|n|shed."
1herefore, desp|te the d|sso|ut|on of the partnersh|p, |t |s c|ear
under Art|c|e 1829 that the partnersh|p |s not term|nated on d|sso|ut|on,
and that the partnersh|p cont|nues to ex|st "unt|| the w|nd|ng up of the
partnersh|p affa|rs |s comp|eted." Dur|ng w|nd|ng-up stage, every
partner author|zed to w|nd-up partnersh|p affa|rs has fu|| author|ty to
enter |nto any contract or transact|on that |s cons|stent w|th the
w|nd|ng-up of partnersh|p affa|rs, and such contracts and transact|ons
sha|| be va||d and b|nd|ng upon the partnersh|p and those of the
partners.
Whether cons|dered from the |nter-partnersh|p re|at|onsh|p, or
v|ewed |n re|at|onsh|p w|th th|rd part|es, a|| contracts and transact|ons
entered |nto after d|sso|ut|on of the partnersh|p, wh|ch are |n pursu|t of
the w|nd|ng-up of partnersh|p affa|rs, are va||d and b|nd|ng. 1hus, Art|c|e
1834 prov|des that "After d|sso|ut|on, a partner can b|nd the partnersh|p
x W W (1) 8y any transact|on appropr|ate for w|nd|ng up partnersh|p
affa|rs or comp|et|ng transact|ons unf|n|shed at d|sso|ut|on."
=`H I57(7 K,(*-7()5'6 9"* :"8-. DT7- &"( I'-.'-+VE6
@',S'R'*'7)
Under Art|c|e 1834 of the New C|v|| Code, even when the ||ab|||ty
|ncurred |n beha|f of the partnersh|p |s |ncurred for w|nd|ng-up purpose,
nonethe|ess "1he partnersh|p |s |n no case bound by any act of a partner
after d|sso|ut|on W W W = [ H Where the
partner has no author|ty to w|nd up partnersh|p affa|rs, except by a
transact|on w|th one who"
act|ng partner's want of author|ty, or
(b) nad not extended cred|t to the partnersh|p pr|or to
d|sso|ut|on, and, hav|ng no know|edge or not|ce of h|s
want of author|ty, the fact of h|s want of author|ty has
not been advert|sed |n a newspaper of genera|
c|rcu|at|on |n the p|ace (or |n each p|ace |f more than
one) at wh|ch the partnersh|p bus|ness was regu|ar|y
carr|ed on.
b. L|ab|||t|es Incurred Const|tut|ng "New 8us|ness" Dur|ng the
W|nd|ng-Up rocess
Art|c|e 1832 of New C|v|| Code |s a|so c|ear that after d|sso|ut|on,
and w|nd|ng-up stage has been reached, and there |s no |ntent|on to
cont|nue the partnersh|p enterpr|se, then |t term|nates a|| author|ty of
any partner to act for and |n beha|f of the partnersh|p and]or the other
partners |nvo|v|ng "new bus|ness" or that wh|ch |s not |n pursu|t of the
w|nd|ng-up of partnersh|p affa|rs.
1he genera| ru|e app||cab|e |n artnersh|p Law wou|d then be
equ|va|ent to the Agency Law pr|nc|p|e that an agent who acts w|thout
or outs|de the scope of h|s author|ty, wh|ch renders the contract entered
|nto unenforceab|e aga|nst the pr|nc|pa|, but va||d aga|nst the agent |n
h|s persona| capac|ty. Irom the |nter-partnersh|p re|at|onsh|p, every
contract entered |nto or every ||ab|||ty |ncurred |n the name of the
partnersh|p as "new bus|ness," |s done w|thout |awfu| author|ty, and |s
non-b|nd|ng on the partnersh|p and the other partners. As and between
the partners, the ||ab|||ty |ncurred by the act|ng partner sha|| then be for
h|s so|e account.
8ut the forego|ng genera| ru|e app||es on|y when the act|ng partner
acts w|th know|edge of the fact of d|sso|ut|on of the
partnersh|p, for a partner act|ng for and |n beha|f of the partnersh|p
after d|sso|ut|on, but act|ng |n good fa|th, b|nds the partnersh|p.
1herefore, |n determ|n|ng whether the act|ng partner acted |n good
fa|th or not, d|st|ngu|sh among the causes of d|sso|ut|on.
(1) I57- 4'))"R8*'"- F) :% *57 BP*/ F-)"RT7-P% "( 47,*5
"& , K,(*-7(
Under Art|c|e 1833 of New C|v|| Code, where the d|sso|ut|on |s
caused by the act, death or |nso|vency of a partner, the act|ng partner
who acts w|thout know|edge of the act, death or |nso|vency of another
partner ='373/ w|thout know|edge that d|sso|ut|on has come about), w|||
|ega||y b|nd the partners to any ||ab|||ty created "for the partnersh|p as |f
the partnersh|p had not been d|sso|ved."
Cn the other hand, on|y the act|ng partner sha|| be ||ab|e for the
||ab|||ty entered |nto |n beha|f of the partnersh|p, when he knew at that
t|me of the fact of d|sso|ut|on of the partnersh|p.
(2) I57- 4'))"R8*'"- F) 9?! :% *57 BP*/ F-)"RT7-P% "( 47,*5
"& , K,(*-7(
Under Art|c|es 1832 and 1833 of New C|v|| Code, when the
d|sso|ut|on of the partnersh|p |s other than "by the act, |nso|vency or
death of a partner," then know|edge of the fact of d|sso|ut|on |s
presumed to have reached every partner and therefore, as between and
among them, a partner who |ncurs a ||ab|||ty |n the name of the
partnersh|p, |s deemed to be act|ng w|thout author|ty or |n bad fa|th,
and on|y such act|ng partner sha|| be ||ab|e for the ||ab|||ty |ncurred.
(3) B) !" !5'(. K,(*% <(7.'*"()
Whatever may have been the cause of the d|sso|ut|on of the
partnersh|p, th|rd part|es who |n good fa|th ='373/ unaware of the
d|sso|ut|on of the partnersh|p) enter |nto any contract or transact|on
w|th the partnersh|p through any of the partners, are protected |n the|r
contractua| expectat|ons that the contract |s va||d and b|nd|ng aga|nst
the partnersh|p.

1he centra| pr|nc|p|e |n artnersh|p Law |s that any th|rd party who
enters |nto a contract w|th the purported partnersh|p |n good fa|th, sha||
have the va||d|ty and enforceab|||ty of such contract protected. 1hus,
Art|c|e 1834 of New C|v|| Code prov|des that "After d|sso|ut|on, a partner
can b|nd the partnersh|p xxx (2) 8y any transact|on wh|ch wou|d b|nd
the partnersh|p |f d|sso|ut|on had not taken p|ace, prov|ded the other
party to the transact|on:
d|sso|ut|on, or
(b) 1hough had not so extended cred|t, had neverthe|ess
known of the partnersh|p pr|or to d|sso|ut|on, and,
hav|ng no know|edge or not|ce of d|sso|ut|on, the fact of
d|sso|ut|on had not been advert|sed |n a newspaper of
genera| c|rcu|at|on |n the p|ace (or |n each p|ace |f more
than one) at wh|ch the partnersh|p bus|ness was
regu|ar|y carr|ed on.
Not|ce how the |aw treats d|fferent|y th|rd part|es who have
prev|ous|y extended cred|t to the partnersh|p pr|or to d|sso|ut|on, and
those who have on|y known of the partnersh|p before d|sso|ut|on: |n the
former |t |s "-R% actua| know|edge or not|ce of the d|sso|ut|on that wou|d
p|ace h|m |n bad fa|th, whereas, |n the |atter mere not|ce of d|sso|ut|on
pub||shed |n the newspapers wou|d transform h|m |nto a th|rd party
act|ng |n bad fa|th.
When |t comes to the effects of d|sso|ut|on, espec|a||y on the
power of any partner to b|nd the partnersh|p and other partners |n "new
bus|ness" contracts and transact|ons, [ur|sprudence has ru|ed that un|ess
otherw|se pub||shed or made known persona||y, th|rd part|es dea||ng
w|th a partnersh|p |n good fa|th have a r|ght to expect that the
partnersh|p re|at|on ex|sts and that the partners are author|zed to
pursue partnersh|p bus|ness as a go|ng concern.
1hus, |n ;'-+)"- T3 F),S7R)the Supreme Court he|d that s|nce |t d|d
not appear that the w|thdrawa| of a partner from the
88 SCkA 623 (1979).

698
partnersh|p was pub||shed |n the newspapers, then "the pub||c |n
genera| had a r|ght to expect that whatever, cred|t they extended to [the
rema|n|ng partners] do|ng the bus|ness |n the [or|g|na|] name of the
partnersh|p 'Isabe|a Sawm|||' cou|d be enforced aga|nst the propert|es of
sa|d partnersh|p,"
24
as we|| as aga|nst the propert|es of the w|thdraw|ng
partner.
='H K,(*'P8R,( G8R7 "&O@'$'*7. @',S'R'*%O
A|though a partner may be bound persona||y to the ||ab|||t|es
|ncurred w|th th|rd part|es who act |n good fa|th, nonethe|ess, Art|c|e
1834 of the New C|v|| Code makes |t c|ear that such ||ab|||ty |s "||m|ted
||ab|||ty," |n that "1he ||ab|||ty of a partner W W W sha|| be sat|sf|ed out of
partnersh|p assets a|one when such partner had been pr|or to
d|sso|ut|on:"
(a) Unknown as a partner to the person w|th whom the
contract |s made, and
(b) So far unknown and |nact|ve |n partnersh|p affa|rs that
the bus|ness reputat|on of the partnersh|p cou|d not be
sa|d to have been |n any degree due to h|s connect|on
w|th |t.
(||) I57- <(7.'*"() 9"* 477$7. *" :7 F- C"". L,'*5
It shou|d be noted that Art|c|e 1834 of the New C|v|| Code prov|des
that even when th|rd part|es enter |nto a "new bus|ness" contract or
transact|on w|th the partnersh|p w|thout actua| know|edge or not|ce of
the fact of |ts d|sso|ut|on, nonethe|ess, they w||| not be cons|dered to be
|h|rd part|es act|ng |n good fa|th, and that "[t]he partnersh|p |s |n no case
bound by any act of a partner after d|sso|ut|on," |n the fo||ow|ng cases:
Where the partnersh|p |s d|sso|ved because |t |s
un|awfu| to carry on the bus|ness, un|ess the act |s
appropr|ate for w|nd|ng up partnersh|p affa|rs, or
Where the act|ng partner has become |nso|vent.
OFS'./ at p. 642.
(|||) K,(*'P8R,( G8R7 "- K,(*-7( S% D)*"667R
Notw|thstand|ng any of the forego|ng ru|es, Art|c|e 1834 prov|des
that the ||ab|||ty of any person who after d|sso|ut|on represents h|mse|f
or consents to another represent|ng h|m as a partner |n a partnersh|p
engaged |n carry|ng on bus|ness, sha|| be the same as that prov|ded
under Art|c|e 182S on partnersh|p by estoppe|.
WINDING-U CI Ak1NLkSnI AIIAIkS
1. Who nas Author|ty to W|nd-up?
Under Art|c|e 1836 of New C|v|| Code, the person or persons who
have the power and author|ty to w|nd up the partnersh|p affa|rs as a
consequence of |ts forma| d|sso|ut|on, |s determ|ned by the fo||ow|ng
ru|es:
(a) If there |s an agreement on th|s matter, |t |s the partner
or partners so prov|ded to have such author|ty, sha||
w|nd-up partnersh|p affa|rs,
(b) In the absence of any such agreement:
(i) 1he partners who have not wrongfu||y d|sso|ved the
partnersh|p or the |ega| representat|ve of the |ast
surv|v|ng partner, not |nso|vent, has the r|ght to w|nd
up the partnersh|p affa|rs,
(ii) nowever, any partner or h|s |ega| representat|ve or
ass|gnee, upon cause shown, may obta|n w|nd|ng-up
by the courts.
2. ku|es and rocedures for W|nd|ng-up and
L|qu|dat|on of artnersh|p Affa|rs
Ak1. 1839. In sett||ng accounts between the partners
after d|sso|ut|on, the fo||ow|ng ru|es sha|| be observed, sub[ect
to any agreement to the contrary:
700
(1) 1he assets of the partnersh|p are:
(a) 1he partnersh|p property,
(b) 1he contr|but|ons of the partners necessary for
the payment of a|| the ||ab|||t|es spec|f|ed |n No. 2.
(2) 1he ||ab|||t|es of the partnersh|p sha|| rank |n order of
payment, as fo||ows:
(a) 1hose ow|ng to cred|tors other than partners,
(b) 1hose ow|ng to partners other than for cap|ta|
and prof|ts,
(c) 1hose ow|ng to the partners |n respect to cap|ta|,
(d) 1hose ow|ng to partners |n respect to prof|ts.
(3) 1he assets sha|| be app||ed |n the order of the|r
dec|arat|on |n No. 1 of th|s art|c|e to the sat|sfact|on of the
||ab|||t|es.
(4) 1he partners sha|| contr|bute, as prov|ded by Art|c|e
1797, the amount necessary to sat|sfy the ||ab|||t|es.
(5) An ass|gnee for the benef|t of cred|tors or any person
appo|nted by the court sha|| have the r|ght to enforce the
contr|but|ons spec|f|ed |n the preced|ng number.
(6) Any partner or h|s |ega| representat|ve sha|| have the
r|ght to enforce the contr|but|ons spec|f|ed |n No. 4, to the
extent of the amount wh|ch he has pa|d |n excess of h|s share
of the ||ab|||ty.
(7) 1he |nd|v|dua| property of a deceased partner sha||
be ||ab|e for the contr|but|ons spec|f|ed |n No. 4.
(8) When partnersh|p property and the |nd|v|dua|
propert|es of the partners are |n possess|on of a

court for d|str|but|on, partnersh|p cred|tors sha||
have pr|or|ty on partnersh|p property and separate
cred|tors on |nd|v|dua| property, sav|ng the r|ght of
||en of secured cred|tors.
(9) Where a partner has become |nso|vent or h|s
estate |s |nso|vent, the c|a|ms aga|nst h|s separate
property sha|| rank |n the fo||ow|ng order:
(a) 1hose ow|ng to separate cred|tors,
(b) 1hose ow|ng to partnersh|p cred|tors,
(c) 1hose ow|ng to partners by way of
contr|but|ons, (n)
S|nce w|nd|ng-up and ||qu|dat|on of the partnersh|p affa|rs must
app|y the ru|es and pr|nc|p|es re|at|ng to the partnersh|p doctr|ne of
"un||m|ted ||ab|||ty," the partners' r|ght to the benef|t of excuss|on, and
the pr|or|ty ru|es among conf||ct|ng c|a|ms, the Law on artnersh|p under
Art|c|e 1839 of New C|v|| Code |ays down the fo||ow|ng tenets, sub[ect to
any agreement to the contrary:
(a) What Const|tutes artnersh|p roperty?
1he assets of the partnersh|p wh|ch sha|| be app||ed
to pay partnersh|p ||ab|||t|es are:
(i) 1he partnersh|p property,
(ii) 1he contr|but|ons of the partners necessary for
the payment of a|| the ||ab|||t|es of the
partnersh|p.
(b) What Are the r|or|ty ku|es Aga|nst artnersh|p roperty?
1he ||ab|||t|es of the partnersh|p sha|| rank |n order of
payment as fo||ows:
(|) 1hose ow|ng to cred|tors other than partners,
(ii) 1hose own|ng to partners other than for cap|ta|
and prof|ts,
(iii) 1hose own|ng to partners |n respect of cap|ta|,
and
(iv) 1hose ow|ng to partners |n respect of prof|ts.
a. Lnforc|ng Contr|but|ons from artners to Cover
artnersh|p Debts
Art|c|e 1839 of the New C|v|| Code spec|f|ca||y prov|des that the
partners sha|| contr|bute "as prov|ded by Art|c|e 1797, the amount
necessary to sat|sfy the ||ab|||t|es," and that the |nd|v|dua| property of a
deceased partner sha|| be ||ab|e for such contr|but|on.
It a|so prov|des that an ass|gnee for the benef|t of the cred|tors or
any person du|y appo|nted by the court sha|| have the r|ght to enforce
the contr|but|on spec|f|ed.
In add|t|on, any partner or h|s |ega| representat|ve sha|| have the
r|ght to enforce the contr|but|ons to the extent of the amount wh|ch he
has pa|d |n excess of h|s share of the ||ab|||ty.
b. r|or|ty ku|es 8etween artners' Cred|tors and
artnersh|p Cred|tors
Under Art|c|e 1829(8) of the New C|v|| Code, when partnersh|p
property and the |nd|v|dua| propert|es of the partners are |n possess|on
of a court for d|str|but|on, partnersh|p cred|tors sha|| have pr|or|ty on
partnersh|p property and separate cred|tors on |nd|v|dua| property,
sav|ng the r|ght of ||en of secured cred|tors.
c. r|or|ty ku|es When artner Is Inso|vent
Where a partner has become |nso|vent or h|s estate |s |nso|vent,
the c|a|ms aga|nst h|s separate property sha|| rank |n the fo||ow|ng
order:
(a) 1hose ow|ng to separate cred|tors,

(b) 1hose ow|ng to partnersh|p cred|tors,
(c) 1hose ow|ng to partners by way of contr|but|on.
d. artner May Demand Share |n Net Assets Cn|y After
L|qu|dat|on and Sett|ement of C|a|ms of artnersh|p
Cred|tors
In 2'RR,(7,R T3 G,$'(7\/
YZ
the Supreme Court ru|ed that "A share |n
a partnersh|p can be returned on|y after the comp|et|on of the |atter's
d|sso|ut|on, ||qu|dat|on and w|nd|ng up of the bus|ness." 8ut even upon
d|sso|ut|on of the partnersh|p, a partner has no r|ght to demand from
the other partners for them to be persona||y ||ab|e for the return of h|s
contr|but|on, espec|a||y when the partnersh|p operat|ons have been at a
|oss, thus:
We ho|d that respondents have no r|ght to demand from
pet|t|oners the return of the|r equ|ty share. Lxcept as
managers of the partnersh|p, pet|t|oners d|d not persona||y
ho|d |ts equ|ty or assets. 1he partnersh|p has a [ur|d|ca|
persona||ty separate and d|st|nct from that of each of the
partners." S|nce the cap|ta| was contr|buted to the
partnersh|p, not to pet|t|oners, |t |s the partnersh|p that must
refund the equ|ty of the ret|r|ng partners.
x x x
S|nce |t |s the partnersh|p, as a separate and d|st|nct
ent|ty, that must refund the shares of the partners, the
amount to be refunded |s necessar||y ||m|ted to |ts tota|
resources. In other words, |t can on|y pay out what |t has |n
|ts coffers, wh|ch cons|sts of a|| |ts assets. nowever, before
the partners can be pa|d the|r shares, the cred|tors of the
partnersh|p must f|rst be compensated. After a|| the cred|tors
have been pa|d, whatever |s |eft of the partnersh|p assets
becomes ava||ab|e for the payment of the partners' shares.
28

1he 2'RR,(7,R ru||ng re|terates the dec|s|on |n 0,+.8), T3
BRS,(,-3
YN
It shou|d be noted, however, that |n 0,+.8), the Court
2S
406 SCkA 14S
( )
n|b|d, at pp.
"S SCkA S11
( )

704
d|d not accept the theory of the Court of Appea|s that partners have a
persona| cause of act|on aga|nst the manag|ng partner for the |atter to
return the|r cap|ta| on the bas|s that "|a|nt|ffs' act|on was based on the
a||egat|on, substant|ated |n ev|dence, that Gregor|on Magdusa, hav|ng
taken de||very of the|r shares, fa||ed and refused and st||| fa||s and
refuses to pay them the|r c|a|ms. 1he ||ab|||ty, therefore, |s persona| to
Gregor|o Magdusa, and the [udgment shou|d be aga|nst h|s so|e |nterest,
not aga|nst the partnersh|p's."
28
1h|s shows that even when the cause
for d|sso|ut|on |s fraud, the act|on to recover must st||| be by way of
d|sso|ut|on and ||qu|dat|on of the partnersh|p affa|rs, and cannot be |n
the form of a persona| act|on aga|nst the a||eged|y defau|t|ng partner.
Note must be taken of the dec|s|on |n 0,(*'-7\ T3 ?-+ K"-+ <"3/
Yl

where two persons rece|ved from a cap|ta||st partner the |atter's
contr|but|on for the estab||shment of a bus|ness w|th c|ear agreement
on the shar|ng of prof|ts and |osses from such venture. When the
manag|ng partners refused to render an account|ng of the operat|ons of
the venture a|though they adm|tted there were sma|| prof|ts made, the
tr|a| court rendered [udgment d|rect|ng the manag|ng partners to return
the |nvestment of the cap|ta||st partner. 1he Court, |n aff|rm|ng the
return of contr|but|on, rather than d|rect|ng the d|sso|ut|on and
||qu|dat|on of the partnersh|p and determ|n|ng the share of the partners
|n the net assets, he|d
Inasmuch as |n th|s case noth|ng appears other than the
fa||ure to fu|f||| an ob||gat|on on the part of a partner who
acted as agent |n rece|v|ng money for a g|ven purpose, for
wh|ch he has rendered no account|ng, such agent |s
respons|b|e on|y for the |osses wh|ch, by a v|o|at|on of the
prov|s|ons of the |aw, he |ncurred. 1h|s be|ng an ob||gat|on to
pay |n cash, there are no other |osses than the |ega| |nterest,
wh|ch |nterest |s not due except from the t|me of the [ud|c|a|
demand, or, |n the present case from the f|||ng of the
comp|a|nt... We do not cons|der that art|c|e 1688 |s
app||cab|e |n th|s case, |n so far as |t proves "that the
partnersh|p |s ||ab|e to every partner for the amounts he may
have d|sbursed on account
m|d, at p. S13.
Î4 h||. 726
( )

of the same and for the proper |nterests," for the reason that
no other money that the contr|buted as cap|ta| |s |nvo|ved.
30

1he author be||eve that the dec|s|on |n 0,(*'-7\ |s wrong, for as
contemporaneous|y he|d |n 2'RR,(7,R/ , partner cannot seek recovery of
h|s contr|but|on, much |ess share |n the net assets of the partnersh|p,
un|ess |t be part of the d|sso|ut|on and ||qu|dat|on of the partnersh|p,
whereby the c|a|ms of partnersh|p cred|tors have pr|or|ty payment
r|ghts.
et the Supreme Court |n E% T3 K8\"-,
31
a|so ordered the pr|mary
partner to re|mburse h|s co-partner the |atter's |nvestment and
unrea||zed prof|ts. In E%/ the Court found that the pr|mary partner |n a
construct|on venture d|d not comp|y w|th h|s ob||gat|on to devote the
pro[ect for the benef|t of the partnersh|p:
nad the appe||ant not been rem|ss |n h|s ob||gat|ons as
partner and as pr|me contractor of the construct|on pro[ects
|n quest|on as he was bound to perform pursuant to the part-
nersh|p and sub-contract agreements ... |t |s reasonab|e to
expect that the partnersh|p wou|d have earned much more
than the 334,2SS.61... 1he award, therefore, made by the
tr|a| court of the amount of 200,000.00, as compensatory
damages, |s not specu|at|ve, but based on reasonab|e est|-
mate.
32

CCN1INUANCL CI Ak1NLkSnI 8USINLSS INS1LAD CI
WINDING-U
Ak1. 1840. In the fo||ow|ng cases, cred|tors of the
d|sso|ved partnersh|p are a|so cred|tors of the person or
partnersh|p cont|nu|ng the bus|ness:
(1) When any new partner |s adm|tted |nto an ex|st|ng
partnersh|p, or when any partner ret|res
fMS'./ at p. 729.
31
79 SCkA S98
mFS'./ at p. 61S.
and ass|gns (or the representat|ve of the deceased partner
ass|gns) h|s r|ghts |n partnersh|p property to two or more of
the partners, or to one or more of the partners and one or
more th|rd persons, |f the bus|ness |s cont|nued w|thout
||qu|dat|on of the partnersh|p affa|rs,
(2) When a|| but one partner ret|re and ass|gn (or the
representat|ve of a deceased partner ass|gns) the|r r|ghts |n
partnersh|p property to the rema|n|ng partner, who
cont|nues the bus|ness w|thout ||qu|dat|on of partnersh|p
affa|rs, e|ther a|one or w|th others,
(3) When any partner ret|res or d|es and the bus|ness of
the d|sso|ved partnersh|p |s cont|nued as set forth |n Nos. 1
and 2 of th|s art|c|e, w|th the consent of the ret|red partners
or the representat|ve of the deceased partner, but w|thout
any ass|gnment of h|s r|ght |n partnersh|p property,
(4) When a|| the partners or the|r representat|ves ass|gn
the|r r|ghts |n partnersh|p property to one or more th|rd
persons who prom|se to pay the debts and who cont|nue the
bus|ness of the d|sso|ved partnersh|p,
(5) When any partner wrongfu||y causes a d|sso|ut|on
and the rema|n|ng partners cont|nue the bus|ness under the
prov|s|ons of Art|c|e 1873, second paragraph, No. 2, e|ther
a|one or w|th others, and w|thout ||qu|dat|on of the
partnersh|p affa|rs.
(6) When a partner |s expe||ed and the rema|n|ng
partners cont|nue the bus|ness e|ther a|one or w|th others
w|thout ||qu|dat|on of the partnersh|p affa|rs.
1he ||ab|||ty of a th|rd person becom|ng a partner |n the
partnersh|p cont|nu|ng the bus|ness, under th|s art|c|e, to the
cred|tors of the d|sso|ved partnersh|p sha|| be sat|sf|ed out of
the partnersh|p

property on|y, un|ess there |s a st|pu|at|on to the contrary.
When the bus|ness of a partnersh|p after d|sso|ut|on |s
cont|nued under any cond|t|ons set forth |n th|s art|c|e the
cred|tors of the d|sso|ved partnersh|p, as aga|nst the separate
cred|tors of the ret|r|ng or deceased partner or the
representat|ve of the deceased partner, have a pr|or r|ght to
any c|a|m of the ret|red partner or the representat|ve of the
deceased partner aga|nst the person or partnersh|p
cont|nu|ng the bus|ness, on account of the ret|red or deceased
partner's |nterest |n the d|sso|ved partnersh|p or on account of
any cons|derat|on prom|sed for such |nterest or for h|s r|ght |n
partnersh|p property.
Noth|ng |n th|s art|c|e sha|| be he|d to mod|fy any r|ght of
cred|tors to set as|de any ass|gnment on the ground of fraud.
1he use by the person or partnersh|p cont|nu|ng the
bus|ness of the partnersh|p name, or the name of a deceased
partner as part thereof, sha|| not of |tse|f make the |nd|v|dua|
property of the deceased partner ||ab|e for any debts
contracted by such person or partnersh|p, (n)
Art|c|e 1840 of the New C|v|| Code recogn|zes that a partnersh|p
may be d|sso|ved, but the under|y|ng partnersh|p bus|ness enterpr|se
wou|d not be wound-up, and |n fact may be cont|nued as a go|ng
concern.
1. Who May Cont|nue artnersh|p 8us|ness and
Cb||gat|ons Assumed?
Art|c|e 1837 of the New C|v|| Code recogn|zes the r|ght of the
"partners who have not caused the d|sso|ut|on wrongfu||y," |f they so
des|re, to cont|nue the bus|ness |n the same name e|ther
by themse|ves or [o|nt|y w|th others dur|ng the agreed term for the
partnersh|p.
If such r|ght to cont|nue the partnersh|p bus|ness |s so exerc|sed,
then such exerc|s|ng partners must secure the payment by bond
approved by the court, or pay to any partner who has caused the
d|sso|ut|on wrongfu||y, the va|ue of h|s |nterest |n the partnersh|p at the
po|nt of d|sso|ut|on, |ess any damages recoverab|e from sa|d defau|t|ng
partner, as we|| as |ndemn|fy h|m aga|nst a|| present or future
partnersh|p ||ab|||t|es.
2. D|spos|t|on of L|ab|||t|es When artnersh|p 8us|ness
Cont|nued
Art|c|e 1840 of the New C|v|| Code prov|des that |f the d|sso|ved
partnersh|p |s not wounded-up and |nstead the partners so qua||f|ed
have chosen to cont|nue the partnersh|p enterpr|se as a go|ng concern,
then the cred|tors of the d|sso|ved partnersh|p sha|| a|so be cred|tors of
the person or partnersh|p cont|nu|ng the bus|ness:
(a) When any new partner |s adm|tted |nto an ex|st|ng
partnersh|p, or when any partner ret|res and ass|gns (or
the representat|ve of the deceased partner ass|gns) h|s
r|ghts |n partnersh|p property to two or more of the
partners and one or more th|rd persons, |f the bus|ness
|s cont|nued w|thout ||qu|dat|on of the partnersh|p
affa|rs,
(b) When a|| but one partner ret|res and ass|gns (or the
representat|ve of a deceased partner ass|gns) the|r
r|ghts |n partnersh|p property to the rema|n|ng partner,
who cont|nues the bus|ness w|thout ||qu|dat|on of
partnersh|p affa|rs, e|ther a|one or w|th others,
(c) When any partner ret|res or d|es and the bus|ness of the
d|sso|ved partnersh|p |s cont|nued, w|th the consent of
the ret|red partners or the representa
t|ve of the deceased partner, w|thout any ass|gnment of
h|s r|ght |n partnersh|p property,
(d) When a|| the partners or the|r representat|ves ass|gns
the|r r|ghts |n partnersh|p property to one or more th|rd
persons who prom|se to pay the debts and who
cont|nue the bus|ness of the d|sso|ved partnersh|p,
(e) When any partner wrongfu||y causes a d|sso|ut|on and
the rema|n|ng partners cont|nue the bus|ness, e|ther
a|one or w|th others, and w|thout ||qu|dat|on of the
partnersh|p affa|rs,
(f) When a partner |s expe||ed and the rema|n|ng partners
cont|nue the bus|ness e|ther a|one or w|th others
w|thout ||qu|dat|on of the partnersh|p affa|rs.
Art|c|e 1840 ||kew|se prov|des that the ||ab|||ty of a th|rd person
becom|ng a partner |n the partnersh|p cont|nu|ng the bus|ness, to the
cred|tors of the d|sso|ved partnersh|p sha|| be sat|sf|ed out of the
partnersh|p property on|y, un|ess there |s a st|pu|at|on to the contrary.
1h|s |s a form of "||m|ted ||ab|||ty" on the part of a new partner com|ng
|nto an ex|st|ng partnersh|p.
1he art|c|e a|so prov|des that when the bus|ness of a partnersh|p
after d|sso|ut|on |s cont|nued under any cond|t|ons set forth there|n, the
cred|tors of the d|sso|ved partnersh|p, as aga|nst the separate cred|tors
of the ret|r|ng or deceased partner or the representat|ve of the deceased
partner, have a pr|or r|ght to any c|a|m of the ret|red partner or the
representat|ve of the deceased partner aga|nst the person or
partnersh|p cont|nu|ng the bus|ness, on account of the ret|red or
deceased partner's |nterest |n the d|sso|ved partnersh|p or on account of
any cons|derat|on prom|sed for such |nterest or for h|s r|ght |n
partnersh|p property. Noth|ng |n the art|c|e sha|| be he|d to mod|fy any
r|ght of cred|tors to set as|de any ass|gnment on the ground of fraud.
I|na||y, the art|c|e prov|des that the use by the person or
partnersh|p cont|nu|ng the bus|ness of the partnersh|p name, or

the name of a deceased partner as part thereof, sha|| not of |tse|f make
the |nd|v|dua| property of the deceased partner ||ab|e for any debts
contracted by such person or partnersh|p.
1he forego|ng ru|es of ||ab|||t|es must a|ways be construed |n
consonance w|th the pr|mary doctr|ne of protect|ng cred|tors who dea|
|n good fa|th w|th the partnersh|p bus|ness and who cannot be expected
to be aware of the |nner work|ngs of the partnersh|p and the |ntramura|
dea||ngs of the partners.
1hus, |n ;'-+)"- T3 F),S7R) ;,b$'RR/
[[
where the partnersh|p
executed a chatte| mortgage over |ts propert|es |n favor of a
w|thdraw|ng partner, and the w|thdrawa| was not pub||shed to b|nd the
partnersh|p cred|tors, the Court ru|ed that the fa||ure of a partner to
have pub||shed her w|thdrawa| from the partnersh|p, and her agree|ng
to have the rema|n|ng partners proceed w|th runn|ng the partnersh|p
bus|ness |nstead of |ns|st|ng on the ||qu|dat|on of the partnersh|p, d|d
not re||eve such w|thdraw|ng partner from her ||ab|||ty to the
partnersh|p cred|tors. Lven |f the w|thdraw|ng partner acted |n good
fa|th, |t cou|d not overcome the pos|t|on of partnersh|p cred|tors who
a|so acted |n good fa|th, w|thout know|edge of her w|thdrawa| from the
partnersh|p. 1hus, the Court aff|rmed the stand|ng of the partnersh|p
cred|tors to seek the annu|ment of the chatte| mortgage for hav|ng been
entered |nto adverse to the|r |nterests.
3. D|spos|t|on of L|ab|||t|es When D|sso|ut|on Is Caused by the
ket|rement or Death of a artner
Ak1. 1841. When any partner ret|res or d|es, and the
bus|ness |s cont|nued under any of the cond|t|ons set forth |n
the preced|ng art|c|e, or |n Art|c|e 1837, second paragraph,
No. 2, w|thout any sett|ement of accounts as between h|m or
h|s estate and the person or partnersh|p cont|nu|ng
M
88 SCkA 623 (1979).

the bus|ness, un|ess otherw|se agreed, he or h|s |ega|
representat|ve as aga|nst such person or partnersh|p may
have the va|ue of h|s |nterest at the date of d|sso|ut|on
ascerta|ned, and sha|| rece|ve as an ord|nary cred|tor an
amount equa| to the va|ue of h|s |nterest |n the d|sso|ved
partnersh|p w|th |nterest, or at h|s opt|on at the opt|on of h|s
|ega| representat|ve, |n ||eu of |nterest, the prof|ts attr|butab|e
to the use of h|s r|ght |n the property of the d|sso|ved
partnersh|p, K("T'.7./ 1hat the cred|tors of the d|sso|ved
partnersh|p as aga|nst the separate cred|tors, or the
representat|ve of the ret|red or deceased partners, sha|| have
pr|or|ty on any c|a|m ar|s|ng under th|s art|c|e, as prov|ded by
Art|c|e 1840, th|rd paragraph, (n)
Under Art|c|e 1841 of the New C|v|| Code, when any partner ret|res
or d|es, and the bus|ness |s cont|nued under any of the cond|t|ons set
forth |n Art|c|e 1840, or |n Art|c|e 1837(2), w|thout any sett|ement of
accounts as between h|m or h|s estate and the person or partnersh|p
cont|nu|ng the bus|ness, un|ess otherw|se agreed, then the fo||ow|ng
ru|es sha|| app|y:
(a) 1he partner or h|s |ega| representat|ve as aga|nst such
person or partnersh|p may have the va|ue of h|s
|nterest at the date of d|sso|ut|on ascerta|ned, and
(b) 1he partner or h|s |ega| representat|ve sha|| rece|ve as
an ord|nary cred|tor an amount equa| to the va|ue of
h|s |nterest |n the d|sso|ved partnersh|p, w|th opt|on:
(i) to rece|ve |nterest, or
(ii) |n ||eu of |nterest, the prof|ts attr|butab|e to the
use of h|s r|ght |n the property of the d|sso|ved
partnersh|p.

Nonethe|ess, the art|c|e express|y prov|des that the cred|tors of the
d|sso|ved partnersh|p as aga|nst the separate cred|tors, or the
representat|ve of the ret|red or deceased partner, sha|| have pr|or|ty on
any c|a|m ar|s|ng under sa|d art|c|e, as prov|ded by Art|c|e 1840, th|rd
paragraph.
4. artner's k|ght to Demand an Account|ng
Ak1. 1842. 1he r|ght to an account of h|s |nterest sha||
accrue to any partner, or h|s |ega| representat|ve as aga|nst
the w|nd|ng up partners or the surv|v|ng partners or the
person or partnersh|p cont|nu|ng the bus|ness, at the date of
d|sso|ut|on, |n the absence of any agreement to the contrary.
(n)
Under Art|c|e 1842 of New C|v|| Code, |n the absence of any
agreement to the contrary, the r|ght to rece|ve an account|ng of h|s
|nterest sha|| accrue to any partner, or h|s |ega| representat|ve, as
aga|nst the w|nd|ng-up partners, or the surv|v|ng partners, or the person
or partnersh|p cont|nu|ng the bus|ness, at the date of d|sso|ut|on.
In L87 @78-+ T3 F-*7($7.',*7 B667RR,*7 <"8(*/
[
] the Court he|d
that the r|ght to account|ng does not prescr|be dur|ng the ||fe of the
partnersh|p, and that prescr|pt|on beg|ns to run on|y upon the
d|sso|ut|on of the partnersh|p and f|na| account|ng |s done, under the
rat|ona|e that:
. . . As stated by the respondent, a partner shares not
on|y |n prof|ts but a|so |n the |osses of the f|rm. If exce||ent
re|at|ons ex|st among the partners at the start of bus|ness
and
M
169 SCkA 746 (1989).

a|| the partners are more |nterested |n see|ng the f|rm grow
rather than get |mmed|ate returns, a deferment of shar|ng |n
the prof|ts |s perfect|y p|aus|b|e. It wou|d be |ncorrect to state
that |f a partner does not assert h|s r|ghts anyt|me w|th|n ten
years from the start of operat|ons, such r|ghts are
|rretr|evab|y |ost. 1he pr|vate respondent's cause of act|on |s
prem|sed upon the fa||ure of the pet|t|oner to g|ve h|m the
agreed prof|ts |n the operat|on of Sun Wah anc|ter|a. In
effect the pr|vate respondent was ask|ng for an account|ng of
h|s |nterests |n the partnersh|p.
3S

oCo
$'./ at p. 7S4.

CnA1Lk 10
LIMI1LD Ak1NLkSnIS
NA1UkL, ICkMA1ICN AND kLGIS1kA1ICN
Ak1. 1843. A ||m|ted partnersh|p |s one formed by two or
more persons under the prov|s|ons of the fo||ow|ng art|c|e,
hav|ng as members one or more genera| partners and one or
more ||m|ted partners. 1he ||m|ted partners as such sha|| not
be bound by the ob||gat|ons of the partnersh|p.
Accord|ng to 1o|ent|no, the prov|s|ons of the New C|v|| Code on
||m|ted partnersh|ps were taken from the Un|form L|m|ted artnersh|p
Act of the Un|ted States of Amer|ca.
1
In essence, Amer|can dec|s|ons
re|at|ng to exp|a|n|ng the effects of the prov|s|ons of the Un|form
L|m|ted artnersh|p Act shou|d be taken as qu|te |nstruct|ve |n
cons|der|ng the prov|s|ons of the New C|v|| Code on ||m|ted
partnersh|ps.
1he De Leons g|ve a more descr|pt|ve h|stor|ca| background of the
||m|ted partnersh|p as "an outgrowth of the koman Law, wh|ch
prov|ded that one or more persons m|ght turn over property to a s|ave
and avo|d persona| ||ab|||ty by trad|ng through h|m."
2
1hey descr|be how
the |nst|tut|on of ||m|ted partnersh|p
'See ,--"*,*'"-) '- 1CLLN1INC, CIVIL CCDL CI 1nL nILIINLS, Vo|. V, pp.
38239S (1992 ed.), ;77 ,R)" keport of the Code Comm|ss|on, p. 149.
2
DL LLCNS, p. 29S.
714

LIMI1LD Ak1NLkSnIS 71S
"grew up |n the c|v|| |aw, ru|es govern|ng th|s form of bus|ness,
subst|tut|ng, of course, for the s|aves, free persons who become genera|
partners w|th un||m|ted ||ab|||ty," and |ts deve|opment |nto the Un|ted
States, thus: "Lou|s|ana, wh|ch uses the c|v|| |nstead of the common |aw,
recogn|zed th|s form of organ|zat|on. In 1822, the pr|nc|pa| ru|es on
||m|ted partnersh|p wh|ch grew up |n the c|v|| |aw were cod|f|ed and
enacted |nto a statute by the State of New ork. New ork's |ead has
been fo||owed by most common |aw [ur|sd|ct|ons though Lng|and d|d
not fa|| |nto ||ne unt|| 1907."
3

8aut|sta quoted from the New ork dec|s|on |n B$7) T3 4"b-'-+,
4

to descr|be the or|g|n and deve|opment of ||m|ted partnersh|ps, as
hav|ng been |ntroduced by statute |n New ork, but essent|a||y hav|ng
been borrowed from the Irench Code, wh|ch |n turn had |ts or|g|ns from
"the m|dd|e ages |t was one of the most frequent comb|nat|ons of trade,
and was the bas|s of the act|ve and w|de|y extended commerce of the
opu|ent mar|t|me c|t|es of Ita|y. It contr|buted |arge|y to the support of
the great and prosperous trade carr|ed on a|ong the shores of the
Med|terranean," exp|a|n|ng further:
At a per|od when cap|ta| was |n the hands of nob|es and
c|ergy, who, from pr|de of caste, or cannon|ca| regu|at|ons,
cou|d not engage d|rect|y |n trade, |t afforded the means of
secret|y embark|ng |n commerc|a| enterpr|ses, and reap|ng
the prof|ts of such |ucrat|ve pursu|ts, w|thout persona| r|sk,
and thus the vast wea|th, wh|ch otherw|se cou|d have |a|n
dormant |n the coffers of the r|ch, became the foundat|on, by
means of th|s |ngen|ous |dea, of the great commerce wh|ch
made pr|nces of the merchants, e|evated to the trad|ng c|ass,
and brought the Commons |nto pos|t|on as an |nf|uent|a|
estate |n the Commonwea|th. Independent of the |nterest
natura||y attach|ng to the h|story of a mercant||e contract, of
such anc|ent or|g|n, but so recent|y |ntroduced where the
genera| partnersh|p, known to the common |aw has h|therto
[
RS'./ P'*'-+ Char|es W. Gertenberg,"?(+,-'\,*'"- ,-. <"-*("R/O 3
MCDLkN 8USINLSS (1919), p. S0.
4
1 8rad. (N.. SUI1. C|t.) 321, pp. 399-400. :,8*')*, ,P1-"bR7.+7)
*5,* *57 B$7('P,- .7P')'"- ') "reproduced |n CkANL AND MCGkUDLk,
CASLS CN Ak1NLkSnI, 674-67S."

ex|sted a|one, I have been |ed to refer to the facts [ust stated,
for the purpose of show|ng that the spec|a| partnersh|p |s, |n
fact, no nove|ty, but an |nst|tut|on of cons|derab|e ant|qu|ty,
we|| known, understood and regu|ated. * * * 1he
partnersh|p rema|ns under the dom|n|on of the common
|aw. It has created between the spec|a| and genera| partner a
t|e, wh|ch |s not sub[ected to the capr|ce of unforeseen
changes, |t has produced mutua| re|at|ons of conf|dence,
wh|ch the genera| partner cannot be forced to extend to
strangers.
S

It shou|d be recogn|zed that pr|or to the New C|v|| Code, ||m|ted
partnersh|ps were covered by the Span|sh Code of Commerce. In J"
<58-+ <,-+ T3 K,P'&'P <"$$7(P',R Co.,
6
our Supreme Court recogn|zed
that there ex|sted prov|s|ons |n the Code of Commerce govern|ng ||m|ted
partners: "1o estab||sh a ||m|ted partnersh|p there must be, at |east one
genera| partner and the name of at |east one of the genera| partners
must appear |n the f|rm name."
7

What seems c|ear from a|| the forego|ng |s that the |nst|tut|on of
||m|ted partnersh|p had |ts or|g|n from c|v|| |aw, was adopted |nto the
Amer|can common |aw system, from whence |t found |ts current
adopt|on |nto the h|||pp|ne |ega| system through the prov|s|ons of the
New C|v|| Code of the h|||pp|nes. L|m|ted partnersh|ps therefore
or|g|nated and grew pr|mar||y from commerc|a| partnersh|p pract|ces.
1he|r or|g|n |n "ant|qu|ty" may be the bas|s to say that under modern
sett|ng, the ||m|ted partnersh|p may be an |nadequate med|um of do|ng
bus|ness, for |ts ma|n features and ob[ect|ves cou|d be ach|eved by the
modern corporat|on, espec|a||y the c|ose corporat|on veh|c|e.
1. Lssence of the Med|um of L|m|ted artnersh|p
Art|c|e 1843 of the New C|v|| Code def|nes a ||m|ted partnersh|p as
"one formed by two or more persons under the prov|s|ons of the
fo||ow|ng art|c|e, hav|ng as members one or
S
8AU1IS1A, at pp. 336-337.
6
4S h||. 142 (1923).
N
FS'./ at pp. 1S0-1S1, Code of Commerce, Arts. 122(2),

LIMI1LD Ak1NLkSnIS 717
more genera| partner and one or more ||m|ted partners. 1he ||m|ted
partners as such sha|| not be bound by the ob||gat|ons of the
partnersh|p."
1he Amer|can dec|s|on |n >"7&7( T3 >,RR/
e
descr|bes the purpose
and essence of the ||m|ted partnersh|p under the Un|form L|m|ted
artnersh|p Act, as fo||ows:
y y y 3 B ||m|ted partnersh|p |s str|ct|y a creature of
statute, |ts ob[ect be|ng to enab|e persons not des|r|ng to
engage |n a part|cu|ar bus|ness, to |nvest cap|ta| |n |t and to
share |n the prof|ts wh|ch m|ght be expected to resu|t from
|ts use, w|thout becom|ng ||ab|e as genera| partners for a||
partnersh|p debts. In other words, |t |s a form of partnersh|p
|n wh|ch the ||ab|||ty to th|rd persons of one or more of |ts
members |s ||m|ted to a f|xed amount.. .
9

B) , )67P'7) "& P"-*(,P*/ , R'$'*7. 6,(*-7()5'6 $,% S7
P5,(,P*7('\7. ,) , &"($,R "( )"R7$- P"-*(,P*/ |n that no ||m|ted
partnersh|p |s formed un|ess the forma||t|es prov|ded for under Art|c|e
1844 of New C|v|| Code are comp||ed w|th, and fa||ure to so comp|y w|th
the forma||t|es on|y br|ngs about the creat|on of a genera| partnersh|p.
Cn the other hand, hav|ng comp||ed w|th the forma||t|es mandated
by artnersh|p Law to form such a med|um of do|ng bus|ness, the
d|st|ngu|sh|ng feature of a ||m|ted partnersh|p |s that |t has through the
||m|ted partners been ab|e to |nst|tute a form of "||m|ted ||ab|||ty," |n that
the ||m|ted partner as such sha|| not be bound by the ob||gat|ons of the
partnersh|p.
1he |anguage used |n the |ast sentence of Art|c|e 1843 of New C|v||
Code ("1he ||m|ted partners as such sha|| not be bound by the
ob||gat|ons of the partnersh|p.") carr|es more the doctr|ne of "no
||ab|||ty" for ||m|ted partners, and perhaps more
8411 .2d 230 (1966).
)
<'*'-+ Vo| 2, kCWLL CN Ak1NLkSnI, 2d Ld., Sec. S3.0, pp. S49-SS2,
8, U.L.A., p. 2, @,-'7( T3 :"b."'-/ 282 N.. 32, 24 N.L. 2d 732, G8\'P1, T3
G,+7(/ 30S N.. 191,111 N.L. 2d 878, 39 A.L.k. 2d 288.

accurate|y ref|ects that |n c|v|| |aw, the debts and ob||gat|ons of the
partnersh|p perta|n to |t as a separate [ur|d|ca| person, and that
genera||y non-contract|ng part|es, such as the ||m|ted partners, are not
bound by sa|d contractua| debts and ob||gat|ons under the pr|nc|p|e of
"pr|v|ty" or "re|at|v|ty" under genera| contract |aw. 8ut frank|y, the use
of the term "||m|ted ||ab|||ty" for ||m|ted partners |s more appropr|ate
s|nce, as w||| be d|scussed hereunder, ||m|ted partners do assume
||m|ted ||ab|||ty perta|n|ng to the|r contr|but|ons and partnersh|p assets
he|d them under Art|c|e 18S8.
L|kew|se, as w||| a|so be shown |n the d|scuss|ons hereunder, the
||m|ted ||ab|||ty feature of the ||m|ted partnersh|p |s ach|eved by tak|ng
away from the ||m|ted partners most of the key features of partnersh|ps
|n genera|, name|y, mutua| agency, .7R7P*8) 67()"-,7/ and the r|ght to
manage partnersh|p affa|rs.
2. kequ|rements for the Iormat|on of a L|m|ted artnersh|p
Ak1. 1844. 1wo or more persons des|r|ng to
form a ||m|ted partnersh|p sha||:
(1) S|gn and swear to a cert|f|cate, wh|ch sha||
state
(a) 1he name of the partnersh|p, add|ng
thereto the word O@'$'*7.dO
(b) 1he character of the bus|ness,
(c) 1he |ocat|on of the pr|nc|pa| p|ace of
bus|ness,
(d) 1he name and p|ace of res|dence of each
member, genera| and ||m|ted partners be|ng
respect|ve|y des|gnated,
(e) 1he term for wh|ch the partnersh|p |s to
ex|st,
(f) 1he amount of cash and a descr|pt|on of and the
agreed va|ue of the other property contr|buted by each
||m|ted partner,
(g) 1he add|t|ona| contr|but|ons, |f any, to be made
by each ||m|ted partner and the t|mes at wh|ch or events
on the happen|ng of wh|ch they sha|| be made,
(h) 1he t|me, |f agreed upon, when the contr|but|on
of each ||m|ted partner |s to be returned,
(i) 1he share of the prof|ts or the other compensat|on
by way of |ncome wh|ch each ||m|ted partner sha|| rece|ve
by reason of h|s contr|but|on,
([) 1he r|ght, |f g|ven, of a ||m|ted partner to subst|tute
an ass|gnee as contr|butor |n h|s p|ace, and the terms and
cond|t|ons of the subst|tut|on,
(k) 1he r|ght, |f g|ven, of the partners to adm|t
add|t|ona| ||m|ted partners,
(I) 1he r|ght, |f g|ven, of one or more of the ||m|ted
partners to pr|or|ty over other ||m|ted partners, as to
contr|but|ons or as to compensat|on by way of |ncome,
and the nature of such pr|or|ty,
(m) 1he r|ght, |f g|ven, of the rema|n|ng genera|
partner or partners to cont|nue the bus|ness on the death,
ret|rement, c|v|| |nterd|ct|on, |nsan|ty or |nso|vency of a
genera| partner, and
(n) 1he r|ght, |f g|ven, of a ||m|ted partner to demand
and rece|ve property other than cash |n return for h|s
contr|but|on.
(2) I||e for record the cert|f|cate |n the Cff|ce of the
Secur|t|es and Lxchange Comm|ss|on.

720
A ||m|ted partnersh|p |s formed |f there has been
substant|a| comp||ance |n good fa|th w|th the forego|ng
requ|rements.
Art|c|e 1844 of the New C|v|| Code |ays down the ru|es wh|ch
two or more persons des|r|ng to form a ||m|ted partnersh|p need
to comp|y w|th, thus:
(a) ;'+- ,-. )b7,( *" , <7(*'&'P,*7 "& @'$'*7.
K,(*-7()5'6/ b5'P5 )5,RR P"-*,'- *57 &"RR"b'-+
6("T')'"-) .7)P('S'-+ "( .7)'+-,*'-+ *57k
partnersh|p name, add|ng thereto "L|m|ted,"
character of the bus|ness,
pr|nc|pa| p|ace of bus|ness,
term of ex|stence,
name and res|dence of each of the partners,
w|th c|ear des|gnat|on of who are the genera|
and ||m|ted partners, and the r|ght, '& +'T7-, of
partners to adm|t add|t|ona| ||m|ted partners,
contr|but|ons to the partnersh|p, and the terms
under wh|ch add|t|ona| contr|but|ons are to be
made by the ||m|ted partners,
r|ght, '& +'T7-/ of a ||m|ted partner to subst|tute
an ass|gnee |n h|s p|ace,
t|me, '& ,+(77. 86"-/ when the contr|but|ons of
||m|ted partners sha|| be returned, and the r|ght,
'& +'T7-/ to demand and rece|ve property other
than cash |n return for such contr|but|ons,
share of the prof|ts or the other compensat|on
by way of |ncome wh|ch each ||m|ted partner
sha|| rece|ve by reason of h|s contr|but|on, and
the r|ght, '& +'T7-/ of one or more of the ||m|ted
partners to pr|or|ty over other ||m|ted partners,

LIMI1LD Ak1NLkSnIS
721
r|ght, '& +'T7-/ of the rema|n|ng genera| partner or
partners to cont|nue the bus|ness on the death,
ret|rement, c|v|| |nterd|ct|on, |nsan|ty or |nso|vency
of a genera| partner,
-and -
(b) L'R7 )8P5 <7(*'&'P,*7 b'*5 *57 ;D<3
1he |nd|cated prov|s|ons under Art|c|e 1846 wh|ch wou|d prov|de
for a r|ght O'& +'T7-O must y|e|d to the |ega| conc|us|on that |n effect the
r|ght a||uded to does not ex|st |f not express|y prov|ded for |n the
Cert|f|cate of L|m|ted artnersh|p or by another prov|s|on |n the New
C|v|| Code.
>"7&7( T3 >,'R,
10
exp|a|ns the rat|ona|e |n Amer|can [ur|sd|ct|on, on
the forma||t|es requ|red of ||m|ted partnersh|p under the Un|form
L|m|ted artnersh|p Act, thus
xxx. 1he ma|n purpose of the statutory regu|at|on |s to
ensure the ||m|tat|on on the ||ab|||ty of ||m|ted partners. It
natura||y fo||ows that |n order to obta|n the pr|v||ege of
||m|ted ||ab|||ty, one must conform to the statutory
requ|rements.. Cbv|ous|y, the purpose of the requ|rement
that the cert|f|cate sha|| be recorded |s to acqua|nt th|rd
persons dea||ng w|th the partnersh|p w|th the essent|a|
features of the partnersh|p arrangement. . . Under the
c|rcumstances of th|s case, where ne|ther the r|ghts of th|rd
part|es nor a partner's c|a|m of ||m|ted ||ab|||ty |s |nvo|ved, we
cannot see how the fa||ure to record the cert|f|cate cou|d
affect the ex|stence of a ||m|ted partnersh|p |nsofar as the
part|es, '-*7( )7/ are concerned. . .
W|th respect to the contents, swear|ng and SLC-f|||ng of the
Cert|f|cate of L|m|ted artnersh|p, Art|c|e 1846 of the New
10
411 .2d 230 (1966).
``
<'*'-+ C'R$,- K,'- Q 2,(-')5 <"3/ T3 @7+8$/ 197 Md. 66S, 80 A.2d
G3;3 ?+'7)S% <"3 T3 @'-.),%/ 112 Va. 767, 72 S.L. 672, 08. <"-*("R
@,S"(,*"('7) T3 <"T7%/ 2 Utah 2d 8S,269 . 2d 8S4, :')-" T3 >%.7/ 290 I.
1961), 68 C.I.S., Ak1NLkSnI, Sec. 4S0, p. 1006, and 40 AM.IUk.,
Ak1NLkSnI, Sec. S06, p. 47S.

722
C|v|| Code recogn|zes the doctr|ne of ")8S)*,-*',R P"$6R',-P7kO "A
||m|ted partnersh|p |s formed |f there has been substant|a| comp||ance |n
good fa|th w|th the forego|ng requ|rements." Wh||e there |s no doubt
that the execut|on of a sworn Cert|f|cate and |ts reg|strat|on w|th the SLC
are essent|a| e|ements to estab||sh a ||m|ted partnersh|p, the quest|on
wou|d be: I5'P5 "& *57 7-8$7(,*7. P"-*7-*) "& *57 <7(*'&'P,*7 8-.7(
B(*'PR7 `jaa ,(7 , O$8)*O *" (7,P5 *57 R7T7R "& O)8S)*,-*',R
P"$6R',-P7rO
1o compare, under the Code of Commerce then |n p|ace, J" <58-+
<,-+ T3 K,P'&'P <"$$7(P',R Co.,
12
he|d:
1o estab||sh a ||m|ted partnersh|p there must be, at |east
one genera| partner and the name of at |east one of the
genera| partners must appear |n the f|rm name.
13
8ut ne|ther
of these requ|rements have been fu|f|||ed. 1he genera| ru|e |s,
that those who seek to ava|| themse|ves of the protect|on of
|aws perm|tt|ng the creat|on of ||m|ted partnersh|ps must
show a substant|a||y fu|| comp||ance w|th such |aws. A
||m|ted partnersh|p that has not comp||ed w|th the |aw of |ts
creat|on |s not cons|dered a ||m|ted partnersh|p at a||, but a
genera| partnersh|p |n wh|ch a|| the members are ||ab|e.
14

It can thus be conc|uded, that the |nst|tut|on of who |s or
are the genera| partners, and who |s or are the ||m|ted
partners, |nc|ud|ng the amount or nature of the|r
contr|but|ons, are essent|a| contents of the Cert|f|cate of
L|m|ted artnersh|p. In other words, ||m|ted partners cannot
c|a|m the benef|ts of ||m|ted ||ab|||ty un|ess they f|nd
themse|ves express|y c|ass|f|ed as such |n the du|y f||ed and
reg|stered Cert|f|cate of L|m|ted artnersh|p.
1S

Nonethe|ess, the forma| requ|rements to estab||sh a ||m|ted
partnersh|p are re|evant on|y |nsofar as estab||sh|ng the ||m|ted ||ab|||ty
r|ghts aga|nst th|rd part|es.
1
*4S h||. 142 (1923).
OFS'./ at pp. 146,148, P'*'-+ Code of Commerce, Arts. 122(2).
8
RS'./ at
pp. 1S0-1S1, P'*'-+ MLCnLM, LLLMLN1S CI Ak1NLkSnI, p. 412, GILM- CkL,
Ak1NLkSnI, pp. 499, S9S, 20 k.C.L., 1064.
1S
Same (8R'-+ '- @"b7 T3 B('\"-, K"b7( Q @'+5* <"3/ 427 .2d 366
( )

Under Amer|can [ur|sprudence, part|cu|ar|y under the >"7&7(
dec|s|on, the |ssue as to "substant|a| comp||ance" has no re|evance |n
reso|v|ng |ssues '-*7( )7 among the partners, and genera| partners are
bound by the contractua| comm|tment under the partnersh|p agreement
to ho|d the ||m|ted partners ||ab|e for partnersh|p debts and ob||gat|ons
on|y to the extent of the|r contr|but|ons.
1o the same effect |s the ru||ng |n J" <58-+ <,-+ T3 K,P'&'P
<"$$7(P',R Co.,
16
under the terms of the Code of Commerce wh|ch a|so
requ|red execut|on of pub||c document and forma| reg|strat|on of the
cert|f|cate of ||m|ted partnersh|p, thus
1he supreme court of Spa|n has repeated|y he|d that
notw|thstand|ng the ob||gat|on of the members to reg|ster
the art|c|es of assoc|at|on |n the commerc|a| reg|stry,
agreements conta|n|ng a|| the essent|a| requ|s|tes are va||d as
between the contract|ng part|es, whatever the form adopted,
and that, wh||e the fa||ure to reg|ster |n the commerc|a|
reg|stry necessar||y prec|udes the members from enforc|ng
r|ghts acqu|red by them aga|nst th|rd persons, such fa||ure
cannot pre[ud|ce the r|ghts of th|rd persons..
1he mandatory requ|rement of the f|||ng of the Cert|f|cate w|th the
SLC const|tutes the reg|strat|on or not|ce that b|nds the pub||c to the
essent|a| nature of the partnersh|p as one const|tut|ng a ||m|ted ||ab|||ty
on the part of the ||m|ted partners. 1h|s |s cons|stent w|th the
commerc|a| |aw pract|ce that a d|m|nut|on of r|ghts or the ||m|tat|on of
remed|es brought about by a commerc|a| med|um sha|| come about on|y
when there has been reg|strat|on that can b|nd the dea||ng pub||c.
Amer|can [ur|sprudence requ|res that the f|||ng of the Cert|f|cate of
L|m|ted artnersh|p w|th the proper government agency (the SLC |n our
case), must be done w|th|n a reasonab|e t|me.
18

16
4S h||. 142 (1923).
`N
FS'./ at p. 1S3.
18
Stowe T3 0,(('R77)/ 44 .2d 368, ;"R"$"-* T3 K"R1 47T7R"6$7-*
<"3/ S4 Ca|. kptr. 22, 27 (1966).

In our [ur|sd|ct|on, the fact of non-f|||ng of the Cert|f|cate of L|m|ted
artnersh|p does not br|ng about a ||m|ted partnersh|p, and what |s
deemed const|tuted |s a genera| partnersh|p.
3. Ia|se Statement |n the SLC Cert|f|cate
Ak1. 1847. If the cert|f|cate conta|ns a fa|se
statement, one who suffers |oss by re||ance on
such statement may ho|d ||ab|e any party to the
cert|f|cate who knew the statement to be fa|se:
(1) At the t|me he s|gned the cert|f|cate, or
(2) Subsequent|y, but w|th|n a suff|c|ent t|me
before the statement was re||ed upon to enab|e
h|m to cance| or amend the cert|f|cate, or to f||e
a pet|t|on for |ts cance||at|on or amendment as
prov|ded |n Art|c|e 186S.
Under Art|c|e 1847 of the New C|v|| Code, |f the Cert|f|cate
conta|ns a fa|se statement, one who suffers |oss by re||ance on such
statement may ho|d ||ab|e "any party to the cert|f|cate who knew the
statement to be fa|se" at the t|me he s|gned the cert|f|cate or
subsequent|y |earn|ng of such fa|se statement, fa||ed to cance| or amend
the cert|f|cate or to f||e a pet|t|on for such cance||at|on or amendment!
1he |anguage cover|ng ||ab|||ty under Art|c|e 1847 |nd|cates that a
||m|ted partner who s|gns the Cert|f|cate know|ng prov|s|ons there|n to
be fa|se, may be he|d un||m|ted|y ||ab|e to a person who suffers |oss by
reason of such fa|se statement. 8ut |t does not create genera| un||m|ted
||ab|||ty, because on|y th|rd part|es who re||ed upon such fa|se
statements, and have suffered |oss thereby, can ho|d the ||m|ted partner
||ab|e beyond h|s contr|but|on.

1hus, |n the Amer|can dec|s|on |n C'R$,- K,'-* Q 2,(-')5
<"3 T3 @7+8$/
')
|t was he|d that fa|se|y |nd|cat|ng |n the art|c|es of
||m|ted partnersh|p the contr|but|on of the ||m|ted partner at |ower
amount than what was actua||y contr|buted cannot be a bas|s to
ho|d such ||m|ted partner ||ab|e beyond h|s contr|but|on, s|nce |t
wou|d be |nconce|vab|e that a cred|tor cou|d suffer |oss by re|y|ng
on an |nvestment stated |n the cert|f|cate of partnersh|p wh|ch
was sma||er than the amount actua||y contr|buted, and that |t |s
when the actua| contr|but|on |s |ess than amount stated |n the
cert|f|cate that re||ance upon |t may cause |oss to a cred|tor.
4. Name of L|m|ted artnersh|p
Ak1. 1846. 1he surname of a ||m|ted partner
sha|| not appear |n the partnersh|p name un|ess:
(1) It |s a|so the surname of a genera| partner,
or
(2) r|or to the t|me when the ||m|ted partner
became such, the bus|ness has been carr|ed on
under a name |n wh|ch h|s surname appeared.
A ||m|ted partner whose surname appears |n
a partnersh|p name contrary to the prov|s|ons of
the f|rst paragraph |s ||ab|e as a genera| partner
to partnersh|p cred|tors who extend cred|t to the
partnersh|p w|thout actua| know|edge that he |s
not a genera| partner.
Under Art|c|e 1844 of the New C|v|| Code, among the contents of
the Cert|f|cate of L|m|ted artnersh|p shou|d be "1he name of the
partnersh|p, add|ng thereto the word 'L|m|ted.'" In contrast, under
Art|c|es 122(2), 146 and 148 of the Code of Commerce, as descr|bed |n J"
<58-+ <,-+ T3 K,P'&'P <"$$7(P',R
19
80 A.2d 906, 29 A.L.k. 2d 286 (19S1).

Co.:
20
"1o estab||sh a ||m|ted partnersh|p, there must be, at |east, one
genera| partner and the name of at |east one of the genera| partners
must appear |n the f|rm name."
At present t|me, |t |s not cr|t|ca| under the terms of Art|c|e 1844
that the f|rm name shou|d conta|n the names of the genera| partners,
or any of them, and what |s |mposed |s to add the word "L|m|ted." In
fact, under Art|c|e 181S (wh|ch |s the f|rst art|c|e under the sect|on
denom|nated as "?SR'+,*'"-) "& *57 K,(*-7() b'*5 G7+,(. *" !5'(.
K7()"-)^H/ "Lvery partner sha|| operate under a f|rm name, b5'P5 $,%
"( $,% -"* '-PR8.7 *57 -,$7 "& "-7 "( $"(7 "& *57 6,(*-7()." 1h|s can
on|y |ead to the conc|us|on that under our present Law on
artnersh|ps, |t |s not requ|red as an essent|a| e|ement to estab||sh a
||m|ted partnersh|p, that the f|rm name shou|d conta|n the names of
the genera| partners, or any of them.
a. Surname of L|m|ted artner
Under h|||pp|ne artnersh|p Law, one of the key e|ements by
wh|ch ||m|ted partners are to be accorded the|r ||m|ted ||ab|||ty r|ghts,
|s that they pract|ca||y must become |nv|s|b|e to the pub||c when |t
comes to partnersh|p dea||ngs: they are mere 6,))'T7 '-T7)*"() |n the
partnersh|p bus|ness, and they do not part|c|pate |n |ts management
nor are they agents of the partners and of the partnersh|p. And every
|nd|cat|on that wou|d |ead the dea||ng pub||c to be||eve or presume
that a ||m|ted partner part|c|pates |n management or contro| of the
f|rm becomes a bas|s by wh|ch such ||m|ted partners sha|| be str|pped
of the|r ||m|ted ||ab|||ty r|ght.
1hus, Art|c|e 1846 of the New C|v|| Code prov|des that the
"surname of a ||m|ted partner sha|| not appear |n the partnersh|p
name, un|ess |t happens to be the surname of a genera| partner or that
pr|or to the t|me when the ||m|ted partner became such, the bus|ness
had been carr|ed or under a name |n wh|ch such surname appeared.
As a consequence, "A ||m|ted partner whose surname appears |n a
partnersh|p name . . . sha|| be ||ab|e as a
OaZ h||. 142 (1923).
genera| partner to partnersh|p cred|tors who extend cred|t to the
partnersh|p w|thout actua| know|edge that he |s not a genera| partner."
Lstoppe| |s therefore the |ega| bas|s upon wh|ch a ||m|ted partner
becomes ||ab|e to a cred|tor who acted on the be||ef that by the |nc|us|on
of h|s surname, the partner was a genera| partner.
1he prob|em w|th th|s ru|e of estoppe| |s that |t wou|d be d|ff|cu|t
to |mag|ne how such a partnersh|p cred|tor cou|d c|a|m good fa|th, s|nce
w|th the f|||ng the SLC of the Cert|f|cate of L|m|ted artnersh|p |nd|cat|ng
there|n a partner as a ||m|ted partner, wou|d amount to construct|ve
know|edge of such fact b|nd|ng on the who|e wor|d. 4"7) K,(*-7()5'6
@,b -"* '-*7-. *5,* P"$6'',-P7 b'*5 *57 $,-.,*"(% (7g8'(7$7-*) "&
7W7P8*'"-/ )b7,('-+ ,-. ;D<V&'R'-+ "& *57 <7(*'&'P,*7 "& @'$'*7.
K,(*-7()5'6 )5,RR ,$"8-* *" (7+')*(,*'"- S'-.'-+ "- *57 b5"R7 b"(R.r In
any event, Art|c|e 1846 re||es upon the pr|nc|pa| of "w|thout actua|
know|edge," to the exc|us|on of the pr|nc|p|e of construct|ve know|edge.
It wou|d seem therefore that the defau|t ru|e |n h|||pp|ne
artnersh|p Law |s that art|c|es of partnersh|p and cert|f|cates of ||m|ted
partnersh|p, even when forma||y reg|stered w|th the SLC, do not
const|tute a form of construct|ve not|ce to the pub||c dea||ng w|th such
partnersh|ps, and there |s no ob||gat|on on the part of the dea||ng pub||c
to determ|ne the |ega| status of the partnersh|p, and the |ntramura|
arrangements between and among the partners, much |ess to determ|ne
the extent of the shar|ng and d|v|s|on of powers among the partners.
b. 1he Inc|us|on of the 1erm "L|m|ted"
I5,* 5,667-) '& *57 &'($ -,$7 ,."6*7. S% R'$'*7. 6,(*-7()5'6
&"($,RR% '- *57 <7(*'&'P,*7 "& @'$'*7. K,(*-7()5'6 ."7) -"* P"-*,'- *57
b"(. O@'$'*7./O ."7) '* g8,R'&% *57 &'($ *" S7 , R'$'*7. 6,(*-7()5'6r
We be||eve th|s |s on|y a forma| and not a substant|a| requ|rement,
wh|ch cannot str|p the ||m|ted partners of the|r r|ght to c|a|m ||m|ted
||ab|||ty, for a member of the dea||ng pub||c cannot c|a|m to have
susta|ned |oss by reason of the non-|nc|us|on of

the word "L|m|ted" |n the f|rm name, s|nce the Cert|f|cate c|ear|y
|nd|cates who are the ||m|ted partners. Aga|n, the drawback of th|s
pos|t|on |s that |t p|aces the burden on the dea||ng pub||c to know the
contents of the Cert|f|cate f||ed w|th the SLC.
c. No I|rm Name rov|ded |n the Cert|f|cate
I5,* 5,667-) '& *57 )b"(- <7(*'&'P,*7 "- &'R7 b'*5 *57 ;D< ."7)
-"* 6("T'.7 ,* ,RR &"( , &'($ -,$7/ b"8R. '* S(7,1 *57 R'$'*7. R',S'R'*%
('+5*) "& *57 7W6(7))R% .7)'+-,*7. R'$'*7. 6,(*-7() *57(7'-r
We be||eve that |n such a case, there |s no "substant|a|
comp||ance" w|th the requ|rements under Art|c|e 1846. 1he f|rm name
of every partnersh|p |s the very means by wh|ch |ts ex|stence as a
[ur|d|ca| person, separate and d|st|nct from |ts members, and
d|st|ngu|shab|e from other f|rms and [ur|d|ca| persons, const|tutes the
essence of the "person" of the partnersh|p and thereby the nexus upon
wh|ch the ob||gatory force of |ts contracts and transact|ons are fastened.
1he f|rm name of a partnersh|p |s the essence by wh|ch to enforce
|ts stand|ng |n |ts contractua| re|at|onsh|p, and the |ega| bas|s upon
wh|ch |ts cred|tors can enforce |ts ob||gat|ons and other contractua|
comm|tments. As the f|rm name |s cr|t|ca| to partnersh|ps |n genera|,
then |t becomes more so |n the case of a ||m|ted partnersh|p, where the
||m|ted partners can fasten the|r ||m|ted ||ab|||ty w|th|n the four comers
of the partnersh|p bus|ness enterpr|se du|y const|tuted w|th|n the
person of the created ||m|ted partnersh|p. W|thout the f|rm name, |t |s
near|y |mposs|b|e to determ|ne where those four comers ||e, and may be
a bas|s by wh|ch partnersh|p cred|tors may be defrauded.
S. Contr|but|ons to the L|m|ted artnersh|p
Ak1. 184S. 1he contr|but|ons of a ||m|ted partner may be
cash or property, but not serv|ces.

a. Contr|but|on of Serv|ce
Art|c|e 184S of New C|v|| Code express|y prov|des that the
contr|but|ons of a ||m|ted partner may be cash or other property, but not
serv|ce. 1o a||ow otherw|se wou|d be to p|ace a ||m|ted partner |nto the
management of the f|rm, and thereby const|tute a breach of the
fundamenta| reason for be|ng accorded ||m|ted ||ab|||ty pr|v||eges.
When the contr|but|on of a ||m|ted partner |s serv|ce or |ndustry,
then he does not on|y become un||m|ted|y ||ab|e, but rea||y becomes a
genera| partner.
1he contr|but|on of serv|ce by a ||m|ted partner shou|d be
d|st|ngu|shed from be|ng a||owed under Art|c|e 18SS of New C|v|| Code
to rece|ve "compensat|on by way of |ncome st|pu|ated for |n the
cert|f|cate," wh|ch shou|d be |nterpreted to mean that by the very
pos|t|on of be|ng a ||m|ted partner, and not because of any serv|ce or
|ndustry he w||| perform, he w||| be accorded under the terms of the
Cert|f|cate, per|od|c payments whether or not the f|rm |s mak|ng prof|ts.
Neverthe|ess, |n ma|nta|n|ng the preference of cred|tors to partnersh|p
assets, such payments sha|| be cons|dered as part of prof|t d|str|but|on.
b. Ind|cat|on of the Amount Contr|buted
1he |anguage of Art|c|e 1844(1 )(f) of the New C|v|| Code requ|res
that the Cert|f|cate shou|d |nd|cate "1he amount of cash and a
descr|pt|on of and the agreed va|ue of the other property P"-*('S8*7. S%
7,P5 R'$'*7. 6,(*-7(has been taken to mean that |t |s |mperat|ve that
the contr|but|ons of ||m|ted partners must be g|ven pr|or to or at the
t|me of the execut|on of the Cert|f|cate and that the |nd|cat|on of the
ob||gat|on to g|ve the contr|but|on |s not suff|c|ent, and wou|d at |east
const|tute a fa|se statement |n the Cert|f|cate wh|ch wou|d g|ve r|se to an
ob||gat|on to pay the |oss suffered by any person who re||ed upon such
statement as prov|ded under Art|c|e 1847.
21

21
DL LLCNS, at p. 308.
1h|s pos|t|on |s not supported by the |anguage of Art|c|e 18S8 of
the New C|v|| Code wh|ch makes the ||m|ted partner ||ab|e to the
partnersh|p for the d|fference between h|s contr|but|on "as hav|ng been
made" and "[f[or any unpa|d contr|but|on wh|ch he agreed |n the
cert|f|cate to make |n the future at the t|me and on the cond|t|ons stated
|n the cert|f|cate." 1he unm|stakab|e |anguage of Art|c|e 18S8 shows that
|t |s va||d for the partners to agree under the terms of the Cert|f|cate for
the ||m|ted partner or partners to pay the|r contr|but|ons at some future
t|me.
4"7) *57 &,'R8(7 "& , R'$'*7. 6,(*-7( *" +'T7 5') P"-*('S8*'"- *" *57
R'$'*7. 6,(*-7()5'6 ,* *57 *'$7 "& *57 7W7P8*'"- ,-. (7+')*(,*'"- "& *57
<7(*'&'P,*7 "& @'$'*7. K,(*-7()5'6/ b57- '* ') '-.'P,*7. *57(7'- *5,* '* 5,)
'- &,P* S77- +'T7-/ $,17 5'$ ,))8$7 *57 R',S'R'*% "& , +7-7(,R 6,(*-7(r
We do not th|nk so, for the pena|ty for such fa|se statement |s a spec|a|
one prov|ded under Art|c|e 1847 wh|ch does not convert h|m |nto a
genera| partner, but mere|y makes h|m persona||y ||ab|e (beyond h|s
prom|sed contr|but|on), and on|y to a person who suffers |oss by
re||ance on such fa|se statement.
6. When Cert|f|cate Cance||ed or Amended
Ak1. 1864. 1he cert|f|cate sha|| be cance||ed
when the partnersh|p |s d|sso|ved or a|| ||m|ted
partners cease to be such.
A cert|f|cate sha|| be amended when:
(1) 1here |s a change |n the name of the partner-
sh|p or |n the amount or character of the contr|bu-
t|on of any ||m|ted partner,
(2) A person |s subst|tuted as a ||m|ted partner,
(3) An add|t|ona| ||m|ted partner |s adm|tted,
(4) A person |s adm|tted as a genera| partner,
LIMI1LD Ak1NLkSnIS
(5) A genera| partner ret|res, d|es, becomes |nso|vent or
|nsane, or |s sentenced to c|v|| |nterd|ct|on and the bus|ness |s
cont|nued under Art|c|e 1860,
(6) 1here |s a change |n the character of the bus|ness of
the partnersh|p,
(7) 1here |s a fa|se or erroneous statement |n the
cert|f|cate,
(8) 1here |s a change |n the t|me as stated |n the
cert|f|cate for the d|sso|ut|on of the partnersh|p or for the
return of a contr|but|on,
(9) A t|me |s f|xed for the d|sso|ut|on of the partnersh|p,
or the return of a contr|but|on, no t|me hav|ng been spec|f|ed
|n the cert|f|cate, or
(10) 1he members des|re to make a change |n any other
statement |n the cert|f|cate |n order that |t sha|| accurate|y
represent the agreement among them.
Ak1. 186S. 1he wr|t|ng to amend a cert|f|cate sha||:
(1) Conform to the requ|rements of Art|c|e 1844 as far as
necessary to set forth c|ear|y the change |n the cert|f|cate
wh|ch |t |s des|red to make, and
(2) 8e s|gned and sworn to by a|| members, and an
amendment subst|tut|ng a ||m|ted partner or add|ng a ||m|ted
or genera| partner sha|| be s|gned a|so by the member to be
subst|tuted or added, and when a ||m|ted partner |s to be
subst|tuted, the amendment sha|| a|so be s|gned by the
ass|gn|ng ||m|ted partner.
1he wr|t|ng to cance| a cert|f|cate sha|| be s|gned by a||
members.
A person des|r|ng the cance||at|on or amendment of a
cert|f|cate, |f any person des|gnated |n

the f|rst and second paragraphs as a person who must
execute the wr|t|ng refuses to do so, may pet|t|on the court to
order a cance||at|on or amendment thereof.
If the court f|nds that the pet|t|oner has a r|ght to have
the wr|t|ng executed by a person who refuses to do so, |t sha||
order the Cff|ce of the Secur|t|es and Lxchange Comm|ss|on
where the cert|f|cate |s recorded, to record the cance||at|on or
amendment of the cert|f|cate, and when the cert|f|cate |s to
be amended, the court sha|| a|so cause to be f||ed for record |n
sa|d off|ce a cert|f|ed copy of |ts decree sett|ng forth the
amendment.
A cert|f|cate |s amended or cance||ed when there |s f||ed
for record |n the Cff|ce of the Secur|t|es and Lxchange
Comm|ss|on, where the cert|f|cate |s recorded:
(1) A wr|t|ng |n accordance w|th the prov|s|ons of the f|rst
or second paragraph, or
(2) A cert|f|ed copy of the order of the court |n
accordance w|th the prov|s|ons of the fourth paragraph,
(3) After the cert|f|cate |s du|y amended |n accordance
w|th th|s art|c|e, the amended cert|f|ed sha|| thereafter be for
a|| purposes the cert|f|cate prov|ded for |n th|s Chapter.
a. When Cert|f|cate Must 8e Cance||ed
Under Art|c|e 1864 of the New C|v|| Code, the Cert|f|cate sha|| be
cance||ed when the partnersh|p |s d|sso|ved or a|| ||m|ted partners cease
to be such. In these two cases, the partnersh|p has ceased to be a
||m|ted partnersh|p, and may proceed but on|y as a genera| partnersh|p.
In a|| other cases covered be|ow, the Cert|f|cate need on|y be amended.
Art|c|e 186S of New C|v|| Code prov|des that the wr|t|ng to cance|
the Cert|f|cate sha|| be s|gned by a|| members |n order to be effect|ve.
b. When Cert|f|cate Must 8e Amended
Under Art|c|e 1864 of the New C|v|| Code, the Cert|f|cate must be
amended when:
(a) 1here |s a change |n the partnersh|p name or |n the
amount or character of the contr|but|on of any ||m|ted
partner,
(b) A person |s subst|tuted as a ||m|ted partner,
(c) An add|t|ona| ||m|ted partner |s adm|tted,
(d) A person |s adm|tted as a genera| partner,
(e) A genera| partner ret|res, d|es, becomes |nso|vent or
|nsane, or |s sentenced to c|v|| |nterd|ct|on and the
bus|ness |s cont|nued,
(f) 1here |s a change |n the character of the partnersh|p
bus|ness,
(g) 1here |s a fa|se or erroneous statement,
(h) 1here |s a change |n the t|me for the d|sso|ut|on of the
partnersh|p or for the return of a contr|but|on,
(i) A t|me |s f|xed for the d|sso|ut|on of the partnersh|p, or
for the return of contr|but|on, where no t|me hav|ng
been spec|f|ed |n the cert|f|cate, or
([) 1he members des|re to make a change |n any other
statement |n the cert|f|cate |n order that |t sha||
accurate|y represent the agreement among them.
Lxcept for the return of contr|but|ons of ||m|ted partners, the
forego|ng prov|s|ons must be |nterpreted to mean that |f the cert|f|cate |s
not amended to cover the |nstances enumerated,
then such changes cannot be g|ven |ega| affect as between and
among the partners and the pub||c.
c. rocedure to Amend Cert|f|cate
Art|c|e 186S of the New C|v|| Code prov|des that the wr|t|ng
to amend a cert|f|cate sha||:
(a) Conform to the requ|rements of Art|c|e 1844 as far
as necessary to set forth c|ear|y the change |n the
cert|f|cate wh|ch |t |s des|red to make, and
(b) 8e s|gned and sworn to by a|| members, and
an amendment subst|tut|ng a ||m|ted partner or
add|ng a ||m|ted or genera| partner sha|| be s|gned
a|so by the member to be subst|tuted or added,
and when a ||m|ted partner |s to be subst|tuted, the
amendment sha|| a|so be s|gned by the ass|gn|ng
||m|ted partner.
1he art|c|e a|so prov|des that when a person des|r|ng the
cance||at|on or amendment of a cert|f|cate may pet|t|on the
courts to order such cance||at|on or amendment whenever any
person des|gnated to execute the wr|t|ng refuses to do so.
A cert|f|cate |s amended or cance||ed when there |s f||ed for
record w|th the SLC:
(a) In wr|t|ng accomp||shed |n accordance w|th the
prov|s|ons for cance||at|on or amendment of the
cert|f|cate,
(b) A cert|f|ed copy of the order of court order|ng such
cance||at|on or amendment, and
(c) After the cert|f|cate |s du|y amended, the amend-
ed cert|f|cate sha|| thereafter be for a|| purposes
the cert|f|cate prov|ded |n the prov|s|ons of the
Law on artnersh|p.

LIMI1LD Ak1NLkSnIS
73S
GLNLkAL AND LIMI1LD Ak1NLkS
Ak1. 1848. A ||m|ted partner sha|| not become ||ab|e as a
genera| partner un|ess, |n add|t|on to the exerc|se of h|s r|ghts
and powers as a ||m|ted partner, he takes part |n the contro|
of the bus|ness.
Ak1. 1849. After the format|on of a ||m|ted partnersh|p,
add|t|ona| ||m|ted partners may be adm|tted upon f|||ng an
amendment to the or|g|na| cert|f|cate |n accordance w|th the
requ|rements of Art|c|e 186S.
Ak1. 18S0. A genera| partner sha|| have a|| the r|ghts and
powers and be sub[ect to a|| the restr|ct|ons and ||ab|||t|es of a
partner |n a partnersh|p w|thout ||m|ted partners. nowever,
w|thout the wr|tten consent or rat|f|cat|on of the spec|f|c act
by a|| the ||m|ted partners, a genera| partner or a|| of the
genera| partners have no author|ty to:
(1) Do any act |n contravent|on of the cert|f|cate,
(2) Do any act wh|ch wou|d make |t |mposs|b|e to carry
on the ord|nary bus|ness of the partnersh|p,
(3) Confess a [udgment aga|nstthe partnersh|p,
(4) ossess partnersh|p property, or ass|gn the|r r|ghts |n
spec|f|c partnersh|p property, for other than a partnersh|p
purpose,
(5) Adm|t a person as a genera| partner,
(6) Adm|t a person as a ||m|ted partner, un|ess the r|ght
so to do |s g|ven |n the cert|f|cate,
(7) Cont|nue the bus|ness w|th partnersh|p property on
the death, ret|rement, |nsan|ty, c|v|| |nterd|ct|on or |nso|vency
of a genera| partner, un|ess the r|ght so to do |s g|ven |n the
cert|f|cate.

Ak1. 18S1. A ||m|ted partner sha|| have the same r|ghts as
a genera| partner to:
(1) nave the partnersh|p books kept at the pr|nc|pa|
p|ace of bus|ness of the partnersh|p, and at a reasonab|e hour
to |nspect and copy any of them,
(2) nave on demand true and fu|| |nformat|on of a||
th|ngs affect|ng the partnersh|p, and a forma| account of
partnersh|p affa|rs whenever c|rcumstances render |t [ust and
reasonab|e, and
(3) nave d|sso|ut|on and w|nd|ng up by decree of court.
A ||m|ted partner sha|| have the r|ght to rece|ve a share of
the prof|ts or other compensat|on by way of |ncome, and to
the return of h|s contr|but|on as prov|ded |n Art|c|es 18S6 and
18S7.
1. 1he Genera| artners
a. Who Is a Genera| artner |n a L|m|ted artnersh|p?
When a ||m|ted partnersh|p |s du|y const|tuted, then every partner
who does not qua||fy as a ||m|ted partner by comp||ance w|th the forma|
requ|rements mandated under Art|c|e 1844 of the New C|v|| Code, |s
deemed to be a genera| partner and sub[ect to the un||m|ted ||ab|||ty
ru|e for partnersh|p ob||gat|ons.
b. k|ghts and owers of Genera| artners
Under Art|c|e 18S0 of the New C|v|| Code, a genera| partner sha||
have the r|ghts and powers and be sub[ect to a|| the restr|ct|ons and
||ab|||t|es of a partner |n a partnersh|p w|thout ||m|ted partners, except
that such genera| partner or a|| of the genera| partners |n a ||m|ted
partnersh|p have no power nor author|ty to do any of the
LIMI1LD Ak1NLkSnIS
737
fo||ow|ng acts, w|thout the wr|tten consent or rat|f|cat|on of the spec|f|c
act by a|| the ||m|ted partners, thus:
(a) Do any act |n contravent|on of the Cert|f|cate,
(b) Do any act wh|ch wou|d make |t |mposs|b|e to carry on
the ord|nary bus|ness of the partnersh|p,
(c) Confess a [udgment aga|nst the partnersh|p,
(d) ossess partnersh|p property, or ass|gn the|r r|ghts |n
spec|f|c partnersh|p property, for other than a
partnersh|p purpose,
(e) Adm|t a person as a genera| partner,
(f) Adm|t a person as a ||m|ted partner, un|ess the r|ght so
to do |s g|ven |n the cert|f|cate.
Art|c|e 18S0 therefore enumerates s|x (6) |nstances when the acts
of the genera| partners on beha|f of the partnersh|p wou|d not be va||d
w|thout the wr|tten consent of, or rat|f|cat|on by a|| the ||m|ted partners.
In other words, outs|de of the enumerated |nstances under Art|c|e 18S0,
||m|ted partners have no vo|ce |n partnersh|p affa|rs.
Not|ce that the nature of the |nstances enumerated under Art|c|e
18S0 wou|d requ|re unan|mous wr|tten consent or rat|f|cat|on by a|| the
||m|ted partners because they wou|d
Contravene the contractua| st|pu|at|ons w|th the ||m|ted
partners ("@'$'*7. 6,(*-7() $8)* S7 6("*7P*7. '- *57'(
P"-*(,P*8,R ('+5*)OHd
Affect the very commerc|a| reason by wh|ch they agreed
to become pass|ve |nvestors =O!57(7 )5"8R. S7 -"
8-.7($'-'-+ "& *57 6,(*-7()5'6 S8)'-7)) T7-*8(7^Hd or
Underm|ne the f|duc|ary dut|es of the genera| partners
to manage the partnersh|p enterpr|se themse|ves for
the ||m|ted partners.
Any act, contract or transact|on that affects the terms of the
so|emn contract (wh|ch the Cert|f|cate of L|m|ted artnersh|p |s) wou|d
requ|re ||m|ted partnersh|p approva| because |t wou|d amount to a
novat|on of contract. Las||y the fo||ow|ng fa|| |nto that category: do any
act |n contravent|on of the Cert|f|cate, adm|t a genera| partner, adm|t an
add|t|ona| ||m|ted partner. 1he rest of the enumerated |nstances under
Art|c|e 18S0 affect substant|a||y the partnersh|p bus|ness enterpr|se, and
therefore wou|d requ|re unan|mous consent or rat|f|cat|on by the
||m|ted partners.
1hree th|ngs must be noted carefu||y from the prov|s|ons of Art|c|e
18S0 of the New C|v|| Code:
L'()*R%/ a|though Art|c|e 18S0 prov|des that the wr|tten consent or
rat|f|cat|on of a|| the ||m|ted partners |s requ|red for the adm|ss|on of a
new ||m|ted partner, "un|ess the r|ght to do so |s g|ven |n the cert|f|cate,"
the same cannot be |nterpreted to mean that when the r|ght to do so |s
g|ven |n the Cert|f|cate, the adm|ss|on of a new ||m|ted partner no |onger
requ|res the consent of a|| the ||m|ted partners. Ior even when such
r|ght |s granted, the prov|s|ons of Art|c|e 186S |n |ay|ng down the
procedure for the amendment of the Cert|f|cate requ|res the wr|tten
consent of a|| the partners. Ctherw|se, |f the Cert|f|cate |s not amended
to |nc|ude forma||y the add|t|ona| ||m|ted partner, he or she does not
become a ||m|ted partner, and wou|d be exposed to the un||m|ted
||ab|||ty of a genera| partner.
1he rea| advantage granted by hav|ng a spec|f|c prov|s|on |n the
Cert|f|cate a||ow|ng the adm|ss|on or subst|tut|on of ||m|ted partners |s
that the same can be done even aga|nst the w|shes of the ||m|ted and
genera| partners, and |f the|r s|gnature to the amendment of the
Cert|f|cate cannot be obta|ned, then there |s bas|s to go to court to
obta|n an order grant|ng such amendment of the Cert|f|cate.
;7P"-.R%, a|though the act of the genera| partners |n re|at|on to
any of the s|x |nstances covered by Art|c|e 18S0 wou|d be vo|d w|thout
the wr|tten consent or rat|f|cat|on of a|| the ||m|ted partners, the
dec|arat|on refers to |ntra-partnersh|p |ssues, because |nsofar as th|rd
persons dea||ng |n good fa|th w|th the partnersh|p, the |ack of consent or
rat|f|cat|on by the ||m|ted partners, cannot
be a bas|s by wh|ch they cannot treat the|r contracts w|th the
partnersh|p as va||d, b|nd|ng and enforceab|e.
!5'(.R%/ the enumerat|on of the |nstances under Art|c|e 18S0 wh|ch
wou|d requ|re wr|tten consent or rat|f|cat|on of a|| the ||m|ted partners,
stand apart from the enumerated "act of ownersh|p" or "acts of str|ct
dom|n|on" under Art|c|e 1818 wh|ch cannot be effected by "|ess than a||
partners," thus
(a) Ass|gn a partnersh|p property |n trust for cred|tors or on
the ass|gnee's prom|se to pay the debts of the
partnersh|p,
(b) D|spose of the goodw||| of the bus|ness,
(c) Confess a [udgment,
(d) Lnter |nto a comprom|se concern|ng a partnersh|p c|a|m
or ||ab|||ty,
(e) Subm|t a partnersh|p c|a|m or ||ab|||ty to arb|trat|on, and
(f) kenounce a c|a|m of the partnersh|p.
Cn|y two (2) |nstances are common to both Art|c|es 1818 and 18S0,
name|y:
(a) 1o do any other act wh|ch wou|d make |t |mposs|b|e to
carry on the ord|nary bus|ness of a partnersh|p, and
(b) 1o confess a [udgment aga|nst the partnersh|p.
4" b7 *,17 '* *" $7,- *5,* '- , R'$'*7. 6,(*-7()5'6/ S% 7W6(7))R%
7-8$7(,*'-+ *57 )'W =eH '-)*,-P7) 8-.7( B(*'PR7 `jZc b57(7 *57 b('**7-
P"-)7-* "( (,*'&'P,*'"- "& ,RR *57 R'$'*7. 6,(*-7() ') (7g8'(7./ *5,* ,RR *57
"*57( '-)*,-P7) +(,-*7. 8-.7( B(*'PR7 `j`j b"8R. "-R% -77. *57 P"-)7-*
"&O,RR *57 +7-7(,R 6,(*-7()O ,-. ." -"* (7g8'(7 *57 P"-)7-* "& *57
R'$'*7. 6,(*-7()/ *" S7 T,R'. ,-. S'-.'-+r 1he d|fference |n the matters
perta|n|ng to Art|c|e 1818 |s that w|thout the requ|s|te unan|mous
consent, the acts done wou|d be vo|d, not on|y aga|nst the partnersh|p
and the

other partners who d|d not consent, but even as to th|rd part|es who
dea|t on the other s|de of the transact|ons, because such acts or
transact|ons are not deemed to be |n the ord|nary course of partnersh|p
bus|ness, and th|rd part|es have no r|ght to expect that the same |s
w|th|n the power of any one or more, but not a|| of the partners, to
enter |nto.
c. Dut|es and Cb||gat|ons of the Genera| artner
Art|c|e 18S0 of the New C|v|| Code prov|des that "A genera| partner
sha| | . . . be sub[ect to a|| the restr|ct|ons and ||ab|||t|es of a partnersh|p
w|thout ||m|ted partners." F) 7T7(% +7-7(,R 6,(*-7( '- , R'$'*7.
6,(*-7()5'6 ),..R7. b'*5 *57 ),$7 "SR'+,*'"-)/ ,-. 5,) *57 ),$7
&'.8P',(% "SR'+,*'"-) *" *57 6,(*-7()5'6 ,-. *" ,RR *57 6,(*-7()/ b57*57(
+7-7(,R "( R'$'*7./ ,) *5")7 6(7T,'R'-+ '- , -"-VR'$'*7. 6,(*-7()5'6
,((,-+7$7-*r
A genera| partner |s sadd|ed w|th the same f|duc|ary duty of
|oya|ty, |n that he cannot engage |n any bus|ness that conf||cts w|th that
of the ||m|ted partnersh|p.
22
A genera| partner who |s such as an
|ndustr|a| partner |s a|so sadd|ed w|th the same f|duc|ary duty of |oya|ty,
of be|ng d|squa||f|ed from engag|ng |n any bus|ness venture.
23

I5'R7 *57(7 ') -" ."8S* *5,* *57 +7-7(,R 6,(*-7()/ '-.'T'.8,RR% ,-.
P"RR7P*'T7R%/ "b7 &'.8P',(% .8*'7) *" *57 R'$'*7. 6,(*-7() '- , 6,(*-7()5'6
)7**'-+/ ') *57 R7+,R S,)') "& )8P5 &'.8P',(% (7R,*'"-)5'6 *5,* "& 6('-P'6,R
,-. ,+7-P%r 1here seems to be ||tt|e doubt that the ||m|ted partners do
not have any r|ghts of management, and consequent|y do not act as
agents to one another, of the partnersh|p |tse|f, and of the genera|
partners. Cn the other hand, a|though the genera| partners are mutua|
agents to one another, as we|| as be|ng agents of the partnersh|p, can
we cons|der them agents of the ||m|ted partners? Cn th|s matter we
pos|t that theoret|ca||y there |s |ega| prob|em w|th treat|ng genera|
partners as agents of the ||m|ted partners, for that |ega| re|at|onsh|p
wou|d v|o|ate the ru|e under Art|c|e 1848 that ||m|ted partners cannot
Ârt. 1789, New C|v||
C d
Ârt. 1789, New C|v||
C d
|nvo|ve themse|ves |n the management of the partnersh|p affa|rs, s|nce
the act of the agents (the genera| partners) wou|d be equ|va|ent to the
act of the pr|nc|pa| (the ||m|ted partners).
It |s our propos|t|on that the f|duc|ary re|at|onsh|p that ar|ses
between the ||m|ted partners on one hand, and the genera| partner or
partners on the other hand, rather than be|ng borne out by an agency
re|at|onsh|p, shou|d be based on bus|ness trust: that the genera|
partners become |n effect the trustees for the ||m|ted partners, who
assume the ro|e of be|ng benef|c|ar|es to the P"(68)/ wh|ch can be
cons|dered to be the propert|es and the bus|ness enterpr|se of the
partnersh|p |tse|f. Not on|y does the trustee-benef|c|ary not on|y support
the ex|stence of a f|duc|ary re|at|onsh|p between the genera| partners
and the ||m|ted partners, but va||dates the structure of management and
||m|ted ||ab|||ty ex|st|ng |n the ||m|ted partnersh|p sett|ng: that as
trustees, the management over the P"(68) (the propert|es and bus|ness
enterpr|se of the partnersh|p) are p|aced |n the hands of the genera|
partners, w|th an ob||gat|on to run the partnersh|p affa|rs to serve the
benef|c|a| |nterests of the ||m|ted partners (to rece|ve the|r share |n the
prof|ts as st|pu|ated under the Cert|f|cate of L|m|ted artnersh|p), and
thereby make the ||m|ted partners, as mere pass|ve benef|c|ar|es |n a
trust arrangement, thereby not persona||y ||ab|e for the resu|t|ng debts
and ||ab|||t|es of the partnersh|p venture.
1he forego|ng thes|s wou|d exp|a|n the reason why, be|ng mere|y a
benef|c|ary |n the partnersh|p trust, ||m|ted partners ought not thereby
owe any f|duc|ary ob||gat|ons to one another, much |ess to the genera|
partners, and thereby can engage |n a bus|ness that may even compete
w|th that of the ||m|ted partnersh|p's bus|ness. L|kew|se, the thes|s
wou|d exp|a|n why |n areas covered under Art|c|e 1818 wh|ch do not fa||
w|th|n the enumerat|ons under Art|c|e 18S0, wh|ch are acts of
ownersh|p, |t may be presumed that |n a ||m|ted partnersh|p sett|ng, the
requ|rement that they may be done va||d|y on|y w|th the agreement of
"a|| the partners" wou|d on|y cover the genera| partners s|nce they are
deemed to be endowed w|th the power to do acts of ownersh|p as
trustees hav|ng naked t|t|e to the partnersh|p assets and bus|ness
enterpr|se.

742
2. 1he L|m|ted artners
a. Who Is a L|m|ted artner?
Under Art|c|e 1844 of the New C|v|| Code, no member of a
partnersh|p sha|| be cons|dered a ||m|ted partner, un|ess he |s so
des|gnated |n the Cert|f|cate du|y f||ed w|th the SLC, under Art|c|e 1846,
h|s surname cannot be part of the f|rm name, and under Art|c|e 184S, he
does not have the r|ght or opt|on to contr|bute serv|ce to the
partnersh|p.
b. Lrroneous 8ut |n Good Ia|th L|m|ted artner
Ak1. 18S2. W|thout pre[ud|ce to the prov|s|ons of Art|c|e
1848, a person who has contr|buted to the cap|ta| of a
bus|ness conducted by a person or partnersh|p erroneous|y
be||ev|ng that he has become a ||m|ted partner |n a ||m|ted
partnersh|p, |s not, by reason of h|s exerc|se of the r|ghts of a
||m|ted partner, a genera| partner w|th the person or |n the
partnersh|p carry|ng on the bus|ness, or bound by the
ob||gat|ons of such person or partnersh|p, prov|ded that on
ascerta|n|ng the m|stake he prompt|y renounces h|s |nterest
|n the prof|ts of the bus|ness, or other compensat|on by way
of |ncome.
Under Art|c|e 18S2 of the New C|v|| Code, a person who has
contr|buted to the cap|ta| of a bus|ness conducted by a person or
partnersh|p erroneous|y be||ev|ng that he has become a ||m|ted partner,
does not by h|s exerc|se of the r|ghts of a ||m|ted partner:
(a) become a genera| partner w|th the person or |n the
partnersh|p carry|ng on the bus|ness, nor
(b) be bound by the ob||gat|ons of such person or
partnersh|p,
prov|ded that on ascerta|n|ng the m|stake he prompt|y renounces h|s
|nterest |n the prof|ts of the bus|ness or other compensat|on by way of
|ncome.
Art|c|e 18S2 must cover a s|tuat|on where a|though there ex|sts a
partnersh|p bus|ness, |t |s conducted not w|th|n the med|um of a ||m|ted
partnersh|p. 1herefore, |f one becomes a member of the partnersh|p
w|th the |ntent|on that he becomes a ||m|ted partner, and st|cks on|y to
exerc|s|ng the r|ghts of a ||m|ted partner, he does not |ncur ||ab|||ty of a
genera| partner even as to the partnersh|p cred|tors, prov|ded he
undertakes the "acts of good fa|th" mandated by |aw. It |s on|y when he
takes part |n the contro| of the bus|ness (as prov|ded |n Art|c|e 1848),
that he then becomes ||ab|e as a genera| partner, or when hav|ng
rea||zed the m|stake |n aff|||at|ng w|th the partnersh|p he does not
renounce h|s |nterests |n the partnersh|p prof|ts, and severe h|s
re|at|onsh|p w|th the partnersh|p venture.
I5% ') '* ,- 7))7-*',R &7,*8(7 "& *57 O,P*) "& +"". &,'*5O "& )8P5
R'$'*7. 6,(*-7( *5,* 57 $8)* (7-"8-P7 O5') '-*7(7)* '- *57 6("&'*) "& *57
S8)'-7)) "( "*57( P"$67-),*'"- S% b,% "& '-P"$7rO 1he answer may ||e
|n the fact that the contract of ||m|ted partnersh|p |s cons|dered to be a
so|emn contract, and thereby vo|d |f the so|emn|t|es mandated by |aw
have not been comp||ed. 1herefore, |n a s|tuat|on where the party acts |n
good fa|th be||ev|ng h|mse|f to be a ||m|ted partner, when he |earns that
he has not been du|y |nst|tuted as such, then |t can be cons|dered to be a
s|tuat|on where there |s a vo|d contract resu|t|ng, and |f he |s not to be
bound by the un||m|ted ||ab|||ty ob||gat|ons of an ord|nary partner |n
genera|, then he must not a|so partake of any benef|ts or advantage
ar|s|ng from the purported contractua| re|at|onsh|p.
c. When L|m|ted and Genera| artner at the
Same 1|me
Ak1. 18S3. A person may be a genera| partner and a
||m|ted partner |n the same partnersh|p at the same t|me,
prov|ded that th|s fact sha|| be stated |n the cert|f|cate
prov|ded for |n Art|c|e 1844.

A person who |s a genera|, and a|so at the same t|me a
||m|ted partner, sha|| have a|| the r|ghts and powers and be
sub[ect to a|| the restr|ct|ons of a genera| partner, except that,
|n respect to h|s contr|but|on, he sha|| have the r|ghts aga|nst
the other members wh|ch he wou|d have had |f he were not
a|so a genera| partner.
Art|c|e 18S3 of the New C|v|| Code prov|des that a person may be a
genera| partner and a ||m|ted partner |n the same partnersh|p at the
same t|me, prov|ded that th|s fact sha|| be stated |n the Cert|f|cate of
L|m|ted artnersh|p. I5% b"8R. , +7-7(,R 6,(*-7( b,-* *" S7 , R'$'*7.
6,(*-7( ,* *57 ),$7 *'$7/ ,-. T'P7 T7(),r It perta|ns to ava|||ng of the
r|ghts of a ||m|ted partner w|th respect to h|s contr|but|on as such.
Under Art|c|e 18S3, even when a ||m|ted partner |s at the same
t|me a genera| partner, nonethe|ess "|n respect to h|s contr|but|on, he
sha|| have the r|ghts aga|nst the other members wh|ch he wou|d have
had |f he were not a|so a genera| partner." I5,* b"8R. *5")7 ('+5*) S7
67P8R',( *" 5'$ ,) , R'$'*7. 6,(*-7(/ b5'P5 ,(7 -"* ,T,'R,SR7 *" 5'$ ,) ,
+7-7(,R 6,(*-7(r
Certa|n|y |t cannot be "||m|ted ||ab|||ty" r|ghts, for be|ng a genera|
partner at the same t|me, he cannot have any c|a|m for ||m|ted ||ab|||ty
aga|nst partnersh|p debts and c|a|ms. 1he on|y v|ab|e r|ghts of a ||m|ted
partner wh|ch are not underm|ned by the fact that he |s a|so a genera|
partner at the same t|me, may perta|n on|y to the pr|or|ty r|ght to the
return of h|s contr|but|ons, share |n the prof|ts as |t perta|ns to h|m as a
||m|ted partner.
3. 1he k|ghts and owers of the L|m|ted artner
1he New C|v|| Code prov|des the fo||ow|ng r|ghts to every ||m|ted
partner |n a du|y const|tuted ||m|ted partnersh|p, thus:
(a) k|ght to ||m|ted ||ab|||ty (Arts. 1843 and 1848),

(b) k|ght to the return of h|s contr|but|on (Art. 18S1),
(c) k|ght to rece|ve h|s share |n the prof|ts and
compensat|on by way of |ncome (Art. 18S1),
(d) k|ght to ass|gn h|s equ|ty |nterest (Art. 18S1),
(e) k|ght to have the partnersh|p books kept at the
pr|nc|pa| p|ace of bus|ness of the partnersh|p, and at a
reasonab|e hour to |nspect and copy any of them (Art.
18S1[1]),
(f) k|ght to have on demand true and fu|| |nformat|on of a||
th|ngs affect|ng the partnersh|p, and a forma| account
of partnersh|p affa|rs whenever c|rcumstances render |s
[ust and reasonab|e (Art. 18S1 [2]),
(g) k|ght to have the d|sso|ut|on and w|nd|ng-up by decree
of court (Arts. 18S1 [3] and 18S7).
erhaps the best way to descr|be the r|ghts of ||m|ted partners,
even to those granted express|y by |aw, |s the way 8aut|sta had
summar|zed the ru||ng |n the Amer|can case of 0'RR,(. T3 97b$,(1 Q
<"3/
Y
] thus: "In broad terms, |t may be stated that a ||m|ted partner has
such r|ghts and on|y such r|ghts as the |aw and h|s contract afford."
26

a. k|ght to L|m|ted L|ab|||ty
Art|c|e 1843 of the New C|v|| Code prov|des that the essence of the
doctr|ne of "||m|ted ||ab|||ty" |s that ||m|ted partners who are ent|t|ed
thereto "sha|| not be bound by the ob||gat|ons of the partnersh|p"
beyond what they contr|buted or |ega||y bound to contr|bute to the
partnersh|p's common fund.
1he essence of the med|um of ||m|ted partnersh|p |s to a||ow a
group of |nvestors - the ||m|ted partners - to part|c|pate |n the prof|ts and
|osses of the partnersh|p venture w|thout hav|ng to be
24
266 N..S.2d 2S4
( )
^8AU1IS1A, at p. 42S.

746
||ab|e to partnersh|p cred|tors for the separate propert|es, or more
proper|y speak|ng, beyond the va|ue of the|r contr|but|ons |n the
partnersh|p venture.
1he grant of the ||m|ted ||ab|||ty status to ||m|ted partners comes
w|th a pr|ce, |n that:
(a) 1hey cannot have the|r surnames form part of the
partnersh|p name (Art. 1846),
(b) 1hey cannot part|c|pate |n the contro| of the
partnersh|p bus|ness (Art. 1848), and
(c) 1herefore they are proh|b|ted from contr|but|ng serv|ce
or |ndustry |nto the partnersh|p (Art. 184S).
If a ||m|ted partner v|o|ates any of these restr|ct|ons, he becomes
un||m|ted|y ||ab|e as |n the case of genera| partners.
1he feature of ||m|ted ||ab|||ty |s po|sed pr|mar||y |n re|at|onsh|p to
the cred|tors of the partnersh|p |n that they have a r|ght to expect that
a|| partners are un||m|ted|y ||ab|e for partnersh|p debts, un|ess they are
so |nd|cated |n the Cert|f|cate as be|ng ||m|ted partners who assume the
ro|e of mere pass|ve |nvestors. In add|t|on, that partnersh|p cred|tors
have a r|ght to expect that a partner who part|c|pates |n partnersh|p
affa|r |s a genera| partner, and cannot c|a|m the r|ghts to ||m|ted ||ab|||ty.
S|nce |t |s a ||m|tat|on on the cause of act|on that partnersh|p cred|tors
wou|d ord|nar||y have aga|nst the partners, then matters re|at|ng to the
app||cat|on or non-app||cat|on of the pr|nc|p|e of "||m|ted ||ab|||ty" can
be ra|sed on|y by partnersh|p cred|tors.
1he operat|ve norm of th|s doctr|ne |s best exemp||f|ed |n two
Amer|can dec|s|ons: ||m|ted partners by def|n|t|on of |aw and by the
terms of the cert|f|cate of ||m|ted partnersh|p have no r|ght to
part|c|pate or |nterfere |n the affa|rs of the partnersh|p bus|ness
enterpr|se, and |f they do so, 4"-("%/ @*.3 T3 E-'*7. ;*,*7) ho|ds that
genera| partners can seek d|sso|ut|on of the
M
196 I. Supp. S4, S7 (1961).

partnersh|p (s|nce the actuat|ons of the ||m|ted partners wou|d be
tantamount to a breach of the contract of partnersh|p). A|though the
partnersh|p cred|tors can then ho|d the ||m|ted partners who |nterfere |n
partnersh|p affa|rs as un||m|ted ||ab|e, nonethe|ess, I7'R T3 4'T7()'&'7.
K("67(*'7)/f ho|ds that the genera| partners cannot, on account of such
|nterference, seek to en|arge the ||ab|||ty of the ||m|ted partners by
hav|ng them dec|ared as genera| partners w|th ob||gat|ons to account.
b. k|ght to keturn of Contr|but|ons
Ak1. 18SS. Where there are severa| ||m|ted partners the
members may agree that one or more of the ||m|ted partners
sha|| have a pr|or|ty over other ||m|ted partners as to the
return of the|r contr|but|ons, as to the|r compensat|on by way
of |ncome, or as to any other matter. If such an agreement |s
made |t sha|| be stated |n the cert|f|cate, and |n the absence of
such a statement a|| the ||m|ted partners sha|| stand upon
equa| foot|ng.
Ak1. 18S7. A ||m|ted partner sha|| not rece|ve from a
genera| partner or out of partnersh|p property any part of h|s
contr|but|ons unt||:
(1) A|| ||ab|||t|es of the partnersh|p, except ||ab|||t|es to
genera| partners and to ||m|ted partners on account of the|r
contr|but|ons, have been pa|d or there rema|ns property of
the partnersh|p suff|c|ent to pay them,
(2) 1he consent of a|| members |s had, un|ess the return
of the contr|but|on may be r|ghtfu||y demanded under the
prov|s|ons of the second paragraph, and
"319 Supp. 778 (1970).

748
(3) 1he cert|f|cate |s cance||ed or so amended
as to set forth the w|thdrawa| or reduct|on.
Sub[ect to the prov|s|ons of the f|rst paragraph,
a ||m|ted partner may r|ghtfu||y demand the return
of h|s contr|but|on:
(1) Cn the d|sso|ut|on of a partnersh|p, or
(2) When the date spec|f|ed |n the cert|f|cate for
|ts return has arr|ved, or
(3) After he has s|x months' not|ce |n wr|t|ng
to a|| other members, |f no t|me |s spec|f|ed |n the
cert|f|cate, e|ther for the return of the contr|but|on
or for the d|sso|ut|on of the partnersh|p.
In the absence of any statement |n the cert|f|cate
to the contrary or the consent of a|| members, a
||m|ted partner, |rrespect|ve of the nature of h|s
contr|but|on, has on|y the r|ght to demand and
rece|ve cash |n return for h|s contr|but|on.
A ||m|ted partner may have the partnersh|p
d|sso|ved and |ts affa|rs wound up when:
(1) ne r|ghtfu||y but unsuccessfu||y demands
the return of h|s contr|but|on, or
(2) 1he other ||ab|||t|es of the partnersh|p have
not been pa|d, or the partnersh|p property |s |nsuf-
f|c|ent for the|r payment as requ|red by the f|rst
paragraph, No. 1, and the ||m|ted partner wou|d
otherw|se be ent|t|ed to the return of h|s contr|bu-
t|on.
Art|c|e 1844(1 )(h) of the New C|v|| Code prov|des that one of the
prov|s|ons that may be found |n the Cert|f|cate of L|m|ted artnersh|p |s
"[t]he t|me, |f agreed upon, when the contr|but|on of each ||m|ted
partner |s to be returned."
4"7) *5,* $7,- *5,* b57- *57(7 ') -" ,+(77$7-* "( 6("T')'"- '-
*57 <7(*'&'P,*7 "- *5') $,**7(/ R'$'*7. 6,(*-7()/ R'17
+7-7(,R 6,(*-7()/ ." -"* 5,T7 , ('+5* *" .7$,-. (7*8(- "& P"-*('S8*'"-)
.8('-+ *57 R'&7 "& *57 6,(*-7()5'6r 1he answer |s |n the negat|ve. S|nce
the nexus of a ||m|ted partner's re|at|onsh|p |n the partnersh|p
arrangement |s h|s contr|but|on and the prof|ts that he |s ent|t|ed by
reason of such contr|but|on, then the ab|||ty of the ||m|ted partner, as
rea||y a mere pass|ve |nvestor, must commerc|a||y be ||nked to h|s ab|||ty
to be ab|e to ||qu|date h|s |nvestment w|th|n a reasonab|e t|me that
cannot be ||nked to the ent|re "go|ng concern" ||fe of the partnersh|p
bus|ness venture.
Art|c|e 18SS of the New C|v|| Code prov|des that where there are
severa| ||m|ted partners the ent|re members may agree that one or more
of the ||m|ted partners sha|| have a pr|or|ty over other ||m|ted partners as
to the return of the|r contr|but|ons, as to the|r compensat|on by way of
|ncome, or as to any other matter, but that "If such an agreement |s
made |t sha|| be stated |n the cert|f|cate of ||m|ted partnersh|p, and |n the
absence of such a statement a|| the ||m|ted partners sha|| stand upon
equa| foot|ng."
r|or|ty |n return of contr|but|ons or share |n |ncome to the ||m|ted
partners must not on|y be agreed upon by a|| the partners, but must f|nd
|tse|f expressed |n the Cert|f|cate e|ther as or|g|na||y |nd|cated or by way
of amendment thereto. In the absence of such prov|s|on |n the
Cert|f|cate, there |s no pr|or|ty between and among the ||m|ted partners,
and they sha|| be treated to be at equa| foot|ng. keturn of contr|but|ons
of the ||m|ted partners, therefore, |s not necessar||y assoc|ated w|th the
d|sso|ut|on of the partnersh|p.
Under Art|c|e 18S7 of the New C|v|| Code, a ||m|ted partner sha||
not rece|ve from a genera| partner or out of partnersh|p property any
part of h|s contr|but|on unt||:
(a) A|| ||ab|||t|es of the partnersh|p, except ||ab|||t|es to
genera| partners and to ||m|ted partners on account of
the|r contr|but|ons, have been pa|d, or there rema|ns
property of the partnersh|p suff|c|ent to pay them,
(b) 1he consent of a|| members |s had, un|ess the return of
the contr|but|on may be r|ghtfu||y demanded under the
|aw,
(c) 1he cert|f|cate |s cance||ed or so amended as to set forth
the w|thdrawa| or reduct|on.
Cn the other hand, when a|| ||ab|||t|es to th|rd party cred|tors have
been pa|d or there w||| rema|n enough assets to cover them, a ||m|ted
partner may r|ghtfu||y demand the return of h|s contr|but|on:
(a) Cn the d|sso|ut|on of the partnersh|p, or
(b) When the date spec|f|ed |n the cert|f|cate for |ts return
has arr|ved, or
(c) After he has g|ven s|x months not|ce |n wr|t|ng to a||
other members, |f no t|me |s spec|f|ed |n the cert|f|cate,
e|ther for the return of the contr|but|on or for the
d|sso|ut|on of the partnersh|p.
Art|c|e 18S7 a|so prov|des that "In the absence of any statement |n
the cert|f|cate to the contrary or the consent of a|| members, a ||m|ted
partner, |rrespect|ve of the nature of h|s contr|but|on, has on|y the r|ght
to demand and rece|ve cash |n return for h|s contr|but|ons."
I57- *57 6,(*-7()5'6 P(7.'*"()^ 6(7&7(7-P7 ') (7)67P*7. =7'*57(
S7P,8)7 *57% b'RR &'()* S7 ,RR 6,'./ "( ,))7*) b"8R. S7 6("T'.7./ "(
)7*V,)'.7 &"( *57'( )7**R7$7-*H/ ." R'$'*7. 6,(*-7() 5,T7 *57 ('+5* *"
.7$,-. &"( *57 (7*8(- "& *57'( P"-*('S8*'"-) 7T7- b57- '* ') "-R% '- P,)5/
7T7- b57- -" )8P5 ('+5* ') 6("T'.7. &"( '- *57 <7(*'&'P,*7 "( "8*)'.7 "&
.'))"R8*'"- )P7-,('"r 1he answers seems to be |n the aff|rmat|ve
because of the separate ground for return prov|ded under Art|c|e 18S7
states that "After he has g|ven s|x months not|ce |n wr|t|ng to a|| other
members, |f no t|me |s spec|f|ed |n the cert|f|cate,... for the return of the
contr|but|on," and th|s may seem true even when the demand for return
does not obta|n the unan|mous vote of the other partners.
Cne of the cond|t|ons for the va||d return of a ||m|ted partner's
contr|but|on |s that there has to be the proper amendment of the
Cert|f|cate wh|ch under the spec|f|c prov|s|ons govern|ng

LIMI1LD Ak1NLkSnIS 7S1
the same can on|y be done w|th the wr|tten consent of a|| the partners.
Nonethe|ess, the acknow|edgment of the r|ght of ||m|ted partners to
have the return of the|r contr|but|on upon comp||ance w|th the 6-month
not|ce ru|e, wou|d mean that |n the event the other partners oppose
such a return and they refuse to s|gn on the amendment to the
Cert|f|cate nonethe|ess, |t wou|d author|ze the w|thdraw|ng ||m|ted
partner to seek court order for the proper amendment thereof.
What needs to be emphas|zed |s that the |aw recogn|zes that
||m|ted partners are mere pass|ve |nvestors |n the partnersh|p venture,
and |n the end they must have a way of off|ng-out of the venture e|ther
by the ab|||ty to ass|gn the|r equ|ty |nterests or to demand proper|y the
return thereof.
c. k|ght to rof|t or Compensat|on by Way of Income
Ak1. 18S6. A ||m|ted partner may rece|ve from the
partnersh|p the share of the prof|ts or the compensat|on by
way of |ncome st|pu|ated for |n the cert|f|cate, prov|ded that
after such payment |s made, whether from property of the
partnersh|p or that of a genera| partner, the partnersh|p
assets are |n excess of a|| ||ab|||t|es of the partnersh|p except
||ab|||t|es to ||m|ted partners on account of the|r contr|but|ons
and to genera| partners.
Under Art|c|e 18S6 of the New C|v|| Code, a ||m|ted partner may
rece|ve from the partnersh|p the share of the prof|ts or the
compensat|on by way of |ncome st|pu|ated for |n the cert|f|cate,
prov|ded that after such payment, whether from the partner property or
property of a genera| partner, the partnersh|p assets are |n excess of a||
||ab|||t|es of the partnersh|p, except ||ab|||t|es to ||m|ted partners on
account of the|r contr|but|ons and to genera| partners. Lven |n a ||m|ted
partnersh|p, the |aw recogn|zes the pr|or|ty stand|ng of partnersh|p
cred|tors to those of the ||m|ted
and genera| partners |n terms of payment from the partnersh|p
property.
It must be understood that the mean|ng of "compensat|on by way
of |ncome," shou|d not mean that the ||m|ted partner |s ent|t|ed to be
emp|oyed or to part|c|pate |n the management of or |n the operat|ons of
the partnersh|p, for wh|ch he can be pa|d "compensat|on." Ior even
when a ||m|ted partner |s h|red as an emp|oyee of the f|rm, th|s may be
treated as part|c|pat|ng |n the partnersh|p affa|rs as to make them
un||m|ted|y ||ab|e for partnersh|p debts and ob||gat|ons.
1he term "compensat|on by way of |ncome," means any
arrangement by wh|ch the d|str|but|on of prof|ts |s termed
"compensat|on" or "sa|ary" done on a regu|ar or per|od|c bas|s as may
be agreed upon |n the Cert|f|cate of L|m|ted artnersh|p, and pa|d to the
partner by reason of h|s s|mp|y be|ng a partner, and not by v|rtue of the
serv|ces or |ndustry he renders to the f|rm.
d. k|ght to Ass|gn L|m|ted artner's Interest
Ak1. 18S9. A ||m|ted partner's |nterest |s ass|gnab|e.
A subst|tuted ||m|ted partner |s a person adm|tted to a||
the r|ghts of a ||m|ted partner who has d|ed or has ass|gned
h|s |nterest |n a partnersh|p.
An ass|gnee, who does not become a subst|tuted ||m|ted
partner, has no r|ght to requ|re any |nformat|on or account of
the partnersh|p transact|ons or to |nspect the partnersh|p
books, he |s on|y ent|t|ed to rece|ve the share of the prof|ts or
other compensat|on by way of |ncome, or the return of h|s
contr|but|on, to wh|ch h|s ass|gnor wou|d otherw|se be
ent|t|ed.
An ass|gnee sha|| have the r|ght to become a subst|tuted
||m|ted partner |f a|| the members consent thereto or |f the
ass|gnor, be|ng thereunto

LIMI1LD Ak1NLkSnIS
7S3
empowered by the cert|f|cate, g|ves the ass|gnee that r|ght.
An ass|gnee becomes a subst|tuted ||m|ted partner when
the cert|f|cate |s appropr|ate|y amended |n accordance w|th
Art|c|e 186S.
1he subst|tuted ||m|ted partner has a|| the r|ghts and
powers, and |s sub[ect to a|| the restr|ct|ons and ||ab|||t|es of
h|s ass|gnor, except those ||ab|||t|es of wh|ch he was |gnorant
at the t|me he became a ||m|ted partner and wh|ch cou|d not
be ascerta|ned from the cert|f|cate.
1he subst|tut|on of the ass|gnee as a ||m|ted partner does
not re|ease the ass|gnor from ||ab|||ty to the partnersh|p under
Art|c|es 1847 and 1848.
Under Art|c|e 18S9 of the New C|v|| Code, a ||m|ted partner's
|nterest |s ass|gnab|e, and ||ke |n an ord|nary partnersh|p, the ass|gnee
steps |nto the shoes of the ass|gn|ng ||m|ted partner on|y when adm|tted
by the other members: "A subst|tuted ||m|ted partner |s a person
adm|tted to a|| the r|ghts of a ||m|ted partner who had d|ed or has
ass|gned h|s |nterest |n a partnersh|p." 1he art|c|e a|so prov|des that "An
ass|gnee sha|| have the r|ght to become a subst|tuted ||m|ted partner |f
a|| the members consent thereto or |f the ass|gnor, be|ng thereunto
empowered by the cert|f|cate, g|ves the ass|gnee that r|ght." 8ut |n the
end Art|c|e 18S9 prov|des express|y that there |s a need to amend the
cert|f|cate, thus: "An ass|gnee becomes a subst|tuted ||m|ted partner
when the cert|f|cate |s appropr|ate|y amended."
In add|t|on, Art|c|e 18S9 prov|des that the subst|tuted ||m|ted
partner has a|| the r|ghts and powers, and |s sub[ect to a|| the restr|ct|ons
and ||ab|||t|es of h|s ass|gnor, except those ||ab|||t|es wh|ch he was
|gnorant of at the t|me he became a ||m|ted partner and wh|ch cou|d not
be ascerta|ned from the cert|f|cate.
1he art|c|e a|so prov|des that the subst|tut|on of the ass|gnee as a
||m|ted partner does not re|ease the ass|gnor from ||ab|||ty to
the partnersh|p for fa|se statement |n the Cert|f|cate under Art|c|e 1847,
and for h|s contr|but|ons ||ab|||t|es under Art|c|e 18S8.
I|na||y, Art|c|e 18S9 prov|des that an ass|gnee who does not
become a subst|tuted ||m|ted partner, has no r|ght to requ|re any
|nformat|on or account of the partnersh|p transact|ons or to |nspect the
partnersh|p books. ne |s on|y ent|t|ed to rece|ve the share of the prof|ts
or other compensat|on by way of |ncome, or the return of h|s
contr|but|ons, to wh|ch h|s ass|gnor wou|d otherw|se be ent|t|ed.
Cn the other hand, under Art|c|e 1849 of the New C|v|| Code, after
the format|on of a ||m|ted partnersh|p, add|t|ona| ||m|ted partners may
be adm|tted on|y upon f|||ng an amendment to the or|g|na| cert|f|cate |n
accordance w|th the procedure of amendments prov|ded under Art|c|e
186S. S|nce Art|c|e 1849 does not prov|de a part|cu|ar procedure or
vot|ng thresho|d by wh|ch add|t|ona| ||m|ted partners may be adm|tted
|nto the partnersh|p, then the requ|rements wou|d have to track the
procedure mandated under Art|c|e 186S on the amendment of the
Cert|f|cate wh|ch prov|des that the amend|ng cert|f|cate "8e s|gned and
sworn to by a|| members, and an amendment subst|tut|ng a ||m|ted
partner or add|ng a ||m|ted or genera| partner sha|| be s|gned a|so by the
member to be subst|tuted or added, and when a ||m|ted partner |s to be
subst|tuted, the amendment sha|| a|so be s|gned by the ass|gn|ng ||m|ted
partner."
F& 7W')*'-+ R'$'*7. 6,(*-7() ,(7 $"(7 "& 6,))'T7 '-T7)*"() '- *57
6,(*-7()5'6 T7-*8(7/ b5% b"8R. *57'( P"-)7-* S7 7))7-*',R '- , .7P')'"-
S% *57 +7-7(,R 6,(*-7() *" ,.$'* ,..'*'"-,R R'$'*7. 6,(*-7()/ b57-7T7(
*5,* 6"b7( ') -"* 7W6(7))R% 6("T'.7. &"( '- *57 <7(*'&'P,*7 "& @'$'*7.
K,(*-7()5'6r
L'()*R%/ the |nst|tut|on of any ||m|ted partner (whether or|g|na| or
add|t|ona|) requ|res a forma| |nd|cat|on |n the Cert|f|cate, otherw|se such
partners are not deemed to be ||m|ted partners, and they w||| be treated
as genera| partners. Consequent|y, the adm|ss|on of a new ||m|ted
partner |s rea||y equ|va|ent to an amendment or novat|on of the or|g|na|
or ex|st|ng ||m|ted partnersh|p agreement, wh|ch under the pr|nc|p|e of
mutua||ty |n Contract Law, cannot be done w|thout the consent of a||
LIMI1LD Ak1NLkSnIS 7SS
contract|ng part|es, |nc|ud|ng the ||m|ted partners. 1h|s po|nt emphas|zes
the |ega| tru|sm that ||m|ted partners must be treated |n two |eve|s of
|ega| re|at|onsh|p |n the partnersh|p arrangement: as pass|ve |nvestors |n
the partnersh|p venture, and as part|es to the contract of ||m|ted
partnersh|p.
;7P"-.R%/ the adm|ss|on of a new ||m|ted partner |nto the
partnersh|p venture must necessar||y "eat up" on the proport|ona| share
of the ex|st|ng ||m|ted partners |n the partnersh|p prof|ts, and therefore
||ke the pr|nc|p|e govern|ng pre-empt|ve r|ghts of stockho|ders under
Corporate Law, ||m|ted partners must g|ve the|r consent to the adm|ss|on
of a new ||m|ted partner wh|ch wou|d have the effect of d||ut|ng the|r
proport|ona| r|ght to the partnersh|p prof|ts.
L'-,RR%/ the adm|ss|on of a new ||m|ted partner |nto the partnersh|p
a|so d||utes the proport|ona| share that each of the ex|st|ng ||m|ted
partners are to have |n the d|str|but|on of the net assets of the
partnersh|p upon d|sso|ut|on and w|nd|ng-up.
If the equ|ty ho|d|ngs of ||m|ted partners |n the partnersh|p are
|mpersona| |n nature, because they do not ent|t|e the ||m|ted partners to
part|c|pate |n the management of the partnersh|p affa|rs, much |ess to
act as agents to one another, then |t becomes a ||tt|e d|ff|cu|t
understand|ng why the subst|tut|on by a ||m|ted partner of another
person |n h|s p|ace cannot happen as a matter of commerc|a| r|ght,
w|thout hav|ng to obta|n the consent of a|| the other partners. erhaps
the free-transferab|||ty of the equ|ty un|ts of ||m|ted partners shou|d be
|nst|tuted as a better feature of the |nst|tut|on of ||m|ted partners |n our
[ur|sd|ct|on.
We can understand the rat|ona|e for the need to forma||y amend
the Cert|f|cate whenever a ||m|ted partner |s subst|tuted by another
person as comp||ance w|th the so|emn nature of the ||m|ted partners'
pos|t|on T')VeVT') to forma||y b|nd the pub||c to the fact that they are on|y
||m|ted|y ||ab|e. nowever, the same so|emn|ty and not|ce to the pub||c
can be ach|eved s|mp|y by reg|ster|ng w|th the SLC the sa|e or
ass|gnment by a ||m|ted partner of h|s equ|ty to another person.
kequ|r|ng the forma| amendment of the Cert|f|cate unnecessary |nvo|ves
the part|c|pat|on of a|| the other partners (by the|r wr|tten consent or
rat|f|cat|on), wh|ch makes

the process ent|re|y cumbersome and need|ess|y cost|y, when such
consent can be presumed to have been part of the or|g|na| perfect|on of
the contract of partnersh|p among the part|es, and, more |mportant|y,
the process of sa|e and subst|tut|on cannot amount to a d|m|nut|on or
pre[ud|ce of the r|ghts of any of the other partners, whether genera| or
||m|ted, s|nce ||m|ted partners, whoever they may be, pract|ca||y have
no r|ght or power except as |t perta|ns to the|r propr|etary |nterest |n
the partnersh|p. In short, the ent|re rat|ona|e of .7R7P*8) 67()"-,7 |s
comp|ete|y |rre|evant to ||m|ted partners among themse|ves, and even
|n the|r contractua| re|at|onsh|p w|th the genera| partners.
e. ne|rs of Deceased Genera| artner Succeed Genera||y as
L|m|ted artners
A|though there |s no d|rect statutory prov|s|on that governs th|s
part|cu|ar s|tuat|on, the pos|t|on has been taken that when the he|r of
the genera| partner succeeds to h|s equ|ty |n the ||m|ted partnersh|p
pursuant to an express prov|s|on |n the Cert|f|cate the presumpt|on |s
that he succeeds on|y to h|s |nvestments, and thereby becomes on|y a
||m|ted partner, 8-R7)) *57 )8PP77.'-+ 57'( 7W6(7))R% $,-'&7)* *5,* 57 ')
)8PP77.'-+ ,) , +7-7(,R 6,(*-7(,"because he wou|d norma||y prefer to
avo|d any ||ab|||ty |n excess of the va|ue of the estate |nher|ted so as not
to [eopard|ze h|s persona| assets."
29
1he dec|s|on |n C"g8'"R,% T3 ;%P'6,
3

seems to support such pos|t|on, thus
8es|des, as we po|nted out |n our ma|n dec|s|on, the he|r
ord|nar||y (and we d|d not say "necessar||y") becomes a
||m|ted partner for h|s own protect|on, because he wou|d
norma||y prefer to avo|d any ||ab|||ty |n excess of the va|ue of
the estate |nher|ted so as not to [eopard|ze h|s persona|
assets. 8ut th|s statutory ||m|tat|on of respons|b|||ty be|ng
des|gned to protect the he|r, the |atter may d|sregard |t and
|nstead e|ect to become a co||ect|ve or genera| partner, w|th
^
D
L

LIMI1LD Ak1NLkSnIS 7S7
a|| the r|ghts and pr|v||eges of one, and answer|ng for the
debts of the f|rm not on|y w|th the |nher|tance but a|so w|th
the he|r's persona| fortune. 1h|s cho|ce perta|ns exc|us|ve|y
to the he|r, and does not requ|re the assent of the surv|v|ng
partner.
31

1he author does not agree w|th such pos|t|on.
1he |nst|tut|on of ||m|ted partnersh|p |s so|emn or forma|
arrangement under our artnersh|p Law, and no person becomes a
||m|ted partner, whether by the power of ass|gnment prov|ded under
the Cert|f|cate, or by the power of subst|tut|on, un|ess the Cert|f|cate |s
forma||y amended to so name the ass|gnee or the subst|tute, as a ||m|ted
partners.
Consequent|y, |n a genera| partnersh|p, when the art|c|es of
partnersh|p prov|de express|y that a deceased partner sha|| be
subst|tuted by h|s he|rs, the he|rs do not become partners, un|ess
forma||y accepted |nto the partnersh|p arrangement under the doctr|ne
of pr|v|ty or re|at|v|ty app||cab|e to partnersh|ps as embody|ng
contractua| re|at|onsh|p. Cn|y when the succeed|ng he|rs conf|rm that he
takes more than [ust the equ|ty r|ghts of the deceased partner and
actua||y steps |nto the shoes of the deceased partner thus he even
becomes a partner, and |n that case a genera| partner. In order for h|m
to come |n as a ||m|ted partnersh|p, there |s a need to forma||y adopt a
Cert|f|cate of L|m|ted artnersh|p as prov|ded by Art|c|e 1844 of the New
C|v|| Code.
Cn the other hand, |n a ||m|ted partnersh|p scenar|o, where the
Cert|f|cate prov|des for subst|tut|on of a genera| partner by h|s he|r |n the
event of death, |t |s hard to see how the automat|c app||cat|on of such
prov|s|on wou|d thereby make the he|r a partner at a||, whether ||m|ted
or genera| partner. S|nce partnersh|p re|at|onsh|p |s essent|a||y
contractua| |n nature where consent |s the essence to make one a
partner, then an he|r succeeds on|y to the equ|ty r|ghts of the deceased
genera| partner and un|ess he forma||y consents to become a partner,
then he does not become
OFS'.3
7S8
one, whether genera| or ||m|ted partner. In add|t|on, |f such consent |s
obta|ned, whether express|y or |mp||ed|y, from such he|r, |n the absence
of express|y choos|ng to become a ||m|ted partner, the genera| ru|e
shou|d be that he becomes a genera| partner by h|s acceptance |nto the
partnersh|p. 1o become a ||m|ted partner, by succeed|ng a genera|
partner, requ|res not on|y |nd|cat|on that one chooses to [o|n on|y as a
||m|ted partner, but actua||y requ|res comp||ance w|th the forma||t|es
cover|ng the amendment of the Cert|f|cate w|thout wh|ch one becomes
a genera| partner sub[ect to un||m|ted ||ab|||ty.
1h|s pos|t|on |s bo|stered by Art|c|e 18S9 of the New C|v|| Code
wh|ch prov|des that even when there |s a spec|f|c prov|s|on |n the
Cert|f|cate a||ow|ng a ||m|ted partner to subst|tute another person |n h|s
stead, such subst|tut|on does not become va||d ='373/ the subst|tuted
partner does not become a ||m|ted partner), un|ess there |s a forma|
amendment to the Cert|f|cate. When such so|emn|t|es are requ|red
when a ||m|ted partner |s subst|tuted |n h|s stead, |t |s hard to see why
when a genera| partner d|es and |s subst|tuted by an he|r, the '6)" X8(7
effect |s for the subst|tute to be a ||m|ted partner.
f. L|m|ted k|ght as to artnersh|p Affa|rs
Ak1. 18S1. A ||m|ted partner sha|| have the same r|ghts as
a genera| partner to:
(1) nave the partnersh|p books kept at the pr|nc|pa|
p|ace of bus|ness of the partnersh|p, and at a reasonab|e hour
to |nspect and copy any of them,
(2) nave on demand true and fu|| |nformat|on of a||
th|ngs affect|ng the partnersh|p, and a forma| account of
partnersh|p affa|rs whenever c|rcumstances render |t [ust and
reasonab|e, and
(3) nave d|sso|ut|on and w|nd|ng up by decree of court.

LIMI1LD Ak1NLkSnIS
7S9
A ||m|ted partner sha|| have the r|ght to rece|ve a share of
the prof|ts or other compensat|on by way of |ncome, and to
the return of h|s contr|but|on as prov|ded |n Art|c|es 18S6 and
18S7.
Art|c|e 18S1 of the New C|v|| Code prov|des that a ||m|ted
partner sha|| have the same r|ghts as a genera| partner on|y to:
(a) nave the partnersh|p books kept at the
pr|nc|pa| p|ace of bus|ness, and to |nspect
and copy them at reasonab|e hours, and
(b) nave on demand true and fu|| |nformat|on
of a|| th|ngs affect|ng the partnersh|p, and
a forma| account of partnersh|p affa|rs
whenever c|rcumstances render |t [ust
and reasonab|e.
g. L|m|ted artner May Loan Money to the artnersh|p
Art. 18S4. A ||m|ted partner a|so may |oan money to and
transact other bus|ness w|th the partnersh|p, and, un|ess he |s
a|so a genera| partner, rece|ve on account of resu|t|ng c|a|ms
aga|nst the partnersh|p, w|th genera| cred|tors, a pro (,*,
share of the assets. No ||m|ted partner sha|| |n respect to any
such c|a|m:
(1) kece|ve or ho|d as co||atera| secur|ty and partnersh|p
property, or
(2) kece|ve from a genera| partner or the partnersh|p any
payment, conveyance, or re|ease from ||ab|||ty |f at the t|me
the assets of the partnersh|p are not suff|c|ent to d|scharge
partnersh|p ||ab|||

t|es to persons not c|a|m|ng as genera| or ||m|ted partners.
1he rece|v|ng of co||atera| secur|ty, or payment,
conveyance, or re|ease |n v|o|at|on of the forego|ng prov|s|ons
|s a fraud on the cred|tors of the partnersh|p.
|oan money to, and transact other bus|ness w|th, the partnersh|p
w|thout adverse consequences to h|s stand|ng as a ||m|ted partner and
h|s r|ght to demand on|y ||m|ted ||ab|||ty exposure. When he |s not a|so a
genera| partner, a ||m|ted partner may rece|ve on account of resu|t|ng
c|a|ms aga|nst the partnersh|p w|th genera| cred|tors a 6(" (,*, share of
the assets. Nonethe|ess, |n a|| these cases, a ||m|ted partner sha|| not:
(a) rece|ve or ho|d as co||atera| secur|ty any partnersh|p
property, or
(b) rece|ve from a genera| partner or the partnersh|p any
payment, conveyance, or re|ease from ||ab|||ty, |f at the
t|me the assets of the partnersh|p are not suff|c|ent to
d|scharge partnersh|p ||ab|||t|es to persons as genera| or
||m|ted partners.
1he v|o|at|on of any of the |mmed|ate|y forego|ng proh|b|t|ons
sha|| const|tute fraud on the cred|tors of the partnersh|p.
h. k|ght to D|sso|ve the L|m|ted artnersh|p
Ak1. 18S7. A ||m|ted partner sha|| not rece|ve from a
genera| partner or out of partnersh|p property any part of h|s
contr|but|ons unt||:
(1) A|| ||ab|||t|es of the partnersh|p, except ||ab|||t|es to
genera| partners and to ||m|ted partners on account of the|r
contr|but|ons, have been pa|d

LIMI1LD Ak1NLkSnIS
761
or there rema|ns property of the partnersh|p suff|c|ent to pay
them,
(2) 1he consent of a|| members |s had, un|ess the return
of the contr|but|on may be r|ghtfu||y demanded under the
prov|s|ons of the second paragraph, and
(3) 1he cert|f|cate |s cance||ed or so amended as to set
forth the w|thdrawa| or reduct|on.
Sub[ect to the prov|s|ons of the f|rst paragraph, a ||m|ted
partner may r|ghtfu||y demand the return of h|s contr|but|on:
(1) Cn the d|sso|ut|on of a partnersh|p, or
(2) When the date spec|f|ed |n the cert|f|cate for |ts return
has arr|ved, or
(3) After he has s|x months' not|ce |n wr|t|ng to a|| other
members, |f no t|me |s spec|f|ed |n the cert|f|cate, e|ther for
the return of the contr|but|on or for the d|sso|ut|on of the
partnersh|p.
In the absence of any statement |n the cert|f|cate to the
contrary or the consent of a|| members, a ||m|ted partner,
|rrespect|ve of the nature of h|s contr|but|on, has on|y the
r|ght to demand and rece|ve cash |n return for h|s
contr|but|on.
A ||m|ted partner may have the partnersh|p d|sso|ved and
|ts affa|rs wound up when:
(1) ne r|ghtfu||y but unsuccessfu||y demands the return
of h|s contr|but|on, or
(2) 1he other ||ab|||t|es of the partnersh|p have not been
pa|d, or the partnersh|p property |s |nsuff|c|ent for the|r
payment as requ|red by the f|rst paragraph, No. 1, and the
||m|ted partner wou|d otherw|se be ent|t|ed to the return of
h|s contr|but|on.

have the partnersh|p d|sso|ved and |ts affa|rs wound-up when:
(a) ne r|ghtfu||y but unsuccessfu||y demands the return of
h|s contr|but|on, or
(b) 1he other ||ab|||t|es of the partnersh|p have not been
pa|d, or the partnersh|p property |s |nsuff|c|ent for the|r
payment, and the ||m|ted partner wou|d otherw|se be
ent|t|ed to the return of h|s contr|but|on.
4. Cb||gat|ons of L|m|ted artners
a. Cn Cr|g|na| Contr|but|ons to the artnersh|p
Ak1. 18S8. A ||m|ted partner |s ||ab|e to the partnersh|p:
(1) Ior the d|fference between h|s contr|but|on as
actua||y made and that stated |n the cert|f|cate as hav|ng
been made, and
(2) Ior any unpa|d contr|but|on wh|ch he agreed |n the
cert|f|cate to make |n the future at the t|me and on the
cond|t|ons stated |n the cert|f|cate.
A ||m|ted partner ho|ds as trustee for the partnersh|p:
Spec|f|c property stated |n the cert|f|cate as
contr|buted by h|m, but wh|ch was not contr|buted or wh|ch
has been wrongfu||y returned, and
Money or other property wrongfu||y pa|d or
conveyed to h|m on account of h|s contr|but|on.
1he ||ab|||t|es of a ||m|ted partner as set forth |n th|s
art|c|e can be wa|ved or comprom|sed on|y

by the consent of a|| members, but a wa|ver or comprom|se
sha|| not affect the r|ght of a cred|tor of a partnersh|p who
extended cred|t or whose c|a|m arose after the f|||ng and
before a cance||at|on or amendment of the cert|f|cate, to
enforce such ||ab|||t|es.
When a contr|butor has r|ghtfu||y rece|ved the return |n
who|e or |n part of the cap|ta| of h|s contr|but|on, he |s
neverthe|ess ||ab|e to the partnersh|p for any sum, not |n
excess of such return w|th |nterest, necessary to d|scharge |ts
||ab|||t|es to a|| cred|tors who extended cred|t or whose c|a|ms
arose before such return.
As|de from the proh|b|t|on aga|nst g|v|ng serv|ce as contr|but|on to
the ||m|ted partnersh|p as prov|ded |n Art|c|e 184S of the New C|v|| Code,
under Art|c|e 18S8 a ||m|ted partner |s ||ab|e to the partnersh|p for the
d|fference between h|s contr|but|on as hav|ng been made and for any
unpa|d contr|but|on wh|ch he agreed |n the cert|f|cate to make |n the
future at the t|me and on the cond|t|ons stated there|n, |
b. Cn Add|t|ona| Contr|but|ons
Under Art|c|e 1844(1 )(g) of the New C|v|| Code, a ||m|ted partner
may be ob||ged dur|ng the ||fe of the partnersh|p to g|ve add|t|ona|
contr|but|on |f such ob||gat|on |s prov|ded for |n the Cert|f|cate of L|m|ted
artnersh|p. 1he defau|t ru|e therefore |s that |n the absence of a
prov|s|on |n the Cert|f|cate, ||m|ted partners cannot be compe||ed to g|ve
add|t|ona| contr|but|on to the partnersh|p.
4" *57 6("T')'"-) "& B(*'PR7 `Nl` "& *57 97b <'T'R <".7/ b5'P5
"SR'+7) , 6,(*-7( *" )7RR 5') '-*7(7)* *" *57 "*57( 6,(*-7() '- *57 7T7-*
)8P5 )7RR'-+ 6,(*-7( (7&8)7) *" P"-*('S8*7 ,..'*'"-,R )5,(7 *" *57 P,6'*,R
*" ),T7 *57 6,(*-7()5'6 &("$ *57 '$$'-7-* R")) "& '*) S8)'-7))r We pos|t
that the prov|s|ons of Art|c|e 1791
cannot app|y to ||m|ted partners for |ts supp|etory app||cat|on to ||m|ted
partners wou|d ran contrary to the bas|c pr|nc|p|e that ||m|ted partners
are assured, so |ong as they rema|n w|th|n the|r pass|ve ro|e as |nvestors,
that they cannot be made to assume greater r|sk or add|t|ona| |oss
ar|s|ng from the operat|ons of the partnersh|p bus|ness, beyond what
they have contractua||y comm|tted to contr|bute.
c. Cn keturned Contr|but|ons
Art|c|e 18S8 of the New C|v|| Code prov|des that "When a
contr|butor has r|ghtfu||y rece|ved the return |n who|e or |n part of the
cap|ta| of h|s contr|but|on, he |s neverthe|ess ||ab|e to the partnersh|p
for any sum, not |n excess of such return w|th |nterest, necessary to
d|scharge |ts ||ab|||t|es to a|| cred|tors who extended cred|t or whose
c|a|ms arose before such return."
d. L|ab|e as 1rustee of the artnersh|p
Under Art|c|e 18S8 of the New C|v|| Code, as|de from the fact that
a ||m|ted partner |s ||ab|e to the partnersh|p for h|s unpa|d contr|but|ons
when |t has become due under the terms of the cert|f|cate, he wou|d
become ||ab|e as a trustee for the partnersh|p for:
(a) Spec|f|c property stated |n the cert|f|cate as contr|buted
by h|m, wh|ch was not been de||vered or wrongfu||y
returned to h|m,
(b) Money or other property wrongfu||y pa|d or conveyed
to h|m on account of h|s contr|but|on.
1he forego|ng ||ab|||t|es of a ||m|ted partner can be wa|ved or
comprom|sed on|y by the consent of a|| members, and prov|ded |t sha||
not affect the r|ght of a cred|tor of the partnersh|p who extended cred|t
or whose c|a|m arose after the f|||ng and before a cance||at|on or
amendment of the cert|f|cate, to enforce such ||ab|||t|es.

e. I|duc|ary Dut|es of L|m|ted artners
B(7 R'$'*7. 6,(*-7()/ S7'-+ $7(7R% 6,))'T7 '-T7)*"() '-*" *57
6,(*-7()5'6 S8)'-7)) 7-*7(6(')7/ S"8-. S% ,-% &'.8P',(% "SR'+,*'"-) ,-.
.8*'7) *" *57 R'$'*7. 6,(*-7()5'6 ,-. *" *57 "*57( 6,(*-7()r 1here |s no
doubt that genera| partners owe f|duc|ary dut|es not on|y to one another
under the pr|nc|p|e of mutua| agency, and to the ||m|ted partners on the
cons|derat|on that genera| partners act as agents ='373/ trustees) for the
||m|ted partners. Cn the other hand, by def|n|t|on, ||m|ted partners do
not, and cannot part|c|pate |n the management of the partnersh|p
affa|rs, and therefore do not act as agents for one another, for the
genera| partners, nor for the ||m|ted partnersh|p |tse|f. Not assum|ng the
pos|t|on of agents |n the partnersh|p arrangement, ||m|ted partners are
not bound by f|duc|ary ob||gat|ons.
1herefore, |t has been pos|ted by wr|ters, such as the De Leons,
that wh||e a cap|ta||st genera| partner cannot engage |n compet|t|ve
bus|ness w|th the partnersh|p bus|ness, a ||m|ted partner |s not
proh|b|ted from engag|ng |n such compet|t|ve bus|ness, thus: "In the
absence of statutory restr|ct|ons, a ||m|ted partnersh|p may carry on any
bus|ness wh|ch cou|d be carr|ed on by a genera| partnersh|p."
32

1he SLC has ru|ed that ||m|ted partners that are fore|gn
corporat|ons are not deemed to be do|ng bus|ness |n the h|||pp|nes.
33

1he SLC ru||ng supports the pos|t|on that ||m|ted partners are not
deemed to part|c|pate |n management of the bus|ness enterpr|se, nor do
they const|tute mutua| agents to one another or are they deemed
agents represent|ng the ||m|ted partnersh|p.
f. Genera| Lack of Stand|ng |n artnersh|p Su|ts
Ak1. 1866. A contr|butor, un|ess he |s a genera| partner, |s not
a proper party to proceed|ngs by or
32
DL LLCNS, at p. 301.
^SLC CINICN, 6 August

aga|nst a partnersh|p, except where the ob[ect |s to enforce a
||m|ted partner's r|ght aga|nst or ||ab|||ty to the partnersh|p.
Under Art|c|e 1866, a contr|butor, un|ess he |s a genera| partner
(wh|ch means that "contr|butor" covers a ||m|ted partner), |s not a
proper party to proceed|ngs by or aga|nst a partnersh|p, except where
the ob[ect |s to enforce a ||m|ted partner's r|ght aga|nst or ||ab|||ty to the
partnersh|p.
DISSCLU1ICN AND WINDING U CI LIMI1LD Ak1NLkSnI
Ak1. 1860. 1he ret|rement, death, |nso|vency,
|nsan|ty or c|v|| |nterd|ct|on of a genera| partner
d|sso|ves the partnersh|p, un|ess the bus|ness |s
cont|nued by the rema|n|ng genera| partners:
(1) Under a r|ght so to do stated |n the cert|f|cate,
or
(2) W|th the consent of a|| members.
Ak1. 1861. Cn the death of a ||m|ted partner h|s
executor or adm|n|strator sha|| have a|| the r|ghts
of a ||m|ted partner for the purpose of sett|ng
h|s estate, and such power as the deceased had
to const|tute h|s ass|gnee a subst|tuted ||m|ted
partner.
1he estate of a deceased ||m|ted partner sha||
be ||ab|e for a|| h|s ||ab|||t|es as a ||m|ted partner.
Ak1. 1862. Cn due app||cat|on to a court of
competent [ur|sd|ct|on by any cred|tor of a ||m|ted
partner, the court may charge the |nterest of the
|ndebted ||m|ted partner w|th payment of the
unsat|sf|ed amount of such c|a|m, and may appo|nt
a rece|ver, and make a|| other orders, d|rect|ons and |nqu|r|es
wh|ch the c|rcumstances of the case may requ|re.
1he |nterest may be redeemed w|th the separate
property of any genera| partner, but may not be redeemed
w|th partnersh|p property.
1he remed|es conferred by the f|rst paragraph sha|| not
be deemed exc|us|ve of others wh|ch may ex|st.
Noth|ng |n th|s Chapter sha|| be he|d to depr|ve a ||m|ted
partner of h|s statutory exempt|on.
Ak1. 1863. In sett|ng accounts after d|sso|ut|on the
||ab|||t|es of the partnersh|p sha|| be ent|t|ed to payment |n the
fo||ow|ng order:
(1) 1hose to cred|tors, |n the order of pr|or|ty as prov|ded
by |aw, except those to ||m|ted partners on account of the|r
contr|but|ons, and to genera| partners,
(2) 1hose to ||m|ted partners |n respect to the|r share of
the prof|ts and other compensat|on by way of |ncome on the|r
contr|but|ons,
(3) 1hose to ||m|ted partners |n respect to the cap|ta| of
the|r contr|but|ons,
(4) 1hose to genera| partners other than for cap|ta| and
prof|ts,
(5) 1hose to genera| partners |n respect to prof|ts,
(6) 1hose to genera| partners |n respect to cap|ta|.
Sub[ect to any statement |n the cert|f|cate or to
subsequent agreement, ||m|ted partners share |n the
partnersh|p assets |n respect to the|r c|a|ms [for cap|ta|, and |n
respect to the|r c|a|ms for prof|ts

or for compensat|on by way of |ncome on the|r contr|but|on
respect|ve|y, |n proport|on to the respect|ve amounts of such
c|a|ms.
1. Causes of D|sso|ut|on
Under Art|c|e 1860, the ret|rement, death, |nso|vency, |nsan|ty or
c|v|| |nterd|ct|on of a genera| partner d|sso|ves the partnersh|p, but not
that |n the case of a ||m|ted partner. 8ut even |n those cases the
partnersh|p |s not d|sso|ved |f the bus|ness |s cont|nued by the rema|n|ng
genera| partners:
(a) under a r|ght so to do stated |n the cert|f|cate, or
(b) w|th the consent of a|| members.
Under Art|c|e 1861 of the New C|v|| Code, |n case of death of a
||m|ted partner, h|s executor or adm|n|strator sha|| have a|| the r|ghts of
a ||m|ted partner for the purpose of sett||ng h|s estate, and such power
as the deceased had to const|tute h|s ass|gnee a subst|tuted ||m|ted
partner. In turn, the estate of the deceased ||m|ted partner sha|| be
||ab|e for a|| h|s ||ab|||t|es as a ||m|ted partner.
Under Art|c|e 1862 of the New C|v|| Code, on due app||cat|on by
any cred|tor of a ||m|ted partner, and w|thout pre[ud|ce to other ex|st|ng
remed|es, the courts may charge the |nterest of the |ndebted ||m|ted
partner w|th payment of the unsat|sf|ed amount of such c|a|m, and may
appo|nt a rece|ver, and make a|| other orders, d|rect|ons, and |nqu|r|es
wh|ch the c|rcumstances of the case may requ|re. Such |nterest may be
redeemed w|th the separate property of any genera| partner, but may
not be redeemed w|th partnersh|p property.
It shou|d a|so be noted that upon the dec|arat|on of |nsan|ty of the
genera| partner, |t wou|d const|tute a cause for the d|sso|ut|on of the
||m|ted partnersh|p. 1h|s |s |n contrast to the ru|e for non- ||m|ted
partnersh|ps, part|cu|ar under Art|c|e 1831 of the-New
C|v|| Code wh|ch prov|des that the |nsan|ty of a partner becomes on|y a
bas|s by wh|ch to go to court for a [ud|c|a| dec|arat|on of d|sso|ut|on of
the partnersh|p.
2. Sett||ng of Accounts
Under Art|c|e 1863 of the New C|v|| Code, |n sett||ng accounts after
d|sso|ut|on, the ||ab|||t|es of the partnersh|p sha|| be ent|t|ed to payment
|n the fo||ow|ng order:
(a) 1hose to cred|tors, |n the order of pr|or|ty as prov|ded
by |aw, except those to ||m|ted partners on account of
the|r contr|but|ons, and to genera| partners,
(b) 1hose to ||m|ted partners |n respect to the|r share of the
prof|ts and other compensat|on by way of |ncome on
(c) 1hose to ||m|ted partners |n respect to the cap|ta| of
(d) 1hose to genera| partners other than for cap|ta| and
prof|ts,
(e) 1hose to genera| partners |n respect to prof|ts,
(f) 1hose to genera| partners |n respect to cap|ta|.
Art|c|e 1863 spec|f|ca||y prov|des that "Sub[ect to any statement |n
the cert|f|cate or to subsequent agreement, ||m|ted partners share |n the
partnersh|p assets |n respect to the|r c|a|ms for cap|ta|, and |n respect to
the|r c|a|ms for prof|ts or for compensat|on byway of |ncome on the|r
contr|but|on respect|ve|y, |n proport|on to the respect|ve amounts of
such c|a|ms."
1he order of pr|or|ty |n the d|str|but|on of the assets of the ||m|ted
partnersh|p |n the event of d|sso|ut|on and w|nd|ng- up prov|des pr|or|ty
to the c|a|ms of partners "as to the|r share |n the prof|ts and
compensat|on by way of |ncome," over the|r c|a|ms "|n respect to
cap|ta|." 1h|s actua||y |s the reverse order |n the genera| ru|es on
d|str|but|on of partnersh|p assets upon
d|sso|ut|on under Art|c|e 1839(2), wh|ch |n |ts rank|ng of the ||ab|||t|es of
the partnersh|p |n order of payment, g|ve preference rank|ng to "(c)
1hose own|ng to partners |n respect of cap|ta|," than to "(d) 1hose ow|ng
to partners |n respect of prof|ts." I5% *57 .'&&7(7-P7 '- 6(7&7(7-P7 b57-
'* P"$7) *" .'))"R8*'"- "& , R'$'*7. 6,(*-7()5'6r
1he d|fference |n ||qu|dat|on pr|or|ty among partners |n a ||m|ted
partnersh|p shows that the pr|mary reason for the |nst|tut|on of a c|ass
of ||m|ted partners |s that of "|nvestment," rather than management, of
the partnersh|p bus|ness enterpr|se. Whereas, the ab|||ty to part|c|pate
|n prof|ts |s a|so a ma|n focus |n non-||m|ted partnersh|p set-up,
nonethe|ess, the partners come together as a group of contractua||y
bound "so|e propr|etors," where the r|ght to manage and part|c|pate |n
the affa|rs of the partnersh|p bus|ness enterpr|se |s the ma|n focus. In a
||m|ted partnersh|p scenar|o, |n order to be ent|t|ed to the feature of
"||m|ted ||ab|||ty," the ||m|ted partners do not part|c|pate |n the
management of the affa|rs of the bus|ness enterpr|se, they come |n on|y
as pass|ve |nvestors, and therefore, the ma|n nexus of the re|at|onsh|p
between the genera| partners on one hand, and the ||m|ted partners on
the other hand, ma|n|y focuses on the prof|ts that wou|d be earned from
the cap|ta| contr|but|on of the ||m|ted partners.
1he return of cap|ta| |tse|f |s not the pr|or|ty, for |ndeed under the
||m|ted ||ab|||ty ru|e, the cap|ta| contr|but|on |s |ntended to be the ma|n
source of c|a|m of partnersh|p cred|tors as aga|nst the ||m|ted partners.
1hat |s perhaps the ma|n reason why upon d|sso|ut|on and
w|nd|ng-up of a ||m|ted partnersh|p, after hav|ng pa|d a|| c|a|ms of
partnersh|p cred|tors, the pr|or|ty for the rema|n|ng assets of the ||m|ted
partnersh|p wou|d have to go to "[t]hose to ||m|ted partners |n respect
to the|r share of the prof|ts and other compensat|on by way of |ncome
on the|r contr|but|ons," S7&"(7 "1hose to ||m|ted partners |n respect to
the cap|ta| of the|r contr|but|ons."
0C0

ICIN1 VLN1UkLS
IN1kCDUC1ICN
It |s f|tt|ng that a course |n h|||pp|ne artnersh|p Law shou|d end
w|th the sect|on on [o|nt ventures, for |t |s |n th|s f|e|d where Supreme
Court dec|s|ons have become tru|y transcendent when |t comes to
protect|ng nat|ona| |nterests, and consequent|y where the essence of
partnersh|p pr|nc|p|es have become more |ucent.
D|scuss|ons on [o|nt ventures appeared as a sort-of esoter|c
med|um of do|ng bus|ness |n h|||pp|ne [ur|sprudence, w|th an or|g|na|
|mpress|on that they were a commerc|a| assoc|at|on rad|ca||y d|fferent
from partnersh|ps. 1he tendency had been to ascr|be to [o|nt venture
arrangements certa|n |ega| a||owances that wou|d never have been
accepted |n the case of partnersh|ps. 1h|s "part|a||ty" for [o|nt venture
arrangements, wh|ch st||| has remnants |n spr|nk||ng statutory
prov|s|ons, may be attr|buted to the percept|on that the [o|nt venture |s
a more pro[ect-or|ented med|um when compared to the partnersh|p
wh|ch tends to be branded w|th the attr|butes of pr|mar||y be|ng a
contractua| re|at|onsh|p bounded by the doctr|ne of .7R7P*8) 67()"-,7/
and
1
1he or|g|na| paper was subm|tted by the author to, and pub||shed
by, the CLN1Lk ICk IN1LkNA1ICNAL LLGAL S1UDILS based |n Sa|zburg, Austr|a, as
part of |ts |nternat|ona| pub||cat|on. 1h|s |s an abr|dged and updated
vers|on of what appeared as Append|x C |n the author's book on
K>F@FKKF9D CCkCkA1L @BI
771

thereby be|ng more "party-or|ented", "person-or|ented" or even
"persona||ty-or|ented."
A|though |t may not be read||y apparent, [o|nt venture
arrangements have become fa|r|y a common med|um for do|ng bus|ness
or undertak|ng ma[or pro[ects |n the h|||pp|nes, both cover|ng |oca|
transact|ons, when |t comes to |arge |nfrastructure undertak|ngs
|nvo|v|ng the resources of b|g corporat|ons, or structur|ng partnersh|p
arrangements between fore|gn |nvestors and the|r |oca| partners |n the
pursu|t of |oca| pro[ects |n the h|||pp|nes.
1he h|||pp|ne Government encourages the pursu|t of construct|on
pro[ects and petro|eum, coa|, geotherma|, and other energy operat|ons
under [o|nt venture arrangements. Under the Nat|ona| Interna| kevenue
Code of 1997 (NIkC), [o|nt ventures formed for the purpose of engag|ng
|n petro|eum, coa|, geotherma|, and other energy operat|ons under an
operat|ng or serv|ce contract w|th the Government, or those formed for
the purpose of undertak|ng construct|on pro[ects, are exempt from
corporate |ncome tax.
Io|nt venture arrangements have part|cu|ar|y been the more
popu|ar med|um when fore|gn part|c|pat|on |s |nvo|ved |n |oca| pro[ects,
s|nce the contractua| nature of the arrangement a||ows the part|es
f|ex|b|||ty to adopt spec|a| ru|es and procedures cover|ng the|r s|tuat|on,
wh|ch otherw|se wou|d be |napp||cab|e |n a regu|ar corporate veh|c|e
because of the restr|ct|ve ru|es of the Corporat|on Code and the cover|ng
[ur|sprudence |n h|||pp|ne Corporate Law.
NA1UkL CI ICIN1 VLN1UkLS IN nILIINL SL11ING
1. Io|nt Venture Arrangements r|mar||y Governed by Contract Law
r|nc|p|es
1here was a t|me when [o|nt ventures were treated separate|y
from partnersh|ps. 1ake the 19S4 dec|s|on of !8,)"- T3 :"R,5")/
Y

2
9S h||. 106 (19S4).

ICIN1 VLN1UkLS 773
where the Supreme Court uphe|d as app||cab|e the o|d adage |n
Amer|can Corporate Law that "though a corporat|on has no power to
enter |nto a partnersh|p, |t may neverthe|ess enter |nto a [o|nt venture
w|th another where the nature of that venture |s |n ||ne w|th the
bus|ness author|zed by |ts charter."
3
!8,)"- does not exp|a|n why there
was a d|fference |n treatment of corporate |nvo|vement by partnersh|ps
as d|st|ngu|shed from [o|nt ventures.
If we pursue the pos|t|on that [o|nt ventures must be treated
d|fferent|y from partnersh|ps then |t can be sa|d that apart from spec|f|c
reference |n the Nat|ona| Interna| kevenue Code, there |s no statutory
prov|s|on that forma||y governs [o|nt ventures, a|though they have been
recogn|zed |n [ur|sprudence and have re|at|ve|y become commonp|ace |n
commerc|a| ventures. Consequent|y, [o|nt venture agreements fa||
genera||y w|th|n the rea|m of Contract Law.
S|nce the preva|||ng contract ru|e |n the h|||pp|nes |s that part|es to
a contract may estab||sh such st|pu|at|ons, c|auses, terms and cond|t|ons,
as they may deem conven|ent, prov|ded that they are not contrary to
|aws, mora|s, good customs, pub||c order, or pub||c po||cy,
4
no mode|
[o|nt venture agreements have been pub||shed by the Secur|t|es and
Lxchange Comm|ss|on (SLC), 8oard of Investments (8CI), nor any other
author|ty, except fa|r|y recent|y by the Cff|ce of the Government
Corporate Counse| (CGCC) [o|nt|y w|th the Nat|ona| Lconom|c
Deve|opment Author|ty (NLDA).
2. Io|nt Ventures Are Spec|es of artnersh|p
1he treatment of [o|nt ventures today has come fu|| c|rc|e, |n that
the preva|||ng schoo| of thought |n the h|||pp|nes |s that [o|nt ventures
are a spec|es of partnersh|p, because they fa|| w|th|n the def|n|t|on of a
partnersh|p under Art|c|e 1767 of the New C|v|| Code, wh|ch prov|des
that when "two or more persons
[
RS'./ at p. 109, g8"*'-+ &("$ I%"$'-+VF-.',-, ?'R C,) Co., T3
I7)*"-/ 80 A.L.k., 1043, P'*'-+ Y ILL1CnLk CC. CI CCk., 1082.
4
Art|c|e 1306, New C|v|| Code.

b|nd themse|ves to contr|bute money, property, or |ndustry to a
common fund, w|th the |ntent|on of d|v|d|ng the prof|ts among
themse|ves," then a partnersh|p |s created.
At present, |t |s cons|dered that the ma|n d|st|nct|on between an
ord|nary partnersh|p and a [o|nt venture |s that the ord|nary partnersh|p
|s organ|zed for genera| bus|ness venture and does not have a def|n|te
term of ex|stence, whereas a [o|nt venture |s organ|zed for a spec|f|c
pro[ect or undertak|ng. 8ut even under that d|st|nct|on, a [o|nt venture
wou|d fa|| under the category of a O6,(*'P8R,( 6,(*-7()5'6/O wh|ch |s
def|ned as one wh|ch "has for |ts ob[ect determ|nate th|ngs, the|r use or
fru|ts, or spec|f|c undertak|ng."
S

In p'R")S,%,-/ F-P3 T3 C8'-+"-,] the Court adopted 8|ack's
def|n|t|on of a [o|nt venture, thus:
Io|nt venture |s def|ned as an assoc|at|on of persons or
compan|es [o|nt|y undertak|ng some commerc|a| enterpr|se
genera||y a|| contr|bute assets and share r|sks. It requ|res a
commun|ty of |nterest |n the performance of the sub[ect
matter, a r|ght to d|rect and govern the po||cy connected
therew|th, and duty, wh|ch may be a|tered by agreement to
share both |n prof|t and |osses, the acts of work|ng together
|n a [o|nt pro[ect.
7

1he forego|ng def|n|t|on of a [o|nt venture essent|a||y fa||s w|th|n
the statutory def|n|t|on of what const|tutes a partnersh|p. Another
reason g|ven for why a [o|nt venture must be cons|dered a spec|es of
partnersh|p |s that the Law on artnersh|ps prov|des that "A partnersh|p
may be const|tuted |n any form, except where |mmovab|e property or
rea| r|ghts are contr|buted, thereto, |n wh|ch case a pub||c |nstrument
sha|| be necessary."
8
1hat means
S
6
232 SCkA 110 (1994).
N
FS'./ at pp. 143-44, P'*'-+ 8LACk'S LAW DIC1ICNAk. G7'*7(,*7. '-
F-&"($,*'"- !7P5-"R"+% L"8-.,*'"- "& *57 K5'R'66'-7) T3 <"$$'))'"- "-
DR7P*'"-)/ 419 SCkA 141 (2004).
8
11

ICIN1 VLN1UkLS 77S
that no spec|a| form, even one seek|ng to estab||sh a [o|nt venture
arrangement, |s necessary to g|ve r|se to a partnersh|p.
Io||ow|ng-up on the p'R")S,%,-^) def|n|t|on of a [o|nt venture, the
Supreme Court |n F-&"($,*'"- !7P5-"R"+% L"8-.,*'"- "& *57 K5'R'66'-7)
T3 <"$$'))'"- "& DR7P*'"-)/
l
cons|dered a "consort|um" to be an
assoc|at|on of corporat|ons bound |n a [o|nt venture arrangements, and
he|d that the |nvo|vement of severa| compan|es |n a |arge pro[ect wou|d
not const|tute them |nto a consort|um nor a [o|nt venture when noth|ng
shows a commun|ty of |nterest, a shar|ng of r|sks, prof|ts and |osses, or
even a representat|on by them that they have come together |n
common venture. 1he Court found |n that case that apart from a short
and unsupported statement by one of the compan|es that |t was
represent|ng a consort|um, no ev|dence was adduced cover|ng a [o|nt
venture agreement, or author|ty g|ven by the other compan|es
author|z|ng the dec|ar|ng company that to represent or b|nd them |n a
co||ect|ve bas|s.
1he pos|t|on that a [o|nt venture |s a spec|es of partnersh|p has
been uphe|d by the Court |n B8(S,P5 T3 ;,-'*,(% I,(7) 0,-8&,P*8('-+
<"(63/O where |t approv|ng|y quoted from the br|ef of one of the part|es
that:
. . . 1he ma|n d|st|nct|on c|ted by most op|n|ons |n
common |aw [ur|sd|ct|on |s that the partnersh|p contemp|ates
a genera| bus|ness w|th some degree of cont|nu|ty, wh||e the
[o|nt venture |s formed for the execut|on of a s|ng|e
transact|on, and |s thus of a temporary nature. . . 1h|s .
observat|on |s not ent|re|y accurate |n th|s [ur|sd|ct|on, s|nce "
under the C|v|| Code, a partnersh|p may be part|cu|ar or
un|versa|, and a part|cu|ar partnersh|p may have for |ts ob[ect
a spec|f|c undertak|ng. (Art|c|e 1783, C|v|| Code) F* b"8R.
)77$ *57(7&"(7 *5,* 8-.7( K5'R'66'-7 R,b/ , X"'-* T7-*8(7 ')
, &"($ "& 6,(*-7()5'6 ,-. )5"8R. *58) S7 +"T7(-7. S% *57
R,b) "& 6,(*-7()5'63O
9
419 SCkA 141 (2004).
10
180 SCkA 130 (1989).
OFS'./ at p. 147, 7$65,)')
R .

W|thout qua|ms or equ|vocat|on, the Court |n JC ;8$$'* >"R.'-+)/
F-P3 T3 <"8(* "& B667,R)/
`Y
treated a [o|nt venture arrangement as a
partnersh|p. In >7'() "& !,- D-+ p77 T3 <"8(* "& B667,R)/
`[
the Court
observed that a [o|nt venture |s ak|n to a part|cu|ar partnersh|p. In
K('$7R'-1 K("67(*'7) ,-. 47T3 <"(63 T3 @,\,*'-V0,+,*,
14
the Court ru|ed
that "When the part|es have entered |nto a Io|nt Venture Agreement,
they have entered |nto a [o|nt venture arrangement wh|ch |s a form of
partnersh|p, and as such |s to be governed by the |aws on partnersh|p."
1S

W|th [o|nt venture arrangements be|ng c|ear|y c|ass|f|ed as a form
of part|cu|ar partnersh|p, there |s no doubt that the |nc|dents |mposed
by the Law on artnersh|ps on every k|nd of partnersh|p must befa||
every [o|nt venture arrangement. Cn|y recent|y, |n K5'R7W 0'-'-+ <"(63
T3 <"$$'))'"-7( "& F-*7(-,R G7T7-87/o a|though the corporate part|es
executed the |nstrument as a "ower of Attorney" and referred to
themse|ves as "pr|nc|pa|" and "manager," the Court he|d that when the
essent|a| e|ements of a partnersh|p are present, then |t wou|d be a [o|nt
venture arrangement, governed by the Law on artnersh|ps, thus
An exam|nat|on of the "ower of Attorney" revea|s that
a partnersh|p or [o|nt venture was |ndeed |ntended by the
part|es. Under a contract of partnersh|p, two or more
prof|ts among themse|ves. Wh||e a corporat|on, ||ke
pet|t|oner, cannot genera||y enter |nto a contract of
partnersh|p un|ess author|zed by |aw or |ts charter, |t has
been he|d that |t may enter |nto a [o|nt venture wh|ch |s ak|n
to a part|cu|ar partnersh|p re|at|onsh|p: x x x erusa| of the
agreement denom|nated as the 'ower of Attorney' |nd|cates
that the part|es had |ntended to create a partnersh|p and
estab||sh a common fund for the purpose. 1hey a|so had a
[o|nt |nterest
12
412 SCkA 10
(2003)
13
341 SCkA 740
"493 SCkA 444

p
RS'. at p. 467.
16
SS1 SCkA 428
(2008)

ICIN1 VLN1UkLS 777
|n the prof|ts of the bus|ness as shown by a S0-S0 shar|ng |n
the |ncome of the m|ne.
17

3. artnersh|p Character|st|cs of the Io|nt Venture
S|nce a [o|nt venture |s a spec|es or a spec|a| type of part-
nersh|p, |t ought to have the fo||ow|ng character|st|cs of a partner-
sh|p:
(a) It const|tutes a [ur|d|ca| persona||ty separate and
d|st|nct from that of each of the co-venturers. Art|c|e
1768 of the New C|v|| Code prov|des spec|f|ca||y
that the partnersh|p has a [ur|d|ca| persona||ty
separate and d|st|nct from that of each of the
partners even |n case of fa||ure to comp|y w|th the
reg|strat|on requ|rements of |aw. 1herefore, a [o|nt
venture as a f|rm can enter |nto contract and own
propert|es |n the f|rm's name.
18

(b) Lach of the co-venturers wou|d be ||ab|e w|th
the|r separate property to the cred|tors of the [o|nt
venture beyond the|r contr|but|ons or prom|sed
contr|but|ons to the [o|nt venture.
19

(c) Lven |f a co-venturer transfers h|s |nterest to
another, the transferee does not become a co-
venturer to the others |n the [o|nt venture un|ess
a|| the other co-venturers consent. 1h|s |s |n
consonance w|th the .7R7P*8) 67()"-,7 pr|nc|p|e
app||cab|e to partnersh|ps.
20

(d) Genera||y, the co-venturers act|ng on beha|f of
the [o|nt venture are agents of [o|nt venture and of
each other.
21

OFS'./ at pp. 438-439.
18
cf Art. 1774, New C|v|| Code.
19
Arts. 1816,1817,1824 to 1826, and 1839, New C|v||

20
21
Arts. 1803,1818 to 1823, New C|v|| Code.

778
(e) Death, ret|rement, |nso|vency, c|v|| |nterd|ct|on or
d|sso|ut|on of a co-venturer d|sso|ves the [o|nt
venture.
22

In @'*"-X8,/ J(3 T3 @'*"-X8,/ ;(3/
[[
the Court he|d that a [o|nt venture
|s hard|y d|st|ngu|shab|e from, and may be ||kened to, a partnersh|p
s|nce the|r e|ements are s|m||ar, '373/ commun|ty of |nterests |n the
bus|ness and shar|ng of prof|ts and |osses, and that be|ng a form of
partnersh|p, a [o|nt venture |s genera||y governed by the Law on
artnersh|ps.
4. Spec|a| 1reatments G|ven to Io|nt Ventures
Iur|sprudence, however, has tended to g|ve [o|nt ventures spec|a|
treatment not accorded to ord|nary partnersh|ps.
h|||pp|ne [ur|sprudence had adopted the preva|||ng ru|e |n the
Un|ted States that a corporat|on cannot ord|nar||y enter |nto
partnersh|ps w|th other corporat|ons or w|th |nd|v|dua|s. 1he bas|s for
such proh|b|t|on on corporat|ons |s that |n enter|ng |nto a partnersh|p,
the |dent|ty of the corporat|on |s |ost or merged w|th that of another
and the d|rect|on of the affa|rs |s p|aced |n other hands than those
prov|ded by the |aw of |ts creat|on. 1he doctr|ne |s grounded on the
theory that the stockho|ders of a corporat|on are ent|t|ed, |n the
absence of any not|ce to the contrary |n the art|c|es of |ncorporat|on, to
assume that the|r d|rectors w||| conduct the corporate bus|ness w|thout
shar|ng that duty and respons|b|||ty w|th others.
24

As d|scussed prev|ous|y, !8,)"- T3 :"R,-")recogn|zed |n h|||pp|ne
[ur|sd|ct|on the doctr|ne |n Ang|o-Amer|can [ur|sprudence that "a
corporat|on has no power to enter |nto a partnersh|p." Neverthe|ess,
!8,)"- recogn|zed that a corporat|on may va||d|y enter |nto a [o|nt
venture agreement, "where the
Ârt. 1830, New C|v|| Code.
23
477 SCkA S76 (200S).
24
8AU1IS1A, 1kLA1ISL CN nILIINL Ak1NLkSnI LAW, 1978 Ld.,

2S
9S h||. 106(19S4).

ICIN1 VLN1UkLS 779
nature of that venture |s |n ||ne w|th the bus|ness author|zed by |ts
charter."
26

A|though !8,)"- does not e|aborate on why a corporat|on may
become a venturer or partner |n a [o|nt venture arrangement, |t wou|d
seem that the po||cy beh|nd the proh|b|t|on on why a corporat|on cannot
be made a partner does not app|y |n a [o|nt venture arrangement. In a
[o|nt venture, usua||y cover|ng on|y a part|cu|ar pro[ect or undertak|ng,
when the board of d|rectors of a corporat|on eva|uate the r|sks and
respons|b|||t|es |nvo|ved, they can more or |ess exerc|se the|r own
bus|ness [udgment |s determ|n|ng the extent by wh|ch the corporat|on
wou|d be |nvo|ved |n the pro[ect and the ||ke|y ||ab|||t|es to be |ncurred.
Un||ke |n an ord|nary partnersh|p arrangement wh|ch may expose the
corporat|on to var|ous ||ab|||t|es and r|sks wh|ch cannot a|| be eva|uated
and ant|c|pated beforehand by the board, a [o|nt venture arrangement
cover|ng a s|ng|e pro[ect or transact|on a||ows the board to fu||y b|nd the
corporat|on to matters essent|a||y w|th|n the boards bus|ness
apprec|at|on and ant|c|pat|on.
a. SLC ku||ngs
1he prev|ous ru||ng of the SLC
27
on the matter |s that a corporat|on
cannot enter |nto a contract of partnersh|p w|th an |nd|v|dua| or another
corporat|on on the prem|se that |f a corporat|on enters |nto a
partnersh|p agreement, |t wou|d be bound by the acts of the persons
who are not |ts du|y appo|nted and author|zed agents and off|cers, wh|ch
|s ent|re|y |ncons|stent w|th the po||cy of the |aw that the corporat|on
sha|| mange |ts own affa|rs separate|y and exc|us|ve|y.
Later, the SLC prov|ded for a c|ear except|on to the forego|ng
ru||ng, and a||owed corporat|ons to enter |nto partnersh|p arrangement,
prov|ded the fo||ow|ng cond|t|ons are met:
28

W
RS'./ g8"*'-+ &("$ I%"$'-+VF-.',-, ?'R C,) <"3 T3 I7)*"-/ 80
A.L.k., 1043, P'*'-+ ILL1CnLk CC. CI CCk., 1082).
27
SLC Cp|n|on, 22 December 1966, SLC ICLIC 1960-1976, at p. 278,
P'*'-+ 6 ILL1CnLk CC. CCk., erm. Ld. kev. kep. 19S0, Sec. 2S20.
^SLC Cp|n|on, 29 Iebruary 1980, SLC Cp|n|on, dated 3 September
1984. Under Sec. 192 of the NA1ICNAL IN1LkNAL kLVLNUL CCDL,
documentary stamps of 1S.00 must be aff|xed on each proxy.

(a) 1he author|ty to enter |nto a partnersh|p re|at|on |s
express|y conferred by the charter or the art|c|es of
|ncorporat|on of the corporat|on, and the nature of the
bus|ness venture to be undertaken by the partnersh|p |s
|n ||ne w|th the bus|ness author|zed by the charter or
art|c|es of |ncorporat|on,
(b) 1he agreement on the art|c|es of partnersh|p must
prov|de that a|| the partners sha|| manage the
partnersh|p, and the art|c|es of partnersh|p must
st|pu|ate that a|| the partners sha|| be [o|nt|y and
severa||y ||ab|e for a|| the ob||gat|ons of the partnersh|p,
and
(c) If |t |s a fore|gn corporat|on, |t must obta|n a ||cense to
transact bus|ness |n the country |n accordance w|th the
Corporat|on Code of the h|||pp|nes.
In one op|n|on,
29
the SLC c|ar|f|ed that the cond|t|ons |mposed
meant that s|nce the partners |n a partnersh|p of corporat|ons are
requ|red to st|pu|ate that a|| of them sha|| manage the partnersh|p and
they sha|| be [o|nt|y and severa||y ||ab|e for a|| the ob||gat|ons of the
partnersh|p, |t necessar||y fo||owed that a partnersh|p of corporat|ons
shou|d be organ|zed as a "genera| partnersh|p."
Late|y |n a new ru||ng,
30
the SLC, rea||z|ng that the second
cond|t|on actua||y prevented a corporat|on from enter|ng |nto a ||m|ted
partnersh|p, wh|ch |f a||owed to do so wou|d then be more congruent
w|th the po||cy that the corporat|on wou|d then not be he|d ||ab|e for |ts
venture beyond the |nvestments made and determ|ned by |ts board of
d|rectors, and wou|d therefore not be he|d ||ab|e (beyond |ts
|nvestment) for debts ar|s|ng from the acts of the genera| partners,
recons|dered |ts pos|t|on and ru|ed that a corporat|on may become a
||m|ted partner |n
A
SLC Cp|n|on, 23 Iebruary 1994, kkVIII SLC UAk1LkL 8ULLL1IN 18 (No.
3, Sept. 1994).
^SLC Cp|n|on, 17 August 199S, kkk SLC UAk1LkL 8ULLL1IN 8 (No. 1,
Iune 1996).

ICIN1 VLN1UkLS 781
a ||m|ted partnersh|p, s|nce "there |s no ex|st|ng h|||pp|ne |aw that
express|y proh|b|ts a corporat|on from becom|ng a ||m|ted partner |n a
partnersh|p." In effect, the SLC dropped the second cond|t|on |mposed
prev|ous|y.
AL1LkNA1IVL ICkMS IN S1kUC1UkING A ICIN1 VLN1UkL
In B8(S,P5 T3 ;,-'*,(% I,(7) 0,-8&,P*8('-+ <"(63/
[
^ the Supreme
Court d|scussed background of the use of [o|nt ventures when |t comes
to I|||p|no |nvestors |nv|t|ng fore|gn part|c|pat|on |n a |oca| pro[ect, and
the r|sks |nvo|ved, thus
u|te often, I|||p|no entrepreneurs |n the|r des|re to de-
ve|op the |ndustr|a| and manufactur|ng capac|t|es of a |oca|
f|rm are constra|ned to seek the techno|ogy and market|ng
ass|stance of huge mu|t|nat|ona| corporat|ons of the deve|-
oped wor|d. Arrangements are forma||zed where a fore|gn
group becomes a m|nor|ty owner of a f|rm |n exchange for |ts
manufactur|ng expert|se, use of |ts brand names, and other
such ass|stance. nowever, there |s a|ways the danger from
such arrangements. 1he fore|gn group may, from the start,
|ntend to estab||sh |ts own so|e or monopo||st|c operat|ons
and mere|y uses the [o|nt venture arrangement to ga|n a
footho|d or test the h|||pp|ne waters, so to speak. Cr the
covetousness may come |ater. As the h|||pp|ne f|rm en|arges
|ts operat|ons and becomes prof|tab|e, the fore|gn group
underm|nes the |oca| ma[or|ty ownersh|p and act|ve|y tr|es to
comp|ete|y or predom|nant|y take over the ent|re company.
1h|s underm|n|ng of [o|nt ventures |s not cons|stent w|th fa|r
dea||ng to say the |east. 1o the extent that such subvers|ve
act|ons can be |awfu||y prevented, the courts shou|d extend
protect|on espec|a||y |n |ndustr|es where const|tut|ona| and
|ega| requ|rements reserve contro|||ng ownersh|p to I|||p|no
c|t|zens.
32

31
180 SCkA 130
( )
m|d, at p. 142.

art|es have var|ed cho|ces of |ega| forms |n p|ann|ng a [o|nt
venture arrangement, and they can pursue the same through the
fo||ow|ng formats:
(a) F-&"($,R "( <"-*(,P*8,R J"'-* 27-*8(7
B((,-+7$7-*/
(b) K,(*-7()5'6 B((,-+7$7-*/ or
(c) J"'-* 27-*8(7 <"(6"(,*'"-3
1. Account|ng for Io|nts Ventures
Under h|||pp|ne Account|ng Standards 31 on F-*7(7)* F- J"'-*
27-*8(7) ("AS 31"), the term "[o|nt venture" refers pr|mar||y to "a
contractua| arrangement whereby two or more part|es undertake an
econom|c act|v|ty wh|ch |s sub[ect to [o|nt contro|. . . . [wh|ch |s] the
power to govern the f|nanc|a| and operat|ng po||c|es of an econom|c
act|v|ty as to obta|n benef|ts from |t." In add|t|on, |t def|nes a [o|nt
venture as "a bus|ness ent|ty owned, and [o|nt|y contro||ed by a sma||
group of |nvestors as a separate and spec|f|c bus|ness pro[ect organ|zed
for the mutua| benef|t of the ownersh|p group."
Ior purposes of Account|ng and report|ng |n f|nanc|a| statements,
AS 31 recogn|zes three forms of [o|nt venture arrangements:
(a) J"'-*R% <"-*("RR7. ?67(,*'"-)d
(b) J"'-*R% <"-*("RR7. B))7*)d and
(c) J"'-*R% <"-*("RR7. D-*'*'7)3
Under AS 31, the |ega| form of the [o|nt venture arrangement
determ|nes |ts substance, c|ass|f|cat|on and correspond|ng account|ng.
33

33;77 Guantes, Mart|n C., J"'-* 27-*8(7 BPP"8-*'-+k <5,-+7) ,-.
<5,RR7-+7)/ 12 Iu|y 2010 |ssue of 8USINLSSWCkLD.

ICIN1 VLN1UkLS 783
1here |s a move by the Internat|ona| Account|ng Standards 8oard
(IAS8) and the I|nanc|a| Account|ng Standards 8oard (IAS8) to recast
AS 31 so that the part|es |n a [o|nt venture arrangement wou|d
recogn|ze the|r contractua| r|ghts and ob||gat|ons ar|s|ng from the [o|nt
arrangement as the bases for recogn|z|ng assets, ||ab|||t|es, |ncome and
expenses of the [o|nt venture, rather than be|ng based on the |ega| form
assumed by the co-venturers.
34

a. Io|nt|y Contro||ed Cperat|ons (ICC)
Under AS 31, |n "X"'-*R% P"-*("RR7. "67(,*'"-)/O , separate ent|ty
|s not estab||shed, w|th each venturer us|ng |ts own assets, |ncurs |ts own
expenses and ra|s|ng |t own f|nanc|ng, and what covers the [o|nt venture
arrangement |s an agreement sett|ng out the deta||s of the shar|ng the
revenues and expenses.
Under such arrangement, each venturerw||| ref|ect separate|y |n |ts
own f|nanc|a| statements the assets that |ntended for the pro[ect but
rema|n |n |ts contro|, the ||ab|||t|es |t |ncurs |ntended for the pro[ect, and
|ts share |n the |ncome der|ved from the pro[ect.
As w||| be d|scussed hereunder, the type of [o|nt venture under
OJ"'-*R% <"-*("RR7. ?67(,*'"-)O of AS 31 |s equ|va|ent to the F-&"($,R
"( <"-*(,P*8,R J"'-* 27-*8(7 B((,-+7$7-*
b. Io|nt|y Contro||ed Assets (ICA)
Under AS 31, |n the OX"'-*R% P"-*("RR7. ,))7*)O type of [o|nt
venture arrangement, there |s [o|nt contro| and ownersh|p by the
venturers of assets contr|buted to or acqu|red for the purpose of the
pro[ect, and w|th each venturer shar|ng |n the |ncome earned and
expenses |ncurred from the [o|nt|y contro||ed assets.
Under th|s sett|ng, there |s norma||y no company or partnersh|p
estab||shed because there are rea||y no operat|ons |nvo|ved (e.g., [o|nt|y
operat|ng |eased propert|es), and the co-
0
RS'.3

venturers come to the pro[ect more as co-owners, and that each
venturer contro| |ts |ncome part|c|pat|on or benef|t through |ts share of
the asset covered |n the pro[ect. Under such an arrangement, each
venturer w||| ref|ect |n |ts f|nanc|a| statements |ts share |n the [o|nt
assets, and share |n any ||ab|||ty |ncurred for the pro[ect, |ts share |n the
|ncome proceeds from the pro[ect, as we|| as |t share |n the expenses
|ncurred for the pro[ect.
1he ICA, wh|ch |s more ||ke a co-ownersh|p arrangement, has no
d|rect s|m||ar|y to any of the types of [o|nt ventures descr|bed be|ow, but
more ak|n to an |nforma| partnersh|p arrangement much s|m||ar to
F-&"($,R J"'-* 27-*8(7 B((,-+7$7-* In fact, under the proposed
changes to AS 31 |s to merged together ICC and ICA |nto a s|ng|e
c|ass|f|cat|on as "Io|nt Cperat|ons".
3S

c. Io|nt|y Contro||ed Lnt|t|es (ICL)
Under AS 31, the OX"'-*R% P"-*("RR7. 7-*'*'7)O arrangement wou|d
|nvo|ve sett|ng-up a company or a partnersh|p or other form of med|a |n
wh|ch each of the venturers sha|| have an equ|ty |nterest. When done |n
a corporate format, such [o|nt venture arrangement forma||zes w|th|n
the corporate ent|ty the |ega| re|at|onsh|p of the co-venturers, and takes
advantage of the "||m|ted ||ab|||ty" features.
1he assets and other contr|but|ons of the co-venturers wou|d be
recogn|zed |n each of the|r books and f|nanc|a| statements as
|nvestments |n the pro[ect. 1he [o|nt venture company wou|d then
ma|nta|n |ts own records and f|nanc|a| statements ||ke any other
enterpr|se |n conform|ty w|th h|||pp|ne I|nanc|a| keport|ng Standards
(IkS).
As d|scussed |n the next sect|on, th|s type of arrangement wou|d
be equ|va|ent to the K,(*-7()5'6 B((,-+7$7-* or the J"'-* 27-*8(7
<"(6"(,*'"-) arrangements, depend|ng on the med|um emp|oyed by
the co-venturers.
mFS'.3

ICIN1 VLN1UkLS 78S
2. Informa| or Contractua| Io|nt Venture Arrangement
In sp|te of the peremptory prov|s|ons under the Law on
artnersh|ps that any agreement by wh|ch two or more persons b|nd
themse|ves to contr|bute money, property or |ndustry to a common fund
='373/ to pursue a bus|ness enterpr|se) w|th the |ntent|on of d|v|d|ng the
prof|ts among themse|ves, wou|d necessar||y g|ve r|se to a partnersh|p,
36

and thereby a partnersh|p [ur|d|ca| persona||ty ar|ses "separate and
d|st|nct from that of the partners,"
37
nonethe|ess, |n cases of
corporat|ons wh|ch come together |n co-venture over a part|cu|ar
pro[ect, there has been an |mp||c|t recogn|t|on that such a venture can be
pursued mere|y as a pr|vate enterpr|se w|th no |ntent|on to present a
new or separate "f|rm" or "company," and much |ess a separate [ur|d|ca|
person, to the pub||c.
In >7'() "& !,- D-+ p77 T3 <"8(* "& B667,R)/
[e
after the Court he|d
that a [o|nt venture |s ak|n to a part|cu|ar partnersh|p, |t d|st|ngu|shed
one from the other as fo||ows:
(a) A [o|nt adventure (an Amer|can concept s|m||ar to our
X"'-* ,PP"8-*)H |s a sort of |nforma| partnersh|p. w|th no
f|rm name and no |ega| persona||ty. In a [o|nt account,
the part|c|pat|ng merchants can transact bus|ness under
the|r own name, and can be '-.'T'.8,RR% R',SR7 therefor,
(b) Usua||y, but not necessar||y a [o|nt adventure |s ||m|ted
to a SINGLL 1kANSAC1ICN, a|though the bus|ness of
pursu|ng to a successfu| term|nat|on may cont|nue for a
number of years, a partnersh|p +7-7(,RR% re|ates to a
cont|nu|ng bus|ness of var|ous transact|ons of a certa|n
k|nd.
39

37
M
341 SCkA 740 (2000).
m|d, at p. 7S3, P'*'-+ V.L. AkAS, CIVIL CCDL CI 1nL nILIINLS ANNC1A1LD
S46 (13th ed., 199S), 8-.7()P"('-+ )866R'7.3

In such a s|tuat|on, a "Io|nt Venture Agreement" or a "Memo-
randum of Agreement" |s executed by the co-venturers to prov|de for
the terms of arrangement, but the bus|ness enterpr|se w||| be pursued |n
the names of the co-venturers through the|r du|y author|zed
representat|ves. No separate company off|ce |s setup, no separate books
of accounts are kept, no forma| reg|strat|on of the enterpr|se |s made
w|th the appropr|ate government agenc|es. 1he co-venturers therefore
|ntend the|r re|at|onsh|p to be pr|mar||y governed by the contractua|
terms agreement upon them |n the [o|nt venture agreement.
a. SLC kecogn|t|on of the Informa| Io|nt
Venture Arrangement
Lven the SLC |tse|f has recogn|zed such an |nforma| arrangement. It
has ru|ed that genera||y, a [o|nt venture agreement of two corporat|ons
need not be reg|stered w|th the SLC, prov|ded |t w||| not resu|t |n the
format|on of a new partnersh|p or corporat|on. nowever, shou|d there
be an |ntent|on to acqu|re a separate 1ax Ident|f|cat|on Number (1IN)
from the 8ureau of Interna| kevenue for the bus|ness venture, |t
requ|res reg|strat|on w|th the SLC |n order to have a separate |ega|
persona||ty to obta|n a separate 1IN.
40

1he SLC has a|so ru|ed that two or more corporat|ons may enter
|nto a [o|nt venture through a contract or agreement (contractua| [o|nt
venture) |f the nature of the venture |s author|zed by the|r charters,
wh|ch contract need not be reg|stered w|th the SLC, prov|ded, however
that the [o|nt venture w||| not resu|t |n the format|on of a new
partnersh|p or corporat|on.
41

1hus, under a "contractua| [o|nt-venture format," the co- venturers
pursue the [o|nt venture arrangement by a pr|vate contract between
them, choos|ng not to represent to th|rd part|es or to the pub||c a
separate f|rm undertak|ng the pro[ect. Under such an arrangement, the
re|at|onsh|p of the co-venturers, the|r
^SLC Cp|n|on, 30 March 199S, kkIk SLC UAk1LkL 8ULLL1IN 32 (No. 3,
Sept. 199S).
41
SLC Cp|n|on, 29 Apr|| 198S, SLC ANNUAL CINICNS 198S, at p. 89. '

ICIN1 VLN1UkLS 787
r|ghts and ||ab|||t|es, are governed by the [o|nt venture contract executed
among them.
b. Iur|sprudent|a| Lxamp|e of an Informa| Io|nt
Venture Arrangement
A good examp|e of an |nforma| [o|nt venture arrangement was that
covered |n !(,T7&'" T3 :"S"-+"- :,-,-, C("b7() 08R*'VK8(6")7
<""67(,*'T7/
aY
where a |abor d|spute was sett|ed by the Supreme Court
emp|oy|ng partnersh|p and [o|nt venture pr|nc|p|es.
In !(,T75"/ the D|amond Iarms, Inc. (DII) entered |nto an
arrangement |andowners |n Santo 1omas, Davao De| Norte to convert
the|r |ands |nto banana p|antat|on and for wh|ch DII wou|d purchase
the|r qua||ty export produce. 1he |andowners organ|zed themse|ves |nto
a Cooperat|ve and entered |nto a forma| "8anana roduct|on and
urchase Agreement" (the "Contract") "under wh|ch the Cooperat|ve
wou|d hand|e and fund the product|on of bananas and operat|on of the
p|antat|on cover|ng |ands owned by |ts members |n cons|derat|on of
DII's comm|tment to prov|de f|nanc|a| and techn|ca| ass|stance as
needed, |nc|ud|ng the supp|y of |nformat|on and equ|pment |n grow|ng,
pack|ng, and sh|pp|ng bananas. 1he Cooperat|ve wou|d h|re |ts own
workers and pay the|r wages and benef|ts, and se|| exc|us|ve|y to DII a||
export qua||ty bananas produced that meet the spec|f|cat|ons agreed
upon."
43

When some of the |aborers work|ng the banana p|antat|on were
|a|d-off by the Cooperat|ve and a |abor case for un|awfu| term|nat|on
was brought, the c|a|mants |nc|uded DII as respondent on the ground
that the arrangement arr|ved at under the Contract was the proh|b|ted
[ob-contract|ng or sub-contract|ng pract|ce.
44

42
S98 SCkA 27 (2009).
OFS'./ at p. 38.
]
a
'S'./ at pp. 37-38: "Iob contract|ng or subcontract|ng refers to an
arrangement whereby a pr|nc|pa| agrees to farm out w|th a contractor or
subcontractor the performance of a spec|f|c [ob, work or serv|ce w|th|n a
def|n|te or predeterm|ned per|od, regard|ess of whether such [ob, work
or serv|ce |s to be performed or comp|eted w|th|n or outs|de the
prem|ses of the pr|nc|pa| "

788
1he Court he|d that "DII d|d not farm out to the Cooperat|ve the
performance of a spec|f|c [ob, work, or serv|ce,"
4S
|n that
1o the Court, the Contract between the Coope-rat|ve
and DII, far from be|ng a [ob contract|ng arrangement, |s |n
essence a bus|ness partnersh|p that partakes of the nature
of a [o|nt venture. 1he ru|es on [ob contract|ng are,
therefore, |nappos|te. 1he Court may not a|ter the |ntent|on
of the contract|ng part|es as g|eaned from the|r st|pu|at|ons
w|thout v|o|at|ng the ,8*"-"$% "& P"-*(,P*) pr|nc|p|e under
Art|c|e 1306 of the C|v|| Code wh|ch g|ves the contract|ng
part|es the utmost ||bera||ty and freedom to estab||sh such
st|pu|at|ons, c|auses, terms and cond|t|ons as they may
deem conven|ent, prov|ded they are not contrary to |aws,
mora|s, good custom, pub||c order or pub||c po||cy.
48

!(,T7-" therefore re|terates the pr|nc|p|e that a [o|nt venture
arrangement |s a spec|es of partnersh|p, and that ||ke an ord|nary
partnersh|p arrangement, |t |s pr|mar||y contractua| |n character and
sub[ect to the 6('-P'6R7 "& ,8*"-"$%3
Cne of the |ssues that cou|d have been ra|sed |n !(,T75" |s that
even when the arrangement between DII and the Cooperat|ve was a
[o|nt venture one rather than a [ob-contract|ng arrangement, |t was st|||
poss|b|e to have made DII ||ab|e for the |abor c|a|ms po|sed aga|nst the
Cooperat|ve on the pr|nc|p|e of "mutua| agency" app||cab|e to a|| forms
of partnersh|p. In other words, when the Cooperat|ve h|red the |aborers
|n the p|antat|on, and eventua||y term|nated the|r serv|ces purported|y
|n an un|awfu| manner, |t may be cons|dered as b|nd|ng on DII a|so,
s|nce the act of a partner or co-venturer b|nds not on|y the act|ng party,
but a|so the partnersh|p and the other partners.
1he Court |n !(,T75" may have addressed th|s |ssue when |t he|d
that |n a [o|nt venture agreement, the co-venturers are he|d bound by
the|r prom|sed contr|but|on or comm|tment to the [o|nt venture
arrangement:
OFS'./ at p.
38. OFS'./ at
38

ICIN1 VLN1UkLS 789
Cn the second requ|s|te, wh|ch refers to the pay-ment of
wages, |t was ||kew|se the Cooperat|ve that pa|d the same.
B) (7&R7P*7. 7,(R'7(/ 8-.7( *57 <"-*(,P* *57 <""67(,*'T7 b,)
*" 5,-.R7 ,-. &8-. *57 6(".8P*'"- "& S,-,-,) ,-.
"67(,*'"- "& *57 6R,-*,*'"-3 1he Cooperat|ve was a|so to be
respons|b|e for the proper conduct, safety, benef|ts, and
genera| we|fare of |ts members and workers |n the
p|antat|on.
As to the th|rd requ|s|tes, wh|ch refers to the power of
d|sm|ssa|, and the fourth requ|s|te, wh|ch refers to the power
of contro|, both were reta|ned by the Cooperat|ve. B+,'-/
*57 <"-*(,P* )*'68R,*7. *5,* *57 <""67(,*'T7 b,) *" S7
(7)6"-)'SR7 &"( *57 6("67( P"-.8P* ,-. +7-7(,R b7R&,(7 "& '*)
$7$S7() ,-. b"(17() '- *57 6R,-*,*'"-3
aN

c. Io|nt Venture Arrangement n|dden 1hrough Another
Iorm of Contract
Somet|mes, the part|es to a [o|nt venture arrangement, |n order to
avo|d hav|ng to present to the pub||c the rea| nature of the|r
arrangement, execute another form of contract that w||| e|ther fac|||tate
the |mp|ementat|on of the|r agreement, or that w||| h|de the|r true |ntent
and arrangement.
In the case of 07-."\, T3 K,8R7/
ae
a [o|nt venture arrangement to
undertake one part|cu|ar government pro[ect was pursued among the
two partners (au|e and Mendoza) through the use of the ex|st|ng
reg|stered and accred|ted construct|on company (a so|e propr|etorsh|p)
of one of the partners. Instead of execut|ng a forma| [o|nt venture
arrangement the part|es fo||owed the fo||ow|ng format: "Lng|neer
Lduardo M. au|e (AULL) |s the propr|etor of L M. au|e Construct|on
and 1rad|ng (LMC1). . . AULL executed a spec|a| power of attorney
(SA) author|z|ng 2ena|da G. Mendoza (MLNDC2A) to part|c|pate |n the
pre-qua||f|cat|on and b|dd|ng of a Nat|ona| Irr|gat|on Adm|n|strat|on
(NIA) pro[ect and to represent h|m |n a|| transact|ons re|ated thereto."
49

aN
FS'./ at p. 39, 8-.7()P"(7. '*,R'P)
R' .
48
S79 SCkA 341 (2009).
a
]RS'./ at p. 34S.

A|though dubbed as an attorney-|n-fact arrangement, the Court
noted that the rea| arrangement between au|e and Mendoza was a
partnersh|p or [o|nt venture arrangement, thus:
kecords show that AULL (or, more appropr|ate|y,
LMC1) and MLNDC2A entered |nto a partnersh|p |n regard
to the NIA pro[ect. AULL's contr|but|on thereto |s h|s
contractor's ||cense and expert|se, wh||e MLNDC2A wou|d
prov|de and secure the needed funds for |abor, mater|a|s
and serv|ces, dea| w|th the supp||ers and sub-contractors,
and |n genera| and together w|th AULL, oversee the
effect|ve |mp|ementat|on of the pro[ect. Ior th|s, AULL
wou|d rece|ve as h|s share three 67( P7-* (3) of the pro[ect
cost wh||e the rest of the prof|ts sha|| go to MLNDC2A.
AULL adm|ts to th|s arrangement |n a|| h|s p|ead|ngs.
S0

A|though au|e was shown to be the pr|nc|pa| of Mendoza, he was
made ||ab|e for revok|ng the purported agency arrangement: "AULL
shou|d be made c|v|||y ||ab|e for abandon|ng the partnersh|p, |eav|ng
MLNDC2A to fend for her own, and for undu|y revok|ng her author|ty to
co||ect payments from NIA, payments wh|ch were necessary for the
sett|ement of ob||gat|ons contracted for and a|ready ow|ng to |aborers
and supp||ers of mater|a|s and equ| pment . . . not to ment|on the
agreed prof|ts to be der|ved from the venture that are ow|ng to
MLNDC2A by reason of the|r partnersh|p agreement."
S1

An |nforma| [o|nt venture arrangement was a|so pursued |n K5'R7W
0'-'-+ <"(63 T3 <"$$'))'"-7( "& F-*7(-,R G7T7-87/t where |n the
operat|on of a m|n|ng concess|on between| two corporat|ons, they
executed mere|y a "ower of Attorney" and des|gnated one another
"pr|nc|pa|" (the owner of the concess|on) and "manager" (the ent|ty that
wou|d d|rect|y manage deve|opment and operat|ons). 1he Court refused
to cons|der the re|at|onsh|p between the part|es as debtor-cred|tor,
pr|nc|pa|-agent, or as
W
RS'./ at p. 3S4.
S
1

ICIN1 VLN1UkLS 791
pr|nc|pa|-manager, s|nce by the terms of the arrangement the essent|a|
e|ements of a partnersh|p ex|sted, thus
An exam|nat|on of the "ower of Attorney" revea|s that a
partnersh|p or [o|nt venture was |ndeed |ntended by the
part|es. Under a contract of partnersh|p, two or more
prof|ts among themse|ves. Wh||e a corporat|on, ||ke
pet|t|oner, cannot genera||y enter |nto a contract of
partnersh|p un|ess author|zed by |aw or |ts charter, |t has
been he|d that |t may enter |nto a [o|nt venture wh|ch |s ak|n
to a part|cu|ar partnersh|p re|at|onsh|p: x x x erusa| of the
agreement denom|nated as the 'ower of Attorney' |nd|cates
that the part|es had |ntended to create a partnersh|p and
estab||sh a common fund for the purpose. 1hey a|so had a
[o|nt |nterest |n the prof|ts of the bus|ness as shown by a
S0-S0 shar|ng |n the |ncome of the m|ne.
S3

It |s c|ear from the ru||ng |n K5'R7W 0'-'-+/ that the part|es to a
bus|ness venture may choose to treat one another as not be|ng bound
by a partnersh|p re|at|onsh|p, but when controversy ar|ses by wh|ch
the|r r|ghts and ob||gat|ons have to be determ|ned, the courts wou|d
have no cho|ce by to |mpute the |ega| re|at|onsh|p of a partnersh|p or
[o|nt venture arrangement when the essent|a| e|ements of a partnersh|p
are present.
In K5'R7W 0'-'-+/ the Court refused to a||ow the part|es to treat the
advances made to the venture as |oans or advances to one another,
ho|d|ng that advances made by a co-venturer |n the [o|nt venture
bus|ness wh|ch cannot be recovered cannot be treated as bad debts and
deducted for |ncome tax purposes, the re|at|onsh|p between
co-venturers |n a [o|nt venture arrangement cannot be cons|dered a
cred|tor-debtor re|at|onsh|p w|th respect to the|r advances and
contr|but|ons to the bus|ness enterpr|se.
U|t|mate|y, the fa||ed attempt |n K5'R7W 0'-'-+ to ve|| the
arrangement as one as not be|ng a [o|nt venture arrangement,
mFS'./ at pp. 438-439.

caused the m|n|ng compan|es the ob||gat|on to pay unpa|d |ncome taxes
|n the severa| m||||ons of pesos. 1he hard |esson that was |earned was
that s|nce a [o|nt venture arrangement |s a spec|es of partnersh|p, then
the peremptory prov|s|ons and pr|nc|p|es under the Law on artnersh|ps
w||| be the once emp|oyed by the courts to smoke out whether the
under|y|ng agreement was a [o|nt venture arrangement.
A more graph|ca| examp|e of an attempt to h|de the [o|nt venture
arrangement can be found |n p'R")S,%,-/ F-P3 T3 C8'-+"-,/ J(3
Z
] In that
case, the h|||pp|ne Char|ty and Sweepstakes Cff|ce (CSC) was
proh|b|ted by |ts charter from ho|d|ng and conduct|ng |otter|es "|n
co||aborat|on, assoc|at|on or [o|nt venture w|th any person, assoc|at|on,
company or ent|ty, whether domest|c or fore|gn."
SS
In order not to be
v|o|ate such proh|b|t|on, CSC entered |nto a "Contract of Lease" w|th
the h|||pp|ne Gam|ng Management Corporat|on (GMC), purported for
CSC to |ease the |ottery fac|||t|es of the |atter |n order to operate
nat|ona||y the on-||ne |ottery system known as "|otto." In f|nd|ng that
"notw|thstand|ng |ts denom|nat|on or des|gnat|on as a <"-*(,P* "&
@7,)7,"the purported |ease arrangement v|o|ated the statutory
proh|b|t|on, |n that |t actua||y covered a [o|nt venture arrangement
between CSC and GMC, the Court he|d
1he contemporaneous acts of the. CSC and the GMC
revea| that the CCSC had ne|ther funds of |ts own nor the
expert|se to operate and manage an on-||ne |ottery system,
and that a|though |t w|shed to have the system, |t wou|d
have |t "at no expense or r|sks to the government." xxx.
In short, the on|y contr|but|on the CSC wou|d have |s |ts
franch|se or author|ty to operate the on-||ne |ottery system,
w|th the rest, |nc|ud|ng the (')1) of the bus|ness, be|ng borne
by the proponent or b|dder, xxx.
1he so-ca||ed Contract of Lease |s not, therefore, what |s
purports to be. Its denom|nat|on as such |s a crafty dev|ce,
carefu||y conce|ved, to prov|de a bu||t-|n defense |n the event
"232 SCkA 110 (1994).
k
Sec. 1, kep. Act No. 1169, as
amended by 8.. 8|ng. 42. OFS'./ at
143

ICIN1 VLN1UkLS 793
that the agreement |s quest|oned as v|o|ate of the except|on
|n Sect|on 1(b) of the CSC's charter. 1he acu|ty or sk||| of |ts
draftsmen to accomp||sh that purpose eas||y man|fest |tse|f |n
the Contract of Lease. It |s outstand|ng for |ts carefu| and
met|cu|ous draft|ng des|gned to g|ven an |mmed|ate
|mpress|on that |t |s a contract of |ease. et, woven there|n
are prov|s|ons wh|ch negate |ts t|t|e ,-. S7*(,% *57 *(87
'-*7-*'"- "& *57 6,(*'7) *" S7 '- "( *" 5,T7 , X"'-* T7-*8(7 &"(
, 67('". "& 7'+5* %7,() '- *57 "67(,*'"- ,-. $,'-*7-,-P7 "&
*57 "-VR'-7 R"**7(% )%)*7$ ]
1he [o|nt venture arrangement was found to ex|st under the terms
of the Contract of Lease, w|th the f|nd|ng by the Court of the essent|a|
e|ement of part|c|pat|ng |n the prof|ts of the on-||ne |ottery system, and
at the same t|me bear|ng the r|sks of |oss. 1he Court he|d that "1h|s
r|sk-bear|ng prov|s|on |s unusua| |n a |essor-|essee re|at|onsh|p, but
|nherent |n a [o|nt venture."
68
1he Court observed that "A|| of the
forego|ng unm|stakab|y conf|rm the |nd|spensab|e ro|e of the GMC |n
the pursu|t, operat|on, conduct, and management of the Cn-L|ne Lottery
System. 1hey exh|b|t and demonstrate the part|es' |nd|v|s|b|e
commun|ty of |nterest |n the concept|on, b|rth and growth of the on-||ne
|ottery, and, above a||, |n |ts prof|ts, w|th each hav|ng a r|ght |n the
formu|at|on and |mp|ementat|on of po||c|es re|ated to the bus|ness and
shar|ng, as we||, |n the |osses w|th the GMC bear|ng the greatest
burden because of |ts assumpt|on of expenses and r|sks, and the CSC
the |ease, because of |ts confessed unw||||ngness to bear expenses and
r|sks."
S9

3. Io|nt Venture ursued under Iorma| artnersh|p
Arrangement
A second type of [o|nt venture arrangement |s to forma||y operate
the [o|nt venture set-up as a partnersh|p, w|th a separate and d|st|nct
[ur|d|ca| persona||ty. Under such an arrangement, the
ZN
FS'./ at pp. 144-146, 7$65,)')
R' .
m|d, at p. 147.
mFS'./ at pp. 148-149.

co-venturers execute forma| Art|c|es of artnersh|p, wh|ch may a|so be
denom|nated as a "Io|nt Venture Agreement," embody|ng the|r
arrangements, as we|| as the f|rm name and structure of the company
that they are form|ng, and reg|ster the same w|th the SLC.
Such a [o|nt venture arrangement wou|d then be operated as, and
be governed by the |ega| ru|es and pr|nc|p|es perta|n|ng to, part|cu|ar
partnersh|ps.
As contrasted from the |nforma| [o|nt venture arrangement
d|scussed above, a forma| [o|nt venture pursued under forma|
partnersh|p arrangements prov|des better protect|on for the part|es |n
the sense that they have a set of |aws by wh|ch they can base the|r
r|ghts and c|a|ms.
Apart from the |essons |earned from the dec|s|ons |n p'R")S,%,-
and K5'R7W 0'-'-+ a|ready d|scussed above, th|s |esson can best be
shown |n the dec|s|on |n !,- D-+ p77 T3 <"8(* "& B667,R)/
ec
where the
he|rs of the purported co-venturer |n a |umber and construct|on supp|y
bus|ness sought to recover the decedents share |n the enterpr|se and
accumu|ated prof|ts. A|though the tr|a| court found that there was a
[o|nt venture arrangement, the Supreme Court aff|rmed the ru||ng of the
Court of Appea|s that |n the absence of a contract of partnersh|p, p|us
the |nab|||ty of the he|rs to |nd|cate by c|ear ev|dence the essent|a|
e|ements of a partnersh|p, no [o|nt venture arrangement can be
|mputed |nto the bus|ness enterpr|se, thus
Undoubted|y, the best ev|dence [of a partnersh|p] wou|d
have been the contract of partnersh|p |tse|f, or the art|c|es of
partnersh|p __ 1he net effect, however, |s that we are asked
to determ|ne whether a partnersh|p ex|sted based pure|y on
c|rcumstant|a| ev|dence. A rev|ew of the record persuades
Us that the Court of Appea|s correct|y reversed the dec|s|on
of the tr|a| court. 1he ev|dence presented by pet|t|oners
fa||s short of the quantum of proof requ|red to estab||sh a
partnersh|p.
61

341 SCkA 740
( )
61
]b]d, at p. 7S4.
ICIN1 VLN1UkLS 79S
4. Io|nt Venture ursued under a Io|nt Venture
Corporat|on
Lqu|ty [o|nt ventures are a|so ava||ab|e |n h|||pp|ne sett|ng, wh|ch
may cover the format|on of a new [o|nt venture company, w|th each
co-venturer be|ng a||ocated proport|onate shareho|d|ngs |n the
outstand|ng cap|ta| stock of the [o|nt venture corporat|on.
|
>y*.-
An equ|ty [o|nt venture may a|so be pursued where a co- venturer
|s a||ocated the Agreed shares of stock |n an ex|st|ng corporat|on, e|ther
from neto |ssuances of the cap|ta| stock of the ex|st|ng corporat|on, or
so|d shares from those a|ready |ssued |n the names of the other
co-venturers.
a. Corporate r|nc|p|es 27()8) IVA rov|s|ons
In equ|ty [o|nt ventures, the r|ghts and ob||gat|ons of the part|es
among themse|ves are covered not on|y |n a separate [o|nt venture
agreement, but a|so |mp|emented by certa|n prov|s|ons of the art|c|es of
|ncorporat|on and by-|aws of.the [o|nt venture corporat|on.
In a s|tuat|on where a corporate veh|c|e |s formed |n pursuance of
the [o|nt venture arrangements, |dea||y the co-venturers shou|d be ab|e
to f|t |nto the var|ous terms and c|auses of the art|c|es of |ncorporat|on
and by-|aws (known as the "charter") of the [o|nt venture company the
sa||ent features of the|r [o|nt venture arrangement. Cons|der|ng that the
co-venturers have chosen the corporate veh|c|e by wh|ch to pursue the|r
bus|ness enterpr|se, then |t wou|d be pos|ted that |n s|tuat|ons where
[o|nt venture agreements conta|n prov|s|ons not covered by the charter
of the [o|nt venture corporat|on or T'P7VT7(),/ the reso|ut|ons of |ssues
ar|s|ng therefrom ought to be as fo||ows:
(a) In case of conf||cts between the prov|s|ons of the [o|nt
venture agreement and the charter of the [o|nt venture
corporat|on, the prov|s|ons of the |atter sha|| preva||,
and
(b) In case fhere are prov|s|ons or c|auses |n the [o|nt
venture agreement not found |n the charter of the

[o|nt venture corporat|on, such prov|s|ons and c|auses
rema|n b|nd|ng contracts among the [o|nt venture
part|es s|gnatory to the agreement, but do not b|nd the
[o|nt venture corporat|on or other part|es not
s|gnator|es thereto.
1he forego|ng ru|es of reso|ut|on are based on the we||-
estab||shed doctr|ne under h|||pp|ne Corporate Law that the art|c|es of
|ncorporat|on forms a bas|c contract document def|n|ng the charter of
the corporat|on. 1he art|c|es of |ncorporat|on |s character|zed as a
contract between and among three part|es: (a) between the State and
the corporat|on, (b) between the stockho|ders and the State, and (c)
between the corporat|on and |ts stockho|ders.
62

In add|t|on, a|though the [o|nt venture agreement may conta|n
ru|es on management and contro| of the [o|nt venture corporat|on, |t
does not author|ze the co-venturers, as equ|ty owners, to overr|de the
bus|ness management of the corporate affa|rs of the [o|nt venture
corporat|on by |ts board of d|rectors. Any st|pu|at|on therefore |n the
[o|nt venture agreement that seeks to arrogate unto the stockho|ders
thereof the management prerogat|ves of |ts board of d|rectors wou|d be
nu|| and vo|d. In short, by hav|ng adopted the corporate ent|ty as the
med|um by wh|ch the co-venturers have sought to pursue the [o|nt
venture enterpr|se, they are bound by Corporate Law pr|nc|p|es under
wh|ch the ent|ty must operate.
Nonethe|ess, |n B8(S,P5 T3 ;,-'*,(% I,(7) 0,-8&,P*8('-+
<"(6m
63
the Supreme Court had aff|rmed the pr|nc|p|e that [o|nt venture
arrangements must pr|mar||y be v|ewed as b|nd|ng contractua|
comm|tments, thus: "Moreover, the usua| ru|es as regards the
construct|on and operat|on of contracts genera||y app|y to a contract of
[o|nt venture,"
64
and that the contractua| |ntent and agreement
between and among the co-venturers must
mC"T7(-$7-* "& *57 K3R3 T3 0,-'R, G,'R(",. <"3/ S2 h||. 699
( 929)
^180 SCkA 130 (1989).
0
RS'./ at p. 147, P'*'-+ ?^>,(, T3 >,($,-/ 14 App. Dev. (167) 43

ICIN1 VLN1UkLS 797
somehow be g|ven b|nd|ng effect |nto the corporate set-up of the [o|nt
venture arrangement.
1he dec|s|on |n B8(S,P5 best |||ustrates the strength and weakness
of a [o|nt venture arrangement pursued through the med|um of a [o|nt
venture corporat|on.
In B8(S,P5/ the Amer|can Standards Inc. (ASI), a De|aware
corporat|on, entered |nto an Agreement w|th I|||p|no group "to
part|c|pate |n the ownersh|p of an enterpr|se wh|ch wou|d engage
pr|mar||y |n the bus|ness of manufactur|ng |n the h|||pp|nes and se|||ng
abroad v|treous ch|na and san|tary wares. 1he part|es agreed that the
bus|ness operat|ons |n the h|||pp|nes sha|| be carr|ed on by an
|ncorporated enterpr|se and that the name of the corporat|on sha||
|n|t|a||y be 'San|tary Wares Manufactur|ng Corporat|on."'
6S

1he Agreement executed between the Amer|can group tak|ng 40
equ|ty |n the venture, and I|||p|no group tak|ng 60 equ|ty |n the
venture, prov|ded for the part|cu|ars cover|ng the art|c|es of
|ncorporat|on of the [o|nt venture company to be formed, the manner of
management thereof, as we|| as "prov|s|ons des|gned to protect [ASI] as
a m|nor|ty group, |nc|ud|ng the grant of veto powers over a number of
corporate acts and the r|ght to des|gnate certa|n off|cers, such as a
member of the Lxecut|ve Comm|ttee whose vote was requ|red for
|mportant corporate transact|ons."
66

In part|cu|ar, the Agreement conta|ned the fo||ow|ng prov|s|on on
the 0,-,+7$7-* of the [o|nt venture corporat|on, and the manner by
wh|ch the two groups wou|d e|ect the 8oard of D|rectors, thus:
S. Management
(a) 1he management of the Corporat|on sha|| be vested
|n a 8oard of D|rectors, wh|ch sha|| cons|st of n|ne
[9] |nd|v|dua|s. As |ong as Amer|can-Standard [ASI]
sha|| own at |east 30 of the outstand|ng stock of the
M
]b]d, at p.

w]RS'./ at pp.

Corporat|on, three [3] of the n|ne d|rectors sha|| be
des|gnated by Amer|can-Standard [ASI], and the other
s|x [6] sha|| be des|gnated by the other stockho|ders of
the Corporat|on.
67

1he [o|nt venture company was reg|stered, and "1he [o|nt
enterpr|se thus entered |nto by the I|||p|no |nvestors and the Amer|can
corporat|on [ASI] prospered. Unfortunate|y, w|th the bus|ness successes,
there came a deter|orat|on of the |n|t|a||y harmon|ous re|at|ons between
the two groups. Accord|ng to the I|||p|no group, a bas|c d|sagreement
was due to the|r des|re to expand the export operat|ons of the company
to wh|ch ASI ob[ected as |t apparent|y had other subs|d|ar|es of [o|nt
venture groups |n the countr|es where h|||pp|ne exports were
contemp|ated."
68

In the annua| stockho|ders' meet|ng |n 1983, the fr|ct|on between
the two groups came to a head, when the Amer|can group wanted to
cast the|r votes, not on|y on the|r three (3) nom|nees, but a|so on the
nom|nees of the I|||p|no group on the ground that under Sect|on 24 of
the Corporat|on Code, wh|ch prov|ded for cumu|at|ve vot|ng for stock
corporat|ons, they had a r|ght to cast the|r votes on a|| nom|nees for the
8oard of D|rectors, and not [ust on the|r a||otted three nom|nees.
1he Court was asked to dec|de the |ssue on "the nature of the
bus|ness estab||shed by the part|es - whether |t was a [o|nt venture or a
corporat|on,"
69
because |t was the content|on of ASI that "the actua|
|ntent|on of the part|es shou|d be v|ewed str|ct|y on the 'Agreement' . . .
where|n |t |s c|ear|y stated that the part|es' |ntent|on was to form a
corporat|on and not a [o|nt venture"
70
s|nce a part|cu|ar prov|s|on |n the
Agreement prov|ded that "noth|ng here|n conta|ned sha|| be construed
to const|tute any of the part|es hereto partners or [o|nt venturers |n
respect of any transact|on hereunder."
71

eN
FS'., at

w]RS'./ at
at p.

Nc
RS'./ at
OFS'.3

ICIN1 VLN1UkLS 799
In reso|v|ng the |ssues, the Court gave the bas|c doctr|ne when |t
cpmes to [o|nt venture arrangement, wh|ch ||ke any partnersh|p
arrangement, |t |s pr|mar||y contractua| |n character, thus: "1he ru|e |s
that whether the part|es to a part|cu|ar contract have thereby
estab||shed among themse|ves a [o|nt venture or some other re|at|on
depends upon the actua| |ntent|on wh|ch |s determ|ned |n accordance
w|th the ru|es govern|ng the |nterpretat|on and construct|on of
contracts."
72
1he Court reso|ved that "In the |nstant cases, our
exam|nat|on of |mportant prov|s|ons of the Agreement as we|| as the
test|mon|a| ev|dence presented by the [w|tnesses] shows that the
part|es agreed to estab||sh a [o|nt venture and not a corporat|on. 1he
h|story of the organ|zat|on of San|wares and the unusua| arrangements
wh|ch govern |ts po||cy mak|ng body are a|| cons|stent w|th a [o|nt
venture and not w|th an ord|nary corporat|on."
73

1he Court reso|ved to app|y the mandatory prov|s|ons of the
Corporat|on Code w|th|n the contractua| |ntent|ons of the part|es
prov|ded |n the Io|nt Venture Agreement, and aff|rmed the formu|a
adopted by the Court of Appea|s that the Amer|can group can cumu|ate
the|r votes on|y w|th|n the nom|nees a||otted to them, and he|d
1o a||ow the ASI Group to vote the|r add|t|ona| equ|ty to
he|p e|ect even a I|||p|no d|rector who wou|d be beho|den to
them wou|d ob||terate the|r m|nor|ty status as agreed upon
by the part|es. As apt|y stated by the appe||ate court: x x x
ASI, however, shou|d not be a||owed to |nterfere |n the
vot|ng w|th|n the I|||p|no group. Ctherw|se, ASI wou|d be
ab|e to des|gnate more than the three d|rectors |t |s a||owed
to des|gnate under the Agreement, and may even be ab|e to
get a ma[or|ty of the board seats, a resu|t wh|ch |s c|ear|y
contrary to the contractua| |ntent of the part|es, x x x.
-
RS'./ at p. 139, P'*'-+ !7($'-,R ;5,(7)/ F-P3 T3 <5'P,+"/ :3 ,-. U3G3
<"3 =4< 0?H/ 6S I. Supp| 678, E-'T7(),R ;,R7) <"(63 T3 <,R'&"(-', K(7))
0&+3/ <"3/ 20 Ca|. 2nd 7S1,128 . 2nd 668.
OFS'./ at pp. 140-141.

Lqua||y |mportant as the cons|derat|on of the
contractua| |ntent of the part|es |s the cons|derat|on as
regards the poss|b|e dom|nat|on by the fore|gn |nvestors of
the enterpr|se |n v|o|at|on of the nat|ona||zat|on
requ|rements enshr|ned |n the Const|tut|on and
c|rcumvent|on of the Ant|-Dummy Act. x x x.
74

In essence, B8(S,P5 emphas|zed that [o|nt venture arrangement |s
f|rst and foremost contractua| agreement, and as much as poss|b|e the
contractua| |ntent of the co-venturers shou|d be g|ven rea||zat|on w|th|n
the corporate med|um by wh|ch they pursued the bus|ness enterpr|se.
B8(S,P5 recogn|zed that such a pr|nc|p|e |s not a||en to Corporate Law
when |t quoted arguments that Sect|on 100 of the Corporat|on Code
express|y makes b|nd|ng wr|tten agreements between the stockho|ders
|n a c|ose corporat|on.
b. IV Company Crgan|zed as a C|ose Corporat|on
Under the Corporat|on Code, a c|ose corporat|on |s one wh|ch
prov|des |n |ts art|c|es of |ncorporat|on the fo||ow|ng three requ|s|tes: (a)
a|| of the corporat|on's |ssued stock of a|| c|asses, exc|us|ve of treasury
shares, sha|| be he|d on record by not more than a spec|f|ed number of
persons, not exceed|ng twenty (20), (b) a|| of the |ssued stock of a||
c|asses sha|| be sub[ect to one or more spec|f|ed restr|ct|ons on transfer
|n the nature of a "r|ght of f|rst refusa|," and (c) the corporat|on sha|| not
||st |n any stock exchange or make any pub||c offer|ng of any of |ts stock
of any c|ass.
7S

Under a c|ose corporat|on sett|ng, |t may be prov|ded |n the
art|c|es of |ncorporat|on that the bus|ness of the corporat|on sha|| be
managed by the stockho|ders of the corporat|on rather than by a board
of d|rectors, and the off|cers and emp|oyees may be e|ected or
appo|nted d|rect|y by the stockho|ders.
76

OFS'./ at p. 148.
7S
Sec. 98, Corporat|on

78
Sec. 97, Corporat|on
d
ICIN1 VLN1UkLS 801
In part|cu|ar, Sect|on 100 of the Corporat|on Code prov|des
that:
Sec. 100. B+(77$7-*) S% )*"P15"R.7()3i
1. Agreements by and among stockho|ders executed
before the format|on and organ|zat|on of a c|ose corporat|on,
s|gned by a|| stockho|ders, sha|| surv|ve the |ncorporat|on of
such corporat|on and sha|| cont|nue to be va||d and b|nd|ng
between and among such stockho|ders, |f such be the|r
|ntent, to the extent that such agreements are not
|ncons|stent w|th the art|c|es of |ncorporat|on, |rrespect|ve of
whether the prov|s|ons of such agreements are conta|ned,
except those requ|red by th|s 1|t|e [on c|ose corporat|ons] to
be embod|ed, |n sa|d art|c|es of |ncorporat|on.
x x x
A|though the Court |n B8(S8P5 d|d not make a forma| ru||ng on the
matter, |t seems to have g|ven |ts |mpr|matur to the propos|t|on that
even when a corporat|on does not comp|y w|th the def|n|t|on of a c|ose
corporat|on under the Corporat|on Code because the three requ|s|tes
are not express|y prov|ded for |n |ts art|c|es of |ncorporat|on,
nonethe|ess, the same pr|nc|p|es app||cab|e to forma| c|ose corporat|ons,
shou|d a|so app|y to equa||y c|ose|y- he|d corporat|on, such as those
organ|zed pursuant to a forma| [o|nt venture agreement, thus
1he Lagdameo Group stated |n the|r appe||ees' br|ef |n
the Court of Appea|s:
O W W W
"Second|y, even assum|ng that San|wares |s techn|ca||y
not a c|ose corporat|on because |t has more than 20
stockho|ders, the unden|ab|e fact |s that |t |s a PR")7V57R.
corporat|on. Sure|y, appe||ants cannot honest|y c|a|m that
San|wares |s a pub||c |ssue or a w|de|y he|d corporat|on.
"In the Un|ted States, many courts have taken a rea||st|c
approach to [o|nt venture corporat|ons and have not r|g|d|y
app||ed pr|nc|p|es of corporat|on |aw des|gned pr|mar||y for
pub||c |ssue corporat|on. 1heses courts have |nd|cated that

express arrangements between corporate [o|nt ventures
shou|d be construed w|th |ess emphas|s on the ord|nary ru|es
of |aw usua||y app||ed to corporate ent|t|es and w|th more
cons|derat|on g|ven to the nature of the agreement between
the [o|nt venturers __ 1hese Amercan cases dea|t w|th |ega|
quest|ons as to the extent to wh|ch the requ|rements ar|s|ng
from the corporate form of [o|nt venture corporat|ons shou|d
contro|, and the courts ru|ed that substant|a| [ust|ce |ay w|th
those ||t|gants who re||ed on the [o|nt venture agreement
rather than the ||t|gants who re||ed on the orthodox
pr|nc|p|es of corporat|on |aw.
xxx
7 7

1he prov|s|ons of the Corporat|on Code on c|ose corporat|ons,
wh|ch prov|des for |nforma| management of |ts affa|rs, b|nd|ng effect of
wr|tten agreements among stockho|ders, etc., shou|d be deemed to be
ava||ab|e to reso|ve |ssues perta|n|ng to [o|nt venture corporat|ons.
c. k|ght of I|rst kefusa|, a 47R7P*8) K7()"-,7 Ieature |n IV
Company Scheme
Another reported case of a [o|nt venture company arrangement
wou|d be |n JC ;8$$'* >"R.'-+)/ F-P3 T3 <"8(* "& B667,R)/
Ne
where the
Nat|ona| Investment and Deve|opment Corporat|on (NIDC), a
government corporat|on, entered |nto a Io|nt Venture Agreement (IVA)
w|th kawasak| neavy Industr|es, Ltd. of kobe, Iapan, form|ng the
h|||pp|ne Sh|pyard and Lng|neer|ng Corporat|on (nILSLCC) to engage
|n operat|on and management of sh|pyard.
1he IVA prov|ded for a 60 I|||p|no-40 Iapanese equ|ty, and
prov|ded for a "r|ght of f|rst refusa|" on the equ|ty shares shou|d e|ther
of the co-venturers dec|de to se||, ass|gn or transfer |ts |nterest |n the
[o|nt venture. When |ater on the government shares |n nILSLCC were
b|ded-out, one of the |ssues that had
"
a
t

ICIN1 VLN1UkLS 803
to be reso|ved was the va||d|ty of the r|ght of f|rst refusa| c|ause found |n
the IVA.
1he Court matter-of-fact|y recogn|zed the "partnersh|p"
arrangement between the or|g|na| part|es |n the [o|nt venture company,
and character|zed the r|ght of f|rst refusa| c|ause |n the IVA as a
"protect|ve mechan|sms to preserve the|r respect|ve |nterests |n the
partnersh|p |n the event that (a) one party dec|des to se|| |ts shares to
th|rd part|es, and (b) new h||seco shares are |ssued."
79
1he Court further
he|d
. . . 1he r|ght of f|rst refusa| |s meant to protect the
or|g|na| or rema|n|ng [o|nt venturers) or shareho|ders) from
the entry of th|rd persons who are not acceptab|e to |t as co-
venturers) or co-shareho|der(s). 1he [o|nt venture between
the h|||pp|ne Government and kAWASAkI |s |n the nature of
a partnersh|p wh|ch, un||ke an ord|nary corporat|on, |s based
on .7R7P*8) 67()"-,73 No one can become a member of the
partnersh|p assoc|at|on w|thout the consent of a|| the other
assoc|ates. 1he r|ght of f|rst refusa| thus ensures that the
part|es are g|ven contro| over who may become a new
partner |n subst|tut|on of or |n add|t|on to the or|g|na|
partners. Shou|d the se|||ng partner dec|de to d|spose a|| |ts
shares, the non-se|||ng partner may acqu|re a|| these shares
and term|nate the partnersh|p. No person or corporat|on can
be compe||ed to rema|n or to cont|nue the partnersh|p .. .
80

What one not|ces c|ear|y extant from the dec|s|on |n JC ;8$$'*
>"R.'-+) |s that a|though what were b|ded-out were shares of stock |n a
du|y reg|stered corporat|on, and the r|ght of f|rst refusa| was not found
expressed |n any prov|s|on of the art|c|es of |ncorporat|on and by-|aws,
nonethe|ess, the Court app||ed |ts enforceab|||ty to a th|rd party b|dder
who was not pr|vy to the terms of the pr|vate IVA between the
Government and the fore|gn |nvestor.
"At p.
29
OOFS'./

ASLC1S WnICn INILULNCL CnCICL CI IV SCnLML
1he |mportant aspects |n choos|ng the format or scheme by
wh|ch to pursue the [o|nt venture arrangement wou|d be the |ssues
re|at|ng to ||m|ted ||ab|||ty cons|derat|ons, exc|us|on of new part|es
and non-d||ut|on of equ|ty cons|derat|ons, tax consequences, and
||m|tat|on of fore|gn equ|ty.
1. Def|n|ng Io|nt Ventures Scope of 8us|ness Act|v|ty
When |t |nvo|ves fore|gn |nvestments, the pr|nc|pa| cons|derat|on
|n def|n|ng the scope of bus|ness to be undertaken by [o|nt venture |n
the h|||pp|nes bas|ca||y revo|ves around the |ssue of restr|ct|ons on
fore|gn equ|ty, management and contro| on certa|n restr|cted areas or
act|v|t|es. 1hese areas must |nvo|ve fore|gn |nvestments as def|ned
under kepub||c Act No. 7042, known as the Iore|gn Investments Act of
1991.
"IIA '91" was enacted to promote fore|gn |nvestments, and
prescr|bes the procedures for reg|ster|ng enterpr|ses do|ng bus|ness |n
the h|||pp|nes, |t |s the bas|c |aw that prov|des the cond|t|ons, act|v|t|es,
and procedures where fore|gn enterpr|ses may |nvest and do bus|ness |n
the h|||pp|nes. It a|so app||es to [o|nt venture arrangements |n the
h|||pp|nes. 8y the negat|ve ||st scheme, the Act s|mp|y estab||shed the
restr|cted areas, and dec|ared a|| other areas as open to un||m|ted
fore|gn equ|ty part|c|pat|on.
Lssent|a||y, the IIA '91 prov|des for fore|gn |nvestment negat|ve ||st
wh|ch spe||s out the act|v|t|es reserved for h|||pp|ne nat|ona|. Lxport
enterpr|ses may enter a|| act|v|t|es not restr|cted by L|sts A and 8 of the
negat|ve ||st, and domest|c enterpr|ses, w|th fore|gn equ|ty, may enter
a|| act|v|t|es not restr|cted by L|sts A, 8, and C of the negat|ve ||sts.
2. L|m|ted L|ab|||ty Ieatures
Whether |t be the contractua| [o|nt venture arrangement or the
forma| partnersh|p arrangement, the co-venturers wou|d be

ICIN1 VLN1UkLS 80S
faced w|th the prospects of "un||m|ted ||ab|||ty" pervad|ng |n such
arrangement. Under h|||pp|ne artnersh|p Law, partners (except
||m|ted partners |n a forma||y reg|stered ||m|ted partnersh|p) and
co-venturers are ||ab|e for partnersh|p debts beyond the|r contr|but|ons
to the partnersh|p or [o|nt venture arrangements.
1herefore, the use of the [o|nt venture company as the format to
pursue the [o|nt venture arrangement a||ows the co-venturers to take
fu|| advantage of the ||m|ted ||ab|||ty features of the corporate veh|c|e
espec|a||y |n pro[ects and undertak|ngs wh|ch embody certa|n r|sks.
3. Lxc|us|ons of New art|es, Non-D||ut|on of Lqu|ty
1he ab|||ty of the co-venturers to present the venture among the
or|g|na| part|es through a "r|ght of f|rst refusa| c|ause" has been
recogn|zed as va||d by the Supreme Court as a means "to protect the
or|g|na| or rema|n|ng [o|nt venturer(s) or shareho|der(s) from the entry of
th|rd persons who are not acceptab|e to |t as co- venturer(s) or
co-shareho|der(s)... [because] 1he [o|nt venture . . . |s |n the nature of a
partnersh|p wh|ch, un||ke an ord|nary corporat|on, |s based on .7R7P*8)
67()"-,73 No one can become a member of the partnersh|p assoc|at|on
w|thout the consent of a|| the other assoc|ates. 1he r|ght of f|rst refusa|
thus ensures that the part|es are g|ven contro| over who may become a
new partner |n subst|tut|on of or |n add|t|on to the or|g|na| partners."
81

4. 1ax Issues ert|nent to Io|nt Ventures
a. L|ke a artnersh|p, a Io|nt Venture Is Cons|dered a Corporate
1axpayer
Under the Nat|ona| Interna| kevenue Code of the h|||pp|nes
("NIkC of 1997"), both a partnersh|p and a [o|nt venture are
j`
JC ;8$$'* >"R.'-+)/ F-P3 T3 <"8(* "& B667,R)/ 412 SCkA 10, 29-31
(2003).

806
treated as corporate taxpayers, and both are sub[ect to corporate
|ncome tax.
1he pursu|t of [o|nt venture arrangements under a forma|
partnersh|p arrangement has the d|sadvantage of |nv|t|ng |nto the
arrangement the features of un||m|ted ||ab|||ty for partnersh|p debts to
the co-venturers, and a|so the |nab|||ty to take advantage of the
zero-rate of d|v|dends for corporat|on, when the partnersh|p dec|ares
and d|str|butes prof|ts. 1he aspect of doub|e taxat|on |ooms |arge|y |n a
partnersh|p [o|nt venture arrangement, s|nce partnersh|ps are sub[ect to
the 30 net |ncome tax for corporat|ons.
82

b. Io|nt Ventures Lxempt from Income 1axat|on
Under res. Decree No. 929, [o|nt ventures formed for the purpose
of undertak|ng construct|on pro[ects were exempt from corporate
|ncome taxat|on.
Under res. Decree No. 1682, [o|nt ventures formed to engage |n
petro|eum operat|ons pursuant to an operat|ng agreement under a
serv|ce contract w|th the Government were exempt from corporate
taxat|on.
At present, under Sec. 22(8), NIkC of 1997, "a [o|nt venture or
consort|um formed for the purpose of undertak|ng construct|on pro[ects
or engag|ng |n petro|eum, coa|, geotherma| and other energy operat|ons
pursuant to an operat|ng or consort|um agreement under a serv|ce
contract w|th the Government," sha|| not be taxed separate|y as a
corporate taxpayer.
c. Informa| Io|nt Venture May Ln[oy 1ax Advantages
1he |nforma| or contractua| [o|nt venture has the advantage of
||m|t|ng the extent of the arrangement between and among the
co-venturers, as |n undertak|ngs that requ|re pr|vacy. In add|t|on, s|nce
forma| [o|nt ventures are taxed as corporate
^Cr|g|na||y at 3S and went down to 30 beg|nn|ng 01 Ianuary
2009, per amendment to NIkC of 1997 |ntroduced by kep. Act No. 9337.

ICIN1 VLN1UkLS 807
taxpayer, the contractua| [o|nt venture |essens the need to have to
reg|ster the pro[ect as a separate corporate taxpayer, s|nce the pr|vate
arrangements shou|d a||ow the co-venturers to cont|nue report|ng
separate|y the|r part|c|pat|on |n the pro[ect |n the|r own tax returns.
It |s poss|b|e therefore that because of the |nforma| and pr|vate
nature of a contractua| [o|nt venture that |t cou|d escape the v|ew of the
tax author|t|es as a separate taxab|e ent|ty, s|nce |ncome and expenses
perta|n|ng to the [o|nt venture are be|ng reported separate|y by each of
the co-venturers. Nonethe|ess, when the under|y|ng [o|nt venture
arrangement |s d|scovered by the author|t|es, noth|ng prevents them
from app|y|ng the pr|nc|p|es of artnersh|p Law as to treat the
arrangement between the co- venturers as a partnersh|p w|th a separate
[ur|d|ca| ent|ty, and |mpose a|| taxes dues on the [o|nt venture as a
separate corporate taxpayer.
Such was the s|tuat|on |n K5'R7W 0'-'-+ <"(63 T3 <"$$'))'"-7( "&
F-*7(-,R G7T7-87/
e[
where |n the operat|on of a m|n|ng concess|on
between two corporat|ons, they executed mere|y a 1ower of Attorney"
and des|gnated one another "pr|nc|pa|" (the owner of the concess|on)
and "manager" (the ent|ty that wou|d d|rect|y manage deve|opment and
operat|ons). 1he 8Ik refused to a||ow the advances made by one
co-venturer to the other member of the [o|nt venture arrangement as a
form of |oans wh|ch cou|d be |ater on deducted as bad debts.
d. 2ero-kated D|v|dends for IV Corporat|on
In the h|||pp|nes, the corporat|on has trad|t|ona||y been sub[ected
to heav|er taxat|on than other forms of bus|ness organ|zat|on, d|v|dends
d|str|buted are sub[ect to another tax when rece|ved by the
stockho|ders. W|th the thrust of Government to encourage both |oca|
and fore|gn |nvestments |n the country, and to ent|ce the use of the
corporat|on as the veh|c|e for such |nvestment, many of the prev|ous tax
|aws that tended to make corpo
SS1 SCkA 428 (2008).

808
rate veh|c|es expens|ve had been abo||shed. Lxcept for d|v|dends
dec|ared by domest|c corporat|on |n favor of fore|gn corporat|on,
64
d|v|dends rece|ved by |nd|v|dua|s from corporat|on,
8S
as we|| as
|nter-corporate d|v|dends between domest|c corporat|ons,
88
were
sub[ect to zero-rate of |ncome taxat|on. 1here had a|so been an
abo||t|on of the persona| ho|d|ng compan|es tax and tax on un-
reasonab|y accumu|ated surp|us of corporat|ons.
87

In a [o|nt venture arrangement, the corporate ent|ty route a||owed
the co-venturers to take advantage of zero rate taxab|||ty of d|v|dends
dec|ared by corporat|ons |n |nstances prov|ded under the NIkCof 1997.
Late|y, however, under the reforms embod|ed |n the NIkC of 1997,
a f|na| tax of 10 has been re-|mposed on d|v|dends rece|ved by
res|dents and c|t|zens dec|ared from corporate earn|ngs after 1 Ianuary
1998,
88
a f|na| tax of 20 on d|v|dends rece|ved by a nonres|dent a||en
|nd|v|dua| has been re-|mposed from corporate earn|ngs after 1 Ianuary
1998,
89
and the tax on |mproper|y accumu|ated earn|ngs has ||kew|se
been re-|mposed.
90

GUIDLLINLS AND kCCLDUkL ICk LN1LkING IN1C ICIN1 VLN1UkL (IV)
AGkLLMLN1S 8L1WLLN GCVLkNMLN1 AND kIVA1L LN1I1ILS
1. Lega| 8as|s for the Gu|de||nes
Cn 30 Apr|| 200S, then res|dent G|or|a Macapaga| Arroyo
|ssued Lxecut|ve Crder No. 423 wh|ch mandated the Nat|ona|
Lconom|c and Deve|opment Author|ty (NLDA), |n consu|tat|on
w|th the Government rocurement o||cy 8oard (G8), to
M
Sec. 2S(a) and (b), NIkC of
9
"Sec. 21, NIkCof 1977.
"Sec. 24, NIkC of 1977.
"
L

"Sec. 2S(A)(1), NIkC of 1997
"Sec. 29, NIkC of 1997.

ICIN1 VLN1UkLS 809
"|ssue gu|de||nes regard|ng [o|nt venture agreements w|th pr|vate
ent|t|es w|th the ob[ect|ve of promot|ng transparency, compet|t|veness,
and accountab|||ty |n government transact|ons, and, where app||cab|e,
comp|y|ng w|th the requ|rements of an open and compet|t|ve pub||c
b|dd|ng."
91

Cn 16 Apr|| 2008, the Cff|ce of the Government Corporate Counse|
(CGCC) |ssued the "GUIDLLINLS AND kCCLDUkLS ICk LN1LkING IN1C ICIN1
VLN1UkL (IV) AGkLLMLN1S 8L1WLLN GCVLkNMLN1 AND kIVA1L LN1I1ILS" (the
"2008 IV Gu|de||nes," or s|mp|y "Gu|de||nes"), wh|ch accord|ng to |ts
open|ng sect|on that |n add|t|on to the consu|tat|on done w|th NLDA and
G8, "1he Cff|ce of the Government Corporate Counse| (CGCC),
Department of Iust|ce (DCI), GCCCs and the pr|vate sector[s] have a|so
been consu|ted |n the formu|at|on of the Gu|de||nes."
92

CGCC a|so |ssued w|th the Gu|de||nes "A kIMLk CN 1nL 2008 ICIN1
VLN1UkL GUIDLLINLS" (the "CGCC r|mer").
2. Io|nt Venture Arrangements Covered by the
Gu|de||nes
1he Gu|de||nes def|ne the part|cu|ar types ofOJ"'-* 27-*8(7O
covered, thus:
S.4 J"'-* 27-*8(7 =J2H3 A contractua| arrangement
whereby a pr|vate sector ent|ty or a group of pr|vate sector
ent|t|es on one hand, and a Government Lnt|ty or a group of
Government Lnt|t|es on the other hand, contr|bute money]
cap|ta|, serv|ces, assets (|nc|ud|ng equ|pment, |and or
|nte||ectua| property), or a comb|nat|on of any or a|| of the
forego|ng. art|es to a IV share r|sks to [o|nt|y undertake an
|nvestment act|v|ty |n order to accomp||sh a spec|f|c, ||m|ted
or spec|a| goa| or purpose w|th the end v|ew of fac|||tat|ng
pr|vate sector |n|t|at|ve |n a part|cu|ar |ndustry or sector, and
eventua||y transferr|ng ownersh|p of the |nvestment act|v|ty
91
Sec. 8, Lxecut|ve Crder No. 423 (30 Apr||
)
^Sec. 1.0,2008 IV Gu|de||nes.

810
to the pr|vate sector under compet|t|ve market cond|t|ons. It
|nvo|ves a commun|ty or poo||ng of |nterest |n the
performance of the serv|ce funct|on, bus|ness or act|v|ty,
w|th each party hav|ng a r|ght to d|rect and govern the po||cy
|n connect|on therew|th, and w|th a v|ew of shar|ng both
prof|ts and |osses, sub[ect to agreement by the part|es. A IV
may be contractua| IV, or a corporate IV.
93

1he CGCC r|mer descr|bes a "IV" "to be a strateg|c a|||ance where
two or more ent|t|es agree to contr|bute goods, serv|ces and]or cap|ta|
to a common commerc|a| enterpr|se. It |s usua||y a one-t|me group|ng of
two or more persons |n a bus|ness undertak|ng for a spec|f|c purpose.
Un||ke a partnersh|p, a IV does not enta|| a cont|nu|ng re|at|onsh|p
among the part|es."
94

Cn the |ssue of whether a IV |s a partnersh|p as def|ned under
h|||pp|ne |aws, the CGCC r|mer states that:
1here |s no prec|se def|n|t|on of IVs under h|||pp|ne
Law, hence, resort |s made to the common |aw concept of
IVs. Most op|n|ons |n common |aw [ur|sd|ct|ons d|fferent|ate
a partnersh|p as a bus|ness veh|c|e wh|ch contemp|ates a
genera| bus|ness w|th some degree of cont|nu|ty, wh||e the
IV |s formed for the execut|on of a s|ng|e transact|on, and |s
thus of a temporary nature. 1he h|||pp|ne Supreme Court
has stated th|s observat|on |s not ent|re|y accurate |n the
h|||pp|ne context. Under our C|v|| Code, a partnersh|p may
be part|cu|ar or un|versa|, and a part|cu|ar partnersh|p may
have for |ts ob[ect a spec|f|c undertak|ng.
9S
nence, under
h|||pp|ne |aw, a IV |s a form of partnersh|p and shou|d thus
be governed by the genera| |aw on partnersh|p.
96

1he Gu|de||nes therefore recogn|ze the d|st|nct|on between a
contractua| IV and a corporate IV. It def|nes a OJ2 <"$6,-%
^Sec. S.4,2008 IV Gu|de||nes.
M
At pp. 3-4, CGCC r|mer.
lZ
<'*'-+ F-&"($,*'"- 3!7P5-"R"+% L"8-.,*'"- "& *57 K5'R'66'-7) T3
<?0DV @D</ 419 SCkA 141 (2004), B8(S,P5 T3 ;,-'*,(% I,(7)
0,-8&,P*8('-+ <"(63/ 180 SCkA 130 (1989).
"At pp. 4-S, CGCC r|mer.

ICIN1 VLN1UkLS 811
as "An ent|ty reg|stered w|th the Secur|t|es and Lxchange Com-
m|ss|on (SLC) by the IV partners that sha|| perform the pr|mary
funct|ons and ob||gat|ons of the IV as st|pu|ated under the IV
Agreement,"
97
and mandates that "1he IV Company sha|| pos-
sess the character|st|cs st|pu|ated under these Gu|de||nes."
98

Cn the other hand, the Gu|de||nes def|ne a"<"-*(,P*8,R J2O
as "A |ega| and b|nd|ng agreement under wh|ch the IV partners
sha|| perform the pr|mary funct|ons and ob||gat|ons under the IV
Agreement w|thout form|ng a IV Company."
88

1he Gu|de||nes do not recogn|ze forma| IV arrangement
whereby a partnersh|p |s reg|stered w|th the SLC.
1he Gu|de||nes prov|des for the fo||ow|ng "Coverage:"
100

(a) 1he Gu|de||nes sha|| app|y to a|| GCCCs, gov-
ernment corporate ent|t|es (GCLs), government
|nstrumenta||t|es w|th corporate powers (GICs),
government f|nanc|a| |nst|tut|ons (GIIs), state un|-
vers|t|es and co||eges (SUCs) wh|ch are express|y
author|zed by |aw or the|r respect|ve charters to
enter |nto IV Agreements,
(b) Loca| Government Un|ts (LGUs) are not covered
by the Gu|de||nes, and
(c) 1ransact|ons of GIIs |n the ord|nary course of
bus|ness as part of the|r norma| and ord|nary
bank|ng, f|nanc|a| or portfo||o management opera-
t|ons sha|| not be covered by the Gu|de||nes.
3. Nature of IV Covered by the Gu|de||nes
1he CGCC r|mer exp|a|ns that the covered Io|nt Ven-
tures, const|tute one of the frameworks under ub||c-r|vate
97
Sec. S.S,2008 IV
G |d ||
h]RS'.
"Sec. S.6,2008 IV

100
Sec. 4.0, 2008 IV
G |d ||

812
artnersh|ps (s), the other three of wh|ch cover the 8u||d-
Cperate-1ransfer (8C1) Law,
101
the Government rocurement keform
Act (GkA),
102
and the Independent Iramework.
1he CGCC r|mer a|so exp|a|ns that the term "ub||c-r|vate
artnersh|ps (s)" "broad|y refer[s] to |ong-term, contractua|
partnersh|ps between the pub||c and pr|vate sector agenc|es, spec|f|ca||y
targeted towards f|nanc|ng, des|gn|ng, |mp|ement|ng, and operat|ng
|nfrastructure fac|||t|es and serv|ces that were trad|t|ona||y prov|ded by
the pub||c sector. 1hese co||aborat|ve ventures are bu||t around the
expert|se and capac|ty of the pro[ect partners and are based on a
contractua| agreement, wh|ch ensures appropr|ate and mutua||y agreed
a||ocat|on of resources, r|sks, and returns."
103

1he CGCC r|mer prov|des a tab|e on the d|fferences between the
frameworks, based on the purpose, source of f|nanc|ng, term of
cooperat|on, ownersh|p, fees, pr|ce esca|at|on prov|s|ons, payments,
proceeds, costs, |ncent|ves, and app||cat|on.
104

C8A 8C1 !v
urpose rocurement of
goods and serv|ces
w|th|n the budget
cyc|e of the
government
agency]LGU
Deve|opment of
|nfrastructure
pro[ects through
pro[ect f|nance
and other
f|nanc|ng modes
Io|nt
undertak|ng of an
enterpr|se
I|nanc|ng Genera||y, f|nanced
from pub||c sector
Genera||y,
f|nanced from
pr|vate sector
Io|nt f|nanc|ng
from pub||c and
pr|vate sector
101
kep. Act No. 69S7, as amended by k.A. No. 7718.
102
kep. Act No. 9184.
103
At p. 1, CGCC r|mer, P'*'-+ the Workshop keport (December
2006) of the Department of Lconom|c Affa|rs, M|n|stry of I|nance,
Government of Ind|a, and the As|an Deve|opment 8ank, L,P'R'*,*'-+
K8SR'PVK('T,*7 K,(*-7()5'6 &"( BPP7R7(,*7. F-&(,)*(8P*8(7 47T7R"6$7-*
'- F-.', =G7+'"-,R I"(1)5"6 "& <5'7& ;7P(7*,('7) "- K8SR'PVK('T,*7
K,(*-7()5'6)H3
104
At pp 1 2 CGCC r|mer

ICIN1 VLN1UkLS 813
1erm Genera||y, short-
term
Genera||y, |ong-
term
Genera||y,
short-term.
Cwnersh|p Stays w|th
Government
Stays w|th
Government
A||ows takeover
by pr|vate sector,
d|vest|ture |s
encouraged as
soon as poss|b|e.
Iees I|xed fees. Attached
to A8C (approved
budget for the
contract).
Iees may be
ad[ustab|e |n
accordance w|th
predeterm|ned
parametr|c
formu|as.
No prescr|bed
fees
r|ce
esca|at|on
roh|b|ts pr|ce
esca|at|on
A||ows pr|ce
esca|at|on
-
ayment ]
roceeds
rocur|ng ent|ty w|||
pay pr|vate ent|ty
Cperator]
contractor w|||
rem|t fees to
pub||c ent|ty
GL and r|vate
partner share |n
the proceeds
accord|ng to the|r
proport|onate
ownersh|p
Cost A8C covers costs of
|nd|v|dua|
components
Iees regard the
pro[ect as a
who|e
W|th regard to the
ent|re enterpr|se
Incent|ves roh|b|ts |ncent|ves rov|des
|ncent|ves for
|arge cap|ta|
|nvestments
No |ncent|ves
App||cat|on App||es to a||
Government
Lnt|t|es, Lxempts
from |ts coverage
those pro[ects
fa|||ng w|th|n 8C1
|aw.
App||es to a||
Government
Lnt|t|es
L|m|ted to
GCCCs, GCL,
GICs, GIIs, and
SUCs. (LGUs
under separate
gu|de||nes)

814
4. Cb[ect|ves and r|nc|p|es Underp|nn|ng the Gu|de||nes
1he Gu|de||nes express|y state that they have been formu|ated to
meet|ng the fo||ow|ng ob[ect|ves:
10S

(a) 1o prescr|be the ru|es, gu|de||nes and procedure forg|ng
IV Agreements between government corporat|ons and
pr|vate ent|t|es,
(b) 1o encourage poo||ng of resources and expert|se
between government and pr|vate sector ent|t|es
through IVs as a v|ab|e, eff|c|ent, and pract|ca|
a|ternat|ve |n pursu|ng deve|opment goa|s of the
government, and
(c) 1o ensure that a|| IV Agreements are entered |nto
under the po||cy that a|| government contracts sha|| be
awarded through a transparent process.
1he Gu|de||nes mandate that "1he Government sha|| enter |nto a
IV arrangement cons|stent w|th the fo||ow|ng pr|nc|p|es,"
106
and wh|ch
have been appropr|ate|y subcapt|oned |n the CGCC r|mer,
107
as fo||ows:
(a) Iree <"$67*'*'"-k 1he creat|on of the IV shou|d not
prevent potent|a| p|ayers from prof|tab|y enter|ng |nto
bus|ness venture]market,
(b) D&&'P'7-P%3 1he cost of produc|ng the part|cu|ar product,
act|v|ty, or serv|ce shou|d be eff|c|ent or potent|a||y
eff|c|ent towards earn|ng potent|a| prof|ts for
government and the market p|ayer] pr|vate sector
partner,
(c) C"T7(-$7-* DW'* 1here shou|d be no barr|ers for the
government's w|thdrawa| of |ts contr|but|on to the IV
|nvestment,
10S
Sec. 3.0, 2008 IV
|d ||
108
Sec. 2.0, 2008

107
At p. 9, CGCC r|mer.

ICIN1 VLN1UkLS 81S
(d) <"-&R'P* L(77k 1he ro|e of government as a
regu|ator of the bus|ness of the IV shou|d be
c|ear|y and exp||c|t|y de||neated from |ts ro|e as
|mp|ementer of the bus|ness to avo|d conf||cts of
|nterest,
(e) C"T7(-$7-* 4'T7)*'*8(7k As d|fferent|ated from
pro[ects procured under CDA, 8C1 and GkA
where ownersh|p of the asset]bus|ness w||| stay
w|th the government, IV Agreements a||ow the
pr|vate sector to take over the undertak|ng of the
pro[ects |n |ts ent|rety after the government d|vests
|tse|f of any |nterest |n the IV,
(f) B+7-P% BPP"8-*,S'R'*%k Accountab|||ty for the
IV pro[ect u|t|mate|y devo|ves on the nead of the
Government Lnt|ty |nvo|ved |n the IV Agreements
and the |mp|ementat|on of the IV pro[ect. 1he
pr|vate part|es dea||ng w|th the Government are
s|m||ar|y he|d accountab|e for a|| the|r act|ons
re|at|ve thereto.
S. Genera| Gu|de||nes |n Lnter|ng |nto
Covered IV Agreements
a. arameters for IV Agreements
1he Gu|de||nes mandate that IV Agreements entered |nto
sha|| cons|der the g|ven parameters, as fo||ows:
108

(a) Investments or IV Agreements must be made on|y
|n act|v|t|es d|rect|y and |mmed|ate|y re|ated to and
|n furtherance of the pr|mary corporate purpose,
mandate, or charter of the |nvest|ng Government
Lnt|ty,
(b) 1he IV shou|d be c|ear |n |ts |ntent to undertake
a spec|f|c act|v|ty that |s respons|ve to nat|ona|
deve|opment goa|s and ob[ect|ves,
108
Sec. 6.1,2008 IV Gu|de||nes.

816
(c) 1he IV shou|d not tend to crowd out pr|vate sector
|n|t|at|ve |n a part|cu|ar |ndustry or sector, and
(d) D1I, 8CI and NLDA sha|| |ssue a negat|ve ||st of
|ndustr|es or sectors on a per|od|c bas|s where the
format|on of a IV |s ||ke|y to crowd out pr|vate sector
|n|t|at|ve.
1he CGCC r|mer exp|a|ns that "1he non-|ssuance of a negat|ve ||st
sha|| not prevent GCCCs from enter|ng |nto IVs w|th the pr|vate sector
under the prov|s|ons of the 2008 IV Gu|de||nes. It |s op|ned that the
negat|ve ||st to be |ssued by the Department of 1rade and Industry,
8oard of Investments and NLDA sha|| app|y prospect|ve|y."
109

b. IV Company as referred Mode of Imp|ement|ng IV Agreement
1he Gu|de||nes a|so mandate that the preferred mode of
|mp|ement|ng a IV Agreement sha|| be through a IV Company to be
formed by the Government Lnt|ty and the pr|vate sector ent|ty, under
the fo||ow|ng parameters:
110

(a) IV Company sha|| be reg|stered as a stock corporat|on
|n accordance w|th the prov|s|ons of the Corporat|on
Code and the preva|||ng and app||cab|e ru|es and
regu|at|ons promu|gated by the SLC,
(b) Cwnersh|p and nat|ona||ty requ|rements under the
Const|tut|on and other pert|nent |aws shou|d be
comp||ed w|th,
kCVIDLD 1nA1:
(|) Government Lnt|ty's equ|ty contr|but|on sha|| on|y be
|ess that S0 of the outstand|ng cap|ta| stock of
the IV Company,
109
At p. 12, CGCC r|mer.
110
Sec. 6.2, 2008 IV
G |d ||
ICIN1 VLN1UkLS
817
(ii) Government's contr|but|on may be through assets
(|nc|ud|ng money, equ|pment, |and, |nte||ectua|
property or any th|ng of va|ue) wh|ch sha|| be
sub[ect to a 3
rd
party |ndependent va|uat|on, and
(iii) Ior as |ong as the Government Lnt|ty |s |nvo|ved |n
the IV undertak|ng, the pr|vate sector party sha||
not se||]transfer |ts |nterest |n the IV Company
w|thout the express wr|tten consent of the
Government Lnt|ty,
(c) GL sha|| be represented |n the 8oard of the IV Company
|n proport|on to |ts |nvestment,
(d) IV Company sha|| be perm|tted to der|ve |ncome from
the act|v|t|es author|zed under the IV Agreement
thereof dur|ng the term thereof.
(e) GL and the pr|vate sector partner sha|| be ent|t|ed to
rece|ve d|v|dends and]or any other form of share from
net prof|ts earned by the IV Company |n accordance
w|th the IV Agreement, and that the determ|nat|on of
net prof|ts sha|| be sub[ect to a ver|f|cat|on process for
a||owab|e operat|ons and management expenses
spec|f|ed there|n,
(f) IV Company |s encouraged to st|pu|ate a f|xed per|od
for the part|c|pat|on of the GL, under the fo||ow|ng
terms:
(i) er|od sha|| be determ|ned by the atta|nment of
the Government Lnt|ty's ob[ect|ve |n pursu|ng the
|nvestment, or when the pr|vate sector partner |s
pro[ected to be ab|e to proceed w|th the IV act|v|ty
w|thout further need of government support,
(ii) W|thdrawa| of the GL's cap|ta| contr|but|on before
the exp|rat|on of the sa|d per|od |s ||kew|se
encouraged,

818
kCVIDLD: 1he d|vestment |s made through
compet|t|ve se|ect|on, |n|t|a| pub-||c
offer|ng (IC), or any other means
that promote compet|t|on, fa|rness
and transparency.
1he forego|ng factors sha|| be accorded greater
|mportance than the f|nanc|a| |mpact or f|nanc|a|
benef|t of the proposed |nvestment to the Government
Lnt|ty concerned.
(g) In draft|ng the |ncorporat|on documents of the IV
Company and other contracts govern|ng the
re|at|onsh|p between the GL and the pr|vate sector
part|c|pant, the part|es shou|d cons|der the fo||ow|ng
gu|de||nes:
(i) C|ear|y def|ned bus|ness ob[ect|ves,
(ii) Spec|f|ed degree of part|c|pat|on and the
management ro|es of each party |n the IV act|v|ty,
(iii) Def|ned contr|but|on of cap|ta| and ownersh|p
r|ghts to property,
(iv) Spec|f|ed d|v|s|on of the prof|ts and |osses,
(v) Ident|f|ed d|spute mechan|sm to avo|d
management |mpasses that may produce
dead|ock or ||t|gat|on,
(vi) Spec|f|ed term|nat|on]||qu|dat|on of the IV
Company and |nd|cate buy-out prov|s|ons,
(vii) Spec|f|ed conf|dent|a||ty terms, and
(viii) St|pu|ated |ndemn|f|cat|on mechan|sms.
If the format|on of a IV Company |s not the best mode to
|mp|ement a IV act|v|ty as determ|ned by the Government Lnt|ty, |t may
opt to |mp|ement the IV pro[ect through a contractua| agreement. r|or
to enter|ng |nto a Contractua| IV, the parameters s|m||ar to those
govern|ng IV Compan|es are to be observed.

ICIN1 VLN1UkLS 819
Cn the |ssue "May C"T7(-$7-* D-*'*'7) 7-*7( '-*" J2
B+(77$7-*) &"( *57 )"R7 68(6")7 "& $,1'-+ , 6("&'*!o the CGCC
r|mer sttes:
1hough the part|es to the IV are express|y a||owed to
prof|t and earn d|v|dends from the IV act|v|ty, |t |s the c|ear
|ntent|on of the gu|de||nes that prof|t mak|ng |s not the ma|n
purpose for the part|c|pat|on of a Government Lnt|ty |n a
IV act|v|ty. 1he gu|de||nes c|ear|y state that government
part|c|pat|on |s ||m|ted (|ess than S0 of equ|ty, ||m|ted
per|od
of part|c|pat|on). And that the deve|opment of the part|cu|ar
IV act|v|ty |nvo|ved |s of greater |mportance than the f|nanc|a|
|mpact or f|nanc|a| benef|t of the proposed |nvestment to the
Government Lnt|ty concerned.
112

6. rocess for Lnter|ng |nto IV Agreements
Under the Gu|de||nes, pr|or to enter|ng |nto a IV Agreement,
the proposed IV act|v|ty sha|| f|rst be approved |n pr|nc|p|e, |n
accordance w|th the procedures d|scussed be|ow.
a. Approva| |n r|nc|p|e by nead of GL
(a) Iust|f|cat|on that the IV act|v|ty |s w|th|n the
mandate and charter of the Government Lnt|ty
concerned as cert|f|ed and notar|zed by the head
of the Government Lnt|ty.
(b) C|ear descr|pt|on of the proposed |nvestment,
|nc|ud|ng |ts act|v|t|es, ob[ect|ves, source(s)
of fund|ng, extent and nature of the proposed
part|c|pat|on of the |nvest|ng Government Lnt|ty,
per|od of part|c|pat|on of the Government Lnt|ty,
and the re|evant terms and cond|t|ons of the
undertak|ng under the proposed IV Agreement,
among others.
111
At p. 14, CGCC
|
O
Y
RS'.3

820
(c) Iust|f|cat|on as to the respons|veness and re|at|ve
pr|or|ty of the proposed IV act|v|ty |n meet|ng nat|ona|
or spec|f|c deve|opment goa|s and ob[ect|ves.
(d) A|| other components of the IV Agreement, |nc|ud|ng
the techn|ca|, f|nanc|a|, |ega| and other aspects |n
determ|n|ng the over-a|| feas|b|||ty of the proposed IV
act|v|ty, among others, sha|| be estab||shed.
Ior IV act|v|ty that w||| requ|re nat|ona| government undertak|ngs,
subs|d|es or guarantees, c|earance]approva| of the Department of
I|nance (DCI) and]or the Department of 8udget and Management
(D8M), as the case may be, sha|| be secured.
b. Modes of Se|ect|ng a IV artner =`H
<"$67*'*'T7 ;7'7P*'"-
O<"$67*'*'T7 ;7R7P*'"-O |s def|ned under the Gu|de||nes as the
"process of se|ect|on by a Government Lnt|ty of a IV partner(s), based
on transparent cr|ter|a, wh|ch shou|d not constra|n or ||m|t compet|t|on,
and |s open to part|c|pat|on by any |nterested and qua||f|ed pr|vate
ent|ty."
113

1he process for the conduct of Compet|t|ve Se|ect|on, contract
award and f|na| approva| sha|| be st|pu|ated under Annex A of the
Gu|de||nes.
In the conduct of the Compet|t|ve Se|ect|on process, the
Government Lnt|ty sha|| ensure the fo||ow|ng:
114

(a) A|| act|v|t|es dur|ng the compet|t|ve se|ect|on,
award, and f|na| approva| are conducted |n a
transparent and compet|t|ve process that
promotes accountab|||ty and eff|c|ency, and
113
Sec. S.7,2008 IV
|d ||
114
Sec. 7.3.2008 IV
d |

ICIN1 VLN1UkLS 821
(b) 1he compet|t|ve se|ect|on parameters are c|ear|y
def|ned and sha|| |nc|ude the parameters as
approved by the nead of the Government Lnt|ty.
=YH 97+"*',*7. B+(77$7-*)
1he Gu|de||nes prov|de that negot|ated agreements may be
entered under the fo||ow|ng c|rcumstances:
(a) When a GL rece|ves an "unso||c|ted proposa|," wh|ch
sha|| be governed by the ru|es under Annex C of the
Gu|de||nes ent|t|ed "Deta||ed Gu|de||nes for Compet|t|ve
Cha||enge 1ype rocedure ub||c- r|vate Io|nt
Ventures,"
(b) When there |s fa||ure of compet|t|on when no proposa|s
are rece|ved or no pr|vate sector part|c|pant |s found
qua||f|ed and the GL dec|des to seek out a IV partner,
wh|ch sha|| a|so be governed by the ru|es under Annex C
of the Gu|de||nes, and
(c) When there |s fa||ure of compet|t|on, '373/ there |s on|y a
s|ng|e |nterested party rema|n|ng as def|ned under VIII
(6) of Annex A, wh|ch sha|| be governed by the
procedures out||ned |n Annex 8 ent|t|ed "L|m|ted
Negot|at|on rocedures |n Case of Ia||ed Compet|t|ve
Se|ect|on under Sect|on 6 of Annex A."
An "E-)"R'P'*7. K("6"),L^ |s def|ned by the Gu|de||nes as
"keferr|ng] to pro[ect proposa|s subm|tted by the pr|vate sector to
undertake Infrastructure or Deve|opment ro[ects w|thout a forma|
so||c|tat|on |ssued by a Government Lnt|ty. 1hese pro[ects may be
entered |nto by the Government Lnt|ty on a negot|ated bas|s, prov|ded,
however, that there sha|| be no d|rect government guarantees for IVs
resu|t|ng from an unso||c|ted proposa|."
11S

11S
Sec. S.10,2008 IV Gu|de||nes.

An unso||c|ted proposa| |s a|ways sub[ect to a compet|t|ve
cha||enge. 1he Gu|de||nes def|ne <"$67*'*'T7 <5,RR7-+7" as "An
a|ternat|ve se|ect|on process where|n th|rd part|es sha|| be |nv|ted to
subm|t comparat|ve proposa|s to an unso||c|ted proposa|. Accord|ng|y,
the pr|vate sector ent|ty that subm|tted the unso||c|ted proposa| |s
accorded the r|ght to match any super|or offers g|ven by a comparat|ve
pr|vate sector part|c|pant."
118

O97+"*',*7. K("X7P*^ therefore are "des|red pro[ect [wh|ch] |s the
resu|t of an unso||c|ted proposa| from a pr|vate sector proponent or, |f
the government has fa||ed to |dent|fy an e||g|b|e pr|vate sector partner
for a des|red act|v|ty after sub[ect|ng the same to a compet|t|ve
se|ect|on."
117

c. Dev|at|on and Amendment of the IV Agreement
1he Gu|de||nes mandate that the concerned Government Lnt|ty
sha|| not proceed w|th the award and s|gn|ng of the contract |f there are
mater|a| dev|at|ons from the parameters and terms and cond|t|ons set
forth |n the proposa|]tender documents that may have the fo||ow|ng
effects:
(a) 1end to |ncrease the f|nanc|a| exposure, ||ab|||t|es, and
r|sks of government, or
(b) Any other factors that wou|d cause d|sadvantage to
government and any dev|at|on that w||| cause pre[ud|ce
to |os|ng pr|vate sector part|c|pants.
Mater|a| dev|at|ons and amendments sha|| be sub[ected to the
approva| requ|rements for approva| of nead of a GL and approva| by
DCI and]or D8M, when app||cab|e.
1he nead of the Government Lnt|ty concerned sha|| be respons|b|e
for comp||ance w|th th|s po||cy.
V|o|at|on of th|s prov|s|on sha|| render the award and]or the
s|gned IV Agreement |nva||d.
116
Sec. S.8,2008 IV
|d ||
117
Sec. S.9,2008 IV
|d ||
ICIN1 VLN1UkLS
823
1he Gu|de||nes a|so prov|de that any amendment to a IV
Agreement after award and s|gn|ng of contract, wh|ch does not
mater|a||y affect the substance of the compet|t|ve se|ect|on, sha||
neverthe|ess be sub[ected to the requ|rements for approva| of nead of a
GL and approva| by DCI and]or D8M, when app||cab|e, that that
non-comp||ance w|th the correspond|ng approva| process stated sha||
render the amendment nu|| and vo|d.
7. keport|ng kequ|rements
a. Annua| keport to the DCI
Dur|ng the course of |mp|ementat|on of the IV Agreement, the
concerned Government Lnt|ty sha|| subm|t, w|th|n the f|rst quarter of
the succeed|ng year, an annua| report on the status of |ts
|mp|ementat|on dur|ng a current year to the DCI for mon|tor|ng
purposes.
1he report sha|| use current standards |n the product|on of
corporate annua| reports and sha|| |nc|ude aud|ted f|nanc|a| statements
of the IV. In add|t|on, the report sha|| a|so conta|n the IVs work program
for a per|od of three (3) years start|ng from the year the annua| report |s
|ssued.
b. Subm|ss|on of Sa||ent Ieatures and Copy of IV Agreement
to NLDA
ursuant to Sec. 10 of Lxecut|ve Crder No. 423, neads of GL sha||
subm|t to NLDA the sa||ent features and a copy of IV Agreements
amount|ng to at |east I300 M||||on, together w|th a|| documents requ|red
thereto for mon|tor|ng of comp||ance w|th re|evant po||c|es, procedures
and cond|t|ons for approva| of the IV undertak|ng.
oCo

ICIN1 VLN1UkLS
823
1he Gu|de||nes a|so prov|de that any amendment to a IV
Agreement after award and s|gn|ng of contract, wh|ch does not
mater|a||y affect the substance of the compet|t|ve se|ect|on, sha||
neverthe|ess be sub[ected to the requ|rements for approva| of nead of a
GL and approva| by DCI and]or D8M, when app||cab|e, that that
non-comp||ance w|th the correspond|ng approva| process stated sha||
render the amendment nu|| and vo|d.
7. keport|ng kequ|rements
a. Annua| keport to the DCI
Dur|ng the course of |mp|ementat|on of the IV Agreement, the
concerned Government Lnt|ty sha|| subm|t, w|th|n the f|rst quarter of the
succeed|ng year, an annua| report on the status of |ts |mp|ementat|on
dur|ng a current year to the DCI for mon|tor|ng purposes.
1he report sha|| use current standards |n the product|on of
corporate annua| reports and sha|| |nc|ude aud|ted f|nanc|a| statements
of the IV. In add|t|on, the report sha|| a|so conta|n the IV's work program
for a per|od of three (3) years start|ng from the year the annua| report |s
|ssued.
b. Subm|ss|on of Sa||ent Ieatures and Copy of IV Agreement
to NLDA
ursuant to Sec. 10 of Lxecut|ve Crder No. 423, neads of GL sha||
subm|t to NLDA the sa||ent features and a copy of IV Agreements
amount|ng to at |east 300 M||||on, together w|th a|| documents requ|red
thereto for mon|tor|ng of comp||ance w|th re|evant po||c|es, procedures
and cond|t|ons for approva| of the IV undertak|ng.
oCo

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