1 Agency for Atty. Cochingyan by Jason Arteche Rallos vs Felix Corp. Facts Concepcion Rallos and Gerundia Rallos are sisters and registered co-owner of Land X. The sisters executed a special power of attorney in their brother’s favor, Simeon Rallos. When Concepcion died, Simeon Rallos sold Concepcion’s share in Land X to Felix Corp. Ramon Rallos (complainant) as administrator of Concepcion’s estate filed a complaint to declare Simeon’s sale of Concepcion’s share unenforceable and to recover said share. Issue Was the sale of Concepcion’s share valid despite the agent executing it after his principal’s death? Held No. In an agency the principal (mandante), authorizes another called the agent (mandatario) to act for and in his behalf in transactions with 3rd persons. The agency’s essential elements are: 1. There is consent, express or implied of the parties to establish the relationship 2. Object is to execute a juridical act in relation to a 3rd person 3. The agent acts as a representative and not for himself 4. The agent acts within the scope of his authority. Agency is basically personal representative and derivative in nature. The agent’s authority to act emanates from the powers granted to him by his principal, his act is the principal’s act if done within the scope of his authority. Agency is extinguished by the principal’s or agent’s death among others. The general rule is: The principal’s death effects instantaneous and absolute revocation of the agent’s authority by operation of law. The agent’s act after the principal’s death is void ab initio. The principal’s heirs don’t event need to notify the agent of the principal’s death. There are exceptions to this general rule in Art. 1930 and Art. 1931. No exception applies because: 1. The agency wasn’t coupled with an interest 2. Simeon knew of Concepcion’s death at the time he sold the shares in Land X. Feel free to use and share this digest with anyone who needs it 2 Agency for Atty. Cochingyan by Jason Arteche Urban Bank vs Pena Facts ISCI Corp. owns Property X that it leased to tenants. The tenants leased Property X to Subtenants in contravention of the lease agreement. ISCI Corp. eventually moved to sell Property X Urban Bank. Urban Bank agreed on the condition that payment will be in installments and the final install will be paid only when the Subtenants have been removed from Property X and Urban Bank can take possession. ISCI Corp. then authorized its corporate secretary Pena to clear Property X of the Subtenants. Pena stationed guards around the property and filed a case in court to keep the Subtenants out. The court issued a TRO in Pena’s favor when the lease agreement with the tenants expired; ISCI Corp. then executed a deed of sale in Urban Bank’s favor. Without authority from Urban Bank, the court revoked the TRO in Pena’s favor. Pena then contacted Urban Bank and the latter agreed to authorize Pena to clear Property X of the Subtenants, such authority was written. Urban Bank also promised to pay Pena compensation if he clears Property X within a certain time period but such promise was made over the telephone. Eventually, Pena managed to force the Subtenants out after paying them. Urban Bank was able to take possession of Property X. Pena demanded compensation but Urban Bank refused. Issue Is Pena entitled to compensation? Held Yes. Pena should be paid for services rendered under the agency relationship that existed between him and Urban Bank based on the civil law principle against unjust enrichment and quantum merit. Also, Pena is still ISCI’s principal and the latter is also liable to pay Pena compensation. Whether or not an agency has been created is determined by the fact that one is representing and acting for another. The law makes no presumption of agency; proving its existence, nature and extent is incumbent upon the person alleging it. In this case, the evidence shows Urban Bank constituted Pena as its agent to secure possession of Property X. Union Bank gave Pena a specific and special authority to act on its behalf with respect to the latter’s claims of ownership over the property against the tenants. Further, Urban Bank’s actions ratified Pena’s authority as its agent, such as in the court actions and security guards. Agency is presumed to be for compensation. Unless the contrary intent is shown, a person who acts as an agent does so with the expectation of payment according to the agreement and to the services rendered or results effected. Feel free to use and share this digest with anyone who needs it 3 Agency for Atty. Cochingyan by Jason Arteche Loadmaster Customs vs Glodel Brokerage Corp. Facts R&B Insurance (respondent) insured Columbia’s shipment of its products against all risks. The products were shipped by sea and arrived at the pier. From there, Columbia contracted Glodel (respondent) to deliver the products to its warehouse. Glodel in turn contracted Loadmaster to use its delivery trucks in transporting the products. Out of 12 trucks used, only 11 reached the warehouse. Columbia sought reimbursement from R&B Insurance and the latter paid. R&B Insurance then went after Loadmaster and Glodel. Issue Is there a principal-agent relationship between Glodel and Loadmasters? Held No. Loadmasters never represented Glodel because it was never authorized to make such representation. The settled rule is the basis for agency is representation, the agent acts for and on behalf of the principal on matters within the scope of his authority and said acts have the same legal effect as if they were personally executed by the principal. On the principal’s part, there must be an actual intention to appoint or an intention naturally inferable from his words or actions, while on the part of the agent, there must be an intention to accept the appointment and act on it. In this case, there’s no mutual intent. Feel free to use and share this digest with anyone who needs it 4 Agency for Atty. Cochingyan by Jason Arteche Bordador vs Luz Facts Bordador is engaged in the business of purchase and sale of jewelry. Luz is their regular customer. On several occasions, Deganos (respondent) received jewelry from Bordador with the responsibility to sell the items at a profit and remit the proceeds and return the unsold items to Bordador. The jewerly and prices were indicated in receipts stating they were received for Deganos’ niece and Luz. Deganos never returned the sales proceeds or the unsold items. Luz appeared on Deganos behalf and obligated himself to pay the amount due to Bordador on an installment basis. Luz failed to comply with his obligation. Issue Is Deganos an agent of Luz? Held No. The basis for agency is representation. In this case, there’s no evidence to show Luz consented to Deganos acts or authorized him to act on her behalf with respect to the particular transactions involved. In fact, Bordador was grossly and inexcusably negligent to entrust Deganos with the jewelry without requiring a written authorization for his alleged principal. A person dealing with an agent is put on inquiry and must discover upon his peril the agent’s authority. There’s no express or implied agency between Deganos and Luz. Feel free to use and share this digest with anyone who needs it 5 Agency for Atty. Cochingyan by Jason Arteche Eurotech Industrial vs Cuizon Facts Eurotech is in the business of importing and distributing various European industrial equipment for customers in the Philippines. Eurotech has Impact Systems (represented by Sales Manager Cuizon) as one of its customers. Impact Systems bought equipment from Eurotech. When the equipment arrived in the Philippines Eurotech refused to give it to Impact Systems until it fully pays their indebtedness. Impact Systems paid by way of a deed of assignment transferring the receivables due it from Toledo Power in Eurotech’s favor. However, Impact Systems still collected on the receivables due from Toledo Power. When Eurotech discovered Impact Systems actions, Eurotech demanded payment from Impact Systems that it failed to do so. Issue Did Cuizon exceed his authority when he signed the Deed of Assignment thereby making him personally liable to Eurotech? Held No. The basis of agency is representation, the agents acts for and on behalf of the principal on matters within the scope of his authority and said acts have the same legal effect as if the principal personally executed them. As a general rule an agent is not personally liable to the party with whom he contracts. The exception is if the agent binds himself to the obligation and if the agent exceeds his authority. If the agent exceeds his authority, the 3rd person affected can’t recover from both agent and principal. In this case, Cuizon is the agent while Erwin Cuizon (Impact Systems owner) is the principal. Cuizon signed the deed of assignment in his capacity as Impact System’s Sales Manager. An agent’s powers are particularly broad in the case of one acting as a general agent or manager. A high degree of confidence and liberal powers are invested in such agent. Such agent may enter into any contract he deems reasonably necessary or requisite to protect the principal’s interest. Here, Cuizon acted within his authority because Impact Systems had great need for the equipment and negotiations were being held up. Feel free to use and share this digest with anyone who needs it 6 Agency for Atty. Cochingyan by Jason Arteche Orient Air Services vs CA Facts American Airlines (respondent) is an air carrier offering passenger and air cargo transportation in the Philippines. American Airlines and Orient Air entered into a General Sales Agency Agreement where American Airlines authorizes Orient Air to act as its exclusive general sales agent within the Philippines for the sale of air passenger transportation. American Air lines terminated the Agreement alleging Orient Air failed to remit the net proceeds of sales for certain months in accordance with the Agreement. American Airlines further filed a complaint for accounting. The lower courts ruled that American Airlines should reinstate Orient Air as its general sales agent in accordance with the Agreement. Issue Can American Airlines be compelled to reinstate Orient Air as its agent? Held No. Such order in effect compels American Air to extend its personality to Orient Air. It violates the principles and essence of agency that requires that agency be constituted with the consent or authority of the principal. In an agent-principal relationship, the principal’s personality is extended through the agent’s facility. The agent, by legal fiction, becomes the principal authorized to perform all acts which the principal would have him do. Such relationship can be effected only with the principal’s consent which mustn’t in any way be compelled by any law or court. Feel free to use and share this digest with anyone who needs it 7 Agency for Atty. Cochingyan by Jason Arteche Domingo vs Domingo Facts Vicente Domingo (complainant) granted Gregorio Domingo (respondent) the exclusive agency to sell Vicente’s Property X. Gregorio would receive a 5% commission if Property X is sold to a purchaser Gregorio introduces. Gregorio authorized Purisima to look for a buyer promising the latter a share of the commission. Purisima introduced Oscar, a potential buyer to Gregorio. Negotiations took place between Oscar and Vicente with Gregorio managing to persuade Vicente to sell Property X at a lower price. Oscar gave Gregorio a P1,000.00 gift for Gregorio’s success in lowering the price. Gregorio didn’t disclose to Vicente the gift. After some time, Oscar told Gregorio he was no longer buying the property and didn’t meet Gregorio anymore. Gregorio sensed something fishy and discovered that Vicente had actually sold Property X to Oscar’s wife. When Gregorio demanded his commission, Vicente refused arguing Property X was sold not to Gregorio’s buyer, but to another buyer namely Oscar’s wife. Issue Is Gregorio still entitled to his commission? Held No. The Civil code demands the utmost good faith, fidelity, honesty, candor and fairness on the agent’s part to his principal. The agent has an absolute obligation to make a full disclosure to his principal of all his transactions and facts relevant to the agency. An agent who takes a secret profit from the vendee without revealing the same to his principal is guilty of a breach of his loyalty to the principal and forfeits his right to collect the commission from the principal. In this case, Gregorio received a gift from Oscar but failed to disclose it to Vicente. The gift corrupted Gregorio’s duty to serve his principal’s interest by persuading Vicente to sell Property X at a much lower price than he intended. Art. 1891 doesn’t apply if the agent acted only as middleman with the task of bringing together the vendor and vendee. The article also won’t apply if the agent had informed his principal of the gift he received from the purchaser and the principal didn’t object to it. Here, Gregorio wasn’t merely a middleman because he served as Vicente’s broker and agent. Gregorio also didn’t disclose Oscar’s gift to Vicente. As a consequence of such breach of trust, Gregorio has forfeited his right to the commission. Feel free to use and share this digest with anyone who needs it 8 Agency for Atty. Cochingyan by Jason Arteche Schmid Inc. vs RJL Corp. Facts RJL needed 12 electric generators and while canvassing for generators, Schmid sent RJL its quotation for 12 Nagata-brand electric generators. Schmid stipulated RJL would pay by opening a letter of credit in Nagata Corp’s favor. Nagata sent the electric generators to RJL and Schmid got its commission. Afterwards, the 12 generators broke down and it turns out they were faulty. Some of the generators were repaired but most were neither repaired nor replaced. RJL demanded Schmid refund it but the latter refused arguing it wasn’t the vendor of the Nagata-brand generators. Issue Is Schmid Inc. liable for the faulty electric generators? Held No. Schmid was merely an indentor, and not a vendor. Being an indentor, Schmid can’t be held liable for the implied warranty for hidden defects under the Civil Code. Further, Schmid never expressly bound itself to warrant the 12 generators as free of any hidden defects. An indentor is similar to a broker and in effecting a sale, they’re merely middlemen and act in a certain sense as the agent of both parties to the transaction. A broker is generally defined as one who is engaged, for others, on a commission, negotiating contracts relative to property with the custody of which he has no concern; the negotiator between other parties, never acting in his own name but in the name of those who employed him; he is strictly a middleman and for some purpose the agent of both parties. Feel free to use and share this digest with anyone who needs it 9 Agency for Atty. Cochingyan by Jason Arteche Tan vs Gullas Facts Gullas owns Property X that he wants to sell. Gullas authorized Tan, a real estate broker, to negotiate for the sale of the land with a commission if Tan does sell it. Tan found a buyer in the Sisters of Mary Banneaux. After negotiations, Gullas agreed to sell Property X to Sisters of Mary Banneaux. Gullas authorized his attorney to sell, transfer, and convey Property X. The transaction went smoothly and title was issued in Sisters of Mary Banneaux’s favor. Afterwards, Tan went to Gullas to collect his commission but Gullas refused reasoning another broker introduced Sisters of Mary Banneaux to Gullas. Issue Is Tan entitled to the commission? Held Yes. An agent receives a commission upon the sale's successful conclusion. Meanwhile, a broker earns his commission by merely bringing the buyer and seller together, even if no sale is eventually made. In this case, it was Tan who first introduced Sisters of Mary Banneaux to Gullas. Gullas’ allegation that he hired another broker who first introduced Sisters of Mary Banneaux to him is untenable because he failed to provide evidence proving it. Gullas is merely avoiding paying Tan his commission for Tan’s role in the transaction. Further, Tan wasn't able to participate in the negotiations because of Gullas actions. Feel free to use and share this digest with anyone who needs it 10 Agency for Atty. Cochingyan by Jason Arteche Medrano vs CA Facts Vice-Chairman Medrano of Ibaan Rural Bank was looking for a buyer of a foreclosed bank asset. Medrano asked Flor (complainant) to look for a buyer. Borbon, Flor’s associate and a real estate broker, knew of Lee, who might be interested in the property. Medrano gave Flor and Borbon written authority to negotiate the property’s sale. The defendants arranged for the property’s ocular inspection with Lee but were delayed for one reason or another. After a few weeks, defendants discovered Medrano had already sold the property to Lee. With the sale consummated, defendants asked Medrano for their commission but Medrano refused to pay. Issue Are defendants entitled to their commission? Held Yes. Procuring cause is meant to be the proximate cause. Procuring cause, in a broker’s activity, refers to a cause originating a series of events which, without break in their continuity, result in accomplishment of prime object of the broker’s employment - producing a purchaser ready, willing and able to buy real estate in the owner’s terms. A broker will be regarded as the sale’s procuring cause if his efforts are the foundation on which the negotiations resulting in sale are begun. The means he employs and his efforts must result in the sale. He must find the purchaser and the sale must proceed from his efforts acting as broker. In this case, defendants are the sale’s procuring cause because they were the ones who informed Buyer A leading him to its consummation. Even if defendants didn’t take part in the negotiations, they are still entitled to the commission. A broker’s conventional employment is merely to find a willing and able buyer to purchase the property. There is no agreement to the contrary that defendants also had to negotiate the sale to get paid their commission. Feel free to use and share this digest with anyone who needs it 11 Agency for Atty. Cochingyan by Jason Arteche Litonjua vs Eternit Corp. Facts Eternit Corp. owns Property X in the Philippines. ESAC Corp, a majority shareholder in Eternit Corp. grew concerned about the Philippines’ political situation and wanted to stop operations. ESAC Corp moved to sell Property X. ESAC Corp, through Glanville and Delsaux engaged the services of realtor/broker Lauro G. Marquez. Marquez later showed Property X to Litonjua. Litonjua wanted to buy Property X and negotiations went underway. Litonjua deposited the necessary fees in the bank. Meanwhile, the Philippines political situation improved with Cory Aquino’s assumption to Presidency. ESAC Corp changed its mind and wanted to continue operations. ESAC Corp decided no longer to sell Property X. Litonjua demanded payment for damages from Eternit Corp. but the latter refused. Issue Did Marquez, Glanville, and Delsaux bind Eternit Corp. to sell Property X? Held No. Litonjua failed to prove Eternit Corp. allowed Glanville, Delsaux, and Marquez to sell its property. Litonjua filed to establish the agency by clear, certain, and specific proof. Glanville, Delsaux, and Marquez had no authority to bind Eternit Corp. in the transaction with Litonjua. A corporation may act only through its board of directors or, when authorized either by its by-laws or by its board resolution, through its officers or agents in the normal course of business. While a corporation may appoint agents to negotiate for the sale of its real properties, the final say will have to be with the board of directors through its officers and agents as authorized by a board resolution or by its by-laws. An unauthorized act of an officer of the corporation isn’t binding on it unless the latter ratifies the same expressly or impliedly by its board of directors. Any sale of real property of a corporation by a person purporting to be an agent thereof but without written authority from the corporation is null and void. In creating or conveying real rights over immovable property, a special power of attorney is necessary. In a sale of a piece of land or any portion thereof through an agent, the latter’s authority shall be in writing, otherwise the sale is void. Here, complainants failed to provide in evidence the Board resolution of Eternit Corp. empowering Marquez, Glanville, or Delsaux as its agents to sell, let alone offer for sale, Property X. ESAC’s authorization is not equal to Eternit’s authorization. A real estate broker is one who negotiates the sale of real properties. His business, generally speaking, is only to find a purchaser who is willing to buy the land upon terms fixed by the owner. He has no authority to bind the principal by signing a contract of sale. Indeed, an authority to find a purchaser of real property does not include an authority to sell. Feel free to use and share this digest with anyone who needs it 12 Agency for Atty. Cochingyan by Jason Arteche Spouses Viloria vs Continental Airlines Facts The Spouses Viloria purchased 2 tickets on board Continental Airlines from Holiday Travel. However, the Spouses Viloria found out Holiday Travel misled them into buying the tickets and decided to refund the tickets instead. Continental refused and advised them they can apply for a reissuance of new tickets within 2 years from the date the original tickets were issued. The Spouses Viloria then had the original tickets replaced by a single round trip ticket. However, Continental informed the Spouses Viloria that the tickets were non-transferrable and so both tickets can’t be used to purchase the single round trip ticket. Also, they will have to pay additional fees because a single original ticket can’t cover the entire price of the single round trip ticket. The Spouses Viloria then demanded for a refund of the original tickets but Continental refused. Spouses Viloria then filed a civil case to refund the money plus damages. Issue Is there a principal-agent relationship between Continental and Holiday Travel? Held Yes. All the elements of agency are present. Continental doesn’t deny that it concluded an agreement with Holiday Travel, where Holiday Travel would enter into contracts of carriage with 3rd persons on Continental’s behalf. Further, Holiday Travel merely acted in a representative capacity and it’s Continental, not Holiday Travel, who’s bound by the contracts of carriage entered into by Holiday Travel on its behalf. Also, Continental hasn’t made any allegation Holiday Travel exceeded its scope of authority. In an agency, the principal retains ownership and control over the property and the agent merely acts on the principal’s behalf and under his instructions in furtherance of the agency. On the other hand, there’s a sale if the delivery of property will effect a relinquishment of title, control, and ownership in such a way the recipient can do with the property as he pleases. In this case, Continental recognized the validity of the contracts of carriage that Holiday Travel entered into with Spouses Viloria and considered itself bound by the terms and conditions thereof. Feel free to use and share this digest with anyone who needs it 13 Agency for Atty. Cochingyan by Jason Arteche Rallos vs Yangco Facts Yangco sent Rallos a letter informing Rallos that he has a shipping and commission department for buying and selling tobacco. The letter also states Collantes is Yangco’s agent. Rallos did business with Yangco through Collantes. After some time, Rallos sent Collantes, as Yangco’s agent, tobacco to be sold on commission. Collantes didn’t turn the commission over but rather appropriated it for his own use. It turns out Yangco had already removed Collantes as his agent before Rallos sent the tobacco leaf. Rallos didn’t know Collantes was no longer Yangco’s agent and Yangco never gave any notice of the termination’s agency. Rallos demanded payment from Yangco but the latter refused arguing Collantes acted in his personal capacity. Issue Is Yangco liable? Held Yes. Yangco advertised the fact Collantes was his agent and it was Yangco’s duty to give due notice to Rallos of the agency’s termination. Failing to give notice, Yangco is responsible for any goods delivered in good faith to Collantes as Yangco’s agent without knowledge of the agency’s termination. Feel free to use and share this digest with anyone who needs it 14 Agency for Atty. Cochingyan by Jason Arteche Litonjua vs Fernandez Facts 2 brokers offered to sell to Litonjua Property X. Respondents Fernandez and Eleosida represented Property X’s owners. The respondents authorized the brokers to offer the property for sale. Afterwards, Litonjua met with Fernandez and the 2 brokers where they agreed Litonjua would buy Property X and set a date to finalize the sale. The date for the sale passed and Litonjua asked Fernandez to execute the deed of sale and Property X be turned over to him. Fernandez refused saying the sale will no longer push through because of alleged tenants that appeared on Property X and causing problems. Litonjua filed a case for specific performance and damages against Fernandez and Property X’s owners. Issue Does Fernandez have authority to sell Property X? Held No. The Civil Code provides that a special power of attorney is necessary to enter into any contract involving immovable property or real rights. Any sale of real property by one purporting to be the registered owner’s agent must show his authority in writing otherwise the sale is null and void. The agent’s declarations alone are generally insufficient to establish his authority. In this case, there’s no documentary evidence to show Property X’s owners specifically authorized Fernandez to sell Property X to Litonjua. Fernandez specifically denied authority to sell Property X. The purported letter Fernandez sent Litonjua representing herself to have authority do so is signed by Fernandez alone. Further, Property X’s owners never ratified any of Fernandez’s actions. Feel free to use and share this digest with anyone who needs it 15 Agency for Atty. Cochingyan by Jason Arteche Spouses Aggabao vs Parulan Jr. Facts Real Estate Broker Atanacio offered to sell Land X and Land Y, owned by Elena and Parulan Jr, to the Spouses Aggabao. The Spouses Aggabao met with Elena, the properties’ co-owner, where they discussed the sale and payment terms. Elena presented a document to the spouses stating Elena was authorized to sell on her husband's behalf. Afterwards, Spouses Aggabao paid Elena as promised and received a TCT for Land X. Elena failed to turn over the duplicate owner’s copy of the TCT over Land Y. It turns out the duplicate copy was with Parulan, Parulan Jr’s brother. Parulan demanded money in exchange for the duplicate copy over Land Y. Spouses Aggabao refused and when Parulan again demanded payment the Spouses Aggabao explained they already fully paid Elena. Parulan Jr then filed a case to declare the sale void. Issue Is the sale valid? Held No. The power of administration doesn’t include acts of disposition or encumbrance, which are acts of strict ownership. An authority to dispose can’t proceed from an authority to administer, and vice versa, for the 2 powers many only be exercised by an agent following the provisions of agency in the Civil Code. In this case, Parulan’s authority, as special agency, was limited to selling the property, which didn’t include the power of administration. The sale is void because Parulan Jr, as co-owner in a conjugal property, never gave his consent. If the Spouses had taken the time to verify the document Elena based her authority on, they would've found out the same was fake and Elena and her husband were already estranged. Feel free to use and share this digest with anyone who needs it 16 Agency for Atty. Cochingyan by Jason Arteche Dominion Insurance Corp. vs CA Facts Respondent Guevarra, Dominion Insurance Corp’s manager, filed a case to recover money which he claimed to have advanced in his capacity as manager to satisfy claims filed by Dominion Insurance’s clients. Issue Did Guevarra act within his authority as Dominion Insurance Corp’s agent? Held No. A general power of agency permits the agent to do all acts for which the law doesn’t require a special power. One such instance where a special power of attorney is required is ‘to make such payments as are not usually considered as acts of administration,’ In this case, Dominion Insurance and Guevarra entered into a principal-agent relationship evidenced by the document ‘Special Power of Attorney.’ However, despite the word ‘Special’ in the document’s title, the contents reveal a general agency. The agency comprises all the principal’s business but is couched in general terms limited only to acts of administration. Payment of insurance claims isn’t an act of administration and consequently requires a special power of attorney. Guevarra had authority to pay only very specific insurance claims and even then from a specific fund in his possession. Guevarra acted outside the scope of his authority and therefore the principal isn’t liable. Feel free to use and share this digest with anyone who needs it 17 Agency for Atty. Cochingyan by Jason Arteche Veloso vs CA Facts Veloso owns Land X with title registered in his name. Afterwards, Veloso’s wife sold Land X to respondent Escario, supported by a general power-of-attorney and deed of absolute sale without Veloso’s knowledge. Veloso found out when he discovered his title was cancelled and a new one issued in Escario’s name. Veloso filed a case to recover Land X. Veloso alleged in court that he’s the absolute owner of Land X and he never authorized anybody, not even his wife, to sell it. Veloso denied ever having executed a power-of-attorney in his wife’s favor. Issue Was there a valid sale of Land X? Held Yes. A special power-of-attorney can be included in the general power when the act or transaction for which the special power is required is specified therein. In this case, the records show the assailed power-of-attorney was valid and regular on its face. It was notarized and therefore carries evidentiary weight. Further, there was no need to execute a separate and special power-of-attorney because the general power-of-attorney expressly authorized the agent to sell Land X. Feel free to use and share this digest with anyone who needs it 18 Agency for Atty. Cochingyan by Jason Arteche Pineda vs CA Facts PMSI availed of life insurance from Insular Life for its employees. Afterwards, some of PMSI’s employees died at sea when its ship sank. Pineda, one of the dead employees’ relative, sought death benefits from the Government and PMSI assisted him. PMSI made Pineda execute a special powerof-attorney authorizing PMSI Capt. Nuval to ‘follow up, ask, demand, collect and receive’ on Pineda’s behalf money due him relative to the ship’s sinking. Afterwards, PMSI claimed from Insular Life on Pineda’s behalf. Among the documents PMSI submitted to Insular Life to process the claim included the special power-of-attorney Pineda executed. Insular Life released money pursuant to the insurance on the basis of these documents. PMSI then deposited the money in Nuval’s account. Afterwards, Pineda discovered he was entitled to benefits under Insular Life and demanded these benefits but Insular Life refused arguing the money was already released to PMSI. Issue Did the special power-of-attorney authorize Nuval to claim benefits from Insular Life in Pineda’s behalf? Held No. The special power-of-attorney doesn’t contain in unequivocal and clear terms authority to Nuval to obtain from Insular Life insurance proceeds arising from the insured’s death. A special-power-ofattorney must be strictly construed. The document is couched in terms which would easily arouse an ordinary man’ suspicion because it deviated from Insular Life’s standard practice. Further, it can’t even be considered a general power-of-attorney because there’s no intent to grant such power or constitute a universal agency. In a group insurance policy, the employer acts as the insurance company’s agent. In this case, PMSI, through Nuval, was Insular Life’s agent. Feel free to use and share this digest with anyone who needs it 19 Agency for Atty. Cochingyan by Jason Arteche Home Insurance Co. vs USL Facts A USL-owned ship arrived in Manila discharging its cargo to the custody of the Bureau of Customs as arrastre operator. The cargo was consigned to Burroughs Limited but when Burroughs received the cargo some parts of the cargo were damaged. Home Insurance paid Burroughs the cost of damages and demanded payment from USL and the Bureau of Customs. Both refused to pay. Home Insurance filed a case in court but the latter dismissed because only Home Insurance’s attorney appeared at the pre-trial. Issue Was the dismissal proper? Held Yes. The Rules of Court provide the court can direct the parties and their attorneys to appear before it for a conference (pre-trial). The rule’s purpose is to possibly reach a compromise among the parties. The court has the discretion to dismiss the case if the plaintiff fails to appear at the pre-trial. In this case, Home Insurance failed to appear at the pre-trial. True, Home Insurance’s attorney asserted he was given verbal authority to enter into a compromise. However, the rules require a ‘special authority’ for an attorney to compromise on his client’s behalf. Such authority doesn’t need to be in writing but must be duly established by evidence. Authority to compromise can’t be presumed. The attorney’s self-serving assertion doesn’t prove such authority. Feel free to use and share this digest with anyone who needs it 20 Agency for Atty. Cochingyan by Jason Arteche Estate of Lina Olaguer vs Ongjoco Facts When Lino Olaguer died, Olivia and Eduardo became administrators. Olivia and Eduardo sold the properties to Bacani. Bacani then sold the properties back to Olivia and Eduardo. Olivia and Eduardo then sold the properties to Estanislao. Estanislao then sold them to Jose Olaguer. Jose then sold them to his son, Virgilio. Under an alleged general power of attorney, Jose sold the lots 1 & 2 to Ongjoco. Jose sold the other lots to Ongoco as well, also through an alleged general power of attorney. The lots were sold twice evidenced by 2 deeds of sale but still to Ongjoco. The heirs of the estate of Lina Olaguer are claiming the sale is void and the properties should be returned to the estate. Issue Was Ongjoco an innocent purchaser for value? Held Partly. When the sale of a piece of land or any interest therein is made through an agent, the latter’s authority shall be in writing, otherwise the sale is void. A special power-of-attorney is necessary in order for an agent to enter into a contract where ownership of an immovable property is transmitted or acquired, either gratuitously or for valuable consideration. Even if a document is designated as a general powerof-attorney, the requirement of a special power-of-attorney is met provided the act that requires the special power-of-attorney is specified therein. In this case, as to Property X and Y the Torrens title for these properties were in Virgilio’s name. Ongjoco failed to produce the power-of-attorney Virgilio purportedly issued in Jose Olaguer’s favor on the sale of said properties. However, as to the rest of the properties Ongjoco was able to present a general power-of-attorney Virgilio executed. While the law requires a special power-of-attorney, the general power-of-attorney was sufficient because it expressly authorized Jose Olaguer to sell said properties. Feel free to use and share this digest with anyone who needs it 21 Agency for Atty. Cochingyan by Jason Arteche City Lite Realty Inc. vs CA Facts F.P. Holdings is the registered owner of the Violago Property and offered it for sale to the general public. F.P. Holdings sought respondent Roy of Metro Drug’s help in finding buyers. Roy sent the sales brochure and pertinent documents to real estate broker Mamaril who in turn passed them to City Lite. City Lite met with Roy to tell him it wanted to purchase the front lot of Violago Property. City Lite, Mamaril, and Roy met together to negotiate the sale and finally reached an agreement. Roy agreed to sell the Violago Property’s front portion to City Lite after City Lite submits its formal acceptance of the sale and its terms, which City Lite did so. However, F.P. Holding refused to execute the deed of sale despite repeated demands from City Lite. City Lite had an adverse claim annotated on Violago Property’s certificate of title. Then, City Lite instituted a complaint against F.P. Holdings. During the complaint’s pendency, the property was transferred to defendant Viewmaster Corp. Issue Can F.P. Holdings be forced to sell the Violago Property’s front portion? Held No. The Civil Code provides that when a sale of a piece of land or any interest therein is through an agent, the latter’s authority shall be in writing otherwise the sale is void. In this case, Metro Drug’s assistance was limited to looking for buyers for the Violago Property and endorsing such buyers to F.P. Holdings. The final evaluation, appraisal, and acceptance of any sale remained with F.P. Holdings. Roy and Metro drug were mere contact persons with no authority to sell the Violago Property. For lack of written authority, the sale City Lite concluded with Roy is void. Feel free to use and share this digest with anyone who needs it 22 Agency for Atty. Cochingyan by Jason Arteche Pineda vs CA Facts Pineda owns Property X in California while respondent Banez owns Property Y in White Plains. Pineda and Banez agreed to exchange properties after the parties have cleared the mortgages on their respective properties. The exchange agreement failed because Pineda failed to clear the mortgage on the California property. Afterwards, Banez found out his title to the White Plains property was cancelled and a new one issued in Pineda’s favor. There was also a deed of sale in Pineda’s favor. Pineda then sold the property to Duque. Issue Did Duque validly acquire the White Plains property? Held No. The Civil Code provides that in a sale of a parcel of land or any interest therein made through an agent, a special power of attorney is essential. The authority must be in writing otherwise the sale is void. A special power of attorney is necessary to enter into any contract where ownership of an immovable is transmitted or acquired for valuable consideration. In this case, Banez never authorized Pineda to sell the White Plains property to Duque. Without authority in writing, Pineda’s sale of the property is void. Feel free to use and share this digest with anyone who needs it 23 Agency for Atty. Cochingyan by Jason Arteche Cosmic Lumber vs CA Facts Cosmic Lumber executed a Special Power of Attorney in Paz Vilamil-Estrada’s favor. Paz, as Cosmic Lumber’s attorney-in-fact, then filed an ejectment suit against respondent Perez to recover Property X. Afterwards, Paz and Perez entered into a compromise agreement where Perez would just buy Property X. The court approved the compromise agreement but it was never executed because Cosmic Lumber failed to produce the needed owner’s duplicate copy of title over Property X. Perez then filed a case to revive judgement. Issue Is the compromise agreement valid? Held No. When the sale of a piece of land or any interest thereon is through an agent, the agent’s authority shall be in writing; otherwise the sale shall be void. In this case, Paz’s special power-of-attorney was explicit and exclusionary and she was never granted authority to sell Property X or any portion thereof. Such power can’t be implied from her authority to enter into a compromise agreement because such agreement should protect Cosmic Lumber’s right to physically possess Property X. Paz’s alienation of Property X can’t be considered protecting Cosmic Lumber’s rights, more so when Paz sold it at a loss. Without authority from Cosmic Lumber, Paz’s sale of Property X is void. Further, the general rule the principal is charged with knowledge of his agent’s actions doesn’t apply here. Cosmic Lumber can’t be expected to know of Paz’s actions because she was acting fraudulently. It’s contrary to common sense to expect Paz to inform Cosmic Lumber of her fraudulent actions. Excerpt from the special power-of-attorney “To initiate, institute and file any court action for the ejectment of third persons and/or squatters of the entire lot 9127 and 443 and covered by TCT Nos. 37648 and 37649, for the said squatters to remove their houses and vacate the premises in order that the corporation may take material possession of the entire lot, and for this purpose, to appear at the pre-trial conference and enter into any stipulation of facts and/or compromise agreement so far as it shall protect the rights and interest of the corporation in the aforementioned lots.” Feel free to use and share this digest with anyone who needs it 24 Agency for Atty. Cochingyan by Jason Arteche Gutierrez Hermanos vs Orense Facts Orense owns Property X. Jose Duran, Orense’s nephew, sold Property X to Gutierrez by means of a public instrument executed before a notary. The instrument allowed the vendor to redeem Property X within 4 years from the time of sale. Orense was allowed to occupy Property X through a contract of lease. The redemption period expired but Orense refused to convey Property X and furthermore stopped paying rent. Orense argues he never gave Durant authority to sell Property X. Gutierrez then filed a civil case against Duran and Orense to get Property X. Gutierrez also filed a criminal case against Duran for estafa. In both criminal and civil trial Orense testified he consented to Duran’s selling of Property X to Gutierrez. Issue Was Duran’s sale valid? Held Yes. Orense’s testimony in both the criminal and civil cases proved Orense gave his consent to Duran’s sale of Property X. It follows Orense conferred verbal, or at least implied, power of agency to Duran who accepted it by selling Property X. Even if Duran’s authority to sell wasn’t in writing, Orense’s testimony affirming he gave consent to the sale legally excuses the lack of written authority, amounts to full ratification of Duran’s acts, and produces the effects of an express power of agency. Further, even if such consent was granted subsequent to the sale, Orense ratified the sale through his testimony. Such sale would have been void but Orense’s testimony cured it of the defect of nullity.1 1 Under the Old Civil Code, a contract entered into in the name of another without authority from the latter is void, unless ratified by the person in whose name it was executed before the other contracting party revokes it. Under the New Civil Code, the contract would’ve been unenforceable and not void. Feel free to use and share this digest with anyone who needs it 25 Agency for Atty. Cochingyan by Jason Arteche Shoppers Paradise Realty vs Roque Facts Shoppers Paradise entered into a 25-year lease contract with Felipe over Property X. Property X was covered by a TCT in Felipe’s name. Simultaneously, both parties likewise entered into an agreement to construct and operate a commercial building complex on Property X. Afterwards, Felipe died forcing Shoppers Paradise to negotiate with his heir, respondent Roque. Negotiations broke down and Roque filed a case to annul the contracts. Roque alleges he’s Property X’s absolute owner when Felipe donated it to him but the TCT remained in Felipe’s name. The donation happened years before Felipe entered into the contracts with Shoppers Paradise. Further alleged, Felipe had no authority to enter in such contracts involving Property X because he only had administration over it. Issue Are the contracts Felipe entered into valid? Held No. An agent requires a special power of attorney to lease any real property to another person for more than 1 year. A lease of property for more than 1 year is considered an act of dominion, not merely administration. In this case, Felipe wasn’t Roque’s authorized agent to lease Property X because he had no special power of attorney. Further, Shoppers Paradise knew Felipe wasn’t Property X’s true owner because the latter informed it of the same. Feel free to use and share this digest with anyone who needs it 26 Agency for Atty. Cochingyan by Jason Arteche Vda. De Chua vs IAC Facts Defendant Herrera executed a 10-year lease contract renewable for another 5 years over Property X in On’s favor. The lease contract gave the lessee an option to buy the leased property. On built a house on Property X and resided there. 4 years into the lease contract, On sold the house to plaintiff Chua with Chua replacing On as lessee with Herrera’s consent. The lease contract expired but Herrera’s alleged attorney-in-fact renewed it for another 5 years with Chua. Afterwards, Herrera sold Property X to respondent Sps. Go. Chua filed a case to annul the sale alleging it violated her right of option to buy Property X as provided in the contract of lease and the Sps. Go were in bad faith because they knew Chua’s right to buy Property X. Issue Is the renewed contract of lease valid? Held No. The agent must be armed with a special power-of-attorney when leasing real property to another person for more than 1 year. In this case, Herrera’s attorney-in-fact was never armed with a special power-of-attorney. True, Herrera herself allowed Chua to occupy Property X after the original lease contract expired and a tacit renewal is deemed to have taken place. However, the tacit renewal is limited only to the contract’s terms that are germane to the lessee’s right to continued enjoyment of the property and doesn’t extend to alien matters, like option to buy the leased premises. Feel free to use and share this digest with anyone who needs it 27 Agency for Atty. Cochingyan by Jason Arteche BA Finance vs CA Facts Respondent Sps. Cuady obtained from Supercars a credit of P40 thousand to cover the cost of Car X. The obligation was evidenced by a promissory note and to secure compliance with the promissory note a chattel mortgage was also constituted on Car X. Supercars then assigned the promissory note and chattel mortgage to BA Finance. BA Finance also renewed Car X’s insurance coverage when the Sps. Cuady failed to do so and under the terms and conditions of said insurance coverage, the proceeds shall be payable to BA Finance. Afterwards, Car X got into an accident. Cuady wanted the car be declared a total loss under the insurance coverage but BA Finance forced him to repair it. Not long after, the car bogged down and Cuady again requested to have BA Finance declare Car X as a total loss. BA Finance didn’t respond favorable and Cuady stopped paying the promissory note. BA Finance filed a case to recover the amount of the note. Issue Has BA Finance waived its right collect on the note by failing to enforce the total loss provision in the insurance coverage? Held Yes. BA Finance is bound by the terms and conditions of the chattel mortgage when it accepted Supercar’s assignment. Under the deed of chattel mortgage, BA Finance was made attorney-in-fact with full authority and power to follow-up, prosecute, compromise or settle insurance claims, to sign, execute and deliver documents to the Insurance Company as may be necessary to prove the claim, and to collect the insurance proceeds if Car X suffers any loss or damage. Cuady in fact created in BA Finance’s favor an agency that BA Finance was bound by its acceptance to carry out. Consequently, BA Finance is liable for damages that Cuady may suffer through its non-performance. In this case, Cuady suffered loss when BA Finance stubbornly refused to enforce the insurance coverage’s total loss provision. Feel free to use and share this digest with anyone who needs it 28 Agency for Atty. Cochingyan by Jason Arteche British Airways vs CA Facts Respondent Mahtani purchased a ticket from British Airways going to India. Mahtani would board PAL going to Hong Kong, and then British Airways going to India. When Mahtani finally arrived in India, he discovered his luggage was missing. Mahtani waited a week for his lugge until British Airways advised him to file a claim. Afterwards, back in the Philippines Mahtani filed a complaint for damages against British Airways. British Airways claims it is PAL who should be liable because the PAL plane arrived late resulting in the missing luggage. Issue Is British Airways liable to Mahtani? Is PAL liable to British Airways? Held Yes & Yes. Carriage by plane although performed by successive carriers is regarded as a single operation and the carrier issuing the passenger’s ticker is considered the principal party and the other carriers merely agents. In this case, the contract of air transportation was exclusively between Mahtani and British Airways with PAL acting as British Airways’ agent. PAL acted as British Airway’s agent in transporting Mahtani from Manila to Hong Kong. British Airways is liable to Mahtani but PAL is liable to British Airways for its negligence in the performance of its function and is liable for damages that the principal may suffer by reason of such negligence. PAL was negligent in failing to arrive in Hong Kong on time and transfer Mahtani’s luggage to his flight going to India. Feel free to use and share this digest with anyone who needs it 29 Agency for Atty. Cochingyan by Jason Arteche Pacific Rehouse Corp. vs EIB Securities Inc. Facts Pacific Corp bought KPP and DMCI shares from the PSE through its broker, EIB Securities. Afterwards, Pacific Corp and EIB Securities agreed to sell the KPP shares without a buy back option. Afterwards, EIB Securities sold the DMCI shares at a substantial loss without Pacific Corp’s knowledge and consent and used the proceeds to buy back the KPP shares. EIB bought back the KPP shares because it made an unauthorized promise to buy back said KPP shares. Upon finding out, Pacific Corp. demanded EIB Securities return the DMCI shares but the latter couldn’t comply because it already sold said DMCI shares. Issue Did EIB Securities have authority to sell the DMCI shares and use the proceeds to buy back the KPP shares? Held No. An agent must act within the scope of his authority. The agent is granted the right to affect his principal’s legal relations by performing acts done in accordance with the principal’s consent. In this case, Pacific Corp never consented to EIB’s sale of the DMCI shares. EIB’s right as Pacific Corp’s agent to sell or dispose Pacific Corp’s properties is confined to paying the obligations and liabilities Pacific Corp may have to EIB and none other. Thus, when EIB sold the DMCI shares to buy back the KKP shares, it paid Pacific Corp’s obligation to a 3rd party and hence was beyond EIB’s authority. Consequently such sale is void. Feel free to use and share this digest with anyone who needs it 30 Agency for Atty. Cochingyan by Jason Arteche Cervantes vs CA Facts Respondent Philippine Air Lines issued to Cervantes a round trip ticket for Manila-Honolulu-Los Angeles-Honolulu-Manila pursuant to a compromise agreement between the 2 parties in another case. The ticket would expire 1-year from its issuance. Cervantes used the ticket 4 days before it expired and arrived in Los Angeles. Cervantes then booked his return flight, which was already past the 1year expiration period. Cervantes later learned his return PAL plane would stopover in San Francisco and he made arrangements with PAL to board his flight in San Francisco instead of Los Angeles. At San Francisco, Cervantes wasn’t allowed to board and PAL marked his ticket as expired. Cervantes then filed a complaint against PAL. Issue Did the PAL agents in confirming the ticket extend its period of validity? Held No. An agent who acts beyond the scope of his authority doesn’t bind the principal, unless the latter ratifies the same expressly or impliedly. Further, when the 3rd person knows the agent was acting beyond his authority, the principal can’t be held liable for the agent’s acts. The 3rd person is to blame and is not entitled to recover damages from the agent, unless the latter undertook to secure the principal’s ratification. In this case, Cervantes knew his ticket would expire before he returned to the Philippines. Also, he knew beforehand that he needed to file a written request for extension to PAL to extend the validity of his ticket. The PAL agents didn’t know about the compromise agreement and acted without authority when they confirmed Cervantes’ return flight. Feel free to use and share this digest with anyone who needs it 31 Agency for Atty. Cochingyan by Jason Arteche Borja Sr. vs Sulyap Inc. Facts Borja leased Property X to Sulyap Inc. Pursuant to the lease contract; Sulyap Inc. paid advance rentals, dues, and deposits. When the lease contract expired, Sulyap demanded the return of the advance payments it made. Borja refused causing Sulyap to file a case in court. Afterwards, the parties entered into a Compromise Agreement that the court approved. However, Borja failed to fulfill his duty under the Agreement and Sulyap filed a motion to enforce the Agreement’s penalty clause. Borja challenged the motion twice and in his 2nd challenge he argued there was fraud in the Agreement’s execution. Borja argued 3 sets of Compromise Agreements were submitted for his approval. He signed the Agreement without the penalty clause but his former counsel removed the page containing his signature and attached it to another Agreement. Issue Is Borja bound by the penalty clause in the Agreement? Held Yes. Borja had several opportunities to raise the issue of the penalty clause’s fraudulent inclusion. The 1st was when the court rendered judgement dismissing the case pursuant to the Agreement which was reproduced in full in said judgement. The second was when he 1st opposed Sulyap’s motion to enforce the penalty clause. In this case, even assuming Borja’s counsel exceeded his authority in inserting the penalty clause, the status of said clause was voidable, not void. Borja’s failure to question the penalty clause’s inclusion despite several opportunities to do so was tantamount to ratification. Feel free to use and share this digest with anyone who needs it 32 Agency for Atty. Cochingyan by Jason Arteche Gozun vs Mercado Facts Gozun owns a printing shop. Mercado ran for governor in Pampanga and Gozun submitted to Mercado sample campaign materials. Mercado’s wife told Gozun Mercado already approved the samples and Gozun should start printing the campaign materials. Gozun printed and delivered the campaign materials to Mercado. Afterwards, Lilian, Mercado’s sister-in-law, obtained a loan from Gozun allegedly for the poll-watchers allowance. Later, Gozun demanded payment from Mercado but the latter failed to pay in full. Gozun then filed a case to enforce payment. Issue Was Lilian authorized to obtain a loan from Gozun? Held No. A special power of attorney is necessary for agent to borrow money unless it is urgent and indispensable for the preservation of the things that are under administration. The special power-ofattorney refers to the authorization’s nature and not to its form. A special power-of-attorney doesn’t need to be in writing provided its duly established by evidence. In this case, Gozun’s testimony failed to establish Lilian obtained the loan on Mercado’s behalf. Further, Gozun’s receipt of the loan indicates Lilian received the money but it neither specified what reason the loan was obtained nor in what capacity Lilian received the money. Also, Lilian alone signed the receipt. Feel free to use and share this digest with anyone who needs it 33 Agency for Atty. Cochingyan by Jason Arteche Sazon vs Vasquez-Menancio Facts Respondent Vasquez-Menancio is a resident of the US and she entrusted the management, administration, care and preservation of her properties to Sazon. Vasquez avers the properties are productive and Sazon as administrator collected and received all the fruits and income accruing therefrom. She further alleges Sazon never rendered a full accounting of such fruits and income derived from the properties but instead applied them for her own use and benefit. Consequently, Vasquez revoked Sazon’s authority as administrator and demanded the latter return the possession and administration of the properties. Vasquez also made repeated demands upon Sazon to render and accounting and remit the fruits. Sazon denied all of Vasquez’ allegations forcing Vasquez to file a case before the RTC. Issue Did Sazon fail to render accounting and return the fruits and incomes of the property under her administration? Held Yes. First, Sazon can’t turn over possession of all the properties because some have been leased. Meanwhile, other properties have already been sold to 3rd persons. Both the lease agreements and sales are valid because Sazon was acting within her authority as Vasquez’ agent. However, Sazon can still return administration over the remaining properties including the leased ones. On the accounting issue, the reason behind Sazon’s failure to render accounting is immaterial. What’s important is Sazon failed to fulfill her duty to render accounting of the transactions she entered into as Vasquez’ agent. Sazon’s claims she sent letters to Vasquez to comply with her obligation to render accounting. Such claim is insufficient because Sazon was administrator for 18 years and 4 letters within 18 years can hardly be considered as sufficient to keep Vasquez informed and updated of her properties’ condition. As to the fruits and incomes, the Civil Code states every agent is bound to deliver the principal whatever the former may have received by virtue of the agency, even though the amount may not be owed to the principal. In this case, the evidence shows the properties under Sazon’s administration generated fruits and income but Sazon failed to turn them over. However, there’s insufficient evidence to show how much income the properties actually generated and how much expenses Sazon incurred administering said properties. The Court now orders both parties to present evidence as to: 1. The total income generated by the properties 2. The total expenses Sazon incurred that should be borne by Vasquez as owner of the properties. Feel free to use and share this digest with anyone who needs it 34 Agency for Atty. Cochingyan by Jason Arteche Hernandez vs Hernandez Facts Cornelia Hernandez (petitioner) is a co-owner of a piece of property the DPWH wants to buy. DPWH negotiated with the 3 co-owners but it broke down and DPWH was forced to file an expropriation case. Later, the co-owners executed a letter appointing Cecilio Hernandez (respondent) as their representative and fixing his compensation for such job. The expropriation proceedings continued with the judge appointing Cecilio as one of the commissioners to determine just compensation. Afterwards, the co-owner executed an irrevocable special power of attorney appointing Cecilio as their ‘true and lawful attorney’ with respect to the expropriation of the property. The expropriation proceedings concluded with the co-owners being entitled to P21 million in just compensation. Later, Cornelia revoked Cecilio’s SPA and moved to withdraw her share in the just compensation worth P7 million. The judge granted Cornelia’s motion and released the entire P21 million to Cecilio. Afterwards, Cecilio sent Cornelia a check for P1.1 million accompanied by a Receipt and Quitclaim document. The Quitclaim documents states 1. The check represents Cornelia’s share of the just compensation 2. Cecilio is forever discharged from any action, damages, claims, or demands 3. Cornelia won’t institute any action and pursue her opposition to release of the P21 million to Cecilio. Cornelia accepted the check because she badly needed the money. A few days later, Cornelia got hold of the judge’s decision and found out she was entitled to P7 million and demanded an accounting of the proceeds from Cecilio. Cecilio didn’t reply and so Cornelia filed a case to annul the Quitclaim and recover her share in the just compensation. Issue Is Cecilio entitled to his share of the compensation in the just compensation? Held No. In this case, under the compensation scheme that the co-owners approved, Cecilio would obtain 83% of the just compensation due to Cornelia as co-owner. This is because Cecilio is allowed to obtain the excess of anything beyond P300 per square meter. The judge pegged just compensation at P1500 per square meter, the reason being the property’s value skyrocketed during the proceedings. Cornelia asked for an accounting of the just compensation from Cecilio several times, but the request remained unheeded. Until that point, Cecilio violated the fiduciary relationship of an agent and a principal. Instead of an accounting, Cornelia received a receipt and quitclaim document ready for signing. Cecilio didn’t disclose the truth as to Cornelia’s share in the just compensation and consequently the Quitclaim document is fraudulent. Further, the compensation scheme that the co-owners approved is also vitiated by mistake. Further, Cecilio can’t claim any authority to collect payment from the just compensation based on the SPA the co-owners executed. Because Cecilio was appointed as commissioner and proceeded to perform the duties of a commissioner until he completed his mandate. He created a barrier that preventing him from performing his duties under the SPA. Cecilio couldn’t have been a hearing officer as commissioner and defendant as agent for the co-owners at the same time. Cecilio is entitled only to be compensated for his services as commissioner. Feel free to use and share this digest with anyone who needs it 35 Agency for Atty. Cochingyan by Jason Arteche Escueta vs Lim Facts Respondent Rufina Lim filed an action to quiet title to real property with preliminary injunction and issuance of an HDO against petitioner Rubio. Rufina alleges she bought land from Rubio and heirs of Luz Baloloy. That she made a downpayment as earnest money with an agreement the remaining balance of the purchase price would be paid once the sellers’ turn over the Certificate of Title. However, both Ignacio and the heirs refused to deliver the Certificate of Title even if she was willing to pay. Further, Ignacio made a simulate sale in Escueta’s favor despite the former knowing of the sale to Rufina. For Ignacio, he denies the allegations arguing he never entered into a contract of sale with Rufina. He argues he appointed his daughter, Llamas, as his attorney-in-fact and not Virginia Lim who was the one who represented him in the sale with Rufina. Further, he alleges the downpayment was actually a loan with Rufina. Issue Is the Contract of Sale between Rufina and Ignacio valid? Held Yes. The Civil Code allows an agent to appoint a substitute if the principal hasn’t prohibited him from doing so; but he shall be responsible for the substitute’s acts if he wasn’t given the power to appoint one. In this case, Ignacio executed a special power of attorney in Llamas’ favor who in turn appointed Virginia as her substitute. Llamas was acting within her authority in appointing Virginia but she will be responsible for Virginia’s acts. Among these is Virginia’s sale of the property to Rufina. Further, even if Virginia had no authority to sell the property, the contract she executed was unenforceable and not void pursuant to Art. 1317. Ignacio’s acceptance of part of the purchase price constitutes ratification of the contract of sale. Similarly, the heirs have also ratified the sale in accepting part of the purchase price.2 2 If Virginia had no authority, it would be void and not subject to ratification because in the sale of real property or any interest therein through an agent, the latter’s authority shall be in writing otherwise the sale is void. Feel free to use and share this digest with anyone who needs it 36 Agency for Atty. Cochingyan by Jason Arteche Serona vs CA Facts Quilatan delivered jewelry to Serona to be sold on commission basis. The parties agreed Serona will remit payment or return the unsold jewelry within 30 days from receipt of the item. Serona failed to pay or return the jewelry after 30 days. Quilatan then required Serona to execute an acknowledgement receipt indicating their previous agreement and the amount due. Serona and a witness, Navarette, signed the receipt. Unknown to Quilatan, Serona entrusted the jewelry to Labrador to sell on commission basis. Serona failed to collect from Labrador causing the former to fail to pay her obligation to Quilatan. Quilatan then filed a case for estafa against Serona. Issue Is Serona guilty of estafa? Held No. Missing is the element of misappropriation or conversion of such money or property by the offender or denial on his part of such receipt. Serano didn’t ipso facto commit the crime of estafa by delivering the jewelry to a sub-agent for sale on commission basis. An agent is allowed to appoint a sub-agent in the absence of an express agreement to the contrary between the agent and principal. In this case, Serano was neither expressly prohibited from appointing Labrador as her sub-agent nor passing on the jewelry to a 3rd person. Serano passed along the jewelry to Labrador for the very same purpose she received it. Consequently, there was no conversion because the jewelry wasn’t devoted to a purpose different from that agreed upon. Also, Serano didn’t dispose of the jewelry without right because she was within her rights to appoint a sub-agent and to give the jewelry to the sub-agent for selling. However, Serano is responsible for Labrador’s actions as her sub-agent and consequently is civilly liable to Quilatan for the value of the jewelry. Feel free to use and share this digest with anyone who needs it 37 Agency for Atty. Cochingyan by Jason Arteche Municipal Council of Iloilo vs Evangelista Facts Toco owns a piece of land that the Municipality of Iloilo took to widen a public street. Toco then filed a civil case against the Municipality of Iloilo to recover the value of land. The Iloilo CFI ordered the Municipality to pay Toco P42 thousand. At the hearing for the claims the following persons appeared: Evangelista, Soriano, PNB, and Mauricio Cruz & Co. Evangelista is claiming professional fees for services he rendered in the civil case. Soriano is claiming on the strength of Tiong’s assignment to him of part of Toco’s rights to the judgement in the case, Tiong was Toco’s attorney-in-fact. PNB is claiming the amount of the judgement because the disputed land was actually mortgaged to it. The municipality then paid P6 thousand each to Soriano and Evangelista. The rest of the amount was turned over to PNB. Issue Was Tiong’s assignment of credits, rights, and interests due to Toco in the civil case valid? Held Yes. In this case, Tiong was authorized to employ the services of lawyers upon such conditions as he may deem convenient to take charge of any actions necessary for his principal’s interest, and to defend suits brought against her. This power necessarily implies the authority to pay for the professional services thus engaged. Tiong assignment in Soriano’s favor was payment for professional services rendered in other cases in Toco’s interests, such assignment taken from the judgement amount due in the instant civil case. Concerning the failure of Toco’s other attorney-in-fact, Montano, to consent to the assignment in Soriano’s favor, the same doesn’t affect the assignment. Montano was also authorized to pay, in the principal’s name and behalf, all her debts, claims, and encumbrances on her property. The very fact that different letters of attorney were given to each of them shows it wasn’t the principal’s intention they should act jointly in order to make their acts valid. Further, Toco knew of such assignment but continued employing Soriano to represent her. Consequently, an agent empowered to pay the principal’s debt, and to employ lawyers to defend the latter’s interests, is impliedly empowered to pay the lawyer’s fees for services rendered in the principal’s interests, and may satisfy them by assigning judgement rendered in the principal’s favor. Further, when a person appoints 2 attorneys-in-fact independently, the consent of one won’t be required to validate the others acts unless that appears positively to have been the principal’s intention. Feel free to use and share this digest with anyone who needs it 38 Agency for Atty. Cochingyan by Jason Arteche Smith Bell vs CA Facts Chua bought and imported to the Philippines 50 metric tons of Dicalcium Phospate. These were shipped from Taiwan on board the ship S.S. Golden Wealth bound for Manila. First Insurance Co insured the shipment against all risks at port of departure. Smith Bell was stamped at the lower left side of the policy as ‘Claim Agent.’ The cargo arrived in Manila and the cargo was discharged to the local arrastre operator, Metroport Services Inc. Some of the cargo was in bad condition with some damaged and contents partly empty. Chua then filed before Smith Bell a formal claim for the value of the loss. Smith Bell conveyed the claim to First Insurance Co. but the latter offered only 50% of the claim. Chua didn’t accept the offer and filed a case to enforce payment. Smith Bell denied any liability arguing it’s a mere claim agent of First Insurance Co. and as agent; it isn’t personally liable under the policy. Issue Can a claim agent of a disclosed principal be held solidarily liable with said principal under the principal’s marine cargo insurance policy given the agent isn’t a party to the insurance contract? Held No. An adjustment and settlement agent’s function doesn’t include personal liability. His function is merely to settle and adjust claims in his principal’s behalf if those claims are proven and undisputed. If the principal disapproves the claim, the agent doesn’t assume any personal liability. Further, Smith Bell’s only participation in the contract is limited to having its name stamped at the bottom left portion of the policy as ‘Claim Agent.’ Smith Bell isn’t a real party-in-interest being a mere agent. Also, there’s no proof Smith Bell is First Insurance’s resident agent. Even if there’s proof, a resident agent is tasked only to receive legal processes on its principal’s behalf and not to answer personally for insurance claims. Feel free to use and share this digest with anyone who needs it 39 Agency for Atty. Cochingyan by Jason Arteche Chemphil Export vs CA Facts Dynetics and Antonio Garcia filed a complaint before the RTC against the consortium (a collection of banks) regarding a surety agreement Dynetics and Garcia entered into with the consortium. The complaint seeks to prevent the consortium from enforcing any obligation Dynetics and Garcia may have under the surety agreement. Meanwhile, Dynetics and Garcia also filed a similar complaint before the RTC against Security Bank. The RTC in both cases issued a writ of garnishment against Garcia’s Chemphil shares, but the writ was issued first in the Security Bank case. Later, the consortium and Garcia entered into a compromise agreement with the former agreeing to limit Garcia’s debt to P145 million immediately demandable. Later, Garcia sold his Chemphil shares to Ferro Chemicals with the understanding part of the purchase price will be paid to Security Bank. Ferro Chemicals then assigned the shares to CEIC. Meanwhile, Garcia failed to comply with the Compromise Agreement and so the consortium filed a motion for execution that the RTC granted. Among Garcia’s properties levied upon on execution were his Chemphil shares. The consortium acquired Garcia’s shares at the public auction. The RTC ordered Chemphil to register the shares in the consortium’s name. This caused CEIC to intervene in the case on the grounds it’s the shares’ rightful owner. The trial court then revoked its earlier order transferring the shares to the consortium. Later, the consortium, except for PCIB, assigned all its rights and interest to the shares to Gonzales. The case now centers on who is the shares’ rightful owner; CEIC or PCIB and Gonzales? Issue Was CEIC subrogated to the rights of Security Bank against Garcia and acquired the latter’s attachment to the disputed shares? Held No. CEIC traces its claim over the disputed shares to the attachment claim the RTC issued in Security Bank’s favor against Garcia. It argues that when FCI paid Security Bank the obligations due to Garcia, FCI was subrogated to Security Bank’s rights. In turn, CEIC was subrogated to FCI’s rights by virtue of FCI’s assignment in its favor. Further, Security Bank’s attachment is superior to the consortium’s because it was issued first and duly recorded in Chemphil’s books, unlike the consortium’s. However, the facts show FCI is a mere agent because it paid Security Bank with Garcia’s own money. Payment was to be taken from the purchase price that FCI owed Garcia by virtue of the sale over the Chemphil shares. It’s as if Garcia paid Security Bank himself but through an agent, namely FCI. FCI then can’t be considered a 3rd party payor for purposes of legal subrogation. Further, FCI isn’t a disinterested party as required by legal subrogation because the benefits of the extinguishment would redound to its benefit. Payment would result in Security Bank no longer having any claim to the Chemphil shares; FCI would then have a clean slate to the titles. Consequently, CEIC wasn’t subrogated to Security Bank’s rights against Garcia and didn’t acquire the latter’s attachment over the disputed shares. Feel free to use and share this digest with anyone who needs it 40 Agency for Atty. Cochingyan by Jason Arteche Uy vs CA Facts Petitioners Uy and Roxas are agents authorized to sell 8 parcels of land by the owners thereof. The petitioners then offered to sell the lands to the NHA to be used for a housing project. The NHA agreed to buy the 8 parcels of land. However, NHA only paid for 5 out of 8 parcels of lands because the DENR reported the 3 unpaid lands were at an active landslide area and not suitable for a housing project. The NHA then cancelled the sale over the 3 parcels of land and offered P1 million to the landowners as danos perjuicios. The petitioners then filed before the RTC a complaint for damages against NHA and its general manager. Issue Do petitioners possess the right to seek damages? Held No. Every action must be prosecuted and defended in the name of the real party-in-interest. The real party-in-interest is the party who stands to be benefited or injured by the judgement or the party entitled to the avails of the suit. The party, who by substantive law, has the right sought to be enforced. In this case, petitioners aren’t parties to the contract of sale between the principals and the NHA. They are mere agents and their rendering of service didn’t make them parties to the contracts of sale executed in the principal’s behalf. The real parties-in-interest in an action upon the contract are the parties to the contract. Further, petitioners aren’t assignees to the rights under the contract of sale. The petitioners haven’t established any agreement granting them ‘the right to receive payment and out of the proceeds to reimburse themselves for advances and commissions before turning the balance over to the principals.’ Otherwise, the agents could’ve brought an action on the contract as assignee of such contract. Also, there’s no stipulation pour autrui benefitting petitioners. Consequently, petitioners aren’t real parties-in-interest. Feel free to use and share this digest with anyone who needs it 41 Agency for Atty. Cochingyan by Jason Arteche Angeles vs PNR Facts PNR informed Romualdez that it has accepted the latter’s offer to buy on an ‘As is, Where is’ basis the PNR’s scrap rails located in Del Carmen and Lubao respectively for a total amount of P96 thousand. Romualdez then addressed a letter authorizing Angeles to withdraw the scrap rails to PNR’s acting purchasing agent. Later, Angeles requested PNR to transfer the location of withdrawal because the scrap rails located in the original areas weren’t ready for hauling. The PNR granted the request and chose another location. However, the PNR subsequently suspended the withdrawal because of documentary discrepancies coupled by pilferages in the new locations. Consequently, Angeles demanded a refund in the amount of P96 thousand but PNR refused to pay alleging the Angeles already withdrew scrap rails worth P114 thousand. Angeles then filed suit against PNR for specific performance and damages. Issue Did the letter Romualdez sent to PNR designate Angeles as mere agent or as assignee of Romualdez’s interest in the scrap rails? Held Agent. Normally, an agent has neither rights nor liabilities against 3rd parties to a contract because only the parties to the contract may violate a contract; the real party-in-interest is generally a contracting party. However, the legal situation is different where an agent is constituted as an assignee. In such case, the agent may in his own behalf sue on a contract made for his principal as an assignee of such contract. A person who has a right assigned to him is a real party-in-interest and can maintain an action upon such right. In this case, Angeles was constituted as a mere agent and not assignee. The mere fact the letter doesn’t contain the words ‘agent’ or ‘attorney-in’fact’ doesn’t matter because other terms are used to designate the parties in an agency, such as representative. Further, the letter used the verb ‘authorized’ indicating Romualdez’ intention to limit Angeles’ role as agent. Also, the letter’s 2nd paragraph was qualified by the phrase ‘For this reason’ which reinforces the idea that Angeles is a mere agent. Further, Angles own actions after the letter was sent confirm the agency. She referred to herself as an authorized representative and signed receipts indicating she was doing so in a representative capacity. Consequently, the letter is a power of attorney that merely authorized Angeles to withdraw the scrap rails and didn’t allow her to sue in her own name in the contract. Excerpt from the letter: “This is to inform you as President of San Juanico Enterprises, that I have authorized the bearer, LIZETTE R. WIJANCO of No. 1606 Aragon St., Sta. Cruz, Manila, to be my lawful representative in the withdrawal of the scrap/unserviceable rails awarded to me. For this reason, I have given her the ORIGINAL COPY of the AWARD, dated May 5, 1980 and O.R. No. 8706855 dated May 20, 1980 which will indicate my waiver of rights, interests and participation in favor of LIZETTE R. WIJANCO.” Feel free to use and share this digest with anyone who needs it 42 Agency for Atty. Cochingyan by Jason Arteche National Power Corporation vs NAMARCO Facts NPC and NAMARCO, as representative of International Commodities Corp (IC), based in New York, executed in Manila a contract with NPC purchasing from IC sulfur for a total price of P450 thousand. Domestic Insurance executed a performance bond worth P90 thousand in NPC’s favor to guarantee IC’s obligation. NPC paid way of opening a letter of credit and duly informed NAMARCo of such act. IC however wasn’t able to deliver the sulfur because there was no available ship causing NPC to shut down its fertilizer plant. NPC rescinded the sale and filed suit against IC, NAMARCO, and Domestic Insurance to recover stipulated damages worth P360 thousand. Issue Is NAMARCO liable for damages? Held Yes. In this case, NPC’s invitation to bid clearly stipulated that nonavailability of a steamer to transport sulfur isn’t a ground for non-payment of liquidated damages in case of the seller’s non-performance. NAMARCO’s bid is even more explicit because it guaranteed the availability of a steamer to ship the sulfur. True, IC notified NAMARCO the sale was subject to a steamer’s availability buy the latter didn’t disclose such information to NPC and, contrary to the principal’s instructions, agreed that nonavailability of a steamer wouldn’t be an justification for non-payment of damages. NAMARCO was even aware IC was having trouble booking a steamer, and yet continued with the contract. Consequently, NAMARCO acted beyond the scope of its authority by violating IC’s explicit instructions namely the sale being subject to a steamer’s availability. In effect, NAMARCO was acting in its own name and could be held liable as such. Further, NAMARCO is liable for damages because the agent who exceeds the scope of his authority without giving the party he contracts with sufficient notice of his powers is personally liable to such party. The rule that a person dealing with an agent must inquire into the scope of the latter’s authority if the principal is to be held liable doesn’t apply in this case. Here, it’s the agent to be held liable and such stipulation for damages is being enforced against the agent. Feel free to use and share this digest with anyone who needs it 43 Agency for Atty. Cochingyan by Jason Arteche BA Finance vs CA Facts Gebbs International applied for and was granted a loan from respondent Traders Royal Bank in the amount of P60 thousand. As security, Gaytano became a surety promising to pay jointly and severally to Traders Royal Bank the loan. BA Finance’s credit administrator, Wong, sent a letter to Traders Royal Bank binding BA Finance as guarantor to the loan. Later, Gaytano failed to pay the loan causing Traders Royal Bank to filed a case to recover the loan against Gaytano and BA Finance. BA Finance argues its credit administrator had no authority to bind it as guarantor. Issue Is BA Finance liable as guarantor? Held No. A person dealing with an agent is bound at his peril, if they would hold the principal liable, to ascertain not only the fact of agency but also the agent’s authority. The burden of proof is on the person claiming an agency exists and the agent acted within his authority. In this case, Traders Royal only presented Wong to prove the agency that in turn testified that he acted within his authority based on a memorandum BA Finance gave to him on his lending authority. Granting Wong was authorized to approve loans up to P350 thousand without any security requirement, nothing in the memorandum authorizes Wong to issue guarantees. The word ‘contingent commitment’ in the memorandum can’t be held to mean guarantees. A power of attorney shouldn’t be inferred from vague or general words. Guaranty isn’t presumed; it must be express and can’t extend beyond its specified limits. Wong sole testimony he acted within his authority in the absence of other proof shouldn’t be given weight. More likely, Wong is testifying to save himself from personal liability for damages to Traders Royal considering he exceeded his authority. An agent who exceeds his authority is personally liable for damages. Feel free to use and share this digest with anyone who needs it 44 Agency for Atty. Cochingyan by Jason Arteche DBP vs CA Facts Respondent Dans applied for a P500 thousand loan with DBP. DBP advised Dans, then 76 years old, to obtain a mortgage redemption insurance with the DBP MRI pool. Later, DBP approved a P300 thousand loan in Dans’ favor from which it deducted P1.5 thousand as insurance premium. Dans accomplished the ‘MRI application for Insurance’ and ‘Health Statement for DBP MRI pool.’ Later, DBP credited the DBP MRI pool with Dans’ MRI premium. Dans then died of cardiac arrest and DBP notified the DBP MRI pool. The DBP MRI pool then informed DBP that Dans wasn’t eligible for MRI coverage because he was over the accepted age limit of 60 when he applied. DBP then apprised Dans’ family of Dans’ disapproved MRI application. DBP offered to pay back the P1.5 thousand premium plus P30 thousand as ex gratia settlement. Dans’ family refused DBP’s offer demanding the MRI’s face value or an amount equivalent to the loan. Later, Dan’s family filed a case before the RTC to collect the amount demanded. Issue Is DBP liable to the Dans’ family? Held Yes, An agent isn’t personally liable to the party with whom he contracts unless he expressly binds himself or exceeds the limit of his authority without giving such party sufficient notice of his powers. An agent’s liability who exceeds the scope of his authority depends if the 3rd person is aware of the limits of the agent’s powers. In dealing with Dans, DBP was acting both as lender and as insurance agent. DBP compelled Dans to secure a DBP MRI pool coverage instead of allowing Dans to look for his own insurer. DBP released the loan deducting already the MRI premium and 4 days later made Dans complete an MRI application form as well as a health statement. The DBP then submitted both forms to the DBP MRI pool. DBP made Dans believe he had already fulfilled all the requirements for an MRI and the insurance policy was forthcoming. Further, DBP had full knowledge Dans’ application would be denied because they knew of the age limit and Dans’ age. DBP isn’t authorized to accept MRI applications when the application is over 60. Consequently, DBP exceeded the scope of its authority in accepting Dans’ MRI application. Also, there’s no showing Dans’ knew of the limitation on DBP’s authority to accept MRI applications. DBP is liable to Dans for damages in making the latter believe the former had authority to accept his MRI application. Feel free to use and share this digest with anyone who needs it 45 Agency for Atty. Cochingyan by Jason Arteche Eugenio vs CA Facts Eugenio was a dealer of soft drink products of respondent Pepsi-Cola corp. She had a regular charge account in both the Quezon City plant and Muntinlupa plant. Meanwhile, her husband and copetitioner used to be a route manager of Pepsi-Cola corp. in the Quezon City plant. Later, Pepsi-Cola filed a complaint for a sum of money against Eugenio and her husband for various products and ‘empties’ totaling P96 thousand because they failed to pay despite repeated demands. In their defense, the petitioners presented 4 trade provisional receipts (TPR) allegedly issued to them from Pepsi-Cola’s route manager Estrada showing payments totaling P80.5 thousand. The TPR’s should’ve been credited in their favor. However, Estrada denied issuing the TPRs’. Issue Should the amounts in the TPRs’ be credited in Eugenio’s favor? Held Yes. Payment shall be made to the person in whose favor the obligation has been constituted, or his successor-in-interest or any person authorized to receive it. As far as third persons are concerned, an act is deemed to have been performed within the scope of the agent's authority, if such is within the terms of the power of attorney, as written, even if the agent has in fact exceeded the limits of his authority according to an understanding between the principal and his agent. In this case, Pepsi-Cola failed to prove that Estrada, its duly authorized agent with respect to Eugenio, didn’t receive the amounts reflected in the TPRs’ from Eugenio. So long as Pepsi-Cola’s customers are concerned, for as long as they pay their obligations to Pepsi-Cola’s sales representative using the official receipt, said payment extinguishes their obligations. Pepsi-Cola itself admitted it’s the collector’s, in this case Estrada, responsibility to turn over the collection. Simply put, Eugenio paid the right person, Pepsi-Cola’s agent, and if Pepsi-Cola received the payment is no longer Eugenio’s problem. Payment should be credited. Feel free to use and share this digest with anyone who needs it 46 Agency for Atty. Cochingyan by Jason Arteche Toyota Shaw vs CA Facts Respondent Sosa and his son, Gilbert, went to Toyota Shaw to purchase a car. They met Bernardo, Toyota’s sales representative, who talked to them. Sosa emphasized that he needed the car not later than 17 June 1989. Bernardo assured Sosa the car would be ready by the assigned date. The parties signed an ‘Agreement’ stipulating: 1. Sosa will make a downpayment of P100 thousand and 2. The car will be delivered on 17 June 1989. The rest of the balance will be paid by credit financing through BA Finance. On the assigned date, Bernardo told Sosa the car can’t be delivered. Toyota denied the sale because Sosa’s credit finance application in BA Finance was denied and required Sosa to pay the full purchase price in cash. Sosa refused and demanded a refund that Toyota granted, with Sosa reserving his right to damages. Later, Sosa made repeated demands against Toyota for a sum of money for damages but the latter refused. Issue Did Bernardo have authority to bind Toyota Shaw? Held No. A person dealing with an agent is put upon inquiry and must discover upon his peril the agent’s authority. In this case, the ‘Agreement’ explicitly states ‘Agreements between Mr. Sosa & Popong Bernardo of Toyota Shaw, Inc.’ Sosa knew he wasn’t dealing with Toyota but with Bernardo, who was merely Toyota’s sales representative and hence agent. Sosa should’ve acted with ordinary prudence and reasonable diligence to know the extent of Bernardo’s authority as Toyota’s agent in selling cars. Normal business practice doesn’t warrant a sales representative to have power to enter into a valid and binding contract of sale for the company. Consequently, Bernardo had no authority to enter into a contract of sale in Toyota’s behalf. Feel free to use and share this digest with anyone who needs it 47 Agency for Atty. Cochingyan by Jason Arteche Bacaltos Coal Mines vs CA Facts Bacaltos Coal Mines duly authorized Savellon, under an ‘Authorization’ to: “Use the coal operating contract of Bacaltos Coal Mines...for any legitimate purpose that it may serve. Namely, but not by way of limitation, as follows: 1. To acquire purchase orders for an in behalf of Bacaltos Coal Mines 2. To engage in trading under the style of Bacaltos Coal Mines 3. To collect all receivables due or in arrears from people or companies having dealings under Bacaltos Coal Mines 4. To extend to any person or company by substitution the same extent of authority that’s granted to Savellon In connection with the preceding paragraphs to execute and sign documents, contracts, and other pertinent papers. ...full authority to do and perform all and every lawful act requisite or necessary to carry into effect the foregoing stipulations... » Pursuant to such Authorization, Savellon executed a ‘Trip Charter Party’ between Bacaltos Coal Mines, represented by its COO Savellon, and respondent San Miguel Corp. Thereunder, Savellon claims Bacaltos Coal Mines owns the vessel M/V Premship II and for P650 thousand it ‘lets, demises’ the vessel to San Miguel for 3 round trips to Davao. The vessel was able to make only 1 trip and San Miguel’s demands for Bacaltos Coal Mines to comply with the contract went unheeded. San Miguel then filed suit against Bacaltos Coal Mines and Savellon. Issue Did Bacaltos Coal Mines authorize Savellon to enter into the ‘Trip Charter Party’ under the Authorization? Held No. Every person dealing with an agent is put upon inquiry and discover upon his peril the agent’s authority. If he doesn’t make such inquiry, he’s chargeable with knowledge of the agent’s authority, and his ignorance of that authority won’t be any excuse. In this case, Savellon’s agency is based on a written document, the Authorization. The Authorization grants Savellon only 1 express power, namely ‘to use the coal operating contract for any legitimate purpose it may serve.’ All other powers contained within the Authorization are subsumed under this express power. Further, such Authorization is a special power of attorney because it refers to a clear mandate specifically authorizing the performance of a specific power and express acts subsumed therein. If San Miguel had only exercised due diligence and prudence, it should’ve know in no time there’s absolutely nothing on the Authorization that confers Savellon with authority to enter into any ‘Trip Charter Party.’ San Miguel should’ve required Savellon to present the coal-operating contract to determine what it is and how Savellon may use it. Such determination is necessary to know the scope of Savellon’s authority and what activities are related to the power to use it. Also, San Miguel’s negligence is compounded by its failure to verify if Bacaltos Coal Mines even owned a vessel. San Miguel satisfied itself with Savellon’s claim Bacaltos Coal Mines owned the vessel to be used. This happened considering Bacaltos Coal Mines is a coal mining business, not a shipping business, which should’ve put San Miguel on guard. Consequently, San Miguel was negligent in failing to inquire into Savellon’s authority and must suffer for any loss incurred. Feel free to use and share this digest with anyone who needs it 48 Agency for Atty. Cochingyan by Jason Arteche Yu Eng Cho vs PANAM Facts Cho purchased plane tickets from defendant Tagunicar who represented herself as defendant Tourist World Services’ (TWSI) agent. The destinations are Hong Kong, Tokyo, then San Francisco USA. The trip’s purpose is for Cho to buy equipment for its business from the USA. Tagunicar told Cho his flight was confirmed all the way to the US. When Cho reached Tokyo, he discovered his name wasn’t in the manifest and he was constrained to reroute to Taipei instead. In Taipei, he could find no flight going to the US and he was forced to go back to Manila. It turned out Tagunicar was never able to confirm the flight from Tokyo to San Francisco. She attached validation stickers on the ticket but she did so without authority and knowing the flight wasn’t confirmed yet. Due to Cho’s failure to get to the US, the US Company selling the equipment cancelled the sale costing Cho profits. Cho then filed suit against Tagunicar as TWSI’s agent, TWSI as Pan Am’s agent, and Pan Am itself. Issue Was Tagunicar an agent of TWSI? Held No. A person dealing with an assumed agent is bound at his peril, if he would hold the principal liable, to ascertain not only the fact of agency but also the nature and extent of authority. In case agency is denied, the burden is upon the person to establish it. In this case, Cho relied on as evidence Tagunicar’s affidavit that she’s TWSI’s agent. However, such affidavit has weak probative value. First, Tagunicar herself contradicted the affidavit in her testimony in open court when she stated she was in fact an independent travel agent. Second, Cho’s lawyer prepared the affidavit making it doubtful she executed it voluntarily. More likely, Cho and his lawyer prevailed upon Tagunicar to state in the affidavit she’s TWSI’s agent. Further, Tagunicar doesn’t receive commission from TWSI because she simply buys tickets from TWSI and sells them at a premium, a simple contract of sale. Consequently, Cho failed to establish an agency between TWSI and Pan Am in simply relying on his bare allegations. Tagunicar isn’t TWSI’s agent and neither is TWSI an agent of Pan Am. Feel free to use and share this digest with anyone who needs it 49 Agency for Atty. Cochingyan by Jason Arteche Manila Memorial Park Cemetery Inc. vs Linsangan Facts Baluyot offered to sell to Atty. Linsangan a lot called Garden State that Manila Cemetery owns for P95 thousand. Baluyot told Linsangan a 3rd person was no longer interest in acquiring Garden State and opted to sell his rights subject to reimbursement of the amount he already paid. Once reimbursement was made, the 3rd person would transfer the contract to Linsangan. Linsangan agreed and made the corresponding payments. After making the payments, Baluyot delivered the new contract to Linsangan but the latter protested because the new contract had a price of P132 thousand. Linsangan signed the new contract only when Baluyot executed a document stipulating Linsangan will only pay P95 thousand. Later, Baluyot informed Linsangan the new contract was cancelled and presented another proposal to purchase an equivalent property. Linsangan refused the new proposal and insisted Baluyot and Manila Cemetery honor the undertaking. Linsangan then filed suit to compel Baluyot and Manila Cemetery to honor the agreement. It turns out, the contract was cancelled because as to Manila Cemetery the purchase price was still P132 thousand, with Baluyot secretly undertaking to pay the difference. However, Baluyot failed to pay and because of insufficient payment, Manila Cemetery cancelled the contract. Issue Was Baluyot Manila Cemetery’s agent? Did the contract Baluyot enter into bind Manila Cemetery? Held Agent: Yes || Bind: No Under the Agency Manager Agreement, an agency manager, such as Baluyot, is considered an independent contractor and not an agent. However, the same contract also states Baluyot is authorized to solicit and remit to Manila Cemetery offers to purchase interment spaces belonging to and sold by the latter. Consequently, Baluyot is an agent because she was authorized to solicit solely for and in behalf of Manila Cemetery. However, Manila Cemetery isn’t bound by the contract because Baluyot’s authority was limited to soliciting and remitting to Manila Cemetery offers to purchase interment spaces obtained on forms Manila Cemetery provided. She had no authority to alter the terms of the written contract Manila Cemetery provided, as in this case when the price was reduced from P132 thousand to P95 thousand. The document ‘confirming’ the Baluyot’s private agreement with Linsangan can’t bind Manila Cemetery. Further, Linsangan never even bothered to inquire if Baluyot was authorized to agree to terms contrary to those indicated in the written contract, much less bind Manila Cemetery with her commitment to such agreements. Linsangan didn’t even inquire from Manila Cemetery the contract’s real status. He should’ve been put on guard when the written contract didn’t reflect the real agreement. Being a lawyer, Linsangan should’ve been more circumspect and cautious in dealing with Baluyot. Also, Manila Cemetery never ratified the contract. Manila Cemetery never had knowledge of Baluyot’s private arrangement with Linsangan. As far as it was concerned, the price was still P132 thousand. If Manila Cemetery was aware of such agreement, it would have refused Linsangan’s check payment for being insufficient. It didn’t perform any action to make Linsangan believe Baluyot had authority to alter the terms of its standard contracts. It wasn’t also Manila Cemetery’s usual practice or habit to allow agents to alter the written contract’s terms. Consequently, Linsangan can’t enforce the P95 purchase price against Manila Cemetery and he can’t even go after Baluyot in his capacity as agent because Baluyot didn’t undertake to secure the Feel free to use and share this digest with anyone who needs it 50 Agency for Atty. Cochingyan by Jason Arteche principal’s ratification. Baluyot is liable for damages but is mitigated because Linsangan himself was negligent. Feel free to use and share this digest with anyone who needs it 51 Agency for Atty. Cochingyan by Jason Arteche Green Valley vs IAC Facts Squibb & Sons Corp. and Green Valley entered into a latter agreement with the former appointing the latter as a non-exclusive distributor for Squibb veterinary products. Green Valley is obligated to return payment for purchases of Squibb products to Squibb. For goods delivered to Green Valley but unpaid, Squibb filed suit to collect. Issue Was the contract a mere agency to sell? Or a sale? Held Doesn’t matter. In this case, there’s no need to categorize the contract. Whether viewed as an agency to sell or as a contract of sale, Green Valley’s liability is clear. Treating the contract as one of agency to sell, Green Valley is liable because it sold on credit without the principal’s authority. Art. 1905 applies to this case. Feel free to use and share this digest with anyone who needs it 52 Agency for Atty. Cochingyan by Jason Arteche Panlilio vs Citibank, N.A. Facts Panlilio deposited P1 million in Citibank’s ‘Cithi’ account, a fixed-term savings account with a higher than average interest. She also opened a checking account where interest from the ‘Cithi’ account would go. Lee, Citibank’s employee, personally transacted with Panlilio to handle the accounts. Later, Panlilio called Citibank wanting to invest an addition P3 million where she talked with Lee. Panlilio brought the money to Citibank where P2 million was invested in a ‘Long-Term Commercial Paper’ or LTCP while the rest into Peso Repriceable Promissory Note or PRPN accounts. A day after the investment, Amalia signed a Directional Investment Management Agreement (DIMA, Term Investment Application (TIA), and Directional Letter/Specific Instructions. These documents essentially clear Citibank of any obligation to guarantee the principal and interest of the investment, absent fraud or negligence on the latter’s part. Further, the investor assumes all risks. The investment instruction is where the differing allegations lie. Lee claims she was instructed to deposit in LTCP the P2 million while the rest in PRPN accounts. Panlilio however claims she wanted the entire amount invested in PRPN and demanded the investment in the LTCP withdrawn. Citibank informed Panlilio the investment could only be withdrawn if there’s a willing buyer and even then it would be lower than her original investment. Amelia made repeated demands to no avail causing her to file suit to recover her investment. Issue Can Panlilio withdraw the investment? Held No. In this case, the DIMA, Directional Letter, TIA, and Certificate of Investments, read together, establish the agreement between the parties as an investment management agreement, which created a principal-agent relationship between Panlilio and Citibank as agent for investment purposes. The agreement isn’t a trust or ordinary bank deposit. Hence, no trustor-trustee-beneficiary or even borrower-lender relationship existed here with respect to DIMA. Citibank purchased the LTCP only as Panlilio’s agent, thus Panlilio assumed all the obligations or inherent risks entailed by the transaction under the Civil Code Art. 1910. Being the principal, Panlilio is obliged to observe the solemnity of the transaction Citibank entered into on her behalf, absent proof Citibank acted beyond its authority. Feel free to use and share this digest with anyone who needs it 53 Agency for Atty. Cochingyan by Jason Arteche Air France vs CA Facts Respondent Gana and his family purchased from Air France through Imperial Travels, a duly authorized travel agent, air tickers for the Manila/Osaka/Tokyo/Manila route. The tickets were valid until 8 May 1971 and weren’t valid anymore after said date. The Ganas’ booked a flight on 8 May 1970 but didn’t depart on said date. Later, Gana sought to extend the validity of the tickets with help from Teresita and Ella, Ella being manager of the Philippine Travel Bureau. However, both of them discovered it’s impossible to extend the validity without paying more. The Gana’s still booked their flight on 7 May 1971 but Ella warned Teresita the tickets could be used to leave Manila but would no longer be valid for the rest of the flight. Teresita assured Ella the Ganas’ would make arrangements and on this assurance Ella, on his own, attached to the tickets validating stickers for the Osaka/Tokyo flight. Despite the warning, the Ganas’ still left on 7 May 1971 and were forced to purchase new tickets for the Osaka/Tokyo flight and the return trip. Gana then filed suit against Air France. Issue Is Air France liable to Gana? Held No. In this case, the Gana can’t claim ignorance to the non-extension of the tickets because the evidence shows Ella informed Teresita the tickets can’t be extended without making additional payments. Here, Teresita was Gana’s agent and notice to her of the rejection of the request’s extension of the tickets’ validity is notice to Gana as well. Further, there was no implied ratification when Air France personnel at the ticket counter allowed the Ganas’ to leave on 7 May 1971. At the time, the tickets were still valid. The Ganas’ brought this predicament upon them and consequently can’t hold Air France liable for validly refusing the tickets past 8 May 1971. Feel free to use and share this digest with anyone who needs it 54 Agency for Atty. Cochingyan by Jason Arteche Cuison vs CA Facts Cuison is engaged in the purchase and sale of newsprint, bond paper, and scrap. During a certain period, respondent Valiant Investment delivered various kinds of paper products amounting to P297 thousand to Tan of LT Trading. Valiant Investment made the deliveries pursuant to orders Tiac, Cuison’s employee, gave. Tiac paid Valiant Investment with checks as payment for the paper products but said checks were dishonored. Valiant Investment then made several demands to Cuison to pay the delivered paper products. Cuison refused claiming no involvement in Tiac’s transaction. Valiant Investment then filed suit to recover the P297 thousand. Issue Did Cuison authorize Tian to execute the disputed transaction? Held Yes. A person who clothes another with apparent authority as his agent and holds him out to the public as such can’t be permitted to deny such person’s authority to act as his agent, to the prejudice of innocent 3rd parties dealing with such person in good faith and in honest belief that he’s what he appears to be. In this case, Cuison held out Tiac to the public as his store manager. More particuarly, Cuison explicitly introduced Tiac to Villanueva, Valiant Investment’s manager, as his branch manager. Further, Tan also testified she knew Tiac to be Cuison’s manager. This general perception is made more manifest by the fact Tiac is known as Cuison’s godbrother and the close relationship between the two. Consequently, there was no reason for anybody, especially those transacting business with Cuison, to doubt Tiac’s authority as Cuison’s store manager. Cuison is now estopped from disclaiming liability for the transaction Tiac entered into on his behalf. Feel free to use and share this digest with anyone who needs it 55 Agency for Atty. Cochingyan by Jason Arteche Pleasantville Dev. vs CA Facts Pleasantville sold Lot 9 to Robillo who in turn sold it to respondent Jardinico which at the time, Lot 9 was vacant. Jardinico then secured a TCT over Lot 9 when he later discovered Kee already introduced improvements to Lot 9 and possessed it. It appears Kee bought Lot 8 from Torres Enterprises, Pleasantville’s exclusive real estate agent. Unfortunately, Torres Enterprises mistakenly pointed Lot 9 to Kee instead of Lot 8. Jardinico then confronted Kee but the parties couldn’t reach an amicable settlement. Jardinico demanded Kee remove all improvement on Lot 9 and vacate the same but Kee refused to do so. Jardinico then filed a complaint for ejectment with damages against Kee before the MTC. Kee then filed a 3rd party complaint against Pleasantville and Torres Enterprises. Issue Is Pleasantville liable for Torres Enterprises’ delivering the wrong lot to Kee? Held Yes. The rule is the principle is responsible for the agent’s act done within the scope of his authority, and should bear the damage causes to 3rd persons. On the other hand, the agent who exceeds his authority is personally liable for the damage. In this case, Torres Enterprises was acting within its authority as Pleasantville’s sole real estate agent when it delivered Lot 9 to Kee. However, Torres Enterprises was negligent and this negligence is the basis of Pleasantville’s liability, as the principal. Further, despite the fact Jardinico sold Lot 9 to Kee pending the case’s resolution, Pleasantville is still liable because its liability is grounded on its agent’s negligence. Feel free to use and share this digest with anyone who needs it 56 Agency for Atty. Cochingyan by Jason Arteche Rural Bank of Milaor vs Ocfemia Facts Ocfemia and co-respondents mortgaged 7 parcels of land to Rural Bank of Milaor. However, they failed to redeem the mortgaged lands and so Rural Bank foreclosed the mortgage and ownership was transferred to Rural Bank. Later, Rural Bank sold 5 out of the 7 lands back to respondents evidenced by a deed of sale. However, the 5 lands weren’t transferred in the respondents’ name because the deed of sale needed to be registered in the Register of Deeds. In turn, the Register of Deeds required a Rural Bank board resolution. Respondents then notified Rural Bank of said requirement and presented the pertinent documents to it. Rural Bank however refused on the ground it had not record of the sale. Stubbornly, Rural Bank refused to provide the necessary board resolution despite numerous demands and documentary proof from respondents. Issue Was Tena, the Rural Bank manager who executed the deed of sale with respondents, valid? Held Yes. A corporation who knowingly permits its officer or any other agent to act within the scope of an apparent authority, it holds the agent out to the public as possessing the power to do those acts; thus, the corporation will, as against anyone who has in good faith dealt with it though such agent, be estopped from denying the agent’s authority. In this case, the deed of sale shows Bank Manager Tena entered into the transaction with respondents. Rural Bank however failed to specifically deny under oath the deed of sale, and consequently admitted the contract’s due execution. Such admission meant it acknowledges Tena’s authority to sign the deed of sale on its behalf. Further, after the deed of sale was executed, respondents occupied the 5 properties and paid real estate taxes thereon. If Rural Bank truly believed it had title to the 5 properties it would have done something to prevent the respondents from possessing the lands. Rural Bank even failed to present evidence controverting Tena’s authority to transact with respondents. Also, Tena had previously transacted business on Rural Bank’s behalf, and the latter acknowledged her authority. A bank is liable to innocent 3rd persons where an agent like Tena makes representation in the course of its normal business, even though such agent is abusing her authority. Clearly, persons dealing with her couldn’t be blamed for believing she was authorized to transact business on Rural Bank’s behalf. Consequently, Rural Bank is estopped from questioning Tena’s authority as Bank Manager, to enter into the contract of sale. It’s under a legal duty to provide the necessary board resolution. Feel free to use and share this digest with anyone who needs it 57 Agency for Atty. Cochingyan by Jason Arteche Filipinas Life Assurance Co. vs Pedroso Facts Pedroso is a policyholder of a 20-year endowment life insurance Filipinas Life issued. Valle is Pedroso’s insurance agent and the former collect the latter’s monthly premiums. Later, Valle introduced Pedroso to Filipinas Life’s promotional investment program for policyholders. Pedroso invested in such program and in return Valle issued Pedroso his personal check representing the interest and a Filipinas Life ‘Agent’s receipt.’ Pedroso called Filipinas Life and talked to Alcantara, the administrative assistant, and Apetrior, the bank manager, who both confirmed the promotion. Relying on Apetrior and Alcantara’s representations, and the fact she knew Valle for a long time, Pedroso waited for her initial investment to mature. Later, her initial investment was returned and thereafter she made more investments in the promotion. Afterwards, Pedroso informed respondent Palacio, a fellow policyholder, about the promotion and the latter also invested. Both investments were made through Valle. However, when Pedroso and Palacio tried to withdraw their investments, Valle refused to return all of it and Filipinas Life refused to return the money. Issue Is Filipinas Life liable to respondents? Held Yes. A person dealing with an agent is put upon inquiry and must discover at his own peril the agent’s authority; unless the person exercises due diligence. Further, the principal isn’t liable for the agent who exceeded his authority. However, the principal is solidarily liable with the agent if the former allowed the latter to act as though he had full powers; In other words, the principal ratifies the agent’s acts, expressly or impliedly. Innocent 3rd persons shouldn’t be prejudiced if the principal failed to prevent misrepresentation, more so if the the principal ratified the agent’s act beyond the latter’s authority. In this case, Valle’s authority to solicit and remit investments is undisputed. Further, the respondents exercised due diligence in confirming Valle’s authority when they called Alcantara and Apetrior to confirm Valle’s authority. Here, Filipinas Life, as principal, is liable for obligations Valle, its agent, contracted. It can’t allege ignorance of Valle’s acts because it, through Alcantara and Apetrior, expressly and knowingly ratified Valle’s acts. Consequently, Filipinas Life clothed Valle with apparent authority and is now estopped to deny said authority. Feel free to use and share this digest with anyone who needs it 58 Agency for Atty. Cochingyan by Jason Arteche Professional Services Inc. vs CA Facts Agana went to Medical City because of pain in her anal region. Dr. Ampil diagnosed her with cancer and recommended surgery. Dr. Ampil then, with assistance from Medical City staff, performed surgery. During surgery, a hysterectomy operation was required. Dr. Fuentes performed the hysterectomy after which Ampil took over and finished surgery. After a few days Agana experienced excruciating pain in her anal region. She consulted Ampil and Fuentes but both of them assured her that was a natural consequence of surgery. Both doctors advised her to seek further treatment to completely remove the cancer. Agana then went to the US to completely remove the cancer. Later, Agana returned to the Philippines still experiencing pain when it was discovered she had a gauze protruding from her vagina. Agana then went to Polymedic General where Dr. Gutierrez discovered more gauzes in her vagina. Another surgery was performed to remove the gauzes. Agana then filed suit before the RTC against PSI (Medical City's owner), Ampil, and Fuentes. Issue Is Medical City liable for Dr. Ampil's negligence? Held Yes. Under the doctrine of apparent authority, the question in every case is if the principal has by his voluntary act placed the agent in such a situation that a person of ordinary prudence, conversant with business usages and the nature of the particular business, is justified in presuming that such agent has authority to perform the particular act in question. The doctrine of apparent authority applies in this case because Medical City made it appear to the public that Dr. Ampil was a member of its hospital staff. There's no need for it to make an express representation to the patient that the treating physician is a hospital employee, such representation may be general and implied. Simply displaying his name in the lobby's public directory is enough. Consequently, Medical City is vicariously liable for Ampil's negligence under the doctrine of apparent authority. Feel free to use and share this digest with anyone who needs it 59 Agency for Atty. Cochingyan by Jason Arteche Professional Services Inc. vs CA Facts See above Issue See above Held Yes. In this case, there's evidence Medical City held out Dr. Ampil to Agana as its agent. The 2 factors determining apparent authority are present namely 1. Hospital manifestation 2. Patient’s reliance. Hospital manifestation refers to the hospital’s conduct that led the patient to conclude the physician was the hospital’s agent. Meanwhile, patient’s reliance refers to such reliance upon the hospital and doctor’s conduct consistent with ordinary care and prudence. Agana chose Medical City on the impression Dr. Ampil was a staff member of said hospital and it was known and prominent. Further, Medical City required Agana to sign hospital documents that reinforced the idea Ampil was a physician of its hospital. Such document included the ‘Consent for hospital case’ that stipulated 'as may be deemed necessary or advisable by the hospital's physicians'. Consequently, Medical City is still liable under the doctrine of ostensible agency for Dr. Ampil’s negligence. Feel free to use and share this digest with anyone who needs it 60 Agency for Atty. Cochingyan by Jason Arteche Sargasso Construction & Dev. Corp. vs Philippine Ports Authority Facts The PPA awarded Sargasso Construction with a contract after a public bidding the former conducted. Beside the construction site was an area intended for a reclamation project. Sargasso offered to perform the reclamation for P36 million. PPA replied with a counter-offer to lower the price to P30 million and the additional condition such award was still subject to approval of higher authority. Later, PPA General Manager Dayan sent Sargasso a ‘Notice of Award’ for the reclamation project worth P30 million. Meanwhile PPA General Manager Agustin presented to the PPA Board of Directors the proposal for the reclamation project. The Board denied the proposal and PPA didn’t formally advise Sargasso Construction of the Board’s action. Sargasso Construction then filed suit for specific performance and damages against PPA before the RTC. Issue Did the General Manager bind PPA to the contract? Held No. In contracts negotiated by GOCC’s, the law requires the governing board’s approval and such contracts are perfected only upon approval by competent authority. Under the pertinent law, unless the PPA Board validly authorizes its general manager, the latter can’t bind PPA to a contract. Here, Sargasso Construction failed to present any evidence to prove PPA’s general manager possessed the necessary authority to bind PPA to the contract. Further, the doctrine of apparent authority has no application to this case. In terms of government contracts, this doctrine has been restated to mean the government isn’t bound by its agent’s unauthorized acts, even though within the apparent scope of their authority. While under the law on agency, ‘apparent authority’ is defined as the power to affect the principal’s legal relations with a 3rd person because of the principal’s manifestations to the 3rd person. The principal’s liability extends to the agent’s acts within the apparent scope of his authority, although no such authority exists. The doctrine of apparent authority, or ostensible agency, imposes liability because the principal’s actions mislead the public into believing the authority exists. The apparent authority’s existence may be ascertained through 1. The apparent authority to act in general which the principal clothes the agent 2. The acquiescence in his acts, with actual or constructive knowledge thereof, whether within or without the scope of his authority. Consequently, apparent authority is determined from the principal’s acts, and not the agent’s. Here, the Board didn’t act in any way as to clothe its general manager with apparent authority to execute the contract with Sargasso Construction. Feel free to use and share this digest with anyone who needs it 61 Agency for Atty. Cochingyan by Jason Arteche Benate vs Philippine Countryside Rural Bank Facts The Sps Maglasang obtained multiple loans from PCRB mortgaged by certain properties, including Property X. The Sps Cortel own Property X, who are daughter and son-in-law to the Sps Maglasang. Later, Maglasang and Cortel asked PCRB’s permission to sell Property X and to release it from mortgage. Petitioners claim PCRB, through its Branch manager, Mondigo, verbally agreed to the request. The petitioners then sold Property X to petitioner Banate, the proceeds of which were used to pay the PCRB loan. PCRB then gave the owner’s duplicate certificate of title over Property X to Banate. However, the title carried PCRB’s mortgage claim, prompting petitioners to request PCRB to release the mortgage. PCRB refused causing petitioners to file suit before the RTC for specific performance against PCRB. Issue Is PCRB bound by Mondigo’s verbal agreement to sell Property X and release it from the mortgage? Held No. A corporate officer or agent’s authority to deal with 3rd persons may be actual or apparent. Actual authority is either express or implied. Express refers to the agent’s delegated power while implied refers to his prior acts that the principal ratified or the benefits accepted. Meanwhile, apparent refers to the agent’s ‘apparent authority.’ The doctrine of apparent authority means if the agent’s act is within the apparent scope of authority conferred on him, although no such authority exists, the principle is liable. However, such liability is limited to 3rd persons who believed such authority exists because of the principal’s conduct. Only the principal’s acts, and not the agent’s, determine apparent authority. In this case, there was no evidence presented to show PCRB clothed Mondigo with apparent authority to verbally alter the terms of mortgage contracts, or that it ratified Mondigo’s act. Further, the power to modify or nullify corporate contracts generally remains in the board of directors. Being a mere branch manager alone is insufficient to support the conclusion Mondigo was clothed with apparent authority to verbally alter the mortgage contract’s terms. Consequently, because Mondigo had no authority or apparent authority to verbally alter the mortgage contract’s terms, Mondigo’s act can’t prejudice PCRB. Feel free to use and share this digest with anyone who needs it 62 Agency for Atty. Cochingyan by Jason Arteche Manila Remnants vs CA Facts Manila Remnant owns Property X and entered into a ‘Confirmation of Land Development and Sales Contract’ with Valencia Inc. Valencia was to develop Property X and had authority to manage the sales thereof, execute contracts to sell to lot buyers, and issue official receipts. The President of both corporations is Artemio Valencia. Artemio, thru Manila Remnant, executed a contract to sell covering Lot 1 in Property X in respondent Ventanillas and Diaz’s favor (VD). Later, Artemio again sold Lot 1 to Crisostomo without consideration and VD’s knowledge. Valencia transmitted Crisostomo’s fictitious contract to Manila Remnant while retaining VD’s contract. All this time, VD regularly paid the installment on Lot 1 to Valencia Inc. However, Valencia credited the VD payments to Crisostomo. Later, Manila Remnant removed Valencia as its President and stopped the collection agreement with Valencia Inc. Valencia Inc. then sued Manila Remnant. The court ordered Valencia Inc. to submit a list of lot buyers that the latter did but said list excluded VD. Meanwhile, VD went directly to Manila Remnant to pay the rest of the balance on Lot 1 when to their shock they discovered Manila Remnant had no records of them as lot buyers. Here they discovered Crisostomo’s contract. VD then filed suit for specific performance against Crisostomo, Manila Remnant, and Valencia Inc. Issue Should Manila Remnant be held solidarily liable with Valencia Inc. and Crisostomo in paying damages to VD? Held Yes. In this case, it is undisputed Valencia Inc. had exceeded its authority and even the law when it undertook the double sale of Lot 1 to VD and Crisostomo. Ordinarily, Manila Remnant would be in the clear because the principal is not liable for the agent who acts outside of his authority. However, the unique circumstances of this case make for an exception. It must noted at the time Artemio perpetrated his scam, he was President of both Manila Remnant and Valencia Inc. Manila Remnant is estopped to raise the defense Valencia Inc exceeded its authority by allowing its agent to act as though it had plenary powers. Manila Remnant’s negligence allowed Valencia Inc to exercise powers not granted to it. First, Manila Remnant gave Valencia Inc. carte blance authority in the sale and disposition of lots in Property X. Second, Manila Remnant was’t prudent in conducting its business as subdivision owner. When it revoked the agency contract with Valencia Inc, the former published the cancelled contracts to sell only 3 years after the agency agreement was revoked. Further, it failed to check its agent’s records immediately after revoking the agency despite the fact the reason for revoking such agency was anomalies in Valencia Inc. collection. All in all, Manila Remnant was negligent in managing its business and monitoring its agent’s actions thereby allowing its agent to deceive unsuspecting 3rd persons. Feel free to use and share this digest with anyone who needs it 63 Agency for Atty. Cochingyan by Jason Arteche Country Bankers Insurance Corp. vs Keppel Cebu Shipyard Facts Unimarine contracted the services of Keppel to repair the former’s ship. Later, Keppel billed Unimarine for P4 million but after negotiation it was reduced to P3.5 million. The agreement stipulated the bill will be payable in 2 installments and requires Unimarine to procure surety bonds equal to the credit extended. Pursuant to the agreement, Unimarine secured from Country Bankers, through the latter’s agent, Quinain, a Surety Bond worth P3 million. Later, Unimarine obtained another Surety Bond from Plaridel Surety worth P500 thousand. However, Unimarine failed to pay the 1st installment when it became due. Keppel made repeated demands but Unimarine still failed to pay. Keppel then notified the sureties of Unimarine’s default and required them to fulfill their obligations as sureties. The sureties likewise failed to pay causing Keppel to file suit against Unimarine and the sureties. Issue Is Country Bankers liable on the surety bond Quinain issued to Unimarine in Keppel’s favor? Held No. In this case, Quinain as Country Bankers’ agent is undisputed. The issue centers on Quinain’s authority, or at least the apparent authority, Country Bankers extended to Quinain to transact insurance business for and in its behalf. Here, Quinain had a special power of attorney to obligate Country Bankers as surety in the form of an SPA. The SPA stipulates Quinain can issue Surety Bonds only in favor of DPWH, NPC, and other government agencies. Further, the surety bond is limited to P500 thousand. Consequently, Quinain exceeded his authority in granting a surety bond worth P3 million to Unimarine, a non-government agency. Granting Quinain exceeded his authority did Country Bankers ratify Quinain’s action? Country Bankers never even knew of the surety bond. It didn’t even receive the premiums Unimarine paid to Quinain pursuant to the Surety Bond. Consequently, there was no ratification. Now, is Country Bankers estopped from claiming Quinain has no authority? Here, Country Bankers clearly stated the limits of Quinain’s authority in the SPA, even stamping its surety bonds with the restrictions to alert concerned parties. Country Bankers can’t be faulted for Quinain’s deliberate failure to notify the former of the latter’s transactions. Further, Country Bankers never let the public, especially Unimarine, believe Quinain had authority to issue the disputed surety bond. In fact, it was Unimarine who was negligent because it didn’t even bother to inquire if Quinain was authorized to issue surety bonds beyond the limits established in the SPA. Unimarine didn’t even check the SPA or ask Country Bankers if Quinain had authority to issue the surety bond. Unimarine merely relied on Quinain’s assurances and must now suffer for it. Feel free to use and share this digest with anyone who needs it 64 Agency for Atty. Cochingyan by Jason Arteche Manotok Bros. Inc. vs CA Facts Manotok Inc. owns Property X that was leased to the City of Manila. Later, Manotok authorized respondent Saligumba to negotiate with City of Manila for the sale of Property X at a certain price with a 5% commission. Saligumba’s authority allowed it to finalize and consummate the sale of Property X to the City of Manila for not less than P410 thousand, said authority to last for 180 days. The City of Manila then passed an ordinance to purchase Property X but said ordinance was signed only 183 days after the authorization was given to Saligumba. Nevertheless, Saligumba executed the deed of sale and full payment was made. However, Manotok refused to give Saligumba his commission because the former didn’t recognize the latter’s role as agent in the transaction. Saligumba then filed suit against Manotok. Issue Is Saligumba entitled to the 5% commission? Held Yes. In this case, at first glance it seems Salimbuga isn’t entitled to its commission because the deed of sale was executed after its authority had already expired. It seems this case would fall under the general rule that a broker or agent isn’t entitled to commission until he has successfully done the job given to him. However, the exception applies in this case, the all-encompassing exception of equity. Here, the exception should apply because Salimbuga was the efficient procuring cause in bringing about the sale. When the agent is the efficient procuring cause in bringing about the sale, such agent is entitled to commission. Further, the City of Manila approved the ordinance while Salimbuga’s authority was still subsisting but was signed after a measly 3 days after such authority already expired. Also, only Salimbuga had authority to negotiate the sale of Property X. Also, Manotok intervened in the sale only when the ordinance was already passed and all that was left to do was for the Mayor to sign it. Feel free to use and share this digest with anyone who needs it 65 Agency for Atty. Cochingyan by Jason Arteche Hahn vs CA Facts Hahn and respondent BMW entered into a ‘Deed of Assignment with Special Power of Attorney’ with the latter constituting Hahn as its exclusive dealer of BMW cars and parts in the Philippines. Later, BMW notified Hahn the former was arranging to grant the exclusive dealership of BMW cards and products to Columbia Motors. Hahn protested and BMW offered to make Hahn a ‘standard BMW importer’ otherwise it would simply terminate Hahn’s dealership. Hahn rejected such offer and BMW terminated the exclusive dealership agreement with Hahn. Later, BMW proposed Hahn and Columbia Motors jointly import and distribute BMW cars and parts but Hahn still refused. Hahn then filed suit for specific performance against BMW to compel the latter to execute the exclusive dealership. The lower courts dismissed the case on the ground it has no jurisdiction because BMW isn’t considered doing business in the Philippines. Issue Is Hahn BMW’s agent? Held Yes. In this case, a corporation is considered doing business in the Philippines if it appoints representatives or distributors in the Philippines provided said representative or distributor transacts business in the corporation’s name. The question now is if Hahn can be considered BMW agent. Here, Hahn claimed he took orders for BMW cars and transmitted the same to BWM. BMW would fix the downpayment and pricing charges, notifying Hahn of the scheduled production month for the orders, and reconfirmed orders by signing and returning to Hahn the acceptance sheets. Further, the buyer paid directly to BMW and Hahn simply received a commission upon the sale’s successful conclusion. Any after-sale and warranty service Hahn performed were on BMW invoices and forms. Further, the fact Hahn used his own money to set up service centers and showrooms don’t necessarily mean he isn’t BMW’s agent. BMW exercised control over Hahn’s activities by making regular inspections on Hahn’s premises to see if they complied with BMW standards. Also, BMW held out Hahn as its exclusive distributor in the Philippines announcing in the Asian Region that Hahn was the official BMW agent in the Philippines. Feel free to use and share this digest with anyone who needs it 66 Agency for Atty. Cochingyan by Jason Arteche Albaladejo y Cia vs PRC Facts Albaladejo is a corporation location in Legaspi engaged in producing copra. Later, Albaladejo and PRC entered into a contract with PRC binding itself to buy Albaladejo’s copra. Further, PRC would neither appoint any other agent to purchase copra nor buy copra from any vendor in Legaspi. The contract also stipulated PRC would provide transportation for the copra Albaladejo collected and deposited for shipment. The agreement was satisfactory to both parties and due to PRC’s large requirements of copra, Albaladejo established numerous agencies in various ports and places. The agreement ended when after a few years PRC closed down its factory and withdrew from the copra market. After such closure, PRC gradually shipped out the copra already purchased and the accounts between the 2 parties were liquidated. However, Albalaedjo filed suit against PRC on the ground the latter failed to transport copra ready for shipment resulting in the copra diminishing in value. Issue Is PRC liable to Albaladejo for the expenses the latter incurred in keeping its organization intact to support the former’s copra requirements? Held No. In this case, Albaladejo argues there was a principal-agent relationship created and PRC is liable to indemnify it for damages incurred in carrying out the agency. However, no such agency was created. It’s undisputed PRC made Albaladejo one of its many instrumentalities to collect copra, but it’s also clear that Albaladejo purchased the copra on its own account. When Albaladejo turned the copra over to PRC, there was in effect a second sale. Further, the mere fact PRC was prohibited from appointing any other agent in the Legaspi area during the continuance of the agreement doesn’t mean Albaladejo was considered its agent for buying copra. This single clause in the contract can’t dominate the real nature of the agreement between the parties. Other letters PRC sent to various instrumentalities used to buy copra are also referred to as agents but such term was simply used for the sake of convenience. It’s clear that Albaladejo was acting in its own name in buying the copra for PRC. Ownership over the copra remained with Albaladejo until it was subsequently sold to PRC. Simply put, this is just a case of sale. Feel free to use and share this digest with anyone who needs it 67 Agency for Atty. Cochingyan by Jason Arteche De Castro vs CA Facts De Castro co-owns 4 lots and he, representing the other co-owners authorized respondent Artigo to sell these lots as their real estate broker with a 5% commission. Artigo then found Times Transit Corp, a prospective buyer who desired to buy 2 lots only. Eventually, the 2 lots were sold to Times. Artigo received his commission worth P50 thousand. Later, Artigo complained apparently feeling short-changed demanding he deserves more than P50 thousand as commission. He argues he was the one to first introduced Times to De Castro and facilitated the negotiations between the 2. However, De Castro argues Artigo was just one many agents authorized to sell the lots. True. Artigo first introduced Times to De Castro but his 1st negotiation failed and it was other agents who successfully brokered. the sale. De Castro simply gave Artigo the P50 thousand commission out of gratuity. Artigo then filed suit against De Castro alone. Issue Should Artigo’s complaint be dismissed for failing to include the other co-owners in the complaint? Held No. In this case, it’s undisputed De Castro appointed Artigo as his agent to sell the 4 lots with a 5% commission and such authority was on a first-come first-serve basis. De Castro admits he was authorized by the other co-owners to appoint Artigo as their agent. Further, De Castro admits the other co-owners are solidarily liable under the contract of agency because when 2 or more persons have appointed an agent for a common transaction, they shall be solidarily liable to the agent for the agency’s consequences. The solidarity arises from the principals’ common interest and not from the act of constituting the agency. Solidarity may arise even if the principals constituted the agencies in separate acts provided they are all for the same transaction. However, this admission of solidarily liability actually prejudices De Castro because in a solidarily liability, a solidary obligor isn’t an indispensable party in a suit the creditor filed. The agent, Artigo in this case, can go after any 1 of the principals. Feel free to use and share this digest with anyone who needs it 68 Agency for Atty. Cochingyan by Jason Arteche Petron Corp. vs Spouses Cesar Jovero & Erma F. Cudilla Facts Rubin Uy operates a gas station on Property X. Rubin entered into a Retail Dealer Contract with Petron and under the contract, Petron obliges itself to deliver petroleum products to Rubin’s gas station. Pursuant to the Contract, Petron hired the Villaruz’s services to deliver the products to Rubin’s gas station by truck. One faithful day, while Villaruz’s truck was unloading petroleum from the truck’s tank into the gas station’s underground tank, a fire started in the fill pipe and spread to the truck itself. When the fire started, the truck driver was nowhere to be found. When the truck driver did come back, he immediately drove the truck in reverse further spreading the fire and causing damage to the defendants’ properties. Defendants then filed suit for damages against Rubin, Petron, and Villaruz. Issue Is Petron liable to defendants for damages the fire caused? Held Yes. In this case, the accident occurred while the petroleum was being unloaded from the truck into the fill pipe that led to the gas station’s underground tank. Petron is responsible under the Retail Dealer Contract to both supply the petroleum and deliver the same to Rubin’s gas station. Pursuant to this, Petron hired Villaruz as its agent with the latter agreeing to deliver petroleum products on Petron’s behalf. Therefore, at the time the accident occurred, Villaruz was acting as Petron’s agent. As far as Rubin was concerned, Villaruz’s acts were also Petron’s acts. Now, what’s the importance of establishing this agency relationship? Importantly, Villaruz failed to rebut the presumption that he wasn’t negligent in supervising his truck driver who caused the fire damaging defendants’ properties. Consequently, Petron is liable as principal for Villaruz’s fault or negligence under the law on agency. Consequently, Petron is solidarily liable with Rubin Uy for damages caused to the defendants. Both had the responsibility to maintain the equipment used in the gas station and make sure the unloading and storage of the petroleum products are without incident. Both were equally negligent in this responsibility. Feel free to use and share this digest with anyone who needs it 69 Agency for Atty. Cochingyan by Jason Arteche Garcia vs De Manzano Facts Narciso Manzano gave a general power-of-attorney to his son, Angel, on 9 Feb. and a second general power-of-attorney to his wife, Josefa on 25 March. Narciso later died in May and Josefa was appointed administratix of Narciso’s estate. Before Narciso died, he owned 1/2 interest in a steamer with the other half owned by Ocejo, Perez & Co. Narciso and Ocejo had a partnership agreement and when the agreement expired, Ocejo demanded Narciso either buy Ocejo’s share or sell his share. Narciso neither had funds to buy nor wanted to sell at the price Ocejo offered. Instead, Garcia bought Ocejo’s interest. Later, Angel sold Narciso’s interest in the steamer to Garcia under the power-of-attorney. Angel, also by virtue of the power-of-attorney, executed a contract with Garcia. Under the contract, Garcia agreed to extend a credit to Narciso secured by a mortgage on some of Narciso’s properties. Afterwards, Garcia filed suit to foreclose Narciso’s properties but Josefa resisted the foreclosure. Issue Did Josefa’s power-of-attorney revoke Narciso’s power-of-attorney? Held No. It’s necessary under the law for the appointment of a new agent for the same business to revoke the previous agency for the former agent to be notified. In this case, there’s no proof Angel even knew of Josefa’s second power-of-attorney. Consequently, Angel was validly acting under the 1st power-of-attorney when he sold Narciso’s share in the steamer. Feel free to use and share this digest with anyone who needs it 70 Agency for Atty. Cochingyan by Jason Arteche CMS Logging vs CA Facts CMS Logging and Dracor entered into a contract of agency with the former appointing the latter as its exclusive export and sales agent for all logs the former may produce for 5 years. Pursuant to the agreement, CMS sold through Dracor logs in Japan. Later, CMS discovered that Dracor had actually used Shinko Corp. as agent in selling the logs. Further, Shinko received a commission from such sale of the logs. CMS claims the commission paid to Shinko violated the agency agreement and the Shinko commission rightfully belonged to it. Further, Dracor in effect received a double commission. CMS then sold its logs in Japans without Dracor’s intervention any longer. CMS also filed suit to recover the Shinko commission but Draco counter-sued saying it’s entitled to commissions when CMS sold the logs directly without it’s intervention. Issue Is Dracor entitled to its commission from sales CMS made to Japan directly without the former’s intervention? Held No. The principal can revoke the agency at will, either expressly or impliedly. The revocation may be made even if the contract of agency hasn’t expired yet. The agent can’t object to such revocation and he can’t claim damages arising from such revocation unless it was done to evade the payment of the agent’s commission. In this case, it is undisputed Dracor is CMS’ agent in selling logs to Japan. Further, Dracor admits CMS sold logs directly to Japanese firms without the former’s intervention. Such constituted an implied revocation of the agency. An agency is revoked if the principal directly manages the business entrusted to the agent, dealing directly with 3rd persons. Consequently, CMS revoked Dracor’s agency and the latter is no longer entitled to commission for the sale. Dracor can’t even claim damages because the case doesn’t fall under the exception, evading paying the agent’s commission. Feel free to use and share this digest with anyone who needs it 71 Agency for Atty. Cochingyan by Jason Arteche Dy Buncio and Co. vs Ong Guan Ca Facts This is a suit over a rice mill and camarin. Buncio claims the property belongs to its judgement debtor, Ong Guan. While defendants Tong and Eng claims as owner and lessee respectively the property through a deed from Ong Guan Jr. The deed states Ong Guan Jr, as Ong Guan’s agent through a power-of-attorney dated 1928, sold the property to defendants. Issue Did Ong Guan Jr validly sell the property? Held No. In this case, the power of attorney referred to in this case isn’t a general power of attorney but a limited one, and doesn’t give the express power to alienate the property in question. Further, the previous power-of-attorney dated 1920 given to Ong Guan Jr. was revoked by the 1928 power-of-attorney. The making and accepting of a new power of attorney, whether it enlarges or decreases the agent’s power under a previous power-of-attorney, revokes the latter when the 2 are inconsistent. Consequently, Ong Guan never lost his property and are subject to attachment and execution. Feel free to use and share this digest with anyone who needs it 72 Agency for Atty. Cochingyan by Jason Arteche Republic vs Evangelista Facts Respondent Legaspi owns Property X. Later, the RP entered into a MOA with a certain Reyes. the MOA granted Retes a permit to hunt for treasure in Property X. Reyes then started digging, tunneling, and blasting on Property X. Legaspi then executed an SPA appointing respondent Gutierrez as his attorney-in-fact. The SPA gave Gutierrez the power to deal with the treasure-hunting activities on Property X and to file suit against those who enter the same without authority. Further, Gutierrez’s compensation is 40% of the treasure on Property X. Afterwards, Gutierrez filed suit against petitioners and hired the legal services of Atty. Adaza. Atty. Adaza’s compensation is 30% of Legaspi’s share in the treasure on Property X. However, Legaspi unilaterally executed a Deed of Revocation. Issue Has Legaspi revoked the contract of agency between him and Gutierrez? Held No. General rule: An agency can be revoked at the sole will of the principal Exception: 1. A bilateral contract depends upon the agency 2. Means of fulfilling... 3. A partner is appointed... In this case, the agency contract between Legaspi and Gutierrez is coupled with interest as a bilateral contract depends on it. Here, Gutierrez and Azada have an interest in the agency’s subject matter, namely the treasure on Property X. When an agency is constituted as a clause in a bilateral contract, that is when the agency is inserted in another agreement, the agency follows the conditions of the bilateral agreement. Consequently, Legaspi’s unilateral revocation of the agency is ineffective. Feel free to use and share this digest with anyone who needs it 73 Agency for Atty. Cochingyan by Jason Arteche Sevilla vs CA Facts Respondent Noguera and Tourist World Service entered into a contract with the former leasing her property to the latter. Petitioner Sevilla bound her solidarily liable for the payment of monthly rentals. Shel also ran the office in the leased premises and she received a commission for every ticket she sold. Later, Tourist World was informed that Sevilla was connected to a rival company and because Sevilla’s brach was losing, it considered closing down its office. Tourist World then terminated the lease contract and padlocked the premises. Sevilla, unable to enter the locked premises, filed suit against petitioners. Issue What is the relationship between Sevilla and Tourist World? Held Agency. In this case, Sevilla solicited airline fares on Tourist World’s behalf, her principal. And as compensation, Sevilla received a commission for every ticket she sold. Sevilla herself concedes the principal’s authority as owner of the business undertaking. However, the agency in this case can’t be revoked at the principal’s will. The agency here is coupled with interest, it having been created for mutual interest of the agent and principal. Sevilla is a bona fide travel agent and as such, acquired an interest in the business entrusted to her. Moreover, she assumed a personal obligation for the operation thereof, holding herself solidarily liable to pay rentals. Her interest isn’t the commissions she earned as a result of the business transactions, but one that extends to the very subject matter of the power of management delegated to her. Further, Tourist World itself padlocked the premises and deprived Sevilla of her business maliciously. Tourist World performed these acts after learning Sevilla allegedly was moonlighting for a rival firm. Consequently, there was an unwarranted revocation of the agency and Sevilla is entitled to damages. Feel free to use and share this digest with anyone who needs it 74 Agency for Atty. Cochingyan by Jason Arteche Valenzuela vs CA Facts Valenzuela is a general agent of respondent Philamgen. As such, Valenzuela was authorized to solicit and sell in Philamgen behalf insurance and in return was entitled to receive commission. Valenzuela solicited insurance from Delta Motors for which he was entitled to commission. However, Valenzuela didn’t receive his full commission and also those for the following years. Later, Philamgen wanted to share in Valenzuela’s commission on a 50-50 basis but Valenzuela refused. Because of Valenzuela’s refusal, Philamgen cancelled his General Agency Agreement. Valenzuela then filed suit. Issue Can Philamgen unilaterally revoke the agency with Valenzuela? Held No. In this case, the evidence shows Philamgen terminated the agency because Valenzuela refused to share his Delta commission. Further, the agency involved here is one coupled with interest and therefore not revocable at the principal’s will. Here, Valenzuela was able to build up his Agency from scratch to a highly productive enterprise in over 13 years of work. With the agency’s termination, Philamgen appropriated for itself the entirety of Valenzuela‘s insurance business. Valenzuela would no longer receive commission on the renewal of insurance policies of clients sourced from him. Further, Valenzuela continues to be solidarily liable with the insured for unpaid premiums even with the agency’s termination. Clearly, Valenzuela has an interest in the agency’s continuation. Further, Philamgen is liable for damages to Valenzuela because the agency’s termination was tainted with bad faith. The principal who acts in bad faith and with abuse of right in terminating an agency is liable for damages. Feel free to use and share this digest with anyone who needs it 75 Agency for Atty. Cochingyan by Jason Arteche National Sugar Trading vs PNB Doctrine Also, the relationship between NASUTRA/SRA and PNB when the former constituted the latter as its attorney-in-fact is not a simple agency. NASUTRA/SRA has assigned and practically surrendered its rights in favor of PNB for a substantial consideration. To reiterate, NASUTRA/SRA executed promissory notes in favor of PNB every time it availed of the credit line. The agency established between the parties is one coupled with interest that cannot be revoked or cancelled at will by any of the parties. Feel free to use and share this digest with anyone who needs it 76 Agency for Atty. Cochingyan by Jason Arteche Ching vs Bantolo Facts Bantolo owns Property X and he executed in Ching’s favor an SPA authorizing the latter to obtain a loan using Property X as collateral. Later and without notice to Ching, Bantolo executed a revocation of power of attorney effective at the end of business hours, July 17. On July 18, PVB approved Ching’s loan application and Ching later informed Bantolo of the loan’s approval. Later, Ching learned of the SPA’s revocation and demanded Bantolo annul the SPA’s revocation, but Bantolo refused. Ching then filed suit to do just that. Issue Is the agency one coupled with interest? Held Yes. In this case, it’s undisputed the contract of agency is one coupled with interest because the bilateral contract depends on the agency. Ching agreed to defray the costs and expenses involved in processing the loan because Bantolo promised Ching would have an equal share of the proceeds of the loan or the subject properties. Further, Ching isn’t entitled to exemplary damages because although the agency was revoked in bad faith, Bantolo didn’t act in a wanton, fraudulent, reckless, oppressive, or malevolent manner. The SPA was revoked because Bantolo wasn’t satisfied with the amount of the loan approved. Feel free to use and share this digest with anyone who needs it 77 Agency for Atty. Cochingyan by Jason Arteche Bacaling vs Muya Facts Bacaling owns Property X. Later, Bacaling took out a loan from GSIS secured by Property X. However, Bacaling failed to pay the amortizations on the loan and GSIS foreclosed Property X. Later, a judicial decision restored Bacaling ownership of Property X. In the meantime, Muya took advantage of the problematic peace and order situation during martial law and the fiasco with GSIS to occupy Property X. Later, petitioner Tong bought Property X from Bacaling. To secure the performance of the contract of sale and facilitate transfer of title to Tong, Bacaling appointed Tong as her attorney-in-fact under an irrevocable SPA. Tong then filed suit against Muya. During pendency of the case, Bacaling revoked the SPA in Tong’s favor. Issue Can Bacaling unilaterally revoke the SPA in Tiong’s favor? Held No. In this case, Bacaling can’t revoke at her pleasure the irrevocable SPA duly executed in Tong’s favor. The agency is one coupled with interest because the agency was constituted with a view to completing the contract of sale over Property X; a sale with Tong as buyer and Bacaling as seller. It’s for this reason the agency’s mandate constituted Tong as the real party in interest to remove all clouds on Bacaling’s title and once that is resolved, to use the SPA to ultimately transfer Property X and all pertinent documents to Tong. Here, the fiduciary relationship inherent in ordinary contracts of agency is replaced by material consideration and with this replacement the principal is barred from unilaterally revoking the agency. Further, Bacaling’s allegation of fraud in the agency’s performance to justify its revocation is insufficient. Fraud must be proven and mere allegations aren’t enough, and such proof requires the court’s intervention. Bacaling can’t vest in herself, like in ordinary contracts, the unilateral authority to determine if there’s sufficient ground to rescind the SPA. Feel free to use and share this digest with anyone who needs it 78 Agency for Atty. Cochingyan by Jason Arteche Coleongco vs Claparols Facts Claparols operated a nail factory and he imported raw material from abroad to produce the nails. Later, due to financial difficulty, he needed to find someone to finance the import of his raw materials. He found Kho To who in turn introduced him to Coleongco. Coleongco agreed to finance the funds for importation. Later, Claparols executed an SPA in Coleongco’s favor at the latter’s insistence. Afterwards, Claparols was surprised when the PNB served upon him a writ of execution to enforce judgement, despite the fact he settled his account with the latter. Claparols then learned the executed was procured because of derogatory information Coleongco sent to PNB without his knowledge. Further investigation revealed Coleongco was in connivance with Kho To to swindle Claparols, and possible take his factory. Fortunately, Claparols managed to settle the matter with PNB. Enraged, he revoked the SPA in Coleongco’s favor and demanded a full accounting at the same time. Coleongco protested and filed suit against Claparols. Issue Can Claparols revoke the SPA in Coleongco’s favor? Held Yes. Granting arguendo the SPA in Coleongco’s favor is one coupled with interest, the same simply means Claparols can’t revoke the same at his pleasure. However, coupled with interest or not, such agency can be revoked for just cause, such as when the agent betrays the principal’s interest, as in this case. An irrevocable SPA can’t be used as a shield to perpetrate the agent’s fraudulent acts and betrayal of trust. Here, the evidence clearly shows Coleongco sabotaged Claparols with the ultimate goal of owning the latter’s factory. Coleongco secretly diverted funds to his personal benefit, sold equipment without Claparol’s knowledge, and sent letters to PNB to undermine Claparol’s credit. Feel free to use and share this digest with anyone who needs it 79 Agency for Atty. Cochingyan by Jason Arteche Lustan vs CA Facts Lustan owns Property X and he leased the same to respondent Parangan. During the lease, Parangan regularly extended small loans to Lustan. Later, Lustan executed in Parangan’s favor an SPA to secure loans from PNB with Property X as collateral. Again Lustan executed another SPA by virtue of which Parangan secured 4 additional loans. The last 3 were without Lustan’s knowledge and Parangan used them to his benefit. Lustan then entered into a deed of pacto de retro in Parangan’s favor over Property X. The deed was superseded by a deed of definite sale that Lustan signed on Parangan’s representation the same was merely evidences for the loans the latter extended to the former. Lustan, fearing Property X may be prejudiced with Parangan’s continued borrowing, demanded its return but Parangan refused. Lustan filed suit, hence this case. Issue Can the mortgage on Property X be enforced against Lustan? Held Yes. An SPA is a continuing one and absent a valid revocation duly furnished to the 3rd person, the same continues to have force and effect as against the 3rd persons who had no knowledge of such lack of authority. The SPA Lustan executed in Parangan’s favor clothed the latter with authority to deal with PNB on the former’s behalf. In the absence of proof PNB knew the last 3 loans were without Lustan’s express authority, it can’t be prejudiced thereby. As far as 3rd persons are concerned, an act is deemed to have been performed within the scope of the agent’s authority if such authority is within the power-ofattorney as written, even if the agent did in fact exceed his authority. Feel free to use and share this digest with anyone who needs it 80 Agency for Atty. Cochingyan by Jason Arteche Perez vs PNB Facts Vicente Perez owns Property X that was mortgaged to PNB to secure the former’s loan. Later, Vicente died and his estate was distributed accordingly. Later, Vicente’s widow inquired from PNB the status of her husband’s account. The widow discovered of the outstanding mortgage and loan. Pursuant to the mortgage, PNB foreclosed Property X and a new title was issued in PNB’s name. Later, the petitioners, heirs of Perez, filed suit against PNB to annul the foreclosure. Issue Is PNB barred from foreclosing Property X? Held No. The argument that agency is extinguished by the principal’s death neglects to take into account the fact the power to foreclose isn’t an ordinary agency that contemplates exclusively the representation of the principal by the agent. Rather, it’s primarily an authority conferred upon the mortgagee for the latter’s own protection. In fact, it’s an ancillary stipulation supported by the same consideration for the mortgage and forms an essential part of the bilateral agreement. The mortgagee’s power to foreclose survived the mortgage’s death. Feel free to use and share this digest with anyone who needs it 81 Agency for Atty. Cochingyan by Jason Arteche Terrado vs CA Doctrine The contract of management and administration between the Municipality and Lacuesta is one of agency. In this case, Lacuesta bound himself as Manager-Administrator to render service in the Municipality’s behalf. Consequently, Lacuesta’s death completely changes the legal controversy in the instant case. Agency is extinguished by the agent’s death and his rights and obligations arising from the contract are non-transmissible to his heirs. Feel free to use and share this digest with anyone who needs it 82 Agency for Atty. Cochingyan by Jason Arteche Morales vs CA Facts Celso Avelino purchased Property X from Mendiola and Bartolome. Celso had tax declarations issued in his name for Property X and built his residential house on it. He then took in his parents, Rosendo and Juana, along with his sister, Aurea. Celso’s Niece, Morales, built a beauty parlor on Property X without Celso’s knowledge. Later, Celso sold Property X to respondent Sps. Ortiz. The Sps. Ortiz demanded Morales vacate Property X but the latter refused demanding in turn reimbursement for the beauty parlor. Despite repeated demands, Morales refused to vacate and so the Sps. Ortiz filed suit. Issue Was there an implied trust with Celso as trustor and Rosendo as beneficiary? Held No. A trust is the legal relationship between 1 person having an equitable ownership in property and another person owning the legal title to such property. The characteristics of a trust are 1. It’s a relationship 2. Of fiduciary character 3. With respect to property, not one involving merely personal duties 4. Involving the existence of equitable duties imposed upon the holder of title to the property to deal with it for another’s benefit 5. Arises as a result of a manifestation of intention to create the relationship. A trust can be either express or implied. Express means created by the parties’ intention while Implied means by operation of law. In turn, implied trusts are either resulting or constructive trusts. Resulting trust is based on the equitable doctrine that valuable consideration and not legal title determines the equitable title and the parties are presumed to always contemplate it. Meanwhile, constructive trusts are created in order to satisfy the demands of justice and prevent unjust enrichment. An example of implied trust is Art. 1448 Civil Code, also called purchase money resulting trust. It has 2 requisites namely 1. Actual payment or valuable consideration 2. Furnished by the alleged beneficiary of a resulting trust. The 2 exceptions to establishing an implied trust here are 1. If title was vested in the child of the person paying the purchase price, a gift is presumed 2. The actual contrary intention is proved. Here, Morales alleges Rosendo owned the purchase money and requested his son, Celso, to buy it in trust for him. However, title was vested in Celso and this situations falls under the exception in Art. 1448 where title is conveyed to a child of the one paying the purchase price. Consequently, law implies no trust. Further, Celso treated the property as his exclusive property paying taxes on it and building his house there. Also, the alleged trustee, Rosendo, never even demanded Celso return Property X and Celso’s siblings never demanded Property X be partitioned after Rosendo died. These omissions clearly show Celso’s family considered Celso as the absolute owner of Property X. Feel free to use and share this digest with anyone who needs it 83 Agency for Atty. Cochingyan by Jason Arteche Penalber vs Ramos Facts This case involves 2 causes of actions but the Trust issue is discussed only in the 2nd cause of action 2nd cause of action Penalber claims that for many years prior to 1984, she operated a hardware store in a building she owned. Maria owned the lot on which the building stood, which Penalber rented. Later, Penalber allowed Ramos to manage the hardware store. Afterwards, Maria put the lot for sale but Penalber didn’t have enough cash to buy the lot. Penalber then entered into a verbal agreement with Ramos with the following terms: 1. Ramos would buy the lot in Penalber’s behalf 2. Ramos would pay the purchase price using the hardware store’s earnings 3. Ramos would appear as the buyer in the deed of sale and use the title issued in his name to secure a loan to expand the hardware store’s business In accordance with the agreement, Ramos entered into a contract of sale with Mendoza over the lot. Later, Penalber demanded Ramos reconvey the title to the lot to her but Ramos refused. Issue Was there a trust agreement between Penalber and Ramos? Held No. A trust is defined as the right, enforceable solely in equity to the beneficial enjoyment of property, the legal title of which is vested in another. A person who establishes a trust is called the trustor, the person in whom confidence is reposed as trustee, and the person for whose benefit the trust has been created the beneficiary. Generally, no particular words are required to create an express trust, it being sufficient that a trust is clearly intended. However, Art. 1443 declares that an express trust involving immovables or any interest therein may not be proved by parol evidence. Art. 1443 requires the express trust to be in writing for purposes of proof, and not for the trust agreement’s validity. The article is in the nature of a statute of frauds and goes into the contract’s enforceability. Here, the alleged verbal trust agreement between Penalber and Ramos is an express trust. Generally, Penalber’s testimony should’ve been declared inadmissible being parol evidence. However, Ramos waived his objection to the parol evidence in failing to timely object during trial. Nevertheless, while Penalber’s parol testimony is admissible, it’s weight as evidence is still subject to judicial evaluation. Here, such parol evidence carries little weight in proving the alleged verbal trust agreement. Penalber failed to prove that Ramos indeed used the earnings from the hardware store to purchase the lot from Maria. Feel free to use and share this digest with anyone who needs it 84 Agency for Atty. Cochingyan by Jason Arteche Torbela vs Spouses Rosario Facts Torbela owns a lot that he inherited from his parents upon their death. Later, Torbela executed a Deed of Absolute Quitclaim (DAQ) in Rosario’s favor and a Torrens title was issued in Rosario’s name. Later, Rosario executed a 2nd DAQ acknowledging he only borrowed the lot from Torbela and was returning the same. Meanwhile, Rosario successfully obtained a loan from DBP secured by a mortgage on the lot, the proceeds of which he used to build a hospital on the lot. Later, Rosario acquired a 2nd and 3rd loan from PNB and Banco Filipino respectively secured by a mortgage on the lot as well. Rosario failed to pay the 3rd loan and Banco Filipino extrajudicially foreclosed the lot and subsequently acquired it in the ensuing public auction. During this time, Torbela filed suit to recover the lot from Rosario as the Torrens title was still in the latter’s name. Issue Was there an express trust between Torbela and Dr. Rosario? Held Yes. There was an implied trust under Art. 1451 CC created when Torbela executed a DAQ over the lot in Rosario’s favor. Such transfer being only to accommodate Rosario and allow him to use the lot to secure a loan from DBP. The proceeds of the loan are to be used to build a hospital on the lot. The implied trust was later converted into an express trust when Rosario executed another DAQ expressly acknowledging that he only borrowed the lot from Torbela and was returning the same. A trust may be implied in the beginning, but the trustee’s subsequent express acknowledgement of the trust converts the same into an express trust. Here, the implied trust under the 1st DAQ was subsequently converted into an express trust under the 2nd DAQ. The express trust continued despite Rosario’s declaration in the 2nd DAQ that he was returning the lot to Torbela because the lot’s Torrent title remained registered under his name. Next, Torbela’s right to recover the lots hasn’t prescribed because an unrepudiated written express trust is imprescriptible. The 10-year prescriptive period which bars a trustor’s action to recover in an express trust applies only when the trustee repudiated the trust, such repudiation is known to the trustor, and the evidence is clear and convincing. Here, Rosario’s mere registration of the lot in his name under a Torrens title doesn’t amount to repudiation of the trust. The repudiation of the express trust occurred when Rosario applied for a 2nd loan from PNB and mortgaged the lot as security without Torbela’s knowledge. However, the 10-year prescriptive period started only from the time the loan and mortgage was annotated on the Torrens title because only then can it be said Torbela had knowledge of the repudiation. Such annotation happened in 1981 while Torbela’s suit was instituted in 1986. Only 5 years have lapsed and therefore the action isn’t barred by prescription. Feel free to use and share this digest with anyone who needs it 85 Agency for Atty. Cochingyan by Jason Arteche Julio vs Dalandan Facts Clemente, Dalandan’s deceased father, executed an affidavit stating the following: 1. Clemente acknowledges that Land X, belonging to Victoria, was made security for an obligation that Clemente failed to fulfill. As a result, Land X was foreclosed. 2. As restitution, Clemente holds himself liable to Victoria and will replace Land X with another piece of land. 3. However, Victoria can’t demand neither the fruits nor possession of Land Y immediately. At the time Clemente executed the affidavit, he only possessed Land Y that Dalandan inherited. Julio, Victoria’s heir, demanded delivery of Land Y but Dalandan refused arguing possession can’t be demanded immediately according to Clemente’s affidavit. Julio required Dalandan to fix a date for delivery but Dalandan refused. Julio then filed suit to claim Land Y. Issue Was there a trust created between Clemente and Victoria? Held Yes. The affidavit Clemente executed conveys the idea that naked ownership over Land Y was transferred to Victoria. This is based on the affidavit’s provisions declaring the fruits and possession as not immediately demandable. In effect, Clemente was made usufructuary over Land Y and in turn Dalandan inherited only Clemente’s usufructuary rights. Further, the affidavit itself creates the express trust. True, the deed didn’t in definitive words institute Dalandan as trustee, but a duty was imposed upon him to turn over both fruits and possession of the property to Victoria when the time comes. No particular words are necessary to create an express trust, it’s sufficient that a trust is clearly intended. Next, the mere fact the affidavit itself doesn’t clearly refer to Land Y doesn’t prejudice Julio. Insofar as the land’s identity involved in a trust is concerned, writings are to be considered in their settings and parol evidence is admissible to clarify the terms of a trust established by writing. Here, Julio clarified the affidavit by declaring that at the time it was executed, Clemente’s only property was Land Y. Feel free to use and share this digest with anyone who needs it 86 Agency for Atty. Cochingyan by Jason Arteche Canezo vs Rojas Facts Canezo alleges she bought Land X from Crisogono, although the transaction wasn’t reduced into writing. Afterwards, Canezo took possession of Land X. Canezo entrusted Property X to her father, Crispulo, who took possession of the same and cultivates it. About 40 years later, Canezo found out that Roxas, her stepmother, possessed Land X and tax declarations over it were already in Crispulo’s name. Canezo then filed suit to recover Land X. Issue Was there an express trust between Canezo and Crispulo? Held No. For a trust relationship to be created the following elements must be proved: 1. A trustor who executed the instrument creating the trust 2. A trustee, who is the person expressly designated to carry out the trust 3. The trust res, consisting of duly identified and definite real properties 4. The cestui que trust, or beneficiaries whose identity must be clear An express trust concerning real property can’t be established by parol evidence. It must be proven by some writing or deed. Here, the only evidence to support the existence of an express trust between Canezo and Crispulo is Canezo’s self-serving testimony. Further, an intention to create a trust can’t be inferred from Canezo’s testimony and the attending facts and circumstances. Canezo testified her agreement with Crispulo was Canezo will be given a share in the produce of Land X. This allegation, standing alone, is inadequate to establish the existence of a trust because profit sharing per se doesn’t necessarily translate to a trust relation. What distinguishes a trust from other relations is legal title is vested in the trustee while equitable ownership in the beneficiaries. Here, Canezo made much of the fact that the tax declaration was in Crispulo’s name. If Canezo truly did intend to create a trust this shouldn’t have been an issue because it’s expected for such tax declaration to be in Crispulo’s name in a trust relationship. Further, even if a trust was indeed created, the same ceased upon Crispulo’s death. And when Land X was transferred to Rojas, the latter had no right to retain the same and hence a constructive trust was created. But in a constructive trust, prescription may supervene even if the trustee doesn’t repudiate the trust relationship because such trust isn’t based on a fiduciary relationship and the holding of the thing object of the trust is always adverse. Feel free to use and share this digest with anyone who needs it 87 Agency for Atty. Cochingyan by Jason Arteche PNB vs Aznar Facts RISCO ceased operations due to business reverses. Aznar, RISCO stockholder and desiring to rehabilitate RISCO, contributed P212 thousand to it so the latter can purchase 3 parcels of land (Lands). Titles over the Lands were issued in RISCO’s name with Aznar’s contribution annotated as liens and encumbrances on the Titles over the Lands. The annotations were made pursuant to the Minutes of the RISCO Board of Directors meetings. Afterwards, various subsequent annotations were made on the titles, including a Notice of Attachment and Writ of Execution, in PNB’s favor. Consequently, the Lands were sold in auction with PNB as the highest bidder. Titles over the Lands were then issued in PNB’s name. This caused Aznar to file suit to recover the Lands arguing PNB’s subsequent annotations are subject to his prior annotation. Issue Was there an express trust between Aznar and RISCO? Held No. Here, the Minutes of the meeting doesn’t offer any indication the parties intended Aznar to be a beneficiary under an express trust and RISCO to serve as trustor. The creation of an express trust must be manifested with reasonable certainty and can’t be inferred from loose and vague declarations or from ambiguous circumstances susceptible of other interpretations. Aznar’s contribution is actually just a loan to RISCO and the annotations on the Titles serve only as collateral and doesn’t in any way vest ownership over the Lands to Aznar. Feel free to use and share this digest with anyone who needs it 88 Agency for Atty. Cochingyan by Jason Arteche Heirs of Tranquilino Labiste vs Heirs of Jose Labiste Facts In 1919, the late Epifanio Labiste, on his own and on his siblings’ behalf, who were the heirs of Jose Labiste, purchased Land X from the Bureau of Lands. The Bureau executed a Deed of Conveyance ceding Land X to Epifanio and Heirs of Jose. After full payment of the purchase price but prior to issuing the Deed of Conveyance, Epifanio executed an affidavit affirming that he, as one of the Heirs of Jose, and Tranquilino Labiste, co-owned Land X because the money paid came from the both of them. Tranquilino and the Heirs of Jose continued to hold Land X jointly. When WWII broke out, the Heirs of Tranquilino left Land X and the pertinent records of Land X destroyed. In 1993, the Heirs of Jose then filed a petition to reconstitute title over Land X only in their name that the Heirs of Tranquilino opposed. Both parties arrived at a compromise agreement and title was issued in the name of the Heirs of Jose. However, the Heirs of Jose reneged on the compromise agreement causing the Heirs of Tranquilino to file suit. Issue Was there an express trust? Held Yes. Here, Epifanio’s affidavit is in the nature of a trust agreement. Epifanio affirmed that he, as one of the Heirs of Jose, together with Tranquilino co-owned Land X. Consequently, prescription and laches will run only from the time the express trust was repudiated. The Heirs of Jose can’t rely on the fact a Torrents title was issued in Epifanio’s name and the other Heirs of Jose. A trustee who obtains a Torrents title over the property held in trust can’t repudiate the trust by relying on the registration. There must be a clear repudiation of the trust duly communicated to the beneficiary. The only act that can be construed as repudiation of the trust is when the Heirs of Jose filed a petition to reconstitute the Torrens title. The petition was filed in 1993 and the instant complaint failed in 1995, clearly the action hasn’t prescribed yet. Feel free to use and share this digest with anyone who needs it 89 Agency for Atty. Cochingyan by Jason Arteche Pacheco vs Arro Facts Arro filed an answer in a cadastral case claiming certain lots as his property and began to present evidence for that purpose. However, Yulo declared in open court that he promises to convey the lots Arro is claiming to Arro. Relying on this promise, Arro withdrew his claim and the cadastral court confirmed Title to the lots in Yulo’s name. This instant case involves Pacheco, as guardian of the Heirs of Yulo, challenging the CA decision ordering him to execute deeds of assignment for the lands Arro claimed in the cadastral case. Issue Was there an express trust between Yulo and Arro? Held Yes. Here, when Arro withdrew his claim to Land X in the cadastral case relying upon Yulo’s promise, a trust or fiduciary relationship was created. The trustee can’t invoke the statute of limitations to bar the action and defeat the right of the beneficiary. Pacheco’s argument that Yulo’s promise can’t prevail over the cadastral court’s final decree declaring the Heirs of Yulo as the owners of Land X can’t be sustained because it would prevent Arro from claiming his rightful share to Land X. Feel free to use and share this digest with anyone who needs it 90 Agency for Atty. Cochingyan by Jason Arteche Goyanko vs UCPB Facts Goyanko invested P2 million with Philippine Asia Lending Investors Inc. Later, Goyanko’s family and illegitimate family presented conflicting claims to Asia Lending for the investment’s release. Pending investigation of the conflicting claims, Asian Lending deposited the investment with UCPB under the name Phil Asia: In Trust For the Heirs of Goyanko. Afterwards, UCPB allowed Asia Lending to withdraw the investment. Petitioner demanded UCPB restore the amount plus interest but the latter refused. Issue Is UCPB liable for the amount withdrawn because a trust agreement existed between Asia Lending and UCBP, in favor of the Heirs of Goyanko? Held No. An express trust requires the following namely: 1. A competent trustor and trustee 2. An ascertainable trust res 3. Sufficiently certain beneficiaries. Even if any one of them is missing, it’s fatal to the trust. Further, there must be a present and complete disposition of the trust property, notwithstanding the beneficiary’s enjoyment will take place in the future. There must also be some power of administration other than a mere duty to perform a contract although the contract is for a 3rd party beneficiary. A declaration of terms is essential and these must be stated with reasonable certainty in order that the trustee may administer. Here, there was no express trust created between UCBP and Asia Lending in favor of Goyanko’s heirs. First, while an ascertainable trust res and sufficiently certain beneficiaries exist, a competent trustor and trustee don’t. Second, UCPB, as the account’s trustee, was never under any equitable duty to administer the account. Third, Asia Lending, as trustor, didn’t have the right to the account’s beneficial enjoyment. Finally, the terms by which UCPB is to administer the account isn’t shown with reasonable certainty. Next, the evidence shows UCPB was merely a depository and the account a mere ordinary savings account. The mere fact the account used the words ‘in trust for’ didn’t immediately convert the account into a trust. Further, the mere act of opening an account with a bank doesn’t create a trust relationship between the depositor and bank. The relationship created is only one of simple loan with the bank required to exercise extraordinary diligence in performing the loan. Consequently, UCBP was merely performing its contractual obligation under the simple loan in allowing Asia Lending to withdraw from the account. Feel free to use and share this digest with anyone who needs it 91 Agency for Atty. Cochingyan by Jason Arteche Petrona Gamboa vs Modesto Gamboa Facts Juan Gamboa sold the disputed properties under a contract of sale with pacto de retro for 2 years to a certain Felipe. The vendors however remained in possession of the properties as Felipe’s tenants. The redemption period expired and title was consolidated in Felipe. Later, Felipe conveyed the properties to the sisters Feliciana and Modesta Gamboa. Feliciana and Modesta then entered into a written partition of the properties. Petrona intervened in the partition claiming to be co-owners with Modesta and Feliciana. Issue Was there a trust between the Sister Gamboa and Felipe? Held No. Here, Petrona’s argument that the sale between the Sisters Gamboa and Javier was actually a redemption of the earlier sale between Juan Gamboa and Felipe is untenable. The 2nd sale is an unconditional transfer of title to the Sisters. If the Sisters were actually purchasing the properties in a trust character, such agreement may have been enforced, but the nature by which the Sisters held the properties refute the trust theory. The Sisters held the property in the concept of an owner and exercised all the rights of ownership. Feel free to use and share this digest with anyone who needs it 92 Agency for Atty. Cochingyan by Jason Arteche Alejandro Ty vs Sylvia Ty Facts Alexander Ty died and was survived by his wife and daughter, Sylvia and Krizia respectively. Sylvia then filed a petition to settle Alexander’s intestate estate. Alexander’s estate contained the following real estate properties: 1. EDSA property 2. Meridien Property 3. Wack-Wack property. Later, Sylvia asked the intestate Court to sell or mortgage the estate’s properties to pay the estate taxes. However, this action didn’t sit well with her father-in-law, Alejandro, because he filed suit to recover the properties. Alejandro alleges that he was the one who provided the purchase money and simply placed the Titles in Alexander’s name so in case Alejandro dies, Alexander can divide the properties among his siblings. Simply put, Alejandro alleges a trust was created between him and Alexander. Issue Was there a trust between Alejandro and Alexander? Held No. Here, no express trust can be invoked because nothing in writing was presented to prove such trust and the case involves real property. Art. 1448 can’t apply to save Alejandro because the very same article provides for an exception if the Titleholder is the child of the person paying the purchase price. Consequently, even assuming Alejandro truly paid the purchase price, the law only presumes a gift in Alexander’s favor. EDSA Property Applying Art. 1448 of the CC, there can be no implied trust presumed because the person to whom Title was conveyed is the child of the person paying the purchase price. Instead of an implied trust, the law presumes a gift in the child’s favor. Meridien Condominium and Wack-Wack property There’s no implied trust because there’s no evidence to show Alejandro paid part of the purchase price. Instead, evidence shows that Alexander had the means to pay for the properties. Feel free to use and share this digest with anyone who needs it 93 Agency for Atty. Cochingyan by Jason Arteche Tan Sen Guan and Co. vs Phil Trust Co Facts Tan Sen Guan secured a money judgement against Mindoro Sugar Co. Phil Trust is a trustee of Mindoro Sugar. In accordance with an agreement, Tan Sen agreed to assign the money judgement against Mindoro Sugar to Phil Trust for valuable consideration. Valuable consideration being if ever Mindoro Sugar is sold Phil Trust will pay Tan Sen a sum certain in money. Later, Mindoro Sugar and all its properties was sold at public auction. Tan Sen then demanded payment in accordance with the agreement but Phil Trust refused. Issue Who is liable for the contract? Phil Trust or Mindoro Sugar? Held Phil Trust. Here, the condition in the agreement between Tan Sen and phil Trust happened because all the properties of Mindoro Sugar were already sold at public auction. Next, while the Deed of Trust between Mindoro Sugar and Phil Trust referred to Phil Trust as trustee, nowhere in the said deed was any authority given to Phil Trust to enter into a contract with Tan Sen. Phil Trust held legal title to Mindoro Sugar’s properties to protect the bond holders. Consequently, Phil Trust wasn’t authorized to manage Mindoro Sugar’s affairs or enter into contracts on its behalf. Further, even if the Deed of Trust authorized Phil Trust to enter into a contract with Tan Sen, Phil Trust would still be solely responsible for the contract as there is no stipulation that the trustor, and not the trustee, should be held liable for the contract. Feel free to use and share this digest with anyone who needs it 94 Agency for Atty. Cochingyan by Jason Arteche Government vs Abadilla Facts Luis Palad owns Land X. He executed a holographic will and later died without any descendants, leaving only his widow Dorotea Lopez. Luis also has collateral heirs namely Leopoldo and Policarpio. His will contains a clause which provides that when Dorotea dies or remarries, Land X will be donated to the Secondary College to be erected in Tayabas and for this purpose delivered to the Ayuntamiento or the Civil Governor of the province. Later, Doroteo remarried and the collateral heirs demanded Land X be partitioned arguing her 2nd marriage terminated her right to Land X. In the same action, the Municipality intervened claiming Land X pursuant to Luis’ will. During the action, the parties reached an agreement where the Municipality would inherit part of Land X while the remainder would be left with Doroteo. Such partition however is without prejudice to the collateral heirs’ to bring another action. Pursuant to this agreement, the court dismissed the action. Issue Was there an effective trust created in the will? Held Yes. In private trust, it isn’t always necessary for be beneficiary to be named, or even exist at the time the trust is created in his favor. Here, it’s argued there are no trustee and beneficiary because there’s no Ayuntamiento, Civil Governor, or even the purported Secondary College. An Ayuntamiento is the equivalent of a municipal corporation and it can be conceded that there’s no such equivalent in the Philippines. However, the Provincial Governor can be considered the equivalent of the Civil Governor being the legal successor of the latter. Next, even if the purported Secondary College hasn’t been created yet, the same isn’t fatal to the trust because a beneficiary doesn’t need to actually exist at the time the trust is created. Feel free to use and share this digest with anyone who needs it 95 Agency for Atty. Cochingyan by Jason Arteche Paulina Cristobal vs Gomez Facts Epifanio Cristobal owns Land X. In dire financial straits, Epifanio decided to sell Land X to Yangco under a contract of sale with right of repurchase. Later, Epifanio wanted to redeem Land X but he didn’t have any money so he approached Bibiano for a loan. Bibiano refused unless Epifanio manages to get the latter’s brother and sister to act as guarantors of the loan. Epifanio’s brother and sister, Marcelino and Telesfora respectively, agreed but on the condition the Title to Land X should be placed in their names. Bibianio granted the loan and Epifanio was able to redeem Land X albeit not in his name. Marcelino and Telesfora executed a ‘private partnership in participation’ agreement (Agreement) to share the cost of the loan. The Agreement required Marcelino and Telesfora to return Land X to Epifanio once the capital employed shall have been covered. Later, Telesfora decided to convey her claim to land X to Marcelino in exchange for Marcelino assuming her obligation under the loan to Bibiano. Marcelino agreed and around this time he entered into an equitable mortgage over Land X with Bibiano to secure the loan used to buy Land X from Yangco. Afterwards, Marcelino was able to pay the loan and Land X was now free from encumbrances. Later, Paulina, Epifanio’s her, then filed suit to recover Land X. Issue Can Paulina, Epifanio’s heir, recover Land X? Held Yes. A person who, before consolidation of the property in the purchase under a contract of sale with a right to repurchase, agrees with the vendors to buy the property and administer it till all debts constituting an encumbrance thereon shall be paid, after which the property shall be returned to the original owner, is bound by such agreement, and upon buying the property under these circumstances, the buyer in effect becomes a trustee. Here, the Agreement between the parties effectively created a trust for the purpose of rescuing Land X. Now the purpose has been accomplished, the property should be returned to Epifanio’s heirs pursuant to the agreement. Further, Telesfora’s abdication from the Agreement didn’t destroy the trust but merely clothe Marcelino alone with the obligation of returning Land X to Epifanio.3 Also, the Agreement stipulates as a condition for returning Land X that Epifanio must exhibit good behavior. However, Epifanio’s alleged bad behaviour during the trust can’t be taken against him because Marcelino never took any steps to defeat Epifanio’s rights to the trust on account of his bad behaviour. Prescription also won’t run in Marcelino’s favor because he didn’t hold it in the concept on an adverse owner. He held it merely in the concept of a trustee and prescription can’t run in such capacity. 3 This is an Express Trust due to the Agreement, with Marcelino and Telesfora expressly recognizing their obligation to return Land X. Feel free to use and share this digest with anyone who needs it 96 Agency for Atty. Cochingyan by Jason Arteche DBP vs COA Facts DBP created the DBP Gratuity Plan that provides for a retirement fund to cover the benefits due to DBP retiring officials. Later, a Trust Indenture was entered into between DBP and the Board of Trustees of the Gratuity Plan Fund, vesting in the latter the administration of the fund. The trustee then appointed the DBP Trust Services Department (TSD) as investment manager through an investment manager agreement (Agreement). The DBP then established a Special Loan Program (SLP) availed thru the DBP Provident Fund and Gratuity Plan Fund. Under the SLP, a prospective retiree has the option to utilize in the form of a loan a portion of his outstanding equity in the Gratuity Fund and invest the same in a profitable investment. Pursuant to the investment scheme, TSD paid the investors a total of P11 million representing the investment earnings. However, the COA disallowed the payments arguing the distribution of the income of the Gratuity Fund to future retirees is irregular and constituted the use of public funds for private purposes, which is prohibited. Issue Is the Gratuity Fund a trust fund? Held Yes. Here, the Gratuity Plan Fund is an express trust, specifically an employees’ trust. An employees’ trust is a trust maintained by an employer to provide retirement, pension, or other benefits to its employees. The DBP intended to establish a trust fund to cover the employees’ retirement benefits, such fund being separate and distinct from DBP funds. The Trust in this case constitutes DBP as Trustor, the Fund’s trustees as the Trustee, the prospective retirees as beneficiary, and the Fund + Fund’s income as the res. The DBP vested the trustees with legal title over the Fund as well as administration over the same under the Agreement. The Agreement clearly transferred legal title over the Fund to the Fund’s trustees. Consequently, the COA’s directive to record the Fund’s income in DBP’s books is wrong because such income from the Fund doesn’t form part of DBP’s revenues; such income of the Funds constituting the subject matter of the trust. Further, COA is correct in claiming the employee’s right to claim retirement benefits is still inchoate, due to the simple fact the employees haven’t retired yet. However, a beneficiary in a trust doesn’t need to be named or even exist at the time the trust is created. It’s sufficient the beneficiary’s are sufficiently certain or identifiable. Feel free to use and share this digest with anyone who needs it 97 Agency for Atty. Cochingyan by Jason Arteche Emiliano Ramos vs Gregoria Ramos Facts The Sps. Martin Ramos died and was survived by their children, 3 legitimate and 7 natural, which includes Emiliano. Later, a special proceeding was instituted to settle the intestate estate of the Sps. Ramos. A project of partition was submitted which the court approved. Martin had plenty of real property but the most valuable were 2 Hacienda, one called Hacienda Calaza that is the subject of this case. Administration over the Hacienda Calaza was given to Jose. Later, a cadastral court ordered the lands covering Hacienda Calaza be surveyed. Emiliano didn’t file any claim anymore in the cadastral case, relying instead on Jose who promised to have Titles issued in his and the other co-heirs name. Afterwards, Emiliano discovered that Jose in fact had the Title issued in his wife’s name instead, Gregoria. Further, Emiliano discovered there was in fact an earlier partition of her father’s estate and the fact she didn’t receive her rightful share. Emiliano then filed suit to recover Hacienda Calaza and their share in the partition. Issue Can Emiliano still recover her share in the partition and Hacienda Calaza? Held No. Here, there was no express trust created. The partition of Martin Ramos’ estate negates the existence of an express trust considering adjudication were made to his children. A trust must be proven by clear, satisfactory, and convincing evidence. It can’t rest on vague and uncertain evidence. There’s also no implied trust. In the cadastral proceedings that supervened after the intestate proceeding, Jose and Gregoria Ramos claimed the eight lots herein involved to the exclusion of Emiliano Ramos and the other heirs. When Jose Died, Gregoria leased the lots to Yulo who in turn transferred his lease rights to 3rd persons. These transactions prove the Heirs of Jose Ramos repudiated any trust which was supposedly constituted over Hacienda Calaza in Emiliano’s favor. Consequently, because any alleged trust was already repudiated, the statute of limitations applies to this case. The instant case was brought only 40 years after the right accrued. The delay is inexcusable and such action is barred both by prescription and laches. Feel free to use and share this digest with anyone who needs it 98 Agency for Atty. Cochingyan by Jason Arteche Diaz vs Gorricho Facts Francisco and Maria are married and part of their conjugal properties is Lots 1 and 2. Later, Francisco died and was survived by Maria and Diaz. Gorricho then filed suit against Maria causing a writ of attachment be issued upon Maria’s shares in Lots 1 and 2. Both lots were sold at public auction with Gorricho emerging as the winning bidder. Maria failed to redeem within the redemption period causing the sheriff to execute a Final Deed of Sale in Gorricho’s name. However, the sheriff mistakenly conveyed the entire Lots 1 and 2, instead of just Maria’s 1/2 interest in each. Gorricho obtained TCTs for both Lots 1 and 2 as a result. Later, Maria died and her child, Diaz, filed suit to recover the 1/2 interest in Lots 1 and 2 on the basis of an implied constructive trust. The suit was instituted 15 years after both Lots were conveyed to Gorricho. Issue Assuming a constructive trust exists, can Diaz still recover the Lots? Held No. Unlike an Express trust, Constructive trust is subject to both prescription & laches. The reason for the difference is as follows: 1. Express trust - the beneficiary’s delay is directly attributable to the trustee who holds the res for the beneficiary. The trust is fiduciary and the trustee’s possession isn’t adverse. It becomes adverse only when the trustee repudiates the same and the beneficiary becomes aware of such repudiation. 2. Constructive trust- there’s no fiduciary relationship. The trustee neither recognizes any trust nor intends to hold the res for the beneficiary. The trustee’s possession is adverse. Consequently, Diaz is barred from recovering both Lots because his action has already prescribed. Feel free to use and share this digest with anyone who needs it 99 Agency for Atty. Cochingyan by Jason Arteche Vda. de Ouano vs Republic of the Philippines Facts The Mactan Cebu International Airport Authority (MCIAA) pursued a program to expand the Cebu Lahug Airport. MCIAA negotiated with the owners of the properties situated around the airport. The owners claim MCIAA sweetened the deal by assuring the owners they can buy back their properties if the expansion project doesn’t push through. Some owners, relying on this assurance, allowed MCIAA to buy their lands. Others however still refused causing MCIAA to file expropriation cases. Eventually, MCIAA won in the expropriation cases and acquired the necessary properties. However, sometime later Lahug Airport ceased operations and the expansion project was abandoned. This caused the owners to demand MCIAA sell back their properties to them. MCIAA refused causing the owners to file suit.. Issue Can the owners still buy back their properties from MCIAA? Held Yes. Constructive trusts are fictions of equity that courts use as devices to remedy any situation where the holder of legal title may not in good conscience retain the beneficial interest. Among other reasons, the Petitioners can recover on the basis of a constructive trust. Undisputedly, the Petitioners sold their properties to MCIAA with the latter obliging itself to use the properties for the Lahug Airport’s expansion. In effect, MCIAA held the properties in trust until the proposed use for which the properties were acquired has been consummated. MCIAA failed to do fulfill the purpose and therefore the Petitioners can compel MCIAA to sell back the properties. Feel free to use and share this digest with anyone who needs it 100 Agency for Atty. Cochingyan by Jason Arteche Lopez vs CA Facts Juliana and Jose are married with no children. Juliana exclusively owned the disputed properties in this case as her paraphernal properties. Later, Juliana executed a will expressing her wish to constitute a trust fund over her paraphernal properties with Jose as administrator. Once Jose dies or renounces the obligation, then Lopez would become the administrator. As to Juliana’s share in the conjugal properties, she bequeath the same to Jose. Juliana initiated the probate of her will but before the probate court can hear the petition, she died. Instead, Jose pursued the petition and submitted to the probate court a proposed project of partition of the properties. In said partition, Jose made it appear that some of Juliana’s paraphernal properties were registered in both their names. The probate court approved the partition. In 1969, the probate court ordered that the Titles for properties under the Trust be cancelled and new ones issued to Jose as trustee. The rest of the properties not under the Trust were adjudicated to Jose as Juliana’s heir. Some of Juliana’s paraphernal properties weren’t made part of the trust. Afterwards, Jose died disposing his properties to his Heirs. In 1984, Lopez then assumed the trusteeship of Juliana’s estate and later filed suit in his capacity as trustee to recover Juliana’s paraphernal properties included in Jose’s estate. Issue Has Lopez’s action to recover Juliana’s paraphernal properties prescribed? Held Yes. Here, there was no express trust created because the disputed properties were expressly excluded from the trust. Instead, these properties were adjudicated to Jose as his exclusive share. Further, such partition bore the probate court’s approval. However, an implied constructive trust was created because the disputed properties were mistakenly excluded from the trust and adjudicated to Jose. The provision on implied trust governing this case is CC Art. 1456. This is the opposite of what Lopez claims that the disputed properties were intended for the trust. Now that a constructive trust has been established, can prescription apply? A constructive trust is subject to extinctive prescription that is 10 years. In this case, the prescriptive period must begin in 1969, when the disputed properties were registered in Jose’s name. At that point there was already constructive notice of the mistake to Lopez or any other interested party. Considering the instant case was filed in 1984, obviously the same is beyond the 10-year prescriptive period. Feel free to use and share this digest with anyone who needs it 101 Agency for Atty. Cochingyan by Jason Arteche Benita Salao vs Juan Salao Facts What’s clear is Benita Salao is Valentin’s heir and he alleges the Calunuran fishpond was assigned to Valentin through an oral partition. Juan opposes on the ground he and Ambrosia exclusively owns the same.4 Issue Did Juan and Ambrosia hold in trust the Calunuran fishpond for Valentin? Held No. Here, there’s no evidence to provide there was an express trust over the Calunuran fishpond in Valentin’s favor. Only parol evidence was presented to prove the alleged trust claiming there was an oral partition assigning the Calunuran fishpond to Valentin. An express trust concerning an immovable can’t be proved by parol evidence. But is the parol evidence presented sufficient to prove an implied trust? On this point, the evidence also fails. It’s incredible to believe the 47 hectare Calunuran fishpond would be assigned to Valentin by mere word of mouth. In contrast, for a mere 17 hectare of land Valentina left, the Heirs had to execute an elaborate 22 page document. Further, the Calunuran fishpond is registered land but Benita Salao failed to present the registrable deed over the same, despite the lapse of 40 years. Consequently, Benita failed to prove the existence of a trust by clear, satisfactory, and convincing evidence. A trust can’t rest on vague and uncertain evidence or loose, equivocal, or indefinite declarations. If the trust is to be proven by parol evidence, such parol evidence must be trustworthy. There was no resulting trust in this case because there was never any intention on the part of the parties to create a trust. Further, there’s no constructive trust because the registration of the Calunuran fishpond in the names of Juan and Ambrosia wasn’t vitiated by fraud or mistake. Lastly, even assuming there was a constructive trust, the action would still be barred by prescription or laches. The reason being the Calunuran fishpond was registered in 1911 but the action for reconveyance was file din 1952, way after the 10-year prescriptive period. 4 The facts are so distorted and some of it is even in Spanish Feel free to use and share this digest with anyone who needs it 102 Agency for Atty. Cochingyan by Jason Arteche Municipality of Victorias vs CA Facts Gonzalo Ditching owns Land X. Gonzalo died and was survived by his widow, Simeona, and daughter, Isabel. Later, Isabel likewise died leaving her child, respondent Norma. When Simeona died, Norma inherited Land X from her. Norma then donated a portion of Land X to the Municipality to be used for a certain high school and had the remaining portion be surveyed. In the survey, she discovered that a portion of Land the Municipality uses as a cemetery formed part of Land X. She then demanded from the Municipality payment for past rentals and delivery of the portion allegedly illegally occupied. The Municipality refused causing Norma to file suit. The Municipality alleges it bought the disputed Land from Simeona. Issue Can Norma recover the disputed portion from the Municipality? Held No. Here, the evidence shows the Municipality actually bought the disputed Land from Simeona. However, the Municipality failed to register the Deed of Sale and when Simeona died, Norma claimed to have inherited the whole of Land X, including the disputed Land, and successfully registered the same under the Torrens system. Further, Norma herself admitted she inherited Land X from Simeona, who already sold the disputed portion to the Municipality beforehand. Consequently, Norma had no legal right to register the disputed portion in her name because Simeona, and therefore her as well, never owned it. When Land is decreed in a person’s name through fraud or mistake, such person is by operation of law considered a trustee of an implied trust for the benefit of the property’s true owner. The beneficiary has the right to enforce the trust and recover the res even if the trustee has a Torrens title in his name. Consequently, Norma merely held the disputed portion in trust for the Municipality and the latter can neither be deprived of possession nor made to pay rentals simply because Norma possessed a Torrens title in her name. In fact, the Municipality can demand Norma to convey the disputed portion in its name pursuant to the Implied Trust. Feel free to use and share this digest with anyone who needs it 103 Agency for Atty. Cochingyan by Jason Arteche PNB vs CA Facts Mata & Co. Inc. (Mata) is a private corporation engaged in providing goods and services to shipping companies. One of Mata’s customers is Star Krist Foods, Inc. (StarKrist). As part of an agreement, Mata would advance StarKrist’s shipping expenses and StarKrist would later reimburse Mata by sending a telegraphic transfer through banks for credit to Mata’s account. This is the set-up when Security Pacific National Bank (SEPAC), PNB’s agent, transmitted a cable to PNB to pay $14k to Mata by crediting Mata’s account with the Insular bank of Asia and America (IBAA) per StarKirst’s order. However, PNB noticed an error and found out the amount should only be $1.4k and not $14k. Afterwards, PNB issued a check worth $1.4k. 14 days later, PNB issued another check worth $14k in Mata’s favor purporting to be another transmittal of reimbursement from StarKrist. PNB discovered the error 7 years later and requested Mata return the $14k after discovering the error but the latter refused. PNB then filed suit. Issue Is Mata’s obligation to return the 14k governed by implied constructive trust or solutio indebiti? Held Both || But barred by Laches Here, Mata received the $14k with no intention of holding the same in trust for PNB as the beneficiary. Consequently, an implied constructive trust was created. However, the instant case also fulfills the requirements of solutio indebiti, so which is which? Undoubtedly, the $14k was paid by mistake and Mata had no right to receive the same. The instant case is both a constructive trust and solutio indebiti. PNB had the choice of the 2 initially but the remedy of solutio indebiti is already barred by prescription. However, it can’t seek remedy through implied trust because the same is already barred by laches.5 5 It’s important to distinguish between the 2 because the prescriptive periods are different for each. Trust: 10 years || Solutio Indebiti = 6 years. Feel free to use and share this digest with anyone who needs it 104 Agency for Atty. Cochingyan by Jason Arteche Sps. Felipe and Josefa Paringit vs Bajit Facts Julian Paringit and Aurelia Paringit are married and they have 5 children, including Felipe and Marciana. The couple leased Lot X from Terocel Realty and lived there. Aurelia died and afterwards Terocel decided to sell Lot X and offered it to Julian. However, Julian didn’t have enough money to purchase Lot X and turned to his children for help. Among his children, only Felipe had enough money to purchase Lot X. Julian then assigned his leasehold right to Felipe and the latter bought Lot X. Afterwards, there was a dispute among the children as to Lot X’s true nature causing Julian to execute an affidavit stating Lot X was to be inherited by his children after the latter have reimbursed Felipe for the purchase price. The children, including Felipe through his wife, signed the affidavit. Later, Felipe registered Lot X but it was who Marciano lived in Lot X. Years later, Felipe demanded Marciana pay rent for living in Lot X but the latter refused, believing she had the right to occupy Lot X. Felipe then filed an ejectment suit and successfully managed to eject Marciana. Marciana then filed suit to annul Felipe’s tile and reconveyance. Issue Did Felipe purchase Lot X under an implied trust with Julian’s children as beneficiary? Held Yes. The instant case is an implied resulting trust falling under the CC Art. 1450. Here, the circumstances clearly show an implied trust. True, there was no express agreement that Felipe bought Lot X for his siblings and father. However, such agreement came about by operation of law. These circumstances are: 1. At the time Tercol offered to sell Lot X, Julian and his children co-owned the leasehold right. All the co-owners should’ve agreed to any sale of the leasehold right. However, only Julian agreed to the sale. If the intention was really for Felipe to solely own Lot X, the conformity of the co-owners should’ve been secured. 2. Julian’s affidavit stipulates Felipe merely advanced payment because none of the other coowners had sufficient money to purchase Lot X. Further, the co-owners were to later reimburse Felipe. Notable, Felipe, acting through his wife, signed the affidavit. 3. After buying Lot X, Felipe moved out of the same and allowed Marciano to live there. Such act doesn’t make sense if Felipe truly believes he’s the absolute owner. 4. Felipe demanded rent from Marciano only 10 years after he bought Lot X. During those 10 years, Felipe respected Marciano’s right to occupy Lot X. Lastly, the instant case is neither barred by prescription nor laches. Even assuming Felipe’s registration of title over Lot X in 1987 is a repudiation of the trust, which in reality isn’t, the instant action is still within the 10-year prescriptive period, being filed in 1996. Feel free to use and share this digest with anyone who needs it 105 Agency for Atty. Cochingyan by Jason Arteche Heirs of Emilio Candelaria vs Romero Facts Lucas Candelaria bought Lot X on installment basis. He paid the 1st two installments but was financially unable to pay the subsequent installments. Unable to pay, Lucas sold his interest to Lot X to his brother, Emilio Candelaria. Emilio reimbursed Lucas for the 1st two installments and continued paying the subsequent installments. However, payments were still made in Lucas’ name with the understanding that the necessary transfer documents would be made later. A TCT was issued over Lot X in Lucas’ name. Lucas held Lot X in trust for Emilio with the former and his Heirs acknowledging the same. Later both Emilio and Lucas died with the latter survived by Romero. Afterwards, the Heirs of Emilio demanded Romero convey the property to them but the latter refused, hence this case. Issue Was there an implied trust between the Heirs of Emilio and Romero? Held Yes. This is a case of implied resulting trust falling under Art. 1453 with Emilio as beneficiary and Lucas as trustee. This is a trust where a person takes property under an agreement to hold it for another. Here, it is undisputed Emilio paid for Lot X but Lucas held Title over the same. The Petitioners allegation itself shows there was an understanding between Emilio and Lucas that the necessary transfer documents would be later executed. Clearly, Emilio intended to obtain a beneficial interest in Lot X, having paid for the same. Next, an implied resulting trust isn’t subject to prescription unless the trust was expressly repudiated and the same was made known to the beneficiary. Consequently, the beneficiary isn’t prejudiced by the trustee’s continued possession of the res no matter how long. Feel free to use and share this digest with anyone who needs it 106 Agency for Atty. Cochingyan by Jason Arteche Horacio Adaza vs CA Facts Victor and Rosario are married with 6 children, including Horacio, Homero, and Violeta. Later Victor donated Land X to Violeta that the latter accepted. Land X was originally alienable disposable land and Violate filed a homestead application over the same. The application was approved and an OCT issued in Violeta’s name. Later Violeta took out a loan from PNB secured by Land X. Currently Homero administers Land X. Later, Horacio invited the Family, including Violeta, for a gathering. At said gather, Horacio asked Violeta to sign a Deed of Waiver concerning Land X. The Deed stipulates Land X was co-owned by Horacio and Violate even through the OCT was only in Violeta’s name. The Deed also provides for Violeta’s transfer of 1/2 interest in Land X and improvements existing thereon on Horacio’s favor. Violata signed the Deed. Later, Violata filed suit to annul the Deed. Issue Does Horacio have any interest in Land X? Held Yes. Here, the Deed of Donation contains a provision that was crossed out stipulating that: The donee shall share 1/2 of Land X with one of her siblings after the donor’s death The next succeeding provision reads: The donee receives Land X, not subject to any condition... Horacio’s testimony shows Victor’s intention was to donate Land X to him and Violeta as shown by the crossed-out provision. The provision was crossed out in order to facilitate the issuance of title, Land X at the time being alienable disposable public land. However, Horacio was still to have 1/2 interest in Land X despite the provision being crossed out. Is Horacio telling the truth? There are circumstances that indicate so 1. The Deed of Waiver which Violeta voluntarily signed in full view of her siblings and other family members 2. It’s the parents practice to Title Lands they acquire in the name of only 1 child. 3. Violeta sent Horacio 2 letters acknowledging the latter’s 1/2 interest in Land X. The letter contained a request for Horacio to not be hasty in dividing Land X to get his share. 4. Horacio was relaxed in the fact Violeta solely had Title to Land X, and it was only when Violeta’s husband started showing undue interest in Land X that he filed suit. Consequently, the Deed of Donation created an implied trust in Horacio’s favor with respect to half of Land X. Such Trust falls under the CC Art. 1449. Lastly, an implied resulting trust isn’t subject to prescription. Further, the same isn’t barred by laches because of the existence of a confidential relationship, namely, consanguinity, in this case. The parties in the instant case are brother and sister and the same excuses the long delay. Feel free to use and share this digest with anyone who needs it 107 Agency for Atty. Cochingyan by Jason Arteche Sing Juco and Sing Bengco vs Sunyantong and Llorante Facts Sing Juco and Sing Bengco (Sings) obtained from Maria Gay a written option to purchase the ‘San Antonio Estate (Estate).’ The option expired but the Sings had it verbally extended. Around this time, Sunyantong was the Sings’ employee and the latter reposed confidence in him and didn’t mind disclosing their plans to him concerning the Estate and negotiations with Maria. Sunyantong advised the Sings to let some days pass before accepting Maria’s terms of purchase to give the image the Sings aren’t coveting the Estate. Later, the Sings ordered Alipio Santos to examine the Estate and Sunyantong accompanied Alipio. The Estate impressed Alipio but Sunyantong told Alipio not to report his finding to the Sings allegedly because if the Estate failed the Sings would blame Alipio. On the option’s last day, Sunyantong called Maria and offered to buy the Estate on the same terms offered to the Sings. Maria called Manuel Sotelo, the Sings broker, to know the Sings decision on the matter. The Sings however just replied ‘siya ang bahala’ which Maria took to mean the Sings have waived their option to buy. Maria then sold the Estate to Sunyantong’s wife, Llorante. Issue Did Sunyantong violate the trust the Sings reposed in him by buying the Estate? Held Yes. Here, the evidence clearly shows Sunyantong is guilty of infidelity considering Sunyantong is a trusted employee and the Sings revealed sensitive information to him concerning the Estate. Sunyantong’s disloyalty was the reason Maria didn’t accept the terms the Sings proposed knowing Sunyantong was willing to buy on her terms. If Sunyantong hadn’t intervened and events took their ordinary course, the Estate would have been sold to the Sings and on terms favorable to them. Consequently, Sunyantong’s infidelity that redounded to his own benefit and to the Sings’ detriment can’t pass without legal sanction. Sunyantong must sell the Estate to the Sings on the same terms when he purchased the same from Maria. Feel free to use and share this digest with anyone who needs it 108 Agency for Atty. Cochingyan by Jason Arteche Carolina Figuracion v Emilia Figuracion-Gerilla Facts Leandro died intestate and was survived by his spouse Carolina and his children, Emilia et. al. At the time Leandro died, he owned 2 parcels of land, Land X & Land Y. Leandro executed a Deed of Quitclaim over both Lands in his children's’ favor. Another land, Land Z, is also involved in this controversy. Eulalio originally owned Land Z and he had 2 daughters, Agripina & Carolina. Later, Agripina executed a Deed of Quitclaim over half of Land Z in Emilia’s favor. Afterwards Carolina executed an Affidavit of Self-Adjudication adjudicating to herself all of Land Z. Carolina then executed a Deed of Absolute Sale over Land Z in Hilaria’s favor. The OCT over Land Z was cancelled and TCT issued in Hilaria’s name. Emilia then went to the US and after a few years returned to the Philippines and occupied half of Land Z, relying on the Deed of Quitclaim. Afterwards, Hilaria threatened to demolish Emilia’s house on Land Z causing Emilia to file suit to partition Land Z. Issue Can Emilia compel Hilario to partition Land Z despite Land Z being registered in 1962 and the action filed only in 1994? Held Yes. Here, the evidence shows Agripina owned half of Land Z having inherited the same from Eulalio. Later, Agripina executed a Deed of Quitclaim over her share making Emilia the new owner. Clearly, there was a co-ownership over Land Z between Emilia and Carolina. Consequently, the co-ownership having been established, Carolina’s sale to Hilaria was valid only insofar as that corresponding to Carolina’s share. Next, Emilia’s right to recover half of Land Z is neither barred by prescription nor laches. When Hilaria registered Land Z in his name to Emilia’s exclusion, an implied trust was created by operation of law. Hilaria became a trustee, Emilia the beneficiary, Emilia’s share in Land Z the res. As trustee, Hilaria can’t repudiate the trust by simply relying on the registration of Land Z. A trustee who obtains a Torrens title over a property held in trust can’t repudiate the trust by relying on the registration. The Torrens system was never intended to facilitate betrayal of a trust and merely confirms title already vested, it doesn’t vest title. The implied trust was expressly repudiated in 1994 when Hilaria threatened to demolish Emilia’s house. Clearly, the action is neither barred prescription nor laches the action being filed the same year when the trust was repudiated.6 6 Emilia physically possessed her half of Land Z, meaning her action is one to quiet title, which is imprescriptible. Further, it seems the court treated the trust, as resulting, rather than constructive. Feel free to use and share this digest with anyone who needs it 109 Agency for Atty. Cochingyan by Jason Arteche Pasino vs Monterroyo Facts Land Z is a 24-hectare parcel of land that Laureano Pasino cultivated and cleared. Land Z formed part of the public domain and the Government later declared it alienable and disposable. Laureano then filed a homestead application over Land Z that the Director of Lands granted. Laureano died before the Director of Lands issued an order to have a homestead patent issued in the former’s name. Laureano’s heirs didn’t receive the order and therefore Land Z remained unregistered. Later, a cadastral survey on Land Z revealed that a small creek divided it into 2 portions, Land X and Land Y. Later, Laureano’s heirs executed a Deed of Quitclaim in favor of a co-heir, Jose, over Land Z. Jose then alienated Land X in his children’s (Petitioners) favor that then filed a Free Patent application. The Land Management Bureau granted the application and the Petitioners received their OCTs. After some time, Monterroyo forcibly took possession of Land X. Monterroyo alleges his predecessors-in-interest bought Land X from the previous owners. He traced the sale from Larumbe-Petra-Vicente-Arturo-Monterroyo. Issue Can Monterroyo compel Pasino to reconvey Land X to him despite the fact Pasino already has a Torrens title registered in his name? Held Yes. Under the principle of constructive trust, registration of property by one person in his name, whether by mistake or fraud, the real owner being another person, impresses upon the title so acquired the character of a constructive trust for the real owner, which would justify an action for reconveyance. If the registration of land is fraudulent, the person in whose name the land is registered holds it as mere trustee, and the real owner is entitled to file an action for reconveyance. Here, the evidence shows Monterroyo is Land X’s rightful owner having possessed Land X in the concept of an owner by themselves or through their predecessors-in-interest since 1947. Consequently, although Pasino has a Torrens title in his name, Monterroyo can still compel them to reconvey Land X to him. Feel free to use and share this digest with anyone who needs it 110 Agency for Atty. Cochingyan by Jason Arteche Rosario Gayondato vs Treasurer Facts Domingo Gayondato owns Land X that he inherited from his mother. Later, Domingo married defendant Adela Gasataya and had a child with her, Rosario Gayondato. When Domingo died, Adela’s father, Gabino, took charge of Land X. Adela then remarried defendant Cuachon and Gabino turned over Land X to Adela and her husband. Afterwards, Land X became subject of a Cadastral case. During the hearing, Gabino filed a claim for Land X declaring the same was the property of Adela and Rosario. However, the CFI erroneously decreed registration in Adela’s name alone. Later, Adela mortgaged Land X to the National Bank and then sold it to defendant Rodriguez. Rosario then filed suit to recover Land X. The CFI ruled in her favor ordering Adela and Cuacion to indemnify Rosario but absolved the Insular Treasurer and Rodriguez. Issue Did the CFI err in absolving the Insular Treasurer from the complaint? Held Yes. The Land Registration Act provides ‘the assurance fund shall not be liable to pay for any loss...occasioned by a breach of trust, whether express, implied, or constructive, by any registered owner who is a trustee, or... Here, there was a constructive trust created by operation of law when the CFI mistakenly decreed registration only in Adela’s name. However, does this automatically mean the assurance fund is already exempt from liability to indemnify Rosario? No, the exception provided in the Land Registration Act contemplates a trust in its technical and more restricted sense. The trust contemplated is ‘a right of property, real or personal, held by one party for the benefit of another; ’ in other words, an express or implied resulting trust. In this case, there was no technical trust of any kind. Adela had no right of property or administration over Land X and was nothing but a mere trespasser. Adela isn’t a trustee in its technical sense. Feel free to use and share this digest with anyone who needs it 111 Agency for Atty. Cochingyan by Jason Arteche Escobar vs Locsin Facts A cadastral proceeding was instituted over Land X. Escobal alleges he’s the owner of Land X but he was illiterate and so asked Sumangil to claim the same for her. However, Sumangil committed a breach of trust by claiming Land X for himself causing the same to be adjudicated to him. Sumangil died leaving Land X to Juana. Later, Juana died and Locsin now administers her estate. The CFI found Escobar had equitable title and Juana only legal title but still dismissed the case on the ground the period of 1-year to review a decree had elapsed. Issue Can the trust still be enforced despite the lapse of 1-year from the time the decree was entered? Held Yes. Here, the complaint doesn’t seek to review the decree issued over Land X but rather to enforce a trust. Therefore, the 1-year period for reviewing a decree doesn’t apply. Juana’s estate, as the trustee’s successor in interest, is in equity bound to execute a deed of conveyance over Land X to Escobar, the beneficiary. A constructive trust was created with Escobar as beneficiary, Juana as trustee, and Land X as the res. The Land Registration Act was never intended to cut off, through the issuing of a decree of registration, equitable rights or remedies. Further, the Torrens system was never intended to aid betrayal in the performance of a trust. Feel free to use and share this digest with anyone who needs it 112 Agency for Atty. Cochingyan by Jason Arteche Perfecta Cavile vs Litania-Hong Facts The Heirs of the Sps. Bernardo and Tranquilina (B&T) entered into a Deed of Partition. B&T had 3 children namely Susana, Castor, and Benedicta. Bernardo also had 3 children from previous marriages. Pursuant to the Deed of Partition, B&T conjugal properties were divided among all the children while Tranquilina’s shares were divided only to her 3 natural children. The Deed of Partition also states the co-heirs sold their shares over certain lots to Castor and Ulpiano. Later, Castor and Susana executed a Confirmation of Extrajudicial partition where Castor recognized and confirmed that Land X & Y were Susana’s lawful shares in B&T properties. In 1962, Perfecta, Castor’s daughter, filed a Free Patent application that the Bureau of Lands granted resulting in an OCT over Lands X & Y in Perfecta’s name. In 1974, Litania-Hong filed suit to reconvey Land X & Y alleging she inherited the same from her mother, Susana. Litania alleges that after Susana died, Castor and Perfecta eventually entered upon the Lands and excluded Litania from them. Issue Can Litania still recover Lands X & Y despite the lapse of 12 years from the time a Torrens title was issued in Perfecta’s name over the same? Held No. Here, the evidence shows Perfecta Cavile is the rightful owner of Lands X & Y. As a general rule, a Torrens title issued based on Free Patents become indefeasible after 1-year has elapsed from the date of issuance of the Free Patent. An exception is when the action for reconveyance is one to enforce an implied or constructive trust, which prescribes 10 years from the date the Torrens title was issued, provided the property isn’t in the hands of a purchaser in good faith. If the registered owner knew the the land described in the patent and Torrens title belongs to another, and the true owner possessed the land while the registered owner had never been in possession, the true owner may bring an action to recover ownership over the land. In this case, Litania brought the action for reconveyance in 1974, or 12 years after the Torrens title was already issued over Land X & Y in Perfecta’s name in 1962. Therefore, the remedy is already time-barred, the same having a 10-year prescriptive period. Further, even if Litania filed the action in time, she would still lose because her evidence fails to prove her ownership over Lands X & Y. Feel free to use and share this digest with anyone who needs it 113 Agency for Atty. Cochingyan by Jason Arteche Estrella Tiongco Yared vs Jose Tiongco Facts Atanacio and Maria Tiongco (A&M) had 4 children, namely Matilde, Jose, Vicente, and Felipe. Together, the children were known as the Heirs of Maria. Later, A&M died leaving their properties to their children. The present dispute involves 4 properties namely Land X,Y,Z,C. The Heirs of Maria co-own all of these properties. Jose had 2 children namely Estrella and Carmelo. Carmelo in turn also had a son named Jose (Respondent). Later, Estrella built her house on Lot X and filed a case to have her adverse claim annotated on the 4 properties. However, the annotation was made only on Land X & Y. The controversy started when Jose (respondent) prohibited Estrella from collecting rentals from Land X and filed suit to evict the tenants. However, Jose was never successful in possessing Land X. Later, Estrella discovered Jose had executed an Affidavit of Adjudication declaring himself sole heir and adjudicating to himself all the properties. Jose then had Torrens titles issued in his name. and sold the properties to 3rd persons who eventually sold them back to him. Estrella then filed suit to recover the properties. Issue Has Estrella’s action for reconveyance based on a constructive trust prescribed considering the complaint was filed in 1990 or 16 years after Jose registered the affidavit of adjudication? Held No. As a general rule, an action for reconveyance based on implied or constructive trust prescribes in 10 years from the time a Torrens title is issued over the property. An exception to this rule is when the equitable owner possesses the land to be reconveyed. The prescriptive period doesn’t run because the possessor has the right to wait until either his possession is disturbed or title questioned. before filing suit. When the person filing the suit in an action for reconveyance possesses the disputed land, the action is really one to quiet title.7 Here, Estrella’s possession was disturbed only in 1983 when Jose filed suit to recover possession of Land X. The RTC initially ruled in Jose’s favor but the CA reversed ruling in Estrella’s favor. Therefore, Estrella never lost possession of Land X. Consequently, only 7 have lapsed and the action hasn’t prescribed. Further, Jose acquired the Torrens titles over the disputed properties in his name through fraud. Jose lied when he declared he was the sole surviving heir knowing full well others heirs were still alive. 7 There was a constructive trust created between Jose and Estrella with Estrella as beneficiary, Jose as trustee, and Land X as res. The trust was created from the moment Jose executed the Affidavit of Adjudication. Further, the SC clarified the rule on prescription when the equitable owner has possession; the prescriptive period runs from the moment the equitable owner’s possession is actually disturbed. Here, filing an ejectment suit constitutes sufficient disturbance to start prescription. Feel free to use and share this digest with anyone who needs it 114 Agency for Atty. Cochingyan by Jason Arteche PNB vs Ciriaco Jumamoy Facts Antonio Go owns Land X evidenced by an OCT issued in his name. Later, the RTC discovered Land Y, part of Land X, actually belongs to Sesinado, Ciriaco’s predecessor in interest. Land Y was mistakenly included in Antonio’s free patent application that became the basis for his OCT. The RTC then ordered Antonio’s heirs to reconvey Land Y to Ciriaco, The RTC decision became final and executory, however the Deed of Conveyance couldn’t be annotated on Antonio’s OCT because the same was already cancelled. Apparently, Antonio mortgaged Land X to PNB as security for a loan. Antonio failed to pay the loan causing PNB to foreclose the mortgage. PNB subsequently acquired title to Land X evidenced by a TCT in its name. Further, the annotation couldn’t be made on PNB’s title because PNB wasn’t impleaded as defendant in the civil case. Ciriaco then filed suit against PNB. Issue Is Ciriaco’s complaint barred by the 10-year prescriptive period for reconveyance based on implied trust considering Antonio’s OCT was issued in 1971 while Ciriaco filed the action only 17 years after. Held No. The evidence shows PNB isn’t an innocent purchaser/mortgagee for value. Next, Ciriaco’s action for reconveyance is imprescriptible. A constructive trust was created between Sesinado, and by extension Ciriaco, as beneficiary and Antonio, and subsequently PNB, as trustee and Land X as res. The trust was created because there was mistake in registering Title to Land X in Sesinado’s name. As a general rule, an implied trust prescribes in 10 years counted from the date the Torrens title is issued over the property. The exception is when the person enforcing the trust, the beneficiary, possesses the res. When the exception applies, the case isn’t really an action for reconveyance but rather an action to quiet title. Here, Ciriaco has proven he has possessed Land X even before Antonio had the same registered in his name. Consequently, the 10-year period hasn’t even started because Ciriaco hasn’t been disturbed in his possession.8 8 The action for reconveyance when the beneficiary has possession is imprescriptible in the sense that unless his possession is disturbed, the 10-year prescriptive period won’t run. Once possession is disturbed, then the 10year period starts. Feel free to use and share this digest with anyone who needs it 115 Agency for Atty. Cochingyan by Jason Arteche Yu vs NLRC Facts ‘Jade Mountain Products Company Ltd.’ is a partnership originally organized with Lea and Rhodora as general partners and Chin and Chen as limited partners. The partnership has its main office in Makati. The Partnership through a Partnership Resolution hired Yu as Assistant General Manager with a fixed salary. However, Yu only received half of his fixed salary with the understanding the Partnership would pay the balance once it secures additional funds from abroad. Afterwards, Lea and Rhodora, as well as some limited partners, sold their interest in the partnership to respondent Willy and Emmanuel. Willy and Emmanuel now solely constitute the partnership and moved the office from Makati to Mandaluyong. Yu then reported for work in Mandaluyong but Willy dismissed him and refused to pay his unpaid salaries. Yu then filed suit for illegal dismissal. Issue Has the partnership that hired Yu been extinguished and replaced by the partnership composed of Willy and Emmanuel? If a new partnership had indeed come into existence, can Yu still assert his rights under his employment contract with the previous partnership against the new partnership? Held Yes || Yes Here, the CC Art. 1828 and 1830 govern on the 1st issue. Just about all the partners had sold their partnership interest (amounting to 82% of the total partnership interest) to Willy and Emmanuel. Such acquisition coupled with the retirement or withdrawal of the selling partners is enough to constitute a new partnership. However, simply because events occur which would legally result in the partnership’s termination doesn’t automatically mean the old partnership’s legal personality is terminated. The CC Art. 1829 declares the partnership isn’t terminated but continues until the winding up of partnership affairs is completed. In this case, the new partnership didn’t even bother to dissolve and wind up the old partnership’s affairs. The new partnership simply took over and continued the old partnership’s business. Important to underscore here is both the old and new partnership are liable for the old partnership’s debts. The old partnership is liable because it was the one who incurred the liability. The new partnership is liable by express provision of CC Art. 1840 because the new partnership continued the business of the old partnership without liquidating the old partnership’s affairs. In fact, Yu is entitled to priority against any claim of the previous partners in the partnership. Feel free to use and share this digest with anyone who needs it 116 Agency for Atty. Cochingyan by Jason Arteche Eligio Estanislao Jr. vs CA Facts Eligio and Respondents are brothers and sisters who co-own Land X. Shell was currently leasing Land X. The parties agreed to operate a gas station on Land X to be known as Estanislao Shell Service Station. They executed a Joint Affidavit where they agreed to help Eligio by allowing him to operate and manage the gasoline station. Further, the initial investment would be taken from advance rentals due from Shell for Land X. The parties negotiated with Shell with Eligio alone applying for the dealership. Later, the parties entered into an Additional Cash Pledge Agreement (Agreement) with Shell stipulating a different purpose for the advance rentals and said Agreement cancels and supersede the Joint Affidavit. Eligio submitted financial statements concerning the gas station to Respondents but after some time, Eligio failed to render accounting. Respondents then demanded Eligio to render accounting but Eligio failed to comply. Respondents then filed suit. Issue Did the Joint Affidavit create a partnership? If so, did the Agreement cancel the partnership? Held Yes || No The 2 documents stipulate different uses for the advance rentals. In the Joint Affidavit, the advance rentals serve as capital investment. While in the Agreement, the advance rentals were assigned to Shell to increase the parties credit limit as dealer. The Agreement prevails because of the stipulation that it cancels and supersedes the Joint Affidavit. However, the stipulation canceling and superseding the Joint Affidavit didn’t dissolve the partnership. Such stipulation was necessary because there was a conflict as to the advance rentals. Further, the evidence shows there was in fact a partnership agreement between the parties. The evidences are: 1. The testimonies of the Respondents and the Attorney who drew up the Joint Affidavit 2. Eligio submitted to Respondents periodic accounting of the business 3. Eligio gave written authority to Respondents to examine and audit the books of the business 4. Respondents also assisted in running the business Clearly, the parties formed a partnership agreement and the mere fact Eligio was the only one who applied for the dealership is negligible. Eligio applied alone because of Shell’s one-dealer policy. Feel free to use and share this digest with anyone who needs it 117 Agency for Atty. Cochingyan by Jason Arteche Yulo vs Yang Chiao Seng Facts Yang wrote a letter to Yulo offering to form a partnership between them to operate a theater on Land X, which at the time Yulo was leasing from Santa Marina. The partnership’s principal conditions include a provision that Yang guarantees Yulo would receive a monthly participation of P3k per month. Further, both parties would furnish the capital investment while profits would be distributed in proportion to their contribution to the capital investment. Yulo accepted the offer and the ‘Yang & Company, Ltd.’ was born. The partnership continued smoothly for a few years until Santa Marina notified Yulo that it was canceling the lease contract. Pursuant to such notice, Yulo then filed suit to enjoin the lease contract’s cancellation. However, the courts ruled in Santa Marina’s favor and terminated the lease contract. Later, Yulo demanded from Yang the former’s share in the profits but Yang refused. Yang reasoned his counsel advised him to suspend paying rentals because of the ejectment suit between Yulo and the lessors. Yang alleges inasmuch as he’s a sublessee and Yulo hasn’t paid the lessors the rentals from Aug. 1949 onwards, he was retaining Yulo’s share to make good on her payment to the landowners the rent due. Yulo then filed suit. Issue Was the relationship between Yulo and Yang one of lessee and sublessee or partnership? Held Lessee-Sublessee The following are a partnership’s requisites: 1. Two or more persons who bind themselves to contribute money, property, or industry to a common fund 2. Intention on the part of the partners to divide the profits among themselves. Here, the evidence shows: 1. Yulo never furnished her share in the capital investment 2. She never furnished any help or intervention in the theatre’s management. 3. She never demanded from Yang any accounting of the expenses and earnings of the business If Yulo was really a partner, she would’ve been vigilant in monitoring the business, such as expenses and earnings. On the contrary, she was absolutely silent on these matters which a partner would’ve inspected. All Yulo ever did was to receive her P3k a month, which can only be interpreted as payment for Yang leasing Land X. Clearly, there was no partnership and this contract is an ordinary lease.9 9 The name the parties give to a contract isn’t controlling, but rather what the law deems it to be. Feel free to use and share this digest with anyone who needs it 118 Agency for Atty. Cochingyan by Jason Arteche Eufemia Evangelista vs CIR Facts Eufemia and co-petitioners, using their personal money and borrowed money, bought several real properties and appointed her brother, Simeon, to manage the properties. She then rented or leased the real properties to various tenants. Later, the CIR demanded payment of income tax on corporations, real estate dealer’s fixed tax, and corporation residence tax, from Eufemia. Eufemia filed suit to be absolved from paying the taxes. Issue Is the partnership referred to in the NIRC on corporations tax and corporation residence tax the partnership contemplated in CC Art. 1767? Held No. Here, a partnership exists because: 1. The Petitioners contributed money and property to a common fund 2. The Petitioners’ purpose was to engage in real estate transactions for monetary gain and then divide the profits among themselves. The following circumstances, taken together, clearly establish the intent to create a partnership: a. The common fund was created purposely, going so far as to borrow a substantial portion b. They invested the same not merely in 1 transaction but in a series of transactions. c. The lots weren’t devoted to personal uses but leased or rented to 3rd persons for profit d. The properties have been under 1 person’s management and handled as if the same belonged to a corporation, business, or enterprise operated for profit e. The above conditions have continued for more than 10 years f. Petitioners never even offered an explanation for the foregoing setup Next, when the NIRC includes ‘partnerships’ among those subject to the tax on corporations. The Code doesn’t refer to partnerships in their technical sense. For the Code’s purposes, a tax on corporations includes partnerships, exempting only duly registered general copartnerships. In this case, Petitioners constitute a partnership subject to tax on corporations. Consequently, Petitioners are also subject to residence tax because said provision interprets ‘partnerships’ in the same manner as tax on corporations. Feel free to use and share this digest with anyone who needs it 119 Agency for Atty. Cochingyan by Jason Arteche Lorenzo Ona vs CIR Facts Julia Bunales died leaving as surviving heirs her spouse, Lorenzo, and 5 children. A civil case was instituted to settle her estate. Later, Lorenzo was appointed administrator of Julia’s estate and he submitted a project of partition. The project of partition shows the heirs have a share in various parcels of land, buildings, and money. The court approved the project of partition but no attempt was made to divide the properties as listed. Instead, Lorenzo kept managing the estate and leased or sold the properties, investing the proceeds in real properties and securities. The investments bore fruit and Petitioners made a hefty profit. Lorenzo would use the profit to make additional investments. The CIR then decided Petitioners formed an unregistered partnership and subjected them to corporate income tax. Petitioners filed suit to be absolved from the tax. Issue Are Petitioners an unregistered partnership even if the common fund used to engage in business and derive profit is their undivided inheritance? Held Yes. Here, the Petitioners didn’t merely limit themselves to holding the properties they inherited. They allowed Lorenzo to sell the properties at a profit and were in fact engaged in the purchase and sale of corporate securities. Further, the profits were divided proportionately in accordance with their respective shares in the inheritance. Consequently, from the moment Petitioners allowed Lorenzo to use both the income of the properties and the properties themselves as a common fund to engage in business, with intent to derive profit to be shared proportionately, they formed an unregistered partnership. True, before an inheritance is partitioned among the heirs, the heirs are considered co-owners of the inheritance. However, from the moment the inheritance and incomes derived therefrom are used as a common fund with intent to derive profits to be divided proportionately according to the project partition, either extrajudicial or judicial, the co-ownership becomes a partnership.10 10 There’s a partnership because: 1. The common fund is the inheritance and its incomes 2. Petitioners intended to divide the profits among themselves. Feel free to use and share this digest with anyone who needs it 120 Agency for Atty. Cochingyan by Jason Arteche Pascual vs CIR Facts Petitioners bought Land X from Santiago and Land Y from Juan. Later, Petitioners sold Land X to Marenir Development Corp. and land Y to Erlinda and Maria. From these sales, Petitioners made a hefty profit. Petitioners paid the corresponding capital gains tax. However, the CIR required Petitioners to pay an additional corporate income tax. The CIR treated Petitioners as an unregistered Partnership taxable as a corporation. Pascual filed suit to challenge the CIR’s tax assessment. Issue Have Petitioners become a partnership in buying and selling land they co-owned? Held No. Here, there’s no evidence to show Petitioners entered into an agreement to contribute money, property, or industry to a common fund, and they intended to divide the profits among themselves. In fact, the evidence shows a co-ownership between the Petitioners. The mere fact they purchased the 2 lands, co-owned them, and sold the same a few years later didn’t make them partners. Petitioners bought Land X in 1965 and neither sold the same nor made any improvements thereon. In 1966, Petitioners then bought Land Y and sold Land X in 1968 without buying other properties. Land Y was eventually sold in 1970. The foregoing shows the transactions were isolated and can’t be treated as business transaction for purpose of gain. An isolated transaction where 2 or more people contribute funds to buy certain real estate for profit can’t be considered a partnership in the absence of other circumstances showing a contrary intention. Further, merely sharing in the profit of co-owned property sold doesn’t form a partnership. A clear intent to form a partnership must exist.11 11 This case is different from Evangelista due to the bevy of circumstances present in that case clearly showing the intent was to engage in a business and derive profits. Feel free to use and share this digest with anyone who needs it 121 Agency for Atty. Cochingyan by Jason Arteche Bastida vs Menzi and Co. Facts ?? Issue Is the relationship between Bastida and Menzi Co. a copartnership? Held No. Here, the evidence shows Bastida was to receive 35% of the net profits of Menzi Co’s fertilizer business as compensation for Bastida’s services in supervising the fertilizer mixing. There was no partnership. There was no common fund in this case, a fund belonging to the parties as joint owners or partners. The business belonged to Menzi Co. and Bastida simply worked for Menzi Co. Instead of receiving a fixed salary, Bastida received a percentage of the net profits. Importantly, the mere fact the parties share profits doesn’t mean a partnership was created. The parties didn’t establish a partnership and never intended to become partners. The mere fact some of the pleadings and contracts contained words indicating a partnership isn’t sufficient to actually establish a partnership.12 12 There was provision on Bastida asking for leave, which is inconsistent with a partnership Feel free to use and share this digest with anyone who needs it 122 Agency for Atty. Cochingyan by Jason Arteche Anton vs Oliva Facts Oliva entered into 3 Memoranda of Agreement (MOA) with Gladys and Jose, the Antons, to set up a business partnership covering 3 fast food stores to be established in SM Malls. Under the MOA, Oliva would get 20%-30% of the profit depending on the Mall. Oliva would give 3 loans to the Antons. Initially, the Antons gave Oliva her share in the profits for 2 branches but not for the 3rd. Further, the Antons didn’t giver her any accounting of the operations of the 3 stores until finally, the Antons stopped giving Oliva her share in the profits altogether. Oliva then demander her share in the profits and accounting but the Antons refused. Olive then filed suit. The CA found there was no partnership agreement between Oliva and the Antons, but the Antons were still liable to pay Oliva her share of the profits. Issue Is the CA correct? Held Yes. Here, the relationship between Oliva and the Antons was of creditor-debtor, not of partnership. True, the MOA refers to Oliva as partner, but the amount Oliva gave wasn’t capital contribution to establish the business. In fact, the business had to pay Oliva back with interest. Further, the MOA forbade Oliva from interfering with running the business. Now, is Oliva still entitled to the profits despite the absence of a partnership? Yes, because the Antons agreed to compensate Oliva for the risk she had taken. Oliva gave the loan with no security and she was to be paid only if the stores made a profit. It doesn’t matter the Antons already paid for 2 of the loans because their obligation to share the profits with Oliva wasn’t extinguished by such payment. Next, as Oliva wasn’t a partner, she had no right to demand an accounting. However, she does have the right to know how many profits the stores are making in order to know her just share. Feel free to use and share this digest with anyone who needs it 123 Agency for Atty. Cochingyan by Jason Arteche Tocao vs CA Summary This case is a MR involving a previous decision that declared a partnership existed between Petitioner William and Respondent Nenita. Here, William acted merely as guarantor of Geminesse Enterprise that Nenita’s own witness, Elizabeth, affirmed on cross-examination. Further, Elizabeth testified a certain Peter was the company’s financier. The business relationship created between William and Nenita was an informal partnership, that wasn’t even recorded in the SEC. Therefore, it’s understandable for William, who was Marjorie’s good friend and confidante, to occasionally participate in the business affairs, although never in an official capacity. Next, no evidence shows William never even participated in the business’ profits. Doctrine: The essence of partnership is for the partners to share the profit and loss. Feel free to use and share this digest with anyone who needs it 124 Agency for Atty. Cochingyan by Jason Arteche Ortega vs CA Facts The law firm of Ross, Lawrence, Selph and Carrascoso was duly registered in the Mercantile Registry and reconstituted with the SEC. The SEC records show there were several amendments to the articles of partnership to change the firm name. The law firm ended up with the name Bito, Misa & Lozada. Later, Petitioner informed the Respondents of his intention to retire from the firm and have his participation liquidated. Petitioner then filed with the SEC’s Securities Investigation and Clearing Dept. (SICD) a petition for dissolution and liquidation of partnership. Issue Did Petitioner’s retirement from the Partnership dissolve the same? Held Yes. A partnership that doesn’t fix its term is a partnership at will. Such partnership is predicated on the mutual desire and consent of the partners. Truly, one of the partners may, at his sole pleasure, dictate dissolution of the partnership at will. He must however act in good faith, not that attendance of bad faith can prevent the dissolution of the partnership liability for damages can result. In fact, even if the partnership is one with a specific period or purpose, the partner by his act or will can still dissolve the partnership. Among partners, mutual agency arises and the doctrine of delectus personae allows them to have the power, although not necessarily the right, to dissolve the partnership. An unjustified dissolution of the partnership can subject the guilty party to damages. A partnership’s dissolution is the change in relation of the parties caused by a partner ceasing to be associated in carrying on the business. Meanwhile, winding up happens after the partnership is dissolved but the partnership retains its legal personality until its affairs are finished. Here, the law firm is a partnership at will. The term ‘retirement’ as used in the Articles of Partnership means the partner’s dissociation, inclusive of resignation or withdrawal, from the partnership that thereby dissolves it. Lastly, Petitioner wasn’t in bad faith because he was justified, i.e. interpersonal conflict among partners that caused him to retire. Feel free to use and share this digest with anyone who needs it 125 Agency for Atty. Cochingyan by Jason Arteche Lyons vs Rosenstok Facts Respondent Elser is engaged in the buying, selling, and administering of real estate. In several of his ventures, Lyons joined him with profits shared equally between the 2. Later, Lyons went on leave to the US and at the time he co-owned with Elser, each with 1/2 share, 3 properties (A,B,C). Lyons executed a general power of attorney in Elser’s favor authorizing the latter to manage and dispose the properties. During Lyon’s absence, Elser sold Property A & B. Afterwards, Elser discovered Property X that represented a fine business opportunity. Elser was able to gather, by his own means, and through loans from others, to acquire Property X. During his borrowings, one of the lenders required Elser to mortgage Property C as security, which he did. Eventually, Elser replaced Property C with his own property as security but eventually reverted the security back to Property C with Lyons consent. With enough money, Elser was able to purchase Property X. In order to develop the property, a limited partnership was organized between Elser and 3 other associates, under the name of J.K. Pickering & Company (Pickering). Elser offered Lyons to join him in developing Property X but the latter refused. Issue In mortgaging Property C, was there a partnership created between Elser and Lyons? Held No. Here, the mortgaging of Property C never resulted in damage to Lyons and any risk involved was negligible. Further, no money derived from the mortgage was ever applied to purchasing Property X. Elser bough Property X entirely upon his account. Lyons alleges that when Elser mortgaged Property C, Lyons as co-owner at the time of 1/2, he involuntarily became the owner of an undivided interest in Property X acquired partly by that money. Consequently, Lyons demands a certain number of shares from Pickering. The evidence shows Lyons consented to Property C being mortgaged because he thought the same was done in order to buy another property, Property Z. Further, Lyons allegations are untenable. No money belonging to Lyons was ever used to purchase Property X. Further, there’s no partnership between Lyons and Elser because Ester, in buying Property X, wasn’t acting for any partnership composed of himself and Lyons.13 13 This case involves a limited partnership because it involved only Property X. Further, there was no partnership between Lyons and Ester because there was no: 1. Common fund 2. Sharing of profits and loss. Feel free to use and share this digest with anyone who needs it 126 Agency for Atty. Cochingyan by Jason Arteche Fernandez vs Dela Rosa Facts Fernandez alleges that he entered into a verbal agreement with Dela Rosa (Dela) to form a partnership to purchase cascoes and the business of letting the same for hire. Both parties were to furnish such amount of money to buy the cascoes. The profits were to be divided proportionately according to the contribution. Dela then purchased 2 cascoes but took title in his own name. Later, the parties undertook to draw up the articles of partnership but Dela proposed terms materially different from the verbal agreement’s terms. Both parties were unable to come to an understanding and no written agreement was executed. In the meantime, Dela had control and management of the 2 cascoes, Fernandez demanded an accounting from Dela but the latter refused, denying the partnership altogether. Fernandez then filed suit. After negotiations failed, Dela gave Fernandez money representing the purchase price of the cascoes’ which the latter accepted. Issue Was there a verbal contract of partnership? Did Fernandez’s act of accepting the purchase price from Dela terminate the former’s interest in the partnership? Held Yes || No. The essential points upon which the minds of the Parties must meet in a contract of partnership are (1) mutual contribution to a common stock (2) a join interest in the profits. Here, both Parties contributed to the cascoes’ purchase satisfying the 1st requisite. As to the 2nd requisite, the same can be inferred from the fact the cascoes’ were purchased in common. Further, prior to the purchase of the cascoes’, forming a partnership was being negotiated between the Parties. A joint ownership might have resulted if the Parties had no interest in profits. Such as if the purchase was made to avail of a favorable bargain and divide the property equally once bought,. Executing a written agreement isn’t necessary to give efficacy to a verbal contract of partnership considering the contribution didn’t consist of immovables or rights in immovables. Now, did Fernandez’s act of accepting from Dela the purchase price of the cascoes’ result in terminating the partnership? No. First, the amount accepted fell short of what Fernandez contributed to the partnership. It didn’t include the profits + repairs on the cascoes’ that Fernandez made. Further, in accepting the money, Fernandez had no intention to relinquish his rights as partner. In fact, Fernandez notified Dela that he was waiving none of his rights in the partnership. Such acceptance on Fernandez’s part isn’t inconsistent with the partnership’s continuance. Feel free to use and share this digest with anyone who needs it 127 Agency for Atty. Cochingyan by Jason Arteche Woodhouse vs Halili Facts Woodhouse and Halili entered into a written agreement containing, among others, the following stipulations: 1. They shall organize a partnership with Woodhouse to act as industrial partner and Halili as capitalist 2. Woodhouse would receive 30% of the profits from the business. The parties signed the contract and went to the US to meet up with Mission Dry Corp. Mission Dry Corp. then granted them the exclusive right to distribute Mission beverages in the Philippines. Simply put, Woodhouse and Halili agreed to enter into a partnership to sell Mission Soft drinks, a USbased brand, in the Philippines. When the bottling plant was already operating, Woodhouse demanded Halili to execute the partnership papers. Halili kept on putting the matter off causing Woodhouse to file suit to compel Halili to execute the partnership papers. Issue Can Woodhouse compel Halili to execute the agreement despite the fact the same may not be declared null and void? Held No. Here, the evidence shows that no partnership existed at the time the bottling plant was operating. In fact, the agreement shows the parties intended to execute the partnership at a later date. Woodhouse himself, after they obtained the Franchise from Mission Corp, demanded Halili to execute the partnership. However, Woodhouse can't compel Halili to execute the partnership because the same is an obligation to do, not to give. The law recognizes the individual's freedom or liberty to do an act he has promised to do, or not to do it, as he pleases. It's a personal act of which courts may not compel compliance. Consequently, granting Woodhouse relief would amount to involuntary servitude against Halili. But Halili is liable for damages to Woodhouse. Feel free to use and share this digest with anyone who needs it 128 Agency for Atty. Cochingyan by Jason Arteche Angeles vs Secretary of Justice Facts The Sps. Angeles filed a criminal complaint for estafa against Respondent Mercado, their brother-inlaw. The Sps. Angeles claim that Mercado convinced them to enter into a contract of antichresis covering Land X with Mercado administering the lands and completing the necessary paperwork. After 3 years, the Sps. Angeles asked for an accounting from Mercado where they found out that Mercado put the antichresis contract under Mercado and his wife's name. Mercado defended himself claiming an industrial partnership existed between him and his wife as industrial partners and the Sps. Angeles as financiers. He claims the industrial partnership existed even before the antichresis contract with capital coming from the Sps. Angeles and profit would be divided evenly between Mercado and the Sps. Angeles. Issue Did a partnership exist between the Sps. Angeles and Mercado despite the lack of a public instrument and non-registration with SEC? Held Yes. The Sps. Angeles allege there's no partnership because of the lack of a public instrument indicating the same and the lack of registration with the SEC. The argument is untenable. First, the Sps. Angeles contributed money to the partnership and not immovable property. Second, Mere failure to register the partnership with the SEC doesn't invalidate a contract that has the essential requisites of partnership. The registration's purpose is to give notice to 3rd persons. Failing to register the partnership doesn't affect the liability of the partnership and of the partners to 3rd persons. Neither will such failure to register affect the partnership's juridical personality. A partnership may exist even if the partners don't use the words 'partner' or 'partnership' so long as all the essential requisites of partnership are present. Here, the Sps. Angeles admit the existence of a partnership: a contract showing an industrial partnership, contribution of money and industry to a common fund, and division of profits between the Sps. Angeles and Mercado. Feel free to use and share this digest with anyone who needs it 129 Agency for Atty. Cochingyan by Jason Arteche Ma vs Fernandez Jr. Doctrine In a contract of partnership, we said that registration's purpose is to give notice to 3rd parties; that failure to register the contract doesn't affect the liability of the partnership and of the partners to 3rd persons; and that neither does such failure to affect the partnership's juridical personality. An unregistered contract of partnership is valid as among the partners, so long as it has the essential requisites, because the main purpose of registration is to give notice to 3rd persons, and it can be assumed that members themselves knew of the contents of their contract. Registration isn't a requirement for a contract's validity as between the parties, for the effect of registration serves chiefly to bind 3rd persons. Registration then is the confirmation of the existence of a fact. Feel free to use and share this digest with anyone who needs it 130 Agency for Atty. Cochingyan by Jason Arteche Torres vs CA Facts The Sisters Antonia Torres and Emeteria Baring (Petitioners) entered into a JVA with Manuel Torres (Respondent) to develop Land X into a subdivision. Pursuant to the contract, the parties executed a Deed of Sale in Manuel’s favor registering Land X in Manuel’s name. Manuel then mortgaged Land X to Equitable Bank as security for a loan, which under the JVA was to be used to develop the subdivision. Further, the parties agreed to share the proceeds from the sale of Land X under the JVA under a 60-40 share with Petitioners getting 60%. However, the project didn’t push through and Land X was subsequently foreclosed. Petitioners filed a criminal case against Respondent but the latter was acquitted. Petitioners then filed a civil case against Respondent. Issue Did a Partnership exist? Was the same valid despite the fact the immovable property weren’t inventoried in a public instrument? How much of the loss should Petitioner & Respondent bear? Held Yes || Yes || Petitioner 60% and Respondent 40% A reading of the JVA clearly shows the partnership’s existence as provided in the CC Art. 1767. Under the JVA, Petitioners would contribute property to the partnership in the form of land that was to be developed into a subdivision. Meanwhile, Respondent would give the amount needed for general expenses and other cost in addition to his industry. Further, the income from said project would be divided according to the stipulated percentage. Here, Respondent contributed to the partnership by developing the roads, curbs, gutters, and entering into a contract to construct low-cost housing units on Land X. Next, the Petitioners contend the partnership is void under the CC Art. 1773. However, this contention is wrong in 2 ways. First, Art. 1773 was intended primarily to protect 3rd persons but the instant case doesn’t involve 3rd persons. Second, Petitioners themselves declare the contract as void but at the same time use it as their basis for making Respondent pay 60% of the value of Land X. Petitioners can’t deny or uphold the contract depending on what suits them.14 Lastly, Petitioners must bear 60% of the loss because CC Art. 1797 applies. 14 It seems Art. 1773 applies only when 3rd persons will be prejudiced. Feel free to use and share this digest with anyone who needs it 131 Agency for Atty. Cochingyan by Jason Arteche Benigna Secuya vs Vda. de Selma Facts Maximo owns Land X and he later entered into an Agreement of Partition adjudicating 1/3 of Land X to Paciencia. Paciencia then sold 3,000 sq. meter portion of Land X to Dalmacio. Dalmacio then took possession of his share of Land X and later allowed his niece and husband to possess the same. Later, Gerarda Selma bought a 1,000 sq. meter portion of Land X and later bought a bigger portion of Land X amounting to 9,000 sq. meters. Gerarda then filed suit against Dalmacio’s predecessor-ininterest, Benigna, asserting ownership over the portion Benigna inherited from Dalmacio. Issue Has Benigna proved the alleged sale between Paciencia and Dalmacio? Held No. Benigna insists that Paciencia sold the disputed property to Dalmacio and the sale was embodied in a private document. However, such private document, that would’ve been the best evidence of the transaction, was never presented in court allegedly because it had been lost. While a sale of a piece of land appearing in a private deed is binding between the parties, the sale can’t be considered binding on 3rd persons, if the sale isn’t embodied in a public instrument and recorded in the Registry of Property. Feel free to use and share this digest with anyone who needs it 132 Agency for Atty. Cochingyan by Jason Arteche Aurelio Litonjua Jr. vs Eduardo Litonjua Sr. Facts Aurelio and Eduardo are brothers and they entered into a joint venture/partnership agreement in the Odeon Theater business through investment from various corporations. The agreement was contained in a private memorandum. Later, the brothers’ relationship soured causing Aurelio to demand an accounting and liquidation of his share in the partnership. However, this demand went unheeded. Further, Aurelio believed Eduardo and co-respondents were transferring the partnership’s real properties to other parties in fraud of Aurelio. Aurelio then filed suit against Eduardo and Respondent Yang as well as several corporations for specific performance and accounting. Yang was named as partner in the complaint. Aurelio sought to prove the existence of the joint venture/partnership in a memorandum. Issue Whether or not the unsigned and undated memorandum is sufficient to establish the partnership’s existence. Held The memorándum is insufficient. A joint venture is a form of partnership because their elements are similar and is generally governed by the law on partnership. The memorandum supposedly evidencing the partnership violates the CC provisions determining the existence as well as formal requisites of a partnership provided in Art. 1771, 1772, and 1773. Art. 1771 - Aurelio admitted contributing immovable property and real rights to the partnership in the form of his share in the Litonjua family business (shipping, movie theaters, etc.) but the memorandum is unsigned and undated. Therefore, the memorandum isn’t a public instrument. Art. 1772 - The partnership involves capital of more than P3k but the memorandum can’t be presented for notarization, let alone registered with the SEC. Art. 1773 - This applies as long as real property or real rights are initially brought into the partnership. Considering Aurelio initially contributed real property and real rights, an inventory was required and attached to the public instrument. However, no such inventory was made, let alone attached to a public instrument, which in this case was also non-existent. Consequently, in the absence of a public instrument and inventory of immovable property the parties duly signed, the memorandum is void for the purpose of establishing a partnership. No rights can be derived from the memorandum. Feel free to use and share this digest with anyone who needs it 133 Agency for Atty. Cochingyan by Jason Arteche Rojas vs Maglana Facts Rojas and Maglana executed their Articles of Co-Partnership (Articles) called Eastcoast Development Enterprises (EDE) with only 2 of them as partners. EDE had an indefinite term of existence and was duly registered with the SEC. EDE was constituted to secure timber licenses. Under the Articles, Maglana was to manage EDE’s business affairs while Rojas would be the logging superintendent and manage EDE’s logging operations. The profits and losses would be divided share and share alike between the partners. EDE secured a timber of license from the Bureau of Forestry but EDE encountered difficulties forcing it to avail of Pahamotang’s services as industrial partner. The 3 parties then executed a 2nd Articles, practically the same in all respects with the 1st Articles, for a 2nd partnership also called EDE. EDE then operated and realized profits. Later, Rojas and Maglana bought Pahamotang’s shares in the partnership and the equipment Pahamotang contributed, and dissolved the 2nd EDE. After Pahamotang’s withdrawal, Rojas and Maglana continued the partnership without any written agreement or reconstitution of the Articles. Afterwards, Rojas entered into a management contract with CMS Estate and abandoned EDE. Maglana reminded Rojas of the latter’s obligation to the partnership but Rojas replied saying he won’t continue his obligations anymore. Rojas also withdrew his equipment from EDE. Further, Rojas took funds from the partnership worth more than his contribution causing Maglana to dissolve the partnership. Rojas then filed suit against Maglana. Issue Did the 2nd partnership dissolve the 1st partnership? Held No. The evidence shows the partners never intended to dissolve the 1st partnership upon constitution of the 2nd partnership. The 1st and 2nd partnership are the same except for the fact that: 1. Pahamotang was added as an industrial partner 2. Pahamotang had an equal share in the profits 3. The 2nd partnership’s term was fixed at 30 years. Both partnerships had the same name, purpose and capital contributions from Rojas and Maglana. Further, all subsequent renewals of Timber licenses were secured in the 1st partnership’s name. Practically speaking, the 2nd Articles only amended the 1st Articles and all business transactions were carried out under the 1st Articles. Next, it’s undisputed the 2nd partnership was dissolved by common consent but such dissolution didn’t affect the 1st partnership that continued to exist. The partners’ actions subsequent to the 2nd partnership’s dissolution (Maglana’s reminder and Rojas reply) leave no room for doubt that both parties considered themselves governed by the 1st Articles. Lastly, Maglana can unilaterally dissolve the 1st partnership despite the same being one with a period. There were only 2 parties and Maglana’s notice of dissolution can be considered a notice of withdrawal. Maglana can dissolve the partnership with or without just cause and the Articles will guide such dissolution. But if without just case, Maglana is liable for damages. Here, Maglana’s dissolution was justified because of Rojas’ actions (abandoning the partnership, withdrawing equipment, etc.) Feel free to use and share this digest with anyone who needs it 134 Agency for Atty. Cochingyan by Jason Arteche Pioneer Insurance vs CA Facts Jacob Lim is engaged in the airline business as owner-operator of Southern Air Lines, a single proprietorship. Later, Lim and Japan Domestic Airlines (JDA) entered into a sales contract with the former purchasing from the latter airplanes and spare parts. Pioneer Insurance executed a surety bond in JDA’s favor on Lim’s behalf to cover the purchase price. Border Machinery and Heavy Equipment Company (Bormaheco), Cervantes, and Maglana also contributed funds to purchase the goods. The funds were supposedly part of their contributions to a new corporation Lim proposed to expand his airline business. Bormaheco, Cervantes and Maglana also executed indemnity agreements in Pioneer’s favor. Lim also executed a chattel mortgage over the purchased airplanes in Pioneer’s favor.. Later, Lim defaulted in paying JDA forcing the latter to demand from Pioneer. Pioneer paid JDA then filed suit to foreclose the chattel mortgage. The lower courts found only Lim liable to Pioneer and absolved Bormaheco, Cervantes, and Maglana. Further, Lim was ordered to reimburse Bormaheco, Cervantes, and Maglana for the losses the latter incurred. Issue Did Respondents failure to incorporate result in a de facto partnership among them and as a consequence, all must share in the loss and/or gains of the venture in proportion to their contribution? Held No. The evidence shows Jacob never had the intention to form a corporation with Respondents despite his representations to them. This gives credence to Respondents claims that Jacob induced them to contribute to a proposed corporation that was never formed because Jacob reneged on the agreement. It’s also undisputed that Jacob received from Respondents a sum certain in money to purchase the airplanes and spare parts. Respondents believing the same would be their contribution to the proposed corporation. Generally, when persons attempt but fail to form a corporation and carry on the business under the corporate name occupy the position of partners. A general partnership is formed, as a punitive measure. However, such partnership is implied only when necessary to do justice among the parties because persons can’t be treated as partners to each other when no intent to form a partnership exists. Consequently, no de facto partnership resulted among the parties that entitled Jacob to reimbursement of supposed losses from the proposed corporation. Jacob was acting on his own and not in behalf of his would-be incorporators in transacting the sale of airplanes and spare parts.15 15 There was never any intention on Jacob’s part to form a corporation and to imply a partnership would result in injustice to Respondents. Feel free to use and share this digest with anyone who needs it 135 Agency for Atty. Cochingyan by Jason Arteche Lim Tong Lim vs Philippine Fishing Gear Industries Facts Antonio Chua and Peter Yao, on behalf of Ocean Quest Fishing Corp. purchased fishing nets and floats from Philippine Fishing Gear Industries. Antonio and Peter claim they were engaged in a business venture with Lim, who however wasn’t a signatory to the purchase. However, the buyers failed to pay for the fishing nets and floats causing Philippine Fishing to file a collection suit with a prayer for a writ of preliminary attachment against Antonio, Peter, and Lim. The suit was brought against the 3 of them in their capacities as general partners, on the allegation that Ocean Quest was a nonexistent corporation. The lower court ruled that a partnership existed among Antonio, Peter, and Lim based on a Compromise Agreement they executed in a prior civil case Antonio and Peter brought against Lim. The Compromise Agreement stipulated that the parties agreed to sell boats as payment to a 3rd company. Further, the parties agreed to divide or shoulder the excess or deficiency from the sale equally among them. Issue Is Lim liable to Philippine Fishing as a general partner? Held Yes. Here, the evidence shows a partnership existed among Antonio, Chua, and Lim. The parties decided to engage in the fishing business and they started buying boats for the purpose financed by a loan secured from Jesus Lim, Lim’s brother. The Compromise Agreement revealed the parties’ intention to pay the loan with the proceeds of the sale of the boats and to divide equally among themselves the excess or loss. These boats, the purchase and repair of which were financed with borrowed money, fall under the term ‘common fund.’ Further, the parties agreed that any loss or profit from the sale and operating the boats would be divided equally among them shows the partnership’s existence. Next, the partnership also extended to purchasing the nets and floats. The nets and floats are essential to fishing and were acquired to further the partnership’s business. Lastly, Lim’s argument that he was the lessor of the boats, the same being registered in his name, is absurd. Why would Lim sell his own boats to pay for another person’s debt and divide the excess or deficiency from the sale equally between him and the debtor? Most likely, the boats were registered in Lim’s name because Jesus trusted him, but such registration doesn’t detract from the fact the boats constituted the partnership’s assets. Consequently, the Petitioners formed a partnership engaged in the fishing business and they purchased boats, nets, and floats constituting the partnership’s main assets, with the profits and loss to be divided equally among them. Feel free to use and share this digest with anyone who needs it 136 Agency for Atty. Cochingyan by Jason Arteche Litton vs Hill & Ceron Facts Litton sold and delivered to Carlos Ceron, one of the managing partners of Hill & Ceron, a certain number of mining shares, and by virtue of said transaction, Ceron paid Litton a sum certain leaving an unpaid balance. Litton was unable to collect the unpaid balance either from Hill & Ceron or from its surety Visayan Surety & Insurance Corp. Liton then filed suit. Issue Is Ceron’s transaction with Litton binding upon Hill & Ceron despite the fact Ceron didn’t alegedly obtain the consent of his co-managing partner, Hill? Held Yes. True, Ceron individually entered into the transaction with Litton but said transaction must be understood in law as effected by Hill & Ceron, therefore binding upon it.16 Robert Hill and Carlos Ceron, during the partnership, had the same power to buy and sell and were equal partners. Further, the partnership was subsisting on the date of transaction with Litton. The management of the partnership’s business has been entrusted to both partners but it isn’t necessary for the partner to acquire the consent of the other partner in order to bind the partnership. 3rd persons, like Litton, in entering into a contract with any of the 2 partners, isn’t bound to ascertain if the partner he’s dealing with has the other partner’s consent. The public doesn’t need to make inquiries as to the agreements between the partners. It’s enough for the 3rd person to know that he’s contracting with the partnership represented by one of the managing partners. Next, there’s a stipulation in the articles of partnership that any of the 2 managing partners may contract and sign in the partnership’s name with the other’s consent. Such stipulation creates an obligation, as between the partners, to ask the other’s consent before contracting for the partnership. But this stipulation doesn’t impose the obligation upon 3rd persons to determine if the contracting partner indeed has the consent of the other partner. The 3rd person has the right to presume that the contracting partner has the consent of his co-partner. Such presumption will prevail if there’s no evidence to show that the contracting partner didn’t have the co-partner’s consent and the 3rd person knew of such lack of consent. Here, the presumption applies because both Hill & Ceron failed to show evidence proving lack of consent and that Litton knew of such fact. In fact, even if Ceron enters into the transaction against Hill’s will, the same is still valid provided: 1. Litton didn’t know of Hill’s lack of consent 2. The transaction was part of the partnership’s ordinary business. 16 Hill & Ceron is engaged in the business of brokerage in general and Litton’s transaction involved the sale of mining shares, part of the partnership’s ordinary business. Feel free to use and share this digest with anyone who needs it 137 Agency for Atty. Cochingyan by Jason Arteche Goquiolay vs Sycip Facts Tan Sin An and Antonio C. Goquiolay entered into a general commercial partnership to deal in real estate. Both Tan and Antonio contributed to the partnership’s capital. The agreement lodged in Tan the sole management of the partnership’s affairs and Antonio executed a general power of attorney to this effect. Further, if a partner dies, the partnership will continue but the heirs of the deceased partner will represent him in the partnership. Later, the partnership purchased Land X and assumed the mortgage, payable to La Urbana..Prestamos. Tan also purchased Land Y but in his individual capacity and assumed the mortgage thereon. The 2 mortgage obligations were consolidated in an instrument executed by the partnership and Tan where they agreed to bind themselves solidarily to pay the mortgage. Tan then died leaving his Heirs. Meanwhile, La Urbana demanded payment from the partnership and Tan. Respondent Sing Yee and Cuan Co. instead paid the mortgage. Sing Yee then filed their claims in the intestate proceedings of Tan arising from the partnership’s obligations and the mortgage. Tan’s Heirs, namely his widow Kong Chai Pin, then sold Land X & Y to Sycip and Lee to settle Tan’s debts. Sycip and Lee in turn sold Land X & Y to Insular Development Co. Antonio, learning about the sale, moved to annul the sale to the extent of his interest in both Lands. Issue Was Kong’s sale of Land X & Y valid despite Antonio’s lack of consent to the sale? Held Yes. Upon Tan’s death, Kong, by her affirmative actions, manifested her intent to be bound by the partnership agreement not only as a limited partner, but as a general partner. She managed and retained the possession of the partnership properties and was deriving income from the same. In selling Land X & Y in the partnership’s name, she was acting as a managing partner. Now, was Kong’s sale valid despite the lack of Antonio’s consent? Yes. Strangers dealing with a partnership have the right to assume, in the absence of restrictive clauses in the co-partnership agreement, that every general partner has power to bind the partnership, specially those partners acting with ostensible authority. The provisions of Art. 129 of the Code of Commerce (agreement among all the members) imposes such obligations only among the partners, and doesn’t necessarily affect a partner’s acts, acting within the scope of the ordinary business of the partnership, as regards 3rd persons without notice. A 3rd person may rightfully assume that the contracting partner was duly authorized to contract on the partnership’s behalf. Such 3rd person isn’t required to inquire the partner’s authority or if the other partners gave their consent. Here, the presumption prevails because Sycip & Lee bought Land X & Y from Kong without notice that Antonio didn’t gave his consent. Feel free to use and share this digest with anyone who needs it 138 Agency for Atty. Cochingyan by Jason Arteche US vs Clarin Facts Pedro Larin delivered to Pedro Tarug P172, in order for the latter, in company with Eusebio Clarin and Carlos de Guzman, might buy and sell mangoes. Larin made an agreement with the other 3 by which the profits were to be divided equally between him and them. Clarin, Guzman, and Tarud traded the mangoes earning a profit but they didn’t comply with the agreement by neither delivering to Larin his share of the profits nor rendering any account of the capital. Larin then filed suit for estafa against them. Issue Is a criminal action for estafa the proper remedy in case a co-partner fails to give the other co-partners their shares in the profits and capital? Held No. Here, a partnership was formed among the parties. Larin invested his P172 in the partnership, but his partners didn’t have the duty to return to him his capital. That duty devolves upon the partnership of which he himself formed part, or if it were to be done by one of the 3 other partners specifically, it would be Tarug, who according to the evidence was the person who received the money directly from Larin. The partnership having received Larin’s P172, the business commenced and profits accrued, the action that lies with the partner who furnished the capital to recover his money isn’t a criminal action for estafa, but a civil one arising from the partnership contract for a liquidation of the partnership and a levy on its assets if there should be any. Estafa doesn’t include as its object money received for a partnership. Feel free to use and share this digest with anyone who needs it 139 Agency for Atty. Cochingyan by Jason Arteche Goquiolay vs Sycip - Reconsideration Facts Tan Sin An and Antonio C. Goquiolay entered into a general commercial partnership to deal in real estate. Both Tan and Antonio contributed to the partnership’s capital. The agreement lodged in Tan the sole management of the partnership’s affairs and Antonio executed a general power of attorney to this effect. Further, if a partner dies, the partnership will continue but the heirs of the deceased partner will represent him in the partnership. Later, the partnership purchased Land X and assumed the mortgage, payable to La Urbana..Prestamos. Tan also purchased Land Y but in his individual capacity and assumed the mortgage thereon. The 2 mortgage obligations were consolidated in an instrument executed by the partnership and Tan where they agreed to bind themselves solidarily to pay the mortgage. Tan then died leaving his Heirs. Meanwhile, La Urbana demanded payment from the partnership and Tan. Respondent Sing Yee and Cuan Co. instead paid the mortgage. Sing Yee then filed their claims in the intestate proceedings of Tan arising from the partnership’s obligations and the mortgage. Tan’s Heirs, namely his widow Kong Chai Pin, then sold Land X & Y to Sycip and Lee to settle Tan’s debts. Sycip and Lee in turn sold Land X & Y to Insular Development Co. Antonio, learning about the sale, moved to annul the sale to the extent of his interest in both Lands. Issue Was Kong’s sale of Land X & Y valid despite Antonio’s lack of consent to the sale? Held Yes. Now, was Kong’s authority limited to managing the property, and didn’t include the power to alienate? No. Kong wasn’t a mere agent, because she had become a partner upon Tan’s death, as expressly provided in the articles of co-partnership. More so, granting Kong is only a limited partner, Goquilay’s authorization to her to manage partnership was proof that he considered her as a general partner. Because a limited partner can’t be empowered to administer the partnership’s properties, even as mere agent. Next, Kong had authority to sell the partnership’s real estate because the partnership was precisely organized to deal with real estate mortgage. Therefore, the sale of Land X & Y is within the partnership’s normal business and the partner’s ordinary powers. Here, such sale is within the partnership’s express objective. Feel free to use and share this digest with anyone who needs it 140 Agency for Atty. Cochingyan by Jason Arteche Moran Jr. vs CA Facts Pecson and Moran entered into an agreement where both would contribute P15k each to print 95k posters with Moran actually supervising the work. Pecson would receive a commission of P1k a month starting from April up to December. On December, a liquidation of the accounts in the distribution and printing of the posters would be made. Pecson gave Moran P10k and only a few posters were printed. Later, Moran executed in Pecson’s favor a promissory note promising to pay Pecson P20k in 2 equal installments with the whole sum becoming due upon failure to pay the 1st installment. Later, Pecson filed suit to recover his contribution in the partnership + profits, as well as the value of the promissory note. The lower court awarded Pecson P47k representing his share in the partnership’s unrealized profits. Issue Is such award proper despite being highly speculative and without taking into account the risks involved in the business undertaking? Held No. The award is speculative and has no basis in fact and law. Here, it’s undisputed that a partnership exists between Pecson and Moran. Further, both parties committed a breach of their partnership obligations, Pecson giving only P10k out of 15k, while Moran printed only P2k posters out of P95k posters. In a partnership, each partner must share in the profits and losses of the venture, that’s the partnership’s essence. And even with an assurance made by one of the partners that they would earn a huge amount of profits, in the absence of fraud, the other partner can’t claim a right to recover the highly speculative profits. Here, Pecson was promised P1k a month and P142k on the posters themselves. However, various factors and hidden risks must be considered in tempering such expectation of profits. But it doesn’t follow that Pecson isn’t entitled to recover anything from Moran. Pecson is still entitled to his share in the profits. Next, Pecson isn’t entitled to his P1k monthly commission because the basis of the same was the extravagant profits. Considering the partnership was a failure, there are no profits to get the P1k a month from.17 17 Simply put, Moran promised too much but the partnership fell flat on its face. But such promise doesn’t justify awarding Pecson the expected extravagant profits. Feel free to use and share this digest with anyone who needs it 141 Agency for Atty. Cochingyan by Jason Arteche Evangelista vs Abad Santos Facts A co-partnership was formed under the name of ‘Evangelista & Co.” Later the Articles of copartnership was amended to include Estrella Abad Santos as industrial partner with Evangelista, Atienza, and Navarro, the original capitalist partners remaining in that capacity with a contribution of 17k each. The amended Articles provided that Abad Santos’ contribution consist of her industry being an industrial partner. Further, profits and losses shall be divided among the partners with 70% in favor of the original capitalist partners, divided equally, and 30% to the industrial partner. Later, Abad Santos filed suit against the other partners because she wasn’t receiving her share in the profits and was refused despite demand access to the partnership books and information on the partnership affairs. Issue Is Abad Santos an industrial partner or merely entitled to 30% of the profits? Held Industrial partner.18 Evangelista argues the parties never intended to make Abad Santos an industrial partner because at the time, Abad Santos was a judge devoting all her time to performing her duties in public office. This fact shows Abad Santos isn’t an industrial partner because she couldn’t lawfully contribute her full time and industry to performing her obligations as industrial partner. Such argument is untenable. Abad Santos rendered services to the partnership without which the same wouldn’t have operated. The CC Art. 1767 doesn’t specify the kind of industry that a partner may contribute, hence Abad Santos’ services to the partnership can be considered her contribution to the common fund. As to CC Art. 1789, said provision seeks to prevent any conflict of interest between the industrial partner and the partnership. Here, there’s no showing Abad Santos is engaged in a business antagonistic to the partnership. Being a judge can hardly be considered a business. Further, the partnership knew beforehand of Abad Santos occupation as judge and excluded her from the partnership only after 9 years from the time Abad Santos was admitted. 18 The CA based its decision on 2 grounds: 1. Being a judge isn’t a business antagonistic to the partnership 2. Partnership took 9 years after admitting Abad Santos as industrial partner to exclude her. Feel free to use and share this digest with anyone who needs it 142 Agency for Atty. Cochingyan by Jason Arteche Island Sales, Inc. vs United Pioneers General Construction Co. Facts United Pioneers General Construction Co. (United), a general partnership, purchased from Island Sales a motor vehicle on installment basis and for this purpose executed a promissory note with an acceleration clause. United failed to pay causing Island Sales to sue for payment of the remaining balance. Daco, Guizona, Sim, Lumauig, and Palisoc were included as co-defendants in their capacity as general partners of United. During trial, Island Sales moved to dismiss the complaint against Lumauig. Issue Did the complaint’s dismissal in favor of one of the general partners increase the joint liability of the remaining partners for the partnership’s obligations? (from 1/5 to 1/4) Held No. According to the CC Art. 1816, the liability of partners, including industrial ones, is pro rata. Here, there are 5 general partners when the partnership executed the promissory note. Because liability is pro rata, the liability of each general partner is limited to 1/5 of the obligation. The fact the complaint against Lumauig was dismissed didn’t unmake his status as general partner. In dismissing the complaint, Island Sales merely condoned Lumauig’s individual liability to it. Feel free to use and share this digest with anyone who needs it 143 Agency for Atty. Cochingyan by Jason Arteche Idos vs CA Facts Complainant Eddie supplied chemicals and rawhide to Idos for use in the latter's business of manufacturing leather. Later, he formed a partnership with Idos. But the partnership was short-lived because soon after, the partners agreed to terminate the partnership. The partnership's assets were liquidated and Idos gave Eddie 4 checks representing his share in the partnership. But upon deposit, only 3 out of 4 checks were honored. Eddie then filed a complaint for BP 22. Issue Were the checks issued as payment for Eddie's share in the partnership? Held No. The evidence shows the parties agreed to dissolve the partnership but such agreement didn't automatically end the partnership, because they still had to sell the goods on hand and collect the receivables from debtors. In short, the partnership was still in the process of 'winding up' its affairs, when the check in question was issued. Because the partnership hasn't been terminated, Eddie and Idos remained as co-partner. The checks were therefore issued as from a partner to another, not as payment from a debtor to creditor. The 3 final stages of a partnership are: 1. Dissolution; 2. Winding-up; 3. Termination. Dissolution is defined in the CC Art. 1828. Winding up is the process of settling business affairs of dissolution. Termination is the point in time after all the partnership affairs have been wound up. These final stages in the life of a partnership are recognized under the Civil Code that explicitly declares that upon dissolution, the partnership is not terminated, as provided in Art. 1828 & 1829. Here, the checks were issued merely to evidence the complainant's share in the partnership property, or to assure the latter that he would receive in time his due share therein. The check wasn't intended to apply on account or for value; rather it should be deemed as having been drawn without consideration at the time of issue. Payment of the share in the partnership, using the checks, was conditioned on the subsequent realization of profits from the unsold goods and collection of the receivables of the firm. This situation would hold true until after the winding up, and subsequent termination of the partnership. For only then, when the goods were already sold and receivables paid the erstwhile partners could avail of that cash money.19 . 19 Idos was acquitted of Estafa because the checks were never issued as payment, but rather to evidence Eddie's interest in the partnership. Feel free to use and share this digest with anyone who needs it 144 Agency for Atty. Cochingyan by Jason Arteche Villereal vs Ramirez Facts Villereal, Carmelito Jose and Jesus Jose formed a partnership with a capital of P750k to operate a restaurant business under the name “Aquarius Food House and Catering Services. Villareal was appointed general manager and Carmelito, operations manager. Respondent Donaldo Ramirez later joined as a partner in the business. His parents, respondent Sps. Ramirez, paid his capital contribution of P250k. Meanwhile Jesus withdrew from the partnership and his capital contribution was refunded to him. Further, the restaurant was closed down and its contents stored in the Sps. Ramirez storage house. Later, the Sps. Ramirez informed Villereal and the other partners that they were no longer interested in continuing the partnership and reopening the restaurant, and they were accepting the latter’s offer to return their capital contribution. Afterwards, the Sps. Ramirez made another demand, reiterating the request for the return of their share in the partnership. The demands however were unheeded causing the Sps. Ramirez to file suit. Issues Are the other partners liable to refund the Sps. Ramirez their share in the partnership? Held No. The evidence shows a partnership existed but was subsequently dissolved when the Sps. Ramirez informed the other partners of their intent to discontinue the partnership. Further, the Sps. Ramirez demanded from the other partners their share in the partnership. However, the Sps. Ramirez have no right to demand from the partners the return of their share. Except as managers of the partnership, the other partners didn't personally hold its assets. The partnership has a juridical personality separate and distinct from each of the partners. Because the capital was contributed to the partnership, not to the partners, it's the partnership that must refund the share of the Sps. Ramirez. And because it's the partnership that is liable to return the Sps. Ramirez's shares, the amount to be refunded is necessarily limited to its total resources. In other words, it can only pay out what it has in its coffers, which consists of all its assets. However, before the partners can be paid their shares, the creditors of the partnership must first be compensated. After all the creditors have been paid, whatever is left of the partnership assets becomes available for the payment of the partners’ shares. Here, the exact amount of the Sps. Ramirez share in the assets can't be determined until all the partnership's assets have been liquidated and the creditors have been paid. The basis of such share can't be the initial capital because in pursuit of a business, the capital is either increased by profits or decreased by losses. Feel free to use and share this digest with anyone who needs it 145 Agency for Atty. Cochingyan by Jason Arteche Claudio vs Zandueta Facts This dispute is a civil case Zandueta and co-respondents instituted asking, among others, for: 1. The dissolution of the association named ‘Cotabato & Cagayan Mining Association 2. Accounting from Claudio and co-petitioners, as members of the association’s executive committee 3. Appointment of a receiver to take charge of the association’s properties. The Judge issued an order appointing the receiver causing Claudio to appeal such order. Issue Did the Judge act with grave abuse of discretion in appointing a receiver despite the absence of other interested parties to the case, such as the ‘Cotabato & Cagayan Mining Assocation’? Held Yes. In order that a receiver may be appointed in a case, an application under oath to that effect must be filed, alleging all the facts necessary to convince the court to grant the same, for the purpose of preserving the property which is the subject of litigation and protecting thereby the rights of all the parties interested therein. Before a receiver is appointed, the consequences or effects thereof should be considered or, at least, estimated in order to avoid causing irreparable injustice to others who are entitled to as much consideration as those seeking it. In the complaint itself, it has been emphatically alleged that the "Cotabato & Cagayan Mining Association" is composed of 279 members; but in spite thereof, Zandueta failed to include them as parties in said case, except only Claudio and co-petitioners, in both their personal and official capacity, despite bringing the action not only for their own benefit but also for the benefit of the other members. Neither did they include said association, in spite of the fact that their principal purpose is to obtain the dissolution of the same. The association, as a party affected thereby, is undoubtedly as much entitled, if not more entitled than the plaintiffs and defendants, to be heard in the case, in matters affecting its existence as well as the appointment of a receiver applied for. Here, the defendants acted for the benefit of the "Cotabato & Cagayan Mining Association" or all the members thereof, much less that the plaintiffs, in turn, sued not only for their own benefit but also for the benefit of all the other members. It necessarily follows from the foregoing that in order that the respondents judge could exercise his authority to appoint a receiver, he should have required the inclusion therein, as necessary parties, of the ‘Cotabato & Cagayan Mining Association’ or of the other members not included as such parties; or at least, the plaintiffs should have brought the action for themselves and in the name of the association in question, or for the benefit of the other members. Not having done so, and it appearing clearly that the persons who might be affected by the remedy applied for were not parties to the case, the respondents judge undoubtedly acted in excess of his jurisdiction and abused his discretion. Feel free to use and share this digest with anyone who needs it 146 Agency for Atty. Cochingyan by Jason Arteche Elmo Munasque vs CA Facts Elmo, on behalf of the partnership ‘Galan and Munasque’, entered into a contract with Respondent Tropical to remodel a portion of the latter’s Cebu branch building with the partnership being paid in installments. Later, Tropical made its 1st payment through a check in Elmo’s name. Elmo indorsed the same to Galan so the latter can deposit it and use the amount to pay their suppliers. However, Galan misused the money for his personal affairs. When Tropical made its 2nd payment, Elmo refused to indorse the check. Galan then informed Tropical that there was a ‘misunderstanding’ between him and Elmo causing Tropical to change the payee from Elmo to Galan and Associates. Galan and Associates is the partnership’s duly registered name. Galan was then able to deposit the 2nd check. Due to Galan’s mischief, Elmo experienced financial difficulty as the money from the 2nd check was supposed to be paid to the suppliers and workers. Elmo managed to finish the contract but at great expense to himself and by borrowing from 3rd party creditors. Elmo then filed suit to recover the value of the check and make Galan solely liable to the 3rd party creditors. Issue Can Tropical’s payment to Galan be considered as good payment as to the partnership? Who is liable to the 3rd party creditors? Held Yes || The partnership, Elmo, and Galan are liable solidarily - But Galan must reimburse Elmo Here, the evidence shows that the partnership between Galan and Munasque was a genuine one. If there was a falling out or misunderstanding between the partners, such doesn’t convert the partnership into a sham organization. When Elmo received the 1st check with him as payee, he indorsed the check in Galan’s favor. Therefore, Tropical had every right to presume that Elmo and Galan were true partners. If they weren’t partners as Elmo claims, then he has only himself to blame for making the relationship appear otherwise, not only to Tropical but to their other creditors as well. The payment Tropical made to the partnership was good payment which binds both Galan and Elmo. Further, because the two were partners when the debts were incurred, they are also both liable to the partnership’s 3rd party creditors. Next, while it’s true that under Article 1816 of the Civil Code, the partners’ liability is pro rata, this provision should be construed together with Article 1824. Meaning, while the liability of the partners are merely joint in transactions entered into by the partnership, a 3rd person who transacted with said partnership can hold the partners and partnership itself solidarily liable for the whole obligation if the case falls under Articles 1822 or 1823. Here, Tropical had every reason to believe that a partnership existed between Elmo and Galan and can’t be faulted for paying "Galan and Associates" and delivering the same to Galan because as far as it was concerned, Galan was a true partner with real authority to transact on the partnership’s begalf. This is also true for the partnership’s 3rd party creditors. However. Galan should reimburse Munasque for the latter’s payments on the partnership’s behalf because the former acted in bad faith in dealing with Munasque. Feel free to use and share this digest with anyone who needs it 147 Agency for Atty. Cochingyan by Jason Arteche Tocao vs CA Facts Respondent Nenita Anay, Petitioner William Belo and Marjorie Tocao entered into a joint venture for importing and distributing kitchenware. Belo acted as capitalist, Marjorie as President and General Manager, and Nenita as head of marketing and Vice-President. Nenita was responsible for marketing the product considering her experience and established relationship with West Bend Company, a USbased manufacturer of kitchenware. Further, the parties agreed on Nenita’s compensation, consisting of commissions, and that Belo’s name shouldn’t appear on any document concerning transactions with West Bend. The agreement wasn’t reduced in writing because Belo assured the parties he was an honest man in his financial commitments. Nenita secured the distributorship from West Bend and the business was successful. They operated under the name Geminesse Enterprise, a sole proprietorship registered in Marjorie’s name. Nenita continued doing her job well until one day, Marjorie removed Nenita as Vice-President barred her from holding office. Nenita then demanded from Belo her commission but such demand went unanswered. Nenita then filed suit. Issue Was there a partnership among the parties? And was such partnership dissolved upon Nenita’s removal as Vice-President? Held Yes || Yes Here, the evidence shows the parties established a business partnership despite the fact the same was only oral. An oral contract of partnership is as good as a written one provided no immovable property or real rights are involved. The fact there’s no record in the SEC of a public instrument embodying the partnership agreement pursuant to the CC Article 1772 didn’t nullify the partnership. Next, Nenita is an industrial or managing partner because she contributed her expertise in marketing to the partnership. It was through her relationship with West Bend Company, to secure the distributorship, and her marketing skills that the business was propelled to financial success. Further, by the business set-up, 3rd persons were made to believe that a partnership had indeed been forged between petitioners and private respondents. Both Belo and Marjorie merged their respective capital and infused the amount into the partnership of distributing cookware, with Nenita as the managing partner. The business venture operating under Geminesse Enterprise didn’t result in an employer-employee relationship between Nenita and Petitioners. First, Nenita had a voice in the management of the affairs of the business. Second, Marjorie admitted that like her, who was President, Nenita received only commissions and not a fixed salary. Undoubtedly, Marjorie unilaterally excluded Nenita from the partnership to reap for herself and Belo the financial gains resulting from Nenita’s efforts in making the business venture a success. Marjorie believed that Nenita was no longer necessary in the business operation and resulted in a falling out between the two. However, a mere falling out or misunderstanding between partners doesn’t convert the partnership into a sham organization. The partnership exists until dissolved under the law. Since the partnership created by petitioners and private respondent has no fixed term and is therefore a partnership at will predicated on their mutual desire and consent, it may be dissolved by the will of a partner. Here, Tocao unilaterally excluding Nenita from the partnership resulted in her own withdrawal from the partnership. Nevertheless, the partnership was not terminated thereby; it continues until the Feel free to use and share this digest with anyone who needs it 148 Agency for Atty. Cochingyan by Jason Arteche winding up of the business. The partnership hasn’t yet undertaken the winding up of partnership affairs. Feel free to use and share this digest with anyone who needs it 149 Agency for Atty. Cochingyan by Jason Arteche Realubit vs Jaso Facts Realubit entered into a Joint Venture Agreement with Biondo, a French National, to operate an ice manufacturing business. The parties agreed on the sharing of profits and manner of acquiring the machines. Later, Biondo executed a Deed of Assignment transferring all his rights in the business in Jaso’s favor. With Biondo’s departure from the Philippines, Jaso informed Realubit of the assignment and demanded an accounting as well as their portion of the profits. The demand however went unheeded causing Jaso to file suit. Issue Whether or not Jaso become a partner when Biondo transferred his interest in the partnership to the former. Whether or not the partnership was properly dissolved upon Jaso’s motion pursuant to the CC Art. 1831. Held Jaso didn't become a partner || The partnership was dissolved Generally understood to mean an organization formed for some temporary purpose, a joint venture is likened to a particular partnership or one that “has for its object determinate things, their use or fruits, or a specific undertaking, or the exercise of a profession or vocation.” The rule is settled that the law on partnerships governs joint ventures, and partnerships in turn are based on mutual agency or delectus personae. Insofar as a partner’s conveyance of the entirety of his interest in the partnership is concerned, the CC Article 1813 governs. From the foregoing provision, it is evident that “the transfer by a partner of his partnership interest doesn’t make the assignee of such interest a partner of the firm, nor entitle the assignee to interfere in the management of the partnership business or to receive anything except the assignee’s profits. The assignment doesn’t purport to transfer an interest in the partnership, but only a future contingent right to a portion of the ultimate residue as the assignor may become entitled to receive by virtue of his proportionate interest in the capital.” Since a partner’s interest in the partnership includes his share in the profits, Jaso is entitled to Biondo’s share in the profits, despite Realubit’s lack of consent to the assignment of Biondo’s interest in the joint venture. Although Jaso didn’t, moreover, become a partner as a consequence of the assignment and/or acquire the right to require an accounting of the partnership business, her prayer for dissolution of the joint venture conformably with the right granted to the purchaser of a partner’s interest under Article 1831 of the Civil Code is proper. Feel free to use and share this digest with anyone who needs it 150 Agency for Atty. Cochingyan by Jason Arteche Singson vs Isabela Sawmill Facts Respondents Garibay, Saldejeno, and Tubungbanua entered into a partnership under the name ‘Isabela Sawmill.’ Later, Saldejeno filed a civil case against the partnership and the other partners. The parties then entered into a ‘Memorandum Agreement’ stipulating that Saldejeno was withdrawing from the partnership but she would allow the remaining partners to continue the business. Pursuant to the Memorandum Agreement, the remaining partners continued the business still under the same name. The partnership then executed a chattel mortgage over its assets in Saldejeno’s favor. Later, purusant to the civil case, the assets over which a chattel mortgage was executed was sold at public auction with Saldejeno as the highest bidder. Plaintiffs in this case are the partnership’s creditors and they filed suit to collect the amount owing them. Issue Can Saldejeno be held liable for the partnership’s liabilities despite the fact she already withdrew from the partnership? Held Yes. A partnership’s dissolution is caused by any partner ceasing to be associated in the carrying on of the business. However, on dissolution, the partnership isn’t immediately terminated but continuous until the winding up to the business. Here, the remaining partners didn’t terminate the business of the partnership "Isabela Sawmill". Instead of winding up the business of the partnership, they continued the business still in the same name. There was no liquidation of the partnership’s assets but in fact, the remaining partners continued using such assets. Further, the properties the remaining partners mortgaged to Saldajeno belonged to the partnership. Saldejeno is liable because she purchased at public auction the partnership’s assets which were mortgaged to her. The judicial foreclosure of the chattel mortgage executed in Saldajeno’s favor didn’t relieve her from liability to the creditors of the partnership. Further, Saldajeno’s withdrawal from the partnership wasn’t published in the newspapers. The Plaintiffs and the public in general had a right to expect that whatever credit they extended to the partnership could be enforced against the partnership’s assets. Also, Saldajeno is partly to blame for not insisting on the liquidation of the partnership’s assets. She even agreed to let the remaining partners continue doing the business of the partnership as evidenced by the Memorandum Agreement. Although it may be presumed that Saldajeno acted in good faith, the Plaintiffs also acted in good faith in extending credit to the partnership. Where one of two innocent persons must suffer, that person who gave occasion for the damages to be caused must bear the consequences. Had Saldajeno not entered into the Memorandum Agreement allowing the remaining partners to continue doing the business of the partnership, the Plaintiffs wouldn’t have been misled into thinking they were still dealing with the partnership Isabela Sawmill. Feel free to use and share this digest with anyone who needs it 151 Agency for Atty. Cochingyan by Jason Arteche Ames vs Downing Excerpt: The system of limited partnerships, which was introduced by statute into this state, and subsequently very generally adopted in many other states of the Union, was borrowed from the French Code. 3 Kent, 36; Code de Commerce. It has existed in France from the time of the Middle Ages; mention being made of it in the most ancient commercial records and in the early mercantile regulations of Marseilles and Montpellier. In the vulgar Latinity of the middle ages it was styled commenda, and in Italy acommenda. In the statute of Pisa and Florence, it is recognized as far back as the year 1160; also in the ordinance of Louis-le-Huton, of 1315; the statutes of Marseilles, 1253; of Geneva of 1588. In the middle ages it was one of the most frequent combinations of trade and was the basis of the active and widely extended commerce of the opulent maritime cities of Italy. It contributed largely to the support of the great and prosperous trace carried along the shores of the Mediterranean; was known in Languedoc, Provence, and Lombardy, entered into most of the industrial occupations and pursuits of the age and even traveled under the protection of the arms of the Crusaders to the City of Jerusalem. At a period when capital was in the hands of nobles and clergy, who from pride or caste, or canonical regulations, could not engage directly in commercial enterprises and reaping the profits of such lucrative pursuits without personal risks, and thus the vast wealth, which otherwise would have lain dormant in the coffers or the rich, became the foundation by means of this ingenious idea of that great commerce which made princes of the merchants, elevated the trading classes and brought the commons into position as an influential estate of the common wealth. Feel free to use and share this digest with anyone who needs it 152 Agency for Atty. Cochingyan by Jason Arteche Commissioner of Internal Revenue vs Suter Facts Suter, as general partner, and Spirig and Carlson, as limited partners, formed a limited partnership named ‘William J. Suter Morcoin Co.’ Each of the partners contributed various sums of money. The limited partnership was registered with the SEC and the firm engaged in importing, marketing, distributing, and operating various products. The partnership had an office and held itself out as a limited partnership. Later, Suter and Spirig got married and Carlson sold his share to the newly wed couple. The sale was duly registered with SEC. During this time, the partnership had been filings its ITR as a corporation without objection from the CIR. However, recently, in an assessment report consolidating the incomes of the partnership and individual partners, slapped Suter with a deficiency income tax. Suter protested the assessment and requested its cancellation. Issue When Suter married Spirig, and the couple eventually bought Carlson’s interest in the partnership, thereby becoming the only partners, did the limited partnership become a prohibited partnership? Held No. The thesis that the limited partnership has been dissolved by operation of law because of the marriage of the only general partner, William J. Suter to the originally limited partner, Julia Spirig one year after the partnership was organized is untenable. A husband and a wife may not enter into a contract of general copartnership, because under the Civil Code, persons prohibited from making donations to each other are prohibited from entering into universal partnerships. It follows that the marriage of partners necessarily brings about the dissolution of a pre-existing partnership. However, The CIR failed to observe the fact that the disputed partnership wasn’t a universal partnership but a particular one. The contributions of the partners were fixed sums of money and no one was an industrial partner. A universal partnership may be either all the present property or all the profits. It follows that the limited partnership wasn’t a partnership that spouses were forbidden to enter by. Nor could the subsequent marriage of the partners operate to dissolve it, such marriage not being one of the causes provided for that purpose in law. As to the tax issue, the limited partnership has a separate juridical personality, distinct from its partners. Based on this, the partnership’s income can’t be equated with the income of its partners. Further, the Tax Code itself distinguished between general partnerships and limited partnerships. The law merging the personality of individual parters with the general partnership for income tax purposes, but not so for limited partnerships. Feel free to use and share this digest with anyone who needs it 153 Agency for Atty. Cochingyan by Jason Arteche Jo Chung Cang vs Pacific Commercial Co. Facts Following the presentation of an application to be adjudged an insolvent by the "Sociedad Mercantil, Teck Seing & Co., Ltd.," the creditors, the Pacific Commercial Company, Piñol & Company, Riu Hermanos, and W. H. Anderson & Company, filed a motion in which the Court was prayed to enter an order: 1. Declaring the individual partners as parties to this proceeding; 2. To require each of said partners to file an inventory of his property and 3. That each of said partners be adjudicated insolvent debtors in this proceeding. Issue Is the disputed partnership a limited or general partnership? Held General partnership.20 To establish a limited partnership there must be, at least, one general partner and the name of at least one of the general partners must appear in the firm name. But neither of these requirements has been fulfilled. The general rule is, that those who seek to avail themselves of the protection of laws permitting the creation of limited partnerships must show a substantially full compliance with such laws. A limited partnership that has not complied with the law of its creation isn’t considered a limited partnership at all, but a general partnership in which all the members are liable. Article 125 of the Code of Commerce provides that the articles of general copartnership must comply with certain requirements. Turning to the document before us, it will be noted that all of the requirements of the Code have been met, with the sole exception of that relating to the composition of the firm name. The supreme court of Spain has repeatedly held that notwithstanding the obligation of the members to register the articles of association in the commercial registry, agreements containing all the essential requisites are valid as between the contracting parties, whatever the form adopted, and that, while the failure to register in the commercial registry necessarily precludes the members from enforcing rights acquired by them against third persons, such failure cannot prejudice the rights of third persons. The same reasoning would be applicable to the less formal requisite pertaining to the firm name. The one object of the act is manifestly to protect the public against imposition and fraud, prohibiting persons from concealing their identity by doing business under an assumed name, making it unlawful to use other than their real names in transacting business without a public record of who they are, available for use in courts, and to punish those who violate the prohibition. As this act involves purely business transactions, and affects only money interests, we think it should be construed as rendering contracts made in violation of it unlawful and unenforceable at the instance of the offending party only, but not as designed to take away the rights of innocent parties who may have dealt with the offenders in ignorance of their having violated the statute. Consequently, the contract of partnership found in the document established a general partnership or, to be more exact, a partnership as this word is used in the Insolvency Law. 20 Most of the case is a discussion on the requirements of the Code of Commerce on partnerships, a law that has already been repealed. Feel free to use and share this digest with anyone who needs it 154 Agency for Atty. Cochingyan by Jason Arteche Kilosbayan, Inc. vs Guingona Facts The PCSO was interested in operating an on-line lottery system. The Berjaya Group Berhad was interested in offering such services to PCSO and the former organized with Filipino Investors a corporation known as Philippine Gaming Management Corporation (PGMC) to mediate with PCSO. Later, PCSO issued its Request for Proposal for the Lease Contract of an on-line lottery system and PGMC submitted its bid. The Office of the President awarded the contract to PGMC. The set-up would comprise of PCSO operating the lottery and PGMC as lessor. Kilosbayan opposed such contract on moral and legal grounds but the Office of the President denied the protest. Kilosbayan then filed suit in court. Issue Whether or not the Contract of Lease is in truth a clever disguise for a Joint Venture Agreement. Held The Contract of Lease is a JVA. The law is clear that the PCSO can’t share its franchise with another by way of collaboration, association or joint venture. Neither can it assign, transfer, or lease such franchise. Does the challenged Contract of Lease violate such prohibition? Yes. True, the Contract is termed a Contract of Lease, but the contract shouldn't be determined solely on the basis of designation of the contract but by the intent of the parties, which may be gathered from the provisions of the contract itself. The evidence shows the contract isn’t in reality a contract of lease under which the PGMC is merely an independent contractor for a piece of work, but one where the statutorily proscribed collaboration or association, in the least, or joint venture, at the most, exists between the contracting parties. A Joint venture is defined as an association of persons or companies jointly undertaking some commercial enterprise; generally all contribute assets and share risks. It requires a community of interest in the performance of the subject matter, a right to direct and govern the policy in connection therewith, and duty, which may be altered by agreement to share both in profit and losses. Under the Contract, PCSO’s only contribution would be its franchise or authority to operate the online lottery system; with the rest, including the risks of the business, being borne by the proponent or bidder. Undoubtedly, then, the Berjaya Group Berhad knew all along that in connection with an online lottery system, the PCSO had nothing but its franchise. Howsoever viewed then, from the very inception, the PCSO and the PGMC mutually understood that any arrangement between them would necessarily leave to the PGMC the technical, operations, and management aspects of the on-line lottery system while the PCSO would, primarily, provide the franchise. The true intention of the parties is to have a joint venture for a period of eight years in the operation and maintenance of the on-line lottery system. All of the foregoing unmistakably confirms the indispensable role of the PGMC in the pursuit, operation, conduct, and management of the On-Line Lottery System. They exhibit and demonstrate the parties' indivisible community of interest in the conception, birth and growth of the on-line lottery, and, above all, in its profits, with each having a right in the formulation and implementation of policies related to the business and sharing, as well, in the losses — with the PGMC bearing the greatest burden because of its assumption of expenses and risks, and the PCSO the least, because of its confessed unwillingness to bear expenses and risks. Feel free to use and share this digest with anyone who needs it 155 Agency for Atty. Cochingyan by Jason Arteche Information Technology Foundation of the Philippines vs Comelec Facts Congress passed a law authorizing Comelec to implement an Automated Election System for the national and local elections. The Comelec started a bidding for the automated election machines comprised of a 2-step process. The 1st step determined if the bidder is eligibly by checking if the bidder has the qualifications laid down in the Request for Proposal (RFP). The 2nd step consisted of the bidding itself. After the 1st step, Comelec found 2 companies eligible namely, Information Management Corporation (IMC) and Mega Pacific Consortium (MPC). Comelec awarded the contract to MPC causing the loser, IMC, to file suit to protest the award. Issue Whether or not MPC is really a Consortium. Held MPC isn't a Consortium. Here, no instrument was submitted to Comelec showing the JVA, consortium agreement, memorandum agreement, or any instrument of similar import establishing the existence of the consortium. But despite the absence of proof as to the existence of the alleged consortium (MPC), its capacity to deliver on the Contract, and the members’ joint and several liabilities therefor, Comelec nevertheless assumed that such consortium existed and was eligible. It then went ahead and considered the bid of MPC, to which the Contract was eventually awarded, in gross violation of the former’s own bidding rules and procedures contained in its RFP. A joint venture is “an association of persons or companies jointly undertaking some commercial enterprise; generally, all contribute assets and share risks. It requires a community of interest in the performance of the subject matter, a right to direct and govern the policy in connection therewith, and duty, which may be altered by agreement to share both in profit and losses.” Here, it should be recalled that the Automation Contract with Comelec was not executed by the “consortium” MPC -- or by MPEI for and on behalf of MPC -- but by MPEI, period. The said Contract contains no mention whatsoever of any consortium or members thereof. It will be noted that Agreements between the alleged Consortium neither contain any specifics or details as to the exact nature and scope of the parties’ respective undertakings, liabilities, performances and deliverables under the Agreement with respect to the automation project. Likewise, the two Agreements are quite bereft of the amount of investments each party contributes, its respective share in the revenues and/or profit from the Contract with Comelec, and so forth -- all of which are normal for agreements of this nature. The strange and beguiling arrangement of MPEI with the other companies doesn’t qualify them to be treated as a consortium or joint venture, at least of the type that government agencies like the Comelec should be dealing with. With more reason is it unable to agree to the proposal to evaluate the members of MPC on a collective basis. Feel free to use and share this digest with anyone who needs it 156 Agency for Atty. Cochingyan by Jason Arteche Mendoza vs Paule Facts Paule, the proprietor of E.M. Paule Construction and Trading (EMPCT) executed an SPA in Mendoza’s favor authorizing the latter to participate as his representative in the bidding of an NIA project. Mendoza won the bidding and NIA awarded the contract to EMPCT. Later, Cruz learned that Mendoza needed heavy equipment to use in the NIA project. Mendoza and Cruz then signed a Job Order/Agreement to lease the latter’s heavy equipment to EMPCT. Later, Paule revoked Mendoza’s SPA causing NIA to stop paying Mendoza. As a result, Mendoza also couldn’t pay Cruz for the lease. Cruz demanded payment from NIA but the latter refused reasoning payment would be made only to EMPCT. Cruz then demanded payment from Mendoza and EMPCT but both refused to pay. Cruz then filed suit. Issue Did Paule validly revoke Mendoza’s SPA? If no, is Paule liable for damages to Mendoza? Held Yes || Yes The evidence shows that EMPCT and Mendoza entered into a partnership concerning the NIA project. EMPCT’s contribution is the contractor’s license and expertise, while Mendoza would provide and secure the needed funds for labor, materials and services and in general oversee the project’s effective implementation. EMPCT would receive as its share 3% of the project cost while the rest of the profits go to Mendoza. Next, there was no valid reason for Paule to revoke Mendoza’s SPA. The SPA was necessary for Mendoza to properly perform her role in the partnership, and to discharge the obligations she had already contracted prior to revocation. Without the SPA, she couldn’t collect from NIA, because as far as it is concerned, EMPCT – and not the partnership – is the entity it had contracted with. Without these payments from NIA, there would be no source of funds to complete the project and to pay off obligations incurred. An agency cannot be revoked if a bilateral contract depends upon it, or if it is the means of fulfilling an obligation already contracted, or if a partner is appointed manager of a partnership in the contract of partnership and his removal from the management is unjustifiable. Paule’s revocation of the SPA was done in evident bad faith. He knew full well that 97% of the amount collected from NIA went to Mendoza and used to pay the suppliers and laborers. Yet, he deliberately revoked Mendoza’s authority preventing the latter from collecting from NIA and continuing with the project. From the way he conducted himself, Paule committed a willful and deliberate breach of his contractual duty to his partner and those with whom the partnership had contracted. Paule effectively cut off Mendoza’s source of funds and left the latter to fend for her own. Feel free to use and share this digest with anyone who needs it 157 Agency for Atty. Cochingyan by Jason Arteche Philex Mining Corp. vs Commissioner of Internal Revenue Facts Philex Mining Corp. entered into an agreement with Baguio Gold Mining Company for the former to manage and operate the latter’s mining claim in a certain province. The agreement was called a ‘Power of Attorney.’ While managing the project, Philex made several cash advances but the mine suffered continuing yearly losses resulting in Philex’s withdrawal as manager from the mine. Later, both parties executed a Compromise with Dation in Payment with Baguio Gold admitting indebtedness in Philex’s favor and to pay the same. Philex then, in its annual income tax return, deducted from its gross income Baguio’s indebtedness writing off the same as a bad debt. However, the Bureau of Internal Revenue (BIR) disallowed the amount as deduction for bad debt and assessed Philex a deficiency income tax of P62,811,161.39. Philex filed suit against the taxation. Issue Whether or not the ‘Power of Attorney’ is in fact an Agreement to enter into partnership or joint venture, and not an ordinary agency. Held The 'Power of Attorney' is for a partnership/joint venture and not an ordinary agency. An examination of the “Power of Attorney” reveals that a partnership or joint venture was indeed intended by the parties. While a corporation, like Philex, can’t generally enter into a contract of partnership unless authorized by law or its charter, it has been held that it may enter into a joint venture that is akin to a particular partnership. The parties intended to create a partnership and establish a common fund for the purpose. They had a joint interest in the profits of the business as shown by a 50-50 sharing in the income of the mine. Philex contribution consisted of its expertise in managing and operating mines as well as money, while Baguio’s would be money. The main object of the “Power of Attorney” wasn’t to confer a power in favor of Philex to contract with third persons on behalf of Baguio Gold but to create a business relationship between Philex and Baguio Gold. The agreement provided for a distribution of assets of the Sto. Niño mine upon termination, a provision that is more consistent with a partnership than a creditor-debtor relationship. The strongest indication that petitioner was a partner in the Sto Niño mine is the fact that it would receive 50% of the net profits as “compensation” under paragraph 12 of the agreement. The entirety of the parties’ contractual stipulations simply leads to no other conclusion than that petitioner’s “compensation” is actually its share in the income of the joint venture. Finally, Philex advances are actually investments in a partnership known as the Sto. Nino mine. The advances were not “debts” of Baguio Gold to petitioner inasmuch as the latter was under no unconditional obligation to return the same to the former under the “Power of Attorney”. Feel free to use and share this digest with anyone who needs it 158 Agency for Atty. Cochingyan by Jason Arteche Marsman Drysdale Land, Inc. vs Philippine Geoanalytics, Inc. Facts Marsman Drysdale Land, Inc. and Gotesco Properties, Inc. entered into a JVA to construct and develop an office building on land owned by Marsman. The parties hired Philippine Geoanalytics Inc. to provide subsurface soil exploration and geotechnical engineering for the project. PGI billed the joint venture a sum certain of money representing the cost of the study but the joint venture failed to pay. Meanwhile, due to unfavorable economic conditions, the joint venture was cut short and the planned building shelved. PGI then filed suit. Issue Whether or not Marsman or Gotesco should bear liability. Held Jointly liable. Here, it’s undisputed the joint venture is liable to PGI for the cost of the seismic study. The question now is who should bear the liability? Joint liability PGI executed a technical service contract with the joint venture and was never a party to the JVA. While the JVA clearly spelled out, inter alia, the capital contributions of Marsman Drysdale (land) and Gotesco (cash) as well as the funding and financing mechanism for the project, the same can’t be used to defeat the lawful claim of PGI against the two joint venturers-partners. The TSC clearly listed the joint venturers Marsman Drysdale and Gotesco as the beneficial owner of the project, and all billing invoices indicated the consortium therein as the client. The CC Articles 1207 and 1208 provide the presumption that the obligation owing to PGI is joint between Marsman Drysdale and Gotesco. The only time that the JVA may be made to apply in the present petitions is when the liability of the joint venturers to each other would set in. A joint venture being a form of partnership, it is to be governed by the laws on partnership. The CC Article 1797 applies here. In the JVA, Marsman Drysdale and Gotesco agreed on a 50-50 ratio on the proceeds of the project. They did not provide for the splitting of losses, however. Applying Article 1797 then, the same ratio applies in splitting the obligation-loss of the joint venture. Further, Marsman Drysdale and Gotesco being jointly liable, there is no need for Gotesco to reimburse Marsman Drysdale for “50% of the aggregate sum due” to PGI. Allowing Marsman Drysdale to recover from Gotesco what it paid to PGI would not only be contrary to the law on partnership on division of losses but would partake of a clear case of unjust enrichment at Gotesco’s expense. Feel free to use and share this digest with anyone who needs it 159 Agency for Atty. Cochingyan by Jason Arteche J. Tiosejo Investment Corp. vs Sps. Ang Facts J. Tiosejo Investment entered into a JVA with Primetown Property Group to develop a residential condominium project, The Meditel, on the former’s property. Tiosejo would contribute the property while Primetown would develop the condominium under the JVA. The JVA also provided for a 17%83% share in the condominium units between Tiosejo and Primetown respectively. Later, the Housing and Land Use Regulatory Board issued the parties a license to sell. Through said license, Primetown executed a Contract to Sell with the Sps. Ang for a unit and parking lot. Afterwards, the Sps. Ang filed suit to rescind the Contract to Sell because the unit and parking space weren’t complete yet and therefore couldn’t be turned over to them on the agreed date in the contract. Issue Whether or not Tiosejo is liable alongside Primetown to the Sps. Ang despite not being a party to the contract. Held Tiosejo is jointly liable with Primetown. By the JVA’s express terms, Tiosejo not only retained ownership of the property pending completion of the condominium project but had also bound itself to answer liabilities proceeding from contracts Primetown entered into with third parties. The JVA expressly provides: “...In any case, the Owner shall respect and strictly comply with any covenant entered into by the Developer and third parties with respect to any of its units in the Condominium Project. To enable the owner to comply with this contingent liability, the Developer shall furnish the Owner with a copy of its contracts with the said buyers on a month-to-month basis.” Viewed in the light of the foregoing provision of the JVA, Tiosejo can’t avoid liability by claiming that it wasn’t in any way privy to the Contracts to Sell executed between Primetown and the Sps. Ang. A joint venture is considered in this jurisdiction as a form of partnership and is, accordingly, governed by the law of partnerships. Under the Civil Code Article 1824, all partners are solidarily liable with the partnership for everything chargeable to the partnership, including loss or injury caused to a third person or penalties incurred due to any wrongful act or omission of any partner acting in the ordinary course of the business of the partnership or with the authority of his co-partners. Whether innocent or guilty, all the partners are solidarily liable with the partnership itself. Feel free to use and share this digest with anyone who needs it 160 Agency for Atty. Cochingyan by Jason Arteche Aurbach vs. Sanitary Wares Mnfg. Corp. Facts Saniwares is a corporation incorporated to manufacture and market sanitary wares. Later, one of its incorporators, Young, went abroad to look for foreign partners and met with ASI, a foreign corporation domiciled in the US. The parties entered into an Agreement concerning ownership over the enterprise. Such Agreement contained provisions intended to protect ASI’s status as minority group such as veto powers and the right to designate officers. Under the set-up, ASI would have 3 members in the Executive Committee while the Filipino Investors would have 6 members. The business prospered but along with this came the deterioration of the relationship between ASI and the Filipino Investors. At a stockholders’ meeting, the trouble started. At the meeting for election of directors, the stockholders nominated 11 persons for the 9-member board. However, the chairman, Young, refused to recognize the nomination of the 10th and 11th director reasoning company practice for the past annual meetings was to nominate only 9 members. The ASI representatives and the 10th and 11th nominees protested Young's decision resulting in the ASI faction and the Young faction electing their own set of directors. Issue Whether or not the parties established a joint venture or a corporation. Held Joint venture. The evidence shows the parties intended to form a joint venture, and not a corporation. The history of the organization of Saniwares and the unusual arrangements which govern its policy making body are all consistent with a joint venture and not with an ordinary corporation. The provisions in the Agreement requiring a 7 out of 9 votes of the board of directors for certain actions, in effect gave ASI (which designates 3 directors under the Agreement) an effective veto power. Furthermore, the grant to ASI of the right to designate certain officers of the corporation; the super-majority voting requirements for amendments of the articles and by-laws, the provision that ASI shall designate 3 out of the 9 directors and the other stockholders shall designate the other 6, clearly indicate that there are two distinct groups in Saniwares, namely ASI, which owns 40% of the capital stock and the Philippine National stockholders who own the balance of 60% Next, the Agreement relating to the designation or nomination of directors restricting the right of the Agreement's signatories to vote for directors, such contractual provision, as correctly held by the SEC, is valid and binding upon the signatories thereto, which include ASI. Further, the agreement that ASI and the Filipino Investors would each choose their own 3 and 6 nominees respectively is valid. Also valid is the agreement that in case the Filipino Investors can’t agree on their own 6 nominees, then only the Filipino Investors would have cumulative voting, excluding ASI. Feel free to use and share this digest with anyone who needs it 161 Agency for Atty. Cochingyan by Jason Arteche JG Summit Holdings, Inc. vs Court of Appeals Facts The National Investment and Development Corp. a government corporation, entered into a JVA with Kawasaki Industries to construct, operate, and manage the Subic National Shipyard, now the Philippine Shipyard and Engineering Corp. (Philseco) Under the JVA, both parties would contribute capital to the undertaking on a 60-40 basis. Also, the JVA granted both parties a right of first refusal should either decide to sell, assign, or transfer its interest in the joint venture. Later, the Government decided to sell its share in the Philippine Shipyard to private entities. The Government and Kawasaki decided to exchange the latter’s right of first refusal with a right to top. Kawasaki, under the right to top, can top the highest bid by 5% and designate the company entitled to exercise the right to top. Kawasaki chose Philyard Holdings to exercise the right to top. At the public bidding, JG Summit Holdings Inc. was the highest bidder but Philyard exercised its right to top. JG Summit protested Philyard’s right to top but such protest was denied. JG Summit then filed suit. Issue Whether or not the right of first refusal granted to Kawasaki is valid despite the possibility Kawasaki can acquire more than 40% of the shares in Philseco. Held The right of first refusal is illegal. A careful reading of the Joint Venture Agreement reveals that there’s nothing to prevent Kawasaki from acquiring more than 40% of Philseco’s total capitalization. Such Agreement is in danger of contravening the Constitution providing for a 40% limit to foreign ownership in Corporations. The phrase “maintaining a proportion of 60%-40%” refers to their respective share of the burden each time the Board of Directors decides to increase the subscription to reach the target paid-up capital of P312 million. It doesn’t bind the parties to maintain the sharing scheme all throughout the existence of their partnership. The joint venture between the Government and Kawasaki is in the nature of a partnership that, unlike an ordinary corporation, is based on delectus personae. No one can become a member of the partnership association without the consent of all the other associates. The right of first refusal thus ensures that the parties are given control over who may become a new partner in substitution of or in addition to the original partners. Should the selling partner decide to dispose all its shares, the nonselling partner may acquire all these shares and terminate the partnership. No person or corporation can be compelled to remain or to continue the partnership. Of course, this presupposes that there are no other restrictions in the maximum allowable share that the non-selling partner may acquire such as the constitutional restriction on foreign ownership in public utility. The partners can’t, by mere agreement, avoid the constitutional proscription. But as afore-discussed, Philseco isn’t a public utility and no other restriction is present that would limit Kawasai’s right to purchase the Government’s share to 40% of Philseco’s total capitalization. Feel free to use and share this digest with anyone who needs it