1

LIMITED PARTNERSHIPS DEFINED Is one formed by two or more persons under the provisions of Article 1844 having as members one or more general partners and one or more limited partners. The limited partners as such shall not be bound by the obligators of the partnership (Article 1843 1. If all want to be limited partners! the remedy is to form a corporation ". The e#istence of a general partner is the assurance to creditors that if partnership property be insufficient! their credits may still be satisfied out of personal property of the general partner. A$%& for management purposes and to enable and encourage persons with capital not desiring to engage in a particular business to invest and become partners with those possessed with business s'ill and to en(oy profits without liability as a general partner. STATUTORY REQUIREMENTS The members must sign and swear to a certificate stating the following (a )A*+ of the partnership! adding ,$T-.. If not appended it is presumed to be a general partnership. /nder Article 1840! the name of a limited partner must not appear unless (1 it is also the name of a general partner (" 1rior to the time when he became a limited partner! the business has been carried under name carrying his surname. If a limited partner name appears! he is liable as general partner to partnership creditors who e#tend credit without actual 'nowledge that he is not a general partner (b 23A4A2T+4 &5 T3+ 6/%I)+%% (c $&2ATI&) &5 T3+ 14I)2I1A$ 6/%I)+%% (d )A*+ A)- 4+%I-+)2+ &5 +A23 *+*6+4! 7+)+4A$ A)$I*IT+- 1A4T)+4% 6+I)7 4+%1+2TI8+$9 -+%I7)AT+-. )ote that under Article 18:3! a person can be both a general partner or

limited partner at the same time provided such fact is stated in the certificate. As such! he shall have the rights and powers of a general partner and be sub(ect to all restrictions +;2+1T that with respect to his contribution he shall have the right against all other members which he would have if he were not also a general partner. *+A)% < that if he is held answerable by third persons! he is entitled to recover what he has paid from general partner. A$%&! he would have preference in the distribution of partnership assets to the e#tent of his contribution (e T+4* 5&4 =3I23 T3+ 1A4T)+4%3I1 I% T& +;I%T. There can be no limited partnership as will as 1aragraph >! Article 1804 states that there is need to amend the certificate when no time for dissolution is fi#ed! if not done! there is liability for a false statement under Article 184? (f A*&/)T &5 2A%3! -+%24I1TI&) &5 A)- A74++- 8A$/+ &5 T3+ 14&1+4T9 2&)T4I6/T+- 69 A $I*IT+- 1A4T)+4. )ote the prohibition on industry. If services are contributed! the limited partner is an industrial partner and the value of service that he contributes increases! thus it runs counter to the concept of limited (Article 184: ( g additional contributions to be given by limited partners! the time or event at which they will be made (h the time if agreed! when the contribution of a limited partner will be returned (i the share of profits or other compensation by way of income which a limited partner will receive by reason of his contribution (( the right! if given of a limited partner to substitute an assignee as contributor in his place and its terms and conditions (' the right if given of the partners to admit other limited partner )&T+@ admission becomes effective upon the filing of an amendment to the original certificate (Article 184> as there is a need to designate who the limited partners are. If there is no amendment there is a false statement (l the right if given of one or more limited partners to priority over other limited partners to their contribution! compensation by way of income and the nature of such priority. /nder Article 18::! if not contained! the presumption is that they stand on eAual footing (m the right if given! of the remaining

general partner to continue the business on the -eath!4etirement! Insolvency! Insanity or 2ivil Interdiction of a general partner (n the right if given! of a limited partner to demand and receive property other than cash in return of his contribution %aid certificate or articles must be filed for the record with the %+2. )&T+ T3AT (1 It must be duly sworn to as one who suffers loss by reliance on a statement may hold a party who 'new the statement to be false at (a the time it is signed (b subseAuently! but within a sufficient time before the statement is relied upon! to enable him to 2A)2+$ or A*+)or to file a 1etition for its 2A)2+$$ATI&)BA*+)-*+)T under Article 180: may bring an action for damages (Article 184? (" If not filed with the %+2! it is presumed to be a general partnership! but the liability as a 7eneral 1artner applies to third persons as between them the limited liability stays (3 %ubstantial compliance in 7&&- 5AIT3 gives rise to the formation of a limited partnership but the absence of the following will bar it (a 2ertificate is not sworn to as it is necessary to impress upon the partners that the contents of the Articles are true and correct so that third persons are not misled (b ItCs articles are not registered (c The identity of $imited 1artners is not disclosed If a limited partnership is formed under the law effective prior to the )22 (2ode of 2ommerceBold 2ivil 2ode ! it may become a limited partnership under the )ew 2ivil 2ode by complying with Article 1844. 5urther! it must set forth the (a amount of original contribution of each limited partner and time contribution was made (b that the property of the partnership e#ceeds the amount sufficient to discharge liabilities to persons not claiming as 7eneral 1artners or $imited 1artners by an amount greater than the sum of the contributions of $imited 1artners. If they donCt do anything! they continue to be governed by old law under which they were formed (Article 180? .

=3AT A4+ 4I73T%! 1&=+4%! $IA6I$ITI+% &5 1A4T)+4%

4+%T4I2TI&)%

A)-

1. A 7eneral 1artner has the (a 4ight and power to control the affairs of the partnership! as such he is the sole person who can act for the partnership in consideration of his personal liability for debts without limitation (b +#cept with the written consent or ratification of the specific act by all $imited 1artners! he cannot perform the following (because they are acts of dominion and cannot be considered essential or in the ordinary course of business (1 do any act in contravention of the agreement! this refers to other business (" do any act that would ma'e it impossible to carry on the ordinary business of the partnership (3 confess (udgment (4 possess partnerhsip property or assign rights to specific partnership property other than for partnership purpose (: admit a person as a 7eneral 1artner (0 admit a $imited 1artner unless e#pressly allowed in the certificate (? continue the partnership with partnership property on the -4III of a 7eneral 1artner unless allowed in the certificate (Article 18:D . In the same manner as a limited partner! he shall also have the right to (1 have partnership boo's 'ept at the principal place of business of the partnership! and at a reasonable hour! to inspect and copy them (" have on demand! true and full information of all things affecting the partnership! and a formal account of partnership affairs whenever circumstances render it (ust and eAuitable! and (3 have dissolution and winding up by decree of the court (Article 18:1 ". A $imited 1artner on the other hand! is (a )ot bound by partnership obligations unless he (1 participates in management under Article 1848 (" allows his name to be used under Article 1840 (3 he is also a general partner under Article 18:3 and (4 he is liable under Article 18:" when he contributes capital to a business erroneously believing that he has become a limited partner is not by reason of such e#ercise of his rights as a limited partner! a general partner with the

person or partnership carrying on the business or is bound by their obligations 14&8I-+- That on ascertaining the mista'e! he promptly renounces his interest in the profits of the business or compensation by way of income and creditors are not pre(udiced. *+A)I)7@ that since he has not been designated as a limited partner! he appears as a general partner. 3ence! he is so liable unless he renounces. )ote though that this provision is without pre(udice to Article 1848. *+A)I)7E that if the limited partner has already participated in management! he cannot avail of the provisions of Article 18:" to limit his liability by renouncing. If the e#ceptions -& )&T A11$9! a limited partner is liable only up to the e#tent of his contributions. (b a limited partner also has the rights prescribed under Article 18:1 as discussed! and in addition! the right to receive a share of the profits or other compensation by way of income! and to the return of contributions as per Article 18:0 and 18:?.

(b the consent of all members is had unless return has been rightfully demanded. IT I% 4I73T5/$$9 -+*A)-+-E (1 on the dissolution of the partnership (" when the date stated in the certificate for its return has arrived (3 when 0 months written notice has been given to all members! if no time is stipulated for return or dissolution. (c 2ertificate is amended or cancelled to reflect withdrawal or reduction. 3&= 1AI- < a limited partner! in the absence of a contrary stipulation or the consent of all members! shall! irrespective of the nature of his contribution! have the right to demand and receive 2A%3 in return for his contribution I) A--ITI&) < a limited partner has the right to have the partnership dissolved and its affairs wound@up when (1 he rightfully but unsuccessfully demands the return of his contribution (" other liabilities have not been paid or partnership property is insufficient for their payment A)- the limited partner is or would otherwise be entitled to the return of his contribution (Article 18:? 4I73T T& T4A)%A2T 6/%I)+%% =IT3 T3+ 1A4T)+4%3I1 A limited partner may (1 $oan money to the partnership! &4 (" transact other business with the partnership and (3 unless he is also a general partner! receive on account of resulting claims against the partnership! together with general creditors! a pro@rata share or assets ()&T+ T3AT =3+) 3+ T4A)%A2T% 6/%I)+%%! the limited partner is treated as a non@member creditor 6/T I)%&5A4 A% 2$AI*% A7AI)%T T3+ 1A4T)+4%3I1 < 3+ 2A))&TE (1 receive or hold as collateral any partnership property! &4 (" receive from a general partner or the partnership! any 1A9*+)T! 2&)8+9A)2+! &4 4+$+A%+ 54&* $IA6IIT9! if at that time! the assets of the partnership are not sufficient to discharge liabilities to persons not claiming as general or limited partners. 3+)2+! the receiving of collateral! security! payment or conveyance or release ! in

=3+) I% A $I*IT+- 1A4T)+4 +)TIT$+- T& 4+2+I8+ 3I% %3A4+ &5 T3+ 14&5IT% &4 2&*1+)%ATI&) 69 =A9 &5 I)2&*+ A limited partner is entitled to his share of the profitsBcompensation by way of income on the date stipulated in the certificate. %aid amounts may come from the property of the partnership or that of the general partner. 14&8I-+-! that after payment! partnership assets are in e#cess of liabilities e#cept liability to both limited and general partners for their contributions (Article 18:0 =3+) A4+ 2&)T4I6/TI&)% %/11&%+ T& 6+ 4+T/4)+The contributions of a limited partner as coming from partnership property or that of a general partner cannot be returned /)$+%% (a all partnership liabilities e#cept liabilities to (contributions of general or limited partners! have been paid or assets set aside to satisfy them

violation of the provision is 54A/- on creditors of the partnership (Article 18:4 . 4I73T T& A%%I7) I)T+4+%T A limited partnerCs interest is assignable. The effects of an assignment is to (a constitute the assignee as a %ubstituted $imited 1artner (%$1 . This occurs when the assignee is admitted to all the rights of a limited partner who has died (%ee Article 1801 giving the e#ecutor or administrator of the deceased partner the right to e#ercise all rights as a limited partner to settle his estate and such power as the deceased had to constitute an assignee as a %$1 or has assigned his interest in the partnership (the assignor partner must have the right to constitute the assignee as a %$1 . As a conseAuence! he has all the rights of a limited partner and is sub(ect to all liabilities and restrictions on the A%%I7)&4 +;2+1T! those which he was ignorant of at the time he became a limited partner and which could not be ascertained from the certificate. 6/T! the A%%I7)&4 is not released from liability under Articles 184? (5alse statements and 18:8! The +55+2TI8IT9 I% &) A*+)-*+)T &5 2+4TI5I2AT+! &4 (b he is a mere assignee. As such he has no right to reAuire information or an accountBs of partnership transactions or to inspect the boo's. 3+ 3A% 4I73T T& < (1 receive his share of profits or compensation by way of income &4 the return of contribution! to which the assignor would otherwise be entitled. 3+ 2A) 6+2&*+ A %$1! if (a all the members consent &4 (b the assignor is given the right by or in the certificate to constitute him as a %$1. It is possible that if A%%I7)&4 does not desire! the assignee cannot be a %$1 (Article 18:> . 6/T! the constitution of the assignee as a %$1 becomes effective only! in both cases =3+) T3+ 2+4TI5I2AT+ I% A*+)-+-. )oteE If no consent is given! -I%%&$/TI&) *A9 TAF+ 1$A2+ =3I$+ T3+ I)T+4+%T I% A%%I7)A6$+! IT *A9 A$%& 6+ 23A47+-. The procedures is as followsE (a due application of a

court of competent (urisdiction but e#emption laws apply (b court may then appoint a receiver! ma'e any orders! directions or inAuiries. I) T3+ I*1$+*+)TATI&) &5 T3+ 23A47I)7 &4-+4! the (a the limited partner cannot interpose that prior resort has been had to other remedies as it is not deemed e#clusive (b the interest may be redeemed with the separate property of any general partner but not with partnership property (as it constitutes an untimely return of contribution and gives a limited partner a concession that is inconsistent with limited liability . -issolution may result by the e#press will if the members whose interest have not been charged (Article 180" A $I*IT+- 1A4T)+4 A$%& 3A% T3+ 4I73T )&T T& 6+ I*1$+A-+- A% A 1A4T9 T& A) A2TI&) A% contributor unless he is a general partner cannot be a proper party in a proceeding by or against the partnership e#cept when the ob(ect is to enforce the limited partner right against or liability of the partnership (Article 1800 . WHAT ARE THE LIABILITIES OF LIMITED PARTNERS A limited partner is liable to the partnership for (1 the difference between his contribution as actually made and that stated in the certificate as having been made (" the unpaid contribution which he agreed in the certificate to ma'e in the future! at the time and on the conditions stated in the certificate. 3+ A$%& 3&$-% A% T4/%T++ (1 specific property stated in the certificate as contributed but has not been contributed or was wrongfully returned (" money or other property wrongfully paid or conveyed to him on account of his contribution. T3+ $IA6I$ITI+% &5 A $I*IT+- 1A4T)+4 may be =AI8+- or 2&*14&*I%+- with the consent of all members! but the waiver or compromise shall not affect creditors who e#tend credit or whose

claim arose after the filing and before a cancellation or amendment of the certificate! to enforce such liabilities. A limited partner is also liable! if he has rightfully received the return in whole or in part of his contribution! to the partnership for any sum! not in e#cess of what he received! with interest! necessary to discharge liabilities to all creditors who e#tend credit or whose claim arose before such return (Article 18:8 . This applies to all transactions validly incurred but not considered at the time the return is made -I%%&$/TI&) The groundsBcauses for dissolution as provided for by Articles 183D and 1831 apply. The additional grounds are those provided for under Article 18:? (when the limited partner rightfully demands for return of contributions but is unsuccessful! or! there is non@payment of liabilities and Article 180D! upon the -4III of a general partner! which as a rule dissolves the partnership /)$+%%! the business is continued by the remaining general partner under (a right granted in the certificate ! &4 (b consent of all members is obtained T3+ &4-+4 &5 %+TT$I)7 A22&/)T% I%E (1 creditors in the order provided for by law! e#cept those owing general or limited partners by way of contribution (" those owned to limited partners in respect to their share of profits and other compensation by way of income on their contribution (3 limited partnerCs contributions (4 general partner other than for capital or profits (: general partnerCs profits (0 general partnerCs capital. %ub(ect to agreements! a limited partner shares in proportion to his contribution (Article 1803 . =3+) */%T T3+ 2+4TI5I2AT+ 6+ 2A)2+$$+- &4 A*+)-+-

The certificate is to be cancelled when the partnership is to be dissolved or limited partners cease to be such. It is to be amended whenE (1 change in name! character of the partnership or contribution of a limited partner (" a person is substituted as a limited partner (3 an additional limited partner is admitted (4 a person is admitted as a general partner (: a general partner -4III and business is continued (0 there is a change in the character of the business (? there is a false or erroneous statement contained in the certificate (8 there is a change in time for dissolution or return of contribution (> the time for dissolution or return of contribution is fi#ed (1D the members desire a change in order to accurately represent their agreement (Article 1804 . A)9 =4ITI)7 T& A*+)- %3A$$ (1 conform to Article 1844 and as far as necessary must set forth clearly the change in the agreementBcertificate (" it must be signed and sworn to by all members! and if amendment is to add a partner (he must sign or if it pertains to a %$1 (assigning partner and substitute must sign . I5 IT I% T& 6+ 2A)2+$$+-! it should be signed by all partners. A person desiring cancellation or amendment may petition the court to order cancellationBamendment if the person designated refuses to e#ecute the writing. If found meritorious! the court will order the %+2 to cause cancellation or amendment T3+ 2+4TI5I2AT+ I% A*+)-+- &4 2A)2+$$+- =3+) (1 The writing in compliance with Articles 1804 and 180: is filed with the %+2! and (" I5 2&/4T A2TI&) I% I)ITIAT+-! a copy of the &4-+4 of the court must be filed also. The Amended certificate then ta'es the place of the original certificate. )&T+E that the %+2 has discretion to pass upon compliance with Article 1844.

AGENCY Civil Law; Agency; The right of a broker to his commission for finding a suitable buyer for the sellers property even though the seller himself consummated the sale with the buyer recognized by the Court. In *acondary G Bco. v. %ellner! the court recogniHed the right of the bro'er to his commission for finding a suitable buyer for the sellerCs property even though the seller himself consummated the sale with the buyer. The court held that it would be in the height of in(ustice to permit the principal to terminate the contract of agency to the pre(udice of the bro'er when he had already reaped the benefits of the bro'erCs efforts. Same; Same; The sellers withdrawal in bal faith of the brokers authority cannot un ustly deprive the brokers of their commission as the sellers duly constituted agents. In Infante v. 2unanan! et al.! the 2ourt upheld the right of the bro'ers to their commission although the seller revo'ed their authority to act in his behalf after they found a buyer for his properties and negotiated the sale directly with the buyer whom he met through the bro'erCs effort. The 2ourt ruled that the sellerCs withdrawal in bad faith of the bro'erCs authority cannot un(ustly deprive the bro'ers of their commissions as the sellerCs duly constituted agents. Same; Same; Agency Coupled with an !nterest; An agency is deemed as one coupled with an interest where it is established for the mutual benefit of the principal and of third persons" and it cannot be revoked by the principal so long as the interest of the agent or of a third person subsists. /nder Article 1>"? of the 2ivil 2ode! an agency cannot be revo'ed 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 un(ustifiable. %tated differently! an agency is deemed as one coupled with an interest where it is established for the mutual benefit of the principal and of the agent! of

for the interest of the principal and of third persons! and it cannot be revo'ed by the principal so long as the interest of the agent or of a third person subsists. In an agency coupled with an interest! the agentCs interest must be in the sub(ect matter of the power conferred and not merely an interest in the e#ercise of the power because it entitles him to compensation. =hen an agentCs interest is confined to earning his agreed compensation! the agency is not one coupled with an interest! since an agentCs interest in obtaining his compensation as such agent is an ordinary incident of the agency relationship. I1J

)ature! 5orms and Finds of Agency %TAT/T&49 -+5I)ITI&) 6y a contract of agency! a person binds himself to render some service or do something in representation or in behalf of another! with the consent or authority of the latter (Article 1808 )ote that by going by the definition! agency includes relationships li'e master@servant! employer! employees or lessor < independent contractor! such is however is I)2&44+2T as agency pertains to the performance of a (udicial act (one that binds a person to an obligation in the performance of which discretion may be e#ercised! while in the other relationship what is done in behalf of the other is purely ministerial. A)&T3+4 -+5I)ITI&) < it is a relationship by which two parties whereby one party called the 14I)2I1A$! authoriHes another! called the A7+)T to act for and in his behalf.

=3AT A4+ T3+ +%%+)TIA$ 4+K/I%IT+% &5 A 2&)T4A2T &5 A7+)29 1. There is consent! e#press or implied of the parties to establish the relationship ". The ob(ect is the e#ecution of a (uridical act in relation to a third person 3. The agent acts as a representative and not for himself 4. The agent acts within the scope of his authority 1A4TI+% T& A 2&)T4A2T &5 A7+)29 1. Principal < one who has permitted or directed another to act for his benefit and sub(ect to his direction and control. 3e is the one whom the agent represents and from whom he derives authority. 3e is the one primarily concerned with the contract 2A1A2IT9 =I%+ < he must be able to give legally effective consent and the act to be performed must be delegable (whether or not the act can be done by the person himself. If 9+% < it is delegable +;2+1T < if it is strictly personal. +#ampleE swear under oath! e#ecute a will or e#ercise a profession. 14I)2I1A$% < can be natural or artificialB(uridical persons! foreignersBaliens. ". Agen < he who act or stands for another! usually he is given full or partial discretion! at times he acts under a specific command. 2A1A2IT9 =I%+! he must have the capacity to bind himself to the principal! with third persons! it is not necessary as it is the principal who is bound! he assumes no personal liability )AT/4+ &5 A 2&)T4A2T &5 A7+)29

It is a fiduciary relationship! as a conseAuence of whichE (a no acAuisitive prescription e#ists in favor of the agent as his possession is in the capacity as agent not owner (b agent cannot deny the title of the principal (c agent cannot represent conflicting interests (d agent is obligated to render and give proper information and full disclosure *A))+4 &5 2&)%TIT/TI&) &5 A 2&)T4A2T &5 A7+)29 A contract of agency can be constituted +;14+%%$9 or I*1$I+from the acts of the principal! silence! lac' of action or failure to repudiate and in all cases 'nowing that the other person is acting on his behalf without authority (Article 180> ! I) %/23 2A%+%! burden of proof is on the party claiming or alleging agency. There is no presumed agency e#cept under Art. 18D3 as between partners when the manner of management has not been agreed upon and when lawyers appear before the court. A% T& 5&4* A contract of agency can be orally constituted unless the law reAuires it to be written. The law reAuires it to be written under Articles 18?4 (sale of land or any interest shall be in writing! otherwise the sale is void Article 18?8 (when a special power of attorney is reAuired and in relation thereto! Articles 18?> and 188D 3&= I% IT 1+45+2T+A contract of agency is perfected by A22+1TA)2+! which can be e#press or implied from acts that carry out the agency or silence or inaction according to circumstances (Article 18?D It can also be implied ,between persons present. when the principal delivers his power of attorney to the agent who receives it without ob(ection such is prima facie proof of acceptance (Article 18?1 A)- as between persons who are absent it cannot be implied from the silence of the agent +;2+1TE (1 if the principal transmits his power of attorney to

the agent who receives it without ob(ection (" when the principal entrusts to him by letter or telegram! a power of attorney with reAuest to the business in which he is habitually engaged in as an agent and he did not reply to the letter or telegram (Article 18?" A% T& T3I4- 1+4%&)% < it is perfected when a person specifically informs another or states by public advertisement that he has given a power of attorney to a third person! the latter becomes an agent insofar as (a person to whom specific information is given! (b anyone if it be by public advertisement (Article 18?3 . The power of attorney shall remain in full force until notice of rescission is made in the manner notice of constitution is given! or by actual 'nowledge! such is sufficient to ma'e rescission effective. I) 4+$ATI&) T& A4T. 18?3 @ if the principal leads another to believe that a certain person is his agent but it is not in fact true and such representation is acted upon < that creates an A7+)29 69 +%T&11+$. )ote however that such can also be created by the supposed agent. -I%TI)7/%I3I)7 6+T=++) Agency by +stoppel and Implied Agency. In the former! the agent is not a true agent! the supposed principal or agent is the one liable always depending upon who gave rise to the agency by estoppel. In the latter! the agent is true agent and it is the principal who is liable. A7+)29 I% 14+%/*+- T& 6+ 5&4 2&*1+)%ATI&) /)$+%% T3+4+ I% 14&&5 T& T3+ 2&)T4A49 =hen there is no compensation mentioned! there is still a contract of agency. The absence or presence of compensation not being a necessary or essential reAuirement (Article 18?: . )either does the agent have to prove that the agency is for compensation.

!INDS OF AGENCY Agency is either 7eneral (when it comprises all of the business of the principal or %pecial (when it comprises one or more specific transactions . 2onseAuently! if one is appointed as a 7eneral Agent! he shall be authoriHed to conduct a series of transactions Involving continuity of service. If one is appointed as a %pecial Agent ! he shall be authoriHed to conduct a singleBseries of transactions not involving continuity of service (Article 18?0 HOW CONSTRUED If it is couched in general terms! it only comprises of acts of administration! even if the principal should state that he withholds no power or that the agent may e#ecute such acts as he may deem appropriate or even if agency should authoriHe a general or unlimited management (Article 18?0 . Acts of administration are those that are necessary in the day to day affairs of the business of the principal. 2&)%+K/+)T$9! I5 =3AT I% T& 6+ 1+45&4*+- I% )&T A) A2T &5 A-*I)%T4ATI&)! A %1+2IA$ 1&=+4 &5 ATT&4)+9 I% 4+K/I4+- I) T3+ 5&$$&=I)7 I)%TA)2+%E (1 to ma'e payments as not usually considered acts of administration (" to effect novations which put an end to obligations already in e#istence at the time the agency was constituted (3 to compromise submit Auestions to arbitration! to renounce the right to appeal! to waive ob(ections to venue or to abandon prescription already acAuired (4 to waive any obligation gratuitously (: to enter into a contract by which ownership over an immovable is transmitted or acAuired gratuitously or for valuable consideration (0 to ma'e gifts! e#cept customary ones for charity or those made to employees in the business managed by the agent (? to loan or borrow money! unless the latter act be urgent and indispensable for the preservation of the things which are under administration (8 to lease real property to another for a period e#ceeding one year (> to bind the principal to render service

without compensation (1D to bind the principal in a contract of partnership (11 to obligate the principal as a guarantor or surety (1" to create real rights or convey real rights over immovable property (13 to accept or repudiate an inheritance (14 to ratify obligations contracted before the agency (1: any other act of strict dominion (Article 18?8 There is need for a %pecial 1ower of Attorney to give the agent a clear mandate specifically authoriHing the performance of an act as the acts are classified as (a acts of strict dominion or ownership (b gratuitous contracts! or (c contracts where personal trust or confidence is of the essence. If an act of the agent reAuires a special power of attorney! its absence renders the contract unenforceable. )oteE A 7+)+4A$ 1&=+4 &5 ATT&4)+9 2&)TAI)I)7 A/T3&4ILATI&) 5&4 A2T% =3I23 4+K/I4+% A %1+2IA$ 1&=+4 &5 ATT&4)+9 I% A$$&=+- (8eloso vs. 2A ! "0D %24A :>3 . In relation to Article 18?8! note that (1 a special power of attorney to sell e#cludes the power to mortgage! and a special power of attorney to mortgage does not include the power to sell (Article 18?> as the real ob(ect is to dispose of the property! if however the power given is to raise money for which an agent may sell property or avail of all other means < then a mortgage would be valid (" a special power of attorney to compromise does not authoriHe submission to arbitration. The principal trusts the (udgment of the agent but not the (udgment of the arbitrator. 4/$+% T3AT 7&8+4) T3+ 1+45&4*A)2+ 69 T3+ A7+)T &5 T3+ A7+)29 There being a contract of agency! the general obligations and scope of power of the agent areE (a 3e must act within the scope of his authority (Article 1881 . 3e may do such acts as may be conducive to the

accomplishment of the purpose of the agency. A/T3&4IT9 -+5I)+-@ The right of the agent to effect legal relations with his principal by the performance of acts effectuated by and in accordance with the principalCs manifestation of consent. FI)-% &5 A/T3&4IT9 (a +#press < the authority is clearly defined and is spelled out in terms that the agent fully understands what is to be done (b Implied < only the general nature of the authority is defined! but is deemed to include acts necessary to accomplish the purpose (c 7eneral < the agentCs discretion is complete (d %pecial < particular instructions are given (e Apparent@ when the agent or a third person is led to believe by the principal that he is an agent. A/T3&4IT9 A% -I%TI)7/I%3+- 54&* 1&=+4@ authority may be considered as the cause while power is the effect. Authority given by the principal to the agent is the one that empowers the agent! who can now act. (b The limits of an agentCs authority shall not be considered e#ceeded should it have been performed in a manner more advantageous to the principal than that specified by him (Article 188" . The conditions of the agency can be improved! but not made worse. The agent cannot be said to have e#ceeded the scope of his authority because it is presumed that if it were the principal so acting! he would have followed the more advantageous course. 2$+A4$9! IT I% 1&%%I6$+ T3AT T3+ 1&=+4 &5 T3+ A7+)T 6+ 64&A-+4 T3A) T3+ 14I)2I1A$ it should be characteriHed by the fact that it is more advantageous to the principal. I5 A) A7+)T I% 2&)%T4AI)+- T& A2T 6+9&)- T3+ A/T3&4IT9 7I8+) 3I*. IT 2A) 6+ M/%TI5I+- I5 IT I% 2&)%I-+4+- A) A7+)29 69 )+2+%%IT9. This refers to the concept that the agentCs authority is correspondingly enlarged to cope with the necessities or e#igencies of the moment < 6/T T3I% %3&/$- A$=A9% 14+@%/11&%+ T3AT A) A7+)29 I% A$4+A-9 I) +;I%T+)2+. The conditions are (1 real e#istence of an emergency (" inability to communicate with the principal (3 e#ercise of additional authority is for principalCs protection (4 he

10

adopts family reasonable means! premises duly considered! and (: authority ceases the moment the emergency no longer demands it (c If an agent acts in his own name! the principal has no right of action against the persons with whom the agent contracted! neither have such persons against the principal. In such is the case! the agent is directly responsible to the persons with whom he contracted as if the transaction has his own e#cept when the contract involves things belonging to the principal. It is also without pre(udice to actions between the principal and the agent. (Article 1883 . This is an A7+)29 =IT3 A) /)-I%2$&%+- 14I)2I1A$. This will apply only when there is a contract of agency as the agent here =A% A/T3&4IL+- 6/T A2T+- I) 3I% &=) )A*+! as opposed to an agency by estoppel. 3ere the agent is liable alone as the fact of representation disappears insofar as the third person and the principal. Applying 1881 In this four instances the effects areE 1. Acts in principalCs behalf of authority < valid < principal is bound ". Agent acts with authority but in his behalf < valid < principal is not bound e#cept if 188" applies 3. ,Agent. without authority but in behalf of the principal < unenforceable < but principal can ratify. Art. 14D3 < paragraph I Those entered into in the name of another person by one who has given a authority or legal representative or who has cited beyond his powers. 4. ,Agent. without authority in his behalf < valid < provided at the time of delivery he can deliver

OBLIGATIONS OF THE AGENT I. 2A449 &/T T3+ A7+)29 Art. 1884 < the agent is bound by his acceptance to carry out the agency < I5 3+ -&+% )&T < he is liable through non@ performance for damages that may be sustained by his principal. 3e must also < finish business already began on the death of the principal < should delay enNN any damages 1$%. )&T+E That if he carries NNN the agency in good faith and in accordance with is authority but damages still result. 3e is not liable. 6/T < under Art. 1888 < the agent shall not carry out the agency if its e#ecution would manifestly result in loss or -A*A7+ *anifestly < e#ecution will definitely damage the principal If the A7+)T -+2$I)+% (or Art. 18?D! ?1! or ?" does not apply A. &bserve the diligence of a good father of the family in the custody and preservation of the goods forwarded to him. /)TI$E the principal shall have appointed an agent! or the principal shall have as soon as practicable ta'en charge of If the A7+)T e#ercises the reAuire diligence < loss NNN have to be borne by the &=)+4B14I)2I1A$ I5 3+ A22+1T% < Art. 188? The agent in the e#ecution shall act. a. in accordance with the instructions of the principal (Instructions as opposed to authority are the specific acts to be underta'en to carry out the agency

11

I) %& 7I8I)7 I)%T4/2TI&)% < the principal must ma'e his terms clear and NNNNNNNNN! if it be susceptible to two meanings! adoption in good family does not cause liability for loss in constituting the instructions they shall be construed as ,a plain non acAuainted with the ob(ect and attending reasonably to the language used! has in fact construed. b. I) -+5A/$T &5 I)%T4/2TI&)% < he shall do all that a good father of the family will do as reAuired by the nature of the business. (That which an ordinary prudent man would e#ercise as regards his own property he must careful < agent is responsible not also fraud! but also for negligence which shall be (udged with more or less NNN by costs depending or whether agency was or was not for compensation. I) A--ITI&)! I) 2A449I)7 &/T T3+ A7+)29 Art. 1880 < if there be a stipulation that the agent shall advance the necessary funds! he shall be found to do so e#cept of the principal is insolvent. @ this applies whether the agency is gratuitous or onerous. @ if NNNNN the agent < (Art. 1>18 (see 1>1" A$%& @ actual in contravention of being authority unless he avails himself of the benefits. @ e#penses are due to his NN @ incurred the e#penses with 'nowledge that an unfavorable result will ensure @ or! it is stipulated that e#penses are to be NNN by him @ when even if he (A7+)T advances the amount no right for a reimbursement e#ists II. A7+)T %3&/$- )&T 4+14+%+)T NN Art. 188> < the A7+)T is liable for damages! if there is a conflict between his interests and that of the principal he should prefer his own.

III. I5 3+ I% A/T3&4IL+- T& $+)- &4 6&44&= *&)+9 (18>D @ if he is authoriHed to borrow! he may be the lender at the current rate @ if he has been authoriHed to lend money at interest! he cannot borrow it without the consent of the principal < as there is a damages that the interest of the principal will be (eopardiHed I8. &6$I7ATI&) T& 4+)-+4 A) A22&/)T &5 3I% T4A)%A2TI&)% @ -+$I8+4 T& T3+ 14I)2I1A$ =3AT+8+4 3+ *A9 3A8+ 4+2+I8+- 69 8I4T/+ &5 T3+ A7+)29! +8+) I5 IT I% )&T &=I)7 T& T3+ 14I)2I1A$ Any stipulation e#empting him from rendering an accounting is void. @ 5ailure to account or return without (ustifiable reason shall be ground for prosecution under Art. 31: par 1 (0 of the 41$ for estafa 8. )AT/4+ &5 $IA6I$IT9 &5 T3+ A7+)T T& T3+ 14I)2I1A$ Art. 18>4 < the responsibility of two or more agents! even though they have been appointed. %imultaneously! is )&T %&$I-A49! if solidarily has not been e#pressly agreed upon. $iability is (oint. 6ut Art. 18>: < if solidarily has been agreed upon each of the agents is responsible for the non@fulfillment of the agency and for the NNN and negligence of his NN agents e#cept in the latter case the agent acted beyond the scope of their authority. If the co@agent NN beyond the scope of his authority < no liability is imposed on the other agent. 1rincipal can sue either agent without pre(udice to any actionBs for recovery between them.

12

I) A--ITI&) Art. 18>0 < of the agent 3asE converted and applied NNN to his own use! or ones NN after the agency is e#tinguished 3+ I% $IA6$+ 5&4 I)T+4+%T &) T3+ %AI- A*&/)T% =IT3&/T 14+%/NNN T& A 14&%+2/TI&) 5&4 +%TA5A I5 %& =A44A)T9 2A) T3+ A7+)T A11&I)T A %/6%TIT/T+ Art. 18>" < The agent is allowed to appoint a substitute of the principal has not prohibited from doing so! but if he does appoint! the agent shall be responsible for all the acts of the substitute ifE a. he has not given the power to appoint one b. he was given the power to appoint but without designating the person and the person appointed was notoriously incompetent or insolvent A$%&! all the actCs of the substitute shall be void if it is counter to the principalCs prohibition to appoints. Article 18>3 < in cases where there is no power to appoint or the person appointed is incompetent or insolvent. The principal may bring an action against the substitute with regards to the obligation which has been contracted under substitution. +#ecution on the 4ule of priNN Art. 1311 < contracts ta'e effect between the parties only I)%&5A4 A% $IA6I$ITI+% T& T3I4- 1+4%&)% Article 18>? < agent is not personally liable to the party with whom he contracts < /)$+%% a. 3e e#pressly binds himself in which case the principal is still liable. b. 3e e#ceeds the NN of his authority without giving such party sufficient notice of his powers but if party is aware then he is estopped from claiming otherwise

Art. 18>8 < if the agent contracts in the name of the principal e#ceeding the scope of his authority A)- the principal does not ratify the contract is 8&I-! if the party is aware of the NN of the power granted by the principal. If the agent undertoo' to secure ratification and it is not given! the agent is liable even if the third party is aware or unaware. 4+K/I%IT+% 5&4 8A$I- 4ATI5I2ATI&) 1. contract is one which would have been valid or legal had the agent been authoriHedO ". principal must be e#isting and legally competent at the NN of ratificationO 3. contract must purport to be in the principalCs behalfO 4. same formalities reAuired for ratification as original authoriHationO :. principal must have full 'nowledge of the factsO Art. 18>> < if the duly authoriHed agent acts in accordance with the order of the principal the principal cannot set up the ignorance of the agent as to circumstances whereof he himself was on ought to have been aware. e.g. agent was to adopt to a situation that is foreseen principal cannot say NN in attribute to agent if he was aware 4/$+% 2&8+4I)7 T3I4- 1+4%&)% Art. 1>DD < they can consider an act performed by the agent to be within the scope of granted authority! if it is within the terms of the =4ITT+) 1&=+4 &5 ATT&4)+9! even if in fact it has been e#ceeded according to an understanding between the principal and agent. Art. 1>DD < has no application of the agency is not written

13

&) T3+ &T3+4 3A)- < under Art. 1>D1@ a third person cannot set up the fact that the agent has e#ceeded his power of the principal hasE a. ratified the act or b. has e#pressed a willingness to ratify c. to ensure that the agent acts with his authority Art. 1>D" < a second person has the right and the agent the obligation toE a. reAuireBpresent the power of attorney or b. reAuireBpresent the instructions If there are private or secret orders or instructions! third parties will not be pre(udiced if they have relied on what has been shown to them. Art. 1>D3 < 1>D8 < 2ommission Agent Agent is a bro'er or a penchant who has the option with actions in his own name or that of the principal for which purpose < goods are placed in his NNN of NN! engaged in purchase and sale of proposed property. Art. 1>D3 < he shall be responsible for the goods received by him in the terms and conditions and as described in the consignment unless upon receiving them he should ma'e a written statement of the damage and deterioration. Art. 1>D4 < if he handles goods of the same 'ind and wor'! which belong to different owners! he should distinguish then by countermar's and designate the merchandise belonging to each principal. 3. 3e cannot sell the goods on credit without the e#press or implied consent of the principal. If he sells on credit! the principal can demand cash but the agent shall be entitled to any benefit or interest (6/T 14I)2I1A$ 2A) 4ATI59 %A$+ . If he sells on credit with

the authority of the principal! he shall inform the principal with a statement of the names of the buyers. %hould he fail! the sale shall be deemed to have been made in cash insofar as the principal is concerned T3I% I% T& 14+8+)T A7+)T 54&* %A9I)7 T3AT A 2A%3 %A$+ =A% &) 24+-IT (Articles 1>D: and 1>D0 . 4. If the agent is entitled to a 7/A4A)T++ 2&**I%%I&) (in addition to the ordinary commission he shall bear the ris' of collection and shall pay the principal the proceeds of the sale on the terms agreed upon with the purchaser (Article 1>D? . 3ere the I)%&$8+)29 &5 T3+ -+6T&4 I% )&T A -+5+)%+. :. If the commission agent does not collect the credits of his principal when they become due and demandable! he is liable for damages unless he proves he e#ercised due diligence (Article 1>D8 .

OBLIGATIONS OF THE PRINCIPAL 1. T& 2&*1$9 comply with all obligations that the agent may have contracted =IT3I) T3+ %2&1+ &5 3I% A/T3&4IT9. As for any obligation contracted when his power is e#ceeded! the principal is not bound +;2+1T if he 4ATI5I+% e#pressly or tacitly (Article 1>1D . If the agent e#ceeded his authority the principal is %&$I-A4I$9 $IA6$+ with the agent I5 3+ A$$&=+- the latter to act as if he had full powers (Article 1>11 . ". T& A-8A)2+ ! I5 T3+ A7+)T 4+K/I4+%! the %/*% necessary to e#ecute the agency. If it is not advanced! the principal must reimburse the agent even if the business or underta'ing was unsuccessful 14&8I-+-! the agent is free from any fault or negligence! to include I)T+4+%T form the day on which the advance is made (Article 1>1" .

14

)&T+E That under Article 1>18 < the principal is not liable for e#penses incurred by the agent in (4 instancesE (a Agent acted in contravention of the principalCs instructions! unless he chooses to avail himself with the benefits (b +#penses are due to the agentCs fault (c =hen they are incurred by the agent with 'nowledge that an unfavorable result would ensue! if the principal not aware thereof (d =hen it has been stipulated that the agent would bear the e#pense or that the latter would only be allowed a certain sum. 3. T& I)-+*)I59 the agent for damages which the e#ecution of the agency may have caused the agent! who is without fault or negligence (Article 1>13 . To enforce payment of the sums due under 1aragraphs (" and (3 ! the agent may retain in 1$+-7+ the things which are the ob(ect of the agency until the principal effects reimbursement and payment of the indemnity. This is an +;2+1TI&) T& T3+ -/T9 T& -+$I8+4 /)-+4 A4TI2$+ 18>1. =3AT I% )AT/4+ &5 T3+ $IA6I$IT9 &5 T3+ 14I)2I1A$ I) 2A%+% =3+4+ " &4 *&4+ 1+4%&)% 3A8+ A11&I)T+- A) A7+)T 5&4 A 2&**&) T4A)%A2TI&) &4 /)-+4TAFI)7 The liability of the principal I% %&$I-A49 < for all conseAuences of the agency (Article 1>1: =3AT 3A11+)% =3+) T=& 1+4%&)% 2&)T4A2T 4+7A4-% T3+ %A*+ T3I)7! &)+ =IT3 T3+ 14I)2I1A$! T3+ &T3+4 =IT3 T3+ A7+)T =hen " persons contract with regards the same thing! one of them with the agent! the other with the principal and the " contracts are

incompatible with each other. T3AT &5 T3+ 14I&4 -AT+ 14+5+44+-! unless Art. 1:44 appliesE *&8A6$+% < first to ta'e possession in good faith! I**&8A6$+ < first in good faith records it in the registry of property. )& I)%24I1TI&) < first having possession in good faith! and in its absence! person who presents the oldest title! provided there is good faith (Article 1>10 . If the agent acted in good faith! the principal must be held for damages suffered by the person whose contract is re(ected (Article 1>1? . If he is in bad faith! he alone shall be responsible =3AT A4+ T3+ *&-+% 2&)T4A2T &5 A7+)29 &5 +;TI)7/I%3I)7 T3+

The contract of agency is e#tinguished by (a 4evocation (b =ithdrawal of the agent (c -eath! civil interdiction! insanity or insolvency of the agent (d -issolution of the firm or corporation entrusted with or accepting the agency (e Accomplishment of the ob(ect or purpose of the agency (f +#piration of the period for with the agency was constituted (Article 1>18 &ther 'nown causes are termination by mutual consent! novation! loss of the sub(ect matter! outbrea' of war if inconsistent with agency. 4+8&2ATI&) (1 4evocation is underta'en by the principal at will and he may compel the agent to return the document evidencing the agency. It may be done (a +;14+%%$9! or (b I*1$I+-$9 (Article 1>"D (" Implied revocation ta'es place whenE (a a new agent is appointed for the same business or transaction which becomes effective on the day notice thereof was given without pre(udice to Articles 1>"1 and 1>"" (Article 1>"3 ! (b when the principal directly manages the business entrusted to the agent by dealing directly with

15

third persons (Article 1>"4 ! and (c grant to another agent of a special power of attorney revo'es a general power of attorney as regards the special matter involved in the special power of attorney (Article 1>"0 . =3& 2A) 4+8&F+ I5 T3+4+ A4+ T=& &4 *&4+ 14I)2I1A$% If two or more principals have granted a power of attorney for a common transaction! any one of them may revo'e without the consent of the others (Article 1>": . This is due to their solidary liability. +55+2TI8IT9 &5 4+8&2ATI&) In A$$ I)%TA)2+%! the revocation is effective only whenE (1 )otice has been given to specified persons! in cases where the agency has been entrusted for the purpose of contracting with third persons (Article 1>"1 ! &4 (" If the agent had general powers! revocation will not pre(udice third persons who acted in good faith and without 'nowledge of the revocation. )otice of the revocation in a newspaper of general circulation is sufficient warning to third persons. (Article 1>"" =3+) T3+4+ 2A) 6+ )& 4+8&2ATI&)

unable to pay! the mortgagee is constituted as the mortgagorCs attorney in fact to sell the property given as security upon foreclosure(c a partner is appointed as a managing partner and his removal is un(ustified under Article 18DD (3 (4 =hen there is a waiver by the principal as to revocation =hen the principal is obliged not to revo'e

(: 4evocation is underta'en in bad faith. 3ere there is actual revocation but third parties will not be pre(udiced. =IT3-4A=A$ It is the agent who may withdraw from the agency by giving notice to the principal 6/T if the principal suffers any damage due to the withdrawal! the agent must indemnify him /)$+%% < the basis of withdrawal is impossibility of carrying or continuing the agency without grave detriment to himself (Article 1>"8 . 3&=+8+4! despite notice and withdrawal for a valid reason! the agent must continue to act until the principal has had reasonable opportunity to ta'e necessary steps to need the situation (Article 1>"> . T3I% I% T& 14+8+)T -A*A7+ T& T3+ 14I)2I1A$ -+AT3 &5 T3+ 14I)2I1A$ &4 T3+ A7+)T

(1 It is coupled with interest! but a mere statement that it is coupled with an interest is not sufficient < I)T+4+%T I) T3+ %/6M+2T *AT+4 I% 4+K/I4+(" In cases mentioned under Article 1>"? (a when a bilateral contract depends on the agency. +#ampleE A buys a parcel of land from 6 by installment. To pay balance! A appoints 2 to sell another property if he cannot pay the balance and deliver the proceeds to 6. (b if the agency is a means of fulfilling an obligation already contracted. +#ampleE In a contract of loan with a mortgage. If the mortgagor is

(1 As a general rule! the death of the principal e#tinguishes the agency but if )&T %& if it has been constituted inE (a 2&**&) I)T+4+%T &5 T3+ 14I)2I1A$ A)- A7+)T. +#ampleE A borrows from 6 and entrusts an item to 6! which he can sell if the debt is not paid! the agency shall remain even if A should die. The common interest being the payment of the loan. (b T3+ I)T+4+%T &5 A T3I4- 1+4%&) =3& 3A% A22+1T+- T3+ %TI1/$ATI&) I) 3I% 5A8&4. +#ampleE A sells property to 6 and appoints 6 as his

16

agent to pay 2 from the proceeds of the sale. The agency will e#ist even if A dies (Article 1>3D (" Anything done by the agent without 'nowledge of the death of the principal or any other cause that will e#tinguish the agency! is valid and shall be fully effective with respect to third persons who may have contracted with him in good faith (Article 1>31 . (3 If the A7+)T -I+%! it e#tinguishes the contract of agency. 2onseAuently (a his heirs must notify the principal! and (b adopt measures as the circumstances may demand in the interest of the principal (Article 1>3" . =hen notice is impossible! consignment is the remedy.

". 5rom a stipulation pour autri ((a stipulation in a contract in favor of a person not a party to the contract! the parties thereto not being under any legal obligation to grant a benefit ! (a a trust e#ists because of a legal provision or a contract! a stipulation pour autri arises only in case of contracts (b a trust refers to specific property only! a stipulation pour autri can refer to both specific things or other things. I% 2&@&=)+4%3I1 A T4/%T In the cases of %otto vs. Teves (80 %24A 1:4 and 2astrillo vs. 2A (1D %24A :4> ! the %upreme 2ourt held that a co@ownership is a form of trust! with each co@owner being a trustee for each of the others! thus he may not any act pre(udicial to the interest of his co@owners and an agreement to preserve property in co@ownership is an e#press trust. =3& A4+ T3+ 1A4TI+% T& A T4/%T

notesrsr.busorgn.pc3

TRUST =3AT I% A T4/%T @ It is a fiduciary relationship concerning property which obliges the person holding it to deal with the property for the benefit of another. 5rom the beneficiaryCs viewpoint! it is the right to beneficial en(oyment of property! the legal title over which is vested in another =3AT A4+ T3+ 23A4A2T+4I%TI2% &5 A T4/%T

The parties to a trust are (1 Trustor < the person who establishes the trust (" Trustee < the person in whom confidence is reposed as regards property for the benefit of another person (3 6eneficiary < the person for whose benefit the trust has been created. 3e is the ,cestui Aue trust.. I% 1&%%I6$+ T& 3A8+ " 1A4TI+% &)$9! if the beneficiary and trustor are one and the same (Article 144D . =3AT A4+ T3+ +$+*+)T% &5 A T4/%T

The characteristics of a trust are (1 it is a fiduciary relationship (" it is created by law or by agreement (Article 1441 (3 legal title is held by one! while eAuitableBbeneficial title is held by another -I%TI)7/I%3+- 54&* &T3+4 $+7A$ 4+$ATI&)%3I1% 1. 5rom 7uardianshipB+#ecutorship! a trustee has legal title! not so for a guardianBe#ecutor

The elements of a trust areE (1 1arties (" Trust property (trust estate or sub(ect matter of the trust

17

FI)-% &5 T4/%T% The 'inds of trusts areE (1 +;14+%% < one created by the direct and positive acts of the parties by writing deed! will or by words evidencing an intention to create a trust. It is shown by the intention of the trustor or the parties. )o particular form is reAuired (" I*1$I+< one created by operation of law. The FI)-% &5 I*1$I+T4/%T% A4+ (1 4esulting trust < where a person ma'es or causes to be made a disposition of property under circumstances which raise an inference that he does not intend the person holding or ta'ing the property to have beneficial interest. (Article 1448 (" 2onstructive trust < imposed where a person holding title to property is sub(ect to an eAuitable duty to convey to another on the ground that he could be un(ustly enriched if he were permitted to retain it (Art. 144?@14:0 . A% -I%TI)7/I%3+- 54&* %&$/TI& I)-+6ITI where something is received when there is no right to demand it or is unduly delivered through mista'e or there is a payment by reason of mista'e in the construction or application of a doubtful or difficult Auestion of law! TIT$+ -&+% )&T 1A%%! I) A 2&)%T4/2TI8+ T4/%T! TIT$+ 1A%%+%. A11$I2ATI&) &5 $A=% )ote that the principles of the general law of trusts! insofar as they are not inconsistent with the 2ivil 2ode! the 2ode of 2ommerce! the 4ules of 2ourt and special laws are hereby adopted (Article 144" . =e may also draw freely from /nited %tates or /nited Fingdom precedents. 5&4* &5 +;14+%% T4/%T% )o particular words are reAuired for the creation of an e#press trust! it being sufficient that a trust is clearly intended (Article 1444 . 2onseAuently! an e#press trust is created by the direct and positive acts of the parties as manifested by some writing or deed or will! or by words evidencing an intention to create a trust.

6/T no e#press trust concerning an immovable or any interest therein may be proven by parol evidence (Article 1443 3&=+8+4! if the trust be I*1$I+-! it can be proven by parol evidence (Article 14:? 1A4&$ +8I-+)2+ < if terms of an agreement has been reduced to writing! it is considered as containing all such terms! thus! as between parties and their successors no terms other than the writing is allowed! +;2+1T (a mista'e is of fact (b mista'e is common or mutual to both! and (c evidence of the mista'e is clear and convincing 3+)2+! as far as e#press trusts are concerned! there is no specified form. The trust may be constituted orally or in written form! 3&=+8+4! (1 if an e#press trust is over an immovable < it must be written to be enforceable 6/T &)$9 5&4 +)5&42+A6I$IT9 )&T 5&4 8A$I-IT9 as the law does not so preclude the creation of an e#press trust orally. This article can thus be considered as part of the statute of frauds (" by implication! if the sub(ect is a movable! it may be constituted orally and if so! it is valid and enforceable 4+K/I%IT+% &5 A) +;14+%% T4/%T The reAuisites of an e#press trust areE (1 a competent trustor < one who is capacitated to convey property (" a competent trustee < one who can hold property and enter into contract. )&T+E no trust shall fail because the trustee appointed declines the designation! unless the contrary appears in the instrument creating the trust (Article 144: . This applies even if trust is already subsisting or the trustee becomes incapacitated. The 4+A%&) being that to permit it to fail would render nugatory or negate the trustorCs intention to create a trust. The primary consideration being the dispositon of beneficial interest not the appointment of trustee. 2&)%+K/+)T$9! a court will have to appoint a trustee unless the terms of the document provide for the appointment of a successor. (3 a competent beneficiary < one who is

18

capacitated to receive gratuitously from the trustor ()ote those who cannot be donees and those who cannot be a legatee or devisee@ Articles ?3>! 1D"?! 1D"8! )22 . )&T+ that the beneficiary is reAuired to accept the trust to ma'e the trust effective (Article 1440 . The acceptance may be +;14+%% &4 I*1$I+- &4 14+%/*+- only if no onerous condition is imposed on the beneficiary! e#cept if there is proof to the contrary or he did not accept (4 Ascertainable trust res (: There must be present a clear and complete disposition of property ( *indanao -evelopment Authority vs. 2A 113 %24A 4"> 3&= I% A T4/%T A-*I)I%T+4+A trust is to be administered in accordance with the provisions of 4ule >8 of the 4ules of 2ourt! which reAuires the trustee to (1 file a bond (" render a true and clear account (3 ma'e an inventory (4 manage and dispose of the estate faithfully in accordance with the law and the terms of the trust agreement. 3&= A4+ +;14+%% T4/%T% +)-+An e#press trust is ended by (1 mutual agreement (" e#piration of the term (3 fulfillment or a resolutory condition which e#tinguishes the obligation (4 recission or annulment (: loss of the sub(ect matter (0 order of the court (? merger (8 accomplishment of the purpose +;A*1$+% &5 I*1$I+- T4/%T% The enumeration of implied trusts does not e#clude those established by general law but the limitation laid down in Article 144" that it not be contrary to the 2ivil 2ode! 2ode of 2ommerce! 4ules of 2ourt! and %pecial $aws shall be applicable ( Article 144? .

1.

4+%/$TI)7 T4/%T%

a. =hen property is sold and the legal estate is granted to one party but the price is paid by another for the purpose of having beneficial interest over the property. +#ampleE A buys property from 6! but title is put in 2Cs name. 3&=+8+4! if the title is conveyed to a child < legitimate or illegitimate of the one paying the price! no trust is implied! it being disputably presumed! that there is a gift in favor of the child (Article 1448 . A$%&! a document e#pressing a different intent does not create a trust. +#ampleE A pays for a lot but title is put in 6Cs name. If A is shown to have paid because he is paying 6! there is no T4/%T b. =hen a donation is made to a person but it appears that although legal estate is transmitted to donee! he nevertheless is either to have no beneficial interest or only part thereof (Article 144> . +#ampleE 6lind Trusts c. =hen land passes by succession to any person and he causes legal title to be put in the name of another! a trust is established by implication of law for the benefit of the true owner (Article 14:1 . d. If two or more persons agree to purchase property and by common consent! legal title is ta'en in the name of one if them for the benefit of all! a trust is created by force of law in favor of the others in proportion to the interest of each reAuisites (Article 14:" . 4eAuisites areE (1 two or more agree to purchase (" there is consent that one should ta'e title in his name ()ito vs. 2A! "": %24A ":1 e. When property is conveyed to a person in RELIANCE upon his declared intention to held it for, or transfer it to another, or the grantor, there is an implied trust in favor of the person whose enefit is contemplated !Article "#$%&.

19

".

2&)%T4/2TI8+ T4/%T%

a. If the price of the property is loaned or paid by one person for the benefit of another and the conveyance is made to the lender or payor to secure the payment of a debt! a trust arises by operation of law or favor of the person to whom the money is loaned or for whom it is paid (Article 14:D . b. If an absolute conveyance is made in order to secure the performance of an obligation of the grantor toward the grantee! a trust by virtue of law is established. If fulfillment of the obligation is offered by the grantor when it becomes due! he may demand reconveyance of the property to him (Article 14:4 . c. =hen any trustee! guardian or other person holding a fiduciary relationship uses trusts funds for the purchase of property and causes the conveyance to be made to him! a trust is established by operation of law in favor of the person to whom the funds belong (Article 14:: . d. If property is acAuired through mista'e or fraud! the person obtaining it is by force of law considered a trustee of an implied trust for the benefit of the person from whom the property comes (Article 14:0 . If what is concerned is the acAuisition by fraud of an immovable! it cannot be acAuired by prescription under Article1133. As far as movables! if possessed through a crime! they can never be acAuired through prescription by the offender 2A) T4/%T++ A2K/I4+ 14&1+4T9 %/6M+2T &5 T3+ T4/%T 69 14+%24I1TI&) The trustee cannot acAuire the property sub(ect of the trust by prescription unless the trust has been repudiated. The reAuisites of repudiation areE (1 the trustee has performed uneAuivocal acts

amounting to the ouster of the cestui Aue trust (" the acts of repudiation are made 'nown to the cestui Aue trust (3 the evidence of repudiation are clear and conclusive (8A$-+L vs. &$A47A ! :1 %24A :?1 4+$AT+- M/4I%14/-+)2+ 1. An action for reconveyance of a parcel of land based on an impliedBconstructive trust prescribes in 1D years from registration of the deedBissuance of title. This applies only when the person see'ing reconveyance is not in actual possession < as the action for reconveyance is actually an action to Auiet title which does not prescribe. (%++E 3+I4% &5 &$8I7A vs. 2A ""? %24A 33D! 8-A -+ 2A64+4A vs. 2A "0? %24A 33>! *A)A)7A) vs. 2A! 7.4. 11:?>4! Mune 1D! 1>>> ". A resulting trust is imprescriptable unless repudiated (&C$A2& vs 2& 23& 23I$! ""D %24A 0:0 3. A buyer at auction sale to enforce a widowCs obligation holds the share of the other heirs in trust ( )&+$ vs. 2A "4D %24A ?8 4. 1rescriptive period of 1D years from repudiation runs from the moment possession becomes adverse ( 3/A)7 vs. 2A "30 %24A 4"D . 4econveyance of registered land based on an implied trust is 1D years (A4*A*+)T& vs. 26! >0 %24A 1?8 :. An action for reconveyance based on an implied or constructive trust prescribes in ten years from the alleged fraudulent registration or date of issuance of a certificate of title (2risostomo v. 7arcia! Mr. 481 %24A 4D" %ee 1ascual v 2A! 4D> %24A 1D:! %ee also %ps. Alfredo v %ps. 6orras! 4D4 %24A 14:

20

4esulting trust is presumed to have been contemplated by the parties! the intention as to which is to be found in the nature of their transaction but not e#pressed in the deed itself. A constructive trust is created! not by any word evincing a direct intention to create a trust! but by operation of law in order to satisfy the demands of (ustice and to prevent un(ust enrichment. An implied trust was created in favor of respondent when petitioners transferred the properties to their names in violation of the trust placed in them as overseers. (6e(oc vs. 2abreros! 404 %24A ?8

I1J

$im v %aban! 44? %24A "3"