Power to Dissolve Partnership

MARJORIE TOCAO & WILLIAM BELO v CA & NENITA ANAY

YNARES-SANTIAGO, J p:
FACTS:
Nenita Anay, a former marketing adviser of Technolux Bangkok, accepted an offer from William Belo and Marjorie
Tocao, to become an industrial partner to a business venture/partnership. The business, Geminese Enterprises, a
sole-proprietorship registered in Tocaos name, would be a distributorship of cookware, and would benefit from
Anays expertise and knowledge and her connection with a kitchenware manufacturer in the US. The partnership
also agreed to use her name in securing distributorship of cookware from such manufacturer. Anay eventually
became Vice- President for sales. She organized administrative staff and sales force. Her profits, as agreed (but
not reduced into writing) would comprise of:
1. 10% of annual net profits
2. 6% of overall weekly production
3. 30% of the sales she would make
4. 2% for her demonstration services.
On the other hand, Tocao was the president and general manager of Geminese, while Belo acted as the
capitalist.
With the written consent of Tocao, Anay accepted the invitation of their manufacturer to attend a distributor/dealer
meeting in Wisconsin. Upon her return, Anay learned that Tocao had written a letter to the Cubao sales office to the
effect that she was no longer the vice-president of Geminese, and was now barred from holding office and
conducting demonstrations in the offices. Anay, failing to get a response from Belo, demanded for the commission
due her and an audit of the company, to determine her share in the net profits.
In their answer, petitioners claimed that Anay was not a partner because
1. there was no such agreement in writing;
2. Geminese was the sole proprietorship of Tocao
3. Anay merely acted as marketing demonstrator for an agreed renumeration
Therefore, her complaint should have been lodged w/ the DOLE and not w/ the regular court.
ISSUE: WHETHER OR NOT A PARTNERSHIP EXISTS
HELD: YES. As ruled by the RTC, affirmed by both the CA & SC, a partnership exists among Belo, Tocao and
Anay. The law provides that a partnership must fulfill these requisites:
1. 2/more persons 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.
It may be constituted on any form.
In the case at hand, Belo, and Tocao contributed money to the business while Anay contributed her expertise in
order that they may divide the profits by way of commissions. The fact that the agreement was not in writing is of no
moment because Art 1771 provides that a partnership may be constituted in any form. Even if the business was
registered solely under Tocao, is not definitive of whether it is a sole proprietorship or a partnership for what it
involves is merely the business name and style of Geminese.
Therefore, GEMINESE Enterprises is a partnership business.
ISSUE 2: WHETHER OR NOT ANAY IS A PARTNER and THEREFORE HAD
THE RIGHT TO DEMAND A FORMAL ACCOUNTING AND TO HER SHARE IN
THE NET PROFITS.
RTC: a partner who is excluded wrongfully from a partnership is an innocent partner. Hence, the guilty partner
must give him his due upon the dissolution of the partnership as well as damages or share in the profits "realized
from the appropriation of the partnership business and goodwill." An innocent partner thus possesses "pecuniary
interest in every existing contract that was incomplete and in the trade name of the co-partnership and assets at
the time he was wrongfully expelled."
CA: Affirmed
HELD: YES. Petitioners admit that Anay had the expertise to engage in the business of distributorship of cookware.
Anay contributed her expertise to the partnership and hence, she was the industrial or managing partner. It was
through her reputation that the partnership was able to open a

distributorship under the US manufacturer; it was even admitted by the petitioners that Anays contribution was
indispensable to the success of the business. There was no employer-employee relationship and the fact that they
all receive profits by way of commission and not by way of wages proves such fact.
Therefore, being a partner, Anay had the right to demand for a formal accounting of the business and to
receive her share in the net profits.
ISSUE 3: WHETHER OR NOT A PARTNER HAS THE POWER TO DISSOLVE
A PARTNERSHIP
(Wala ito sa decisions ng RTC at CA pero sinabi lang ng SC)
HELD: YES. The law provides that any one of the partners may, at his sole pleasure, dictate a dissolution of the
partnership at will. He must, however, act in good faith, not that the attendance of bad faith can prevent the
dissolution of the partnership but that it can result in a liability for damages.
In the case at hand, as petitioner Tocao learned the ropes of the distributer business, and in order to reap the
profits for herself and Belo, she unilaterally excluded Anay from the partnership. This shows that Tocao was in bad
faith. While she had the power to exclude Anay from the partnership, thereby dissolving Geminese, this is not a
right that would exempt her from liability to pay damages to the innocent partner (Anay), for such unjustified
dissolution.

Existence of Partnership Disputed

HEIRS OF TAN ENG KEE v CA & BENGUET LUMBER COMPANY, represented by its President TAN
ENG LAY
DE LEON, JR., J p:
FACTS:
Petitioners filed a complaint for the accounting of the partnership assents, dissolution, winding up and liquidation
and equal distribution of the net assets of Benguet Lumber. According to them, their late father, Tan Eng Kee,
and his brother Tan Eng Lay, pooling their resources together, entered into a joint venture partnership engaged in
the business of selling lumber and hardware and construction supplies. The brothers jointly managed the
business until Kees death.
However, Tan Eng Lay denied partnership with Kee, averring that the business was solely his and his brother Kee,
was merely an employee and not a partner. Lay presented into evidence business payrolls where Kees name
appears as an employee, as well as his SSS coverage as an employee. The business was registered as a sole
proprietorship under Lays name.
ISSUE: WHETHER OR NOT KEE WAS A PARTNER RTC: YES.
CA: NO. Partnership presupposes the following elements:1) a contract, either oral or written. However,
if it involves real property or where the capital is P3,000.00 or more, the execution of a contract is
necessary; 2) the capacity of the parties to execute the contract; 3) money property or industry
contribution; 4) community of funds and interest, mentioning equality of the partners or one having a
proportionate share in the benefits; and 5) intention to divide the profits, being the true test of the
partnership. The intention to join in the business venture for the purpose of obtaining profits thereafter
to be divided, must be established. We cannot see these elements from the testimonial evidence of the
appellees.
SC: NO
Plaintiffs claim that their father was a partner in respondents business for the following reasons:
1. Kee conducted the affairs of the business alongside Lay during Kees lifetime;
2. They gave orders to the employees
3. They prepared orders from suppliers
4. Their families stayed together at the Benguet Lumber compound
5. All their children were employed in the business in different capacities.

The court cited that a contract of partnership must establish that 2/more persons bound themselves to contribute
money, property or industry to a common fund, with the intention of dividing the profits among themselves.
The agreement need not be formally reduced into writing, since the law allows the oral constitution of
partnership, save in 2 instances:
1. When immovable property or real rights are contributed; &
2. When the partnership has a capital of P3,000 or more.
In both instances, a public instrument is required. An inventory to be signed by the parties & attached to the public
instrument is also indispensable to the validity of the partnership whenever immovable property is contributed to
the partnership. Undoubtedly, the best evidence would have been the contract of partnership itself, or the articles
of partnership.
In the case at hand, there was none. The alleged partnership was never formalized. The plaintiffs failed to
substantiate their claim of partnership between the Tan brothers.
A demand for periodic accounting is also evidence of partnership. In this case, the court found it quite odd, that
despite the 40 years the partnership was allegedly in existence, Tan Eng Kee never asked for an accounting from
his brother. The essence of partnership is that partners share in the profits and losses. Each partner has the right to
demand an accounting as long as the partnership exists. Kee had gone too long to take care of an ordinary concern
of a partner to be plausible.
Therefore, although it is clear Tan Eng Kee was involved in Benguet Lumber company, he was not a partner, but
merely an employee. The payrolls presented by Lay and the failure of plaintiffs to offer evidence that their father
received profits from Benguet Lumber Co as his share and not merely his wage led the court to such conclusion.

Co-ownership or Co-possession
LORENZO OA, & HEIRS OF JULIA BUNALES v COMMISSIONER of
INTERNAL REVENUE
BARREDO, J p:
FACTS: Julia Bunales died intestate in 1944, leaving her spouse Lorenzo Ona and her 5 children. Lorenzo was
appointed administrator of the estate. He submitted the project of partition, which was approved by the court. He
was also appointed as guardian of the children (who were all minors at the time) and of their property.
The project of partition shows:
1. The heirs have undivided interest in 10 parcels of land (valued at P87,860), 6 houses (P17,590)
2. They also have the same interest in an undetermined amount to be collected from the War Damage
Commission (later, they received from such commission P50k, but it was not divided but used instead to
rehabilitate their common properties)
3. Of the 10 parcels of land, 2 were acquired after the death of Julia, with money borrowed from the Ph
Trust Company in the amount of P72,173.
4. The estate shares equally with Lorenzo, in the obligation of P94,973 consisting of loans contracted by the
latter with the approval of the court.
Although the project of partition was approved by the court in 1949, no attempt was made to divide the properties.
Instead, they remained under the management of Lorenzo, who used the properties by leasing or selling them and
investing the income and sales proceeds in real properties and securities. As a result, the petitioners properties and
investments gradually increased from P105,450 to P480,005.20 in 7 years. The incomes are recorded in the books
of account kept by Lorenzo, where the corresponding shares of the petitioners in the net income are also known.
The petitioners never received their share of the income/profits because they allowed Lorenzo to continue using
said shares as part of their common fund.

The commissioner of internal revenue decided that the petitioners formed an unregistered partnership and
therefore, subject to the corporate income tax. He made an assessment for the years 1955 and 1956.
ISSUE: WHETHER THERE WAS A CO-OWNERSHIP OF AN UNREGISTERED PARTNERSHIP
HELD by Tax Court & affirmed by SC: UNREGISTERED PARTNERSHIP. Partnership is defined by law as a
situation where 2/more persons bound themselves to contribute money, property or industry to a common fund with
the intention of dividing the profits among themselves. In the case at bar, the heirs, notwithstanding a courtapproved project of partition, never divided the subject properties. Instead, they allowed their father and the
administrator to use their inherited properties and the profits derived therefrom as a common fund in the
undertaking of several transactions or in business, with the intention of deriving profit to be shared by them
proportionally, such act was tantamount to actually contributing such incomes to a common fund. Therefore, in
effect, they formed an unregistered partnership.
ISSUE: WHEN DID THE PARTNERSHIP START? AT THE DEATH OF THE
DECEDENT, OR AT THE TIME OF THE APPROVAL OF PARTITION? HELD: AT THE TIME OF THE APPROVAL
OF THE PARTITION. In cases of inheritance, the heirs are co-owners of the undivided property of the decedent.
This is a time where an administrator may be appointed to hold the property for them pending partition. But from the
moment of partition, the heirs are entitled already to their respective definite shares of the estate & the incomes
thereof, for each of them to manage and dispose of as exclusively his own without the intervention of the other heirs
and accordingly each heir becomes liable for the taxes in connection therewith. If after such partition, he allows his
share to be used with the intent of making profit thereby in proportion to his share, there can be no doubt that, even
if no document or instrument were executed for the purpose, an unregistered partnership is formed. In the case at
bar, the heirs were co-owners from the time of Julias death in 1949. But an unregistered partnership was formed
upon the approval by the court of the project of partition submitted by Lorenzo, the administrator of the estate and
the heirs, letting him manage the property and use it in order to derive profits to be distributed among them
proportionally.
Co-ownership or Co-possession
JOSE GATCHALIAN, ET AL. v THE COLLECTOR OF INTERNAL
REVENUE
IMPERIAL, J p:
FACTS:
The plaintiffs, are a group of 15 persons who consolidated their money to purchase 1 ticket from the National
Charity Sweeepstakes Office at 2 pesos. Said ticket was personally purchased by Gatchalian and registered in the
name of Jose Gatchalian and Company. Such ticket won the 3 rd prize in the amount of P50,000. A check was drawn
in favor of Jose Gatchalian and Company against the PNB and cashed by Jose Gatchalian and Company. Not long
after, income tax examiner Alfredo David required Gatchalian to file the income tax return covering the prize won.
David made an assessment requesting payment for the sum of P1,499.94.
The plaintiffs requested for tax exemption, but was denied. To prevent a levy from being made against them,
they paid the tax due under protest.
ISSUE: WHETHER THE PLAINTIFFS FORMED A PARTNERSHIP and therefore liable for income tax, or
MERELY A COMMUNITY OF PROPERTY WITHOUT A PERSONALITY OF ITS OWN and therefore exempt
from such payment
CFI: Case dismissed. No partnership, merely co-ownership SC: The plaintiffs formed a
PARTNERSHIP.
Partnership is defined by law as a situation where 2/more persons bound themselves to contribute money,
property or industry to a common fund with the intention of dividing the profits among themselves. In this case,
15 people, including Gatchalian, pooled their money to a common fund to buy a sweepstakes ticket, with the

intention of dividing the prize in case the ticket wins a prize. Therefore, there was a partnership formed. As such,
they are liable to pay income tax for the profit the partnership earned.
Failure to Return Partnership Money Received
CARMEN LIWANAG v CA & the People of the Ph
ROMERO, J:
FACTS:
Petitioner and a certain Thelma Tabligan asked Isidora Rosales to join them in the business of buying and
selling cigarettes. Rosales agreed. Under their agreement, Rosales would give the money needed to buy the
cigarettes while Liwanag and Tabligan would act as her agents, with a corresponding 40% commission to her if
the goods are sold. Otherwise, the money would be returned to Rosales. The amounts advanced to Liwanag
and Tabligan totaled to P633,650.
At first, Liwanag and Tabligan made regular reports to Rosales on the progress of the transactions. But when they
stopped reporting to Rosales and the latter failed to obtain information from them, the latter suspected that the
money was being misappropriated. She filed a case of estafa against Liwanag.
Liwanag asserts that the intention of the parties was to enter into a contract of partnership , where in Rosales would
contribute the funds while she would buy and sell the cigarettes and later divide the profits between them. She also
argues that the transaction can also be interpreted as a simple loan. Therefore, there is only civil liability and not
one that would amount to a criminal case of estafa.
ISSUE: WHETHER OR NOT LIWANAG IS GUILTY OF ESTAFA RTC: Guilty as charged
HELD: YES. A contract of partnership was indeed entered into by and between the parties, it has been held that
when money or property have been received by a partner for a specific purpose, and he later misappropriated it,
such partner is guilty of estafa. In the case at hand, Liwanag was given the money by Rosales assuming as
partner, received such money for the specific purpose of buying cigarettes in the course of their business. And her
act of failing to return the money/profit to Rosales and misappropriating it, she is guilty of estafa as a partner.

Prohibition against engaging in business/Formal accounting

EVANGELISTA & CO., DOMINGO C. EVANGELISTA JR., CONCHITA B. NAVARRO AND LEONARDA ATIENZA
ABAD SANTOS v ESTRELLA
ABAD SANTOS
FACTS:
Evangelista & Co., a co-partnership, was formed Oc wherein Estrella Abad Santos was the industrial partner and
petitioners Domingo Evangelista, Leonarda Atienza Abad Santos and Conchita Navarro were the original capitalist
partners with a contribution of P17,500 each. Articles provided that profits and losses shall be divided and
distributed among partners in proportion of 70% for the first 3 partners and 30% for the fourth partner, Estrella Abad
Santos. Estrella filed a suit against petitioners for her exclusion in dividing of dividends and refusal to examine
partnership books. Defendants denied declaring dividends and alleged that Articles of Co-Partnership did not
express true agreement: Estrella was not an industrial partner and that her share of 30% would only be realized by
the partnership until full payment of loan from Rehabilitation Finance Corporation (RFC) in sum of P30,000, to
which Estrella had signed a promissory note as co-maker and mortgaged her property as security.
ISSUE: WHETHER ABAD SANTOS IS AN INDUSTRIAL PARTNER OR
MERELY A PROFIT SHARER ENTITLED TO 30% OF NET PROFITS HELD:
Yes. Abad Santis is an industrial partner and is therefore entitled to her share of the profits. CA upheld RTC
decision in declaring her an industrial partner.

1767 provides that by contract of partnership two or more persons bind themselves, to contribute money, property
or industry to a common fund, with the intention of dividing the profits among themselves. It does not specify the
kind of industry that a partner may contribute. Hence, services may legitimately be considered as contribution to
the common fund.
In this case, CA did not consider the Articles of Co-Partnership as conclusive evidence but considered it together
with other evidence, which show that Estrella is an industrial partner estopping the appellants because they all bear
the imprint of their knowledge and consent, and there is no proof that they protested against or opposed their
contents prior to filling of their answer. Even if Articles did not hold true intent, act of filing their answer after 8 years
(from June 1955 to February 1964) showed that they did nothing to correct the alleged false agreement.
Another article, 1789, reads that an industrial partner cannot engage in business for himself, unless partnership
expressly permits him to do so; and if he should do so, capitalist partners may either exclude him from the firm
or avail themselves of the benefits which he may have obtained in violation of this provision, with right to
damages in either case.
Estrella Abad Santos has been, and up to present is, one of the judges of the City Court of Manila, devoting all her
time to the performance of duties of her public office. Even so, she has rendered services for appellants without
which they would not have been able to operate the business of the partnership. There was no pretense that she
was engaged in any business antagonistc to the company, since being a Judge cannot be characterized as a
business. It was only after the filing of the complaint that appellants exercised their right of exclusion by alleging that
they reached an agreement excluding Estrella as an alleged industrial partner on the ground that she never
contributed her industry and still is the judge of City Court. However, having always known that she is a City Judge
even before she joined the company, appellants are estopped considering it took them so many years before
excluding her as per the allegations.
Lastly, according to 1299, any partner shall have the right to a formal account as to partnership affairs: a) if he is
wrongfully excluded from the partnership business or possession of its property by his co -partners, b) if right
exsists under terms of any agreement, c) as provided by 1807 and d) whenever other circumstances render it just
and reasonable.
Having established that Estrella is an industrial partner and that she was deprived of her rights in the
partnership, it is only just that as industrial partner, she has the right to demand for a formal accounting, to
receive her share in net profits and to check the books.

Individual liability of partners

PNB v SEVERO EUGENIO LO ET. AL SEVERO EUGENIO LO, NG KHEY LING and YEP SENG
FACTS: Appellants (Severo Lo, Ng Ling and Yep Seng), together with JA Say Ping, Ko Hun, On Ke Lam and Co
Peng, formed a commercial partnership of Tai Sing & Co, with a capital of P40,000 composed of partners
contributions. In the Articles, partnership was to last for 5 years, engaged for buy and sell of merchandise, goods,
Chinese and Japanese products in Iloilo or in any part of the Philippines they might desire.
On Ke Lam, under a power of attorney executed in his favor by Say Ping, obtained a loan of P8,000 from PNB.
As security, he mortgaged a certain personal property of Tai Sing & Co.
This credit was renewed several times.
Ke Lam also executed a chattel mortgage in favor of PNB, for a loan of P20,000 at 9% interest per annum.

Yap Seng, Severo Lo, On Ke Lam and Ng Ling (Ng Lim represented by Pineda Tayenko), executed a power of
attorney in favor of Sy Tit by virtue of Sy Tit representing Tai Sing & Co obtained a credit of P20,000 from PNB.
They executed a chattel mortgage on certain personal property belong to Tai Sing & Co.

Defendants using the commercial credit in a current account from PNB had a debit balance of this account as
follows
Outstanding as of June 1922 is P16,518.74 With 9% interest
(P3,720.86)
Total: 20,239.86
Severo Lo, in his defense, claims that Tai Sing & Co was not a general partnership, and that commercial credit
had not been authorized by the company board of directors. Later on, Severo Lo, Ng Ling and Yep Seng admit that
defendant association former by them is a general partnership. They agreed upon Tai Sing & Co as the firm
name instead of using their own surnames.
Appellants allege that property as is not included in the partnership assets cannot be seized until after partnership
property has been exhausted. The records show that partnership property described in the mortgage no longer
existed at the tine of filing of complaint nor has its existence proven, nor was it offered to plaintiff for sale.
ISSUE: DOES THE ANOMALOUS ADOPTION OF FIRM NAME AFFECT THE
LIABILITY OF GENERAL PARTNERS TO 3RD PARTIES? HELD:
No, anomalous adoption of firm name does not affect the liability to third parties.
According to 127 of Code of Commerce, all members of a general partnership, be they managing partners or not,
shall be personally and solidarily liable with all their property, for the results of transactions made in the name and
for the account of the partnership, under the signature of the latter and by person authorized to use it.
The object of the provision in requiring a general partnership to transact business under the name of all its
members, of several of them, or of one only, is to protect the public from imposition and frauda protection of
creditors rather than of partners themselves. Doctrine must be construed as rendering contracts made in violation of
it unlawful and unenforceable only as between the partners and at the instance of the violating party, but not with
depriving innocent parties of their rights who have dealt with offenders in ignorance of having violated the law.
Contracts entered into by commercial associations defectively organized are valid when voluntarily executed by
parties.
This provision applies strongly to the obligations contacted by the defendants, for they formed a partnership
with was registered in the mercantile register and carried on business contracting debts with PNB.
__________________________________________________________________________________
Liability for debts of an industrial partner
LA COMPANIA MARITIMA v FRANCISCO MUNOZ et. al
FACTS
Francisco Munoz, Emilio Munoz and Rafael Naval formed an ordinary partnership named Francisco Munoz and
Sons for carrying mercantile business in Albay. Francisco Munoz was the capitalist partner while Emilio Munoz
and Rafael Naval were the industrial partners. The articles of partnership refer to it as an ordinary, general
mercantile partnership.
Appellees claim that Emilio Munoz contributed nothing to the partnership because no yearly or monthly salary was
assigned to him, that he contributed nothing and received nothing from the partnership and that he was excluded
from the management of business.
Articles of partnership say that All profits shall be distributed, on completion of 5 years, for capitalist
partner Francisco Munoz, 1/8 for Emilio and remaining for Rafael Naval.
Emilio was to receive at the end of 5 years 1/8 th of profits. If the contention of the appellees were sound, it would
result that, where the articles provided a distribution of profits but did not assign any specific salary to an industrial
partner during that time, he would not be a member of the partnership.

ISSUE: WHETHER OR NOT AN INDUSTRIAL PARTNER IN A GENERAL

PARTNERSHIP IS LIABLE TO 3RD PERSONS FOR DEBTS CONTRACTED BY
THE PARTNERSHIP HELD:
Yes, industrial partners are liable to third persons for debts of firm.
The Code of Commerce provides: should there not have been stated in the articles of partnership the portion of
profits to be received, profits shall be divided pro rata. Partners who have not contributed any capital, but giving
their services, will receive same amount as partner who contributed the smallest capital.
On the other hand, 141 states losses shall be charged in same proportion among partners who have contributed
capital without including those who have not, unless by special agreement the latter have been constituted as
participants therein.
Losses do not only describe losses per se but also liabilities and obligations to third persons.
These provisions support the provision the articles of partnership in the case at hand. In the limited partnership,
there is a difference between general and special partners. However, there is no distinction in a general
partnershipall partners are general partners. There is nothing in the Code which says that industrial partners
shall only be general partners nor capitals only general.
127 of Code of Commerce says, all members of the general co-partnership, be managing partners or not of the
same, are liable personally and in solidum with all their property for results of transactions made in the name and for
account of partnership, under signature of latter, and by a person authorized to make use thereof. It is said that this
provision is contradictory to 141 and that appellees claim that 141 fixes the liability of industrial partners to third
persons for obligations of the company. 141 provides that a capitalist partners will only be liable proportionately to
his contribution to the partnership while 127 depicts that partners are liable for all debts regardless of amount of
contribution.
141 relates exclusively to the settlement of partnership affairs among the partners themselves. It has nothing to
do with liability of partners to third persons. Each industrial partner is liable to third persons for debts of firm.
Industrial partners have a voice in the management of business, if no manager has been named in the articles.
They share in profits and as to third persons it is no more than right they should share in the obligations. If he paid
debts out of his own private property, when partnership affairs are settled, he is entitled to credit for amount paid. If
there is not enough property in the partnership to pay him, the capitalist partners must pay him.
In the case at hand, if at the end of the 5- year period of the existence of the partnership and during liquidation and
there had been more losses than gains, Francisco Munoz shall pay such losses or pay them to the industrial
partners if they shall have been compelled to disburse their own money in payment of debts of partnership.

Conveyance of real property belonging to partnership

SANTIAGO SYJUCO v HON. JOSE CASTRO, PRESIDING JUDGE OF RTC NCR and PARTNERSHIP OF
HEIRS OF HUGO LIM
FACTS:
Eugenio Lim and brothers and sister collectively called The Lims borrowed from Santiago Syjuco Inc P800,000.
Loan and gave security. Additional loans on same security were obtained by the Lims, totaling to P2,460,000,
exclusive of interest and security. 2 other properties were brought into the mortgage as additional security. Lims
failed to pay despite demands. Syjuco sought extrajudicial foreclosure. The Lims, in their defense countered that 1)
the mortgage was void for being usurious; and 2) lack of proper publication of the notice of foreclosure.
The extrajudicial foreclosure was granted by the trial court and authorized the private sale of the properties.
Lims contend that the mortgaged property were contributions to the partnership and was already
partnership property when the partners, without authority, mortgaged them to Syjuco

ISSUE: WHETHER OR NOT PARTNERS MAY MORTGAGE PARTNERSHIP

PROPERTY HELD:
Yes. The court found the Lims to have acted in bad faith.
According to 1432 of Civil Code, property of owner who knowingly permits another to sell or encumber the
property, without disclosing his title or objecting to transaction, is estopped to set up his title or interest as against a
person who has been misled to his injury.
The properties in question were never registered with the Register of Deeds in the name of the partnership
and remained in the names of the partners. The original mortgage deed was executed by them as owners.
Thus there is no dispute that the Lims knew of the mortgage before its execution. There is estoppel.
Therefore, if partnership was inescapably chargeable with knowledge of mortgage executed by all partners, its
silence and failure to impugn mortgage within reasonable time will estop them in attempting to avoid the
mortgaged as unauthorized.
There is no reason to distinguish between the Lims as individuals and the partnership itself because the individuals
constituted the entire membership of the latter. Despite concealment of existence of partnership, it was that the
partnership which was the real party in interest in all actions, it was actually represented by all individual members
and consequently, their accts cannot be deemed to simply be individual acts but in fact, those of the partnership. It
being disputable that matter of partnerships being the owner could have been raised in relation to those expressly
made issuable in the first action, it follows that matter could not be relitigated in the last action.
Therefore, Lims acted in bad faith and with intent to defraud presenting actuations that were to stave off
clandestine filing and prosecution of action subject to present petition.
Distribution of profits and losses
CHOITHRAM RAMNANI AND/OR NIRMLA RAMNANI AND MOTI RAMNANI vs. CA, SPOUSES ISHWAR
AND SONYA RAMNANI AND OVERSEASE HOLDING
FACTS: Ishwar and Sonya Ramnani has their business in New York. They executed a general power of attorney to
Navalry and Choithram as attorneys in fact to manage and conduct their business in the Philippines.
Choithram purchased 2 parcels of land from Ortigas & Company Ltd. Partnership. He paid the installments.
Buildings were erected on the land through a P100,000 loan. These buildings were leased out. But fire broke
out and 2 of the buildings were destroyed.
Ishwar asked Choithram for accounting of income and losses but Choithram failed and refused to render
accounting, that led Ishwar to revoke the general power of attorney.
Choithram transferred all rights and interests of Ishwar and Sonya in favor of his daughter in law, Nirmla
Ramnani.
Ishwar and Sonya filed a complaint against Choitram and Nirmla for reconveyance of said properties and
payment of damages. Trial court dismissed complaint on ground that cash remittance was made before
execution of general power of attorney.
Another issue is the claim of Choithram that because he was a British citizen, he arranged the purchase of
properties in the name of Ishwar who was an American citizen and who was then qualified to purchase property
in the Philippines under Parity Amendment.
CA reversed RTC. Choitram was estopped in pais or by deed from claiming an interest over properties due to his
admissions from a) power of attorney, b) agreements, c) contract of lease.
During pendency of case, Choithram made several attempts to dispose his property by way of donation and also
mortgaged properties under litigation for $3,000,000 to a shell partnership with capital of 100 USD.

ISSUE: WHAT IS THE DISTRIBUTION OF PROFITS OF LOSSES BETWEEN

THE PARTIES HELD:
Justice and equity dictate that two share equally the fruit of their joint investment and efforts.
We have a situation where two brothers are engaged in a business ventureone furnished the capital and other
contributed his industry and talent. Justice and equity dictate that two share equally the fruit of their joint investment
and efforts. Perhaps this Solomonic solution may pave the way towards their reconciliation. Both would stand to
gain. No one would end up the loser. After all, blood is thicker than water. However, due to Choithrams devious
machinations and schemes to dispose the properties to deprive spouses Ishwar any means to recover any award
the Court may grant in their favor, he shall be liable for moral and exemplary damages.
ANTONIO B. BALTAZAR, vs. HONORABLE OMBUDSMAN, EULOGIO M. MARIANO, JOSE D. JIMENEZ, JR.,
TORIBIO E. ILAO, JR. and
ERNESTO R. SALENGA
FACTS: Paciencia Regala owns a seven hectare fishpond located at Sasmuan, Pampanga. Her Attorney-in-Fact
Faustino R. Mercado leased the fishpond fto Eduardo Lapid for a three year period. Lessee Eduardo Lapid in turn
sub-leased the fishpond to Rafael Lopez during the last seven months of the original lease. Respondent Ernesto
Salenga was hired by Eduardo Lapid as fishpond watchman. In the sub-lease, Rafael Lopez rehired respondent
Salenga.
Meanwhile, on March 11, 1993, respondent Salenga, demand letter to Rafael Lopez and Lourdes Lapid for unpaid
salaries and non-payment of his share in the harvest.
Sub-lessee Rafael Lopez wrote a letter to Salenga informing the him that for the last two months of the sublease, he had given the rights over the fishpond to Mario Palad and Ambit Perez. Salenga to file a Complaint
before the Provincial Agrarian Reform Adjudication Board (PARAB) for Maintenance of Peaceful Possession,
Collection of Sum of Money and Supervision of Harvest.
Pending resolution of the case, Faustino Mercado, as the instant case was instituted by petitioner Antonio Baltazar,
an alleged nephew of Faustino Mercado, through a Complaint -Affidavit against private respondents before the
Office of the Ombudsman. Petitioner charged private respondents of conspiracy through the issuance of the TRO in
allowing respondent Salenga to retain possession of the fishpond, operate it, harvest the produce, and keep the
sales under the safekeeping of other private respondents. Moreover, petitioner maintains that respondent Ilao, Jr.
had no jurisdiction to hear and act on the case filed by respondent Salenga as there was no tenancy relation
between respondent Salenga and Rafael L. Lopez, and thus, the complaint was dismissible on its face.
ISSUE: WHETHER OR NOT AGENCY CAN BE FURTHER DELEGATED
HELD: No. Agency cannot be further delegated
Petitioner asserts that he is duly authorized by Faustino Mercado to institute the suit by virtue of a Special Power of
Attorney from Faustino Mercado. However, such SPA is unavailing for petitioner. For one, petitioner's principal,
Faustino Mercado, is an agent himself and as such cannot further delegate his agency to another. Otherwise put,
an agent cannot delegate to another the same agency. The legal maxim potestas delegata non delegare potest; a
power once delegated cannot be re-delegated, while applied primarily in political law to the exercise of legislative
power, is a principle of agency. For another, a re-delegation of the agency would be detrimental to the principal as
the second agent has no privity of contract with the former. In the instant case, petitioner has no privity of contract
with Paciencia Regala, owner of the fishpond and principal of Faustino Mercado.
Moreover, while the Civil Code under Article 1892 37 allows the agent to appoint a substitute, such is not the
situation in the instant case. The SPA clearly delegates the agency to petitioner to pursue the case and not merely
as a substitute. Besides, it is clear in the aforecited Article that what is allowed is a substitute and not a delegation of
the agency.

Clearly, petitioner is neither a real party in interest with regard to the agrarian case, nor is he a real party in interest
in the criminal proceedings conducted by the Ombudsman as elevated to the Sandiganbayan. He is not a party who
will be benefited or injured by the results of both cases.

ELMO MUASQUE, v COURT OF APPEALS, CELESTINO GALAN, TROPICAL COMMERCIAL

COMPANY and RAMON PONS
FACTS:
The present controversy began when petitioner Muasque in behalf of the partnership of "Galan and Muasque"
as Contractor entered into a written contract with respondent Tropical for remodelling the respondent's Cebu
branch building. A total amount of P25,000.00 was to be paid under the contract for the entire services of the
Contractor.
The first payment made by respondent Tropical was in the form of a check for P7,000.00 in the name of the
petitioner. Petitioner, however, indorsed the check in favor of respondent Galan to enable the latter to deposit it in
the bank and pay for the materials and labor used in the project. Petitioner alleged that Galan spent P6,183.37 out
of the P7,000.00 for his personal use so that when the second check in the amount of P6,000.00 came and Galan
asked the petitioner to indorse it again, the petitioner refused.
The check was withheld from the petitioner. Since Galan informed the Cebu branch of Tropical that there was a
"misunderstanding" between him and petitioner, respondent Tropical changed the name of the payee in the second
check from Muasque to "Galan and Associates" which was the duly registered name of the partnership between
Galan and petitioner and under which name a permit to do construction business was issued by the mayor of Cebu
City. This enabled Galan to encash the second check. Meanwhile, as alleged by the petitioner, the construction
continued through his sole efforts. He stated that he borrowed some P12,000.00 from his friend, Mr. Espina and
although the expenses had reached the amount of P29,000.00 because of the failure of Galan to pay what was
partly due the laborers and partly due for the materials, the construction work was finished ahead of schedule with
the total expenditure reaching P34,000.00. The two remaining checks, each in the amount of P6,000.00, were
subsequently given to the petitioner alone with the last check being given pursuant to a court order.
As stated earlier, the petitioner filed a complaint for payment of sum of money and damages against the
respondents
Both the trial and appellate courts not only absolved respondents Tropical and its Cebu Manager, Pons, from any
liability but they also held the petitioner together with respondent Galan, liable to the intervenors Cebu Southern
Hardware Company and Blue Diamond Glass Palace for the credit which the intervenors extended to the
partnership of petitioner and Galan.
ISSUE: WHETHERE OR NOT A PARTNERSHIP EXISTED BETWEEN
PETITIONER AND RESPONDENT GALAN
HELD: Yes. The records will show that the petitioner entered into a contract with Tropical for the renovation of the
latter's building on behalf of the partnership of "Galan and Muasque." This is readily seen in the first paragraph of
the contract.
There is nothing in the records to indicate that the partnership organized by the two men was not a genuine
one. If there was a falling out or misunderstanding between the partners, such does not convert the partnership
into a sham organization.
Likewise, when Muasque received the first payment of Tropical in the amount of P7,000.00 with a check made
out in his name, he indorsed the check in favor of Galan. Respondent Tropical therefore, had every right to
presume that the petitioner and Galan were true partners. If they were not partners as petitioner 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 payments made to the partnership were, therefore, valid payments.
ISSUE 2: WHETHER OR NOT GALAN WAS GUILTY IN MALVERSING THE

FUNDS OF THE PARTNERSHIP

HELD: Yes, the records show that there is an existing judgment against respondent Galan, holding him liable for the
total amount of P7,000,00 in favor of Eden Hardware which extended credit to the partnership aside from the
P2,000.00 he already paid to Universal Lumber.
We, however, take exception to the ruling of the appellate court that the trial court's ordering petitioner and Galan to
pay the credits of Blue Diamond and Cebu Southern Hardware "jointly and severally" is plain error since the liability
of partners under the law to third persons for contracts executed in connection with partnership business is only pro
rata under Art. 1816, of the Civil Code.

While it is true that under Article 1816 of the Civil Code, "All partners, including industrial ones, shall be liable pro
rata with all their property and after all the partnership assets have been exhausted, for the contracts which may be
entered into the name and for the account of the partnership, under its signature and by a person authorized to act
for the partnership. . . .", this provision should be construed together with Article 1824 which provides that: "All
partners are liable solidarily with the partnership for everything chargeable to the partnership under Articles 1822
and 1823." In short, while the liability of the partners are merely joint in transactions entered into by the partnership,
a third person who transacted with said partnership can hold the partners solidarily liable for the whole obligation if
the case of the third person falls under Articles 1822 or 1823.
ISSUE 3: WHEHTER OR NOT THERE WAS PAYMENT MADE TO THE
PARTNERSHIP THRU GALAN
HELD:
Yes. The payment made by Tropical to Galan was a good payment which binds both Galan and the petitioner. Since
the two were partners when the debts were incurred, they are also both liable to third persons who extended credit
to their partnership. In the case of George Litton v. Hill and Ceron, et al., we ruled:
"There is a general presumption that each individual partner is an authorized agent for the firm and that he has
authority to bind the firm in carrying on the partnership transactions."
"The presumption is sufficient to permit third persons to hold the firm liable on transactions entered into by one of
members of the firm acting apparently in its behalf and within the scope of his authority."
In the case at bar the respondent Tropical had every reason to believe that a partnership existed between the
petitioner and Galan and no fault or error can be imputed against it for making payments to "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 behalf of the partnership with which it was dealing. This is even more true in the cases of Cebu
Southern Hardware and Blue Diamond Glass Palace who supplied materials on credit to the partnership. Thus, it is
but fair that the consequences of any wrongful act committed by any of the partners therein should be answered
solidarily by all the partners and the partnership as a whole.
However, as between the partners Muasque and Galan, justice also dictates that Muasque be reimbursed by
Galan for the payments made by the former representing the liability of their partnership to herein intervenors, as it
was satisfactorily established that Galan acted in bad faith in his dealings with Muasque as a partner.

EUROTECH INDUSTRIAL TECHNOLOGIES, INC., petitioner, vs. EDWIN CUIZON and ERWIN CUIZON,
respondents.
Facts: Petitioner is engaged in the business of importation and distribution of various European industrial
equipment for customers here in the Philippines. One of its customers is Impact Systems Sales ("Impact Systems")
which is a sole proprietorship owned by respondent Erwin Cuizon (Erwin) Respondent Edwin is the sales manager
of Impact Systems. P91,338.00. The Cuizons sought to buy from petitioner one unit of sludge pump valued at
P250,000.00 with respondents making a down payment of fifty thousand pesos (P50,000.00). When the sludge
pump arrived from the United Kingdom, petitioner refused to deliver the same to respondents without their having
fully settled their indebtedness to petitioner. Thus, on 28 June 1995, respondent EDWIN and Alberto de Jesus,
general manager of petitioner, executed a Deed of Assignment of receivables in favor of petitioner, in the amount of
365k from Toledo Power Corp.
Following the execution of the Deed of Assignment, petitioner delivered to respondents the sludge pump.
Allegedly unbeknownst to petitioner, respondents, despite the existence of the Deed of Assignment, proceeded to
collect from Toledo Power Company the amount of P365,135.29 as evidenced by Check Voucher No. 0933
prepared by said power company and an official receipt dated 15 August 1995 issued by Impact Systems. Alarmed
by this development, petitioner made several demands upon respondents to pay their obligations. As a result,
respondents were able to make partial payments to petitioner. On 7 October 1996, petitioner's counsel sent
respondents a final demand letter wherein it was stated that as of 11 June 1996, respondents' total obligations

stood at P295,000.00 excluding interests and attorney's fees. Because of respondents' failure to abide by said final
demand letter, petitioner instituted a complaint for sum of money.
Edwin, for his defense, alleged that he is not a real party in interest in this case as he was acting merely as an
agent of his principal, which was the Impact Systems, and cannot therefore be held liable.
Petitioner, on the other hand, posits that Edwin bound himself by exceeding the limit of his authority
as an agent without giving him sufficient notice of his powers.
ISSUE: WHETHER OR NOT RESPONDENT EDWIN EXCEEDED HIS
AUTHORITY IN SIGNING THE DEED OF ASSIGNMENT THEREBY BINDING
HIMSELF PERSONALLY TO PAY THE OBLIGATIONS OF PETITIONER
HELD: No, Edwin did not exceed his authority as an agent in signing the said deed of assignment.
Article 1897 provides that an agent, who acts as such, is not personally liable to the party with whom he
contracts, with 2 exceptions. The first is when he expressly binds himself to the obligation and the second is
when he exceeds his authority. In the last instance, the agent can be held liable if he does not give the third
party sufficient notice of his powers.
The Deed of Assignment clearly states that respondent EDWIN signed thereon as the sales manager of Impact
Systems. As discussed elsewhere, the position of manager is unique in that it presupposes the grant of broad
powers with which to conduct the business of the principal, thus: In the absence of an agreement to the contrary, a
managing agent may enter into any contracts that he deems reasonably necessary or requisite for the protection of
the interests of his principal entrusted to his management. . . .
Applying the foregoing to the present case, we hold that Edwin Cuizon acted well-within his authority when he
signed the Deed of Assignment. To recall, petitioner refused to deliver the one unit of sludge pump unless it
received, in full, the payment for Impact Systems' indebtedness. We may very well assume that Impact Systems
desperately needed the sludge pump for its business since after it paid the amount of fifty thousand pesos
(P50,000.00) as down payment on 3 March 1995, it still persisted in negotiating with petitioner which culminated in
the execution of the Deed of Assignment of its receivables from Toledo Power Company on 28 June 1995. The
significant amount of time spent on the negotiation for the sale of the sludge pump underscores Impact Systems'
perseverance to get hold of the said equipment. There is, therefore, no doubt in our mind that respondent
EDWIN's participation in the Deed of Assignment was "reasonably necessary" or was required in order for him to
protect the business of his principal. Had he not acted in the way he did, the business of his principal would have
been adversely affected and he would have violated his fiduciary relation with his principal.
We likewise take note of the fact that in this case, petitioner is seeking to recover both from respondents ERWIN,
the principal, and EDWIN, the agent. It is well to state here that Article 1897 of the New Civil Code upon which
petitioner anchors its claim against respondent EDWIN "does not hold that in case of excess of authority, both the
agent and the principal are liable to the other contracting party." To reiterate, the first part of Article 1897 declares
that the principal is liable in cases when the agent acted within the bounds of his authority. Under this, the agent is
completely absolved of any liability. The second part of the said provision presents the situations when the agent
himself becomes liable to a third party when he expressly binds himself or he exceeds the limits of his authority
without giving notice of his powers to the third person. However, it must be pointed out that in case of excess of
authority by the agent, like what petitioner claims exists here, the law does not say that a third person can recover
from both the principal and the agent.
As we declare that respondent EDWIN acted within his authority as an agent, who did not acquire any right nor
incur any liability arising from the Deed of Assignment, it follows that he is not a real party in interest who should be
impleaded in this case. A real party in interest is one who "stands to be benefited or injured by the judgment in the
suit, or the party entitled to the avails of the suit." In this respect, we sustain his exclusion as a defendant in the suit
before the court a quo.
_______________________________________________________________________________________
DELUAO v CASTEEL
FACTS:

Nicanor Casteel has repeatedly filed fishpond covering a big tract of swampy land in Malalag, Davao City.
Having been denied 3 times, Casteel filed a motion for reconsideration and while the motion was pending
resolution, he was advised by the district forester of Davao he must file a new application. So he filed a new
fishpond application. Meanwhile, several applications were submitted by other persons of the area covered by
Casteels application. They were Aradillos, Carpio, and Cacam.
Because of the threat poised upon his position by the above applicants, Casteel realized the urgent necessity
of expanding his occupation by constructing dikes and cultivating marketable fishes, in order to prevent
squatters from usurping the land. But lacking financial resources, he sought financial aid from his uncle Felipe
Deluao who extended loans to him.
Despite the finding in the investigation that Casteel had already introduced improvements on portions applied by
him, the Director of Fisheries rejected Casteels application requiring him to remove all the improvements which he
had introduced in the land.
In 1949, Inocencia Deluao and Nicanor Casteel executed a contract denominated as a contract of service
whereby Deluao hires and employes Casteel. Inocencia Deluao also executed an SPA in favour of Jessica Donesa
to represent her in the administration of the fishponds. The Director of Fisheries rejected the application by Deluao
but the latter reiterated his claim by filing two administrative cases. Subsequently, Casteels application was given
due course and the latter forbade Inocencia Deluao from further administering the fishpond and ejected Jessica
Donesa in the premises. Alleging violation of the contract of service, spouses Deluao filed an action for specific
performance and damages against Casteel.
ISSUE: WHETHER OR NOT THE CONTRACT OF SERVICE BETWEEN DELUAO AND CASTEEL RESULTED IN
A CONTRACT OF PARTNERSHIP BETWEEN THEM
HELD: Yes. The contract of service between Deluao and Casteel can be construed as one of partnership, divided
into two parts - namely, a contract of partnership, to exploit the fishpond pending its award to either Felipe Deluao or
Nicanor Casteel, and a contract of partnership to divide the fishpond between them after such award. The first is
valid, the second illegal. It is well to note that when the appellee Inocencia Deluao and the appellant entered into the
so-called "contract of service", there were two pending applications over the fishpond. One was Casteel's which was
appealed by him to the Secretary of Agriculture and Natural Resources after it was disallowed by the Director of
Fisheries. The other was Felipe Deluao's application over the same area which was likewise rejected by the Director
of Fisheries.
The evidence preponderates in favor of the view that the initial intention of the parties was not to form a coownership but to establish a partnership Inocencia Deluao as capitalist partner and Casteel as industrial partner
the ultimate undertaking of which was to divide into two equal parts such portion of the fishpond as might have
been developed by the amount extended by the plaintiffs-appellees, with the further provision that Casteel should
reimburse the expenses incurred by the appellees over one-half of the fishpond that would pertain to him. The
arrangement under the so-called "contract of service" continued until the decisions were issued by the Secretary of
Agriculture and Natural Resources in DANR Cases 353 and 353-B. This development, by itself, brought about the
dissolution of the partnership. Art. 1830(3) of the Civil Code enumerates, as one of the causes for the dissolution of
a partnership, ". . . any event which makes it unlawful for the business of the partnership to be carried on or for the
members to carry it on in partnership."
The approval of the appellant's fishpond application by the decisions in DANR Cases 353 and 353-B brought to the
fore several provisions of law which made the continuation of the partnership unlawful and therefore caused its ipso
facto dissolution. Act 4003, known as the Fisheries Act, prohibits the holder of a fishpond permit (the permittee) from
transferring or subletting the fishpond granted to him, without the previous consent or approval of the Secretary of
Agriculture and Natural Resources. The Public Land Act also provides that "The lessee shall not assign, encumber,
or sublet his rights without the consent of the Secretary of Agriculture and Commerce, and the violation of this
condition shall avoid the contract. Finally, section 37 of Administrative Order No. 14 of the Secretary of Agriculture
and Natural Resources issued in August 1937, prohibits a transfer or sublease unless first approved by the Director
of Lands and under such terms and conditions as he may prescribe. Since the partnership had for its object the
division into two equal parts of the fishpond between the appellees and the appellant after it shall have been
awarded to the latter, and therefore it envisaged the unauthorized transfer of one-half thereof to parties other than

the applicant Casteel, it was dissolved by the approval of his application and the award to him of the fishpond. The
approval was an event which made it unlawful for the business of the partnership to be carried on or for the
members to carry it on in partnership.
LIM TANHU v RAMOLETE
FACTS:
Tan Put alleged that she "is the widow of Tee Hoon Lim Po Chuan, who was a partner in the commercial
partnership, Glory Commercial Company with Antonio Lim Tanhu and Alfonso Ng Sua, and that defendants Antonio
Lim Tanhu, Alfonso Leonardo Ng Sua, Lim Teck Chuan, and Eng Chong Leonardo, through fraud and machination,
took actual and active management of the partnership and although Tee Hoon Lim Po Chuan was the manager of
Glory Commercial Company, defendants managed to use the funds of the partnership to purchase lands and
buildings in the cities of Cebu, Lapulapu, Mandaue, and the municipalities of Talisay and Minglanilla and that after
the death of Tee Hoon Lim Po Chuan, the defendants, without liquidation, continued the business of Glory
Commercial Company, by purportedly organizing a corporation known as the Glory Commercial Company,
Incorporated.
Tan Put on several occasions after the death of her husband, has asked defendants of the above-mentioned
properties and for the liquidation of the business of the defunct partnership. She prayed that judgment be
rendered ordering the defendants to render an accounting of the real and personal properties of the Glory
Commercial Company including those registered in the names of the defendants and other persons.
In a single answer with counterclaim, defendants denied specifically the allegation that respondent Tan is the widow
of Tee Hoon. And according to them, that proper liquidation had been regularly made of the business of the
partnership and Tee Hoon used to receive his just share until his death, as a result of which the partnership was
dissolved and what corresponded to him were all given to his wife and children
ISSUE: WHETHER OR NOT THE PARTNERSHIP CONTINUED AFTER THE
DEATH OF PO CHUAN, ENTITLING HIS HEIR TO DEMAND ACCOUNTING
HELD: No. This theory about Po Chuan having been actively managing the partnership up to his death is a
substantial deviation from the allegation in the amended complaint to the effect that the defendants, through fraud
and machination, took actual and active management of the partnership and although Tee Hoon Lim Po Chuan was
the manager of Glory Commercial Co., defendants managed to use the funds of the partnership to purchase lands
and buildings etc. and should not have been permitted to be proven by the hearing officer, who naturally did not
know any better. Moreover, it is very significant that according to the very tax declarations and land titles listed in the
decision, most if not all of the properties supposed to have been acquired by the defendants Lim Tanhu and Ng Sua
with funds of the partnership appear to have been transferred to their names only in 1969 or later, that is, long after
the partnership had been automatically dissolved as a result of the death of Po Chuan.
Accordingly, defendants have no obligation to account to anyone for such acquisitions in the absence of clear proof
that they had violated the trust of Po Chuan during the existence of the partnership. Besides, assuming there has
not yet been any liquidation of the partnership, contrary to the allegation of the defendants, then Glory Commercial
Co. would have the status of a partnership in liquidation and the only right plaintiff could have would be to what
might result after such liquidation to belong to the deceased partner, and before this is finished, it is impossible to
determine, what rights or interests, if any, the deceased had (Bearneza vs. Deqoilla, 43 Phil. 237). In other words,
no specific amounts or properties may be adjudicated to the heir or legal representative of the deceased partner
without the liquidation being first terminated.

Agency: Criminal Act or Acts Prohibited by Law

EDWARD C. ONG v THE COURT OF APPEALS AND THE PEOPLE OF THE PHILIPPINES
CARPIO, J p:
FACTS:

Petitioner Edward Ong, representing ARMAGRI International Corporation ("ARMAGRI"), applied for a letter of credit
for P2,532,500.00 with SOLIDBANK Corporation ("Bank") to finance the purchase of differential assemblies from
Metropole Industrial Sales. He executed a trust receipt acknowledging receipt from the Bank of the goods valued at
P2,532,500.00.
Later on, aslo representing ARMAGRI he executed another letter of credit for P2,050,000.00 to finance the
purchase of merchandise from Fertiphil Corporation. The Bank approved the application, opened the letter of
credit and paid to Fertiphil Corporation the amount of P2,050,000.00. Petitioner, signing for ARMAGRI, executed
another trust receipt in favor of the Bank acknowledging receipt of the merchandise.
Both trust receipts contained the same stipulations, wherein ARMAGRI undertook to account for the goods held
in trust for the Bank, or if the goods are sold, to turn over the proceeds to the Bank; and to keep the proceeds in
the form of money, bills or receivables as the separate property of the Bank or to return the goods upon
demand by the Bank, if not sold.
Petitioner signed alone the foregoing additional undertaking in the Trust Receipt for P2,253,500.00, while both
petitioner and Benito Ong signed the additional undertaking in the Trust Receipt for P2,050,000.00.
When the trust receipts became due and demandable, ARMAGRI failed to pay or deliver the goods to the Bank
despite several demand letters. Consequently, as of 31 May 1991, the unpaid account under the first trust receipt
amounted to P1,527,180.66, while the unpaid account under the second trust receipt amounted to
P1,449,395.71.
The Court of Appeals held that although petitioner is neither a director nor an officer of ARMAGRI, he certainly
comes within the term "employees or other . . . persons therein responsible for the offense" in Section 13 of the
Trust Receipts Law, because the Corporation cannot by itself transact business and sign documents and it is
impossible to impose the penalty of imprisonment on it.
The Court of Appeals held petitioner liable for his failure to account to the entruster Bank what he undertook to
perform under the trust receipts. Based on the representations of petitioner, the Bank accepted the trust receipts
and, consequently, expected petitioner to return or account for the goods entrusted. The prosecution need not even
prove that petitioner is occupying a position in ARMAGRI in the nature of an officer or similar position to hold him
the "person(s) therein responsible for the offense." That the his participation is merely incidental is not material and
it need not even be proved that he personally received and misappropriated the goods subject of the trust receipts.
The bank is not obliged to determine if the goods came into the actual possession of the entrustee. Trust
receipts are issued to facilitate the purchase of merchandise. To obligate the bank to examine the fact of
actual possession by the entrustee of the goods subject of every trust receipt will greatly impede commercial
transactions.
ISSUE: WHETHER OR NOT PETITIONER ACTED AS AGENT AND SIGNED
FOR THE ENTRUSTEE CORPORATION, AND WAS NECESSARILY THE ONE
RESPONSIBLE FOR THE OFFENSE; AND HELD:
Petitioner contends that he merely acted as an agent of ARMAGRI. Petitioner asserts that nowhere in the
trust receipts did he assume personal responsibility for the undertakings of ARMAGRI which was the
entrustee.
The Trust Receipts Law is violated whenever the entrustee fails to: (1) turn over the proceeds of the sale of the
goods, or (2) return the goods covered by the trust receipts if the goods are not sold. The mere failure to account or
return gives rise to the crime which is malum prohibitum. There is no requirement to prove intent to defraud.
In the instant case, the Bank was the entruster while ARMAGRI was the entrustee. Being the entrustee, ARMAGRI
was the one responsible to account for the goods or its proceeds in case of sale. However, the criminal liability for
violation of the Trust Receipts Law falls on the human agent responsible for the violation. Petitioner, who admits
being the agent of ARMAGRI, is the person responsible for the offense for two reasons. First, petitioner is the
signatory to the trust receipts, the loan applications and the letters of credit. Second, despite being the signatory to
the trust receipts and the other documents, petitioner did not explain or show why he is not responsible for the
failure to turn over the proceeds of the sale or account for the goods covered by the trust receipts.
Under the law, mere failure by the entrustee to account for the goods received in trust constitutes estafa.

While he acted on behalf of ARMAGRI, when a person commits a crime, he cannot escape liability by claiming to
have acted in behalf of another. Being a signatory in the trust receipts as relied by the Bank, made him a direct
participant and person responsible for the offense.
_______________________________________________________________________________________
Knowledge of Agent imputed to the Principal
SUNACE INTERNATIONAL MANAGEMENT SERVICES, INC., v
NATIONAL LABOR RELATIONS COMMISSION, Second Division; HON. ERNESTO S. DINOPOL, in
his capacity as Labor Arbiter, NLRC; NCR, Arbitration Branch, Quezon City and DIVINA A.
MONTEHERMOZO
FACTS:
Petitioner, Sunace International Management Services (Sunace), a corporation duly organized and existing under
the laws of the Philippines, deployed to Taiwan Divina A. Montehermozo (Divina) as a domestic helper under a 12month contract effective February 1, 1997. The deployment was with the assistance of a Taiwanese broker, Edmund
Wang, President of Jet Crown International Co., Ltd. After her 12-month contract expired on February 1, 1998,
Divina continued working for her Taiwanese employer for two more years, after which she returned to the
Philippines.
Shortly after her return, Divina filed a complaint before the NLRC against Sunace, one Adelaide Perez, the
Taiwanese broker, and the employer-foreign principal alleging that she was jailed for three months and that she
was underpaid, And that Sunace was liable because despite its knowledge of the extension of Divinas contract, it
did not credit to her the amounts due her for such extension and the refund for her 2 year savings.
Sunace on the other hand, alleged that Divinas 2-year extension of her contract was without its knowledge and
consent, hence, it had no liability attaching to any claim arising therefrom.
The Labor Arbiter, rejected Sunace's claim that the extension of Divina's contract for two more years was without
its knowledge and consent because Sunace and Edmund Wang have not stopped communicating with each other
and yet the matter of the contract's extension and Sunace's alleged non-consent thereto has not been categorically
established.
ISSUE: WHETHER OR NOT SUNACE IS LIABLE FOR THE CLAIM IF DIVINA
DUE TO ITS KNOWLEDGE AS AN AGENT
HELD: No. That Sunace continually communicated with the foreign "principal" and therefore was aware of and had
consented to the execution of the extension of the contract is misplaced. The message does not provide evidence
that Sunace was privy to the new contract executed after the expiration on February 1, 1998 of the original contract.
That Sunace and the Taiwanese broker communicated regarding Divinas allegedly withheld savings does not mean
that Sunace ratified the extension of the contract.
The theory of imputed knowledge ascribes the knowledge of the agent to the principal and not the other
way around. The knowledge of the principal-foreign employer cannot, therefore, be imputed to the
agent, Sunace.
There being no substantial proof that Sunace knew of and consented to be bound under the 2-year
employment contract extension, it cannot be said to be privy thereto and consequently liable
thereunder.
The agency is revoked if the principal directly manages the business entrusted to the agent, dealing
directly with 3rd persons. The Taiwanese broker revoked its agency with Sunace from the time it
directly dealt with Divina.

Agency copuled with interest

DR. CARLOS L. SEVILLA and LINA O. SEVILLA, v THE
COURT OF APPEALS, TOURIST WORLD SERVICE, INC., ELISEO S. CANILAO, and
SEGUNDINA NOGUERA
FACTS: Private Respondent Segundina Noguera entered into a contract of lease with Tourist World Service
represented by Canilao, wherein the latter leased the premises of Noguera for its use as a branch office.
In the said contract, Lina Sevilla held himself solidarily liable with Tourist World for the payment of the monthly
rental. Sevilla ran the branch office when it opened.
Due to an information that came to the knowledge of Tourist World that Sevilla is involved in a rival firm, and to
losses, Tourist world, through 2 resolutions, closed its branch office, and terminated the lease contract with
Noguera. Canilao went over to the branch office, and, being unable to contact Sevilla, padlocked the premises to
protect the interests of the Tourist World Service. When neither the Sevilla nor any of her employees could enter
the locked premises, they filed for preliminary injunction
ISSUE: WHETHER OR NOT SEVILLA WAS A MERE EMPLOYEE AND NOT AN
AGENT
HELD: Agent.
Tourist World Service, Inc., insists that Lina Sevilla was a mere employee, being "branch manager" of its Ermita
"branch" office and that inferentially, she had no say on the lease executed with the private respondent,
Segundina Noguera.
It is the Court's considered opinion, that when the petitioner, Lina Sevilla, agreed to (wo)man the private
respondent, Tourist World Service, Inc.'s Ermita office, she must have done so pursuant to a contract of agency.
It is the essence of this contract that the agent renders services "in representation or on behalf of another."
In this case, Sevilla solicited airline fares, but she did so for and on behalf of her principal, Tourist World Service,
Inc. As compensation, she received 4% of the proceeds in the concept of commissions. And as we said, Sevilla
herself, based on her letter of November 28, 1961, presumed her principal's authority as owner of the business
undertaking. We are convinced, considering the circumstances and from the respondent Court's recital of facts,
that the parties had contemplated a principal-agent relationship, rather than a joint management or a partnership.
But unlike simple grants of a power of attorney, the agency that we hereby declare to be compatible with the intent
of the parties, cannot be revoked at will. The reason is that it is one couple with an interest, the agency having been
created for the mutual interst of the agent and the principal.
It appears that Sevilla is a bona fide travel agent herself, and as such, she had acquired an interest in the business
entrusted to her. Moreover, she had assumed a personal obligation for the operation thereof, holding herself
solidarily liable for the payment of rentals. She continued the business, using her own name, after Tourist World had
stopped further operations. Her interest, obviously, is not limited to the commissions she earned as a result of her
business transactions, but one that extends to the very subject matter of the power of management delegated to
her.
It is an agency coupled with interest, and therefore cannot be revoked at will by the principal, without being liable
for damages.
Exclusive distributor as agent
ALFRED HAHN, v COURT OF APPEALS and BAYERISCHE
MOTOREN WERKE AKTIENGESELLSCHAFT (BMW).
FACTS:

Petitioner Alfred Hahn is a Filipino citizen doing business under the name and style "Hahn-Manila". On the other
hand, private respondent Bayerische Motoren Werke Aktiengesellschaft (BMW) is a nonresident foreign corporation
existing under the laws of the former Federal Republic of Germany, with principal office at Munich, Germany.
The petitioner executed in favor of private respondent a "Deed of Assignment with Special Power of
Attorney," constituting the latter its exclusive dealer of motor vehicles of its brand.
According to their agreement, the parties "continue[d] business relations as has been usual in the past without a
formal contract." But in a meeting with a BMW representative and the president of Columbia Motors Corporation
(CMC), Jose Alvarez, petitioner was informed that BMW was arranging to grant the exclusive dealership of BMW
cars and products to CMC, which had expressed interest in acquiring the same. The petitioner received
confirmation of the information from BMW which, in a letter, expressed dissatisfaction with various aspects of
petitioner's business, mentioning among other things, decline in sales, deteriorating services, and inadequate
showroom and warehouse facilities, and petitioner's alleged failure to comply with the standards for an exclusive
BMW dealer. Nonetheless, BMW expressed willingness to continue business relations with the petitioner on the
basis of a "standard BMW importer" contract, otherwise, it said, if this was not acceptable to petitioner, BMW would
have no alternative but to terminate petitioner's exclusive dealership.
Petitioner protested, claiming that the termination of his exclusive dealership would be a breach of the Deed of
Assignment. Hahn insisted that as long as the assignment of its trademark and device subsisted, he remained
BMW's exclusive dealer in the Philippines because the assignment was made in consideration of the exclusive
dealership. In the same letter petitioner explained that the decline in sales was due to lower prices offered for BMW
cars in the United States and the fact that few customers returned for repairs and servicing because of the durability
of BMW parts and the efficiency of petitioner's service.
Because of Hahn's insistence on the former business relations, BMW withdrew its offer of a "standard importer
contract" and terminated the exclusive dealer relationship. At a conference of BMW Regional Importers held in
Singapore, Hahn was surprised to find Alvarez among those invited from the Asian region. BMW proposed that
Hahn and CMC jointly import and distribute BMW cars and parts.
Hahn found the proposal unacceptable. He filed a complaint for specific performance and damages against
BMW to compel it to continue the exclusive dealership.
BMW moved to dismiss the case, contending that the trial court did not acquire jurisdiction, it being a foreign
corporation.
Hahn opposed the motion, arguing that BMW was doing business in the Philippines through him as its agent, as
shown by the fact that BMW invoices and order forms were used to document his transactions; that he gave
warranties as exclusive BMW dealer; that BMW officials periodically inspected standards of service rendered by
him; and that he was described in service booklets and international publications of BMW as a "BMW Importer" or
"BMW Trading Company" in the Philippines.
The Court of Appeals ruled that BMW was not doing business in the country and, therefore, jurisdiction over it
could not be acquired through service of summons on the DTI pursuant to Rule 14, Section 14. The court upheld
private respondent's contention that Hahn acted in his own name and for his own account and independently of
BMW, based on Alfred Hahn's allegations that he had invested his own money and resources in establishing
BMW's goodwill in the Philippines and on BMW's claim that Hahn sold products other than those of BMW. It held
that petitioner was a mere indentor or broker and not an agent through whom private respondent BMW transacted
business in the Philippines. Consequently, the Court of Appeals dismissed petitioner's complaint against BMW.
ISSUE: WHETHER OR NOT HAHN IS THE AGENT OF BMW, PROVING THAT
BMW IS DOING BUSINESS IN THE PHILIPPINES
HELD: BMW is doing business in the Philippines, through its agent, Hahn.
The Court of Appeals held that petitioner Alfred Hahn acted in his own name and for his own
account and not as agent or distributor in the Philippines of BMW on the ground that "he alone
had contacts with individuals or entities interested in acquiring BMW vehicles. Independence

characterizes Hahn's undertakings for which reason he is to be considered, under governing

statutes, as doing business."
As the above quoted allegations of the amended complaint show, however, there is nothing to support the appellate
court's finding that Hahn solicited orders alone and for his own account and without "interference from, let alone
direction of, BMW." To the contrary, Hahn claimed he took orders for BMW cars and transmitted them to BMW.
Upon receipt of the orders, BMW fixed the down payment and pricing charges, notified Hahn of the scheduled
production month for the orders, and reconfirmed the orders by signing and returning to Hahn the acceptance
sheets. Payment was made by the buyer directly to BMW. Title to cars purchased passed directly to the buyer and
Hahn never paid for the purchase price of BMW cars sold in the Philippines. Hahn was credited with a commission
equal to 14% of the purchase price upon the invoicing of a vehicle order by BMW. Upon confirmation in writing that
the vehicles had been registered in the Philippines and serviced by him, Hahn received an additional 3% of the full
purchase price. Hahn performed after-sale services, including, warranty services. for which he received
reimbursement from BMW. All orders were on invoices and forms of BMW. )
These allegations were substantially admitted by BMW which, in its petition for certiorari before the Court of
Appeals, stated:
9.4.As soon as the vehicles are fully manufactured and full payment of the purchase
prices are made, the vehicles are shipped to the Philippines. (The payments may be made
by the purchasers or third-persons or even by Hahn.) The bills of lading are made up in
the name of the purchasers, but Hahn -Manila is therein indicated as the person to be
notified.
9.5.It is Hahn who picks up the vehicles from the Philippine ports, for purposes of
conducting pre- delivery inspections. Thereafter, he delivers the vehicles to the
purchasers.
9.6.As soon as BMW invoices the vehicle ordered, Hahn is credited with a commission of
fourteen percent (14%) of the full purchase price thereof, and as soon as he confirms in
writing, that the vehicles have been registered in the Philippines and have been serviced by
him, he will receive an additional three percent (3%) of the full purchase prices as
commission.
Contrary to CAs conclusion, this arrangement shows an agency. The agent receives a commission
upon the successful conclusion of a sale. On the other hand, a broker earns his pay merely by bringing
the buyer and the seller together, even if no sale is eventually made.
The fact that Hahn invested his own money to put up these service centers and showrooms does not necessarily
prove that he is not an agent of BMW. For as already noted, there are facts in the record which suggest that BMW
exercised control over Hahn's activities as a dealer and made regular inspections of Hahn's premises to enforce
compliance with BMW standards and specifications.

Authority of Counsel as Agent

TIRSO UYTENGSU III, v ATTY. JOSEPH M. BADUEL
FACTS:
Complainant Tirso III, is one among other heirs of Tirso Uytengsu, Jr. He and his co-heirs had a pending
patent application. He alleges that sometime in December 1998 respondent requested him to sign a
special power of attorney (SPA) authorizing Luis Wee (Wee) and/or Thomas Jacobo (Jacobo) to claim,
demand, acknowledge and receive on his behalf the certificates of title from the Register of Deeds,
General Santos City, Department of Environment and Natural Resources and from any government
office or agency due to complainant and his co-heirs by reason of their application for Homestead
Patent.

He refused to sign the SPA because he wanted to obtain the documents personally. Subsequently though,
before he could get the title and other documents, complainant learned that respondent caused to have the SPA
signed by Connie U. Kokseng (Kokseng), the former guardian of the heirs of Tirso Uytengsu, Jr.
Complainant maintains that the document signed by Kokseng was the same SPA which was presented to him
for signature by respondent. As a result, the titles and other documents were received and taken by other
persons without his or his co-heirs' knowledge and consent.
Complainant contends that respondent atty was the one who prepared, notarized and stood witness to the said
SPA, and that atty was aware that Koksengs guardianship had ceased when the RTC terminated it over his
youngest sibling. And that respondent caused said SPA to be executed by Kokseng to the damage and prejudice
of the Heirs of Tirso, Jr.
In his answer, respondent claims that petitioners allegations were purely hearsay.
This Court referred the case to the Integrated Bar of the Philippines (IBP) for investigation, report and
recommendation. Moreover, Kokseng had legal basis to execute the SPA in favor of a substitute, the records
showing that complainant and his co-heirs have constituted Kokseng as their attorney-in-fact for the purpose of
filing the homestead application.
ISSUE: WHETHER OR NOT RESPONDENT ATTY BADUEL IS AN AGENT OF TIRSO III AND HIS CO-HEIRS
HELD: Yes. The respondent was found to be the counsel of complainants in the homestead patent application of
Tirso Jr. Therefore, without any evidence to show that complainant or his co-heirs withdrew such authority from
respondent, the latter himself can even claim the certificates of titles and other documents with regard to the
homestead patents.
The relation of attorney and client is in many respects one of agency and the general rules of ordinary agency apply
to such relation. The extnt of authority of a lawyer, when acting on behalf of his client outside of court, is measured
by the same test as that which is applied to an ordinary agent. Such being the case, even respondent himself can
acquire the certificates of title and other documents without need of an SPA from complainant and his co-heirs.
In the case at bar, other than the bare assertions of complainant, the evidence presented by the latter does not
suffice to tip the scale of justice to his side.
The hearsay rule provides that no assertion offered as testimony can be received unless it is or has been open
to test by cross-examination or an opportunity for cross- examination, except as provided otherwise by the rules
on evidence, by rules of court, or by statute.
He did not submit to this Court or to the IBP any witness or documentary evidence to support his claim that
respondent has indeed caused the execution of the disputed special power of attorney. Furthermore, complainant in
his reply to respondent's comment stated that he has a credible witness in the person of Edward U. Kokseng, son of
Kokseng, who has first hand knowledge of Kokseng's signing of the SPA. However, he failed to present his witness
before the IBP or submitted an affidavit of his witness to affirm his allegations. Neither did he present any witness,
whether expert nor otherwise, to attest to the genuineness of the signature of respondent which was allegedly found
in the SPA, if that was his objective.

Authority of Counsel as Agent

J-PHIL MARINE, INC and/or JESUS CANDAVA and NORMAN SHIPPING SERVICES v NLRC and
WARLITO DUMALAOG
Dumalaog who served as a cook aboard vessels plying overseas filed before the NLRC a complaint against
petitioners for unpaid money claims, moral and exemplary damages with an aggregate amount of P864,343.30
plus P117,557.60 interest and P195,928.66 in attorneys fees. According to him, he had contracted enlargement of
the heart and thyroid in the discharge of his duties as a cook, which rendered him disabled.

The Labor Arbiter dismissed the petition for lack of merit, but the NLRC reversed the Labor Arbiters decision and
awarded US $50,000.00 disability benefit to Dumalaog. The CA dismissed the appeal of J-Phil which led them to
file a petition for certiorari before the SC.
However, during the pendency of this case, Dumalaog, against the advice and without the presence and
assistance of his counsel, entered into a compromise agreement with the petitioners. He signed a Quitclaim and
Release subscribed and sworn before the labor arbiter.
Dumalaogs counsel then filed an opposition and objection to the absolution of the petitioners from having to
pay Dumalaog the total amount of US$50,000,00 or P2.3M. He added that there being already a payment f
P450k, it should be deducted from the judgment award of P2.3M and petitioners should pay the remaining
balance thereof. He further added that the P450k given to Dumalaog as full and final settlement is
unconscionably low.
ISSUE 1: W/N COMPROMISE AGREEMENT IS VALID EVEN IF EXECUTED BY
THE RESPONDENT AGAINST THE ADVISE AND WITHOUT THE
ASSISTANCE OF HIS COUNSEL
HELD: YES. A compromise agreement is valid as long as it was voluntarily agreed upon and not obtained
through fraud, misrepresentation or coercion (Labor Code). In this case, Dumalaog signed the waiver voluntarily.
His counsel need not be present at the time of the signing.
ISSUE: W/N THE ACT OF THE COUNSEL AS AGENT IN ASSAILING THE
COMPROMISE AGREEMENT ENTERED INTO BY THE PRINCIPAL ARE
DEEMED ACTS OF THE PRINCIPAL HIMSELF
HELD: NO.
The law on Agency provides that the acts of an agent are deemed the acts of the principal only if the agent acts
within the scope of his authority.
A client has the right to compromise a suit without the intervention of his lawyer except only if such compromise
is entered into with the intent of defrauding the lawyer of the fees justly due him.
In this case, it is clearly seen that the agents acts - assailing the compromise agreement - are contradictory to the
previous valid acts of his principal the signing of the compromise agreement. There is no showing that the
respondent intended to defraud his counsel of his fees. The respondents counsel acted beyond the scope of his
authority.

Evasion of commission in bad faith

GENEVIEVE LIM, vs. FLORENCIO SABAN
The late Eduardo Ybaez (Ybaez), who was the owner of a 1,000-square meter lot in Cebu City (the "lot"),
entered into an Agency Agreement with respondent Florencio Saban (Saban) . Under the Agency Agreement,
Ybaez authorized Saban to look for a buyer of the lot for P200,000.00 and to mark up the selling price including
taxes, transfer of title, other expenses and Sabans commission.
Through Sabans efforts, Ybaez and his wife were able to sell the lot to Genevive Lim. Bet ween Lim and Ybanez,
the purchase price was P200k. But unbeknownst to Ybanez, Saban was able to mark up the price at Lim
P600,000.00. Upon learning this, Ybaez then sent a letter to Lim to cancel checks and to "extend another partial
payment" in Ybanezs name..

The commission checks were dishonored when Saban tried to encash them, which led Saban to file a complaint for
collection of sum of money.
Ybanez denied liability contending that Saban was not entitled to his commission because he was not a
licensed real estate broker and for his concealment of the actual selling price.
ISSUE: WHETHER OR NOT SABAN IS ENTITLED TO RECEIVE HIS
COMMISSION HELD:
Yes, Saban is entitled to receive his commission. It has been held that it is unjustified to terminate the contract of
agency to the prejudice of the broker when he had already reaped the benefits of the brokers efforts.
The act of Ybanez telling the vendee to stop payment of the checks comprising Sabans commission did not
revoke the agency although such is not coupled with interest in favor of Saban. The Agency agreement between
them stated that Saban could keep the margin he is able to obtain as long as he can find a buyer of the lot being
sold by Ybanez at 200k exclusive of taxes and fees.
In an agency coupled with an interest, the agents interest must be in the subject matter and not merely an
interest in the exercise of the power because it entitles him to compensation. When an agents interest is
confined to earning his agreed compensation, the agency is not coupled with an interest, since an agents
interest is an ordinary incident of the agency relationship.
Here, the only interest Saban had in the subject matter is his agreed compensation. Thus, the agency is
revocable.

GPA/SPA
FRANCISCO A. VELOSO, petitioner, vs. COURT OF APPEALS, AGLALOMA B. ESCARIO, assisted by
her husband GREGORIO L. ESCARIO, the REGISTER OF DEEDS FOR THE CITY OF MANILA
Petitioner Francisco Veloso was the registered owner of a lot in Tondo, Manila. The title was cancelled and a
new one was issued in the name of Aglaloma B. Escario, married to Gregorio L. Escario.
Petitioner Veloso filed an action for annulment of documents, reconveyance of property with damages and
preliminary injunction and/or restraining order, alleging that he was the absolute owner of the subject property and
he never authorized anybody, not even his wife, to sell it. He alleged that when his wife, Irma, left for abroad, he
found out that his copy was missing. Upon verification with the Register of Deeds, he discovered that his title was
already canceled in favor of defendant Aglaloma Escario. The transfer of property was supported by a General
Power of Attorney and Deed of Absolute Sale, executed by Irma Veloso, wife of the petitioner and appearing as his
attorney-in-fact, and defendant Aglaloma Escario.
Petitioner denied having executed the power of attorney and alleged that his signature was falsified. He also
denied having seen or even known Rosemarie Reyes and Imelda Santos, the supposed witnesses in the
execution of the power of attorney. He vehemently denied having met or transacted with the defendant. Thus, he
contended that the sale of the property, and the subsequent transfer thereof, were null and void. He, therefore,
prayed that a temporary restraining order be issued to prevent the transfer of the subject property; that the
General Power of Attorney, the Deed of Absolute Sale and the Transfer Certificate of Title be annulled; and the
subject property be reconveyed to him.
Defendant Aglaloma Escario in her answer alleged that she was a buyer in good faith and denied any knowledge of
the alleged irregularity. She allegedly relied on the general power of attorney of Irma Veloso which was sufficient in
form and substance and was duly notarized. She contended that plaintiff (herein petitioner), had no cause of action
against her. In seeking for the declaration of nullity of the documents, the real party in interest was Irma Veloso, the
wife of the plaintiff.
During the trial Francisco Veloso testified that he acquired the subject property from the Philippine Building
Corporation, as evidenced by a Deed of Sale. He married Irma Lazatin on January 20, 1962. Hence, the property

did not belong to their conjugal partnership. Plaintiff further asserted that he did not sign the power of attorney and
as proof that his signature was falsified, he presented three Allied Bank Checks which allegedly bore his genuine
signature.
Witness for the plaintiff Atty. Julian G. Tubig denied any participation in the execution of the general power of
attorney. He attested that he did not sign thereon, and the same was never entered in his Notarial Register.
In the decision of the trial court, defendant Aglaloma Escaro was adjudged the lawful owner of the property as she
was deemed an innocent purchaser for value. The assailed general power of attorney was held to be valid and
sufficient for the purpose. The trial court ruled that there was no need for a special power of attorney when the
special power was already mentioned in the general one. It also declared that plaintiff failed to substantiate his
allegation of fraud. The court also stressed that plaintiff was not entirely blameless for although he admitted to be
the only person who had access to the title and other important documents, his wife was still able to possess the
copy.
ISSUE: WHETHER OR NOT THE ASSAILED GPA WAS VALID
HELD: Yes. An examination of the records showed that the assailed power of attorney was valid and regular on its
face. It was notarized and as such, it carries the evidentiary weight conferred upon it with respect to its due
execution. While it is true that it was denominated as a general power of attorney, a perusal thereof revealed that it
stated an authority to sell. Thus, there was no need to execute a separate and special power of attorney since the
general power of attorney had expressly authorized the agent or attorney in fact the power to sell the subject
property. The special power of attorney can be included in the general power when it is specified therein the act or
transaction for which the special power is required.
The general power of attorney was accepted by the Register of Deeds when the title to the subject property was
canceled and transferred in the name of private respondent.
Whether the instrument be denominated as general power of attorney or special power of attorney, what
matters is the extent of the power or powers contemplated upon the agent or attorney in fact. If the power is
couched in general terms, then such power cannot go beyond acts of administration. However, where the power
to sell is specific, it not being merely implied, much less couched in general terms, there can not be any doubt that
the attorney in fact may execute a valid sale. An instrument may be captioned as special power of attorney but if
the powers granted are couched in general terms without mentioning any specific power to sell or mortgage or to
do other specific acts of strict dominion, then in that case only acts of administration may be deemed conferred.
In petitioner's allegation of forgery. Mere variance of the signatures cannot be considered as conclusive proof that
the same were forged. Forgery cannot be presumed. Petitioner failed to prove his allegation and simply relied on
the apparent difference of the signatures. His denial had not established that the signature on the power of
attorney was not his.
We agree with the conclusion of the lower court that private respondent was an innocent purchaser for value.
Respondent Aglaloma relied on the power of attorney presented by petitioners wife, Irma. Being the wife of the
owner and having with her the title of the property, there was no reason for the private respondent not to believe
in her authority. Moreover, the power of attorney was notarized and as such, carried with it the presumption of
its due execution. Thus, having had no inkling on any irregularity and having no participation thereof, private
respondent was a buyer in good faith.
In re: General Power of Attorney/Special Power of Attorney
ESTATE OF LINO OLAGUER, Represented by Linda O. Olaguer, and LINDA O. MONTAYRE , vs. EMILIANO
M. ONGJOCO.
FACTS:

The plaintiffs Sor Mary Edith Olaguer, Aurora O. de Guzman, Clarissa O. Trinidad, Lina Olaguer and Ma.
Linda O. Montayre are the legitimate children of the spouses Lino Olaguer and defendant Olivia P. Olaguer.
Lino died, and a Special Proceeding for probate of will was filed wherein Olivia P. Olaguer was appointed as
administrator pursuant to the will. Later, defendant Eduardo Olaguer was appointed as co-administrator.
Defendant Olivia married defendant Jose A. Olaguer.
In the order of the probate court, some properties of the estate were authorized to be sold to pay obligations of
the estate. Pursuant to this authority, administrators Olivia and Eduardo sold to Pastor Bacani twelve parcels of
land, approved by the Probate Court.
The following dayPastor Bacani sold back to Eduardo and Olivia, one of the twelve lots he bought the day before.
Olivia Special Power of Attorney in favor of her new husband Jose, authorizing the latter to "sell, mortgage,
assign, transfer, endorse and deliver" the properties, by virtue of which, some parcels of lots were sold. The
remaining were distributed to the children of Jose and Olivia, leaving the heirs of Olivia to Lino no land to inherit.
Hence the children of Lino filed an action for the Annulment of Sales of Real Property and/or Cancellation of
Titles of the lands sold by Jose, pursuant to the SPA executed by their mother.
ISSUE: WHETHER OR NOT THE SALE WAS VALID PURSUANT TO A
GENERAL POWER OF ATTORNEY
HELD: Yes. Ongjoco was able to present a general power of attorney that was executed by Virgilio Olaguer. While
the law requires a special power of attorney, the general power of attorney was sufficient in this case, as Jose A.
Olaguer was expressly empowered to sell any of Virgilio's properties; and to sign, execute, acknowledge and deliver
any agreement therefor. Even if a document is designated as a general power of attorney, the requirement of a
special power of attorney is met if there is a clear mandate from the principal specifically authorizing the
performance of the act. The 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.
On its face, the written power of attorney contained the signature of Virgilio Olaguer and was duly notarized. As
such, the same is considered a public document and it has in its favor the presumption of authenticity and due
execution, which can only be contradicted by clear and convincing evidence.
No evidence was presented to overcome the presumption in favor of the duly notarized power of attorney. Neither
was there a showing of any circumstance involving the said document that would arouse the suspicion of
respondent and spur him to inquire beyond its four corners, in the exercise of that reasonable degree of prudence
required of a man in a similar situation. We therefore rule that respondent Ongjoco had every right to rely on the
power of attorney in entering into the contracts of sale of with Jose A. Olaguer.

Highest Loyalty Required

VICENTE DOMINGO represented by his heirs v GREGORIO
DOMINGO
Petitioner Vicente granted Gregorio, a real estate broker, the exclusive agency to sell his lot in Piedad Estate at
P2.00/sq.m. or for P176,954, with a commission of 5% on the total price.
Gregorio authorized a certain Teofilo Purisima to look for a buyer, promising him of the 5% commission. Teofilo
introduced Oscar de Leon to Gregorio as a prospective buyer.
Oscar made an initial offer, which was very low. Vicente directed Gregorio to tell Oscar to raise his offer. After
several meetings between Gregorio and Oscar, the latter raised his offer to P1.20/sq.m or P109k, which Vicente
accepted.

Oscar issued to Vicente, a check for P1k representing earnest money,P300 of which Vicente advanced to
Gregorio. Also, pursuant to his promise to Gregorio, Oscar gave him as a gift, the sum of P1k for succeeding in
persuading Vicente to accept his offer. This gift was not disclosed by Gregorio to Vicente.
Later on, Gregorio was informed by Oscar that he could no longer buy the lot for his failure to receive his money
from his brother in the US; but he was willing to forfeit the earnest money he gave to Vicente and the P1k gift he
gave Gregorio.
After several weeks of not seeing Oscar, Gregorio became suspicious and went to the Register of Deeds, where
he discovered that a deed of sale was executed by Oscars wife selling their house in Cubao to Vicente.
Apparently, it was a part of the purchase price of the Vicentes lot, which Oscar is (still) buying.
Upon being confronted by Gregorio, Oscar told him that it was Vicentes idea to cut Gregorio out of the transaction.
Vicente, for his part, stated that Gregorio is not entitled to the 5% commission because it was not Gregorios buyer
(Oscar) who was buying the property, but Oscars wife. obvious circumvention naman!
ISSUE: WHETHER THE FAILURE OF GREGORIO TO DISCLOSE TO VICENTE THE PAYMENT TO HIM BY
OSCAR OF P1K AS GIFT FOR HAVING PERSUADED VICENTE TO REDUCE THE PURCHASE PRICE FROM P2
TO P1.20/sq.m., SO CONSTITUTES FRAUD AS TO CAUSE A FORFEITURE OF
HIS 5% COMMISSION ON THE SALE PRICE
HELD: YES.
The laws on agency state:
1891. (1)Every agent is bound to render an account of his transactions and to deliver to the principal whatever he
may have received by virtue of the agency, even though it may not be owing to the principal.
(2) Every stipulation exempting the agent from the obligation to render an account shall be void.
Par (2) stresses the HIGHEST LOYALTY that is required of an agent.
The duties & liabilities of a broker to his employer are essentially those which an agent owes to his principal. An
agent who takes a secret profit in the nature of a bonus/gratuity or personal benefit from a vendee, w/o revealing the
same to his principal, the vendor is guilty of BREACH OF LOYALTY and forfeits his right to collect the commission
from his principal, even though his principal does not suffer any injury by reason of such breach of fidelity, or that he
obtained better results or that the agency is gratuitous, or that usage/custom allows it. By taking such profit, the
agent thereby assumes a position wholly inconsistent with that being an agent for his principal, who has a right to
treat him, insofar as the commission is concerned, as if no agency had existed. The agent is also liable for ESTAFA
for failure to deliver to his principal the total amount collected by him in behalf of his principal. The agent is
accountable for all the profits he received. If he makes a profit out of the agency for himself in excess of his lawful
compensation, he may be held as a TRUSTEE for the principal with regard to the excess.
In this case, Gregorio, beyond the knowledge of Vicente, his principal, negotiated a secret profit with the buyer,
Oscar. This act of Gregorio is a BREACH of LOYALTY required of an agent to his principal. He is also liable for
ESTAFA for failing to deliver such amount to Vicente.
ISSUE 2: W/N GREGORIO, BEING MERELY A BROKER, IS LIABLE AS AN
AGENT
HELD: YES. 1891 will not apply if the agent/broker acted only as a middleman with the task of merely
bringing together the vender and vendee, who themselves thereafter will negotiate on the terms &
conditions of the transaction.
In this case, Gregorio was not merely a middleman. He was the broker and agent of Vicente. He negotiated with
Oscar in behalf of his principal.

When agent exceeds his authority

NATIONAL POWER CORPORATION v. NATIONAL MERCHANDISING CORPORATION and DOMESTIC

INSURANCE
COMPANY OF THE PHILIPPINES
FACTS:
NPC and NMC (representing New York supplier, International Commodities Corp) executed contract for NPCs
purchase of 4000 tons of crude sulfur (from NMC) for its Fertilizer Plant in Iligan City. DIC executed a performance
bond, to guarantee the sellers obligations.
Contract stipulates NMC would deliver the sulfur at Iligan City within 60 days from notice of the establishment in its
favor of a letter of credit for $212,120. Failure of delivery would subject the seller and its surety to liquidated
damages at 2/5 of 1% of full contract price for first 30 days of default and 4/5the of 1% for every day after until
complete delivery. NPC advised John Z. Sycip (NMC President) letter of credit for $212,120 which would expire on
January 1957. Notice of that letter of credit was, received by cable by the New York firm on November 1956. Thus,
the deadline for the delivery of the sulfur was January 15, 1957. NMC bid or offer provides that it was "responsible
for the availability of bottom or vessel" and that it "guarantees the availability of bottom or vessel to ship the
quantity of sulfur within the time specified in this bid."
The New York supplier was not able to deliver the sulfur due to its inability to secure shipping space. NPC fertilizer
plant shut down because there was no sulfur. General manager of the NPC advised NMC and the DIC that "nonavailability of bottom or vessel" was not a fortuitous event that would excuse non-performance.
NMC: it was incumbent upon NPC to inquire into extent of agents authority. Failure to do so waives claim of
liquidated damages. Sycip (President) said he had no choice but finalize the contract because NPC would forfeit
bidder bond in sum of P45,100 posted by DIC if contract not formalized.
NPC:
ISSUE: WHETHER OR NOT NMC ACTED BEYOND AUTHORITY FOR
VIOLATING THE PRINCIPALS OF ITS PRINCIPAL
HELD: Yes. NMC acted beyond authority because it violated the following instructions of the principal
1. Delivery of the sulfur should be "C & F Manila", not "C & F Iligan City"
2. Sale be subject to the availability of a steamer
3. Seller should be allowed to withdraw right away the full amount of
the letter of credit and not merely 80%.
NMC should have advised NPC of limitations on its authority to negotiate sale.
NMC is liable for damages. 1897 states that agent who exceeds the limits of his authority without giving the
party with whom he contracts sufficient notice of his powers is personally liable to such party.
Even before the contract of sale was signed NMC was already aware that its principal was having difficulties in
booking shipping space. New York supplier advised NMC that the latter should not sign the contract unless it NMC
wished to assume sole responsibility for the shipment. New York corporation also informed NMC that since NMC
acted contrary to instruction, former disclaimed responsibility for contract and contract rested on NMC. It never
authorized the contract.
Rule that every person dealing with an agent is put upon inquiry and must discover upon his peril the authority of
the agent would apply in this case if the principal is sought to be held liable on the contract entered into by the
agent. In this case, agent was expressly repudiated by the principal.
Because the agent took chances, it exceeded its authority and in effect acted in its own name.
1897 is complimented by 1898 providing that "if the agent contracts in the name of the principal, exceeding the
scope of his authority, and the principal does not ratify the contract, it shall be void if the party with whom the
agent contracted is aware of the limits of the powers granted by the principal."

NMC never disclosed to the NPC the cabled or written instructions of its principal. It acted in its own name and
not as agent and it is, therefore, bound by the contract of sale which, however, is not enforceable against its
principal.
Thus, as 1897 and 1898 bound NMC under contract of sale, it follows that it is also bound by stipulation for
liquidated damages. In effect, NMC also became the principal of DICs performance bond. DIC acted as surety for
NMC. Rule is that "want of authority of the person who executes an obligation as the agent or representative of
the principal will not, as a general rule, affect the suretys liability thereon, especially in the absence of fraud, even
though the obligation is not binding on the principal".

When agents exceeds his authority

DEVELOPMENT BANK OF THE PHILIPPINES, v COURT OF APPEALS and the ESTATE OF THE LATE JUAN
B. DANS, represented by CANDIDA G. DANS, and the DBP MORTGAGE REDEMPTION
INSURANCE POOL.
FACTS:
Juan B. Dans, together with his wife Candida, his son and daughter-in-law, applied for a loan with the Development
Bank of the Philippines (DBP), Basilan Branch. As the principal mortgagor, Dans, then 76 years of age, was advised
by DBP to obtain a mortgage redemption insurance (MRI) with the DBP Mortgage Redemption Insurance Pool (DBP
MRI Pool).
However, DBP, knowing form having been informed by DBP MRI Pool that Dans has not qualified for the
insurance for being over its age limit of 60 years old, did not inform Dans. Instead, it released the loan to Dans,
deducting premium and service fee.
Dans died. Upon claim by Candida, DBP relayed claim to MRI Pool. The latter notified DBP again of Danss
ineligibility from the coverage.

DBP informed Candida of the disapproval of her late husband's MRI application. The DBP offered to refund the
premium of P1,476.00 and subsequently an annex gratia settlement of P30,000, both of which refused by Candida.
ISSUE: WHETHER OR NOT DBP, AS AN AGENT OF DBP MRI POOL
EXCEEDED ITS AUTHORITY.
HELD: Yes, DBP exceeded its authority when, even knowing that Dans application would inevitably be
disapproved for being disqualified from the coverage of the MRI Pool, it released the loan to Dans.
Under Article 1987 of the Civil Code of the Philippines, "the agent who acts as such is not personally liable to the
party with whom he contracts, unless he expressly binds himself or exceeds the limits of his authority without giving
such party sufficient notice of his powers."
DBP was not authorized to accept applications for MRI when its clients are more than 60years old. DBP exceeded
its authority as an agent when it accepted Dans application for MRI by collecting the premium and deducting
agents commission and service fee.
The liability of an agent who exceeds the scope of his authority depends upon whether the third person is aware of
the limits of the agent's powers. If the third person dealing with an agent is unaware of the limits of the authority
conferred by the principal on the agent and he (third person) has been deceived by the non-disclosure thereof by
the agent, then the latter is liable for damages to him. The rule that the agent is liable when he acts without
authority is founded upon the supposition that there has been some wrong or omission on his part either in
misrepresenting, or in affirming, or concealing the authority under which he assumes to act. There is no showing
that Dans knew of the limitation on DBP's authority to solicit applications for MRI, which makes the DBP liable for
damages.
When Agent Exceeds his Authority
SAFIC ALCAN & CIE v IMPERIAL VEGETABLE OIL CO., INC.
Petitioner Safic Alcan (SAC) is a French corporation engaged in the international purchase, sale & trading of
coconut oil. SAC has entered into several transactions with respondent IVO, whereby SAC would purchase and
IVO would deliver crude coconut oil products. But in 1987, IVO failed to deliver the coconut oil previously agreed
upon, which prompted SAC to sue IVO.
In its defense, IVO contended that its president, Monteverde, acted beyond his authority (ULTRA VIRES) when he
entered into speculative contracts with SAC. IVO presented its by-laws prohibiting its officers from entering into
contracts which are speculative in nature as in this case according to them for the reason that at the time the
Monteverde entered into an agreement obligating IVO to deliver such coconut oil products, the coconuts are not
even growing at that time and are yet to be harvested. Hence, the 1986 contracts are sales of mere expectations
and this is something prohibited by the by-laws and the Board of Directors of IVO.
SAC insists that there is implied agency between IVO and Monteverde because the latter has been
transacting for IVO with SAC since 1985.
ISSUE: W/N MONTEVERDE EXCEEDED HIS AUTHORITY
HELD: YES.
IVO successfully proved that the recent contract entered into by Monteverde with SAC was speculative as it was
clear that IVO could not possibly comply with the obligation of delivering coconut oil to SAC. By entering into a
speculative contract in behalf of IVO, Monteverde, the agent exceeded his authority by doing what is prohibited
by the company by-laws.
ISSUE 2: W/N THERE WAS IMPLIED AGENCY
HELD: NO.

The mere fact that Monteverde had been transacting in behalf of IVO with SAC for years does not imply an agency
as regards the recent contract. In the recent contract, the situation was highly speculative. In fact, Monteverde did
not present such contracts to the board for ratification, nor record them in the company books.
Estoppel
FILIPINAS LIFE ASSURANCE, v CLEMENTE PEDROSO and
TERESITA PEDROSO
FACTS:
Teresita Pedroso is a policyholder of a 20-year endowment life insurance issued Filipinas Life Assurance
Company (Filipinas Life). Renato Valle was her insurance agent who collected her monthly premiums. Valle
informed Pedroso that Filipinas Life Escolta had an investment promo for policyholders entitling them to earh 8&
prepaid interest for amounts deposited on a monthly basis.
Convinced, Teresita invested and issued a post-dated check of P10,000. In return, Valle issued a personal check of
P800 for 8% prepaid interest and a Filipinas Life Agents Receipt. Teresita called Escolta Brach and talked to
Alacantara (administrative assistant) and Apretrior (branch manager) who confirmed the promotion. Relying on
these representatives and agent Valle, Pedroso waited for the maturity of her initial investment. True enough, her
deposit was returned to her upon a written request for refund. Pedroso more investments in varying amounts. She
even persuaded a friend, Jennifer N. Palacio, also a Filipinas Life insurance policyholder, to invest in the program.
However, when Pedroso and Palacio tried to withdraw their investment, Valle refused to return it. They were not
even to recover the amounts even after going to Filipinas Life Escolta Branch, Valle having disappeared.
ISSUE: WHETHER FILIPINAS WAS LIABLE THROUGH THE ACTIONS OF VALLE
HELD: Yes. Filipinas does not dispute Valle as its agent.
By the contract of agency, a person binds himself to render some service or to do something in representation or on
behalf of another, with the consent or authority of the latter.
The general rule is that the principal is responsible for the acts of its agent done within the scope of its authority,
and should bear the damage caused to third persons. When the agent exceeds his authority, the agent becomes
personally liable for the damage. But even when the agent exceeds his authority, the principal is still solidarily liable
together with the agent if the principal allowed the agent to act as though the agent had full powers.
Pedroso and Palacio investments were received by Valle and remitted to Filipinas Life, using Filipinas Lifes official
receipts, whose authenticity were not disputed. When respondents sought confirmation, Alcantara, holding a
supervisory position, and Apetrior, the branch manager, confirmed that Valle had authority. While it is true that a
person dealing with an agent is put upon inquiry and must discover at his own peril the agents authority, in this
case, respondents did exercise due diligence in removing all doubts and in confirming the validity of the
representations made by Valle.
Filipinas Life cannot profess ignorance of Valles acts. Even if Valles representations were beyond his authority as
a debit/insurance agent, Filipinas Life thru Alcantara and Apetrior expressly and knowingly ratified Valles acts. It
cannot even be denied that Filipinas Life benefited from the investments deposited by Valle in the account of
Filipinas Life. In our considered view, Filipinas Life had clothed Valle with apparent authority; hence, it is now
estopped to deny said authority. Innocent third persons should not be prejudiced if the principal failed to adopt the
needed measures to prevent misrepresentation, much more so if the principal ratified his agents acts beyond the
latters authority. The act of the agent is considered that of the principal itself.

Estoppel to Deny
NORMA B. DOMINGO, v YOLANDA ROBLES; and MICHAEL
MALABANAN ROBLES, MARICON MALABANAN ROBLES, MICHELLE MALABANAN ROBLES, All Minors
Represented by Their Mother,

YOLANDA ROBLES
FACTS:
Petitioner and her husband, Valentino Domingo, were the registered owners of a lot in Marikina. The spouses were
having a house build on said lot but the construction was halted allegedly for failure of the husband to send the
funds. So, Norma decided to sell the property.
A friend, Flor Bacani, volunteered to act as her agent in selling the lot. Trusting Bacani, Norma delivered her
Owners Duplicate of the TCT covering the lot. Later, upon being informed by Bacani that the title was lost, Norma
filed a petition for its reconstitution thru Bacani, giving the latter, all her receipts of payment for real estate taxes.
At the same time, Bacani asked Norma to sign what she recalled was a record of exhibits. Thereafter, Bacani
disappeared.
When Norma visited the lot, she was surprised to see the Robleses starting to build a house on her lot. When she
verified with the Register of Deeds, it was revealed that the reconstituted Transfer Certificate of Title had already
been cancelled with the registration of a Deed of Absolute Sale signed by Norma B. Domingo and her husband
Valentino Domingo, as sellers, and [Respondent] Yolanda Robles, for herself and representing the other minor
[respondents], as buyers. As a consequence, a Transfer Certificate of Title in the name of [Respondent] Robles.
Claiming not to have met any of the [respondents] nor having signed any sale over the property in favor of
anybody (her husband being abroad at the time), [petitioner] assumed that the Deed of Absolute Sale is a forgery
and, therefore, could not validly transfer ownership of the lot to the [respondents]. Hence, the case for the nullity
thereof and its reconveyance was filed by Norma.
The Robleses claimed to be buyers in good faith and for value. They narrate that the subject lot was offered to
them by Flor Bacani, as the agent of the owners; that after some time when they were already prepared to buy the
lot, Bacani introduced to them the supposed owners and agreed on the sale; Bacani and the introduced seller
presented a Deed of Absolute Sale already signed by Valentino and Norma Domingo needing only her (Robles)
signature. Presented likewise at that meeting, where she paid full purchase price, was the original of the owners
duplicate of Transfer Certificate of Title.
ISSUE: WHETHER OR NOT THE ROBLESES WERE INNOCENT PURCHASERS
FOR VALUE
HELD: Yes. Petitioner failed to convince the trial court that the person with whom Respondent Yolanda Robles
transacted was in fact not Valentino Domingo. Except for her insistence that her husband was out of the country,
petitioner failed to present any other clear and convincing evidence that Valentino was not present at the time of
the sale. Bare allegations, unsubstantiated by evidence, are not equivalent to proof.
Petitioner now stresses the issue of good faith on the part of respondents. In the absence of a finding of fraud and
a consequent finding of authenticity and due execution of the Deed of Absolute Sale, a discussion of whether
respondents were purchasers in good faith is wholly unnecessary. Without a clear and persuasive substantiation
of bad faith, a presumption of good faith in their favor stands.
The sale was admittedly made with the aid of Bacani, petitioners agent, who had with him the original of the
owners duplicate Certificate of Title to the property, free from any liens or encumbrances. The signatures of
Spouses Domingo, the registered owners, appear on the Deed of Absolute Sale. Petitioners husband met with
Respondent Yolanda Robles and received payment for the property. The registered owner who places in the hands
of another an executed document of transfer of registered land effectively represents to a third party that the holder
of such document is authorized to deal with the property.

Estoppel to deny
RURAL BANK OF MILAOR (CAMARINES SUR), petitioner, vs.

FRANCISCA OCFEMIA, ROWENA BARROGO, MARIFE O. NIO, FELICISIMO OCFEMIA, RENATO

OCFEMIA JR., and WINSTON OCFEMIA, respondents.
Several parcels of land were mortgaged by the respondents during the lifetime of the their grandparents to the Rural
bank of Milaor. Petitioner Rural Bank has foreclosed on 7 parcels of land and the ownership was transferred with
the petitioner bank upon failure of the Ocfemias to redeem. Out of the seven parcels of land that were foreclosed,
five of them are in the possession of the respondents because these five parcels of land were sold back by the
petitioner bank to the respondents.
However, the title to those five parcels of land cannot be transferred in the name of the parents of Merife Nino,
because the prior sale between their parents and the bank were not registered. The Register of deeds, on the other
hand, required the board resolution of the petitioner bank confirming both the Deed of sale and the authority of the
bank manager, Fe S. Tena, to enter such transaction in order to register the sale.
The petitioner bank upon repeated request by the respondents for the required resolution, refused repeatedly,
stating various reasons and asking for requirements. Respondents initiated the present case in order to compel
petitioner bank to issue the needed resolution as it is their only way to have the titles transferred to their name, as
they needed to mortgage the lot to pay for medical expenses for their mother.
ISSUE: WHETHER OR NOT THE PETITIONER BANK IS ESTOPPED TO DENY
THE APPLICATION OF RESPONDENTS BY THE ACT OF ITS MANAGER AND
HELD: Yes. A bank is liable to innocent third persons where representation is made in the course of its normal
business by an agent like manager Tena, even though such agent was abusing her authority. The bank has a clear
legal duty to issue the board resolution sought by respondents.
Indeed, when one of herein respondents, Marife S. Nino, went to the bank to ask for the board resolution, she was
merely told to bring the receipts. The bank failed to categorically declare that Tena (the manager of the Bank) had
no authority.
Therefore, the bank is estopped from questioning the authority of the bank manager to enter into the contract of
sale. If a corporation knowingly permits one of its officers 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 through such agent, be estopped from denying the agent's
authority.
Unquestionably, petitioner has authorized Tena to enter into the Deed of Sale. Accordingly, it has a clear legal
duty to issue the board resolution sought by respondents. Having authorized her to sell the property, it
behooves the bank to confirm the Deed of Sale so that the buyers may enjoy its full use.

Actual Knowledge
AIR FRANCE v CA, JOSE GANA (deceased), CLARA GANA, RAMON
GANA, MANUEL GANA, MA. TERESA GANA, ROBERTO GANA, JAIME JAVIER GANA, CLOTILDE VDA. DE
AREVALO and EMILY SAN JUAN
Sometime in February 1970, Jose Gana and hi family purchased from AIR FRANCE through Imperial Travels Inc, a
duly authorizied travel agent, 9 open-dated air passage tickets for the Manila/Osaka/Tokyo/Manila route. They
paid in US$ at the then prevailing exchange rate of P3.90 per US$1.00, plus travel tax of P100 per passenger.
April 1970, AIR FRANCE substituted the aforementioned tickets with other tickets for the same route, this time
having and expiration date of May 8, 1971.

January 1971, the Ganas have not used the tickets. Jose Gana sought the assistance of Teresita Manucdoc, a
secretary of the Sta. Clara Lumber Company where Jose was the Director & Treasurer, for the extension of the
validity of their tickets. Teresita enlisted the help of Lee Ella, Manager of the Ph Travel Bureau. Ella sent the
tickets to the Office Manager of AIR FRANCE. But the tickets were returned to Ella, who was informed that the
extension was not possible unless the fare differentials resulting from the increase in fares and travel tax were
paid. Ella returned the tickets to Teresita and informed her of the impossibility of extension.
In the meantime the GANAS had scheduled their departure on May 7, 1971 or 1 day before the expiration date on
their tickets. In the morning of that day, Teresita requested Ella to arrange the revalidation of the tickets. Ella gave
the same negative answer and warned her that although the tickets could be used by the GANAS that day, they
would no longer be valid for the rest of the trip having expired on the 8 th. Teresita replied that it would be up to the
GANAS to make the arrangements. With that assurance from Teresita, Ella attached validating stickers for the first
leg of 2nd leg of the flight. He did not attempt to contact AIR FRANCE anymore due to time constraints.
As warned by Ella, the airlines for the May 8 th leg of the GANASs flight onwards refused to honor their tickets,
forcing them to buy new ones and to ask their relatives to buy for them so they could return to the Manila for the
last leg of their flight.
August 1971, GANAS filed a complaint for damages arising from breach of contract of carriage against AIR
FRANCE.
AIR FRANCE denied liability, stating that they were not guilty of fraud or bad faith because their travel agent Ella,
has informed or notified Teresita (agent of the GANAS) of the consequential risks of utilizing their expired tickets.
In turn, the GANAS argue that it would be unfair to charge them with automatic knowledge or notice of conditions in
contracts of adhesion, as in this case.
ISSUE: W/N NOTICE TO TERESITA WOULD CONSTITUTE NOTICE TO THE GANAS
HELD: YES.
The laws of agency state that notice to the agent is notice to the principal. To all legal intents and purposes, Teresita
was the agent of the GANAS and notice to her of the rejection of the request for extension of the validity of the
tickets was notice to the GANAS, her principal.

Revocation
PHILIPPINE NATIONAL BANK vs. IAC
FACTS: On March 20, 1968, Leticia de la Vina -Sepe executed a real estate mortgage in favor of PNB, San Carlos
Branch, over a lot registered in her name to secure the payment of a sugar crop loan of P3,400. Later, Leticia Sepe,
acting as attorney- in-fact for her brother-in -law, private respondent Romeo Alcedo, executed an amended real
estate mortgage to include his (Alcedo's) Lot as additional collateral for Sepe's increased loan. Leticia Sepe and
private respondent Alcedo verbally agreed to split fifty-fifty (50-50) the proceeds of the loan (p. 94, Rollo) but failing
to receive his one- half share from her, Alcedo wrote a letter on May 12,1970 to the PNB, San Carlos Branch,
revoking the Special Power of Attorney which he had given to Leticia Sepe to mortgage his Lot.
PNB Branch Manager, Jose T. Gellegani, advised Alcedo that his land had already been included as collateral for
Sepe's sugar crop loan, which the latter had already availed of, nevertheless, he assured Alcedo that the bank
would exclude his lot as collateral for Sepe's forthcoming sugar crop loan.
On the same day, PNB advised Sepe in writing to replace Alcedos lot with another collateral of equal or higher
value. But despite the above advice from PNB, Sepe was still able to obtain an additional loan from PNB
increasing her debt on the security of Alcedo's property as collateral.
Sepe failed to pay the loan, and Alcedo, upon being informed of such fact by the bank, and being told that he had
6 months to pay Sepes loan to prevent foreclosure, he sued Sepe for collection of sum of money and injunction.

Meanwhile, PNB was able to foreclose on the property and acquire the property in the auction sale for being
the highest bidder.
In answer to Alcedos amended complaint, the Bank contended that it was justified in granting Sepe an additional
loan although Alcedo informed the Bank that he was revoking the Special Power of Attorney he gave Sepe
because the revocation was not formalized in accordance with law and therefore, the revocation of the Special
Power of Attorney by Alcedo did not impair the real estate mortgage earlier executed by Sepe in favor of the Bank.
ISSUE: WHETHER OR NOT PNB VALIDLY FORECLOSED ON ALCEDOS LOT DESPITE THE LATTERS
REVOCATION OF SPA AUTHORIZING SEPE TO MORTGAGE HIS PROPERTY
HELD: No.
While Article 1358 of the New Civil Code requires that the revocation of Alcedo's Special Power of Attorney to
mortgage his property should appear in a public instrument, nevertheless, a revocation embodied in a private
writing is valid and binding between the parties.
The PNB acted with bad faith in proceeding against Alcedo's property to satisfy Sepe's unpaid 1971-72 sugar crop
loan. The extrajudicial foreclosure being null and void ab initio, the certificate of sale which the Sheriff
delivered to PNB as the highest bidder at the sale is also null and void.
Agency Coupled with Interest
Philex Mining Corporation vs Commissioner of Internal Revenue P: Carpio-Morales
FACTS:
Petitioner Philex entered into an agreement POWER of ATTORNEY with Baguio Gold Mining Corporation for the
former to manage the latters mining claim know as the Sto. Mine. Over the years, petitioner withdrew from the
management of the mine due to continuing losses. The parties executed a Compromise Dation in Payment,
wherein the debt of Baguio amounted to Php. 112,136,000.00, which the petitioner agreed to deduct from its gross
income as loss on the settlement of receivables from Baguio Gold against reserves and allowances.
BIR did not allow such deduction for bad debt. Petitioner claims that such amount was in a nature of a loan pursuant
to a contract of agency evidenced by the power of attorney executed by them, and is therefore deductible from
their income tax. Court of Tax Appeals (CTA), as affirmed by the CA, rejected the claim and held that it is a
partnership rather than an agency.
ISSUE:
WHETHER
OR NOT
THERE
AN
AFFIRMATIVE, IS IT ONE COUPLED WITH AN INTEREST

AGENCY,

AND

IF

IN

THE

HELD: No. The Power of Attorney (PA) is the instrument that is material in determining the true nature of the
business relationship between petitioner and Baguio. An examination of the said PA reveals that a partnership or
joint venture was indeed intended by the parties. While a corporation like the petitioner cannot 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,
which is akin to a particular partnership. The PA indicates that the parties had intended to create a partnership and
establish a common fund for the purpose. They also had a joint interest in the profits of the business as shown by
the 50-50 sharing of income of the mine.
Moreover, in an agency coupled with interest, it is the agency that cannot be revoked or withdrawn by the principal
due to an interest of a third party that depends upon it or the mutual interest of both principal and agent.
In this case the non-revocation or non-withdrawal under the PA applies to the advances made by the petitioner
who is the agent and not the principal under the contract. Thus, there is no agency that can be inferred from the
contract.

TRUSTS: Fiduciary Character

THE ESTATE OF HILARIO RUIZ, EDMOND RUIZ, Executor v CA, MA.

PILAR RUIZ-MONTES, MA. CATHRYN RUIZ, CANDICE ALBERTINE RUIZ, MA. ANGELINE RUIZ and THE
PRESIDING JUDGE OF THE RTC OF PASIG, BRANCH 156
Hilario Ruiz executed a holographic will naming his heirs his only son, Edmond, his adopted daughter, private
respondent Pilar, and his 3 granddaughters, all children of Edmond. His assets were in terms of substantial cash,
personal and real properties. He named Edmond executor of his estate.
When Hilario died, the cash component of his estate was distributed among the heirs in accordance with
his will. Strangely, Edmond, as executor, did not take any action for the probate of his fathers will.
4 years after the testators death, Pilar filed a petition for the probate and approval of Hilarios will and for the
issuance of letters of testamentary to Edmond, to which the latter opposed on the ground that the will was
executed under undue influence.
Edmond leased out to 3rd persons one of the properties of the estate a house and lot in Valle Verde.
The probate court ordered Edmond to deposit the rental payments representing 1year lease totaling to P540,000,
which he did after deductingrepair and maintenance expenses. The court admitted to will to probate and ordered
the issuance of letters testamentary to Edmond on the condition of a bond of P50k.
Petitioner Testate Estate, with Edmond as executor filed an Ex-parte motion for release of funds, which was denied
by the court. Instead, the probate court ordered the release of the rent payments and the delivery of the titles to and
possession of the properties bequeathed to the 3 granddaughters.
Petitioner assails the order of the probate court, claiming that it deprived him of his right as an executor to take
possession of all the real and personal properties of the estate.
ISSUE: W/N AN EXECUTOR OF AN ESTATE HAS A RIGHT OF OWNERSHIP AND POSSESSION OF THE
ESTATE
HELD: NO.
The right of an executor or administrator to the possession and management of the real and personal
properties of the deceased is not absolute and can only be exercised as long as it is necessary for the
payment of the debts and expenses of administration.
The court reminded the petitioner that his right of ownership over the properties of his father is merely inchoate as
long as the estate has not been fully settled and partitioned. As executor, he is a mere trustee of his fathers estate.
The funds of the estate in his hands are trust funds and he is held to the duties and responsibilities of a trustee of
the highest order. He cannot unilaterally assign to himself and possess all his parents properties and the fruits
thereof without first submitting an inventory and appraisal of all real and personal properties of the deceased,
rendering a true account of his administration, the expenses of administration, the amount of the obligations and
estate tax, all of which are subject to a determination by the court as to their veracity, proprietary and justness.

Intention to create Trust

ANITA UNGAB-VALEROSO, joined in by her husband, RUSELO VALEROSO, v AMANCIA
UNGAB-GRADO, FELIX
UNGAB, represented by his son ROSENDO UNGAB, ESPENILA UNGAB-JAICTIN and
RUSTICINA UNGABTAMALA, QUISUMBING, J p:
FACTS:
The late Timoteo Ungab was the registered owner of a land in Binuni, Kolambugan, covered by an OCT. Petitioner
Anita Ungab is Timoteos only child. Respondents are the brother and heirs of Timoteos other siblings.

The heirs of Ciriaco Ungab filed a complaint in the Court of First Instance (CFI) of Iligan City, against the brothers,
sisters and heirs of Timoteo for the partition, accounting and reconveyance of the subject land. When the case was
called for trial, the parties submitted a written compromise agreement. The CFI rendered judgment adopting in toto
the compromise agreement.
The parties did not have the land partitioned but divided the proceeds of the land in accordance with the decision.
Respondents then filed against petitioners Anita and her husband Ruselo Valeroso, a complaint for recovery of
possession, partition, enforcement of compromise agreement and damages with the RTC of Iligan City.
During the pre-trial, respondents presented in court
1. the affidavit of Timoteo acknowledging that he co-owned with his brothers and sisters, Simeona,
Eugenia, Lorenzo, Lazaro, Felix and Margarito, a parcel of land in Binuni, Kolambugan, Lanao under
Homestead Application;
2. Affidavit of Acknowledgment of Anita and her mother Aurelia acknowledging the rights of Simeona, Lazaro,
Felix and Margarito as co-owners of the land.
Anita claims to exclusively own the land as sole heir of Timoteo.
ISSUE: WHETHER OR NOT THERE IS AN INTENT FOR ANITA TO CREATE TRUST WITH THER FATHERS
SIBLINGS
HELD: Yes. The execution of the Affidavit of Acknowledgment and the compromise agreement established an
EXPRESS TRUST wherein respondents, as trustors, reposed their confidence on petitioner Anita and her mother
as trustees, that they will hold theland subject of the co-ownership. There are no particular words required in the
creation of an express trust, it being sufficient that a trust is clearly intended.

Implied Trust
FELOMINA ABELLANA, petitioner vs SPOUSES PONCE and RD BUTUAN CITY, respondents.
FACTS:
Petitioner Filomena, aunt of private respondent Lucila once, purchased an agricultural lot with the intention of
giving said lot to her niece, Lucila. Thus, Lucila was designated as the buyer. Subsequently, Filomena applied for
the issuance of title in the name of her niece. Title remained in possession of Filomena who developed the lot and
paid the real property taxes.
But then, the relationship between the aunt and niece turned sour. Hence, Filomena filed the instant case for
revocation of implied trust to recover legal title over the property.
Lucila claims that upon learning that a CT has already been issued in her name, that she tried to obtain the same
from her aunt. But upon being informed that Filomena had already given her such title, she thought that she just
might have misplaced it and therefore applied for the reconstitution and issuance of another CT in her name.
ISSUE: WHETHER OR NOT THERE WAS IMPLIED TRUST
HELD: No. There was no Implied trust. As proven by testimony, Felomina was the buyer and the one who paid the
purchase price. The fact that it was Abellana who bought the lot was further bolstered by her possession for TCT
and tax declaration in Lucilas name, receipts of real property taxes in her own name and the survey plan of the lot.

The concept of implied trusts (1448) is that the existence of a trust relationship is inferred in order to effect the
presumed intention of the parties. Thus, one of the recognized exceptions to the establishment of an implied trust
is where a contrary intention is proved.
In Abellanas mind, the execution of a deed with Lucila was an act of generosity. She displayed her unequivocal
intention to transfer ownership and not merely to constitute her as a trustee. It was only when their relationship
soured that she sought to revoke the donation on the theory of implied trust. There is nothing to revoke because the
donation was never perfected.
In declaring Lucila as the owner of the disputed lot, the Court of Appeals applied, among others, the second
sentence of Article 1448 which states if the person to whom the title is conveyed is a child, legitimate or
illegitimate, of the one paying the price of the sale, no trust is implied by law, it being disputably presumed that
there is a gift in favor of the
child. Said presumption also arises where the property is given to a person to whom the person paying the price
stands in loco parentis or as a substitute parent.
This is not applicable here because 1) it was not established that Abellana stood as a substitute parent of Lucila;
2)Even assuming that she did, the donation is still void because the transfer and acceptance was not embodied in
a public instrument.
Provision merely raised a presumption that the conveyance was a gift but does not exempt parties from complying
with the formalities of a donation.

Repudiation of Trust
Pangan vs Court of Appeals
FACTS:
Petitioners, by virtue of their continuous and exclusive possession of a land through their grandfather, applied for
the registration of their lot in their name and after proper publication, their application was approved. The herein
private respondent filed a petition to set aside the said decision based on the evidence she presented. This
evidence sought to show that the land was inherited by Leon Hilario's three children, but the son, Felicisimo,
waived his right thereto and thereby made his two sisters, Silvestra and Catalina, its exclusive co-owners. As
Catalina's daughter, she was entitled to one-half of the property, the other half going to Silvestra's heirs, the
petitioners herein and the latter's grandchildren.
The trial court issued an order dismissing the opposition and reinstating its original order. It stated that whatever
rights Teodora might have had over the property had been forfeited by extinctive prescription. CA reversed on the
ground that the appellees had not clearly proved that they had acquired the property by prescription. Hence, the
appellant was entitled to one-half of the property as heir, conformably to her opposition in the court a quo.
Private respondent argued she could not have lost the land through extinctive prescription because it was held by
them in trust for her. In other words, their possession, while adverse to the rest of the world, was not against
Teodora herself, whose share they held in implied trust for her as a co-owner of the land, and whose fruits their
father shared with her occasionally, or at least promised her she would get eventually.
ISSUE: WHETHER OR NOT THERE IS REPUDIATION OF TRUST
HELD: There is clear repudiation of a trust when one who is an apparent administrator of property causes the
cancellation of the title thereto in the name of the apparent beneficiaries and gets a new certificate of title in his own
name. It is only when the defendants, alleged co- owners of the property in question, executed a deed of partition
and on the strength thereof obtained the cancellation of the title in the name of their predecessor and the issuance
of a new one wherein they appear as the new owners of a definite area each, thereby in effect denying or
repudiating the ownership of one of the plaintiffs over his alleged share in the entire lot, that the statute of limitations
started to run for the purposes of the action instituted by the latter seeking a declaration of the existence of the coownership and of their rights thereunder.

The established evidence clearly shows that the subject land was inherited by the petitioners and the private
respondent as co-heirs of their common ancestor, Leon Hilario, whose possession they continued to acquire
prescriptive title over the property. That possession was originally in the name of all the heirs, including Teodora
Garcia, who in fact had been assured by Tomas Pangan, the petitioners' father, that she would get the share to
which she was entitled.
The petitioners have not proved that their possession excluded their co-owner and aunt or that they derived their
title from a separate conveyance to them of the property by Leon Hilario. Parenthetically, such a conveyance, if it
existed, would be questionable as it might have deprived Leon's other children of their legitime. In any case, the
petitioners appear to have arrogated the entire property to themselves upon their father's death sometime in 1942
or at the latest in 1965 when they sought to register the land in their names to the exclusion of Teodora Garcia.
In re: Precriptibility of action
MELCHOR CARO, vs. SUSANA SUCALDITO
FACTS:
Gregorio Caro bought a parcel of land from Ruperto Gepilano. Thereafter, he sold a portion of the said lot to his
son Melchor Caro, as evidenced by a Deed of Definite Sale.
Melchor Caro applied for a free patent covering the said area of the property which he bought from his father.
The application was, however, opposed by Deogracias de la Cruz. Regional Director rendered a Decision
canceling the said application, thusly:
This is a claim of Deogracias de la Cruz to Lot No. 4512, Pls-775 of Calaya, Nueva Valencia, Guimaras, covered
by the above-noted application of Melchor Caro.
In the investigation, respondent claims preferential rights over the land as he acquired it through sale from his
father Gregorio Caro who had likewise bought the land from Ruperto Cepellano in 1953. On the other hand,
protestant De la Cruz testified that the land in controversy was bought by him from Cipriano Gallego in 1965; that
he thereafter occupied, possessed and improved the land by planting coconut trees; and that in 1968 he was
forcibly driven out by Gregorio Caro from the land in question.
Verification of the records disclosed that the land which was actually sold to Gregorio Caro by Ruperto Gepellano.
The description and physical identity of the lot is basically different and distinct from the land in question. Moreover,
Ruperto Cepellano in his affidavit testified that what he sold to Gregorio Caro is a land distinct and different from the
land in question.
Susana R. Sucaldito, as the buyer, filed an Application for a Free Patent covering the said lot, and was issued
Free Patent. Consequently, the Register of Deeds of Iloilo City issued Original Certificate of Title (OCT) in her
favor. Sucaldito then filed a Petition for Writ of Possession before the RTC of Iloilo City, which was granted in an
Order.
Thereafter, Caro filed a Complaint against Sucaldito for Annulment of Title, Decision, Free Patent and/or Recovery
of Ownership and/or Possession with Damages before the RTC of Iloilo City. He later filed an amended complaint,
alleging that he was the owner of the subject lot, and had been in possession of the same since 1953 and/or even
prior thereto in the concept of owner, adversely, openly, continuously and notoriously. He further alleged that the
said lot had been declared for tax purposes in his name and that of his predecessors -in- interest, and that the
corresponding land taxes had been paid therefor. He claimed that lot had actually been divided into two lots;
Sucaldito had actually been claiming one of which, and which was located two kilometers away. He lamented that
despite the overwhelming evidence proving his ownership and possession of the said property, the Bureau of Lands
did not award it to him.
Caro further alleged that since the issuance of the free patent over the subject lot in favor of Sucaldito was wrongful
and fraudulent, she had no right whatsoever over the subject lot. Hence, as a trustee of a constructive trust, she
was obliged to return the same to him as the lawful owner.
ISSUE: WHETHER OR NOT CARO HAD LEGAL STANDING TO FILE PRESENT ACTION
HELD: No. Under Section 2, Rule 3 of the Rules of Court, every action must be prosecuted or defended in the
name of the REAL PARTY-IN- INTEREST or one "who stands to be benefited or injured by the judgment in the

suit." Corollarily, LEGAL STANDING has been defined as a personal and substantial interest in the case, such that
the party has sustained or will sustain direct injury as a result of the challenged act. Interest means a material
interest in issue that is affected by the questioned act or instrument, as distinguished from a mere incidental
interest in the question involved.
Clearly then, a suit filed by one who is not a party-in -interest must be dismissed. In this case, the petitioner, not
being the owner of the disputed property but a mere applicant for a free patent, cannot thus be considered as a
party-in-interest with personality to file an action for reconveyance.
As held in Lucas v. Durian : the proper party to bring the action was the government, to which the property
would revert.
As declared in Nebrada v. Heirs of Alivio: plaintiff, being a mere homestead applicant, was not the real party-ininterest to institute an action for reconveyance.
If the suit is not brought in the name of or against the real party-in-interest, a motion to dismiss may be filed on the
ground that the complaint states
no cause of action. In fact, a final judgment may be invalidated if the real party-in-interest are not included. Final
judgments are nullified when indispensable parties are not impleaded.
In the present dispute, only the State can file a suit for reconveyance of public land. Therefore, not being the
owners of the land but mere applicants for sales patents thereon. respondents have no personality to file the suit.
Neither will they be directly affected by the judgment in such a suit.
______________________________________________________________________________________