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AGENCY 3.

A suit against an agent in his personal capacity cannot, without


compelling reasons, be considered a suit against the principal
NATURE, OBJECTIVE, AND KINDS OF AGENCY 4. Notice to the agent should always be construed as notice binding to
the principal
Parties to a contract of agency 5. Knowledge of the agent is equivalent to knowledge of the principal
1. Principal a. Except where:
2. Agent i. Agent’s interests are adverse to those of the
principal
Elements of a Contract of Agency ii. Agent’s duty is not to disclose the information
1. Consent, express or implied, of the parties iii. The person claiming the benefit of the rule colludes
a. There must be capacity to enter into contracts with the agent to defraud the principal.
2. Object (Unilateral obligation to do)
a. Execution of juridical acts in relation to third parties Consequences of the fiduciary characteristic
b. As a representative of the another, and not for himself  Agent is estopped from asserting or acquiring a title adverse to that
c. Within the scope of the authority given of the principal
3. Consideration  In conflict-of-interest situation, the agent cannot choose a course that
a. Commission/Compensation favors himself to the detriment of the principal
b. If gratuitous, liberality  The agent cannot purchase for herself the property which has been
given to her management for sale or disposition
Essential Characteristics of an Agency o UNLESS,
1. Nominate and Principal  Express consent on the part of the principal
2. Consensual  Agent purchases after the agency is terminated
3. Unilateral and Primarily Onerous
4. Personal, Representative and Derivative Kinds of Agency
5. Fiduciary and Revocable 1. Based on Business or Transactions Covered
6. Preparatory and Progressive a. Universal Agency
b. Particular Agency
Principles flowing from the Agency Characteristics of “Personal, 2. Whether it covers litigation matters
Representative and Derivative” a. Attorney-at-Law
1. The contract entered into with third persons pertains to the principal b. Attorney-in-Fact
and not to the agent 3. Whether it Covers Acts of Administration or Acts of Ownership
a. Liabilities incurred shall pertain to the principal a. General Power of Attorney
b. Agent has neither rights or obligations from the resulting b. Special Power of Attorney
contract
c. Agent has no legal standing to sue upon said contract Agency distinguished from similar contracts
d. Agent who acts as such is not personally liable to the party Agency Employment Contract
with whom he contracts The Output in a contract of agency The output is a direct benefit to the
e. When an agent purchases property in bad faith, the principal are CONTRACTS or juridical acts employer (service)
is deemed to be a purchaser in bad faith Contract for a Piece of Work
2. All acts that the principal can do in person, he may do through an The output is always a property
agent, except those which under public policy are strictly personal to Management Agreement
the person of the principal Lessor of services does not

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Agency, Trusts, Partnerships and Joint Ventures – Dean Cesar L. Villanueva
represent his employer When there is a close, proximate and causal connection between the
The output is only material acts broker’s efforts and the principal’s sale of his property, the broker is
and not juridical acts. entitled to a commission.

Agency Contract of Sale


FORMALITIES OF AGENCY
 Agent does not pay for the  Pays before a person can re-
properties to be sold sell
How can agency be constituted?
 Does not assume risks;  Assumes the risks and
principal assumes the risks as warrants the sale Requisites for an agency by estoppel to exist
if he is the one who warrants 1. The principal manifested a representation of the agent’s authority or
the sale, unless agent knowingly allowed the agent to assume such authority
personally warranted the sale 2. The third person, in good faith, relied upon such representation
3. Relying upon such representation, such third person has changed
Agency Contract of Brokerage his position to his detriment
 Fiduciary relationship  No fiduciary relationship
 Negligence is a ground for  Negligence is a ground for When is there a general power of attorney?
damages for breach of duty of damages based on tort or When an agency is couched in general terms, even if the principal:
diligence quasi-delict  States that he withholds no power from the agent
 Agent is incapacitated to  Broker is not incapacitated to  States that the agent may execute acts he considers appropriate
purchase property of the purchase property of the  Authorizes general and unlimited management
principal principal
 Authority of the agent extends  Only authority is to negotiate Must a power of attorney be in writing?
up to the perfection, and even but a true broker cannot enter NO. It may be done orally.
to the consummation, of the into juridical acts (perfection However, it may be needed in order for a third party to be
contract; it may exclude stage) deemed to have acted with due diligence. “A person dealing with an
negotiation agent is put upon inquiry and must discover upon his peril the authority of
 An agent earns commission  A broker earns his commission the agent.
whenever he enters into only when through his services Also, lacking the written evidence of what particular power of
juridical acts. there is eventually a contract ownership has been granted to the agent, the third party may only
that is perfected or reasonably presume that the agent is granted powers of administration.
consummated This is consistent with the rue that a SPA should be strictly construed.

What is the doctrine of “efficient procuring cause”? How do you determine whether the power granted is a GPA or SPA?
“Procuring cause” is meant to be the proximate cause. The term Whether what is granted is an authority to merely administer , or to do an
“procuring cause,” in describing a broker’s activity, refers to a cause act of strict ownership, is not determined from the title given to the
originating a series of events, without break in their continuity, result in instrument, but on the nature of the power given under the operative
accomplishment of the prime objective of the employment of the broker – provisions of such instrument.
producing a purchaser ready, willing and able to buy real estate on the
owner’s terms. What makes an agency a special power of attorney?
Only when the act or contract enumerated specifically under Art. 1878
has been literally “named” in the grant of commission by the principal.

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Agency, Trusts, Partnerships and Joint Ventures – Dean Cesar L. Villanueva
This authority also includes any kind of realty that “might belong” to the
May a GPA include a special power? principal and that which the principal might afterwards have during the
YES. A general power of attorney may include a special power if such time it was in force.
special power is mentioned or referred to in the general power.
If the agent is given a SPA to Sell, may he purchase the property of
Must SPA be in writing? the principal?
According to the codal provision, it is not necessary. But jurisprudence NO, unless there is a prior authorization given by the principal.
would imply that the clearest manner by which there is a specific grant of
power of strict ownership is that it be in writing; otherwise, it is presumed In what instances may the power to make gifts or donations on
that the agent can only pursue acts of administration. behalf of the principal not require a SPA?
1. Customary ones for charity
When is “making payments” an act of administration an when is it 2. Those made to employees in the business managed by the agent
an act of strict ownership?
It is an act of administration if payments were made in the ordinary In what instance may the power to loan or borrow money on behalf
course of business. Thus, all other forms of payment for and in behalf of of the principal not require a SPA?
the principal which are not within the ordinary course of business, would When the act be urgent and indispensable for the preservation of the
constitute acts of strict dominion. things which are under administration.

May an agent with a GPA enter a confession of judgment on behalf May the agent be the lender without being in breach of trust?
of his principal? YES, at the current rate of interest.
NO. SC held that confession of judgment is the same as a compromise.
If the agent is authorized to lend money, may he be the borrower?
May an agent waive any obligation onerously without a SPA to do NO. He cannot borrow it without the consent of the principal.
such?
YES. The equivalent of the term “to waive any obligation onerously,” May an agent lease real property of the principal absent a SPA?
would be payment or performance of the obligation, which by its essence YES, but only for a period of one year or less.
is an act advantageous to the principal, and when done without express
authority is still within the scope of the agent’s authority. May an agent lease personal property of the principal absent a
SPA?
Distinguish Art. 1874 and Art. 1878(5). YES. It only constitutes an act of administration.
Art. 1874 Art. 1878(5)
1. Only covers sale of a piece of 1. Covers sale, acquisition, May an agent bind a principal to render some service for
land or any interest therein disposition or purchase of any compensation?
immovable NO. Even if it is not stated specifically in Art. 1878, any contract of
2. Needs to be in writing, 2. Does not need to be in writing service entered into on behalf of the principal should be considered an
otherwise it is void as to the for it to be enforceable. BUT it act of strict ownership, for it obliges the principal to render a personal
principal. must be specifically expressed. obligation, which if he refuses makes him liable for damages.

How detailed must the SPA to Sell be? May an agent bind the principal in an oral contract of guaranty or
It is the specification of the “power to sell: that is necessary rather than suretyship on behalf of the said principal if an SPA for such was
the specification of the particular piece of land that controls compliance given?
with the requirement of the law.

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Agency, Trusts, Partnerships and Joint Ventures – Dean Cesar L. Villanueva
NO. Art. 1403(2)(b) requires that a contract of guaranty be in writing, What are the consequences when the agent refuses to comply with
otherwise it is unenforceable. Thus, even if the agent is authorized, it the instructions of the principal?
must still be reduced into writing. 1. Agent becomes personally liable from a breach of his duty to the
principal
What is the doctrine of “implied powers”? 2. Principal is not personally bound by the terms of such contract or
The grant of express powers or special power of attorney must transactions
necessarily include all power implied or incidental to such express 3. The agent becomes personally liable for the contract or transaction
powers, even if they amount to acts of ownership or strict dominion. (if the third party is in good faith)
This is an exception to the rule that an act of strict ownership must be a. If the third party is in bad faith, the agent may still be liable if
specifically “named or “expressly granted” by the principal. he undertook to secure the principal’s ratification.

POWER & AUTHORITY, DUTIES, & OBLIGATIONS, AND RIGHTS OF If there is a conflict between the duty of obedience and duty of
THE AGENT diligence, which one should prevail?
The duty of diligence. An agent may do such acts as may be conducive
Who has the burden of proving that an agent was negligent of his to the accomplishment of the purpose of the agency.
duties?
The person is on the person who seeks to make an agent liable to show What does duty of diligence mean?
that the losses and damage caused were occasioned by the fault or The agent would have to act based on his own assessment of what is
negligence of the agent; mere allegation without substantiation is not necessary under the situation when it is not covered by an express
enough to make the agent personally liable. instruction from the principal.

What are the duties of the “agent” when he declines an agency? Should an agent carry out an agency if its execution would result in
He is bound to observe the diligence of a good father of a family in the loss or damage to the principal?
custody and preservation of the goods forwarded to him by the owner YES. Only those that would “manifestly” lead to losses or damages
until the latter should appoint an agent. should be avoided.

What are the duties of an agent when he withdraws from the If an agent acts in accordance with the orders of the principal, is he
agency? personally liable for damages caused to third parties?
He must continue to act [as agent] until the principal has had reasonable NO. Even though the duty of diligence trumps the duty of obedience, an
opportunity to take the necessary steps to meet the situation. agent cannot be held liable for damages resulting in his acts in
accordance with the instructions of the principal. The principal would be
What are the duties of an agent? liable.
1. Duty of obedience
2. Duty of diligence Is a contract entered into by an agent void wherein he preferred his
3. Duty of loyalty interest rather than that of the principal?
NO. It is valid but the agent would be liable for damages suffered by the
Twin measures on how an agent should act “in the execution of the principal.
agency”
1. Agent must act in accordance with the instructions of the principal What is the consequence when an agent contracts in his own name
2. In default of guiding instructions, the agent shall do all that a good on a matter that falls within the scope of the agency?
father of a family would do, as required by the nature of the business.

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Agency, Trusts, Partnerships and Joint Ventures – Dean Cesar L. Villanueva
The principal has the right to demand that the agent should turn-over to What if there was a stipulation that allows the agent to retain such
him whatever contract, property or business has been acquired by the gift or propina?
agent in breach of his duty of loyalty. Such stipulation shall be void.

What is the consequence when an agent used the funds belonging In what instance may the agent legally withhold property from the
to the principal? principal?
The agent owes interest on the sums he applied to his own use from the The agent may retain in pledge the things which are the object of the
day on which he did so, and those which he still owes after the agency until the principal effects the reimbursement and pays the
extinguishment of the contract. indemnity provided in Arts. 1912 and 1913 (advances necessary for the
execution of the agency, and damages incurred by the agent in the
What is the effect when the principal demands that the contract or execution of the agency, provided that he did not act with negligence or
property acquired by the agent in breach of his duty of loyalty be fault)
turned over to him?
The principal ratifies the contract. Thus, the agent is no longer personally In what instance can the agent refuse to advance the necessary
liable for the interest due on the use of the principal’s sum to acquire funds even if such was stipulated in the contract?
such contract or business. Only when the principal is insolvent. (Useless provision because the
agency is already extinguished because of the principal’s insolvency)
What is the status of the sale when agent buys the property of the
principal whose administration or sale has been entrusted to him? Items wherein the agent would own interest to the principal
It is void, unless prior consent by the principal was given. Thus, the 1. Sums that the agent applied to his own use from the time he used
prohibition is not absolute. them
2. Sums owing to the principal which remain outstanding at the time of
What happens when the agent violates his obligations under Art. the extinguishment of the agency, with the interest to run during the
1890 (lending and borrowing money)? time of such extinguishment
1. Agent lends to the principal at The difference would have to be
a rate higher than the current returned to the principal Effects of appointing a substitute agent
rate Not given the power to appoint one Agent is responsible for the acts of
2. Agent borrows money without Liable for the current interest that the substitute
the consent of the principal the principal would have earned Given such power, but without Agent is responsible for the acts of
had it been lent out to a third party designating the person, and the the substitute
person appointed is notoriously
Liable to the damages that the incompetent or insolvent
principal may have suffered Prohibited by the principal All acts of the appointed substitute
are void as to the principal
If a gift or propina was given to an agent separate from the
consideration for the contract entered into, should he turn it over to Agent is personally liable for the
the principal? acts of the substitute, as thought
YES. Every agent is bound to deliver to the principal whatever he may the contract of the substitute were
have received by virtue of the agency, even though it may not be owing his own
to the principal, and even when given to him for his benefit. Given the power and designated Principal will be liable
candidates or a specific person

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Agency, Trusts, Partnerships and Joint Ventures – Dean Cesar L. Villanueva
Rules as to third parties in good faith entering into contracts with Consequences when the agent acts in his own name
an agent 1. Agent is personally liable to the third party
BINDING  Written instructions 2. Principal can only be liable when the contract involves things
 Non-written instructions, if the belonging to the principal
principal has ratified, or has 3. Agent will be liable to the principal for damages (this is the remedy of
signified his willingness to the principal)
ratify the agent’s acts
NOT BINDING  Non-written instructions Responsibility of agents when they have been appointed
simultaneously
When can a principal be solidarily liable with an agent when the  Joint, when nothing is stipulated
agent has exceeded the authority of the principal?  Solidary, only when stipulated
If the principal allowed the agent to act as though he had full powers.
When can an agent not be responsible for the fault or negligence of
What are the exceptions to the general rule that an agent is not his fellow agents?
personally liable to third parties? When the fellow agents acted beyond the scope of their authority.
1. When the agent expressly makes himself personally liable
a. But this does not relieve the principal from his obligation to General Rule: When a person appoints two agents independently, the
pay the debt incurred for his benefit consent of one will not be required to validate the acts of the other
2. When agent is guilty of fraud or negligence Exception: If it appears positively to have been the principal’s intention.
a. In this case, he is also liable to the principal
b. But if it were in pursuit of the business or the affairs of the When may a third party be liable to the agent?
principal, both the agent and the principal are deemed joint 1. Agent contracts in his own name, on the matter that is within the
tortfeasors scope of the agency
2. Agent possesses a beneficial interest in the subject matter of the
Consequences when the agent has acted without or in excess of his agency
authority 3. Third party commits a tort against the agent
1. Contract entered into in the name of the principal shall be void as to
the principal and the third party, if third party is in bad faith What is a commission agent?
2. Agent is liable personal to the third party, if he undertook to secure A commission agent is one whose business it is to receive and sell
the principal’s ratification goods for a commission, and who is entrusted by the principal with the
3. If the agent did not undertake to secure the principal’s ratification, possession of the goods to be sold, and usually selling in his own name.
agent does not become liable to the contract since third party is in (It is actually a consignment, the commission agent being the consignee)
bad faith
What are the specific obligations of a commission agent?
When may a principal be held liable when the agent exceeded his 1. Take custody of goods
powers while the agent does not become liable? 2. Not to commingle similar goods belonging to different principals
1. Principal ratifies the contract or transactions 3. Cannot sell on credit without principal’s authorization
2. As to third parties, who relied upon the terms of the power of 4. To inform the principal of every pre-authorized sale of credit
attorney, even if in fact the agent had exceeded the limits of his 5. Bears the risk of collection under a del credere commission set up
authority according to an understanding between the principal and 6. To collect credits of the principal
agent 7. Responsible for fraud and negligence

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Agency, Trusts, Partnerships and Joint Ventures – Dean Cesar L. Villanueva
OBLIGATIONS OF THE PRINCIPAL Obligation of two or more principals to agent appointed for
common transactions
General Rule: Principal not bound by contracts made without authority The principals are solidarily liable to the agent for all the consequences
or outside the scope of authority of the agency
Exceptions:
1. Principal ratifies such contract, expressly or tacitly What are conflicting contracts?
2. When the principal has allowed the purported agent to act as though There are conflicting contracts:
he had full powers (agency by estoppel)  when two persons contract with regard to the same thing, one of
a. Principal and agent are join tortfeasors (solidary liability) them with the agent and the other with the principal, and
3. When the principal has revoked the agency, but the third party have  the two are incompatible with each other.
acted in good faith without notice of such revocation
Rules on conflicting contracts
Liability of the principal for agent’s tort 1. That of prior date shall apply, without prejudice to the rules on double
General Rule: Principal is liable to injured parties for the torts committed sales
by the agent at the principal’s direction or in the course of and within the 2. If agent acted in good faith, principal is liable to the third person
scope of the agent’s authority, whose contract must be rejected.
3. If agent acted in bad faith, he alone shall be responsible.
Obligations of the principal to the agent
1. To pay agent’s compensation EXTINGUISHMENT OF THE CONTRACT OF AGENCY
2. To advance sums requested for execution of the agency
3. To indemnify agent for the damages sustained What are the instances when the Contract of Agency is
extinguished?
When is a principal not liable to reimburse the agent for his (the 1. Revocation by the Principal
agent’s) expenses? 2. Withdrawal by the Agent
1. If the agent acted in contravention of the principal’s instructions 3. Death, civil Interdiction, insanity and insolvency of either of the
a. Unless the principal should wish to avail himself of the parties
benefit derived from the contract 4. Dissolution of the Principal who is a juridical entity
2. When the expenses were due to the fault of the agent 5. Fulfillment of the purpose of the contract of agency
3. When the agent incurred them with the knowledge that an 6. Expiration of the period
unfavorable result would ensure, if the principal was not aware
thereof May a Principal revoke and an Agent withdraw anytime?
4. When it was stipulated that the expenses would be borne by the YES.
agent, or that the latter would be allowed only a certain sum. For the principal, since the contract of agency is not only
fiduciary but also it is for him to enter into juridical acts through his agent,
Rules if no particular formula has been agreed upon on the agent’s it is essential that he has the right to revoke the contract at any time.
compensation On the other hand, the agent can withdraw anytime since he
1. (COMPLIANCE) Principal shall pay the agent’s commission only on enters into a personal obligation by virtue of the contract of agency.
the legal basis that the agent has complied with his obligations with Thus, to compel him to perform his obligations would go against the
the principal; and constitutional prohibition on involuntary servitude.
2. (REASONABLE VALUE) The principal shall be liable to the agent for
the reasonable value of the agent’s services In an agency constituted as ‘irrevocable’ or for a period, may the
principal still revoke the agency?

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Agency, Trusts, Partnerships and Joint Ventures – Dean Cesar L. Villanueva
YES. When he does so revoke, the agency is terminated. But he will be 2. When the principal directly manages the business entrusted to the
liable to the agent for damages including compensation due when the agent
revocation was done in bad faith. o When such acts by the principal would be inconsistent with
the terms of the power of attorney given to the agent
When may the AGENT receive damages (as a consequence of 3. A general power of attorney is revoked by a special one granted to
revocation)? another agent/ A special power of attorney revokes a general power
Good Faith No damages of attorney given to a different agent over the same subject matter.
Bad Faith (i.e. in order to withhold Damages for abuse of right and for 4. A general power of attorney revokes a special power of attorney
commission) the commission (take note of the given to the same agent over the same subject matter.(Dy Buncio
doctrine of efficient procuring case)
cause)
Where a period was stipulated Damages for abuse of right and What is the exception to the revocability of a contract of agency?
breach of contract Agency coupled with interest

When may the PRINCIPAL receive damages (as a consequence of When is there an agency coupled with interest?
withdrawal)? 1. When a bilateral contract depends upon the agency for its fulfillment
Good Faith Damages – that which were 2. The contract of agency is the means of fulfilling an obligation already
incurred by the principal by reason contracted
thereof 3. A partner is appointed manager of a partnership and the removal
from management is unjustifiable (not relevant)
Exception: When the reason for
the withdrawal is the impossibility NOTE: The bilateral agreement must come first before the agency. In
of continuing the performance of this case, the agency agreement is just a stipulation for the fulfillment of
the agency without grave detriment the bilateral contract. Thus, it is irrevocable because a bilateral contract
to himself cannot be revoked.
Bad Faith (i.e. in order to enter into Damages for breach of duty (duty
a contract in his own name) of loyalty) Can there still be an instance where it can be revoked?
Where a period is stipulated Damages for breach of contract YES, if the bilateral contract is actually that of partnership. It is a
characteristic of partnership that there is mutual agency between the
Rules on express revocation parties. Hence, it can still be revoked. (Sevilla case)
 If the agent fails or refuses to return the power of attorney, the
principal must give notice to the public who may be affected. What is the obligation of the agent even if he withdrew from the
agency for a valid reason?
He must continue to act on behalf of the principal until the latter has had
If the agency is for the purpose of Notice to specified persons
reasonable opportunity to take necessary steps to meet the situation.
contracting with specified persons
If the agent had general powers Notice in a newspaper of general
When shall an agency continue despite the death of principal?
circulation is sufficient.
1. If it has been constituted in the common interest of the principal and of
the agent, or
When is there implied revocation?
2. If in the interest of a third person who has accepted the stipulation his
1. Appointment of new agent for the same business/transaction
favor
o From the day notice was given to former agent

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Agency, Trusts, Partnerships and Joint Ventures – Dean Cesar L. Villanueva
What is the effect of acts done by agent without knowledge of
principal’s death or any other cause which extinguished the What are the 3 ways by which title to the res is transferred to the
agency? trustee?
They shall be valid and effective with respect to third persons who may 1. When only naked title is given to him (express trust)
have contracted with him in good faith. 2. When full title has been registered in his name, but with a clear
undertaking to hold it for the benefit of another person (express trust or
What are the 2 requisites for the previous rule to apply? resulting trust)
1. the agent acted knowledge of the death of the principal 3. When full title to the property has been acquired by a person under
2. the third person who contracted with the agent acted in good faith circumstances that the law or equity imposes upon him the obligation to
convey it to another person who has a better claim to such property
What if the third persons who dealt with the agent knew of the death (constructive trust)
of the principal?
He would not be protected. The contract would be void, not merely What distinguishes a trust from other relations?
enforceable, for lack of the essential element of consent. The separation of the legal title and equitable ownership of the property.
In a trust relation, legal title is vested in the fiduciary while equitable
What is the consequence of the death of the agent? ownership is vested in the cestui que trust.
The heirs must notify the principal. And in the meantime, they must adopt
such measures as the circumstances may demand in the interest of the What are the kinds of trust?
principal. 1. Express trust – created by the intention of the trustor or the parties
– “those which are created by the direct and positive
In an agency where there are several agents for the same business, acts of the parties, by some writing or deed, or will, or by
what is the effect of the death/insanity/insolvency of one or more words either expressly or impliedly evincing an intention
agents but not all of them? to create a trust” (Ramos v. Ramos)
It would not extinguish the agency with respect to those who remain 2. Implied trust – comes into being by operation of law
living. – “those which, without being expressed, are deducible
But, when the agent are intended as having capacity as a group and not from the nature of the transaction as matters of intent, or
individually, the death/insanity/insolvency of one would terminate the which are superinduced on the transaction by operation
agency. of law as matters of equity, independently of the
particular intention of the parties” (Ramos v. Ramos)
a. Resulting trust
b. Constructive trust

TRUSTS What is the difference in legal effect between express trust and
implied trust?
Express trust Implied trust
INTRODUCTION
not susceptible to charges of the cause of action of the
prescription or laches beneficiary may be extinguished by
Nature of trust
prescription or laches.
 Trusts do not create separate juridical entities
 Trust divorces naked title of the trustee from the rest of the trustee’s
express trust over an immovable regardless of the nature of the trust
estate
cannot be enforced by parol property, may always be enforced
 Trust is anchored on splitting or intention to split the naked title and evidence even when constituted orally
beneficial title

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Agency, Trusts, Partnerships and Joint Ventures – Dean Cesar L. Villanueva
If the trust imposes no onerous condition upon the beneficiary, his
acceptance shall be presumed, if there is no proof to the contrary.
What is the common denominator between express and implied
trust? Will lack of acceptance render the trust void?
Both are legal relationships built upon property rights. NO. it is not an essential element of a trust.
The rule is only meant to cover the principle that nobody can be
EXPRESS TRUSTS compelled to accept the charity of another person without his consent.

Who are the parties in a trust relationship? What are the essential elements of an express trust?
1. trustor – person who establishes a trust 1. Trustee – holds the trust property and is subject to equitable duties to
2. trustee – person in whom confidence is reposed as regards the deal with it for another’s benefit
property held in trust; assumes certain duties relating to the trust property 2. Beneficiary – to whom the trustee owns equitable duties to deal with
with respect to the person for whose benefit the trust is created the trust properties
3. beneficiary – person for whose benefit the trust has been created 3. Res – the trust property which the trustee manages for the sake or
(cestui que trust) interest of the beneficiary

Express trust What are the essential characteristics of express trust as a


- a legal relationship based primarily on the parties’ relationship to the contractual relationship?
property that constitutes the corpus or the trust estate, whereby a person 1. nominate and principal
(trustor) conveys the naked or legal title to a property to another person 2. unilateral
(trustee) who takes title thereto under a fiduciary obligation to administer, 3. primarily gratuitous
manage and dispose of the property for the benefit of another person 4. real
(beneficiary) to whom beneficial or equitable title pertains. -perfected when the property constituting the res is delivered to
the trustee
Distinguish express trust from constructive trust 5. preparatory
Express trust Constructive trust -it serves as a medium to allow the trustor to enter into juridical
Fiduciary relation between the No fiduciary relation acts on the corpus to earn income or achieve other goals for the
beneficiary and trustee benefit of the beneficiary
Trustee has active duties of Duty is merely to surrender the 6. fiduciary
management property to the beneficiary
What happens when the designated beneficiary expressly refuses
What are the essential characteristics of an express trust? to accept the benefits of the trust arrangement, and the naked/legal
1. it is a relationship title has already been transferred to the trustee?
2. of fiduciary character Being a preparatory contract, the trust ceases to have objective. But
3. with respect to property, not one involving merely personal duties since the naked/legal title remains with the trustee, his obligations is to
4. involves the existence of equitable duties imposed upon the holder of comply with the instructions of the trustor.
the title to the property to deal with it for the benefit of another
5. arises as a result of a manifestation of intention to create the Are there particular words necessary to create an express trust?
relationship NO. It is sufficient that a trust is clearly intended.(Art.1457)

Is acceptance by the beneficiary necessary? Can an express trust be presumed to exist?


YES

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Agency, Trusts, Partnerships and Joint Ventures – Dean Cesar L. Villanueva
NO. Express trust must be clearly shown to have been intended. The beneficiary
party claiming a right under a trust arrangement must prove the  Full beneficial ownership over  Lessee enjoys narrow
existence thereof by clear, satisfactory and convincing evidence. the trust property is for the possession and use of the
account of the beneficiary property
What is the status of a Deed of Trust duly executed by the trustor  Benefits enjoyed by beneficiary  For a limited contracted period
and trustee and accepted by the beneficiary, before the title to the are usually of a permanent
trust property is placed in the name of the trustee? nature
There is no valid contract of trust, but only a nominate contract of do ut
facia. The trustor has bound himself to deliver and transfer title over the Express Trust Sale
trust property to the trustee, and the trustee bound himself to accept
 Requires delivery of the  Perfected by mere consent
delivery and to manage the properties to be delivered for the interests of
naked/legal title to the trustee
the beneficiary.
 Only takes naked/legal title for  Buyer takes full ownership of
the benefit of another the subject matter for his sole
NOTE: The trustor of a true trust does not assume any obligation; he is
the creator of the trust.  benefit
 Preparatory arrangement  Entered into for its own end
Must an express trust over an immovable be in writing? Why?
YES. An express trust over an immovable may not be proved by parol On being bound to fiduciary duties and obligations
evidence.
Express Trust Agency
What if an express trust over immovable is not in writing?  Fiduciary because trustee  Fiduciary relationship is based
It can still be proven by parol evidence to be a resulting trust. holds title for the benefit of on a personal level – that the
another person – based on agent has been commissioned
property relationship to represent the principal in
Distinguishing express trusts from similar arrangements dealing with 3rd parties
 bound by duty of loyalty and  Bound by duties of obedience,
Splitting of full dominion into naked/legal title and diligence, but not obedience diligence, loyalty
beneficial/equitable title  Transacts with 3rd parties in his  He acts on behalf of principal
Express Trust Usufruct own behalf, not in the name of in dealing with 3rd parties
 Trustee (naked title holder)  Usufructuary is obliged to the beneficiary
actively manages and preserve and take care of the  Trustee is given naked/legal  Agent does not have any title
administers the trust property property for the benefit of the title to the property held in trust to the property placed in his
naked title holder at the end of custody
the usufruct  Revocable at will  Not revocable at will, only
 Beneficiary passively receives  Usufructuary enjoys the fruits based on breach of duty of
the fruits and benefits from the and benefits of the property of loyalty or diligence
trust property; not the trustee another (naked title holder)

Express Trust Lease What are the different kinds of express trusts?
 As naked/legal title holder,  Lessor retains not only naked
trustee manages the trust title to the property leased, but 1. Contractual Trusts
property for the benefit of other beneficial titles

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Agency, Trusts, Partnerships and Joint Ventures – Dean Cesar L. Villanueva
a. trustor conveys the naked title to trustee for the benefit of The trust does not fail, but a new trustee will be appointed by the court or
another person, beneficiary (3 parties) by the terms of the trust.
b. trustor conveys the naked title to a trustee, with the trustor
himself as beneficiary (trustor = beneficiary) In what instance will the trust fail in case the trustee resigns, dies,
c. trustor conveys title to himself as trustee for the benefit of a etc.?
beneficiary (trustor = trustee) If the trustor intended the trust to continue only so long as the person
designated by him as trustee should continue as such
2. Inter vivos Trust
o Express trust pursued in the form of donations, which What are the rights and obligations of the trustee?
therefore must comply with the solemnities under the Law on 1. contractually stated duties and obligations
Donations 2. common law duties
-use diligence of a good father of a family
3. Testamentary Trust -be personally liable for gross negligence
o Express trust created under the terms of the last will and -be loyal to the interests of beneficiary
testament of the testator and must comply with the 3. prohibited from donating trust property
formations under the Law on Succession 4. cannot use funds of the trust to acquire property for himself
5. duties and responsibilities of trustees under the Rules of Court
4. Eleemosynary or Charitable Trust 6. proper proceedings for sale or encumbrance of trust estate
o Example: stated in a notarial will, income from properties 7. trustee does not assume generally personal liability on the trust
were to answer for the education of deserving but needy -the liabilities assumed by the trustee is such that can only be
honor students enforced to the extent of the trust properties
-but when he acts with fraud or gross negligence, he becomes
5. Publicly-regulated Trust personally liable
o Those where the State provides the vehicle by which 8. trustee is entitled to compensation for management of the trust estate
institutions are allowed to administer large funds for the 9. removal or resignation of trustee
benefit of the public
o Ex. Pension/benefit funds administered by GSIS, SSS,
Pagibig 3. Beneficiary
o Passive recipient of benefits flowing from the trust
Capacity, obligations, rights of the parties to express trust o Since a person cannot be compelled to accept the
generosity of another, acceptance by the beneficiary is
1. Trustor necessary
o Must have legal capacity to create the trust – to convey o Need not have legal capacity
naked/legal title in the trust property to the trustee
Extinguishment of Express Trust
2. Trustee 1. Destruction of the corpus
o Party primarily bound; duties of diligence and loyalty 2. Revocation by the trustor
o Must have legal capacity to accept the trust a. Rule: unless there is reserved power to revoke, an
express trust is irrevocable without the consent of the
What happens when the trustee declines the designation, or when a beneficiary
trust has been created and the trustee dies, becomes 3. Achievement of the objective or happening of the condition,
insane/incapacitated? provided for in the trust instrument

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Agency, Trusts, Partnerships and Joint Ventures – Dean Cesar L. Villanueva
4. Death or legal incapacity of trustee of their transaction, but not expressed in the deed or instrument of
a. Only when the trust is personal to the trustee in the conveyance.
sense that the trustor intended no other person to
administer it Burden of proof in resulting trusts
5. Confusion or merger of legal title and beneficial title in the same The cestui que trust need only prove the facts that constitute the covered
person transaction and the legal presumption that there exists a resulting trust
6. Breach of trust would arise from the very nature of the transaction; thereafter, the burden
of proof would be on the part of the purported trustee to show that no
IMPLIED TRUSTS such trust relationship was intended.

What is the foundation of implied trust? Rules of prescriptibility of resulting trust


EQUITY Same as an express trust. Imprescriptible until validly repudiated by the
trustee.
2 types of implied trusts
1. Resulting trust What is a constructive trust?
2. Constructive trust Trust which is imposed by law and there is neither promise nor fiduciary
relations; the so-called trustee does not recognize any trust and has no
Distinguish implied trust from express trust intent to hold the property for the beneficiary.
Express trust Implied trust A trust not created by any words, either expressly or impliedly evincing a
1. Proceeds from a clear or direct 1. No such intention is apparent, direct intention to create a trust, but the construction of equity to satisfy
contractual intention to dispose but merely presumed by law the demands of justice. It does not arise by agreement or intention, but
of trust property to a trustee for from the nature of the by operation of law.
the benefit of the beneficiary transactions
2. Creatures of the parties’ 2. Implied by law from the implied Distinguish constructive trust from resulting trust
express intent usually intentions of the parties as Constructive Trust Resulting Trust
manifested by devolving naked derived from the nature of their 1. Created by the construction of 1. Based on the equitable
title to the trustee of the res transactions equity in order to satisfy the doctrine that valuable
demands of justice and consideration and not legal title
Evidence required in proving implied trust prevent unjust enrichment. determines the equitable title
Oral evidence. The proof should be as fully convincing as if the acts or interest and are presumed
giving rise to the trust obligation are proven by an authentic document. always to have been
Since the burden of proof lies in the one alleging that there is a trust, he contemplated by the parties.
must satisfactorily show the existence of the implied trust and its 2. Arise contrary to intention 2. Arise from the nature of
elements, that is, the nature or circumstances of the transaction for against one who, by fraud, circumstances of the
resulting trust and the mistake or fraud for constructive trust. If the duress or abuse of confidence, consideration involved in the
elements are satisfactorily established, the burden shifts to the one obtains or holds the legal right transaction whereby one
claiming that no trust relationship exists. to property which he ought not, person thereby becomes
in equity and good conscience, invested with legal title but is
What is a resulting trust? to hold. obliged in equity to hold his
Trust raised by implication of law and presumed always to have been legal title for the benefit of
contemplated by the parties, the intention as to which is to be the nature another.
3. Superinduced by operation of 3. Deductible from the nature of

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Agency, Trusts, Partnerships and Joint Ventures – Dean Cesar L. Villanueva
law as matters of equity the transactions as matters of 8. When the trust fund used to purchase property which is registered in
intent trustee’s name
4. De jure 4. De facto
5. No fiduciary relationship is 5. A fiduciary relationship is Only kind of constructive trust in the Civil Code
created created When property is acquired through mistake or fraud

Distinguish Constructive Trust and Quasi-contracts of Solutio What is the most distinguishing mark between an express trust and
Indebiti a resulting trust?
Constructive Trust Solutio Indebiti In an express trust, the parties bound by the trust are formally constituted
1. Enforceable by a proceeding in 1. Gives rise to a personal liability with naked or legal title placed in the trustee and beneficial title pertains
equity to compel the defendant ordinarily enforceable by an tot the beneficiary.
to surrender specific property action of law In a resulting trust, full title, not just naked or legal title, is placed in the
2. Prescription period of 10 years 2. Prescription period of 6 years name of a person who is not referred formally as a “trustee” nor is the
person who paid for the purchase price referred to formally as a
Why are constructive trust and solution indebiti similar? “beneficiary.”
1. Both embody the principle of equity above strict legalism
2. A relationship is “forced” by operation of law upon the parties, not Rule when title is placed in the name of a child
because of any intention on their part but in order to prevent unjust It cannot be presumed that a parent placing property he bought in the
enrichment, thus giving rise to certain obligations not within the name of the child intended any form of trust, since it cannot be normally
contemplation by the parties expected that a child would administer property for the benefit of the
parents.
When can the principles established by the general law on trust be It is disputably presumed that there is a gift/donation in favor of the child.
included as cases of implied trust?
When those principles are not in conflict with the Civil Code, the Code of Rule when the child supplies the purchase price
Commerce, the Rules of Court and special laws. That the purchase price was furnished by way of loan and did not
transfer to the child any interest in the property.
The presumption of resulting trust arises from what truism?
That one who pays for something usually does so for his own benefit. Is there a resulting trust when the purchase price is extended as a
loan?
What are the kinds of resulting trust mentioned in the Civil Code? NO. There is a lack of intention on the part of the person supplying the
1. Purchase of property where title placed in one person, but price paid money to have beneficial interest in the property bought.
by another person
2. Purchase of property where title is placed in the name of person who Is there a resulting trust when the purchase is made in violation of
loaned the purchase price to secure the payment of a debt an existing statute?
3. When absolute conveyance of property was effected as a means to NO. Since implied trusts are essentially founded on equity principles, no
secure the performance of an obligation trust can be valid when it is violative of the law, morals or public policy.
4. Two or more persons purchase property jointly, but placed title in one
of them Why is Art. 1450 (purchase of property where title is placed in the
5. Property conveyed to a person merely as holder thereof name of the person who loaned the purchase price to secure the
6. Donation of property to a done who shall have no beneficial title payment of the debt) akin to an equitable mortgage?
7. Land passes by succession but the heir places title in the name of Since title to the property intended for the borrower is placed in the name
another of the lender to secure the payment of the debt.

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Agency, Trusts, Partnerships and Joint Ventures – Dean Cesar L. Villanueva
2. An action to compel a trustee to convey property registered in his
Distinguish Art. 1450 from an equitable mortgage name in trust for the benefit of the cestui que trust does not
Art. 1450 Equitable mortgage prescribe.
Constituted by the sale of a third Constituted between the purported 3. The defense of prescription cannot be set up in an action to recover
party of his property to a purported seller (borrower-mortgagor) and property held by a person in trust for the benefit of another.
buyer (lender-mortgagee) who buyer (lender-mortgagee) in the 4. The property held in trust can be recovered by the beneficiary
takes title to secure the loan or contract of sale with a right to regardless of the lapse of time.
advance made to the cestui que repurchase, where the purpose of
trust, who is a stranger to the the sale is really to secure a Does mere possession of one co-owner constitute a repudiation of
contract of sale principal obligation the co-ownership?
NO. Possession by any co-owner is consistent with the co-ownership
What is a fideicommissary substitution? interest of other co-owners.
Where a testator designates a person as an heir charging him to deliver
to another person the whole or part of the inheritance. May a trustee repudiate an express trust by the fact that a Torrens
title was issued in his name?
Principles for constructive trust NO. A trustee who obtains a Torrens title over property held in trust by
1. Public policy demands that a person of fraud or at least, of breach of him for another cannot repudiate the trust by relying on the registration.
trust, should not be allowed to use a Torrens title as a shield against
the consequence of his own wrongdoing. Instances where prescription in implied trust cannot arise in favor
2. Registration of property by one person in his name, whether by of a trustee
mistake or fraud, the real owner being another person, impresses 1. When the cestui que trust is a minor, since he is not in a position to
upon the title so acquired the character of a constructive trust for the defend himself
real owner, which would justify an action for reconveyance 2. When the trustee still acknowledges the rights of the cestui que trust
3. When there is close-filial relationship between the trustee and the
PRESCRIPTION RULES FOR TRUSTS cestui que trust (i.e. brother and sister)

General Rule: Express trust is not susceptible to acquisitive prescription What is the prescriptive period for implied trusts?
Exception: Where there is valid repudiation 10 years

Requisites for repudiation to be effective Rules of prescription and laches when it comes to implied trusts
1. The trustee must perform unequivocal acts of repudiation amounting (laid down in Ramos v. Ramos)
to an ouster of the cestui que trust 1. Rule of imprescriptibility of the action to recover property held in trust
2. Such positive acts of repudiation have been made known to the may possibly apply to resulting trusts as long as the trustee has not
cestui que trust repudiated the trust
3. The evidence thereon is clear and convincing 2. Rule of imprescriptibility was misapplied to constructive trust
3. With respect to constructive trusts, the rule is different. The
Prevailing rules against prescription when it comes to express prescriptibility of an action for reconveyance based on constructive
trusts trust is now settled (it prescribes in 10 years)
1. A trustee cannot acquire by prescription the ownership of property 4. Prescription may supervene in an implied trust
entrusted to him. 5. Whether the trust is resulting or constructive, its enforcement may be
barred by laches.

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Agency, Trusts, Partnerships and Joint Ventures – Dean Cesar L. Villanueva
When does the 10-year prescriptive period begin to run in implied
trusts?
 Registration of title for registered land with the appropriate Register
of Deeds
 Actual date of discovery when the implied trust is founded on fraud

Effect when registration in the name of the trustee was an integral


part of the trust agreement
It is not an act of repudiation and the cestui que trust could not be
expected to demand transfer of title in his name.

Effect when the cestui que trust is in possession of the res


Action brought is really that of quieting of title. Thus, it is imprescriptible.

Rule on close-filial relationship between trustee and the cestui que


trust
It cannot be barred by laches and prescription. The fact that the parties
are near relatives, such as brother and sister, tends to explain and
excuse what would otherwise appear as long delay.

When does the prescriptive period run when land is unregistered?


It does not run. Without an OCT, the date from when the prescription
period could be reckoned is unknown and it could not be determined if
indeed the period had already lapsed or not.

May prescription run when the registration covers a void title?


NO. Implied trust doctrines apply only when title of the purported trustee
is valid.

When does prescription begin for resulting trust?


Prescription begins to run after an express repudiation of the trust by the
purported trustee (See Requisites for repudiation to be effective)

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Agency, Trusts, Partnerships and Joint Ventures – Dean Cesar L. Villanueva