1. TEODORO DE LOS REYES, vs.

VICENTE LUKBAN and ESPERIDION

BORJA
G.R. No. 10695, December 15, 1916

Element Description

Doctrine Liability of General Partners (Code of Commerce). Under the Code of

Commerce (the law applicable at the time), the partners of a general
co-partnership (similar to a general partnership) are personally and severally
(solidarily) liable with all their property for the results of the transactions made
in the name of the partnership.

Facts Teodoro de los Reyes sued Lukban and Borja to recover an unpaid balance of
$\text{P853}$ owed by their dissolved partnership, "Lukban & Borja," for
merchandise purchased on credit. Lukban claimed he was only an industrial
partner and not personally liable, while Borja had already made a partial
payment.

Issue Are the partners of the dissolved general partnership individually liable for the
partnership's debt to the creditor?

Ruling YES. The Supreme Court ruled that the partners were personally and
severally liable for the partnership's debt. The debt of the partnership, being
insolvent, translated into a personal obligation of the partners, giving the
creditor the right to collect individually from them.

2. HEIRS OF TAN ENG KEE vs. COURT OF APPEALS and BENGUET

LUMBER COMPANY
G.R. No. 126881, October 3, 2000

Element Description
Doctrine Requisites of Partnership; Evidence of Intent. To establish a partnership,
the two essential requisites must be proven: (1) mutual contribution to a
common fund (money, property, or industry), and (2) intent ($\textit{animus
societas}$) to divide the profits as principals. Mere profit sharing is not
conclusive evidence of a partnership.

Facts After World War II, brothers Tan Eng Kee and Tan Eng Lay operated "Benguet
Lumber." After Kee's death, his heirs claimed he was a partner and sought
accounting and liquidation. Lay claimed Kee was merely an employee, as
evidenced by payrolls and Kee's failure to demand an accounting for over 40
years.

Issue Did a partnership exist between Tan Eng Kee and Tan Eng Lay in the operation
of Benguet Lumber?

Ruling NO. The Supreme Court ruled that Kee was only an employee. The absence
of a contract of partnership, the lack of evidence of contribution to a
common fund, and the fact that Kee never demanded an accounting during
his lifetime were inconsistent with the behavior of a partner. His alleged sharing
in profits was deemed mere compensation for services.

3. MAURICIO AGAD, vs. SEVERINO MABATO

G.R. No. L-24193, June 28, 1968

Element Description

Doctrine Applicability of Formal Requirements (Immovable Property). Article 1773

of the Civil Code, which requires a public instrument and an attached inventory
when immovable property is contributed to a partnership, does not apply if
the partnership is formed merely to operate a piece of real property (like a
fishpond) but not to contribute the ownership or real rights over the
property as capital.
Facts Agad and Mabato entered into a partnership through a public instrument to
operate a fishpond, with each contributing $\text{P1,000}$ in cash as capital.
Agad sued for his share of the profits. Mabato sought dismissal, arguing the
partnership was void under Article 1773 because no inventory of the fishpond
(immovable property) was attached to the public instrument.

Issue Was the partnership void under Article 1773 for failure to attach an inventory of
the fishpond?

Ruling NO. Article 1773 was not applicable. The Court clarified that the fishpond
itself was not contributed as capital; the capital consisted only of the
$\text{P1,000}$ cash contributions. The operation of the fishpond was the
purpose of the partnership, not its contribution. Thus, the partnership was
validly constituted.

4. LIM TONG LIM, v. PHILIPPINE FISHING GEAR INDUSTRIES, INC.

G.R. No. 136448, November 3, 1999

Element Description

Doctrine De Facto Partnership and Partnership by Estoppel. A de facto

partnership (or joint venture) is created when individuals contribute capital
and industry to a common fund for the purpose of profit, even without formal
registration. A person who represents himself as a partner to a third party is
liable as a partner under Partnership by Estoppel (Article 1825).

Facts Lim Tong Lim, Peter Yao, and Antonio Chua agreed to operate a commercial
fishing business, contributing to a fund used to purchase a boat and fishing
gear from Philippine Fishing Gear Industries, Inc. (PFGI). Lim denied he was a
partner, claiming he was merely a lessor of the boat. PFGI sued for the unpaid
nets.
Issue Is Lim Tong Lim liable for the partnership debt to PFGI?

Ruling YES. The Supreme Court held Lim liable. The sharing of profits and losses in
the joint fishing venture established a de facto partnership. Furthermore,
Lim's involvement in the purchase and subsequent use of the equipment,
allowing himself to be publicly perceived as part of the venture, made him
liable to PFGI as a partner by estoppel.

5. JOSE P. OBILLOS, JR., vs. COMMISSIONER OF INTERNAL REVENUE

G.R. No. L-68118, October 29, 1985

Element Description

Doctrine Co-Ownership vs. Unregistered Partnership (Isolated Transaction).

Co-owners who share income derived from the isolated transaction of selling
properties originally intended for personal use do not constitute an
unregistered partnership or association taxable as a corporation.

Facts Four siblings inherited or acquired two parcels of land from their father, initially
intending to build residences. They later resold the lots in two isolated
transactions after holding them for more than a year and divided the profits.
The CIR assessed them corporate income tax, claiming they formed an
unregistered partnership.

Issue Did the siblings' purchase and resale of the two lots constitute an unregistered
partnership or joint venture for tax purposes?

Ruling NO. The Court ruled that they were mere co-owners. Their purpose was not
to engage in real estate business for profit but to dispose of their inherited and
acquired property in an isolated transaction. Since there was no evidence of a
clear intention to form a commercial partnership (a single profit-making
venture), they were not taxable as a corporation.
6. MARIANO P. PASCUAL and RENATO P. DRAGON, vs. THE
COMMISSIONER OF INTERNAL REVENUE
G.R. No. 78133, October 18, 1988

Element Description

Doctrine Co-Ownership vs. Partnership (Multiple Transactions). Co-ownership with

profit sharing does not automatically create a taxable partnership. The sharing
of returns from property owned in common must be accompanied by evidence
of an agreement to contribute capital/industry to a common fund with the
intent to engage in sustained profit-making activities that amount to a series of
transactions.

Facts Pascual and Dragon purchased two parcels of land in 1965 and three more in
1966. They subsequently sold the first two parcels in 1968 and the remaining
three in 1970, realizing a profit. The CIR assessed them deficiency corporate
income tax, treating their co-ownership as an unregistered partnership.

Issue Did the co-ownership and sale of five parcels of land over a five-year period
constitute an unregistered partnership for tax purposes?

Ruling NO. Similar to the Obillos case, the Court found no evidence of an agreement
to create a common fund or any intent to engage in the real estate business.
The fact that the transactions were spread over a number of years and
involved a few parcels of land did not automatically convert the co-ownership
into a commercial partnership. They remained co-owners.

7. AURELIO K. LITONJUA, JR., vs. EDUARDO K. LITONJUA, SR.

G.R. Nos. 166299-300, December 13, 2005

Element Description
 Doctrine Formal Requirements for Partnership (Immovable Property). A contract of
partnership is void if immovable property is contributed thereto, and no
inventory of said property is made, signed by the parties, and attached to the
public instrument (Articles 1771-1773).

Facts Aurelio claimed his brother, Eduardo, promised him 10% equity in all family
businesses in exchange for his industry, constituting a partnership or joint
venture. The partnership allegedly involved immovable property (real estate).
Aurelio only presented a private, unnotarized memorandum, which did not
include an inventory of the real property allegedly contributed.

Issue Was a valid partnership created between the brothers, given the failure to
comply with the formal requirements of the Civil Code?

Ruling NO. The Supreme Court ruled the alleged partnership was legally inexistent
and void. Since the purported partnership involved the contribution of
immovable property, the failure to execute a public instrument and attach a
signed inventory of the property, as required by Articles 1771 and 1773,
rendered the contract void.

8. GREGORIO F. ORTEGA, vs. HON. COURT OF APPEALS

G.R. No. 109248, July 3, 1995

Element Description

Doctrine Partnership At Will; Dissolution. A partnership that does not fix its term or is
not formed for a particular undertaking is a Partnership at Will (Article 1785).
Such a partnership may be dissolved by the express will of any partner at
any time, even without cause, provided the withdrawal is done in good faith
(Article 1830).
 Facts Atty. Joaquin L. Misa withdrew from the law firm "Bito, Misa & Lozada" (a
partnership which had no fixed term of existence). The remaining partners
sued, arguing that Misa's withdrawal did not dissolve the firm. The partnership
agreement only stated that it "shall continue so long as mutually satisfactory."

Issue Did the withdrawal of one partner dissolve the law firm, which had no fixed
term, and was therefore a partnership at will?

Ruling YES. The Court held that the law firm was a Partnership at Will because it
had no specified term or particular undertaking. Consequently, the dissolution
was validly caused by the express will of any partner (Misa's withdrawal).
Dissolution is the change in the relation of the partners, not the winding up,
and any partner may dictate it at will.

9. ELIGIO ESTANISLAO, JR., vs. THE HONORABLE COURT OF APPEALS

G.R. No. L-49982, April 27, 1988

Element Description

Doctrine Partnership by Conduct; Joint Undertaking. A partnership may be formed

when co-owners of property agree to pool their resources, including capital
derived from advance rentals, to establish and operate a business (a joint
undertaking) with the clear intent to divide the profits.

Facts Co-owners of two lots, the Estanislaos and Santiagos, executed a Joint
Affidavit agreeing to open and operate a gasoline station on the leased lots.
They used $\text{P15,000}$ from the advance rentals as initial capital. Eligio
Estanislao, Jr., managed the station but later refused to render accounts,
claiming no partnership existed.

Issue Did the co-owners' agreement and subsequent conduct in operating the gas
station constitute a partnership?
Ruling YES. The Court ruled that a valid partnership was created. The contribution
of capital (from advance rentals) and the agreement to jointly operate the
station for profit showed the clear intent ($\textit{animus societas}$) to create
a partnership beyond mere co-ownership. Eligio Estanislao, Jr. was therefore
obligated to render a formal accounting.

10. ELMO MUÑASQUE, vs. COURT OF APPEALS

G.R. No. L-39780, November 11, 1985

Element Description

Doctrine Partnership Liability; Nature of Liability to Third Parties. Partners are liable
to third parties for all debts and obligations of the partnership. While a
partnership's liability is subsidiary (partnership assets must be exhausted
first), the liability of the partners themselves to creditors is joint (pro-rata), not
solidary, unless the obligation arises from a wrongful act (tort/misapplication of
funds).

Facts Munasque and Celestino Galan formed an unregistered partnership for a

construction project with Tropical Commercial Co., Inc. Tropical made
payments to Galan, who later allegedly misappropriated the funds. Material
suppliers sued the partnership, Munasque, and Galan. The trial court initially
ordered Munasque and Galan to pay "jointly and severally."

Issue What is the nature of the partners' liability to third-party creditors (suppliers) for
the partnership's contractual obligations?

Ruling The Supreme Court ruled that the liability of the partners for a contractual debt
is JOINT (pro-rata), not solidary. The Court modified the lower court's ruling,
holding Munasque and Galan jointly liable to the suppliers, meaning each was
liable only for his proportionate share of the debt, after the partnership assets
were exhausted. (Galan, as the erring partner, was liable to Munasque for
reimbursement).
11. ALVIN PATRIMONIO vs. NAPOLEON GUTIERREZ
G.R. No. 187769, June 4, 2014

Element Description

Doctrine Special Power of Attorney (SPA) for Borrowing; Authority to Fill Blank
Checks (Negotiable Instruments Law). An agent needs an SPA to bind the
principal in a contract of loan. When blank checks are entrusted to an agent,
the completion thereof must be within the strict limits of the authority conferred.

Facts Patrimonio (a professional basketball player) and Gutierrez (his former

business manager/partner) decided to withdraw from their partnership.
Patrimonio pre-signed 11 blank checks and entrusted them to Gutierrez,
instructing him not to fill them out without Patrimonio's prior approval.
Gutierrez, claiming the money was for Patrimonio's house, obtained a
$\text{P200,000}$ loan from Marasigan and delivered one of the pre-signed
checks to him. Patrimonio claimed the check was invalid because Gutierrez
had no authority to borrow money or to fill out the check.

Issue Is Patrimonio liable on the loan and the check issued by Gutierrez without his
express authority?

Ruling NO. Patrimonio is not liable. Under Article 1878(7) of the Civil Code, an agent
needs an SPA to loan or borrow money on behalf of the principal. Gutierrez
had no such authority. The loan was void as to Patrimonio. Furthermore, while
the Negotiable Instruments Law allows a check delivered in blank to be
completed, the completion must be made strictly in accordance with the
authority given. Since Gutierrez exceeded his authority by using the check for
an unauthorized loan, Patrimonio is not liable to Marasigan.

12. JOCELYN B. DOLES vs. MA. AURA TINA ANGELES

G.R. No. 14935, June 26, 2006
Element Description

Doctrine Privity of Contract; Agent as Real Party in Interest. An agent who contracts
in the name of a disclosed principal is not the real party in interest and cannot
be bound by the principal's debts. A contract of sale between two agents to
settle their respective principals' debts is void for lack of consideration.

Facts Angeles (agent of a corporation) owed Doles (agent of another company) a

certain sum. To settle this debt, Angeles executed a Deed of Absolute Sale
selling a parcel of land owned by her principal (the corporation) to Doles,
also acting as an agent for her company. The stated consideration was the
settlement of the debt between the two corporations.

Issue Was the Deed of Absolute Sale valid, considering it was executed by agents
using the debt between their respective principals as consideration?

Ruling NO, the Deed of Sale is void. The contract was void for lack of
consideration. The debt settled belonged to the principals, not the agents
(Doles and Angeles). Since the agents were merely representing disclosed
principals, they were not personally liable for the principals' debts and could
not validly use that debt as consideration for a new contract (the sale of land)
between themselves. The agents were not the real parties in interest to the
debt being extinguished.

1. Effect of Undisclosed Principal

If the principal were undisclosed, the agent (Lizette Angeles) would contract in
her own name, making her personally liable and a real party in interest to
the contract. Since she would be deemed the primary contracting party, she (or
her husband, suing on her behalf) would gain the standing to sue PNR for the
breach of the sales contract.

2. Meaning of Disclosed Principal

 A disclosed principal refers to a situation where the agent clearly informs the
third party (PNR) that they are acting on behalf of a specifically named person
or entity (Romualdez). This clear disclosure establishes privity of contract
directly between the principal and the third party. Consequently, the agent is
dropped from the liability chain and cannot sue or be sued on the contract.

13. FLORENTINO RALLOS, ET AL., vs. TEODORO R. YANGCO

G.R. No. 6906, September 27, 1911

Element Description

Doctrine Termination of Agency; Notice to Former Customers (Apparent

Authority). When a principal revokes an agency, he has a legal duty to notify
all third parties with whom the agent was accustomed to dealing on behalf of
the principal; otherwise, the principal remains liable under the doctrine of
apparent authority.

Facts Yangco was the principal who had advertised his agent (Collantes) and
extended a special invitation to clients (Rallos, et al.) to deal with Collantes.
Yangco subsequently terminated the agency but failed to give any formal
notice of the revocation to his old customers, including Rallos. Collantes
continued to represent Yangco and collected money from Rallos in Yangco's
name after the termination.

Issue Is Yangco (the principal) liable to Rallos for the money collected by the former
agent (Collantes) after the agency was terminated, given that Rallos had no
knowledge of the termination?

Ruling YES. A principal who has dealt with a third person through an agent must give
due and timely notice of the termination of the agency. By failing to give
actual notice to Rallos (an old customer who had previously extended credit to
the principal through the agent), Yangco allowed Collantes to maintain the
 apparent authority to represent him. Consequently, Yangco is bound by the
transaction made by the former agent.

Yes, in the Yangco case, the principal (Yangco) could theoretically recover
damages from the erring former agent (Collantes). The agent's authority
terminated upon revocation, and his subsequent collection of funds from Rallos
was an unauthorized act, breaching his fiduciary duty and subjecting him to
liability for the conversion of those funds. However, the principal's primary
liability to the third party (Rallos) remains due to his failure to provide notice of
revocation.

14. JESUS M. GOZUN vs. JOSE TEOFILO T. MERCADO A.K.A. 'DON PEPITO
MERCADO'
G.R. NO. 167812, December 19, 2006

Element Description

Doctrine Tacit Ratification of Unauthorized Agency; Estoppel. An unauthorized

contract entered into by an agent can be ratified by the principal through
silence, inaction, or acts implying an intention to adopt the obligation, even if
the agent lacked the requisite Special Power of Attorney (SPA).

Facts Gozun supplied campaign materials for Jose T. Mercado's gubernatorial bid.
The orders were placed by Mercado's sister-in-law and later his wife, who did
not possess an SPA. Mercado initially paid $\text{P250,000}$ to Gozun, made
partial payments on the promissory notes issued by his sister-in-law, and used
the materials in his campaign. Later, Mercado refused to pay the remaining
balance, arguing his relatives lacked an SPA to enter into the contracts.

Issue Is Mercado liable for the materials and debts contracted by his relatives on his
behalf, despite their lack of express authority (SPA)?
Ruling YES. Mercado is liable on the ground of tacit ratification. While the contracts
were initially unenforceable due to the lack of an SPA, Mercado's subsequent
acts—making partial payments, failing to repudiate the contract, and accepting
and using the materials—clearly signified his intention to adopt the obligation.
Tacit ratification has the effect of conferring authority on the agent from the
date of the contract's execution.

15. LAUREANO T. ANGELES vs. PHILIPPINE NATIONAL RAILWAYS (PNR)

AND RODOLFO FLORES
G.R. No. 150128, August 31, 2006

Element Description

Doctrine Real Party in Interest (Agency). An agent who acts in the name of a principal
is not the real party in interest in an action arising from the contract. A mere
authorization to withdraw goods does not constitute an assignment of rights.

Facts PNR sold scrap rails to Romualdez. Romualdez subsequently issued an

authority to withdraw the rails to the petitioner's wife, Lizette Angeles. When
Angeles and PNR's foreman (Flores) had a dispute over the withdrawal
process, Angeles' husband sued PNR and Flores for damages and specific
performance. Angeles claimed his wife, as the buyer, had the right to sue. PNR
argued that the plaintiff and his wife were not the real parties in interest.

The dispute in the Laureano T. Angeles vs. PNR case centered on the manner
of the physical withdrawal of the scrap rails purchased from PNR. PNR's
foreman, Rodolfo Flores, reportedly delayed or obstructed the process of
taking the rails from the PNR yard, creating conflict with Lizette Angeles, the
buyer's agent. This obstruction, allegedly due to Flores demanding a specific
method or sequence for the withdrawal, prevented Lizette from completing the
collection as authorized. The dispute over the execution of the withdrawal
led the petitioner to sue PNR for damages and specific performance.
 Issue Was the petitioner, or his wife, the real party in interest with standing to sue
PNR on the contract of sale?

Ruling NO. Lizette Angeles was only a mere agent of the original buyer (Romualdez),
having been given only the authority to withdraw the rails. Since she was only
an agent, she had neither rights nor liabilities against PNR and thus could
not sue. To be the real party in interest, she would have needed an
assignment of rights from Romualdez, transferring ownership of the rails to
her. The petitioner, therefore, had no cause of action.

In the Laureano T. Angeles vs. PNR case, the issue was fundamentally about standing to sue,
which depends on who the real party in interest is.

1. Why He Wanted His Wife to Sue

Laureano Angeles was likely attempting to sue on his wife's behalf (or as her representative)
because the "Authority to Withdraw" was issued directly to his wife, Lizette Angeles.

●​ Marital Context: In the Philippines, property acquired during the marriage is generally
considered conjugal or community property. However, in court, the contracting party
must still be the real party in interest.
●​ Wife's Link to the Contract: Since the original buyer (Romualdez) gave the authority to
Lizette to represent him in the withdrawal of the rails, the initial transaction link was
established with her, not with her husband, Laureano.
●​ The Problem: Laureano could not sue on his own behalf because he was not the agent
authorized by the buyer (Romualdez) and was not a party to the sales contract with
PNR.
●​ The Ruling: The Court found that even Lizette, as a mere agent, could not
sue.Therefore, her husband, who was one step further removed, certainly lacked
standing.

2. Assignment of Rights vs. Agency

Assignment of rights and agency are completely different concepts regarding the transfer of
legal interests:

Feature Assignment of Rights Agency

 Legal Effect Transfers ownership of a right (e.g., Grants authority to the agent to
the right to collect payment or receive act on behalf of the principal and
goods) from the assignor to the bind the principal to a contract with
assignee. a third party.

Relationship The assignee becomes the new The agent remains separate; the
owner/creditor and steps into the principal is the owner/debtor and
shoes of the assignor. is the real party in interest.

Control The assignor loses control over the The principal retains control and
assigned right. can revoke the authority (agency) at
any time.

In the Angeles case, if Romualdez had issued a Deed of Assignment (transferring ownership
of the scrap rails to Lizette), she would have become the buyer and the real party in interest,
giving her standing to sue PNR. Since he only issued an Authority to Withdraw (an act of
agency), she gained no ownership rights and, thus, no standing.

3. When Agents Can Sue

As a general rule, an agent cannot sue in their own name on a contract entered into on behalf
of a disclosed principal because they are not the real party in interest.

However, an agent can sue under the following limited circumstances:

1.​ Undisclosed Principal: If the agent contracts in their own name without disclosing the
principal, the agent is personally bound by the contract and becomes the real party in
interest.
2.​ Assignment of Rights: If the principal assigns their rights under the contract to the
agent, the agent becomes the new owner of the contractual rights.
3.​ Breach of Agent's Own Rights: When the action involves a direct injury to the agent's
rights, such as their right to commission or damages caused by the third party interfering
with the agency relationship.
4.​ Authorized Subrogation: When the contract with the third party or the agreement with
the principal specifically grants the agent the right to sue in their own name
(subrogation).
16. V-GENT, INC. vs. MORNING STAR TRAVEL AND TOURS, INC.
G.R. No. 186305, July 22, 2015

Element Description

Doctrine Mutual Agency; Presumption of Authority (Usual Course of Business). An

act of a partner that is apparently for carrying on in the usual way the
business of the partnership binds the partnership, unless the person with
whom the partner is dealing has knowledge of the partner's lack of authority.

Facts V-Gent, Inc. (VGI), a corporation, and two individuals (Magdalena Dizon and
Susan Pe) formed a joint venture to engage in the business of transporting
passengers. Dizon, acting as VGI's representative and in the usual course of
the joint venture business, borrowed money from Morning Star Travel and
Tours, Inc. (MSTTI) and issued a check under VGI's account as payment. VGI
later claimed Dizon had no authority to contract the loan.

Issue Is V-Gent, Inc., as a partner in the joint venture, liable for the loan contracted
by its co-partner/representative (Dizon) with a third party (MSTTI)?

Ruling YES. V-Gent, Inc. is liable. The Supreme Court found that the joint venture was
akin to a general partnership. Dizon's act of borrowing money and issuing a
check was apparently for carrying on the business in the usual way
(transport services often require quick capital). Since there was no evidence
that MSTTI had knowledge that Dizon lacked authority, VGI is bound by the
transaction under the principle of mutual agency (Article 1818).

That's an insightful question that hits a key distinction between Agency (governed by SPA
rules) and Partnership/Joint Venture (governed by Mutual Agency rules).

In the V-GENT case, the rule regarding the Special Power of Attorney (SPA) for loans did not
strictly apply because the transaction was viewed within the context of the joint venture,
which the Supreme Court treated as a general partnership.

Here's why the rule was different:

 🤝
1. The General Partnership/Joint Venture Rule (Article
1818)
The governing doctrine was Mutual Agency, found in Article 1818 of the Civil Code:

●​ Mutual Agency: Every partner is an agent of the partnership, and the act of a partner
for "apparently carrying on in the usual way the business of the partnership" binds
the firm.
●​ Presumption of Authority: When a partnership (like the joint venture in this case)
engages in commerce, acts like borrowing money are often considered necessary and
within the usual course of business. Therefore, the law presumes the partner has the
authority to bind the firm.
●​ The Burden: The burden of proving the lack of authority falls on the partnership, and the
third party (Morning Star) must have knowledge of that lack of authority for the act not to
bind the firm. Since MSTTI had no knowledge of Dizon's internal restrictions, V-Gent was
bound.

2. The Agency/SPA Rule (Article 1878) 📝

The requirement for a Special Power of Attorney (SPA) for loans is found in Article
1878(7).This rule applies to a strict Principal-Agent relationship, such as the one in the
Patrimonio case (Case 11).

●​ Strict Construction: In a regular agency, the law requires an SPA for acts of strict
dominion (like borrowing money, selling immovable property) because the law protects
the individual principal from being personally burdened by an agent's unauthorized,
non-administrative acts.

3. Reconciliation: Partnership vs. Agency

Feature V-GENT Case (Partnership/Joint PATRIMONIO Case (Pure
Venture) Agency)

Relationship Partners (Mutual Agents). Principal-Agent.

 Governing Law Article 1818 (Mutual Agency). Article 1878(7) (SPA
requirement).

Authority Apparent Authority (Does the act seem Express Authority (Must be
Standard usual for the business?). written and specific).

Liability The partnership entity is liable because The individual principal is not
the act was apparently usual for a liable because no SPA was
transportation business. issued for the loan.

The borrowing act by Dizon in V-GENT was considered an ordinary act of administration for a
commercial enterprise, which is covered by the broad mutual agency of partnership law, not the
restrictive SPA rule for individual principals.

17. PRIMITIVO SIASAT and MARCELINO SIASAT vs. INTERMEDIATE

APPELLATE COURT and TERESITA NACIANCENO
G.R. No. L-67889, October 10, 1985

Element Description

Doctrine Partnership vs. Agency; Receipt of Commission as Compensation. The

sharing of profits (or receipt of a commission) does not automatically create a
partnership. It must be shown that the parties intended to establish a common
fund and share profits as principals.

Facts Teresita Nacianceno was an employee of the Siasats (who operated a tailoring
shop) who was paid a commission for every uniform she sold. When a large
government order procured by Nacianceno was cancelled, the Siasats claimed
their agreement with Nacianceno was a partnership, making her liable for the
loss. Nacianceno insisted she was only an agent or employee.
Issue Was the relationship between the Siasats and Nacianceno one of partnership,
making her liable for the loss of the contract?

Ruling NO. The relationship was not a partnership but merely one of
employer-employee or agency. Nacianceno’s receipt of a commission for
every sale was merely a method of compensation for her services, not a
share of profits as a partner. Under Article 1769(4)(b), receipt of profits (or a
share thereof) as wages of an employee does not make the recipient a
partner.

The relationship in the Siasat vs. Nacianceno case was determined to be Agency (or
employer-employee) rather than a Partnership.

Partnership vs. Agency in Siasat Case ⚖️

The Supreme Court distinguished the two relationships based on the fundamental legal
requirements of a partnership:

Feature Partnership Agency/Employment Siasat Case Finding

Intention Parties intend to The agent/employee acts There was no clear

(Animus carry on the on behalf of another (the intent to form a
Societatis) business as principal/employer). partnership;
co-principals and Nacianceno was
be co-owners of primarily an
the venture. agent/sales
representative.

Contribution Contribution of Contribution is only service Nacianceno contributed

money, property, for which payment is due. service (sales), not
or industry to a capital to a common
common fund fund.
(Art. 1767).
 Sharing of Sharing of profits Sharing of profits as Nacianceno's
Profits as a principal and compensation (wages, commission was
co-owner. commission, or interest on a deemed a mere
loan). method of
compensation for her
services.

Why the Relationship Was Agency (or Employment)

The relationship was ruled to be agency because it failed the legal tests for establishing a
partnership, specifically under Article 1769(4)(b) of the Civil Code:

1.​ Compensation, Not Co-Ownership: Nacianceno was paid a commission for every
uniform she sold. The law explicitly states that the receipt of a share of the profits as
wages of an employee does not make the recipient a partner. Her share was merely
a measure of her compensation for labor, not a reflection of her status as an owner.
2.​ Lack of Common Fund: There was no evidence that Nacianceno contributed any
money or property to a common fund or intended to be co-owner of the tailoring
business itself.
3.​ Nature of Liability: If she were a partner, she would share the liability for the loss of the
contract. Since she was determined to be an agent/employee, she was not liable for
the business losses, reinforcing the finding that her role was one of service, not
ownership.

18. FRANCISCO A. VELOSO vs. COURT OF APPEALS and AGLALOMA B.

ESCARIO
G.R. No. 102737, August 21, 1996

Element Description

Doctrine Special Power of Attorney (SPA) for Sale or Mortgage. A power of attorney
to sell or mortgage immovable property must be express and conferred in a
Special Power of Attorney (SPA). A general power of administration is
insufficient for acts of strict dominion.
Facts Aglaloma Escario executed a General Power of Attorney (GPA) in favor of
her brother, acting as her representative to administer her property. Her
brother, without specific authority, mortgaged Escario’s property to Francisco
Veloso. Veloso later foreclosed on the property when the loan was unpaid.
Escario sued to annul the mortgage.

Issue Did the General Power of Attorney grant the brother sufficient authority to
mortgage Escario's immovable property?

Ruling NO. Under Article 1878(6) of the Civil Code, a contract creating a mortgage
(an act of strict dominion) requires an SPA. A GPA, which authorizes only acts
of administration, does not suffice. Since the brother was not expressly
authorized to mortgage the property, the mortgage contract was
unenforceable against Escario, even though it was duly registered.

19. KUE CUISON vs. THE COURT OF APPEALS and VALIANT INVESTMENT
ASSOCIATES
G.R. No. 88539, October 26, 1993

Element Description

Doctrine Limited Partner's Contribution; Promissory Note as Contribution. The

contribution of a Limited Partner must be money or property; mere services
(industry) are prohibited. A promissory note may be considered property
contributed to the partnership, but the partner remains liable for the promised
amount.

Facts Kue Cuison was a limited partner in Valiant Investment Associates, having
contributed only $\text{P20,000}$ in cash and the balance of his
$\text{P110,000}$ contribution in the form of a promissory note. The
partnership sued Cuison to pay the amount covered by his promissory note.
Cuison argued he was a limited partner and not liable to the firm beyond his
actual cash contribution.
Issue Can the partnership compel a limited partner to pay the amount covered by his
promissory note, which was intended to complete his capital contribution?

Ruling YES. A limited partner is liable to the partnership for the difference between his
contribution as actually made and that stated in the certificate as having been
made (Article 1857). While a promissory note can be considered property for
contribution, the limited partner remains liable to pay the principal amount of
the note to complete the capital he promised to contribute. The court ruled that
Cuison must pay the unpaid amount to satisfy his commitment to the
partnership.

Here's why:

1. Liability for Unpaid Contribution (Article 1857) 💰

●​ A limited partner is liable to the partnership for the difference between
the agreed contribution and the amount actually made (as confirmed
by the partnership certificate).
●​ If Cuison promised $\text{P110,000}$ but only delivered
$\text{P20,000}$ in cash and a promissory note for the balance, he is
legally bound to fulfill the $\text{P90,000}$ commitment to the
partnership, as ruled in the case.
●​ The partnership has a right to demand payment of the full balance.

2. Requirement for Modification of Agreement 📝

If the partner absolutely cannot contribute the full amount, two things must
happen for him to remain a partner with a reduced contribution:

1.​ Mutual Agreement: The partner must secure the consent of all the
other partners to formally reduce his promised capital contribution.
2.​ Amendment of Certificate: Since the contribution of a limited partner
is publicly stated in the Certificate of Limited Partnership (Article 1844),
any change to the capital commitment must be recorded by amending
and registering the Certificate with the Securities and Exchange
Commission (SEC) (Article 1864).
 Without the partners' mutual agreement and the required legal amendment, the
partner remains a debtor to the partnership for the full unpaid balance. Failure
to pay could lead to the partnership suing the partner, as happened in the
Cuison case, or demanding his withdrawal/dissolution.

20. J. M. TUASON & CO., INC., vs. QUIRINO BOLAÑOS

G.R. No. L-4935, May 28, 1954

Element Description

Doctrine Juridical Personality of the Partnership (Right to Sue). A partnership, once

constituted, acquires a separate and distinct juridical personality from its
partners and has the capacity to sue and be sued in its firm name.

Facts J.M. Tuason & Co., Inc., a corporation, acted as the Managing Partner of a
partnership named "J.M. Tuason & Co." The managing partner, acting on
behalf of the partnership, filed a complaint for recovery of possession of land
against Quirino Bolaños. Bolaños challenged the suit, arguing that a mere
partner (even if managing) could not sue in the name of the partnership without
joining all the other partners.

Issue Can a Managing Partner validly file suit in the name of the partnership?

Ruling YES. The Supreme Court reaffirmed that a partnership, under Article 1768 of
the Civil Code, has a juridical personality separate and distinct from its
partners. Therefore, the partnership must be sued and sue in its firm name.
As the managing partner is the legal representative of the firm, the managing
partner has the authority to institute all necessary actions for the partnership
in the partnership's name.

That is a sharp question that touches on the difference between acts of administration (usual
course of business) and acts of strict dominion (extraordinary acts).
In the J. M. Tuason & Co., Inc. vs. Quirino Bolaños case, the suit for the recovery of
possession of partnership property was not considered an act of strict dominion requiring
unanimous consent.

Here is why, in four points:

1.​ Nature of the Act: The suit was for the recovery of possession of the partnership's
land and the preservation of its assets, which is considered an act of administration or
management, not an act of strict dominion or ownership. Acts of dominion usually
involve disposing of (selling, mortgaging) or fundamentally changing the property.
2.​ Manager's Authority: The partner who filed the suit was the Managing Partner
(Gregoria Araneta, Inc.). A managing partner has the implied authority to perform all
acts necessary to carry out the partnership's business, which includes protecting its
assets through litigation.
3.​ Juridical Personality: Because the partnership has a separate juridical personality
(Art. 1768), it has the right to sue in its own name. The managing partner merely
exercises this right on behalf of the partnership, acting as its authorized representative.
4.​ No Unanimous Consent Needed: The acts that require unanimous consent (listed in
Art. 1818, such as selling goodwill, confessing judgment, or entering into compromise)
are those that make it impossible to carry on the ordinary business. Suing to recover
land is done to carry on the business, not to prevent it.

What "Impossible to Carry On" Implies

The phrase signifies that the business is crippled or terminated, not merely inconvenienced. It
implies:

1.​ Destruction of Core Assets: The disposal of assets that are essential to the
partnership's primary operations.
○​ Example: For a delivery company, selling all its delivery trucks. For a factory,
selling its primary machinery.
2.​ Disposal of Intangible Value: The sale or disposal of the firm's goodwill (reputation,
customer base, business standing). Once goodwill is gone, the firm is generally unable
to attract customers and carry on business successfully.
3.​ Legal Inability to Function: Entering into legal agreements that irrevocably damage the
partnership's financial or legal capacity to function.
○​ Example: Confessing a judgment for a massive, unpayable debt, or selling all the
firm's assets in trust for creditors (assignment for the benefit of creditors).

In essence, these are acts that go beyond routine administration and enter the realm of strict
dominion or liquidation. They are considered so extraordinary that they negate the very
purpose for which the partners formed the association.
21. RURAL BANK OF BOMBON (CAMARINES SUR), INC. vs. HON. COURT
OF APPEALS
G.R. No. 95703, August 3, 1992

Element Description

Doctrine Special Power of Attorney (SPA) for Sale of Real Property; Strict
Requirement. A Special Power of Attorney (SPA) is indispensable to authorize
an agent to sell real property belonging to the principal. A General Power of
Attorney (GPA) is insufficient for this act of strict dominion.

Facts Gallardo, Manzo, and Aquino executed a General Power of Attorney (GPA)
in favor of a Rural Bank employee, authorizing him only to "make, sign,
execute, and deliver all necessary papers, documents, or instruments."
The employee, however, executed a Deed of Absolute Sale selling the
principals' registered land to the Rural Bank. The principals later challenged
the validity of the sale.

Issue Was the sale of the registered land executed by the agent valid, given that he
only possessed a GPA?

Ruling NO. The sale was void as to the principals. Under Article 1878(5) of the Civil
Code, an agent needs an SPA to enter into any contract by which the
ownership of immovable property is transmitted or acquired. The GPA did not
contain the express authority to sell the property; thus, the agent's act was
ultra vires (beyond his authority) and did not bind the principals.

22. DEVELOPMENT BANK OF THE PHILIPPINES vs. COURT OF APPEALS

and the ESTATE OF THE LATE JUAN B. DANS
G.R. No. L-109937, March 21, 1994

Element Description
 Doctrine Loan Contract; Consideration and Purpose. The cause or consideration in a
contract of loan is the lender's obligation to furnish the money, and the
borrower's obligation is to repay it. The purpose for which the borrower
intends to use the money is generally not essential to the validity of the loan
itself.

Facts Juan B. Dans secured a $\text{P500,000}$ loan from DBP to start a piggery
project. The piggery failed, and Dans was unable to pay the loan. The Estate
of Dans argued that the loan should be voided because the loan's stated
purpose (the piggery) was not realized, effectively claiming a failure of
consideration.

Issue Does the non-realization of the loan's stated purpose (the piggery project)
constitute a failure of consideration sufficient to nullify the contract of loan?

Ruling NO. The contract of loan remains valid. The consideration for Dans' promise
to pay was the money DBP furnished him. The purpose for which Dans
intended to use the money (the piggery project) is distinct from the
consideration and is not essential to the validity of the loan contract. The failure
of the project only affects Dans' ability to pay, not the existence of the loan
obligation itself.

The statement, derived from the DBP vs. Court of Appeals (Estate of Dans) case, expounds
on the legal distinction between the consideration (cause) of a loan contract and the purpose
(motive) of the borrower, illustrating why the failure of the latter does not invalidate the former.

The Concept: Consideration vs. Purpose

Element Legal Definition in Loan Contracts Effect on Validity

Consideration The lender's obligation to furnish the Essential. If the lender

(Cause) of the Loan money (or fungible thing) to the fails to provide the money
borrower, and the borrower's correlative
 promise to repay the money. (Article (failure of cause), the loan
1350, Civil Code) contract is void.

Purpose (Motive) of The personal reason or objective for Not Essential. It is

the Borrower which the borrower intends to use the generally immaterial to the
loaned money (e.g., to build a house, contract's existence.
fund a business, pay tuition).

Application in the Dans Case

In the DBP vs. Dans case:
🐷
1.​ Valid Consideration Existed: DBP's obligation was to deliver the $\text{P500,000}$
(which it did). Dans' obligation was to repay that $\text{P500,000}$. The contract
became perfected upon the delivery of the money, satisfying the element of
consideration.
2.​ Failure of Purpose (Piggery) Was Irrelevant: The fact that the piggery project (Dans'
purpose) later failed did not mean that DBP failed to deliver the consideration (the
money).
3.​ Conclusion: The validity of the loan was complete the moment DBP released the funds.
The subsequent success or failure of the piggery project was a commercial risk assumed
by Dans and only affected his capacity to pay, not the validity of the original contract of
loan. To rule otherwise would shift the entire business risk from the borrower to the
lender, which the law does not permit.

23. SPOUSES MAY S. VILLALUZ and JOHNNY VILLALUZ, JR., v. LAND

BANK OF THE PHILIPPINES and the REGISTER OF DEEDS FOR DAVAO
CITY
G.R. No. 192602, January 18, 2017

Element Description

Doctrine Contract of Agency; Extinguishment upon Death (Art. 1919). A contract of

agency is generally extinguished upon the death of the principal.
 Subsequent acts done by the agent are generally unenforceable against the
estate of the deceased principal.

Facts The Villaluz spouses executed a General Power of Attorney (GPA)

authorizing their daughter, upon their behalf, to secure a loan and mortgage
their property. The husband (Johnny Villaluz, Jr.), the principal, later died.
Despite the husband's death, the daughter proceeded to execute a Deed of
Real Estate Mortgage over the conjugal property to secure a loan from Land
Bank.

Issue Was the mortgage executed by the daughter after the death of her father (one
of the principals) valid and binding on the conjugal property?

Ruling NO. The mortgage was void as to the deceased husband's share of the
property. Under Article 1919(3), the death of the principal extinguishes the
agency. The daughter's authority to act on the deceased father's behalf
ceased upon his death. The mortgage was only valid to the extent of the wife's
(the other principal's) share, as her agency was not extinguished by her
husband's death.

The original statement says the agency was NOT extinguished to the extent of the wife. It
states: "The mortgage was only valid to the extent of the wife's (the other principal's) share, as
her agency was not extinguished by her husband's death."

The agency was not extinguished with respect to the wife's share for the following reasons:

1.​ Separate Principal: The wife (May S. Villaluz) was an independent principal under the
General Power of Attorney (GPA), separate from her husband (Johnny Villaluz, Jr.).
While the property was conjugal, the power she granted to her daughter to mortgage her
interest derived from her own consent and contractual capacity.
2.​ Lack of Her Death: The termination rule under Article 1919(3) applies only upon the
death, civil interdiction, insanity, or insolvency of the principal or agent. Since the
wife, May, was still alive and had not suffered any of the other incapacities, her act of
constituting agency remained valid.
3.​ Survival of Agency: The death of one co-principal generally does not automatically
extinguish the agency constituted by the surviving co-principal. Thus, the daughter's
 authority to dispose of the wife's undivided one-half interest in the conjugal property
survived the husband's death.

The mortgage was therefore voidable only as to the deceased husband's share (because his
agency ceased upon his death) but remained valid as to the wife's share.

24. Lim Tong Lim v. Philippine Fishing Gear Industries, Inc.

G.R. No. 136448, November 3, 1999

Element Description

Doctrine Partnership by Estoppel and De Facto Partnership. Persons who represent

themselves as partners in a business venture are estopped from denying the
partnership's existence to third parties who relied on that representation. The
common venture, even if not formally constituted, may be considered a de
facto partnership if the parties intend to engage in a joint business for profit.

Facts Lim, Chua, and Yao agreed to operate a fish business. They purchased fishing
equipment from Philippine Fishing Gear Industries, Inc. (PFGI), signing
promissory notes for the balance. When the venture failed, PFGI sued the
three jointly. Lim argued he was not a partner and was merely a guarantor.

Issue Was Lim Tong Lim liable for the partnership's obligation to PFGI?

Ruling YES. The three were liable as de facto partners (though the Court also
mentioned partnership by estoppel). The agreement to divide profits from a
joint commercial undertaking (the fish business) where they purchased and
used common equipment established a partnership for the specific venture.
Furthermore, Lim, by actively taking part in the purchasing and use of the
equipment, induced PFGI to believe he was a partner, making him liable under
the principle of partnership by estoppel (Article 1825).

Lim Tong Lim was held liable as a partner because his actions demonstrated a mutual intent to
embark on a joint business venture for profit, satisfying the essential elements of a
partnership. He argued he was a guarantor to evade the unlimited liability imposed on
partners.

1. Why Lim Tong Lim Was Held to be a Partner 🤝

The Supreme Court found Lim Tong Lim liable as a partner (specifically, a partner in a de facto
partnership or a particular partnership for the fish business) based on the following reasons:

●​ Contribution and Intent: Lim joined Chua and Yao in the business of fishing,
contributing money for the purchase of the boat and equipment and agreeing to share in
the results of the venture. This fulfilled the core requirements of a partnership: mutual
contribution and joint intent to divide profits ($\textit{animus societas}$).
●​ Active Participation: Lim's participation went beyond merely lending money. He was
involved in purchasing the fishing gear, the business depended on his contributions, and
he participated in the activities intended to generate income.
●​ Partnership by Estoppel: He allowed himself to be represented as a partner to
Philippine Fishing Gear Industries, Inc. (PFGI), which extended credit based on the
belief that he was jointly liable with Chua and Yao. Under Article 1825, he was liable to
PFGI as a partner by estoppel.

2. Why He Argued He Was a Guarantor 🛡️

Lim argued he was merely a guarantor for the other two individuals for the following reasons:

●​ Limited Liability: The primary motivation was to limit his liability. A guarantor is only
subsidiarily liable (liable only if the principal debtor, the partnership, defaults) and
typically only for a specified amount.
●​ Avoidance of Unlimited Risk: As a partner, he would face unlimited, pro-rata, and
subsidiary liability for all partnership debts. By claiming he was a guarantor, he tried to
restrict his obligation to securing the debt, not owning the business.
●​ No Joint Intent: He claimed he did not agree to share profits but merely helped the
other two, suggesting a purely contractual or suretyship relationship, not a partnership.

3. Why His Claim as Guarantor Was Rejected 🚫

The Court rejected Lim's claim that he was merely a guarantor because:

●​ Evidence of Joint Business: His acts were consistent with a partnership. He

contributed money to a common fund used for the joint acquisition of assets (the fishing
gear) necessary to operate the business, making him a principal in the venture, not just a
collateral obligor.
●​ Profit Motive: The entire venture was geared toward earning profit, which he stood to
share. This is the essence of a partnership, differentiating it from a mere contract of
guaranty or suretyship.
 ●​ The Law Favors Partnership: Since the agreement met the tests for a partnership, the
law treats the relationship as such, imposing the corresponding duties and liabilities on
Lim.

25. SPOUSES ROLANDO AND HERMINIA SALVADOR v. SPOUSES

ROGELIO AND ELIZABETH RABAJA AND ROSARIO GONZALES
G.R. No. 199990, February 04, 2015

Element Description

Doctrine General Power of Attorney (GPA) vs. Special Power of Attorney (SPA) for
Loan/Mortgage. A General Power of Attorney is a mere contract of agency for
administration. An agent must have an SPA to perform acts of strict dominion,
such as contracting a loan and executing a mortgage on behalf of the principal.

Facts The Rabaja spouses executed a GPA in favor of their niece, Gonzales, to
administer their property. Gonzales then secured a $\text{P350,000}$ loan
from the Salvador spouses, using the Rabajas’ property as collateral via a
Deed of Real Estate Mortgage. When the Rabajas failed to pay, the Salvadors
sought to foreclose. The Rabajas claimed Gonzales had no authority to
mortgage their property.

Issue Was the mortgage executed by Gonzales valid and binding on the Rabaja
spouses?

Ruling NO. The mortgage was unenforceable against the Rabajas. Under Article
1878(6) and (7), the contracting of a loan and the execution of a mortgage
requires an SPA. Since the GPA merely granted Gonzales general powers of
administration and did not specifically authorize her to contract loans or
mortgage the property, she had no authority to execute the Real Estate
Mortgage. The mortgage was thus void.
26. GREEN VALLEY POULTRY & ALLIED PRODUCTS, INC., vs. THE
INTERMEDIATE APPELLATE COURT
G.R. No. L-49395, December 26, 1984

Element Description

Doctrine Solidary Liability for Partnership Debts (Torts/Misapplication). When a

partner (acting within the scope of authority) receives money and misapplies
it, the partnership is solidarily (jointly and severally) liable with the partner
to the injured third party (Article 1823 and 1824).

Facts The partnership, doing business as "General Poultry Supply," purchased

ingredients on credit from Green Valley. One of the partners, Pio Barretto,
acting on behalf of the partnership, also received cash advances from Green
Valley for the purported payment of suppliers. Barretto acknowledged receipt of
the money and signed as a partner, but later failed to remit the cash to the
intended suppliers or return it to Green Valley.

Issue Is the partnership (General Poultry Supply) solidarily liable for the cash
advances received and misapplied by its partner, Pio Barretto?

Ruling YES. The partnership is solidarily liable for the money Barretto received and
misapplied. Under Article 1823(2), where the partnership, in the course of its
business, receives money and the money is misapplied by a partner, the
partnership is liable. By virtue of Article 1824, this liability is solidary among
all partners. The transaction was within the ordinary course of the partnership's
business.

That is correct; Barretto's act of receiving money for the partnership and then failing to remit it to
the suppliers or return it to Green Valley constituted a misapplication of funds, which is a
form of fraud/wrongful act.

The partnership, and all its partners, are made to suffer for this fraudulent act due to the
principle of solidary liability for wrongful acts, which prioritizes the protection of third-party
creditors.
Why the Partnership Suffers: Solidary Liability (Article 1824) 🛡️
The rule that holds the partnership liable for a partner's wrongful act is based on the agency
relationship and the need to protect the public trust:

1.​ Agency and Apparent Authority (Article 1822): Barretto received the cash advances
while "acting in the ordinary course of the business of the partnership." Green
Valley dealt with him in the legitimate belief that he was transacting on behalf of the firm.
The partnership gave Barretto the authority to act as its agent, including the authority to
receive funds.
2.​ Liability for Misapplication (Article 1823): Specifically, the case falls under Article
1823, where:
○​ The partnership receives money from a third person (Green Valley) in the course
of its business.
○​ That money is misapplied by any partner (Barretto).
3.​ Solidary Liability (Article 1824): The Civil Code dictates that the partnership is
solidarily liable with the guilty partner for the resulting loss. Solidary liability means
the injured party (Green Valley) can go after the partnership's assets or the separate
assets of any partner (including Barretto) for the entire amount.

Rationale: Protecting the Public 🏦

The law imposes solidary liability in these instances to protect innocent third parties who
transact in good faith. Between an innocent third-party creditor (Green Valley) and the
partnership that authorized the erring agent (Barretto) to act on its behalf, the partnership must
bear the loss. This ensures that the public can trust and rely on the acts of any partner within
the ordinary course of business.

The partnership's remedy is internal: the innocent partners can pursue an action against the
guilty partner, Barretto, to seek reimbursement for the share of the loss they were forced to pay
to Green Valley.

27. DR. CARLOS L. SEVILLA and LINA O. SEVILLA vs. THE COURT OF
APPEALS, TOURIST WORLD SERVICE, INC., and ELISEO S. CANILAO
G.R. No. L-41182-3, April 16, 1988

Element Description
 Doctrine Agency vs. Lease; Agent as Independent Contractor. The relationship
created was one of agency, where the agent (Sevilla) was acting on behalf of
the principal (Tourist World), but was deemed an independent contractor, not
an employee, as she retained control over her methods and had no fixed
working hours or salary.

Facts Dr. Sevilla and Tourist World Service (TWS) entered into an agreement
allowing Sevilla to occupy a portion of TWS's office space for her travel
agency. In exchange, Sevilla would use the office, receive free phone service,
and TWS would share in the profits. TWS later terminated the agreement and
ejected Sevilla. The issue was whether the relationship was an agency, an
employer-employee relationship, or a lease.

Issue Was the relationship between Dr. Sevilla and Tourist World Service, Inc., one
of lease (as TWS claimed) or agency/employment?

Ruling The relationship was one of Agency, but Sevilla was an Independent
Contractor. The Court ruled against a lease, as profit-sharing negates a pure
lease agreement. While TWS exercised control over the result (selling tickets),
Sevilla retained control over the means and methods of her work (no daily time
record, no fixed salary), negating an employer-employee relationship. She was
deemed an agent of TWS, but in the nature of an independent contractor,
whose agency could be terminated, but not arbitrarily.

Dr. Carlos L. Sevilla was deemed an agent in the nature of an independent contractor
primarily because she retained control over the means and methods by which she performed
her work for Tourist World Service, Inc. (TWS).

Here are the key reasons why the Supreme Court ruled out an employer-employee relationship
and classified her as an independent contractor:

1.​ Lack of Control over Means: TWS did not exercise the power of control over the
details of Sevilla's work. Sevilla was free to conduct her business as she saw fit, which is
the crucial element that distinguishes an independent contractor from an employee.
2.​ No Fixed Salary or Hours: Sevilla was not given a fixed salary or wage and did not
have prescribed working hours or a daily time record. Her compensation was derived
from the business proceeds (sharing in profits/commissions).
 3.​ Use of Own Resources: Sevilla contributed her own managerial skills and expertise
and maintained a separate identity for her travel agency within TWS's office space.

The Court concluded that while an agency relationship existed (she sold TWS's tickets), the
specific manner in which she performed her tasks placed her outside the definition of a mere
employee and squarely within the definition of an independent contractor agent.

Based on the context, you are asking why the parties in the Sevilla vs. Court of Appeals case
(Dr. Sevilla and Tourist World Service, Inc. - TWS) were deemed to have an
agency/independent contractor relationship instead of a partnership.

They were not partners because the essential elements of a partnership, particularly the intent
to share ownership and risk as co-principals, were lacking.

🚫
1. Lack of Intent to Form a Partnership (Animus
Societatis)
●​ Primary Purpose: The arrangement was structured to allow Dr. Sevilla to promote and
sell TWS's tickets and services, not to run a new, jointly owned business enterprise.
TWS provided the office space and accreditation, and Sevilla provided the sales effort.
●​ No Co-ownership: There was no agreement to contribute to a common fund with the
intent of jointly owning the assets or the business goodwill. Sevilla was an agent using
the principal's facilities; she was not a co-owner of the travel agency business itself.

2. Share of Profits as Compensation 💵

●​ The sharing of profits was determined to be a measure of compensation for Sevilla's
services (as an agent/independent contractor), not a share of profits as a principal or
owner of the business.
●​ As established in partnership law (Article 1769), receiving a share of profits as wages or
compensation for services rendered does not, by itself, create a partnership.

3. Lack of Partnership Liability (Loss Sharing) 🛡️

●​ The agreement did not specify that Sevilla was liable to share in the losses of the entire
TWS operation, which is a hallmark of a general partnership. Her financial risk was
limited primarily to the investment of her time and effort.

Since the relationship was characterized by service for compensation and lacked the clear
intent of co-ownership and joint liability, it was legally classified as an agency/independent
contractor arrangement, not a partnership.
28. INTERNATIONAL EXCHANGE BANK (now UNION BANK OF THE
PHILIPPINES) vs. SPOUSES JEROME AND QUINNIE BRIONES
G.R. No. 205657, March 29, 2017

Element Description

Doctrine Special Power of Attorney (SPA) for Sale/Mortgage. The authority to sell or
mortgage a principal's property requires an SPA. An SPA, being a contract of
agency, is strictly construed; the authority cannot be inferred from other acts or
general powers.

Facts The Spouses Briones executed a Special Power of Attorney (SPA) in favor of
a bank officer, authorizing him to borrow money from the bank and use their
property as collateral. The SPA contained a crucial limiting provision that the
agent could only use the property as collateral for loans personally obtained
by the Spouses Briones. The bank officer ignored this limitation and used the
SPA to secure a loan for a third party (a corporation).

Issue Was the mortgage valid, considering the agent used the SPA to secure a loan
for a third party contrary to the SPA's express limitation?

Ruling NO, the mortgage was void. The agent's power to mortgage was subject to
the express and strict limitation that it was for loans personally obtained by
the principals (the Spouses Briones). Since the mortgage was used to secure
a loan for a third-party corporation, the agent acted beyond the scope of his
authority, rendering the mortgage unenforceable and void against the
Spouses Briones. The bank had a duty to read the SPA carefully.

29. MORAN JR., v. COURT OF APPEALS

G.R. No. L-59956, October 31, 1984

Element Description
Doctrine Partnership vs. Joint Venture; Sharing of Profits and Losses. A joint
venture is generally treated as a particular kind of partnership. A partnership
is characterized by the clear intent to share both profits and losses from a
common fund, not just gross returns.

Facts Moran entered into a joint venture agreement with other parties to stage a
musical play. Moran was responsible for providing the venue (auditorium) and
paying for expenses like lights and ticket sales. The other parties were
responsible for the production costs. The agreement provided for the sharing
of gross box office receipts. When the play failed, Moran sued for his share of
the losses.

Issue Was the agreement merely a contract of lease (for the auditorium) or a joint
venture/partnership that required sharing of losses?

Ruling The agreement was a Joint Venture/Partnership. The Supreme Court noted
that the parties had a community of interest in the commercial venture and
had agreed to share in the gross returns and, by necessary implication, the
resulting losses. Since the agreement was for a joint business enterprise
where both parties contributed services/resources and intended to share
returns, it constituted a partnership, making Moran liable for his proportionate
share of the losses.

30. MICHAEL C. GUY vs. ATTY. GLENN C. GACOTT

G.R. No. 206147, January 13, 2016

Element Description

Doctrine Termination of Agency; Knowledge of Principal's Death (Article 1931). An

act done by an agent after the death of the principal is valid and effective
only if the agent acted without knowledge of the death, and the third person
with whom they contracted acted in good faith (lack of knowledge).
 Facts The principal (the father, since deceased) executed an SPA authorizing his son
(Michael Guy) to sell his land. The father died in 2004. In 2005, without
knowledge of his father's death, Michael Guy sold the land to Atty. Gacott.
Gacott's son, acting as his agent, also claimed lack of knowledge of the death.
The principal's children later challenged the sale, citing the termination of
agency upon death.

Issue Was the sale of the land executed by the agent (Michael Guy) after the
principal's death valid and binding on the principal's estate?

Ruling YES. The sale was valid. The agency was extinguished upon the principal's
death (Art. 1919). However, the sale falls under the exception in Article 1931:
The agent (Michael Guy) acted without knowledge of the principal's death,
and the third party (Atty. Gacott, through his agent) also acted in good faith
(lack of knowledge). This exception is meant to protect third parties who
transact with the agent in the honest belief that the agency is still in force.

🤝 31. Tocao and Belo vs. Court of Appeals and Anay (G.R. No. 127405)
Doctrine Related to Partnership Dissolution

A partnership at will may be dissolved by the unilateral will of any partner (delectus personae),
but the power to dissolve does not equate to the right to dissolve. A partner who dissolves the
firm or wrongfully excludes another partner in bad faith remains liable for damages to the
innocent partner, even though the partnership technically continues until the winding up is
complete.

Facts Related to Doctrine

Anay, Tocao, and Belo formed an oral joint venture where Belo and Tocao provided capital and
Anay contributed her industry and expertise in exchange for commissions and 10% of the
annual net profits. After the business became successful, Tocao unilaterally barred Anay from
the office and declared her no longer the Vice-President, effectively excluding her from the
venture in what the Court determined was an act of bad faith to appropriate the profits.
Issue (1 Sentence)

Whether or not a valid oral partnership existed among Anay, Tocao, and Belo, making Anay a
partner and entitling her to an accounting and damages for wrongful exclusion from the
business.

Ruling and Ratio

●​ Ruling: Yes. The Supreme Court affirmed that a valid oral partnership existed and ruled
that Anay was wrongfully excluded, entitling her to a formal accounting, her share in the
profits, and damages.
●​ Ratio (3 Sentences): The Court found the two essential elements of a partnership were
present: contribution (capital and industry) and mutual intent to divide profits
(evidenced primarily by Anay’s right to 10% of the annual net profits). Belo and Tocao's
actions of unilaterally excluding Anay constituted a dissolution in bad faith, holding
them jointly and severally liable for damages because, while they had the power to
dissolve a partnership at will, they lacked the right to do so in bad faith to unjustly
appropriate the business. The partnership, though dissolved, continued until the winding
up was complete, obligating the guilty partners to account for Anay's share.

💰 32. AFISCO Insurance Corporation vs. Court of Appeals, et al. (G.R. No. 112675)
Doctrine Related to Partnership and Taxation

For purposes of the National Internal Revenue Code (NIRC), the term "corporation" is broadly
construed to include unregistered partnerships, joint-stock companies, joint accounts, and
associations. Any group of individuals (including corporations) who contribute to a common
fund, function through a centralized body, and transact business with the intent of dividing profits
is considered an association or partnership taxable as a corporation, regardless of whether it
issues an insurance policy or retains profits.

Facts Related to Doctrine

Forty-one local insurance companies entered into reinsurance treaties requiring them to form a
"Pool of Machinery Insurers" to centralize transactions. The Pool operated with a common
fund and an executive board, acting as a clearing house to allocate risks and distribute
reinsurance premiums among its members and a foreign reinsurer. The Commissioner of
Internal Revenue (CIR) assessed the Pool for deficiency corporate income tax, treating the
Pool as an unregistered partnership or association taxable as a corporation.
Issue (1 Sentence)

Whether or not the "Pool of Machinery Insurers," organized by the member insurance
companies for a common fund and profit-sharing from reinsurance business, constitutes an
unregistered partnership or association that is taxable as a corporation under the National
Internal Revenue Code (NIRC).

Ruling and Ratio

●​ Ruling: Yes. The Supreme Court ruled that the Pool of Machinery Insurers was an
unregistered partnership or association and was therefore properly subject to
corporate income tax under the NIRC.
●​ Ratio (3 Sentences): The Court held that the Pool met the essential requisites of a
partnership—mutual contribution and joint interest in profits—and thus fell under the
NIRC's broad definition of "corporation" which includes unregistered associations. The
Pool's function of centralizing management, maintaining a common fund, and transacting
business for the profit of its members established it as a joint enterprise, not a mere
agent. Therefore, the Pool was a taxable entity separate from its individual members,
and its income was subject to corporate tax before being remitted as dividends.