AGENCY

Civil Law; Agency; The right of a broker to his commission for finding a suitable buyer for the seller’s property even though the seller himself consummated the sale with the buyer recognized by the Court. In Macondary & /co. v. Sellner, the court recognized the right of the broker to his commission for finding a suitable buyer for the seller’s property even though the seller himself consummated the sale with the buyer. The court held that it would be in the height of injustice to permit the principal to terminate the contract of agency to the prejudice of the broker when he had already reaped the benefits of the broker’s efforts.

Same; Same; The seller’s withdrawal in bal faith of the broker’s authority cannot unjustly deprive the brokers of their commission as the seller’s duly constituted agents. In Infante v. Cunanan, et al., the Court upheld the right of the brokers to their commission although the seller revoked their authority to act in his behalf after they found a buyer for his properties and negotiated the sale directly with the buyer whom he met through the broker’s effort. The Court ruled that the seller’s withdrawal in bad faith of the broker’s authority cannot unjustly deprive the brokers of their commissions as the seller’s duly constituted agents.

Same; Same; Agency Coupled with an Interest; An agency is deemed as one coupled with an interest where it is established for the mutual benefit of the principal and of third persons, and it cannot be revoked by the principal so long as the interest of the agent or of a third person subsists. Under Article 1927 of the Civil Code, an agency cannot be revoked if a bilateral contract depends upon it, or if it is the means of fulfilling an obligation already contracted, or if a partner is appointed manager of a partnership in the contract of partnership and his removal from the management is unjustifiable. Stated differently, an agency is deemed as one coupled with an interest where it is established for the mutual benefit of the principal and of the agent, of for the interest of the principal and of third persons, and it cannot be revoked by the principal so long as the interest of the agent or of a third person subsists. In an agency coupled with an interest, the agent’s interest must be in the subject matter of the power conferred and not merely an interest in the exercise of the power because it entitles him to compensation. When an agent’s interest is confined to earning his agreed compensation, the agency is not one coupled with an interest, since an agent’s interest in obtaining his compensation as such agent is an ordinary incident of the agency relationship. 1

1 Lim v Saban, 447 SCRA 232

Nature, Forms and Kinds of Agency

STATUTORY DEFINITION

By a contract of agency, a person binds himself to render some service or do something in representation or in behalf of another, with the consent or authority of the latter (Article 1868)

Note that by going by the definition, agency includes relationships like master-servant, employer, employees or lessor – independent contractor, such is however is INCORRECT as agency pertains to the performance of a judicial act (one that binds a person to an obligation) in the performance of which discretion may be exercised, while in the other relationship what is done in behalf of the other is purely ministerial. ANOTHER DEFINITION – it is a relationship by which two parties whereby one party called the PRINCIPAL, authorizes another, called the AGENT to act for and in his behalf.

WHAT ARE THE ESSENTIAL REQUISITES OF A CONTRACT OF AGENCY

1. There is consent, express or implied of the parties to establish the relationship2. The object is the execution of a juridical act in relation to a third person3. The agent acts as a representative and not for himself4. The agent acts within the scope of his authority

PARTIES TO A CONTRACT OF AGENCY

1. Principal – one who has permitted or directed another to act for his benefit and subject to his direction and control. He is the one whom the agent represents and from whom he derives authority. He is the one primarily concerned with the contract

CAPACITY WISE – he must be able to give legally effective consent and the act to be performed must be delegable (whether or not the act can be done by the person himself. If YES – it is delegable EXCEPT – if it is strictly personal. Example: swear under oath, execute a will or exercise a profession.

PRINCIPALS – can be natural or artificial/juridical persons, foreigners/aliens.

2. Agent – he who act or stands for another, usually he is given full or partial discretion, at times he acts under a specific command.

CAPACITY WISE, he must have the capacity to bind himself to the principal, with third persons, it is not necessary as it is the principal who is bound, he assumes no personal liability

NATURE OF A CONTRACT OF AGENCY

It is a fiduciary relationship, as a consequence of which: (a) no acquisitive prescription exists in favor of the agent as his possession is in the capacity as agent not owner (b)agent cannot deny the title of the principal (c)agent cannot represent conflicting interests (d) agent is obligated to render and give proper information and full disclosure

MANNER OF CONSTITUTION OF A CONTRACT OF AGENCY

A contract of agency can be constituted EXPRESSLY or IMPLIED from the acts of the principal, silence, lack of action or failure to repudiate and in all cases knowing that the other person is acting on his behalf without authority (Article 1869), IN SUCH CASES, burden of proof is on the party claiming or alleging agency. There is no presumed agency except under Art. 1803 as between partners when the manner of management has not been agreed upon and when lawyers appear before the court.

AS TO FORM

A contract of agency can be orally constituted unless the law requires it to be written. The law requires it to be written under Articles 1874 (sale of land or any interest shall be in writing, otherwise the sale is void) Article 1878 (when a special power of attorney is required) and in relation thereto, Articles 1879 and 1880

HOW IS IT PERFECTED

A contract of agency is perfected by ACCEPTANCE, which can be express or implied from acts that carry out the agency or silence or inaction according to circumstances (Article 1870 It can also be implied “between persons present” when the principal delivers his power of attorney to the agent who receives it without objection such is prima facie proof of acceptance (Article 1871) AND as between persons who are absent it cannot be implied from the silence of the agent EXCEPT: (1) if the principal transmits his power of attorney to the agent who receives it without objection (2)when the principal entrusts to him by letter or telegram, a power of attorney with request to the business in which he is habitually engaged in as an agent and he did not reply to the letter or telegram (Article 1872)

AS TO THIRD PERSONS – it is perfected when a person specifically informs another or states by public advertisement that he has given a power of attorney to a third person, the latter becomes an agent insofar as (a) person to whom specific information is given, (b) anyone if it be by public advertisement (Article 1873). The power of attorney shall remain in full force until notice of rescission is made in the manner notice of constitution is given, or by actual knowledge, such is sufficient to make rescission effective.

IN RELATION TO ART. 1873 - if the principal leads another to believe that a certain person is his agent but it is not in fact true and such representation is acted upon – that creates an AGENCY BY ESTOPPEL. Note however that such can also be created by the supposed agent.

DISTINGUSIHING BETWEEN Agency by Estoppel and Implied Agency. In the former, the agent is not a true agent, the supposed principal or agent is the one liable always depending upon who gave rise to the agency by estoppel. In the latter, the agent is true agent and it is the principal who is liable.

AGENCY IS PRESUMED TO BE FOR COMPENSATION UNLESS THERE IS PROOF TO THE CONTRARY

When there is no compensation mentioned, there is still a contract of agency. The absence or presence of compensation not being a necessary or essential requirement (Article 1875). Neither does the agent have to prove that the agency is for compensation.

KINDS OF AGENCY

Agency is either General (when it comprises all of the business of the principal) or Special (when it comprises one or more specific transactions). Consequently, if one is appointed as a General Agent, he shall be authorized to conduct a series of transactions Involving continuity of service. If one is appointed as a Special Agent , he shall be authorized to conduct a single/series of transactions not involving continuity of service (Article 1876)

HOW CONSTRUED

If it is couched in general terms, it only comprises of acts of administration, even if the principal should state that he withholds no power or that the agent may execute such acts as he may deem appropriate or even if agency should authorize a general or unlimited management (Article 1876). Acts of administration are those that are necessary in the day to day affairs of the business of the principal.

CONSEQUENTLY, IF WHAT IS TO BE PERFORMED IS NOT AN ACT OF ADMINSTRATION, A SPECIAL POWER OF ATTORNEY IS REQUIRED IN THE

FOLLOWING INSTANCES: (1) to make payments as not usually considered acts of administration (2) to effect novations which put an end to obligations already in existence at the time the agency was constituted (3) to compromise submit questions to arbitration, to renounce the right to appeal, to waive objections to venue or to abandon prescription already acquired (4) to waive any obligation gratuitously (5) to enter into a contract by which ownership over an immovable is transmitted or acquired gratuitously or for valuable consideration (6) to make gifts, except customary ones for charity or those made to employees in the business managed by the agent (7) to loan or borrow money, unless the latter act be urgent and indispensable for the preservation of the things which are under administration (8) to lease real property to another for a period exceeding one year (9) to bind the principal to render service without compensation (10) to bind the principal in a contract of partnership (11) to obligate the principal as a guarantor or surety (12) to create real rights or convey real rights over immovable property (13) to accept or repudiate an inheritance (14) to ratify obligations contracted before the agency (15) any other act of strict dominion (Article 1878)

There is need for a Special Power of Attorney to give the agent a clear mandate specifically authorizing the performance of an act as the acts are classified as (a) acts of strict dominion or ownership (b) gratuitous contracts, or (c) contracts where personal trust or confidence is of the essence. If an act of the agent requires a special power of attorney, its absence renders the contract unenforceable. Note: A GENERAL POWER OF ATTORNEY CONTAINING AUTHORIZATION FOR ACTS WHICH REQUIRES A SPECIAL POWER OF ATTORNEY IS ALLOWED (Veloso vs. CA , 260 SCRA 593).

In relation to Article 1878, note that (1) a special power of attorney to sell excludes the power to mortgage, and a special power of attorney to mortgage does not include the power to sell (Article 1879) as the real object is to dispose of the property, if however the power given is to raise money for which an agent may sell property or avail of all other means – then a mortgage would be valid (2) a special power of attorney to compromise does not authorize submission to arbitration. The principal trusts the judgment of the agent but not the judgment of the arbitrator.

RULES THAT GOVERN THE PERFORMANCE BY THE AGENT OF THE AGENCY

There being a contract of agency, the general obligations and scope of power of the agent are:

(a) He must act within the scope of his authority (Article 1881). He may do such acts as may be conducive to the accomplishment of the purpose of the agency. AUTHORITY DEFINED- The right of the agent to effect legal relations with his principal by the performance of acts effectuated by and in accordance with the principal’s manifestation of consent. KINDS OF AUTHORITY (a)

Express – the authority is clearly defined and is spelled out in terms that the agent fully understands what is to be done (b) Implied – only the general nature of the authority is defined, but is deemed to include acts necessary to accomplish the purpose (c) General – the agent’s discretion is complete (d) Special – particular instructions are given (e) Apparent- when the agent or a third person is led to believe by the principal that he is an agent. AUTHORITY AS DISTINGUISHED FROM POWER- authority may be considered as the cause while power is the effect. Authority given by the principal to the agent is the one that empowers the agent, who can now act.

(b) The limits of an agent’s authority shall not be considered exceeded should it have been performed in a manner more advantageous to the principal than that specified by him (Article 1882). The conditions of the agency can be improved, but not made worse. The agent cannot be said to have exceeded the scope of his authority because it is presumed that if it were the principal so acting, he would have followed the more advantageous course. CLEARLY, IT IS POSSIBLE THAT THE POWER OF THE AGENT BE BROADER THAN THE PRINCIPAL it should be characterized by the fact that it is more advantageous to the principal.

IF AN AGENT IS CONSTRAINED TO ACT BEYOND THE AUTHORITY GIVEN HIM. IT CAN BE JUSTIFIED IF IT IS CONSIDERED AN AGENCY BY NECESSITY. This refers to the concept that the agent’s authority is correspondingly enlarged to cope with the necessities or exigencies of the moment – BUT THIS SHOULD ALWAYS PRE-SUPPOSE THAT AN AGENCY IS ALREADY IN EXISTENCE. The conditions are (1) real existence of an emergency (2) inability to communicate with the principal (3) exercise of additional authority is for principal’s protection (4) he adopts family reasonable means, premises duly considered, and (5) authority ceases the moment the emergency no longer demands it

(c) If an agent acts in his own name, the principal has no right of action against the persons with whom the agent contracted, neither have such persons against the principal. In such is the case, the agent is directly responsible to the persons with whom he contracted as if the transaction has his own except when the contract involves things belonging to the principal. It is also without prejudice to actions between the principal and the agent. (Article 1883). This is an AGENCY WITH AN UNDISCLOSED PRINCIPAL. This will apply only when there is a contract of agency as the agent here WAS AUTHORIZED BUT ACTED IN HIS OWN NAME, as opposed to an agency by estoppel. Here the agent is liable alone as the fact of representation disappears insofar as the third person and the principal.

Applying 1881 In this four instances the effects are:

1. Acts in principal’s behalf of authority – valid – principal is bound2. Agent acts with authority but in his behalf – valid – principal is not bound

except if 1882 applies3. “Agent” without authority but in behalf of the principal – unenforceable –

but principal can ratify.

Art. 1403 – paragraph IThose entered into in the name of another person by one who has given a

authority or legal representative or who has cited beyond his powers.

4. “Agent” without authority in his behalf – valid – provided at the time of delivery he can deliver

OBLIGATIONS OF THE AGENTI. CARRY OUT THE AGENCY

Art. 1884 – the agent is bound by his acceptance to carry out the agency – IF HE DOES NOT – he is liable through non-performance for damages that may be sustained by his principal.

He must also – finish business already began on the death of the principal – should delay en__ any damages

PLS. NOTE: That if he carries ___ the agency in good faith and in accordance with is authority but damages still result. He is not liable.

BUT – under Art. 1888 – the agent shall not carry out the agency if its execution would manifestly result in loss or DAMAGE

Manifestly – execution will definitely damage the principal

If the AGENT DECLINES (or Art. 1870, 71, or 72 does not apply)

A. Observe the diligence of a good father of the family in the custody and preservation of the goods forwarded to him.

UNTIL:1. the principal shall have appointed an agent, or2. the principal shall have as soon as practicable taken charge of the goodsIf the AGENT exercises the require diligence – loss ___ have to be borne by

the OWNER/PRINCIPAL

IF HE ACCEPTS – Art. 1887The agent in the execution shall act.

a. in accordance with the instructions of the principal

(Instructions as opposed to authority are the specific acts to be undertaken to carry out the agency)

IN SO GIVING INSTRUCTIONS – the principal must make his terms clear and _________, if it be susceptible to two meanings, adoption in good family does not cause liability for loss in constituting the instructions they shall be construed as “a plain non acquainted with the object and attending reasonably to the language used, has in fact construed.

b. IN DEFAULT OF INSTRUCTIONS – he shall do all that a good father of the family will do as required by the nature of the business.(That which an ordinary prudent man would exercise as regards his own property)he must careful – agent is responsible not also fraud, but also for negligence which shall be judged with more or less ___ by costs depending or whether agency was or was not for compensation.

IN ADDITION, IN CARRYING OUT THE AGENCYArt. 1886 – if there be a stipulation that the agent shall advance the

necessary funds, he shall be found to do so except of the principal is insolvent. - this applies whether the agency is gratuitous or onerous. - if _____ the agent – (Art. 1918) (see 1912 ALSO) - actual in contravention of being authority unless he avails himself of the benefits.

- expenses are due to his __- incurred the expenses with knowledge that an unfavorable result will

ensure - or, it is stipulated that expenses are to be ___ by him- when even if he (AGENT) advances the amount no right for a

reimbursement exists

II. AGENT SHOULD NOT REPRESENT __Art. 1889 – the AGENT is liable for damages, if there is a conflict between

his interests and that of the principal he should prefer his own.

III. IF HE IS AUTHORIZED TO LEND OR BORROW MONEY (1890)- if he is authorized to borrow, he may be the lender at the current rate - if he has been authorized to lend money at interest, he cannot borrow it

without the consent of the principal – as there is a damages that the interest of the principal will be jeopardized

IV. OBLIGATION TO RENDER AN ACCOUNT OF HIS TRANSACTIONS - DELIVER TO THE PRINCIPAL WHATEVER HE MAY HAVE RECEIVED

BY VIRTUE OF THE AGENCY, EVEN IF IT IS NOT OWING TO THE PRINCIPAL

(Art. 1891)

Any stipulation exempting him from rendering an accounting is void.- Failure to account or return without justifiable reason shall be ground for

prosecution under Art. 315 par 1 (6) of the RPL for estafa

V. NATURE OF LIABILITY OF THE AGENT TO THE PRINCIPAL Art. 1894 – the responsibility of two or more agents, even though they have been appointed. Simultaneously, is NOT SOLIDARY, if solidarily has not been expressly agreed upon.

Liability is joint.But Art. 1895 – if solidarily has been agreed upon each of the agents is

responsible for the non-fulfillment of the agency and for the ___ and negligence of his __ agents except in the latter case the agent acted beyond the scope of their authority.

If the co-agent __ beyond the scope of his authority – no liability is imposed on the other agent.

Principal can sue either agent without prejudice to any action/s for recovery between them.

IN ADDITIONArt. 1896 – of the agentHas:

1. converted and applied ___ to his own use, or2. ones __ after the agency is extinguished

HE IS LIABLE FOR INTEREST ON THE SAID AMOUNTS WITHOUT PRESU___ TO A PROSECUTION FOR ESTAFA IF SO WARRANTY

CAN THE AGENT APPOINT A SUBSTITUTEArt. 1892 – The agent is allowed to appoint a substitute of the principal

has not prohibited from doing so, but if he does appoint, the agent shall be responsible for all the acts of the substitute if:

a. he has not given the power to appoint oneb. he was given the power to appoint but without designating the person

and the person appointed was notoriously incompetent or insolventALSO, all the act’s of the substitute shall be void if it is counter to the

principal’s prohibition to appoints.Article 1893 – in cases where there is no power to appoint or the person

appointed is incompetent or insolvent. The principal may bring an action against the substitute with regards to the obligation which has been contracted under substitution.

Execution on the Rule of pri__Art. 1311 – contracts take effect between the parties only

INSOFAR AS LIABILITIES TO THIRD PERSONS

Article 1897 – agent is not personally liable to the party with whom he contracts – UNLESS

a. He expressly binds himself in which case the principal is still liable.b. He exceeds the __ of his authority without giving such party sufficient

notice of his powers but if party is aware then he is estopped from claiming otherwise

Art. 1898 – if the agent contracts in the name of the principal exceeding the scope of his authority AND the principal does not ratify the contract is VOID, if the party is aware of the __ of the power granted by the principal.

If the agent undertook to secure ratification and it is not given, the agent is liable even if the third party is aware or unaware.

REQUISITES FOR VALID RATIFICATION1. contract is one which would have been valid or legal had the agent been

authorized;2. principal must be existing and legally competent at the __ of ratification;3. contract must purport to be in the principal’s behalf;4. same formalities required for ratification as original authorization;5. principal must have full knowledge of the facts;

Art. 1899 – if the duly authorized agent acts in accordance with the order of the principal the principal cannot set up the ignorance of the agent as to circumstances whereof he himself was on ought to have been aware. e.g. agent was to adopt to a situation that is foreseenprincipal cannot say __ in attribute to agent if he was aware

RULES COVERING THIRD PERSONSArt. 1900 – they can consider an act performed by the agent to be within

the scope of granted authority, if it is within the terms of the WRITTEN POWER OF ATTORNEY, even if in fact it has been exceeded according to an understanding between the principal and agent.

Art. 1900 – has no application of the agency is not written

ON THE OTHER HAND – under Art. 1901- a third person cannot set up the fact that the agent has exceeded his power of the principal has:

a. ratified the act orb. has expressed a willingness to ratifyc. to ensure that the agent acts with his authority

Art. 1902 – a second person has the right and the agent the obligation to:a. require/present the power of attorney orb. require/present the instructions

If there are private or secret orders or instructions, third parties will not be prejudiced if they have relied on what has been shown to them.

Art. 1903 – 1908 – Commission AgentAgent is a broker or a penchant who has the option with actions in his own

name or that of the principal for which purpose – goods are placed in his ___ of __, engaged in purchase and sale of proposed property.

Art. 1903 – he shall be responsible for the goods received by him in the terms and conditions and as described in the consignment unless upon receiving them he should make a written statement of the damage and deterioration.

Art. 1904 – if he handles goods of the same kind and work, which belong to different owners, he should distinguish then by countermarks and designate the merchandise belonging to each principal.

3. He cannot sell the goods on credit without the express or implied consent of the principal. If he sells on credit, the principal can demand cash but the agent shall be entitled to any benefit or interest (BUT PRINCIPAL CAN RATIFY SALE). If he sells on credit with the authority of the principal, he shall inform the principal with a statement of the names of the buyers. Should he fail, the sale shall be deemed to have been made in cash insofar as the principal is concerned THIS IS TO PREVENT AGENT FROM SAYING THAT A CASH SALE WAS ON CREDIT (Articles 1905 and 1906).

4. If the agent is entitled to a GUARANTEE COMMISSION (in addition to the ordinary commission) he shall bear the risk of collection and shall pay the principal the proceeds of the sale on the terms agreed upon with the purchaser (Article 1907). Here the INSOLVENCY OF THE DEBTOR IS NOT A DEFENSE.

5. If the commission agent does not collect the credits of his principal when they become due and demandable, he is liable for damages unless he proves he exercised due diligence (Article 1908).

OBLIGATIONS OF THE PRINCIPAL

1. TO COMPLY comply with all obligations that the agent may have contracted WITHIN THE SCOPE OF HIS AUTHORITY. As for any obligation contracted when his power is exceeded, the principal is not bound EXCEPT if he RATIFIES expressly or tacitly (Article 1910). If the agent exceeded his authority the principal is SOLIDARILY LIABLE with the agent IF HE ALLOWED the latter to act as if he had full powers (Article 1911).

2. TO ADVANCE , IF THE AGENT REQUIRES, the SUMS necessary to execute the agency. If it is not advanced, the principal must reimburse the agent even if the business or undertaking was unsuccessful PROVIDED, the agent is free from any fault or negligence, to include INTEREST form the day on which the advance is made (Article 1912).

NOTE: That under Article 1918 – the principal is not liable for expenses incurred by the agent in (4) instances: (a) Agent acted in contravention of the principal’s instructions, unless he chooses to avail himself with the benefits (b) Expenses are due to the agent’s fault (c) When they are incurred by the agent with knowledge that an unfavorable result would ensue, if the principal not aware thereof (d) When it has been stipulated that the agent would bear the expense or that the latter would only be allowed a certain sum.

3. TO INDEMNIFY the agent for damages which the execution of the agency may have caused the agent, who is without fault or negligence (Article 1913).

To enforce payment of the sums due under Paragraphs (2) and (3), the agent may retain in PLEDGE the things which are the object of the agency until the principal effects reimbursement and payment of the indemnity. This is an EXCEPTION TO THE DUTY TO DELIVER UNDER ARTICLE 1891.

WHAT IS NATURE OF THE LIABILITY OF THE PRINCIPAL IN CASES WHERE 2 OR MORE PERSONS HAVE APPOINTED AN AGENT FOR A COMMON TRANSACTION OR UNDERTAKING

The liability of the principal IS SOLIDARY – for all consequences of the agency (Article 1915)

WHAT HAPPENS WHEN TWO PERSONS CONTRACT REGARDS THE SAME THING, ONE WITH THE PRINCIPAL, THE OTHER WITH THE AGENT

When 2 persons contract with regards the same thing, one of them with the agent, the other with the principal and the 2 contracts are incompatible with each other. THAT OF THE PRIOR DATE PREFERRED, unless Art. 1544 applies: MOVABLES – first to take possession in good faith, IMMOVABLE – first in good faith records it in the registry of property. NO INSCRIPTION – first having possession in good faith, and in its absence, person who presents the oldest title, provided there is good faith (Article 1916).

If the agent acted in good faith, the principal must be held for damages suffered by the person whose contract is rejected (Article 1917). If he is in bad faith, he alone shall be responsible

WHAT ARE THE MODES OF EXTINGUISHING THE CONTRACT OF AGENCY

The contract of agency is extinguished by (a) Revocation (b) Withdrawal of the agent (c) Death, civil interdiction, insanity or insolvency of the agent (d) Dissolution of the firm or corporation entrusted with or accepting the agency (e) Accomplishment of the object or purpose of the agency (f) Expiration of the period for with the agency was constituted (Article 1918)

Other known causes are termination by mutual consent, novation, loss of the subject matter, outbreak of war if inconsistent with agency.

REVOCATION

(1) Revocation is undertaken by the principal at will and he may compel the agent to return the document evidencing the agency. It may be done (a) EXPRESSLY, or (b) IMPLIEDLY (Article 1920)

(2) Implied revocation takes place when: (a) a new agent is appointed for the same business or transaction which becomes effective on the day notice thereof was given without prejudice to Articles 1921 and 1922 (Article 1923), (b) when the principal directly manages the business entrusted to the agent by dealing directly with third persons (Article 1924), and (c) grant to another agent of a special power of attorney revokes a general power of attorney as regards the special matter involved in the special power of attorney (Article 1926).

WHO CAN REVOKE IF THERE ARE TWO OR MORE PRINCIPALS

If two or more principals have granted a power of attorney for a common transaction, any one of them may revoke without the consent of the others (Article 1925). This is due to their solidary liability.

EFFECTIVITY OF REVOCATION

In ALL INSTANCES, the revocation is effective only when: (1) Notice has been given to specified persons, in cases where the agency has been entrusted for the purpose of contracting with third persons (Article 1921), OR (2) If the agent had general powers, revocation will not prejudice third persons who acted in good faith and without knowledge of the revocation. Notice of the revocation in a newspaper of general circulation is sufficient warning to third persons. (Article 1922)

WHEN THERE CAN BE NO REVOCATION

(1) It is coupled with interest, but a mere statement that it is coupled with an interest is not sufficient – INTEREST IN THE SUBJECT MATER IS REQUIRED

(2) In cases mentioned under Article 1927 (a) when a bilateral contract depends on the agency. Example: A buys a parcel of land from B by installment. To pay balance, A appoints C to sell another property if he cannot pay the balance and deliver the proceeds to B. (b) if the agency is a means of fulfilling an obligation already contracted. Example: In a contract of loan with a mortgage. If the mortgagor is unable to pay, the mortgagee is constituted as the mortgagor’s attorney in fact to sell the property given as security upon foreclosure(c) a partner is appointed as a managing partner and his removal is unjustified under Article 1800

(3) When there is a waiver by the principal as to revocation

(4) When the principal is obliged not to revoke

(5) Revocation is undertaken in bad faith. Here there is actual revocation but third parties will not be prejudiced.

WITHDRAWAL

It is the agent who may withdraw from the agency by giving notice to the principal BUT if the principal suffers any damage due to the withdrawal, the agent must indemnify him UNLESS – the basis of withdrawal is impossibility of carrying or continuing the agency without grave detriment to himself (Article 1928). HOWEVER, despite notice and withdrawal for a valid reason, the agent must continue to act until the principal has had reasonable opportunity to take necessary steps to need the situation (Article 1929). THIS IS TO PREVENT DAMAGE TO THE PRINCIPAL

DEATH OF THE PRINCIPAL OR THE AGENT

(1) As a general rule, the death of the principal extinguishes the agency but if NOT SO if it has been constituted in: (a) COMMON INTEREST OF THE PRINCIPAL AND AGENT. Example: A borrows from B and entrusts an item to B, which he can sell if the debt is not paid, the agency shall remain even if A should die. The common interest being the payment of the loan. (b) THE INTEREST OF A THIRD PERSON WHO HAS ACCEPTED THE STIPULATION IN HIS FAVOR. Example: A sells property to B and appoints B as his agent to pay C from the proceeds of the sale. The agency will exist even if A dies (Article 1930)

(2) Anything done by the agent without knowledge of the death of the principal or any other cause that will extinguish the agency, is valid and shall be fully effective with respect to third persons who may have contracted with him in good faith (Article 1931).

(3) If the AGENT DIES, it extinguishes the contract of agency. Consequently (a) his heirs must notify the principal, and (b) adopt measures as the circumstances may demand in the interest of the principal (Article 1932). When notice is impossible, consignment is the remedy.

notesrsr.busorgn.pc3

TRUST

WHAT IS A TRUST

It is a fiduciary relationship concerning property which obliges the person holding it to deal with the property for the benefit of another. From the beneficiary’s viewpoint, it is the right to beneficial enjoyment of property, the legal title over which is vested in another

WHAT ARE THE CHARACTERISTICS OF A TRUST

The characteristics of a trust are (1) it is a fiduciary relationship (2) it is created by law or by agreement (Article 1441) (3) legal title is held by one, while equitable/beneficial title is held by another

DISTINGUISHED FROM OTHER LEGAL RELATIONSHIPS

1. From Guardianship/Executorship, a trustee has legal title, not so for a guardian/executor

2. From a stipulation pour autri ((a stipulation in a contract in favor of a person not a party to the contract, the parties thereto not being under any legal obligation to grant a benefit), (a) a trust exists because of a legal provision or a contract, a stipulation pour autri arises only in case of contracts (b) a trust refers to specific property only, a stipulation pour autri can refer to both specific things or other things.

IS CO-OWNERSHIP A TRUST

In the cases of Sotto vs. Teves (86 SCRA 154) and Castrillo vs. CA (10 SCRA 549), the Supreme Court held that a co-ownership is a form of trust, with each co-owner being a trustee for each of the others, thus he may not any act prejudicial to the interest of his co-owners and an agreement to preserve property in co-ownership is an express trust.

WHO ARE THE PARTIES TO A TRUST

The parties to a trust are (1) Trustor – the person who establishes the trust (2) Trustee – the person in whom confidence is reposed as regards property for the benefit of another person (3) Beneficiary – the person for whose benefit the trust has been created. He is the “cestui que trust”. IS POSSIBLE TO HAVE 2 PARTIES ONLY, if the beneficiary and trustor are one and the same (Article 1440).

WHAT ARE THE ELEMENTS OF A TRUST

The elements of a trust are: (1) Parties (2) Trust property (trust estate or subject matter of the trust)

KINDS OF TRUSTS

The kinds of trusts are: (1) EXPRESS – one created by the direct and positive acts of the parties by writing deed, will or by words evidencing an intention to create a trust. It is shown by the intention of the trustor or the parties. No particular form is required (2) IMPLIED – one created by operation of law. The KINDS OF IMPLIED TRUSTS ARE (1) Resulting trust – where a person makes or causes to be made a disposition of property under circumstances which raise an inference that he does not intend the person holding or taking the property to have beneficial interest. (Article 1448) (2) Constructive trust – imposed where a person holding title to property is subject to an equitable duty to convey to another on the ground that he could be unjustly enriched if he were permitted to retain it (Art. 1447-1456). AS DISTINGUISHED FROM SOLUTIO INDEBITI where something is received when there is no right to demand it or is unduly delivered through mistake or there is a payment by reason of mistake in the construction or application of a doubtful or difficult question of law, TITLE DOES NOT PASS, IN A CONSTRUCTIVE TRUST, TITLE PASSES.

APPLICATION OF LAWS

Note that the principles of the general law of trusts, insofar as they are not inconsistent with the Civil Code, the Code of Commerce, the Rules of Court and special laws are hereby adopted (Article 1442). We may also draw freely from United States or United Kingdom precedents.

FORM OF EXPRESS TRUSTS

No particular words are required for the creation of an express trust, it being sufficient that a trust is clearly intended (Article 1444). Consequently, an express trust is created by the direct and positive acts of the parties as manifested by some writing or deed or will, or by words evidencing an intention to create a trust.BUT no express trust concerning an immovable or any interest therein may be proven by parol evidence (Article 1443) HOWEVER, if the trust be IMPLIED, it can be proven by parol evidence (Article 1457) PAROL EVIDENCE – if terms of an agreement has been reduced to writing, it is considered as containing all such terms, thus, as between parties and their successors no terms other than the writing is allowed, EXCEPT (a) mistake is of fact (b) mistake is common or mutual to both, and (c) evidence of the mistake is clear and convincing

HENCE, as far as express trusts are concerned, there is no specified form. The trust may be constituted orally or in written form, HOWEVER, (1) if an express trust is over an immovable – it must be written to be enforceable BUT ONLY FOR ENFORCEABILITY NOT FOR VALIDITY as the law does not so preclude the creation of an express trust orally. This article can thus be considered as part of the statute of frauds (2) by implication, if the subject is a movable, it may be constituted orally and if so, it is valid and enforceable

REQUISITES OF AN EXPRESS TRUST

The requisites of an express trust are: (1) a competent trustor – one who is capacitated to convey property (2) a competent trustee – one who can hold property and enter into contract. NOTE: no trust shall fail because the trustee appointed declines the designation, unless the contrary appears in the instrument creating the trust (Article 1445). This applies even if trust is already subsisting or the trustee becomes incapacitated. The REASON being that to permit it to fail would render nugatory or negate the trustor’s intention to create a trust. The primary consideration being the dispositon of beneficial interest not the appointment of trustee. CONSEQUENTLY, a court will have to appoint a trustee unless the terms of the document provide for the appointment of a successor. (3) a competent beneficiary – one who is capacitated to receive gratuitously from the trustor (Note those who cannot be donees and those who cannot be a legatee or devisee-Articles 739, 1027, 1028, NCC). NOTE that the beneficiary is required to accept the trust to make the trust effective (Article 1446). The acceptance may be EXPRESS OR IMPLIED OR PRESUMED only if no onerous condition is imposed on the beneficiary, except if there is proof to the contrary or he did not accept (4) Ascertainable trust res (5)There must be present a clear and complete disposition of property ( Mindanao Development Authority vs. CA 113 SCRA 429)

HOW IS A TRUST ADMINISTERED

A trust is to be administered in accordance with the provisions of Rule 98 of the Rules of Court, which requires the trustee to (1) file a bond (2) render a true and clear account (3) make an inventory (4) manage and dispose of the estate faithfully in accordance with the law and the terms of the trust agreement.

HOW ARE EXPRESS TRUSTS ENDED

An express trust is ended by (1) mutual agreement (2) expiration of the term (3) fulfillment or a resolutory condition which extinguishes the obligation (4) recission or annulment (5) loss of the subject matter (6) order of the court (7) merger (8) accomplishment of the purpose

EXAMPLES OF IMPLIED TRUSTS

The enumeration of implied trusts does not exclude those established by general law but the limitation laid down in Article 1442 that it not be contrary to the Civil Code, Code of Commerce, Rules of Court, and Special Laws shall be applicable ( Article 1447).

1. RESULTING TRUSTS

a. When property is sold and the legal estate is granted to one party but the price is paid by another for the purpose of having beneficial interest over the property. Example: A buys property from B, but title is put in C’s name. HOWEVER, if the title is conveyed to a child – legitimate or illegitimate of the one paying the price, no trust is implied, it being disputably presumed, that there is a gift in favor of the child (Article 1448). ALSO, a document expressing a different intent does not create a trust. Example: A pays for a lot but title is put in B’s name. If A is shown to have paid because he is paying B, there is no TRUST

b. When a donation is made to a person but it appears that although legal estate is transmitted to donee, he nevertheless is either to have no beneficial interest or only part thereof (Article 1449). Example: Blind Trusts

c. When land passes by succession to any person and he causes legal title to be put in the name of another, a trust is established by implication of law for the benefit of the true owner (Article 1451).

d. If two or more persons agree to purchase property and by common consent, legal title is taken in the name of one if them for the benefit of all, a trust is created by force of law in favor of the others in proportion to the interest of each requisites (Article 1452). Requisites are: (1) two or more agree to purchase (2) there is consent that one should take title in his name (Nito vs. CA, 225 SCRA 251)

e. When property is conveyed to a person in RELIANCE upon his declared intention to held it for, or transfer it to another, or the grantor, there is an implied trust in favor of the person whose benefit is contemplated (Article 1453).

2. CONSTRUCTIVE TRUSTS

a. If the price of the property is loaned or paid by one person for the benefit of another and the conveyance is made to the lender or payor to secure the payment of a debt, a trust arises by operation of law or favor of the person to whom the money is loaned or for whom it is paid (Article 1450).

b. If an absolute conveyance is made in order to secure the performance of an obligation of the grantor toward the grantee, a trust by virtue of law is established. If fulfillment of the obligation is offered by the grantor when it becomes due, he may demand reconveyance of the property to him (Article 1454).

c. When any trustee, guardian or other person holding a fiduciary relationship uses trusts funds for the purchase of property and causes the conveyance to be made to him, a trust is established by operation of law in favor of the person to whom the funds belong (Article 1455).

d. If property is acquired through mistake or fraud, the person obtaining it is by force of law considered a trustee of an implied trust for the benefit of the person from whom the property comes (Article 1456). If what is concerned is the acquisition by fraud of an immovable, it cannot be acquired by prescription under Article1133. As far as movables, if possessed through a crime, they can never be acquired through prescription by the offender

CAN TRUSTEE ACQUIRE PROPERTY SUBJECT OF THE TRUST BY PRESCRIPTION

The trustee cannot acquire the property subject of the trust by prescription unless the trust has been repudiated. The requisites of repudiation are: (1) the trustee has performed unequivocal acts amounting to the ouster of the cestui que trust (2) the acts of repudiation are made known to the cestui que trust (3) the evidence of repudiation are clear and conclusive (VALDEZ vs. OLARGA , 51 SCRA 571)

RELATED JURISPRUDENCE

1. An action for reconveyance of a parcel of land based on an implied/constructive trust prescribes in 10 years from registration of the deed/issuance of title. This applies only when the person seeking reconveyance is not in actual possession – as the action for reconveyance is actually an action to quiet title which does not prescribe. (SEE: HEIRS OF OLVIGA vs. CA 227

SCRA 330, VDA DE CABRERA vs. CA 267 SCRA 339, MANANGAN vs. CA, G.R. 115794, June 10, 1999)

2. A resulting trust is imprescriptable unless repudiated (O’LACO vs CO CHO CHIL, 220 SCRA 656)

3. A buyer at auction sale to enforce a widow’s obligation holds the share of the other heirs in trust ( NOEL vs. CA 240 SCRA 78)

4. Prescriptive period of 10 years from repudiation runs from the moment possession becomes adverse ( HUANG vs. CA 236 SCRA 420). Reconveyance of registered land based on an implied trust is 10 years (ARMAMENTO vs. CB, 96 SCRA 178)

5. An action for reconveyance based on an implied or constructive trust prescribes in ten years from the alleged fraudulent registration or date of issuance of a certificate of title (Crisostomo v. Garcia, Jr. 481 SCRA 402) See Pascual v CA, 409 SCRA 105, See also Sps. Alfredo v Sps. Borras, 404 SCRA 145

Resulting trust is presumed to have been contemplated by the parties, the intention as to which is to be found in the nature of their transaction but not expressed in the deed itself. A constructive trust is created, not by any word evincing a direct intention to create a trust, but by operation of law in order to satisfy the demands of justice and to prevent unjust enrichment.An implied trust was created in favor of respondent when petitioners transferred the properties to their names in violation of the trust placed in them as overseers. (Bejoc vs. Cabreros, 464 SCRA 78)