I.

Partnership
A. Background of Partnership
1. A person not a partner of an anonymous partnership cannot be held liable for the
obligations contracted by the manager thereof.
2. Creditors of a partnership which failed to adopt for their firm name, the names of any of
the partners should not be prejudiced thereof.
3. A partnership which fails to comply with the formalities required acquires no legal
personality therefore it cannot bring an action as a juridical entity. Action must be
brought by the partners in their own individual capacity.
B. Tri-level existence of Partnership
1. A partnership continues to exist despite dissolution due to the withdrawal of a partner
unless there is liquidation and winding-up of affairs. The partner who withdrawn from the
partnership is no longer entitled to any profits thereafter.
2. A person has the right to choose with whom he wishes to associate himself and he may
on his own dictate the dissolution of the partnership at will provided he is in good faith.
C. Contract of Partnership – contract whereby two or more persons bind themselves to
contribute money property or industry to a common fund with the intention of dividing
profits among themselves or to exercise a profession
1. Heirs who sold their property owned in common cannot be taxed as income from a
partnership in being merely incidental to the dissolution of the co-ownership.
2. There must be an agreement to contribute money, property or industry in a common
fund else profits received for services rendered by a person are only considered as
compensation.
3. A person who rendered service for another cannot be considered as a partner if there is
no actual sharing in the profits and losses of the enterprise.
4. A partnership is deemed formed if the heirs contributed capital along with the property
their common property even if the enterprise is denominated as a sole proprietorship.
D. Formal Requirements
1. Generally there is no formal requirement
2. Except when personal property amounting to P3,000 or more is contributed
a. the contract must be in a public instrument
b. it must be registered in the SEC
c. non-compliance does not invalidate the partnership
3. Except when real property is contributed
a. the contract must be in a public instrument
b. there must be an inventory of the property contributed
c. the inventory must be attached to the contract of partnership

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 d. non –compliance makes the partnership void and gives no juridical personality
4. Jurisprudence
a. Registration of the partnership is a mere notice to third persons therefore non-
registration does not make the partnership void if the essential requisites of the
contract are complied.
b. Partnership between the heirs and surviving spouse of a decedent involving real
property may be formed even without a written agreement. Third persons who deal
with the surviving spouse in regard to the community real property should not be
prejudiced.
c. Inventory of real property is not required if the agreement involves only the use of a
real property for its operation but the property itself was not contributed and does
not form part of the partnership property.
d. Registration of the partnership is primarily intended to protect the interest of third
person who may be defrauded when contracting with partnerships so that the
partnership cannot deny its existence. However, in the presence of the essential
requisites of a contract of partnership, a partner cannot deny the existence of a
partnership in order to recover his losses from the other partners.
e. In the absence of the essential requisites of a contract of partnership, the actionable
document must conform to the formalities of the contract of partnership else it void.
f. The essential requisites refer to the very essence of ever contract namely the
capacity of the contracting parties, meeting of minds and absence of fraud thus a
person who agreed to contribute into a common fund in order to divide profits
among themselves cannot raise the defense that the same was not registered with
the SEC as required by law.
E. Classes of Partners and Partnership
1. Classes of Partners
a. As to contribution
 Capitalist – furnishes capital
 Industrial – furnishes industry or labor
 Capitalist-industrial – furnishes both capital and industry
b. As to liability
 General – liable beyond the extent of his contribution
 Limited – liable only to the extent of his contribution
c. As to management
 Managing – actively manages the partnership
 Silent – does not participate in the management though he shares in the profits
and losses
 Liquidating – liquidates or winds up the affairs of the firm after it has bee

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 dissolved
d. As to publicity
 Ostensible – connection to the firm is public and open, usually his name is
included in the firm name
 Secret – connection to the firm is concealed or kept a secret
e. As to participation
 Dormant – both secret and silent partner
 Nominal – not really a partner but became liable as such insofar as third persons
are considered such as a partner by estoppel
2. Classes of partnership
a. As to manner of creation
 Orally constituted
 Constituted in a private instrument
 Constituted in a public instrument
 Registered in the office of the SEC
b. As to object
 Universal
o With all present property
o With all profits (individual properties here continue to be owned by the
partners but the usufruct thereof passes to the firm)
 Particular – object is determinate things, their use or fruits, specific undertaking
or the exercise of a profession or occupation
c. As to liability
 Limited partnership – at least one partner is a general partner and the rest are
limited partners
 General partnership – all the partners are general partners
d. As to duration
 Fixed term – for a specific period or till the purpose is accomplished
 At will – dependent upon the will of the partners or continuation even after the
expiration of the fixed term without liquidation
e. As to representation to others
 Ordinary partnership
 Partnership by estoppel
3. Jurisprudence

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 a. Spouses are expressly prohibited from entering into a universal partnership but not a
particular partnership therefore income they derived by the partnership should not
be included in their individual income for the purpose of computing their taxable
income. The partnership is a separate entity from its partners.
b. There is no partnership formed between persons in the absence of any proof that
there was indeed an intention to contribute property and it was used to purchase
another for the partnership.
c. An industrial partner who was gainfully employed as of the commencement of the
partnership cannot be wrongfully excluded by the partners who have knowledge
thereof.
F. Rights, Powers and Authority of Partners
1. Rights of a Partner
a. Property rights
 Rights in a specific partnership property
 Interest in the partnership or share in the profits and surplus
 Rights to participate in the management except the limited partners
b. Right to associate with another person in his share
c. Right to inspect and copy partnership books
d. Right to demand a formal account
e. Right to ask for the dissolution of the firm
2. Powers of a Partner
3. Authority of Partners
a. The partnership is liable for the obligations incurred by its industrial partner in the
ordinary course of business even if it was not within the authority given to him
because creditors relied on his apparent authority.
b. The right of exclusive management by a partner is extinguished by his death being a
mere personal right premised upon trust and confidence and not a subject of
succession. However, strangers dealing with the partnership have the right to
assume that every general partner has the power to bind the partnership and has the
requisite authority from his co-partners in the absence of any restrictive clause.
G. Dissolution, Winding Up and Termination
1. Dissolution – the change in partnership relations due to increase or decrease of
membership or due to arrival of the period set for the duration of the firm
a. Termination of the period
b. Accomplishment of the purpose
c. Will of a Partner – desire of any partner, in good or bad faith, to put an end to the
firm
d. Expulsion of any member

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 e. Business becomes unlawful
f. Death, retirement insolvency, civil interdiction or judicial declaration of insanity by
any of the general partners
2. Winding-up – the process of settling and liquidating partnership affairs after dissolution
3. Termination – the point in time when a partnership ceases to exits, this occurs after
winding-up
4. Jurisprudence
a. The partnership is not dissolved if the remaining partners do not terminate the
business and constituted themselves as the partnership entity. The rights of third
party creditors should not be prejudiced therefore even the partner who dissolved
the partnership may be held liable subject to reimbursement from the remaining
partners.
b. The remaining partners are considered as agents of the partnership and shall be
jointly liable for the return of capital of the partner who was wrongfully excluded
from the partnership.
c. The liquidating partner who issued post dated checks as evidence of a partner’s share
in the partnership which is in the process of winding-up cannot be held liable for
violation of BP 22 if the same was not yet liquidated.
d. There must be liquidation first before the respective share of the partners can be
determined.
e. Judicial dissolution may be granted on the ground of a partner’s acts prejudicial to
the partnership and breach of partnership agreement.
H. Limited Partnerships
1. Contribution must be cash or any property except services
2. Surname of a limited partner shall not appear in the partnership name unless
a. It is also the surname of a general partner
b. Prior to the time when the limited partner became such the business had been
carried on under a name in which his surname appeared
c. Else he shall be liable as a general partner to creditors who extend credit without
actual knowledge thereof
II. Agency – One where an agent binds himself to render some service or to do something in
representation or on behalf of the principal with its consent and authority
A. Nature and objective of agency
1. Principal, nominate, bilateral, preparatory, commutative and generally onerous
contract
2. Representative relation, no status since agency is not inherent or permanent
3. Fiduciary – based on trust and confidence
a. Agent is estopped from asserting interest adverse to his principal

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 b. Agent must not act as or for an adverse party
c. Agent must not use or disclose secret information
d. Agent must give notice of material facts
 Knowledge of the agent is imputed to the principal even though the agent never
communicated except where the
o Interests of the agent are adverse to those of the principal
o Person claiming the benefit of the rule colludes with the agent to defraud the
principal
4. Jurisprudence
a. A contract of agency is personal and derivative in nature
 Death extinguishes the contract of agency
 Authority of agent emanates from the powers granted by the principal
 Act of agent is act of principal if done within the scope of his authority based on
trust and confidence
 Qui facit alium facit se, he who acts through another acts himself
b. Express or implied agency must be proved
 Effects of negligence by conjuring a supposed agency does not entitle the said
party to claim
 The one who invokes the existence of agency has the burden to prove the same
c. Agency may be oral unless the law requires a specific form
 To create or convey real rights over an immovable requires a special power of
attorney
 Absence of the same makes the transaction void
d. Authority to perform an act does not impliedly grant the authority to perform
another
 A third person who negligently presumes the existence of such authority is liable
 Good faith is not a defense
B. Kinds of Agency
1. As to manner of creation
a. Express
 Agent had been actually authorized by the principal
 Oral or written
b. Implied - failure to repudiate the agency despite knowledge that another is acting
on the behalf without authority
 From the acts of the principal

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  From the silence or lack of action
2. As to character
a. Gratuitous – agent receives not compensation for his services
b. Onerous – agent receives compensation for his services
 Presumed unless there is proof contrary thereto
 The agent does not need to prove this fact
3. As to extent of business of the principal
a. General – agency comprises all the business of the principal
b. Special – agency comprises one or more specific transactions
4. As to authority conferred
a. Couched in general terms – agency is created in general terms and is deemed to
comprise only acts in the name and representation of the principal and covers mere
acts of administration even if
 The principal should state that he withholds no power
 The agent may execute such acts as he may consider appropriate
 The agency should authorize a general and unlimited management
b. Simple or commission – agent acts in his own name but for the account of the
principal
5. Jurisprudence
a. Relationship of attorney and client is many respects of agency
 Acts of principal without the consent of the agent is valid
 The client may validly enter into a compromise agreement without the consent of
his counsel except when there is intention to defraud or deny the counsel of his
attorney’s fees
 Questioning the validity of the compromise agreement entered into by the client
is beyond the scope of authority of the counsel hence it is void
b. The intention of the parties prevails over the terms in the contract
 An agent designated as a buyer in the contract cannot be compelled to pay if
what was really intended was to designate him as an agent
 The contract is construed as a contract of agency not a contract of sale
c. The law demands utmost good faith by the agent to his principal
 An agent who takes a secret profit without revealing this to his principal is guilty
of breach of loyalty
 It forfeits his right to collect his commission even if the principal suffers no injury
by reason of such breach

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 d. A brokerage relationship is essentially a contract for the employment of an agent
 Performance of acts as agent despite the failure of the principal to comply with
his obligation making the act unlawful bars the recovery by the agent of any
amount after his acts become unlawful
 The principal also cannot recover from his agent for any damages since both are
in pari delicto
C. Formalities
1. Form
a. No formal requirements
b. May be oral or written except when the law requires a specific form such as sale of
real property or any interest therein by an agent
c. In certain cases a special power is needed such as in acts of strict dominion, not acts
of mere administration
2. Acceptance
a. Express acceptance
 Oral acceptance
 Written acceptance
b. Implied acceptance
 Between parties who are present
o Agent receives the power of attorney without any objection
 Between parties who are absent
o Principal transmit the power of attorney to the agent, who receives it
without objection
o Principal entrusts to him by letter or telegram a power of attorney with
respect to the business in which he is habitually engaged as an agent and he
did not reply to the letter or telegram
o Else there is no implied acceptance
3. Notice of agency
a. Special information – considered as agent with respect only to the person notified
b. Public advertisement – considered as agent with respect to any person
4. Construction of contract of agency should be in accordance with the
a. Language used by the parties
b. Real intention of the parties
c. In case of doubt, resort to the situation, surroundings and relation of the parties
5. Jurisprudence

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 a. Receipt of an employee of payment in check cannot be considered as delivery since
there is no fiduciary relationship existing between him and his employer.
 The place where the messenger received the said check does not determine the
venue of an action for estafa.
 The person alleging the agency has the burden of proof to show not only the fact
of its existence but also its nature and extent.
b. Tender of payment to exercise an option to buy made to an unauthorized person is
not valid thus there is no perfected contract of sale between the buyer and the seller.
 The basis of agency is representation and a person dealing with an agent is put
upon inquiry and must discover upon its peril the authority of the agent.
 Being negligent bars the said person from seeking relief on the basis of the
supposed agency.
c. A contract of sale in favor of a purchaser in good faith who relies on the title and a
general power of attorney providing an authority to sell is valid.
D. Power, Authority, Duties and Obligations/ Rights of the Agent
1. Power of Agent – results from the authority given to the agent
a. General – agency comprises all the business of the principal
 General power of administration
 Revoked by a special power
b. Special – agency comprises one or more specific transactions
 To make such payments as are not usually considered as acts of administration;
 To effect novations which put an end to obligations already in existence at the
time the agency was constituted;
 To compromise, to submit questions to arbitration, to renounce the right to
appeal from a judgment, to waive objections to the venue of an action or to
abandon a prescription already acquired;
 To waive any obligation gratuitously;
 To enter into any contract by which the ownership of an immovable is
transmitted or acquired either gratuitously or for a valuable consideration;
 To make gifts, except customary ones for charity or those made to employees in
the business managed by the agent;
 To loan or borrow money, unless the latter act be urgent and indispensable for
the preservation of the things which are under administration;
 To lease any real property to another person for more than one year;
 To bind the principal to render some service without compensation;
 To bind the principal in a contract of partnership;
 To obligate the principal as a guarantor or surety;

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  To create or convey real rights over immovable property;
 To accept or repudiate an inheritance;
 To ratify or recognize obligations contracted before the agency;
 Any other act of strict dominion
c. Power to mortgage does not include power to sell, to execute a second mortgage or
to mortgage for the benefit of the agent or any third person unless clearly indicated
d. Power to compromise does not authorize submission to administration
2. Authority of Agent – emanates from a principal and is given to the agent
a. Acts must be within the scope of authority given to him
b. Acts must be conducive to the accomplishment of the purpose of the agency
c. Except when performed in a manner more advantageous to the principal that that
specified by him
3. Duties of Agent
4. Obligations/Rights of Agent
a. Obligations to the principal
 General – act with utmost good faith and loyalty for the furtherance of the
interests of the principal
 Specific
o Carry out the agency, except when
 It would manifestly result in loss or damage to the principal
o Answer for damages the principal may suffer due to
 Non-performance
 Conflict of interest between the interest and the interest of the principal
should he prefer his own interest
o Advance necessary funds, except when
 The principal is insolvent
 There is no stipulation
o Act in accordance with the instructions of the principal, except in cases of
 Sudden emergency
 Ambiguous instructions
 Unsubstantial departure where the result is unaffected and no damage is
suffered by the principal
 As a matter of right the agent may disobey the instructions of the
principal, when
 The instruction calls for the performance of illegal acts

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  Privilege is given to him in order to protect his security in the subject
matter of the agency
o Not to loan himself if he has been authorized to loan money at interest
without the consent of the principal
o Observe due diligence, when the agent
 Declines the agency, preservation of the goods forwarded to him by the
owner in case until an agent is appointed
 Defaults in acting in accordance with the instructions of the principal
o Render an account of his transactions and deliver to the principal whatever
he may have received by virtue of the agency else
 The agent can be held liable for estafa
o Be responsible for the acts of the substitute appointed by him
 Without the authority of the principal
 With the authority of the principal but was not appointed as substitute
o Pay interest for funds applied to his own use
b. Rights of the agent
 May disobey the instructions of the principal, when
o The instruction calls for the performance of illegal acts
o Privilege is given to him in order to protect his security in the subject matter
of the agency
 Retain goods connected with the agency until the principal effects the
reimbursement and pays the indemnity
 In case of double agency, recovery of compensation from the principal or
principals who has knowledge thereof
5. Jurisprudence
a. The power of attorney must be strictly construed and the agent must act within the
scope of his authority
 However it should not destroy the very purpose of the power.
 Clauses in a power of attorney which are repugnant to each other so as to give
effect to the instrument in accordance with its general intent or predominant
purpose.
b. A person who acts as an agent and enters into transactions under the instruction of
his principal cannot be held liable in case the said transaction fails or results in a loss.
 The principal cannot hold the said agent if they have full knowledge thereof and
ratifies the same.
c. The fact that an agent will suffer injury from the performance or non-performance of
a contract he entered on behalf of his client does not entitle him to maintain an

11
 action on his own behalf against the other party for its breach.
d. Contract entered by a spouse by virtue of a general power of attorney which does
not comply with the formal requisites is not binding on the other spouse even if there
is an intention to bind the latter.
E. Obligations of the Principal
1. Obligations to the agent
a. Comply with all the obligations contracted in representation of the principal
b. Advance sums necessary for the execution of the agency
 When agent so requests
c. Reimburse the advances for the execution of the agency
 Without fault of the agent
o Regardless of the undertaking’s success
o Including interest from the day the advance was made
 With fault of the agent
o Principal derives benefits from the transaction
d. Indemnify for damages caused by the execution of the agency without attributable
fault or negligence
e. Pay the agreed compensation or the reasonable value of the service
2. Liability to third persons
a. Acts which bind the principal
 Acts of agent in behalf of the principal within the scope of the authority
 Acts outside the scope of authority but
o Ratified by the principal
o Principal contributed to deceive a third person in good faith
o Principal
o Limitations of the agent’s authority is unknown to the third person
 Acts of agent within the scope of the authority but in the own name, involving
things belonging to the principal
b. Acts which do not bind the principal
 Acts of agent outside the scope of the authority
 Acts of agent within the scope of the authority but in the own name
3. Liability to agent for expenses for the execution of the agency
a. Liable
 Without fault of the agent

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  With fault of the agent, but derived benefits from the transaction
b. Not liable
 Acted in contravention with the instructions of the principal
 With fault of the agent
 Knowledge of the agent that unfavorable result would ensue if the principal was
not aware thereof
4. Jurisprudence
a. An employer cannot deny the authority of his employee known to the public as his
manager. One who clothes another with apparent authority as his agent and holds
him out to the public as such cannot be permitted to deny the authority of such
person.
b. The principal is estopped from invoking the lack of authority of the agent when he
has knowledge thereof but did not act on it.
c. Dismissal of the action against the principal also dismisses the action against the
agent in the absence of any proof that the agent acted on his own behalf and must
be held separately liable.
F. Extinguishment of agency
1. On the part of both the agent and principal
a. Expiration of the period of which the agency was constituted
b. Dissolution of the firm or corporation
c. Accomplishment of the object or purpose of the agency
d. Death, civil interdiction, insolvency or insanity
 Exceptions to extinguishment by death
o Agency coupled with interest
o Agency constituted in the common interest of
 Both the principal and the agent
 Third person who has accepted the stipulation in his favor
o Acts of agent without knowledge of the principal’s death contracted with a
third person in good faith
o Incurrence of damage
2. On the part of the principal
a. Revocation
 At will
o Except agency coupled with interest such as when
 Bilateral contract depends upon the agency

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  Agency is the means of fulfilling an obligation already contracted
 A managing partner in a partnership was unjustifiably removed
 Implied
o Appointment of new agent for the same transaction or business if there is
 Incompatibility
 Notice to the previous agent
 No prejudice to third persons acting in good faith and without knowledge
of the revocation
o Direct management of the business entrusted to the agent such as dealing
with third persons conducted by the principal
 Agent acts to defraud the principal
b. Special power revokes the general power of an agent
c. Liability despite revocation
 Wrongful discharge before the expiration of the fixed term
o Principal is liable for damages
o Reinstatement is not possible
 Principal was proven to have acted in bad faith to avoid commission about to be
earned
o Principal is liable for damages
d. Notice of revocation
 As to agent
o Express notice
o Sufficient notice if the party notified actually knows or has reason to know
the fact that his authority has been terminated
o Without notice, an act done in pursuance of the authority will not be
rendered invalid
 As to third persons
o Express notice
o Acts of agent deemed valid for those acting in good faith and without
knowledge of the revocation
 As to former customers – actual notice must be given because they always
assume the continuance of agency
 As to other persons – notice by publication is enough
3. On the part of the agent
a. Withdrawal

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  Express
 Implied
o Conduct of acts incompatible with his duties
o Abandonment of the object of agency and commission of fraud against his
principal
o Filing of complaint against the principal and adoption of antagonistic attitude
towards him
 With just cause – gives due notice
 Without just cause
 Liable for damages if principal suffers damages
 Unless withdrawal is based upon the impossibility of continuing the
performance of the agency without grave detriment to himself
4. Other modes of extinguishment
a. Loss or destruction of the object of the agency except
 Substitution is possible without substantial detriment to either party
 Subject matter destroyed was not essential to the contract
 In case of partial loss, as to the property not affected
 Loss is attributable to the principal
o If he is with fault, he is liable for damages for wrongful termination
b. Novation
c. Outbreak of war, as matter of law
5. There is presumption of continuance in the absence of anything to show its
termination.
6. Jurisprudence
a. The principal may revoke a contract of agency any time at will and such revocation
may be express or implied and may be availed of even if the period fixed in the
contract of agency has not yet expired. Damages may be awarded if it can be shown
that it was intended to evade payment of the agent’s commission
b. Even if the revocation is required to be in a public instrument, revocation in a private
instrument is binding between the parties and they are estopped from invoking the
defense non-compliance with the formalities required.
c. An agency cannot be revoked at will of the principal if it is established not only for his
interest but for the interest of third persons or for the interest of both the principal
and the agent.
III. Trusts - the legal relationship between a person having an equitable ownership in property
(trustor) and another owning the legal title to such property (trustee) the equitable ownership
of the trustee entitling him to the performance of certain duties and certain powers by the

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trustor for the benefit of the beneficiary or cestui que trust
A. Definitions and principles
1. Nature
a. It implies confidence in a relationship
b. It must not be contrary to law
2. Parties in trusts
a. Trustor
b. Trustee
 Not an owner itself but a sort of an agent upon whom the law has conferred the
power and imposed the duty of administration
 Agent of the beneficiaries
c. Beneficiary or cestui que trusts
 One who holds equitable interest over the res
 Trusts pour autrui – trusts created for the benefit of third person
3. Characteristics of trusts
a. It is a relationship
b. It is a relationship fiduciary in character
c. It is a relationship with respect to property not one involving merely personal duties
d. It involves the existence of equitable duties imposed upon the holder of the title to
the property to deal with it for the benefit of another
e. It arises as result of a manifestation to create the relationship
4. Character of office of trusts
a. As principal – administration
b. As agent – agent of beneficiary
c. As fiduciary – based on trust and confidence
B. Express trusts - Created by the parties or by the intention of the trustor; by direct positive act
1. Elements of express trusts
a. A competent trustor or trustee
b. A trustee, who is the person expressly designated to carry out the trust
c. An ascertainable trust res or property
d. Sufficiently certain beneficiaries
2. Formalities
a. No particular form, it being sufficient that a trust is clearly intended
b. In cases involving real properties or any interests therein

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  It must be written however this requirement can be waived
 Existence of express trusts cannot be proved by parol evidence
o Parol evidence – even beyond written statements verbal assertions may be
admitted as evidence
c. Non-acceptance does not make the trust ineffective unless it is expressly provided in
the instrument
d. Acceptance by the beneficiary is necessary but acceptance is presumed if there is
 No onerous consideration
 No proof to contrary
3. Jurisprudence
a. A trust fund established by an employer for the retirement of its officials and
employees is not owned by the employer. However, prior to their retirement,
employees only have an inchoate interest over the same thus its distribution in any
form is not valid.
b. The burden of proving the existence of a trust is on the party asserting the same and
such proof must be clear and satisfactorily show the existence of the trusts and its
elements
c. No trust is implied if the person to whom the title is conveyed is a child, legitimate or
illegitimate of the one paying the price of sale there being a presumption that it is a
gift in favor of a child therefore in order to enforce a right based on trust in this case
there must be an express trust.
d. Existence of express trusts in cases involving real property cannot be proved by parol
evidence therefore failure to adduce evidence that there was a verbal agreement for
the acquisition of a real property bars its recovery.
e. A testamentary trust is created in a will left by a decedent and it should be construed
in accordance with the intention of the testator. A trustee is entitled to receive a fair
compensation for his services but it does not follow that the same may be lawfully
deducted from the estate for the purpose of computing the net estate.
f. A document recognizing that the property is held as a replacement for the one
foreclosed due to his fault creates an express trust and enforcement is not barred by
prescription except when they repudiates.
C. Implied trusts – created by operation of law
1. Resulting trusts – there is an intent to create a trust but it is not effective as an express
trust, bare or passive trust
a. Instances where resulting trust is created
 Property is sold, and the legal estate is granted to one party but the price is paid
by another for the purpose of having the beneficial interest of the property, the
former is the trustee, while the latter is the beneficiary.
o However, if the person to whom the title is conveyed is a child, legitimate or

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 illegitimate, of the one paying the price of the sale, no trust is implied by law,
it being disputably presumed that there is a gift in favor of the child.
 A donation is made to a person but it appears that although the legal estate is
transmitted to the donee, he nevertheless is either to have no beneficial interest
or only a part thereof.
 The price of a sale of 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 the debt, a trust arises by operation of law in favor of the person to
whom the money is loaned or for whom its is paid. The latter may redeem the
property and compel a conveyance thereof to him.
 Land passes by succession to any person and he causes the 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.
 Two or more persons agree to purchase property and by common consent the
legal title is taken in the name of one of 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.
 Property is conveyed to a person in reliance upon his declared intention to hold it
for, or transfer it to another or the grantor; there is an implied trust in favor of
the person whose benefit is contemplated.
 An absolute conveyance of property 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 the fulfillment of the obligation is offered by the grantor when it
becomes due, he may demand the reconveyance of the property to him.
 Any trustee, guardian or other person holding a fiduciary relationship uses trust
funds for the purchase of property and causes the conveyance to be made to him
or to a third person, a trust is established by operation of law in favor of the
person to whom the funds belong.
 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.
b. Continuous recognition of a resulting trusts precludes the defense of laches
2. Constructive trusts – there is no intention to create a trust present but a trust is
nevertheless created by law to prevent unjust enrichment or oppression
a. Created against one who by fraud, duress or abuse of confidence obtains or holds the
legal right to property which he ought not in equity and good conscience to hold
b. Allegation of fraud must be proved by clear and convincing evidence
c. It may be proved by oral evidence however it must be trustworthy because it is easily
capable of being fabricated
d. There is no form required because there is really no trust except that it was created
by operation of law based on equity

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 e. Repudiation is not required in order for laches to constitute a bar in the enforcement
of an implied trust except when there is concealment.
3. Jurisprudence
a. The pleading and evidence must be reliable to prove an implied trust.
b. A person who before consolidation of property in the purchaser under a pacto de
retro sale, agrees with the vendors to buy the property and administer it till all debts
constituting an encumbrance thereon shall be paid, after which the property shall be
turned back to the original owners is bound by such agreement and circumstances
such person becomes in effect a trustee and is bound to administer in this character.
c. Continuous recognition of a resulting trust precludes any defense of laches in a suit
to declare and enforce trust. The beneficiary of a resulting trust may without
prejudice to his right to enforce the trust prefer the trust to persist and demand
conveyance from the trustee.
d. Prescription and laches will run only from the time the express trust is repudiated. It
must be shown that the trustee has performed unequivocal acts of repudiation
amounting to the ouster of the cestui que trust, such positive acts of repudiation
have been made known to the cestui que trust and the evidence thereon is clear and
conclusive.
D. Equitable Mortgage
1. Mere inadequacy of the purchase price is not sufficient to invalidate a sale; it must be
grossly inadequate or utterly shocking to the conscience in order to avoid a contract of
sale.
2. However, if the parties never really intended the transaction as a sale but as a security for
the compliance with the obligation and the vendor remains in possession of the said
property, it should be construed as an equitable mortgage.
E. Prescription Rules for Trusts
1. Express trusts do not prescribe as long as they have not been repudiated because the
relationship is based on trust and confidence.
a. The beneficiary or cestui que trust can recover the property anytime because the
possession of an express trustee is not adverse.
b. The possession of an express trustee becomes adverse only after repudiation of the
trust.
c. Enforcement is not barred by laches or acquisitive prescription unless there is
express repudiation and serves as the reckoning period thereof
d. Repudiation must be express else enforcement is not barred by laches or acquisitive
prescription
2. Implied trusts prescribe for there is promise or fiduciary relation.
a. Resulting trusts – there is no prescription because there was an intent to create an
express trust as those presumed to have been contemplated by parites but not so
expressed in the instrument of conveyance however prescription may validly set in if
the trustee repudiates the trust.

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 b. Constructive trusts – there is prescription because there is no actual trust in the
technical sense being merely justified by equity to satisfy the demands of justice
therefore inaction to enforce a right based on constructive trust may be barred by
prescription or laches
3. Prescriptive periods
a. Action for reconveyance
 10 years from registration of the title to real property
 4 years from discovery of fraud
b. Ordinary acquisitive prescription
 20 years from possession in good faith
 30 years from adverse possession or possession in bad faith
c. Action for damages
 6 years from accrual of right
4. Jurisprudence
a. Constructive trusts may be barred by lapse of time. Laches constitute a bar to actions
to enforce the trusts and repudiation is not required unless there is concealment if
fcts giving rise to trust. Time runs from the momen the law creates the trust which is
the time when the cause of action arises.
b. The period of acquisitive prescription runs when the possession is adverse. It is
possession under a claim of ownership and not as a mere security for the
performance of an obligation.

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