322223329-Villanueva-Agency[1].pdf - ATENEO LAW SCHOOL TH 75 DIAMOND ANNIVERSARY 06 JUNE 2011 This book is published as part of the celebrations of the

322223329-Villanueva-Agency[1].pdf - ATENEO LAW SCHOOL TH...

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Unformatted text preview: ATENEO LAW SCHOOL TH 75 DIAMOND ANNIVERSARY 06 JUNE 2011 This book is published as part of the celebrations of the ATENEO LAW SCHOOL'S 75TH DIAMOND ANNIVERSARY, and the royalties shall be devoted to funding the author's scholarship endowment fund for scholarly students of the Ateneo Law School. iv To my first grandson, Marko V. Domingo, a fair hope of our Nation ill NON-­‐CORPORATE MEDIA OF DOING BUSINESS AGENCY, TRUSTS, PARTNERSHIPS & JOINT VENTURES CESAR LAPUZ VILLANUEVA [email protected]com B.S.C. (HOLY ANGEL UNIVERSITY) LL.B. (ATENEO DE MANILA LAW SCHOOL) LL.M. (HARVARD LAW SCHOOL) D.J.S. (SAN BEDA GRADUATE SCHOOL OF LAW) DEAN ATENEO LAW SCHOOL ROCKWELL CENTER, MAKATI CITY CHAIRMAN, COMMERCIAL LAW DEPARTMENT PHILIPPINE JUDICIAL ACADEMY MANILA MEMBER MCLE GOVERNING BOARD FOUNDING PARTNER VILLANUEVA GABIONZA & DE SANTOS attorneys© vgsla w. com 20/F 139 CORPORATE CENTER, VALERO STREET SALCEDO VILLAGE, MAKATI CITY 1200, PHILIPPINES FELLOW AUSTRALIAN INSTITUTE OF COMPANY DIRECTORS (AICD) INSTITUTE OF CORPORATE DIRECTORS (ICD) Published & Distributed by /REX B ook S tore 856 Nicanor Reyes, Sr. St. Tel. Nos. 736-­‐05-­‐67 • 735-­‐13-­‐64 1977 C.M. Recto Avenue Tel. Nos. 735-­‐55-­‐27 • 735-­‐55-­‐34 Manila, Philippines tute y** vV vJtf&te ^ >u Philippine Copyright, 2011 /7 CESAR ISBN 978-­‐971-­‐23-­‐5934-­‐7 No portion of this book may be copied or reproduced in books, pamphlets, outlines or notes, whether printed, mimeographed, typewritten, cop-­‐ ied in different electronic devices or in any other form, for distribution or sale, without the written permission of the author except brief passages in books, a rticles, r eviews, legal p apers, a nd judicial o r other o fficial p roceedings w ith p roper c itation. Any copy of this book without the corresponding number and the signature of the author on this page either proceeds from an illegitimate source or is in possession of one who has n o a uthority t o d ispose o f t he s ame. ALL R IGHTS R ESERVED BY T HE A UTHOR No. 0 4 9 5 ISBN 978-­‐971-­‐23-­‐5934-­‐7 9789712359347 05-­‐PS-­‐00015 05-­‐PS-­‐00015 9 Printed by RtxpRinTinpmpfinpc. Typography & Creative Lithography 84 P. Florenlino St., Quezon Cily Tel No. 857-­‐77-­‐77 AEON FOUNDATION FOR LEGAL STUDIES, RESEARCH AND PROGRAMS, INC. This publication is part of the series of publications under the auspices of the Aeon Foundation, an association of legal scholars and practitioners in various fields of discipline and legal endeavors, dedicated to promoting legal studies, research and programs, geared towards the progressive development of the legal system of the Philippines and the evolution of legal integration and cooperation within the Asian region. v ACKNOWLEDGMENT I wish to acknowledge the support of Atty. Jose U. Cochingyan, who over the last couple of years, has worked with me in coming out with a more dynamic and responsive course outline for our classes in "Agency, Trusts, Partnerships & Joint Ventures" in the Ateneo Law School. Special thanks are also extended to my law partner, Atty. Alexander C. Dy, a fellow Ateneo faculty, who through the years has supported me in many of my projects. My special "thank you" to all my students in the Ateneo Law School, who have and continue to inspire me to be the best student of the Law. Most of all, I again to acknowledge the love and patience of my family, for their love and patience, and who always constitute my most loyal fans. CESAR L. VILLANUEVA May, 2011 PR E F A C E This book came from the author's desire to teach to his students—future practitioners and professors — of the need to treat the course "Partnership & Agency" more as commercial vehicles of pursuing business, rather than as mere civil law subjects of the Civil Code of the Philippines. Over the years that the author has been teaching Philippine Corporate Law, he came to the realization that the background of his students in "Partnership & Agency" did not well-­‐complement their desire to become conversant with a common-­‐law based commercial subject as Corporation Law. Therefore, the author felt the need to volunteer himself to handle a section in "Partnership & Agency," in order to develop a course outline that would look at noncorporate media of doing business as having the same dynamic and progressive stance as that of Philippine Corporate Law — to teach "Agency & Partnerships" as cornerstones of Philippine Commercial Laws in the pursuit of national development. The obsession resulted in overhauling the course to place together into a more practice-­‐oriented grouping of the "Non-­‐Corporate Media of Doing Business" in comparison with Philippine Corporate Law from where it has imported much of its concepts, doctrines and structures. It meant studying first the Law on Agency and the Law on Trusts before going into Partnership Law, to have a better understanding of two of the great features of every partnership arrangement — mutual agency and limited liability. Philippine Partnership Law is studied on the basis of it being a product of the amalgam of civil law provisions in the old Civil Code, the Spanish Code of Commerce and American laws on partnership, including limited partnerships. More importantly, the book discusses in-­‐depth the special features of the partnership arrangement as a business vehicle superior in the field in which vii it is meant to operate — essentially small and medium sized business enterprises, where personal involvement is essential. With the announcement by President Benigno S. Aquino, Jr., that the "Public-­‐Private Partnership" system or "PPP" would be the cornerstone of his administration in achieving accelerated economic development in our country, it is but fitting that the book presents the Law and Practice on Joint Ventures, that treats of joint venture as whole system by which large infrastructural projects, usually involving international partners, can be pursued. Although there is word that the P-­‐Noy Aquino Administration is preparing a new set of rules governing Joint Venture arrangements, included in this first edition of the book are the OGCC Rules on Joint Ventures which have been issued primarily in support of PPP schemes. Like the other legal publications of the author, this work recognizes what has been implicit in the Philippine legal system: that our hybrid legal system adheres to both the traditions of the civil law and the common law systems; and although our system recognizes the primacy of statutory provisions, it also places practically the same value to policy considerations as they evblVe in actual settlement of disputes in bur society as expressed in decisions of the Supreme Court. Necessarily, the complexion of various legal principles and doctrines continue to evolve, if not altered or discarded, as policy considerations are made to adjust to evolving contemporary settings. CESAR L. VILLANUEVA viii TABLE OF CHAPTERS AGENCY CHAPTER 1 -­‐ AATURE, OBJECTIVE, AND KINDS OF AGENCY ........................................... 1 CHAPTER 2 -­‐ AORMALITIES OF AGENCY ...................................................................... 71 CHAPTER 3 -­‐ AOWER & AUTHORITY, DUTIES & OBLIGATIONS, AND THE RIGHTS OF THE AGENT ................................... 138 CHAPTER 4 -­‐ A BLIGATIONS OF THE PRINCIPAL ............................................................ 199 CHAPTER 5 -­‐ AXTINGUISHMENT OF AGENCY ............................................................... 221 TRUSTS CHAPTER 1 -­‐ ANTRODUCTION ...................................................................................... TRO CHAPTER 2 -­‐ AXPRESS TRUSTS ..................................................................................... UST CHAPTER 3 -­‐ AMPLIED TRUSTS ...................................................................................... UST CHAPTER 4 -­‐ ARESCRIPTION RULES FOR TRUSTS .............................................................. UST PARTNERSHIPS CHAPTER 1 -­‐ AISTORICAL BACKGROUND OF PHILIPPINE PARTNERSHIP LAW ...................................................... 430 CHAPTER 2 -­‐ ARI-­‐LEVEL EXISTENCE OF THE PARTNERSHIP .............................................. 442 CHAPTER 3 -­‐ ATTRIBUTES OF THE PARTNERSHIP .......................................................... 469 CHAPTER 4 -­‐ AHE CONTRACT OF PARTNERSHIP............................................................ 484 CHAPTER 5 -­‐ AORMAL REQUIREMENTS FOR PARTNERSHIPS .......................................... 517 CHAPTER 6 -­‐ ALASSES OF PARTNERS AND PARTNERSHIPS .............................................. 552 CHAPTER 7 -­‐ AIGHTS, POWER AND AUTHORITY OF PARTNERS .. 594 CHAPTER 8 -­‐ AUTIES AND OBLIGATIONS OF PARTNERS ................................................. 637 CHAPTER 9 -­‐ AISSOLUTION, WINDING-­‐UP AND TERMINATION ......................................... RMI CHAPTER 10 -­‐ AIMITED PARTNERSHIPS ...................................................................... 714 JOINT VENTURES ........................................................................................... OIN ix TABLE OF CONTENTS AGENCY CHAPTER 1 NATURE, OBJECTIVE, AND KINDS OF AGENCY Definition and Objectives of Agency......................................................... Parties to a Contract of Agency ................................................................ Elements of the Contract of Agency The Element of Consent .................................................................. Capacity of the Parties .......................................................... The Element of Object or Subject Matter........................................ The Element of Consideration or Commission ............................... Agent's Entitlement to Commission Anchored on the Rendering of Service......................................... Essential Characteristics of Agency Nominate and Principal................................................................... Consensual ...................................................................................... Unilateral and Primarily Onerous.................................................... Personal, Representative and Derivative ....................................... Principles Flowing from Agency Characteristics of "Personal Representative and Derivative".................. Fiduciary and Revocable ................................................................. Preparatory and Progressive ........................................................... Kinds of Agency Based on the Business or Transactions Covered ............................. Whether It Covers Litigation Matters ............................................. Whether It Covers Acts of Administration or Acts of Ownership ......................................................................... Agency Distinguished from Similar Contracts From an Employment Contract ....................................................... From a Contract for a Piece-­‐of-­‐Work............................................... From a Management Agreement.................................................... xi 1 5 7 9 10 11 13 16 17 18 18 20 22 24 25 28 29 31 32 33 From a Contract of Sale ................................................................ 34 From a Contract of Brokerage ...................................................... 42 How Different Are the Duties and Responsibilities of the Agent and the Broker to Their Clients? ................................................................... 48 Broker Is Not Legally Incapacitated to Purchase Property of the Principal ................................................. 52 Broker's Entitlement to Commission .................................... 52 Rules on Compensation for Brokers Applies Also to Commission Agents............................................. 62 Aberrant Rulings on Commission Issues................................ 65 Broker of a Sale Distinguished from Broker Himself Purchasing .......................................................... 69 CHAPTER 2 FORMALITIES OF AGENCY How Agency May Be Constituted..................................................................... 71 Perfection from the Side of the Principal ......................................................... 73 Perfection from the Side of the Agent.............................................................. 74 Instances When There Is Deemed to Be Meeting of Minds Between the Principal and the Agent..................... 76 Perfection of the Contract of Agency as It Affects Third Persons ............................................................................... 78 Rules on the Existence of Agency, as to Third Parties .................. 80 Agency by Estoppel ............................................................... 82 Formal Requirements on Grant of Powers to the Agent.................................. 86 General Principles on Contracts Entered Into by Agents ... 86 General Powers of Attorney......................................................... 87 Must Powers of Attorney Be in Writing for the Judicial Acts Executed Pursuant Thereto to Be Valid and Enforceable? .............................................. 90 Special Powers of Attorney .......................................................... 98 What Makes an Agency a "Special Power of Attorney"? ................................................................. 99 Must Special Powers of Attorney Be in Writing?................. 100 Specific Instances Where the Law Requires a Special Power of Attorney.......................................... 101 To Make Payments as Are Not Usually Considered as Acts of Administration........................... 101 To Effect Novation Which Put an End to Obligations Already in Existence at the Time the Agency Was Constituted 102 xii Special Power of Attorney With Respect to Principal's Causes of Action ........................... 102 To Waive Any Obligation Gratuitously ................................ 105 To Enter Into Any Contract by Which the Ownership of an Immovable Is Transmitted or Acquired .............................. 106 Does the Grant of the Special Power to Sell Include the Powers to Mortgage, and Vice Versa?............................ 109 Sale of a Piece of Land Through an Agent...................... 110 Does Article 1874 Cover Agency to Purchase Land or Any Interest Therein?..................................................... 110 Is an Oral Contract of Agency to Sell a Parcel of Land Not Itself Void?.................... 111 Is the Sale of a Piece of Land Made Pursuant to an Oral Special Power to Sell Really Void or Actually Unenforceable? ............................. 111 How Detailed Must the Special Power of Attorney to Sell Be?................................ 117 Agent Cannot Validly Purchase Property of Principal .................................................... 120 To Make Gifts....................................................................... 121 To Loan or Borrow Money................................................... 122 What Happens When Money Is Borrowed in the Name of the Principle When There Was No Special Power or Attorney to Do So? ........................................ 124 When the Agent Has Been Expressly Empowered to Borrow Money Can He Himself Be the Lender Without Being in Breach of Trust?......................................... 125 To Lease Real Property for More Than One Year ....................................................... 125 To Bind the Principal to Render Some Service Without Compensation................................. 127 To Bind the Principal in a Contract of Partnership .................................................... 128 To Obligate the Principal as a Guarantor or Surety ........................................................ 128 To Create or Convey Real Rights Over Immovable .................................................... 130 xiii To Accept or Repudiate an Inheritance............................... 131 To Ratify or Recognize Obligations Contracted Before the Agency.................................................. 132 Any Other Act of Strict Dominion ....................................... 133 Doctrine of Implied Powers Flowing from Express Powers......................................................................................... 135 Special Power of Attorney Excludes General Power of Attorney Over the Matter Covered by the Special Power of Attorney ............................................................... 136 CHAPTER 3 POWER & AUTHORITY, DUTIES & OBLIGATIONS, AND RIGHTS OF THE AGENT General Obligation of Agent Who Accepts the Agency ................................. 138 Measure of Damage for Agent's Non-­‐Performance of Obligation ............................................................................... 140 Obligation of Agent Who Declines Agency..................................................... 141 General Rule on Agent's Power and Authority .............................................. 142 Statutory Measures of Compliance by the Agent of His Fiduciary Duties of Obedience and Diligence ....................... 143 Duty of Obedience.......................................................................................... 143 Duty of Diligence ............................................................................................ 145 Measure of Liability to Breach of Duty of Diligence ........................ 147 When Agent Is Guilty of Fraud or Negligence ................................. 148 Duty of Loyalty ............................................................................................... 151 Duty of Loyalty in General ............................................................. 151 Measure of Damages Due to the Principal When an Agent Violates His Duty of Loyalty ......................................... 152 When Agent Contracts in His Own Name on a Matter that Falls Within the Scope of the Agency .............................................................. 153 Particular Rules on Conflict-­‐of-­‐lnterests Situations ............................................................................ 155 Purchase of Principals Property ......................................... 155 When Agent Empowered to Borrow or Lend Money ................................................................ 157 What Happens When Agent Violates His Obligations under Article 1890? .................................. 157 Obligation to Turn-­‐Over to the Principal Whatever Received by Virtue of the Agency ... .......... .............................................. 158 Obligation of Agent to Render Account ...................................... 158 xiv When Agent May Legally Withhold from the Principal .................................. 163 Specific Obligation Rules for Agents Obligation to Advance Funds........................................................... 164 Liability of Agent for Interest .......................................................... 164 Power of Agent to Appoint a Substitute................................................... 165 Effects When Agent Appoints a Substitute When the Sub-­‐Agent Appointed Pursuant to the Instructions of the Principal ................. 168 When the Sub-­‐Agent Not Prohibited by the Principal.............................................................. 168 When the Sub-­‐Agent Appointed Against the Principal's Prohibition ............................................. 169 Consideration of the Fiduciary Duties of the Agent as to Third Parties ...................................................................................... 169 Effects on the Agent of Contracts Entered Into Within the Scope of His Authority........................................................... 173 General Rule: Agent Is Not Personally Liable to Third Parties .................................................................... 174 Exception: When the Agent Expressly Mak...
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