Art 1767

Ortega vs CA 245 SCRA 529 1995

GREGORIO F. ORTEGA, TOMAS O. DEL CASTILLO, JR., and BENJAMIN T.
BACORRO, petitioners, vs. HON. COURT OF APPEALS, SECURITIES AND EXCHANGE
COMMISSION and JOAQUIN L.
The instant petition seeks a review of the decision rendered by the Court of Appeals, dated 26 February
1993, in CA-G.R. SP No. 24638 and No. 24648 affirming in toto that of the Securities and Exchange
Commission ("SEC") in SEC AC 254.
The antecedents of the controversy, summarized by respondent Commission and quoted at length by
the appellate court in its decision, are hereunder restated.
The law firm of ROSS, LAWRENCE, SELPH and CARRASCOSO was duly registered in the Mercantile
Registry on 4 January 1937 and reconstituted with the Securities and Exchange Commission on 4
August 1948. The SEC records show that there were several subsequent amendments to the articles of
partnership on 18 September 1958, to change the firm [name] to ROSS, SELPH and CARRASCOSO;
on 6 July 1965 . . . to ROSS, SELPH, SALCEDO, DEL ROSARIO, BITO & MISA; on 18 April 1972 to
SALCEDO, DEL ROSARIO, BITO, MISA & LOZADA; on 4 December 1972 to SALCEDO, DEL
ROSARIO, BITO, MISA & LOZADA; on 11 March 1977 to DEL ROSARIO, BITO, MISA & LOZADA; on
7 June 1977 to BITO, MISA & LOZADA; on 19 December 1980, [Joaquin L. Misa] appellees Jesus B.
Bito and Mariano M. Lozada associated themselves together, as senior partners with respondents-
appellees Gregorio F. Ortega, Tomas O. del Castillo, Jr., and Benjamin Bacorro, as junior partners.
On February 17, 1988, petitioner-appellant wrote the respondents-appellees a letter stating: I am
withdrawing and retiring from the firm of Bito, Misa and Lozada, effective at the end of this month.
"I trust that the accountants will be instructed to make the proper liquidation of my participation in the
firm."
On the same day, petitioner-appellant wrote respondents-appellees another letter stating:
"Further to my letter to you today, I would like to have a meeting with all of you with regard to the
mechanics of liquidation, and more particularly, my interest in the two floors of this building. I would like
to have this resolved soon because it has to do with my own plans."
On 19 February 1988, petitioner-appellant wrote respondents-appellees another letter stating:
"The partnership has ceased to be mutually satisfactory because of the working conditions of our
employees including the assistant attorneys. All my efforts to ameliorate the below subsistence level of
the pay scale of our employees have been thwarted by the other partners. Not only have they refused
to give meaningful increases to the employees, even attorneys, are dressed down publicly in a loud voice
in a manner that deprived them of their self-respect. The result of such policies is the formation of the
union, including the assistant attorneys."
On 30 June 1988, petitioner filed with this Commission's Securities Investigation and Clearing
Department (SICD) a petition for dissolution and liquidation of partnership, docketed as SEC Case No.
3384 praying that the Commission:
"1. Decree the formal dissolution and order the immediate liquidation of (the partnership of) Bito, Misa &
Lozada;
"2. Order the respondents to deliver or pay for petitioner's share in the partnership assets plus the profits,
rent or interest attributable to the use of his right in the assets of the dissolved partnership;
"3. Enjoin respondents from using the firm name of Bito, Misa & Lozada in any of their correspondence,
checks and pleadings and to pay petitioners damages for the use thereof despite the dissolution of the
partnership in the amount of at least P50,000.00;
"4. Order respondents jointly and severally to pay petitioner attorney's fees and expense of litigation in
such amounts as maybe proven during the trial and which the Commission may deem just and equitable
under the premises but in no case less than ten (10%) per cent of the value of the shares of petitioner
or P100,000.00;
"5. Order the respondents to pay petitioner moral damages with the amount of P500,000.00 and
exemplary damages in the amount of P200,000.00.
"Petitioner likewise prayed for such other and further reliefs that the Commission may deem just and
equitable under the premises."
On 13 July 1988, respondents-appellees filed their opposition to the petition.
On 13 July 1988, petitioner filed his Reply to the Opposition.
On 31 March 1989, the hearing officer rendered a decision ruling that:
"[P]etitioner's withdrawal from the law firm Bito, Misa & Lozada did not dissolve the said law partnership.
Accordingly, the petitioner and respondents are hereby enjoined to abide by the provisions of the
Agreement relative to the matter governing the liquidation of the shares of any retiring or withdrawing
partner in the partnership interest."1
On appeal, the SEC en banc reversed the decision of the Hearing Officer and held that the withdrawal
of Attorney Joaquin L. Misa had dissolved the partnership of "Bito, Misa & Lozada." The Commission
ruled that, being a partnership at will, the law firm could be dissolved by any partner at anytime, such as
by his withdrawal therefrom, regardless of good faith or bad faith, since no partner can be forced to
continue in the partnership against his will. In its decision, dated 17 January 1990, the SEC held:
WHEREFORE, premises considered the appealed order of 31 March 1989 is hereby REVERSED insofar
as it concludes that the partnership of Bito, Misa & Lozada has not been dissolved. The case is hereby
REMANDED to the Hearing Officer for determination of the respective rights and obligations of the
parties.2
The parties sought a reconsideration of the above decision. Attorney Misa, in addition, asked for an
appointment of a receiver to take over the assets of the dissolved partnership and to take charge of the
winding up of its affairs. On 4 April 1991, respondent SEC issued an order denying reconsideration, as
well as rejecting the petition for receivership, and reiterating the remand of the case to the Hearing
Officer.
The parties filed with the appellate court separate appeals (docketed CA-G.R. SP No. 24638 and CA-
G.R. SP No. 24648).
During the pendency of the case with the Court of Appeals, Attorney Jesus Bito and Attorney Mariano
Lozada both died on, respectively, 05 September 1991 and 21 December 1991. The death of the two
partners, as well as the admission of new partners, in the law firm prompted Attorney Misa to renew his
application for receivership (in CA G.R. SP No. 24648). He expressed concern over the need to preserve
and care for the partnership assets. The other partners opposed the prayer.
The Court of Appeals, finding no reversible error on the part of respondent Commission, AFFIRMED in
toto the SEC decision and order appealed from. In fine, the appellate court held, per its decision of 26
February 1993, (a) that Atty. Misa's withdrawal from the partnership had changed the relation of the
parties and inevitably caused the dissolution of the partnership; (b) that such withdrawal was not in bad
faith; (c) that the liquidation should be to the extent of Attorney Misa's interest or participation in the
partnership which could be computed and paid in the manner stipulated in the partnership agreement;
(d) that the case should be remanded to the SEC Hearing Officer for the corresponding determination of
the value of Attorney Misa's share in the partnership assets; and (e) that the appointment of a receiver
was unnecessary as no sufficient proof had been shown to indicate that the partnership assets were in
any such danger of being lost, removed or materially impaired.
In this petition for review under Rule 45 of the Rules of Court, petitioners confine themselves to the
following issues:
1. Whether or not the Court of Appeals has erred in holding that the partnership of Bito, Misa & Lozada
(now Bito, Lozada, Ortega & Castillo) is a partnership at will;
2. Whether or not the Court of Appeals has erred in holding that the withdrawal of private respondent
dissolved the partnership regardless of his good or bad faith; and
3. Whether or not the Court of Appeals has erred in holding that private respondent's demand for the
dissolution of the partnership so that he can get a physical partition of partnership was not made in bad
faith;
to which matters we shall, accordingly, likewise limit ourselves.
A partnership that does not fix its term is a partnership at will. That the law firm "Bito, Misa & Lozada,"
and now "Bito, Lozada, Ortega and Castillo," is indeed such a partnership need not be unduly belabored.
We quote, with approval, like did the appellate court, the findings and disquisition of respondent SEC on
this matter; viz:
The partnership agreement (amended articles of 19 August 1948) does not provide for a specified period
or undertaking. The "DURATION" clause simply states:
"5. DURATION. The partnership shall continue so long as mutually satisfactory and upon the death or
legal incapacity of one of the partners, shall be continued by the surviving partners."
The hearing officer however opined that the partnership is one for a specific undertaking and hence not
a partnership at will, citing paragraph 2 of the Amended Articles of Partnership (19 August 1948):
"2. Purpose. The purpose for which the partnership is formed, is to act as legal adviser and
representative of any individual, firm and corporation engaged in commercial, industrial or other lawful
businesses and occupations; to counsel and advise such persons and entities with respect to their legal
and other affairs; and to appear for and represent their principals and client in all courts of justice and
government departments and offices in the Philippines, and elsewhere when legally authorized to do
so."
The "purpose" of the partnership is not the specific undertaking referred to in the law. Otherwise, all
partnerships, which necessarily must have a purpose, would all be considered as partnerships for a
definite undertaking. There would therefore be no need to provide for articles on partnership at will as
none would so exist. Apparently what the law contemplates, is a specific undertaking or "project" which
has a definite or definable period of completion.3
The birth and life of a partnership at will is predicated on the mutual desire and consent of the partners.
The right to choose with whom a person wishes to associate himself is the very foundation and essence
of that partnership. Its continued existence is, in turn, dependent on the constancy of that mutual resolve,
along with each partner's capability to give it, and the absence of a cause for dissolution provided by the
law itself. Verily, any one of the partners may, at his sole pleasure, dictate a dissolution of the partnership
at will. He must, however, act in good faith, not that the attendance of bad faith can prevent the
dissolution of the partnership4 but that it can result in a liability for damages.5
In passing, neither would the presence of a period for its specific duration or the statement of a particular
purpose for its creation prevent the dissolution of any partnership by an act or will of a partner. 6 Among
partners,7 mutual agency arises and the doctrine of delectus personae allows them to have the power,
although not necessarily theright, to dissolve the partnership. An unjustified dissolution by the partner
can subject him to a possible action for damages.
The dissolution of a partnership is the change in the relation of the parties caused by any partner ceasing
to be associated in the carrying on, as might be distinguished from the winding up of, the business.8 Upon
its dissolution, the partnership continues and its legal personality is retained until the complete winding
up of its business culminating in its termination.9
The liquidation of the assets of the partnership following its dissolution is governed by various provisions
of the Civil Code; 10 however, an agreement of the partners, like any other contract, is binding among
them and normally takes precedence to the extent applicable over the Code's general provisions. We
here take note of paragraph 8 of the "Amendment to Articles of Partnership" reading thusly:
. . . In the event of the death or retirement of any partner, his interest in the partnership shall be liquidated
and paid in accordance with the existing agreements and his partnership participation shall revert to the
Senior Partners for allocation as the Senior Partners may determine; provided, however, that with
respect to the two (2) floors of office condominium which the partnership is now acquiring, consisting of
the 5th and the 6th floors of the Alpap Building, 140 Alfaro Street, Salcedo Village, Makati, Metro Manila,
their true value at the time of such death or retirement shall be determined by two (2) independent
appraisers, one to be appointed (by the partnership and the other by the) retiring partner or the heirs of
a deceased partner, as the case may be. In the event of any disagreement between the said appraisers
a third appraiser will be appointed by them whose decision shall be final. The share of the retiring or
deceased partner in the aforementioned two (2) floor office condominium shall be determined upon the
basis of the valuation above mentioned which shall be paid monthly within the first ten (10) days of every
month in installments of not less than P20,000.00 for the Senior Partners, P10,000.00 in the case of two
(2) existing Junior Partners and P5,000.00 in the case of the new Junior Partner. 11
The term "retirement" must have been used in the articles, as we so hold, in a generic sense to mean
the dissociation by a partner, inclusive of resignation or withdrawal, from the partnership that thereby
dissolves it.
On the third and final issue, we accord due respect to the appellate court and respondent Commission
on their common factual finding, i.e., that Attorney Misa did not act in bad faith. Public respondents
viewed his withdrawal to have been spurred by "interpersonal conflict" among the partners. It would not
be right, we agree, to let any of the partners remain in the partnership under such an atmosphere of
animosity; certainly, not against their will. 12 Indeed, for as long as the reason for withdrawal of a partner
is not contrary to the dictates of justice and fairness, nor for the purpose of unduly visiting harm and
damage upon the partnership, bad faith cannot be said to characterize the act. Bad faith, in the context
here used, is no different from its normal concept of a conscious and intentional design to do a wrongful
act for a dishonest purpose or moral obliquity.
WHEREFORE, the decision appealed from is AFFIRMED. No pronouncement on costs.
2. Pang Lim and Galvez vs Lo Seng 42 Ph 282 1921

PANG LIM and BENITO GALVEZ, plaintiffs-appellees, vs.LO SENG, defendant-appellant.

For several years prior to June 1, 1916, two of the litigating parties herein, namely, Lo Seng and Pang
Lim, Chinese residents of the City of Manila, were partners, under the firm name of Lo Seng and Co., in
the business of running a distillery, known as "El Progreso," in the Municipality of Paombong, in the
Province of Bulacan. The land on which said distillery is located as well as the buildings and
improvements originally used in the business were, at the time to which reference is now made, the
property of another Chinaman, who resides in Hongkong, named Lo Yao, who, in September, 1911,
leased the same to the firm of Lo Seng and Co. for the term of three years.
Upon the expiration of this lease a new written contract, in the making of which Lo Yao was represented
by one Lo Shui as attorney in fact, became effective whereby the lease was extended for fifteen years.
The reason why the contract was made for so long a period of time appears to have been that the Bureau
of Internal Revenue had required sundry expensive improvements to be made in the distillery, and it was
agreed that these improvements should be effected at the expense of the lessees. In conformity with
this understanding many thousands of pesos were expended by Lo Seng and Co., and later by Lo Seng
alone, in enlarging and improving the plant.
Among the provisions contained in said lease we note the following:
Know all men by these presents:
 x
1. That I, Lo Shui, as attorney in fact in charge of the properties of Mr. Lo Yao of Hongkong, cede by
way of lease for fifteen years more said distillery "El Progreso" to Messrs. Pang Lim and Lo Seng (doing
business under the firm name of Lo Seng and Co.), after the termination of the previous contract,
because of the fact that they are required, by the Bureau of Internal Revenue, to rearrange, alter and
clean up the distillery.
2. That all the improvements and betterments which they may introduce, such as machinery, apparatus,
tanks, pumps, boilers and buildings which the business may require, shall be, after the termination of the
fifteen years of lease, for the benefit of Mr. Lo Yao, my principal, the buildings being considered as
improvements.
3. That the monthly rent of said distillery is P200, as agreed upon in the previous contract of September
11, 1911, acknowledged before the notary public D. Vicente Santos; and all modifications and repairs
which may be needed shall be paid for by Messrs. Pang Lim and Lo Seng.
We, Pang Lim and Lo Seng, as partners in said distillery "El Progreso," which we are at present
conducting, hereby accept this contract in each and all its parts, said contract to be effective upon the
termination of the contract of September 11, 1911.
Neither the original contract of lease nor the agreement extending the same was inscribed in the property
registry, for the reason that the estate which is the subject of the lease has never at any time been so
inscribed.
On June 1, 1916, Pang Lim sold all his interest in the distillery to his partner Lo Seng, thus placing the
latter in the position of sole owner; and on June 28, 1918, Lo Shui, again acting as attorney in fact of Lo
Yao, executed and acknowledged before a notary public a deed purporting to convey to Pang Lim and
another Chinaman named Benito Galvez, the entire distillery plant including the land used in connection
therewith. As in case of the lease this document also was never recorded in the registry of property.
Thereafter Pang Lim and Benito Galvez demanded possession from Lo Seng, but the latter refused to
yield; and the present action of unlawful detainer was thereupon initiated by Pang Lim and Benito Galvez
in the court of the justice of the peace of Paombong to recover possession of the premises. From the
decision of the justice of the peace the case was appealed to the Court of First Instance, where judgment
was rendered for the plaintiffs; and the defendant thereupon appealed to the Supreme Court.
The case for the plaintiffs is rested exclusively on the provisions of article 1571 of the Civil Code, which
reads in part as follows:

ART. 1571. The purchaser of a leased estate shall be entitled to terminate any lease in force at the time
of making the sale, unless the contrary is stipulated, and subject to the provisions of the Mortgage Law.
In considering this provision it may be premised that a contract of lease is personally binding on all who
participate in it regardless of whether it is recorded or not, though of course the unrecorded lease creates
no real charge upon the land to which it relates. The Mortgage Law was devised for the protection of
third parties, or those who have not participated in the contracts which are by that law required to be
registered; and none of its provisions with reference to leases interpose any obstacle whatever to the
giving of full effect to the personal obligations incident to such contracts, so far as concerns the
immediate parties thereto. This is rudimentary, and the law appears to be so understood by all
commentators, there being, so far as we are aware, no authority suggesting the contrary. Thus, in the
commentaries of the authors Galindo and Escosura, on the Mortgage Law, we find the following pertinent
observation: "The Mortgage Law is enacted in aid of and in respect to third persons only; it does not
affect the relations between the contracting parties, nor their capacity to contract. Any question affecting
the former will be determined by the dispositions of the special law [i.e., the Mortgage Law], while any
question affecting the latter will be determined by the general law." (Galindo y Escosura, Comentarios a
la Legislacion Hipotecaria, vol. I, p. 461.)
Although it is thus manifest that, under the Mortgage Law, as regards the personal obligations expressed
therein, the lease in question was from the beginning, and has remained, binding upon all the parties
thereto among whom is to be numbered Pang Lim, then a member of the firm of Lo Seng and Co.
this does not really solve the problem now before us, which is, whether the plaintiffs herein, as
purchasers of the estate, are at liberty to terminate the lease, assuming that it was originally binding
upon all parties participating in it.
Upon this point the plaintiffs are undoubtedly supported, prima facie, by the letter of article 1571 of the
Civil Code; and the position of the defendant derives no assistance from the mere circumstance that the
lease was admittedly binding as between the parties thereto.
The words "subject to the provisions of the Mortgage Law," contained in article 1571, express a
qualification which evidently has reference to the familiar proposition that recorded instruments are
effective against third persons from the date of registration (Co-Tiongco vs. Co-Guia, 1 Phil., 210); from
whence it follows that a recorded lease must be respected by any purchaser of the estate whomsoever.
But there is nothing in the Mortgage Law which, so far as we now see, would prevent a purchaser from
exercising the precise power conferred in article 1571 of the Civil Code, namely, of terminating any lease
which is unrecorded; nothing in that law that can be considered as arresting the force of article 1571 as
applied to the lease now before us.
Article 1549 of the Civil Code has also been cited by the attorneys for the appellant as supplying authority
for the proposition that the lease in question cannot be terminated by one who, like Pang Lim, has taken
part in the contract. That provision is practically identical in terms with the first paragraph of article 23 of
the Mortgage Law, being to the effect that unrecorded leases shall be of no effect as against third
persons; and the same observation will suffice to dispose of it that was made by us above in discussing
the Mortgage Law, namely, that while it recognizes the fact that an unrecorded lease is binding on all
persons who participate therein, this does not determine the question whether, admitting the lease to be
so binding, it can be terminated by the plaintiffs under article 1571.
Having thus disposed of the considerations which arise in relation with the Mortgage Law, as well as
article 1549 of the Civil Coded all of which, as we have seen, are undecisive we are brought to
consider the aspect of the case which seems to us conclusive. This is found in the circumstance that the
plaintiff Pang Lim has occupied a double role in the transactions which gave rise to this litigation, namely,
first, as one of the lessees; and secondly, as one of the purchasers now seeking to terminate the lease.
These two positions are essentially antagonistic and incompatible. Every competent person is by law
bond to maintain in all good faith the integrity of his own obligations; and no less certainly is he bound to
respect the rights of any person whom he has placed in his own shoes as regards any contract previously
entered into by himself.
While yet a partner in the firm of Lo Seng and Co., Pang Lim participated in the creation of this lease,
and when he sold out his interest in that firm to Lo Seng this operated as a transfer to Lo Seng of Pang
Lim's interest in the firm assets, including the lease; and Pang Lim cannot now be permitted, in the guise
of a purchaser of the estate, to destroy an interest derived from himself, and for which he has received
full value.
The bad faith of the plaintiffs in seeking to deprive the defendant of this lease is strikingly revealed in the
circumstance that prior to the acquisition of this property Pang Lim had been partner with Lo Seng and
Benito Galvez an employee. Both therefore had been in relations of confidence with Lo Seng and in that
position had acquired knowledge of the possibilities of the property and possibly an experience which
would have enabled them, in case they had acquired possession, to exploit the distillery with profit. On
account of his status as partner in the firm of Lo Seng and Co., Pang Lim knew that the original lease
had been extended for fifteen years; and he knew the extent of valuable improvements that had been
made thereon. Certainly, as observed in the appellant's brief, it would be shocking to the moral sense if
the condition of the law were found to be such that Pang Lim, after profiting by the sale of his interest in
a business, worthless without the lease, could intervene as purchaser of the property and confiscate for
his own benefit the property which he had sold for a valuable consideration to Lo Seng. The sense of
justice recoils before the mere possibility of such eventuality.
Above all other persons in business relations, partners are required to exhibit towards each other the
highest degree of good faith. In fact the relation between partners is essentially fiduciary, each being
considered in law, as he is in fact, the confidential agent of the other. It is therefore accepted as
fundamental in equity jurisprudence that one partner cannot, to the detriment of another, apply
exclusively to his own benefit the results of the knowledge and information gained in the character of
partner. Thus, it has been held that if one partner obtains in his own name and for his own benefit the
renewal of a lease on property used by the firm, to commence at a date subsequent to the expiration of
the firm's lease, the partner obtaining the renewal is held to be a constructive trustee of the firm as to
such lease. (20 R. C. L., 878-882.) And this rule has even been applied to a renewal taken in the name
of one partner after the dissolution of the firm and pending its liquidation. (16 R. C. L., 906;
Knapp vs. Reed, 88 Neb., 754; 32 L. R. A. [N. S.], 869; Mitchell vs. Reed 61 N. Y., 123; 19 Am. Rep.,
252.)
An additional consideration showing that the position of the plaintiff Pang Lim in this case is untenable
is deducible from articles 1461 and 1474 of the Civil Code, which declare that every person who sells
anything is bound to deliver and warrant the subject-matter of the sale and is responsible to the vendee
for the legal and lawful possession of the thing sold. The pertinence of these provisions to the case now
under consideration is undeniable, for among the assets of the partnership which Pang Lim transferred
to Lo Seng, upon selling out his interest in the firm to the latter, was this very lease; and while it cannot
be supposed that the obligation to warrant recognized in the articles cited would nullify article 1571, if
the latter article had actually conferred on the plaintiffs the right to terminate this lease, nevertheless said
articles (1461, 1474), in relation with other considerations, reveal the basis of an estoppel which in our
opinion precludes Pang Lim from setting up his interest as purchaser of the estate to the detriment of Lo
Seng.
It will not escape observation that the doctrine thus applied is analogous to the doctrine recognized in
courts of common law under the head of estoppel by deed, in accordance with which it is held that if a
person, having no title to land, conveys the same to another by some one or another of the recognized
modes of conveyance at common law, any title afterwards acquired by the vendor will pass to the
purchaser; and the vendor is estopped as against such purchaser from asserting such after-acquired
title. The indenture of lease, it may be further noted, was recognized as one of the modes of conveyance
at common law which created this estoppel. (8 R. C. L., 1058, 1059.)
From what has been said it is clear that Pang Lim, having been a participant in the contract of lease now
in question, is not in a position to terminate it: and this is a fatal obstacle to the maintenance of the action
of unlawful detainer by him. Moreover, it is fatal to the maintenance of the action brought jointly by Pang
Lim and Benito Galvez. The reason is that in the action of unlawful detainer, under section 80 of the
Code of Civil Procedure, the only question that can be adjudicated is the right to possession; and in order
to maintain the action, in the form in which it is here presented, the proof must show that occupant's
possession is unlawful, i. e., that he is unlawfully withholding possession after the determination of the
right to hold possession. In the case before us quite the contrary appears; for, even admitting that Pang
Lim and Benito Galvez have purchased the estate from Lo Yao, the original landlord, they are, as
between themselves, in the position of tenants in common or owners pro indiviso, according to the
proportion of their respective contribution to the purchase price. But it is well recognized that one tenant
in common cannot maintain a possessory action against his cotenant, since one is as much entitled to
have possession as the other. The remedy is ordinarily by an action for partition. (Cornista vs. Ticson,
27 Phil., 80.) It follows that as Lo Seng is vested with the possessory right as against Pang Lim, he
cannot be ousted either by Pang Lim or Benito Galvez. Having lawful possession as against one
cotenant, he is entitled to retain it against both. Furthermore, it is obvious that partition proceedings could
not be maintained at the instance of Benito Galvez as against Lo Seng, since partition can only be
effected where the partitioners are cotenants, that is, have an interest of an identical character as among
themselves. (30 Cyc., 178-180.) The practical result is that both Pang Lim and Benito Galvez are bound
to respect Lo Seng's lease, at least in so far as the present action is concerned.
We have assumed in the course of the preceding discussion that the deed of sale under which the
plaintiffs acquired the right of Lo Yao, the owner of the fee, is competent proof in behalf of the plaintiffs.
It is, however, earnestly insisted by the attorney for Lo Seng that this document, having never been
recorded in the property registry, cannot under article 389 of the Mortgage Law, be used in court against
him because as to said instrument he is a third party. The important question thus raised is not absolutely
necessary to the decision of this case, and we are inclined to pass it without decision, not only because
the question does not seem to have been ventilated in the Court of First Instance but for the further
reason that we have not had the benefit of any written brief in this case in behalf of the appellees.
The judgment appealed from will be reversed, and the defendant will be absolved from the complaint. It
is so ordered, without express adjudication as to costs.

ROSARIO U. YULO, assisted by her husband JOSE C. YULO, Plaintiffs-Appellants, vs. YANG
CHIAO SENG,

Appeal from the judgment of the Court of First Instance of Manila, Hon. Bienvenido A. Tan, presiding,
dismissing plaintiff's complaint as well as defendant's counterclaim. The appeal is prosecuted by plaintiff.
The record discloses that on June 17, 1945, defendant Yang Chiao Seng wrote a letter to the palintiff
Mrs. Rosario U. Yulo, proposing the formation of a partnership between them to run and operate a theatre
on the premises occupied by former Cine Oro at Plaza Sta. Cruz, Manila. The principal conditions of the
offer are (1) that Yang Chiao Seng guarantees Mrs. Yulo a monthly participation of P3,000 payable
quarterly in advance within the first 15 days of each quarter, (2) that the partnership shall be for a period
of two years and six months, starting from July 1, 1945 to December 31, 1947, with the condition that if
the land is expropriated or rendered impracticable for the business, or if the owner constructs a
permanent building thereon, or Mrs. Yulo's right of lease is terminated by the owner, then the partnership
shall be terminated even if the period for which the partnership was agreed to be established has not yet
expired; (3) that Mrs. Yulo is authorized personally to conduct such business in the lobby of the building
as is ordinarily carried on in lobbies of theatres in operation, provided the said business may not obstruct
the free ingress and agrees of patrons of the theatre; (4) that after December 31, 1947, all improvements
placed by the partnership shall belong to Mrs. Yulo, but if the partnership agreement is terminated before
the lapse of one and a half years period under any of the causes mentioned in paragraph (2), then Yang
Chiao Seng shall have the right to remove and take away all improvements that the partnership may
place in the premises.
Pursuant to the above offer, which plaintiff evidently accepted, the parties executed a partnership
agreement establishing the "Yang & Company, Limited," which was to exist from July 1, 1945 to
December 31, 1947. It states that it will conduct and carry on the business of operating a theatre for the
exhibition of motion and talking pictures. The capital is fixed at P100,000, P80,000 of which is to be
furnished by Yang Chiao Seng and P20,000, by Mrs. Yulo. All gains and profits are to be distributed
among the partners in the same proportion as their capital contribution and the liability of Mrs. Yulo, in
case of loss, shall be limited to her capital contribution
In June , 1946, they executed a supplementary agreement, extending the partnership for a period of
three years beginning January 1, 1948 to December 31, 1950. The benefits are to be divided between
them at the rate of 50-50 and after December 31, 1950, the showhouse building shall belong exclusively
to the second party, Mrs. Yulo. The land on which the theatre was constructed was leased by plaintiff
Mrs. Yulo from Emilia Carrion Santa Marina and Maria Carrion Santa Marina. In the contract of lease it
was stipulated that the lease shall continue for an indefinite period of time, but that after one year the
lease may be cancelled by either party by written notice to the other party at least 90 days before the
date of cancellation. The last contract was executed between the owners and Mrs. Yulo on April 5, 1948.
But on April 12, 1949, the attorney for the owners notified Mrs. Yulo of the owner's desire to cancel the
contract of lease on July 31, 1949. In view of the above notice, Mrs. Yulo and her husband brought a
civil action to the Court of First Instance of Manila on July 3, 1949 to declare the lease of the premises.
On February 9, 1950, the Municipal Court of Manila rendered judgment ordering the ejectment of Mrs.
Yulo and Mr. Yang. The judgment was appealed. In the Court of First Instance, the two cases were
afterwards heard jointly, and judgment was rendered dismissing the complaint of Mrs. Yulo and her
husband, and declaring the contract of lease of the premises terminated as of July 31, 1949, and fixing
the reasonable monthly rentals of said premises at P100. Both parties appealed from said decision and
the Court of Appeals, on April 30, 1955, affirmed the judgment.
On October 27, 1950, Mrs. Yulo demanded from Yang Chiao Seng her share in the profits of the
business. Yang answered the letter saying that upon the advice of his counsel he had to suspend the
payment (of the rentals) because of the pendency of the ejectment suit by the owners of the land against
Mrs. Yulo. In this letter Yang alleges that inasmuch as he is a sublessee and inasmuch as Mrs. Yulo has
not paid to the lessors the rentals from August, 1949, he was retaining the rentals to make good to the
landowners the rentals due from Mrs. Yulo in arrears (Exh. "E"). In view of the refusal of Yang to pay her
the amount agreed upon, Mrs. Yulo instituted this action on May 26, 1954, alleging the existence of a
partnership between them and that the defendant Yang Chiao Seng has refused to pay her share from
December, 1949 to December, 1950; that after December 31, 1950 the partnership between Mrs. Yulo
and Yang terminated, as a result of which, plaintiff became the absolute owner of the building occupied
by the Cine Astor; that the reasonable rental that the defendant should pay therefor from January, 1951
is P5,000; that the defendant has acted maliciously and refuses to pay the participation of the plaintiff in
the profits of the business amounting to P35,000 from November, 1949 to October, 1950, and that as a
result of such bad faith and malice on the part of the defendant, Mrs. Yulo has suffered damages in the
amount of P160,000 and exemplary damages to the extent of P5,000. The prayer includes a demand
for the payment of the above sums plus the sum of P10,000 for the attorney's fees.
In answer to the complaint, defendant alleges that the real agreement between the plaintiff and the
defendant was one of lease and not of partnership; that the partnership was adopted as a subterfuge to
get around the prohibition contained in the contract of lease between the owners and the plaintiff against
the sublease of the said property. As to the other claims, he denies the same and alleges that the fair
rental value of the land is only P1,100. By way of counterclaim he alleges that by reason of an attachment
issued against the properties of the defendant the latter has suffered damages amounting to
P100,000. The first hearing was had on April 19, 1955, at which time only the plaintiff appeared. The
court heard evidence of the plaintiff in the absence of the defendant and thereafter rendered judgment
ordering the defendant to pay to the plaintiff P41,000 for her participation in the business up to December,
1950; P5,000 as monthly rental for the use and occupation of the building from January 1, 1951 until
defendant vacates the same, and P3,000 for the use and occupation of the lobby from July 1, 1945 until
defendant vacates the property. This decision, however, was set aside on a motion for reconsideration.
In said motion it is claimed that defendant failed to appear at the hearing because of his honest belief
that a joint petition for postponement filed by both parties, in view of a possible amicable settlement,
would be granted; that in view of the decision of the Court of Appeals in two previous cases between the
owners of the land and the plaintiff Rosario Yulo, the plaintiff has no right to claim the alleged participation
in the profit of the business, etc. The court, finding the above motion, well-founded, set aside its decision
and a new trial was held. After trial the court rendered the decision making the following findings: that it
is not true that a partnership was created between the plaintiff and the defendant because defendant
has not actually contributed the sum mentioned in the Articles of Partnership, or any other amount; that
the real agreement between the plaintiff and the defendant is not of the partnership but one of the lease
for the reason that under the agreement the plaintiff did not share either in the profits or in the losses of
the business as required by Article 1769 of the Civil Code; and that the fact that plaintiff was granted a
"guaranteed participation" in the profits also belies the supposed existence of a partnership between
them. It. therefore, denied plaintiff's claim for damages or supposed participation in the profits.
As to her claim for damages for the refusal of the defendant to allow the use of the supposed lobby of
the theatre, the court after ocular inspection found that the said lobby was very narrow space leading to
the balcony of the theatre which could not be used for business purposes under existing ordinances of
the City of Manila because it would constitute a hazard and danger to the patrons of the theatre. The
court, therefore, dismissed the complaint; so did it dismiss the defendant's counterclaim, on the ground
that the defendant failed to present sufficient evidence to sustain the same. It is against this decision
that the appeal has been prosecuted by plaintiff to this Court.
The first assignment of error imputed to the trial court is its order setting aside its former decision and
allowing a new trial. This assignment of error is without merit. As that parties agreed to postpone the trial
because of a probable amicable settlement, the plaintiff could not take advantage of defendant's absence
at the time fixed for the hearing. The lower court, therefore, did not err in setting aside its former
judgment. The final result of the hearing shown by the decision indicates that the setting aside of the
previous decision was in the interest of justice.
In the second assignment of error plaintiff-appellant claims that the lower court erred in not striking out
the evidence offered by the defendant-appellee to prove that the relation between him and the plaintiff
is one of the sublease and not of partnership. The action of the lower court in admitting evidence is
justified by the express allegation in the defendant's answer that the agreement set forth in the complaint
was one of lease and not of partnership, and that the partnership formed was adopted in view of a
prohibition contained in plaintiff's lease against a sublease of the property.
The most important issue raised in the appeal is that contained in the fourth assignment of error, to the
effect that the lower court erred in holding that the written contracts, Exhs. "A", "B", and "C, between
plaintiff and defendant, are one of lease and not of partnership. We have gone over the evidence and
we fully agree with the conclusion of the trial court that the agreement was a sublease, not a partnership.
The following are the requisites of partnership: (1) two or more persons who bind themselves to
contribute money, property, or industry to a common fund; (2) intention on the part of the partners to
divide the profits among themselves. (Art. 1767, Civil Code.). In the first place, plaintiff did not furnish
the supposed P20,000 capital. In the second place, she did not furnish any help or intervention in the
management of the theatre. In the third place, it does not appear that she has ever demanded from
defendant any accounting of the expenses and earnings of the business. Were she really a partner, her
first concern should have been to find out how the business was progressing, whether the expenses
were legitimate, whether the earnings were correct, etc. She was absolutely silent with respect to any of
the acts that a partner should have done; all that she did was to receive her share of P3,000 a month,
which can not be interpreted in any manner than a payment for the use of the premises which she had
leased from the owners. Clearly, plaintiff had always acted in accordance with the original letter of
defendant of June 17, 1945 (Exh. "A"), which shows that both parties considered this offer as the real
contract between them.
Plaintiff claims the sum of P41,000 as representing her share or participation in the business from
December, 1949. But the original letter of the defendant, Exh. "A", expressly states that the agreement
between the plaintiff and the defendant was to end upon the termination of the right of the plaintiff to the
lease. Plaintiff's right having terminated in July, 1949 as found by the Court of Appeals, the partnership
agreement or the agreement for her to receive a participation of P3,000 automatically ceased as of said
date. We find no error in the judgment of the court below and we affirm it in toto, with costs against
plaintiff-appellant.

VICENTE SY, TRINIDAD PAULINO, 6BS

TRUCKING,CORPORATION, petitioners, v HON. COURT OF APPEALS and JAIME SAHOT, .

This petition for review seeks the reversal of the decision[2] of the Court of Appeals dated February
29, 2000, in CA-G.R. SP No. 52671, affirming with modification the decision[3] of the National Labor
Relations Commission promulgated on June 20, 1996 in NLRC NCR CA No. 010526-96. Petitioners also
pray for the reinstatement of the decision[4] of the Labor Arbiter in NLRC NCR Case No. 00-09-06717-
94.
Culled from the records are the following facts of this case:
Sometime in 1958, private respondent Jaime Sahot[5] started working as a truck helper for petitioners
family-owned trucking business named Vicente Sy Trucking. In 1965, he became a truck driver of the
same family business, renamed T. Paulino Trucking Service, later 6Bs Trucking Corporation in 1985,
and thereafter known as SBT Trucking Corporation since 1994. Throughout all these changes in names
and for 36 years, private respondent continuously served the trucking business of petitioners.
In April 1994, Sahot was already 59 years old. He had been incurring absences as he was suffering
from various ailments. Particularly causing him pain was his left thigh, which greatly affected the
performance of his task as a driver. He inquired about his medical and retirement benefits with the Social
Security System (SSS) on April 25, 1994, but discovered that his premium payments had not been
remitted by his employer.
Sahot had filed a week-long leave sometime in May 1994. On May 27th, he was medically examined
and treated for EOR, presleyopia, hypertensive retinopathy G II (Annexes G-5 and G-3, pp. 48, 104,
respectively),[6] HPM, UTI, Osteoarthritis (Annex G-4, p. 105),[7] and heart enlargement (Annex G, p.
107).[8] On said grounds, Belen Paulino of the SBT Trucking Service management told him to file a formal
request for extension of his leave. At the end of his week-long absence, Sahot applied for extension of
his leave for the whole month of June, 1994. It was at this time when petitioners allegedly threatened to
terminate his employment should he refuse to go back to work.
At this point, Sahot found himself in a dilemma. He was facing dismissal if he refused to work, But
he could not retire on pension because petitioners never paid his correct SSS premiums. The fact
remained he could no longer work as his left thigh hurt abominably. Petitioners ended his dilemma. They
carried out their threat and dismissed him from work, effective June 30, 1994. He ended up sick, jobless
and penniless.
On September 13, 1994, Sahot filed with the NLRC NCR Arbitration Branch, a complaint for illegal
dismissal, docketed as NLRC NCR Case No. 00-09-06717-94. He prayed for the recovery of separation
pay and attorneys fees against Vicente Sy and Trinidad Paulino-Sy, Belen Paulino, Vicente Sy Trucking,
T. Paulino Trucking Service, 6Bs Trucking and SBT Trucking, herein petitioners.
 For their part, petitioners admitted they had a trucking business in the 1950s but denied employing
helpers and drivers. They contend that private respondent was not illegally dismissed as a driver
because he was in fact petitioners industrial partner. They add that it was not until the year 1994, when
SBT Trucking Corporation was established, and only then did respondent Sahot become an employee
of the company, with a monthly salary that reached P4,160.00 at the time of his separation.
Petitioners further claimed that sometime prior to June 1, 1994, Sahot went on leave and was not
able to report for work for almost seven days. On June 1, 1994, Sahot asked permission to extend his
leave of absence until June 30, 1994. It appeared that from the expiration of his leave, private respondent
never reported back to work nor did he file an extension of his leave. Instead, he filed the complaint for
illegal dismissal against the trucking company and its owners.
Petitioners add that due to Sahots refusal to work after the expiration of his authorized leave of
absence, he should be deemed to have voluntarily resigned from his work. They contended that Sahot
had all the time to extend his leave or at least inform petitioners of his health condition. Lastly, they cited
NLRC Case No. RE-4997-76, entitled Manuelito Jimenez et al. vs. T. Paulino Trucking Service, as a
defense in view of the alleged similarity in the factual milieu and issues of said case to that of Sahots,
hence they are in pari material and Sahots complaint ought also to be dismissed.
The NLRC NCR Arbitration Branch, through Labor Arbiter Ariel Cadiente Santos, ruled that there
was no illegal dismissal in Sahots case. Private respondent had failed to report to work. Moreover, said
the Labor Arbiter, petitioners and private respondent were industrial partners before January 1994. The
Labor Arbiter concluded by ordering petitioners to pay financial assistance of P15,000 to Sahot for having
served the company as a regular employee since January 1994 only.
On appeal, the National Labor Relations Commission modified the judgment of the Labor Arbiter. It
declared that private respondent was an employee, not an industrial partner, since the start. Private
respondent Sahot did not abandon his job but his employment was terminated on account of his illness,
pursuant to Article 284[9] of the Labor Code. Accordingly, the NLRC ordered petitioners to pay private
respondent separation pay in the amount of P60,320.00, at the rate of P2,080.00 per year for 29 years
of service.
Petitioners assailed the decision of the NLRC before the Court of Appeals. In its decision dated
February 29, 2000, the appellate court affirmed with modification the judgment of the NLRC. It held that
private respondent was indeed an employee of petitioners since 1958. It also increased the amount of
separation pay awarded to private respondent to P74,880, computed at the rate of P2,080 per year for
36 years of service from 1958 to 1994. It decreed:
WHEREFORE, the assailed decision is hereby AFFIRMED with MODIFICATION. SB Trucking
Corporation is hereby directed to pay complainant Jaime Sahot the sum of SEVENTY-FOUR
THOUSAND EIGHT HUNDRED EIGHTY (P74,880.00) PESOS as and for his separation pay.[10]
Hence, the instant petition anchored on the following contentions:
I
RESPONDENT COURT OF APPEALS IN PROMULGATING THE QUESTION[ED] DECISION
AFFIRMING WITH MODIFICATION THE DECISION OF NATIONAL LABOR RELATIONS
COMMISSION DECIDED NOT IN ACCORD WITH LAW AND PUT AT NAUGHT ARTICLE 402 OF THE
CIVIL CODE.[11]
II
RESPONDENT COURT OF APPEALS VIOLATED SUPREME COURT RULING THAT THE NATIONAL
LABOR RELATIONS COMMISSION IS BOUND BY THE FACTUAL FINDINGS OF THE LABOR
ARBITER AS THE LATTER WAS IN A BETTER POSITION TO OBSERVE THE DEMEANOR AND
DEPORTMENT OF THE WITNESSES IN THE CASE OF ASSOCIATION OF INDEPENDENT UNIONS
IN THE PHILIPPINES VERSUS NATIONAL CAPITAL REGION (305 SCRA 233).[12]
III
PRIVATE RESPONDENT WAS NOT DISMISS[ED] BY RESPONDENT SBT TRUCKING
CORPORATION.[13]
Three issues are to be resolved: (1) Whether or not an employer-employee relationship existed
between petitioners and respondent Sahot; (2) Whether or not there was valid dismissal; and (3) Whether
or not respondent Sahot is entitled to separation pay.
Crucial to the resolution of this case is the determination of the first issue. Before a case for illegal
dismissal can prosper, an employer-employee relationship must first be established.[14]
Petitioners invoke the decision of the Labor Arbiter Ariel Cadiente Santos which found that
respondent Sahot was not an employee but was in fact, petitioners industrial partner.[15] It is contended
that it was the Labor Arbiter who heard the case and had the opportunity to observe the demeanor and
deportment of the parties. The same conclusion, aver petitioners, is supported by substantial
evidence.[16] Moreover, it is argued that the findings of fact of the Labor Arbiter was wrongly overturned
by the NLRC when the latter made the following pronouncement:
We agree with complainant that there was error committed by the Labor Arbiter when he concluded that
complainant was an industrial partner prior to 1994. A computation of the age of complainant shows that
he was only twenty-three (23) years when he started working with respondent as truck helper. How can
we entertain in our mind that a twenty-three (23) year old man, working as a truck helper, be considered
an industrial partner. Hence we rule that complainant was only an employee, not a partner of
respondents from the time complainant started working for respondent.[17]
Because the Court of Appeals also found that an employer-employee relationship existed,
petitioners aver that the appellate courts decision gives an imprimatur to the illegal finding and conclusion
of the NLRC.
Private respondent, for his part, denies that he was ever an industrial partner of petitioners. There
was no written agreement, no proof that he received a share in petitioners profits, nor was there anything
to show he had any participation with respect to the running of the business.[18]
The elements to determine the existence of an employment relationship are: (a) the selection and
engagement of the employee; (b) the payment of wages; (c) the power of dismissal; and (d) the
employers power to control the employees conduct. The most important element is the employers control
of the employees conduct, not only as to the result of the work to be done, but also as to the means and
methods to accomplish it.[19]
As found by the appellate court, petitioners owned and operated a trucking business since the 1950s
and by their own allegations, they determined private respondents wages and rest day.[20] Records of
the case show that private respondent actually engaged in work as an employee. During the entire
course of his employment he did not have the freedom to determine where he would go, what he would
do, and how he would do it. He merely followed instructions of petitioners and was content to do so, as
long as he was paid his wages. Indeed, said the CA, private respondent had worked as a truck helper
and driver of petitioners not for his own pleasure but under the latters control.
Article 1767[21] of the Civil Code states that in a contract of partnership two or more persons bind
themselves to contribute money, property or industry to a common fund, with the intention of dividing the
profits among themselves.[22] Not one of these circumstances is present in this case. No written
agreement exists to prove the partnership between the parties. Private respondent did not contribute
money, property or industry for the purpose of engaging in the supposed business. There is no proof
that he was receiving a share in the profits as a matter of course, during the period when the trucking
business was under operation. Neither is there any proof that he had actively participated in the
management, administration and adoption of policies of the business. Thus, the NLRC and the CA did
not err in reversing the finding of the Labor Arbiter that private respondent was an industrial partner from
1958 to 1994.
On this point, we affirm the findings of the appellate court and the NLRC. Private respondent Jaime
Sahot was not an industrial partner but an employee of petitioners from 1958 to 1994. The existence of
an employer-employee relationship is ultimately a question of fact[23] and the findings thereon by the
NLRC, as affirmed by the Court of Appeals, deserve not only respect but finality when supported by
substantial evidence. Substantial evidence is such amount of relevant evidence which a reasonable mind
might accept as adequate to justify a conclusion.[24]
Time and again this Court has said that if doubt exists between the evidence presented by the
employer and the employee, the scales of justice must be tilted in favor of the latter.[25] Here, we entertain
no doubt. Private respondent since the beginning was an employee of, not an industrial partner in, the
trucking business.
Coming now to the second issue, was private respondent validly dismissed by petitioners?
Petitioners contend that it was private respondent who refused to go back to work. The decision of
the Labor Arbiter pointed out that during the conciliation proceedings, petitioners requested respondent
Sahot to report back for work. However, in the same proceedings, Sahot stated that he was no longer fit
to continue working, and instead he demanded separation pay. Petitioners then retorted that if Sahot did
not like to work as a driver anymore, then he could be given a job that was less strenuous, such as
working as a checker. However, Sahot declined that suggestion. Based on the foregoing recitals,
petitioners assert that it is clear that Sahot was not dismissed but it was of his own volition that he did
not report for work anymore.
In his decision, the Labor Arbiter concluded that:
While it may be true that respondents insisted that complainant continue working with respondents
despite his alleged illness, there is no direct evidence that will prove that complainants illness prevents
or incapacitates him from performing the function of a driver. The fact remains that complainant suddenly
stopped working due to boredom or otherwise when he refused to work as a checker which certainly is
a much less strenuous job than a driver.[26]
But dealing the Labor Arbiter a reversal on this score the NLRC, concurred in by the Court of
Appeals, held that:
While it was very obvious that complainant did not have any intention to report back to work due to his
illness which incapacitated him to perform his job, such intention cannot be construed to be an
abandonment. Instead, the same should have been considered as one of those falling under the just
causes of terminating an employment. The insistence of respondent in making complainant work did not
change the scenario.
It is worthy to note that respondent is engaged in the trucking business where physical strength is of
utmost requirement (sic). Complainant started working with respondent as truck helper at age twenty-
three (23), then as truck driver since 1965. Complainant was already fifty-nine (59) when the complaint
was filed and suffering from various illness triggered by his work and age.
x x x[27]
In termination cases, the burden is upon the employer to show by substantial evidence that the
termination was for lawful cause and validly made.[28] Article 277(b) of the Labor Code puts the burden
of proving that the dismissal of an employee was for a valid or authorized cause on the employer, without
distinction whether the employer admits or does not admit the dismissal.[29] For an employees dismissal
to be valid, (a) the dismissal must be for a valid cause and (b) the employee must be afforded due
process.[30]
Article 284 of the Labor Code authorizes an employer to terminate an employee on the ground of
disease, viz:
Art. 284. Disease as a ground for termination- An employer may terminate the services of an employee
who has been found to be suffering from any disease and whose continued employment is prohibited by
law or prejudicial to his health as well as the health of his co-employees: xxx
However, in order to validly terminate employment on this ground, Book VI, Rule I, Section 8 of the
Omnibus Implementing Rules of the Labor Code requires:
Sec. 8. Disease as a ground for dismissal- Where the employee suffers from a disease and his continued
employment is prohibited by law or prejudicial to his health or to the health of his co-employees, the
employer shall not terminate his employment unless there is a certification by competent public health
authority that the disease is of such nature or at such a stage that it cannot be cured within a period of
six (6) months even with proper medical treatment. If the disease or ailment can be cured within the
period, the employer shall not terminate the employee but shall ask the employee to take a leave. The
employer shall reinstate such employee to his former position immediately upon the restoration of his
normal health. (Italics supplied).
As this Court stated in Triple Eight integrated Services, Inc. vs. NLRC,[31] the requirement for a
medical certificate under Article 284 of the Labor Code cannot be dispensed with; otherwise, it would
sanction the unilateral and arbitrary determination by the employer of the gravity or extent of the
employees illness and thus defeat the public policy in the protection of labor.
In the case at bar, the employer clearly did not comply with the medical certificate requirement before
Sahots dismissal was effected. In the same case of Sevillana vs. I.T. (International) Corp., we ruled:
Since the burden of proving the validity of the dismissal of the employee rests on the employer, the latter
should likewise bear the burden of showing that the requisites for a valid dismissal due to a disease have
been complied with. In the absence of the required certification by a competent public health authority,
this Court has ruled against the validity of the employees dismissal. It is therefore incumbent upon the
private respondents to prove by the quantum of evidence required by law that petitioner was not
dismissed, or if dismissed, that the dismissal was not illegal; otherwise, the dismissal would be
unjustified. This Court will not sanction a dismissal premised on mere conjectures and suspicions, the
evidence must be substantial and not arbitrary and must be founded on clearly established facts
sufficient to warrant his separation from work.[32]
In addition, we must likewise determine if the procedural aspect of due process had been complied
with by the employer.
From the records, it clearly appears that procedural due process was not observed in the separation
of private respondent by the management of the trucking company. The employer is required to furnish
an employee with two written notices before the latter is dismissed: (1) the notice to apprise the employee
of the particular acts or omissions for which his dismissal is sought, which is the equivalent of a charge;
and (2) the notice informing the employee of his dismissal, to be issued after the employee has been
given reasonable opportunity to answer and to be heard on his defense.[33] These, the petitioners failed
to do, even only for record purposes. What management did was to threaten the employee with
dismissal, then actually implement the threat when the occasion presented itself because of private
respondents painful left thigh.
All told, both the substantive and procedural aspects of due process were violated. Clearly,
therefore, Sahots dismissal is tainted with invalidity.
On the last issue, as held by the Court of Appeals, respondent Jaime Sahot is entitled to separation
pay. The law is clear on the matter. An employee who is terminated because of disease is entitled to
separation pay equivalent to at least one month salary or to one-half month salary for every year of
service, whichever is greater xxx.[34] Following the formula set in Art. 284 of the Labor Code, his
separation pay was computed by the appellate court at P2,080 times 36 years (1958 to 1994) or P74,880.
We agree with the computation, after noting that his last monthly salary was P4,160.00 so that one-half
thereof is P2,080.00. Finding no reversible error nor grave abuse of discretion on the part of appellate
court, we are constrained to sustain its decision. To avoid further delay in the payment due the separated
worker, whose claim was filed way back in 1994, this decision is immediately executory. Otherwise, six
percent (6%) interest per annum should be charged thereon, for any delay, pursuant to provisions of the
Civil Code.
WHEREFORE, the petition is DENIED and the decision of the Court of Appeals dated February 29,
2000 is AFFIRMED. Petitioners must pay private respondent Jaime Sahot his separation pay for 36
years of service at the rate of one-half monthly pay for every year of service, amounting to P74,880.00,
with interest of six per centum (6%) per annum from finality of this decision until fully paid.
Costs against petitioners.

LOURDES NAVARRO AND MENARDO NAVARRO, petitioners, vs.COURT OF APPEALS, JUDGE

BETHEL KATALBAS-MOSCARDON, Presiding Judge, Regional Trial Court of Bacolod City,
Branch 52, Sixth Judicial Region and Spouses OLIVIA V. YANSON AND RICARDO B. YANSON,

Assailed and sought to be set aside by the petition before us is the Resolution of the Court of Appeals
dated June 20, 1991 which dismissed the petition for annulment of judgment filed by the Spouses
Lourdes and Menardo Navarro, thusly:

The instant petition for annulment of decision is DISMISSED.

1. Judgments may be annulled only on the ground of extrinsic or collateral fraud, as distinguished from
intrinsic fraud (Canlas vs. Court of Appeals, 164 SCRA 160, 170). No such ground is alleged in the
petition.

2. Even if the judgment rendered by the respondent Court were erroneous, it is not necessarily void
(Chereau vs. Fuentebella, 43 Phil. 216). Hence, it cannot be annulled by the proceeding sought to be
commenced by the petitioners.
3. The petitioners' remedy against the judgment enforcement of which is sought to be stopped should
have been appeal.
SO ORDERED. (pp. 24-25, Rollo.)
The antecedent facts of the case are as follows: On July 23, 1976, herein private respondent Olivia V.
Yanson filed a complaint against petitioner Lourdes Navarro for "Delivery of Personal Properties With
Damages". The complaint incorporated an application for a writ of replevin. The complaint was later
docketed as Civil Case No. 716 (12562) of the then Court of First Instance of Bacolod (Branch 55) and
was subsequently amended to include private respondent's husband, Ricardo B. Yanson, as co-plaintiff,
and petitioner's husband, as co-defendant.
On July 27, 1976, then Executive Judge Oscar R. Victoriano (later to be promoted and to retire as
Presiding Justice of the Court of Appeals) approved private respondents' application for a writ of replevin.
The Sheriff's Return of Service dated March 3, 1978 affirmed receipt by private respondents of all pieces
of personal property sought to be recovered from petitioners.
On April 30, 1990, Presiding Judge Bethel Katalbas-Moscardon rendered a decision, disposing as
follows :
Accordingly, in the light of the aforegoing findings, all chattels already recovered by plaintiff by virtue of
the Writ of Replevin and as listed in the complaint are hereby sustained to belong to plaintiff being the
owner of these properties; the motor vehicle, particularly that Ford Fiera Jeep registered in and which
had remain in the possession of the defendant is likewise declared to belong to her, however, said
defendant is hereby ordered to reimburse plaintiff the sum of P6,500.00 representing the amount
advanced to pay part of the price therefor; and said defendant is likewise hereby ordered to return to
plaintiff such other equipment[s] as were brought by the latter to and during the operation of their
business as were listed in the complaint and not recovered as yet by virtue of the previous Writ of
Replevin. (p. 12, Rollo.) Petitioner received a copy of the decision on January 10, 1991 (almost 9 months
after its rendition) and filed on January 16, 1991 a "Motion for Extension of Time To File a Motion for
Reconsideration". This was granted on January 18, 1991. Private respondents filed their
opposition, citing the ruling in the case of Habaluyas Enterprises, Inc. vs. Japson (142 SCRA 208
[1986]) proscribing the filing of any motion for extension of time to file a motion for a new trial or
reconsideration. The trial judge vacated the order dated January 18, 1991 and declared the decision of
April 30, 1990 as final and executory. (Petitioners' motion for reconsideration was subsequently filed on
February 1, 1991 or 22 days after the receipt of the decision).
On February 4, 1991, the trial court issued a writ of execution (Annex "5", p. 79, Rollo). The Sheriff's
Return of Service (Annex "6", p. 82, Rollo) declared that the writ was "duly served and satisfied". A
receipt for the amount of P6,500.00 issued by Mrs. Lourdes Yanson, co-petitioner in this case, was
likewise submitted by the Sheriff (Annex "7", p. 83, Rollo).
On June 26, 1991, petitioners filed with respondent court a petition for annulment of the trial court's
decision, claiming that the trial judge erred in declaring the non-existence of a partnership, contrary to
the evidence on record.
The appellate court, as aforesaid, outrightly dismissed the petition due to absence of extrinsic or
collateral fraud, observing further that an appeal was the proper remedy.
In the petition before us, petitioners claim that the trial judge ignored evidence that would show that the
parties "clearly intended to form, and (in fact) actually formed a verbal partnership engaged in the
business of Air Freight Service Agency in Bacolod"; and that the decision sustaining the writ of replevin
is void since the properties belonging to the partnership do not actually belong to any of the parties until
the final disposition and winding up of the partnership" (p. 15, Rollo). These issues, however, were
extensively discussed by the trial judge in her 16-page, single-spaced decision
We agree with respondents that the decision in this case has become final. In fact a writ of execution
had been issued and was promptly satisfied by the payment of P6,500.00 to private respondents.
Having lost their right to appeal, petitioners resorted to annulment proceedings to justify a belated judicial
review of their case. This was, however, correctly thrown out by the Court of Appeals because petitioners
failed to cite extrinsic or collateral fraud to warrant the setting aside of the trial court's decision. We
respect the appellate court's finding in this regard.
Petitioners have come to us in a petition for review. However, the petition is focused solely on factual
issues which can no longer be entertained. Petitioners' arguments are all directed against the decision
of the regional trial court; not a word is said in regard to the appellate's court disposition of their petition
for annulment of judgment. Verily, petitioners keeps on pressing that the idea of a partnership exists on
account of the so-called admissions in judicio. But the factual premises of the trial court were more than
enough to suppress and negate petitioners submissions along this line:

To be resolved by this Court factually involved in the issue of whether there was a partnership that
existed between the parties based on their verbal contention; whether the properties that were commonly
used in the operation of Allied Air Freight belonged to the alleged partnership business; and the status
of the parties in this transaction of alleged partnership. On the other hand, the legal issues revolves on
the dissolution and winding up in case a partnership so existed as well as the issue of ownership over
the properties subject matter of recovery.

As a premise, Article 1767 of the New Civil Code defines the contract of partnership to quote:
Art. 1767. By the contract of partnership two or more persons bind themselves to contribute money,
property, or industry to a common fund, with the intention of dividing the proceeds among themselves.
xxx xxx xxx
Corollary to this definition is the provision in determining whether a partnership exist as so provided
under Article 1769, to wit:
xxx xxx xxx
Furthermore, the Code provides under Article 1771 and 1772 that while a partnership may be constituted
in any form, a public instrument is necessary where immovables or any rights is constituted. Likewise, if
the partnership involves a capitalization of P3,000.00 or more in money or property, the same must
appear in a public instrument which must be recorded in the Office of the Securities and Exchange
Commission. Failure to comply with these requirements shall only affect liability of the partners to third
persons.

In consideration of the above, it is undeniable that both the plaintiff and the defendant-wife made
admission to have entered into an agreement of operating this Allied Air Freight Agency of which the
plaintiff personally constituted with the Manila Office in a sense that the plaintiff did supply the necessary
equipments and money while her brother Atty. Rodolfo Villaflores was the Manager and the defendant
the Cashier. It was also admitted that part of this agreement was an equal sharing of whatever proceeds
realized. Consequently, the plaintiff brought into this transaction certain chattels in compliance with her
obligation. The same has been done by the herein brother and the herein defendant who started to work
in the business. A cursory examination of the evidences presented no proof that a partnership, whether
oral or written had been constituted at the inception of this transaction. True it is that even up to the filing
of this complaint those movables brought by the plaintiff for the use in the operation of the business
remain registered in her name.

While there may have been co-ownership or co-possession of some items and/or any sharing of
proceeds by way of advances received by both plaintiff and the defendant, these are not indicative and
supportive of the existence of any partnership between them. Article 1769 of the New Civil Code is
explicit. Even the books and records retrieved by the Commissioner appointed by the Court did not show
proof of the existence of a partnership as conceptualized by law. Such that if assuming that there were
profits realized in 1975 after the two-year deficits were compensated, this could only be subject to an
equal sharing consonant to the agreement to equally divide any profit realized. However, this Court
cannot overlook the fact that the Audit Report of the appointed Commissioner was not highly reliable in
the sense that it was more of his personal estimate of what is available on hand. Besides, the alleged
profits was a difference found after valuating the assets and not arising from the real operation of the
business. In accounting procedures, strictly, this could not be profit but a net worth.

In view of the above factual findings of the Court it follows inevitably therefore that there being no
partnership that existed, any dissolution, liquidation or winding up is beside the point. The plaintiff himself
had summarily ceased from her contract of agency and it is a personal prerogative to desist. On the
other hand, the assumption by the defendant in negotiating for herself the continuance of the Agency
with the principal in Manila is comparable to plaintiff's. Any account of plaintiff with the principal as
alleged, bore no evidence as no collection was ever demanded of from her. The alleged P20,000.00
assumption specifically, as would have been testified to by the defendant's husband remain a mere
allegation.
As to the properties sought to be recovered, the Court sustains the possession by plaintiff of all
equipments and chattels recovered by virtue of the Writ of Replevin. Considering the other vehicle which
appeared registered in the name of the defendant, and to which even she admitted that part of the
purchase price came from the business claimed mutually operated, although the Court have not as much
considered all entries in the Audit Report as totally reliable to be sustained insofar as the operation of
the business is concerned, nevertheless, with this admission of the defendant and the fact that as borne
out in said Report there has been disbursed and paid for in this vehicle out of the business funds in the
total sum of P6,500.00, it is only fitting and proper that validity of these disbursements must be sustained
as true (Exhs. M-1 to M-3, p. 180, Records). In this connection and taking into account the earlier
agreement that only profits were to be shared equally, the plaintiff must be reimbursed of this cost if only
to allow the defendant continuous possession of the vehicle in question. It is a fundamental moral, moral
and civil injunction that no one shall enrich himself at the expense of another. (pp. 71-75, Rollo.)
Withal, the appellate court acted properly in dismissing the petition for annulment of judgment, the issue
raised therein having been directly litigated in, and passed upon by, the trial court.
WHEREFORE, the petition is DISMISSED. The Resolution of the Court of Appeals dated June 20, 1991
is AFFIRMED in all respects.
No special pronouncement is made as to costs.
6. Lim Tong Lim vs Phil Fishing Gear Industries GR 136448

LIM TONG LIM, petitioner, vs. PHILIPPINE

FISHING GEAR INDUSTRIES,
A partnership may be deemed to exist among parties who agree to borrow money to pursue a
business and to divide the profits or losses that may arise therefrom, even if it is shown that they have
not contributed any capital of their own to a "common fund." Their contribution may be in the form of
credit or industry, not necessarily cash or fixed assets. Being partners, they are all liable for debts
incurred by or on behalf of the partnership. The liability for a contract entered into on behalf of an
unincorporated association or ostensible corporation may lie in a person who may not have directly
transacted on its behalf, but reaped benefits from that contract.
The Case

In the Petition for Review on Certiorari before us, Lim Tong Lim assails the November 26, 1998 Decision
of the Court of Appeals in CA-GR CV 41477,[1] which disposed as follows:
WHEREFORE, [there being] no reversible error in the appealed decision, the same is hereby affirmed.[2]
The decretal portion of the Quezon City Regional Trial Court (RTC) ruling, which was affirmed by
the CA, reads as follows:
WHEREFORE, the Court rules:
1. That plaintiff is entitled to the writ of preliminary attachment issued by this Court on September 20,
1990;
2. That defendants are jointly liable to plaintiff for the following amounts, subject to the modifications as
hereinafter made by reason of the special and unique facts and circumstances and the proceedings that
transpired during the trial of this case;
a. P532,045.00 representing [the] unpaid purchase price of the fishing nets covered by the Agreement
plus P68,000.00 representing the unpaid price of the floats not covered by said Agreement;
b. 12% interest per annum counted from date of plaintiffs invoices and computed on their respective
amounts as follows:
i. Accrued interest of P73,221.00 on Invoice No. 14407 for P385,377.80 dated February 9, 1990;
ii. Accrued interest of P27,904.02 on Invoice No. 14413 for P146,868.00 dated February 13, 1990;
iii. Accrued interest of P12,920.00 on Invoice No. 14426 for P68,000.00 dated February 19, 1990;
c. P50,000.00 as and for attorneys fees, plus P8,500.00 representing P500.00 per appearance in court;
d. P65,000.00 representing P5,000.00 monthly rental for storage charges on the nets counted from
September 20, 1990 (date of attachment) to September 12, 1991 (date of auction sale);
e. Cost of suit.
With respect to the joint liability of defendants for the principal obligation or for the unpaid price of nets
and floats in the amount of P532,045.00 and P68,000.00, respectively, or for the total amount
of P600,045.00, this Court noted that these items were attached to guarantee any judgment that may be
rendered in favor of the plaintiff but, upon agreement of the parties, and, to avoid further deterioration of
the nets during the pendency of this case, it was ordered sold at public auction for not less
than P900,000.00 for which the plaintiff was the sole and winning bidder. The proceeds of the sale paid
for by plaintiff was deposited in court. In effect, the amount of P900,000.00 replaced the attached
property as a guaranty for any judgment that plaintiff may be able to secure in this case with the
ownership and possession of the nets and floats awarded and delivered by the sheriff to plaintiff as the
highest bidder in the public auction sale. It has also been noted that ownership of the nets [was] retained
by the plaintiff until full payment [was] made as stipulated in the invoices; hence, in effect, the plaintiff
attached its own properties. It [was] for this reason also that this Court earlier ordered the attachment
bond filed by plaintiff to guaranty damages to defendants to be cancelled and for the P900,000.00 cash
bidded and paid for by plaintiff to serve as its bond in favor of defendants.
From the foregoing, it would appear therefore that whatever judgment the plaintiff may be entitled to in
this case will have to be satisfied from the amount of P900,000.00 as this amount replaced the attached
nets and floats. Considering, however, that the total judgment obligation as computed above would
amount to only P840,216.92, it would be inequitable, unfair and unjust to award the excess to the
defendants who are not entitled to damages and who did not put up a single centavo to raise the amount
of P900,000.00 aside from the fact that they are not the owners of the nets and floats. For this reason,
the defendants are hereby relieved from any and all liabilities arising from the monetary judgment
obligation enumerated above and for plaintiff to retain possession and ownership of the nets and floats
and for the reimbursement of the P900,000.00 deposited by it with the Clerk of Court.
SO ORDERED. [3]
The Facts

On behalf of "Ocean Quest Fishing Corporation," Antonio Chua and Peter Yao entered into a
Contract dated February 7, 1990, for the purchase of fishing nets of various sizes from the Philippine
Fishing Gear Industries, Inc. (herein respondent). They claimed that they were engaged in a business
venture with Petitioner Lim Tong Lim, who however was not a signatory to the agreement. The total price
of the nets amounted to P532,045. Four hundred pieces of floats worth P68,000 were also sold to the
Corporation.[4]
The buyers, however, failed to pay for the fishing nets and the floats; hence, private respondent filed
a collection suit against Chua, Yao and Petitioner Lim Tong Lim with a prayer for a writ of preliminary
attachment. The suit was brought against the three in their capacities as general partners, on the
allegation that Ocean Quest Fishing Corporation was a nonexistent corporation as shown by a
Certification from the Securities and Exchange Commission.[5] On September 20, 1990, the lower court
issued a Writ of Preliminary Attachment, which the sheriff enforced by attaching the fishing nets on
board F/B Lourdes which was then docked at the Fisheries Port, Navotas, Metro Manila.
Instead of answering the Complaint, Chua filed a Manifestation admitting his liability and requesting
a reasonable time within which to pay. He also turned over to respondent some of the nets which were
in his possession. Peter Yao filed an Answer, after which he was deemed to have waived his right to
cross-examine witnesses and to present evidence on his behalf, because of his failure to appear in
subsequent hearings. Lim Tong Lim, on the other hand, filed an Answer with Counterclaim and
Crossclaim and moved for the lifting of the Writ of Attachment.[6] The trial court maintained the Writ, and
upon motion of private respondent, ordered the sale of the fishing nets at a public auction. Philippine
Fishing Gear Industries won the bidding and deposited with the said court the sales proceeds
of P900,000.[7]
On November 18, 1992, the trial court rendered its Decision, ruling that Philippine Fishing Gear
Industries was entitled to the Writ of Attachment and that Chua, Yao and Lim, as general partners, were
jointly liable to pay respondent.[8]
The trial court ruled that a partnership among Lim, Chua and Yao existed based (1) on the
testimonies of the witnesses presented and (2) on a Compromise Agreement executed by the three[9] in
Civil Case No. 1492-MN which Chua and Yao had brought against Lim in the RTC of Malabon, Branch
72, for (a) a declaration of nullity of commercial documents; (b) a reformation of contracts; (c) a
declaration of ownership of fishing boats; (d) an injunction and (e) damages.[10] The Compromise
Agreement provided:
a) That the parties plaintiffs & Lim Tong Lim agree to have the four (4) vessels sold in the amount
of P5,750,000.00 including the fishing net. This P5,750,000.00 shall be applied as full payment
for P3,250,000.00 in favor of JL Holdings Corporation and/or Lim Tong Lim;
b) If the four (4) vessel[s] and the fishing net will be sold at a higher price than P5,750,000.00 whatever
will be the excess will be divided into 3: 1/3 Lim Tong Lim; 1/3 Antonio Chua; 1/3 Peter Yao;
c) If the proceeds of the sale the vessels will be less than P5,750,000.00 whatever the deficiency shall
be shouldered and paid to JL Holding Corporation by 1/3 Lim Tong Lim; 1/3 Antonio Chua; 1/3 Peter
Yao.[11]
The trial court noted that the Compromise Agreement was silent as to the nature of their obligations,
but that joint liability could be presumed from the equal distribution of the profit and loss.[12]
Lim appealed to the Court of Appeals (CA) which, as already stated, affirmed the RTC.
Ruling of the Court of Appeals
In affirming the trial court, the CA held that petitioner was a partner of Chua and Yao in a fishing
business and may thus be held liable as a such for the fishing nets and floats purchased by and for the
use of the partnership. The appellate court ruled:
The evidence establishes that all the defendants including herein appellant Lim Tong Lim undertook a
partnership for a specific undertaking, that is for commercial fishing x x x. Obviously, the ultimate
undertaking of the defendants was to divide the profits among themselves which is what a partnership
essentially is x x x. By a contract of partnership, two or more persons bind themselves to contribute
money, property or industry to a common fund with the intention of dividing the profits among themselves
(Article 1767, New Civil Code).[13]
Hence, petitioner brought this recourse before this Court.[14]
The Issues

In his Petition and Memorandum, Lim asks this Court to reverse the assailed Decision on the
following grounds:
I THE COURT OF APPEALS ERRED IN HOLDING, BASED ON A COMPROMISE AGREEMENT THAT
CHUA, YAO AND PETITIONER LIM ENTERED INTO IN A SEPARATE CASE, THAT A PARTNERSHIP
AGREEMENT EXISTED AMONG THEM.
II SINCE IT WAS ONLY CHUA WHO REPRESENTED THAT HE WAS ACTING FOR OCEAN QUEST
FISHING CORPORATION WHEN HE BOUGHT THE NETS FROM PHILIPPINE FISHING, THE COURT
OF APPEALS WAS UNJUSTIFIED IN IMPUTING LIABILITY TO PETITIONER LIM AS WELL.
III THE TRIAL COURT IMPROPERLY ORDERED THE SEIZURE AND ATTACHMENT OF
PETITIONER LIMS GOODS.
 In determining whether petitioner may be held liable for the fishing nets and floats purchased from
respondent, the Court must resolve this key issue: whether by their acts, Lim, Chua and Yao could be
deemed to have entered into a partnership.
This Courts Ruling

The Petition is devoid of merit.

First and Second Issues: Existence of a Partnership and Petitioner's Liability

In arguing that he should not be held liable for the equipment purchased from respondent, petitioner
controverts the CA finding that a partnership existed between him, Peter Yao and Antonio Chua. He
asserts that the CA based its finding on the Compromise Agreement alone. Furthermore, he disclaims
any direct participation in the purchase of the nets, alleging that the negotiations were conducted by
Chua and Yao only, and that he has not even met the representatives of the respondent
company.Petitioner further argues that he was a lessor, not a partner, of Chua and Yao, for the "Contract
of Lease" dated February 1, 1990, showed that he had merely leased to the two the main asset of the
purported partnership -- the fishing boat F/B Lourdes. The lease was for six months, with a monthly rental
of P37,500 plus 25 percent of the gross catch of the boat.
We are not persuaded by the arguments of petitioner. The facts as found by the two lower courts
clearly showed that there existed a partnership among Chua, Yao and him, pursuant to Article 1767 of
the Civil Code which provides:
Article 1767 - By the contract of partnership, two or more persons bind themselves to contribute money,
property, or industry to a common fund, with the intention of dividing the profits among themselves.
Specifically, both lower courts ruled that a partnership among the three existed based on the
following factual findings:[15]
(1) That Petitioner Lim Tong Lim requested Peter Yao who was engaged in commercial fishing to join
him, while Antonio Chua was already Yaos partner;
(2) That after convening for a few times, Lim Chua, and Yao verbally agreed to acquire two fishing boats,
the FB Lourdes and the FB Nelson for the sum of P3.35 million;
(3) That they borrowed P3.25 million from Jesus Lim, brother of Petitioner Lim Tong Lim, to finance the
venture.
(4) That they bought the boats from CMF Fishing Corporation, which executed a Deed of Sale over these
two (2) boats in favor of Petitioner Lim Tong Lim only to serve as security for the loan extended by Jesus
Lim;
(5) That Lim, Chua and Yao agreed that the refurbishing , re-equipping, repairing, dry docking and other
expenses for the boats would be shouldered by Chua and Yao;
(6) That because of the unavailability of funds, Jesus Lim again extended a loan to the partnership in the
amount of P1 million secured by a check, because of which, Yao and Chua entrusted the ownership
papers of two other boats, Chuas FB Lady Anne Mel and Yaos FB Tracy to Lim Tong Lim.
(7) That in pursuance of the business agreement, Peter Yao and Antonio Chua bought nets from
Respondent Philippine Fishing Gear, in behalf of "Ocean Quest Fishing Corporation," their purported
business name.
(8) That subsequently, Civil Case No. 1492-MN was filed in the Malabon RTC, Branch 72 by Antonio
Chua and Peter Yao against Lim Tong Lim for (a) declaration of nullity of commercial documents; (b)
reformation of contracts; (c) declaration of ownership of fishing boats; (4) injunction; and (e) damages.
(9) That the case was amicably settled through a Compromise Agreement executed between the parties-
litigants the terms of which are already enumerated above.
From the factual findings of both lower courts, it is clear that Chua, Yao and Lim had decided to
engage in a fishing business, which they started by buying boats worth P3.35 million, financed by a loan
secured from Jesus Lim who was petitioners brother.In their Compromise Agreement, they subsequently
revealed their intention to pay the loan with the proceeds of the sale of the boats, and to divide equally
among them the excess or loss. These boats, the purchase and the repair of which were financed with
borrowed money, fell under the term common fund under Article 1767. The contribution to such fund
need not be cash or fixed assets; it could be an intangible like credit or industry. That the parties agreed
that any loss or profit from the sale and operation of the boats would be divided equally among them
also shows that they had indeed formed a partnership.
Moreover, it is clear that the partnership extended not only to the purchase of the boat, but also to
that of the nets and the floats. The fishing nets and the floats, both essential to fishing, were obviously
acquired in furtherance of their business. It would have been inconceivable for Lim to involve himself so
much in buying the boat but not in the acquisition of the aforesaid equipment, without which the business
could not have proceeded.
Given the preceding facts, it is clear that there was, among petitioner, Chua and Yao, a partnership
engaged in the fishing business. They purchased the boats, which constituted the main assets of the
partnership, and they agreed that the proceeds from the sales and operations thereof would be divided
among them.
We stress that under Rule 45, a petition for review like the present case should involve only
questions of law. Thus, the foregoing factual findings of the RTC and the CA are binding on this Court,
absent any cogent proof that the present action is embraced by one of the exceptions to the rule.[16] In
assailing the factual findings of the two lower courts, petitioner effectively goes beyond the bounds of a
petition for review under Rule 45.
Compromise Agreement Not the Sole Basis of Partnership

Petitioner argues that the appellate courts sole basis for assuming the existence of a partnership
was the Compromise Agreement. He also claims that the settlement was entered into only to end the
dispute among them, but not to adjudicate their preexisting rights and obligations. His arguments are
baseless. The Agreement was but an embodiment of the relationship extant among the parties prior to
its execution.
A proper adjudication of claimants rights mandates that courts must review and thoroughly appraise
all relevant facts. Both lower courts have done so and have found, correctly, a preexisting partnership
among the parties. In implying that the lower courts have decided on the basis of one piece of document
alone, petitioner fails to appreciate that the CA and the RTC delved into the history of the document and
explored all the possible consequential combinations in harmony with law, logic and fairness. Verily, the
two lower courts factual findings mentioned above nullified petitioners argument that the existence of a
partnership was based only on the Compromise Agreement.
Petitioner Was a Partner, Not a Lessor

We are not convinced by petitioners argument that he was merely the lessor of the boats to Chua
and Yao, not a partner in the fishing venture. His argument allegedly finds support in the Contract of
Lease and the registration papers showing that he was the owner of the boats, including F/B
Lourdes where the nets were found.
His allegation defies logic. In effect, he would like this Court to believe that he consented to the sale
of his own boats to pay a debt of Chua and Yao, with the excess of the proceeds to be divided among the
three of them. No lessor would do what petitioner did. Indeed, his consent to the sale proved that there
was a preexisting partnership among all three.
Verily, as found by the lower courts, petitioner entered into a business agreement with Chua and
Yao, in which debts were undertaken in order to finance the acquisition and the upgrading of the vessels
which would be used in their fishing business. The sale of the boats, as well as the division among the
three of the balance remaining after the payment of their loans, proves beyond cavil that F/B Lourdes,
though registered in his name, was not his own property but an asset of the partnership. It is not
uncommon to register the properties acquired from a loan in the name of the person the lender trusts,
who in this case is the petitioner himself. After all, he is the brother of the creditor, Jesus Lim.
We stress that it is unreasonable indeed, it is absurd -- for petitioner to sell his property to pay a debt
he did not incur, if the relationship among the three of them was merely that of lessor-lessee, instead of
partners.
Corporation by Estoppel

Petitioner argues that under the doctrine of corporation by estoppel, liability can be imputed only to
Chua and Yao, and not to him. Again, we disagree.
Section 21 of the Corporation Code of the Philippines provides:
Sec. 21. Corporation by estoppel. - All persons who assume to act as a corporation knowing it to be
without authority to do so shall be liable as general partners for all debts, liabilities and damages incurred
or arising as a result thereof: Provided however, That when any such ostensible corporation is sued on
any transaction entered by it as a corporation or on any tort committed by it as such, it shall not be
allowed to use as a defense its lack of corporate personality.
One who assumes an obligation to an ostensible corporation as such, cannot resist performance thereof
on the ground that there was in fact no corporation.
Thus, even if the ostensible corporate entity is proven to be legally nonexistent, a party may be
estopped from denying its corporate existence. The reason behind this doctrine is obvious - an
unincorporated association has no personality and would be incompetent to act and appropriate for itself
the power and attributes of a corporation as provided by law; it cannot create agents or confer authority
on another to act in its behalf; thus, those who act or purport to act as its representatives or agents do
so without authority and at their own risk. And as it is an elementary principle of law that a person who
acts as an agent without authority or without a principal is himself regarded as the principal, possessed
of all the right and subject to all the liabilities of a principal, a person acting or purporting to act on behalf
of a corporation which has no valid existence assumes such privileges and obligations and becomes
personally liable for contracts entered into or for other acts performed as such agent.[17]
The doctrine of corporation by estoppel may apply to the alleged corporation and to a third party. In
the first instance, an unincorporated association, which represented itself to be a corporation, will be
estopped from denying its corporate capacity in a suit against it by a third person who relied in good faith
on such representation. It cannot allege lack of personality to be sued to evade its responsibility for a
contract it entered into and by virtue of which it received advantages and benefits.
On the other hand, a third party who, knowing an association to be unincorporated, nonetheless
treated it as a corporation and received benefits from it, may be barred from denying its corporate
existence in a suit brought against the alleged corporation. In such case, all those who benefited from
the transaction made by the ostensible corporation, despite knowledge of its legal defects, may be held
liable for contracts they impliedly assented to or took advantage of.
There is no dispute that the respondent, Philippine Fishing Gear Industries, is entitled to be paid for
the nets it sold. The only question here is whether petitioner should be held jointly[18] liable with Chua
and Yao. Petitioner contests such liability, insisting that only those who dealt in the name of the
ostensible corporation should be held liable. Since his name does not appear on any of the contracts
and since he never directly transacted with the respondent corporation, ergo, he cannot be held liable.
Unquestionably, petitioner benefited from the use of the nets found inside F/B Lourdes, the boat
which has earlier been proven to be an asset of the partnership. He in fact questions the attachment of
the nets, because the Writ has effectively stopped his use of the fishing vessel.
It is difficult to disagree with the RTC and the CA that Lim, Chua and Yao decided to form a
corporation. Although it was never legally formed for unknown reasons, this fact alone does not preclude
the liabilities of the three as contracting parties in representation of it. Clearly, under the law on estoppel,
those acting on behalf of a corporation and those benefited by it, knowing it to be without valid existence,
are held liable as general partners.
Technically, it is true that petitioner did not directly act on behalf of the corporation. However, having
reaped the benefits of the contract entered into by persons with whom he previously had an existing
relationship, he is deemed to be part of said association and is covered by the scope of the doctrine of
corporation by estoppel. We reiterate the ruling of the Court in Alonso v. Villamor:[19]
A litigation is not a game of technicalities in which one, more deeply schooled and skilled in the subtle
art of movement and position , entraps and destroys the other. It is, rather, a contest in which each
contending party fully and fairly lays before the court the facts in issue and then, brushing aside as wholly
trivial and indecisive all imperfections of form and technicalities of procedure, asks that justice be done
upon the merits. Lawsuits, unlike duels, are not to be won by a rapiers thrust. Technicality, when it
deserts its proper office as an aid to justice and becomes its great hindrance and chief enemy, deserves
scant consideration from courts. There should be no vested rights in technicalities.
Third Issue: Validity of Attachment

Finally, petitioner claims that the Writ of Attachment was improperly issued against the nets. We
agree with the Court of Appeals that this issue is now moot and academic. As previously discussed, F/B
Lourdes was an asset of the partnership and that it was placed in the name of petitioner, only to assure
payment of the debt he and his partners owed. The nets and the floats were specifically manufactured
and tailor-made according to their own design, and were bought and used in the fishing venture they
agreed upon. Hence, the issuance of the Writ to assure the payment of the price stipulated in the invoices
is proper. Besides, by specific agreement, ownership of the nets remained with Respondent Philippine
Fishing Gear, until full payment thereof.
WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. Costs against
petitioner.

7. Santos vs Reyes 368 SCRA 261 2001

FERNANDOSANTOS, petitioner, vs. Spou es ARSENIO and NIEVES
As a general rule, the factual findings of the Court of Appeals affirming those of the trial court are
binding on the Supreme Court. However, there are several exceptions to this principle. In the present
case, we find occasion to apply both the rule and one of the exceptions.
The Case
Before us is a Petition for Review on Certiorari assailing the November 28, 1997 Decision,[1] as well
as the August 17, 1998 and the October 9, 1998 Resolutions,[2] issued by the Court of Appeals (CA) in
CA-GR CV No. 34742. The Assailed Decision disposed as follows:
WHEREFORE, the decision appealed from is AFFIRMED save as for the counterclaim which is hereby
DISMISSED. Costs against [petitioner].[3]
Resolving respondents Motion for Reconsideration, the August 17, 1998 Resolution ruled as follows:
WHEREFORE, [respondents] motion for reconsideration is GRANTED. Accordingly, the courts decision
dated November 28, 1997 is hereby MODIFIED in that the decision appealed from is AFFIRMED in
toto, with costs against [petitioner].[4]
The October 9, 1998 Resolution denied for lack of merit petitioners Motion for Reconsideration of
the August 17, 1998 Resolution.[5]
The Facts
The events that led to this case are summarized by the CA as follows:
Sometime in June, 1986, [Petitioner] Fernando Santos and [Respondent] Nieves Reyes were introduced
to each other by one Meliton Zabat regarding a lending business venture proposed by Nieves. It was
verbally agreed that [petitioner would] act as financier while [Nieves] and Zabat [would] take charge of
solicitation of members and collection of loan payments. The venture was launched on June 13, 1986,
with the understanding that [petitioner] would receive 70% of the profits while x x x Nieves and Zabat
would earn 15% each.
In July, 1986, x x x Nieves introduced Cesar Gragera to [petitioner]. Gragera, as chairman of the Monte
Maria Development Corporation[6] (Monte Maria, for brevity), sought short-term loans for members of the
corporation. [Petitioner] and Gragera executed an agreement providing funds for Monte Marias
members. Under the agreement, Monte Maria, represented by Gragera, was entitled to P1.31
commission per thousand paid daily to [petitioner] (Exh. A). x x x Nieves kept the books as representative
of [petitioner] while [Respondent] Arsenio, husband of Nieves, acted as credit investigator.
On August 6, 1986, [petitioner], x x x [Nieves] and Zabat executed the Article of Agreement which
formalized their earlier verbal arrangement.
[Petitioner] and [Nieves] later discovered that their partner Zabat engaged in the same lending business
in competition with their partnership[.] Zabat was thereby expelled from the partnership. The operations
with Monte Maria continued.
On June 5, 1987, [petitioner] filed a complaint for recovery of sum of money and damages. [Petitioner]
charged [respondents], allegedly in their capacities as employees of [petitioner], with having
misappropriated funds intended for Gragera for the period July 8, 1986 up to March 31, 1987. Upon
Grageras complaint that his commissions were inadequately remitted, [petitioner] entrusted P200,000.00
to x x x Nieves to be given to Gragera. x x x Nieves allegedly failed to account for the amount. [Petitioner]
asserted that after examination of the records, he found that of the total amount of P4,623,201.90
entrusted to [respondents], only P3,068,133.20 was remitted to Gragera, thereby leaving the balance
of P1,555,065.70 unaccounted for.
In their answer, [respondents] asserted that they were partners and not mere employees of
[petitioner]. The complaint, they alleged, was filed to preempt and prevent them from claiming their
rightful share to the profits of the partnership.
x x x Arsenio alleged that he was enticed by [petitioner] to take the place of Zabat after [petitioner] learned
of Zabats activities.Arsenio resigned from his job at the Asian Development Bank to join the partnership.
For her part, x x x Nieves claimed that she participated in the business as a partner, as the lending
activity with Monte Maria originated from her initiative. Except for the limited period of July 8, 1986
through August 20, 1986, she did not handle sums intended for Gragera. Collections were turned over
to Gragera because he guaranteed 100% payment of all sums loaned by Monte Maria. Entries she made
on worksheets were based on this assumptive 100% collection of all loans. The loan releases were made
less Grageras agreed commission. Because of this arrangement, she neither received payments from
borrowers nor remitted any amount to Gragera. Her job was merely to make worksheets (Exhs. 15 to
15-DDDDDDDDDD) to convey to [petitioner] how much he would earn if all the sums guaranteed by
Gragera were collected.
[Petitioner] on the other hand insisted that [respondents] were his mere employees and not partners with
respect to the agreement with Gragera. He claimed that after he discovered Zabats activities, he ceased
infusing funds, thereby causing the extinguishment of the partnership. The agreement with Gragera was
a distinct partnership [from] that of [respondent] and Zabat. [Petitioner] asserted that [respondents] were
hired as salaried employees with respect to the partnership between [petitioner] and Gragera.
[Petitioner] further asserted that in Nieves capacity as bookkeeper, she received all payments from which
Nieves deducted Grageras commission. The commission would then be remitted to Gragera. She
likewise determined loan releases.
During the pre-trial, the parties narrowed the issues to the following points: whether [respondents] were
employees or partners of [petitioner], whether [petitioner] entrusted money to [respondents] for delivery
to Gragera, whether the P1,555,068.70 claimed under the complaint was actually remitted to Gragera
and whether [respondents] were entitled to their counterclaim for share in the profits.[7]
Ruling of the Trial Court
In its August 13, 1991 Decision, the trial court held that respondents were partners, not mere
employees, of petitioner. It further ruled that Gragera was only a commission agent of petitioner, not his
partner. Petitioner moreover failed to prove that he had entrusted any money to Nieves. Thus,
respondents counterclaim for their share in the partnership and for damages was granted. The trial court
disposed as follows:
WHEREFORE, the Court hereby renders judgment as follows:
THE SECOND AMENDED COMPLAINT dated July 26, 1989 is DISMISSED.
The [Petitioner] FERNANDO J. SANTOS is ordered to pay the [Respondent] NIEVES S. REYES,
the following:
.00 - The 15 percent share of the [respondent] NIEVES S. REYES in the profits of her joint venture
with the [petitioner]. 39.2.2. Six (6) percent of - As damages from P3,064,428.00 August 3, 1987
until the P3,064,428.00 is fully paid.
39.2.3. P50,000.00 - As moral damages
39.2.4. P10,000.00 - As exemplary damages
39.3. The [petitioner] FERNANDO J. SANTOS is ordered to pay the [respondent] ARSENIO REYES,
the following: 39.3.1. P2,899,739.50 - The balance of the 15 percent share of the [respondent]
ARSENIO REYES in the profits of his joint venture with the [petitioner]. 39.3.2. Six (6) percent of - As
damages from P2,899,739.50 August 3, 1987 until the P2,899,739.50 is fully paid.
39.3.3. P25,000.00 - As moral damages
39.3.4. P10,000.00 - As exemplary damages
39.4. The [petitioner] FERNANDO J. SANTOS is ordered to pay the [respondents]:
39.4.1. P50,000.00 - As attorneys fees; and 39.4.2 The cost of the suit.[8]
Ruling of the Court of Appeals
On appeal, the Decision of the trial court was upheld, and the counterclaim of respondents was
dismissed. Upon the latters Motion for Reconsideration, however, the trial courts Decision was
reinstated in toto. Subsequently, petitioners own Motion for Reconsideration was denied in the CA
Resolution of October 9, 1998.
The CA ruled that the following circumstances indicated the existence of a partnership among the
parties: (1) it was Nieves who broached to petitioner the idea of starting a money-lending business and
introduced him to Gragera; (2) Arsenio received dividends or profit-shares covering the period July 15
to August 7, 1986 (Exh. 6); and (3) the partnership contract was executed after the Agreement with
Gragera and petitioner and thus showed the parties intention to consider it as a transaction of the
partnership. In their common venture, petitioner invested capital while respondents contributed industry
or services, with the intention of sharing in the profits of the business.
The CA disbelieved petitioners claim that Nieves had misappropriated a total of P200,000 which was
supposed to be delivered to Gragera to cover unpaid commissions. It was his task to collect the amounts
due, while hers was merely to prepare the daily cash flow reports (Exhs. 15-15DDDDDDDDDD) to keep
track of his collections.
Hence, this Petition.[9]
Issue
Petitioner asks this Court to rule on the following issues:[10]
Whether or not Respondent Court of Appeals acted with grave abuse of discretion tantamount to excess
or lack of jurisdiction in:
Holding that private respondents were partners/joint venturers and not employees of Santos in
connection with the agreement between Santos and Monte Maria/Gragera;

Affirming the findings of the trial court that the phrase Received by on documents signed by Nieves
Reyes signified receipt of copies of the documents and not of the sums shown thereon;

Affirming that the signature of Nieves Reyes on Exhibit E was a forgery;

Finding that Exhibit H [did] not establish receipt by Nieves Reyes of P200,000.00 for delivery to
Gragera;

Affirming the dismissal of Santos [Second] Amended Complaint;

Affirming the decision of the trial court, upholding private respondents counterclaim;
Denying Santos motion for reconsideration dated September 11, 1998.
Succinctly put, the following were the issues raised by petitioner: (1) whether the parties relationship
was one of partnership or of employer-employee; (2) whether Nieves misappropriated the sums of
money allegedly entrusted to her for delivery to Gragera as his commissions; and (3) whether
respondents were entitled to the partnership profits as determined by the trial court.
The Courts Ruling
The Petition is partly meritorious.
First Issue:
Business Relationship
Petitioner maintains that he employed the services of respondent spouses in the money-lending
venture with Gragera, with Nieves as bookkeeper and Arsenio as credit investigator. That Nieves
introduced Gragera to Santos did not make her a partner.She was only a witness to the Agreement
between the two. Separate from the partnership between petitioner and Gragera was that which existed
among petitioner, Nieves and Zabat, a partnership that was dissolved when Zabat was expelled.
On the other hand, both the CA and the trial court rejected petitioners contentions and ruled that the
business relationship was one of partnership. We quote from the CA Decision, as follows:
[Respondents] were industrial partners of [petitioner]. x x x Nieves herself provided the initiative in the
lending activities with Monte Maria. In consonance with the agreement between appellant, Nieves and
Zabat (later replaced by Arsenio), [respondents] contributed industry to the common fund with the
intention of sharing in the profits of the partnership. [Respondents] provided services without which the
partnership would not have [had] the wherewithal to carry on the purpose for which it was organized and
as such [were] considered industrial partners (Evangelista v. Abad Santos, 51 SCRA 416 [1973]).
While concededly, the partnership between [petitioner,] Nieves and Zabat was technically dissolved by
the expulsion of Zabat therefrom, the remaining partners simply continued the business of the
partnership without undergoing the procedure relative to dissolution. Instead, they invited Arsenio to
participate as a partner in their operations. There was therefore, no intent to dissolve the earlier
partnership. The partnership between [petitioner,] Nieves and Arsenio simply took over and continued
the business of the former partnership with Zabat, one of the incidents of which was the lending
operations with Monte Maria.
xxxxxxxxx
Gragera and [petitioner] were not partners. The money-lending activities undertaken with Monte Maria
was done in pursuit of the business for which the partnership between [petitioner], Nieves and Zabat
(later Arsenio) was organized. Gragera who represented Monte Maria was merely paid commissions in
exchange for the collection of loans. The commissions were fixed on gross returns, regardless of the
expenses incurred in the operation of the business. The sharing of gross returns does not in itself
establish a partnership.[11]
We agree with both courts on this point. By the contract of partnership, two or more persons bind
themselves to contribute money, property or industry to a common fund, with the intention of dividing the
profits among themselves.[12] The Articles of Agreement stipulated that the signatories shall share the
profits of the business in a 70-15-15 manner, with petitioner getting the lions share.[13] This stipulation
clearly proved the establishment of a partnership.
We find no cogent reason to disagree with the lower courts that the partnership continued lending
money to the members of the Monte Maria Community Development Group, Inc., which later on changed
its business name to Private Association for Community Development, Inc. (PACDI). Nieves was not
merely petitioners employee. She discharged her bookkeeping duties in accordance with paragraphs 2
and 3 of the Agreement, which states as follows:
2. That the SECOND PARTY and THIRD PARTY shall handle the solicitation and screening of
prospective borrowers, and shall x x x each be responsible in handling the collection of the loan payments
of the borrowers that they each solicited.
3. That the bookkeeping and daily balancing of account of the business operation shall be handled by
the SECOND PARTY.[14]
The Second Party named in the Agreement was none other than Nieves Reyes. On the other hand,
Arsenios duties as credit investigator are subsumed under the phrase screening of prospective
borrowers. Because of this Agreement and the disbursement of monthly allowances and profit shares or
dividends (Exh. 6) to Arsenio, we uphold the factual finding of both courts that he replaced Zabat in the
partnership.
Indeed, the partnership was established to engage in a money-lending business, despite the fact
that it was formalized only after the Memorandum of Agreement had been signed by petitioner and
Gragera. Contrary to petitioners contention, there is no evidence to show that a different business
venture is referred to in this Agreement, which was executed on August 6, 1986, or about a month after
the Memorandum had been signed by petitioner and Gragera on July 14, 1986. The Agreement itself
attests to this fact:
WHEREAS, the parties have decided to formalize the terms of their business relationship in order that
their respective interests may be properly defined and established for their mutual benefit and
understanding.[15]
Second Issue:
No Proof of Misappropriation of Grageras Unpaid Commission
Petitioner faults the CA finding that Nieves did not misappropriate money intended for Grageras
commission. According to him, Gragera remitted his daily collection to Nieves. This is shown by Exhibit
B (the Schedule of Daily Payments), which bears her signature under the words received by. For the
period July 1986 to March 1987, Gragera should have earned a total commission
of P4,282,429.30. However, only P3,068,133.20 was received by him. Thus, petitioner infers that she
misappropriated the difference of P1,214,296.10, which represented the unpaid commissions. Exhibit H
is an untitled tabulation which, according to him, shows that Gragera was also entitled to a commission
of P200,000, an amount that was never delivered by Nieves.[16]
On this point, the CA ruled that Exhibits B, F, E and H did not show that Nieves received for delivery
to Gragera any amount from which the P1,214,296.10 unpaid commission was supposed to come, and
that such exhibits were insufficient proof that she had embezzled P200,000. Said the CA:
The presentation of Exhibit D vaguely denominated as members ledger does not clearly establish that
Nieves received amounts from Monte Marias members. The document does not clearly state what
amounts the entries thereon represent. More importantly, Nieves made the entries for the limited period
of January 11, 1987 to February 17, 1987 only while the rest were made by Grageras own staff.
Neither can we give probative value to Exhibit E which allegedly shows acknowledgment of the
remittance of commissions to Verona Gonzales. The document is a private one and its due execution
and authenticity have not been duly proved as required in [S]ection 20, Rule 132 of the Rules of Court
which states:
Sec. 20. Proof of Private Document Before any private document offered as authentic is received in
evidence, its due execution and authenticity must be proved either:
(a) By anyone who saw the document executed or written; or
(b) By evidence of the genuineness of the signature or handwriting of the maker.
Any other private document need only be identified as that which it is claimed to be.
The court a quo even ruled that the signature thereon was a forgery, as it found that:
x x x. But NIEVES denied that Exh. E-1 is her signature; she claimed that it is a forgery. The initial stroke
of Exh. E-1 starts from up and goes downward. The initial stroke of the genuine signatures of NIEVES
(Exhs. A-3, B-1, F-1, among others) starts from below and goes upward. This difference in the start of
the initial stroke of the signatures Exhs. E-1 and of the genuine signatures lends credence to Nieves
claim that the signature Exh. E-1 is a forgery.
xxxxxxxxx
Nieves testimony that the schedules of daily payment (Exhs. B and F) were based on the predetermined
100% collection as guaranteed by Gragera is credible and clearly in accord with the evidence. A perusal
of Exhs. B and F as well as Exhs. 15 to 15-DDDDDDDDDD reveal that the entries were indeed based
on the 100% assumptive collection guaranteed by Gragera. Thus, the total amount recorded on Exh. B
is exactly the number of borrowers multiplied by the projected collection of P150.00 per borrower. This
holds true for Exh. F.
Corollarily, Nieves explanation that the documents were pro forma and that she signed them not to
signify that she collected the amounts but that she received the documents themselves is more
believable than [petitioners] assertion that she actually handled the amounts.
Contrary to [petitioners] assertion, Exhibit H does not unequivocally establish that x x x Nieves
received P200,000.00 as commission for Gragera. As correctly stated by the court a quo, the document
showed a liquidation of P240,000.00 and not P200,000.00.
Accordingly, we find Nieves testimony that after August 20, 1986, all collections were made by Gragera
believable and worthy of credence. Since Gragera guaranteed a daily 100% payment of the loans, he
took charge of the collections. As [petitioners] representative, Nieves merely prepared the daily cash
flow reports (Exh. 15 to 15 DDDDDDDDDD) to enable [petitioner] to keep track of Grageras
operations. Gragera on the other hand devised the schedule of daily payment (Exhs. B and F) to record
the projected gross daily collections.
As aptly observed by the court a quo:
26.1. As between the versions of SANTOS and NIEVES on how the commissions of GRAGERA [were]
paid to him[,] that of NIEVES is more logical and practical and therefore, more believable. SANTOS
version would have given rise to this improbable situation: GRAGERA would collect the daily
amortizations and then give them to NIEVES; NIEVES would get GRAGERAs commissions from the
amortizations and then give such commission to GRAGERA.[17]
These findings are in harmony with the trial courts ruling, which we quote below:
21. Exh. H does not prove that SANTOS gave to NIEVES and the latter received P200,000.00 for
delivery to GRAGERA. Exh. H shows under its sixth column ADDITIONAL CASH that the additional cash
was P240,000.00. If Exh. H were the liquidation of the P200,000.00 as alleged by SANTOS, then his
claim is not true. This is so because it is a liquidation of the sum of P240,000.00.
21.1. SANTOS claimed that he learned of NIEVES failure to give the P200,000.00 to GRAGERA when
he received the latters letter complaining of its delayed release. Assuming as true SANTOS claim that
he gave P200,000.00 to GRAGERA, there is no competent evidence that NIEVES did not give it to
GRAGERA. The only proof that NIEVES did not give it is the letter. But SANTOS did not even present
the letter in evidence. He did not explain why he did not.
21.2. The evidence shows that all money transactions of the money-lending business of SANTOS were
covered by petty cash vouchers. It is therefore strange why SANTOS did not present any voucher or
receipt covering the P200,000.00.[18]
In sum, the lower courts found it unbelievable that Nieves had embezzled P1,555,068.70 from the
partnership. She did not remit P1,214,296.10 to Gragera, because he had deducted his commissions
before remitting his collections. Exhibits B and F are merely computations of what Gragera should collect
for the day; they do not show that Nieves received the amounts stated therein. Neither is there sufficient
proof that she misappropriated P200,000, because Exhibit H does not indicate that such amount was
received by her; in fact, it shows a different figure.
Petitioner has utterly failed to demonstrate why a review of these factual findings is warranted. Well-
entrenched is the basic rule that factual findings of the Court of Appeals affirming those of the trial court
are binding and conclusive on the Supreme Court.[19] Although there are exceptions to this rule, petitioner
has not satisfactorily shown that any of them is applicable to this issue.
Third Issue:
Accounting of Partnership
Petitioner refuses any liability for respondents claims on the profits of the partnership. He maintains
that both business propositions were flops, as his investments were consumed and eaten up by the
commissions orchestrated to be due Gragera a situation that could not have been rendered possible
without complicity between Nieves and Gragera.
Respondent spouses, on the other hand, postulate that petitioner instituted the action below to avoid
payment of the demands of Nieves, because sometime in March 1987, she signified to petitioner that it
was about time to get her share of the profits which had already accumulated to some P3 million.
Respondents add that while the partnership has not declared dividends or liquidated its earnings, the
profits are already reflected on paper. To prove the counterclaim of Nieves, the spouses show that from
June 13, 1986 up to April 19, 1987, the profit totaled P20,429,520 (Exhs. 10 et seq. and 15 et
seq.). Based on that income, her 15 percent share under the joint venture amounts to P3,064,428 (Exh.
10-I-3); and Arsenios, P2,026,000 minus the P30,000 which was already advanced to him (Petty Cash
Vouchers, Exhs. 6, 6-A to 6-B).
The CA originally held that respondents counterclaim was premature, pending an accounting of the
partnership. However, in its assailed Resolution of August 17, 1998, it turned volte face. Affirming the
trial courts ruling on the counterclaim, it held as follows:
We earlier ruled that there is still need for an accounting of the profits and losses of the partnership
before we can rule with certainty as to the respective shares of the partners. Upon a further review of
the records of this case, however, there appears to be sufficient basis to determine the amount of shares
of the parties and damages incurred by [respondents]. The fact is that the court a quo already made
such a determination [in its] decision dated August 13, 1991 on the basis of the facts on record.[20]
The trial courts ruling alluded to above is quoted below:
27. The defendants counterclaim for the payment of their share in the profits of their joint venture with
SANTOS is supported by the evidence.
27.1. NIEVES testified that: Her claim to a share in the profits is based on the agreement (Exhs. 5, 5-A
and 5-B). The profits are shown in the working papers (Exhs. 10 to 10-I, inclusive) which she
prepared. Exhs. 10 to 10-I (inclusive) were based on the daily cash flow reports of which Exh. 3 is a
sample. The originals of the daily cash flow reports (Exhs. 3 and 15 to 15-D (10) were given to
SANTOS. The joint venture had a net profit of P20,429,520.00 (Exh. 10-I-1), from its operations from
June 13, 1986 to April 19, 1987 (Exh. 1-I-4). She had a share of P3,064,428.00 (Exh. 10-I-3) and
ARSENIO, about P2,926,000.00, in the profits.
27.1.1 SANTOS never denied NIEVES testimony that the money-lending business he was engaged in
netted a profit and that the originals of the daily case flow reports were furnished to him. SANTOS
however alleged that the money-lending operation of his joint venture with NIEVES and ZABAT resulted
in a loss of about half a million pesos to him. But such loss, even if true, does not negate NIEVES claim
that overall, the joint venture among them SANTOS, NIEVES and ARSENIO netted a profit. There is no
reason for the Court to doubt the veracity of [the testimony of] NIEVES.
27.2 The P26,260.50 which ARSENIO received as part of his share in the profits (Exhs. 6, 6-A and 6-B)
should be deducted from his total share.[21]
After a close examination of respondents exhibits, we find reason to disagree with the CA. Exhibit
10-I shows that the partnership earned a total income of P20,429,520 for the period June 13, 1986
[22]

until April 19, 1987. This entry is derived from the sum of the amounts under the following column
headings: 2-Day Advance Collection, Service Fee, Notarial Fee, Application Fee, Net Interest Income
and Interest Income on Investment. Such entries represent the collections of the money-lending business
or its gross income.
The total income shown on Exhibit 10-I did not consider the expenses sustained by the
partnership. For instance, it did not factor in the gross loan releases representing the money loaned to
clients. Since the business is money-lending, such releases are comparable with the inventory or
supplies in other business enterprises.
Noticeably missing from the computation of the total income is the deduction of the weekly allowance
disbursed to respondents. Exhibits I et seq. and J et seq.[23] show that Arsenio received allowances from
July 19, 1986 to March 27, 1987 in the aggregate amount of P25,500; and Nieves, from July 12, 1986
to March 27, 1987 in the total amount of P25,600. These allowances are different from the profit already
received by Arsenio. They represent expenses that should have been deducted from the business
profits. The point is that all expenses incurred by the money-lending enterprise of the parties must first
be deducted from the total income in order to arrive at the net profit of the partnership. The share of each
one of them should be based on this net profit and not from the gross income or total income reflected
in Exhibit 10-I, which the two courts invariably referred to as cash flow sheets.
Similarly, Exhibits 15 et seq.,[24] which are the Daily Cashflow Reports, do not reflect the business
expenses incurred by the parties, because they show only the daily cash collections. Contrary to the
rulings of both the trial and the appellate courts, respondents exhibits do not reflect the complete financial
condition of the money-lending business. The lower courts obviously labored over a mistaken notion that
Exhibit 10-I-1 represented the net profits earned by the partnership.
For the purpose of determining the profit that should go to an industrial partner (who shares in the
profits but is not liable for the losses), the gross income from all the transactions carried on by the firm
must be added together, and from this sum must be subtracted the expenses or the losses sustained in
the business. Only in the difference representing the net profits does the industrial partner share. But if,
on the contrary, the losses exceed the income, the industrial partner does not share in the losses.[25]
When the judgment of the CA is premised on a misapprehension of facts or a failure to notice certain
relevant facts that would otherwise justify a different conclusion, as in this particular issue, a review of
its factual findings may be conducted, as an exception to the general rule applied to the first two issues.[26]
The trial court has the advantage of observing the witnesses while they are testifying, an opportunity
not available to appellate courts. Thus, its assessment of the credibility of witnesses and their testimonies
are accorded great weight, even finality, when supported by substantial evidence; more so when such
assessment is affirmed by the CA. But when the issue involves the evaluation of exhibits or documents
that are attached to the case records, as in the third issue, the rule may be relaxed. Under that situation,
this Court has a similar opportunity to inspect, examine and evaluate those records, independently of
the lower courts.Hence, we deem the award of the partnership share, as computed by the trial court and
adopted by the CA, to be incomplete and not binding on this Court.
WHEREFORE, the Petition is partly GRANTED. The assailed November 28, 1997 Decision
is AFFIRMED, but the challenged Resolutions dated August 17, 1998 and October 9, 1998
are REVERSED and SET ASIDE. No costs.

8. Tocao vs CA 365 SCRA 463 2001

MARJORIE TOCAO and WILLIAM T.
BELO, petitioners, vs. COURT OF
APPEALS and NENITA A.
ANAY, respondents.

The inherent powers of a Court to amend and control its processes and orders so as to make them
conformable to law and justice includes the right to reverse itself, especially when in its honest opinion
it has committed an error or mistake in judgment, and that to adhere to its decision will cause injustice
to a party litigant.[1]
On November 14, 2001, petitioners Marjorie Tocao and William T. Belo filed a Motion for
Reconsideration of our Decision dated October 4, 2000. They maintain that there was no partnership
bettween petitioner Belo, on the one hand, and respondent Nenita A. Anay, on the other hand; and that
the latter being merely an employee of petitioner Tocao.
After a careful review of the evidence presented, we are convinced that, indeed, petitioner Belo
acted merely as guarantor of Geminesse Enterprise. This was categorically affirmed by respondents
own witness, Elizabeth Bantilan, during her cross-examination. Furthermore, Bantilan testified that it was
Peter Lo who was the companys financier. Thus:
Q You mentioned a while ago the name William Belo. Now, what is the role of William Belo with
Geminesse Enterprise?
A William Belo is the friend of Marjorie Tocao and he was the guarantor of the company.
Q What do you mean by guarantor?
A He guarantees the stocks that she owes somebody who is Peter Lo and he acts as guarantor for
us. We can borrow money from him.
Q You mentioned a certain Peter Lo. Who is this Peter Lo?
A Peter Lo is based in Singapore.
Q What is the role of Peter Lo in the
Geminesse Enterprise?
A He is the one fixing our orders that open
the L/C.
Q You mean Peter Lo is the financier?
A Yes, he is the financier.
Q And the defendant William Belo is merely
the guarantor of Geminesse Enterprise, am
I correct?
A Yes, sir.[2]
The foregoing was neither refuted nor contradicted by respondents evidence. It should be recalled
that the business relationship created between petitioner Tocao and respondent Anay was an informal
partnership, which was not even recorded with the Securities and Exchange Commission. As such, it
was understandable that Belo, who was after all petitioner Tocaos good friend and confidante, would
occasionally participate in the affairs of the business, although never in a formal or official
capacity.[3] Again, respondents witness, Elizabeth Bantilan, confirmed that petitioner Belos presence in
Geminesse Enterprises meetings was merely as guarantor of the company and to help petitioner
Tocao.[4]
Furthermore, no evidence was presented to show that petitioner Belo participated in the profits of
the business enterprise.Respondent herself professed lack of knowledge that petitioner Belo received
any share in the net income of the partnership.[5]On the other hand, petitioner Tocao declared that
petitioner Belo was not entitled to any share in the profits of Geminesse Enterprise.[6] With no
participation in the profits, petitioner Belo cannot be deemed a partner since the essence of a partnership
is that the partners share in the profits and losses.[7]
Consequently, inasmuch as petitioner Belo was not a partner in Geminesse Enterprise, respondent
had no cause of action against him and her complaint against him should accordingly be dismissed.
As regards the award of damages, petitioners argue that respondent should be deemed in bad faith
for failing to account for stocks of Geminesse Enterprise amounting to P208,250.00 and that,
accordingly, her claim for damages should be barred to that extent. We do not agree. Given the
circumstances surrounding private respondents sudden ouster from the partnership by petitioner Tocao,
her act of withholding whatever stocks were in her possession and control was justified, if only to serve
as security for her claims against the partnership. However, while we do not agree that the same renders
private respondent in bad faith and should bar her claim for damages, we find that the said sum of
P208,250.00 should be deducted from whatever amount is finally adjudged in her favor on the basis of
the formal account of the partnership affairs to be submitted to the Regional Trial Court.
WHEREFORE, based on the foregoing, the Motion for Reconsideration of petitioners is PARTIALLY
GRANTED. The Regional Trial Court of Makati is hereby ordered to DISMISS the complaint, docketed
as Civil Case No. 88-509, as against petitioner William T. Belo only. The sum of P208,250.00 shall be
deducted from whatever amount petitioner Marjorie Tocao shall be held liable to pay respondent after
the formal accounting of the partnership affairs.

9. Woodhouse vs Halili 83 Phil 526 1953

CHARLES F. WOODHOUSE, plaintiff-appellant, vs.FORTUNATO F. HALILI, defendant-appellant.

On November 29, 1947, the plaintiff entered on a written agreement, Exhibit A, with the defendant, the
most important provisions of which are (1) that they shall organize a partnership for the bottling and
distribution of Mision soft drinks, plaintiff to act as industrial partner or manager, and the defendant as a
capitalist, furnishing the capital necessary therefor; (2) that the defendant was to decide matters of
general policy regarding the business, while the plaintiff was to attend to the operation and development
of the bottling plant; (3) that the plaintiff was to secure the Mission Soft Drinks franchise for and in behalf
of the proposed partnership; and (4) that the plaintiff was to receive 30 per cent of the net profits of the
business. The above agreement was arrived at after various conferences and consultations by and
between them, with the assistance of their respective attorneys. Prior to entering into this agreement,
plaintiff had informed the Mission Dry Corporation of Los Angeles, California, U.S.A., manufacturers of
the bases and ingridients of the beverages bearing its name, that he had interested a prominent financier
(defendant herein) in the business, who was willing to invest half a million dollars in the bottling and
distribution of the said beverages, and requested, in order that he may close the deal with him, that the
right to bottle and distribute be granted him for a limited time under the condition that it will finally be
transferred to the corporation (Exhibit H). Pursuant for this request, plaintiff was given "a thirty-days"
option on exclusive bottling and distribution rights for the Philippines" (Exhibit J). Formal negotiations
between plaintiff and defendant began at a meeting on November 27, 1947, at the Manila Hotel, with
their lawyers attending. Before this meeting plaintiff's lawyer had prepared the draft of the agreement,
Exhibit II or OO, but this was not satisfactory because a partnership, instead of a corporation, was
desired. Defendant's lawyer prepared after the meeting his own draft, Exhibit HH. This last draft appears
to be the main basis of the agreement, Exhibit A.
The contract was finally signed by plaintiff on December 3, 1947. Plaintiff did not like to go to the United
States without the agreement being not first signed. On that day plaintiff and defendant went to the
United States, and on December 10, 1947, a franchise agreement (Exhibit V) was entered into the
Mission Dry Corporation and Fortunato F. Halili and/or Charles F. Woodhouse, granted defendant the
exclusive right, license, and authority to produce, bottle, distribute, and sell Mision beverages in the
Philippines. The plaintiff and the defendant thereafter returned to the Philippines. Plaintiff reported for
duty in January, 1948, but operations were not begun until the first week of February, 1948. In January
plaintiff was given as advance, on account of profits, the sum of P2,000, besides the use of a car; in
February, 1948, also P2,000, and in March only P1,000. The car was withdrawn from plaintiff on March
9, 1948.
When the bottling plant was already on operation, plaintiff demanded of defendant that the partnership
papers be executed. At first defendant executed himself, saying there was no hurry. Then he promised
to do so after the sales of the product had been increased to P50,000. As nothing definite was
forthcoming, after this condition was attained, and as defendant refused to give further allowances to
plaintiff, the latter caused his attorneys to take up the matter with the defendant with a view to a possible
settlement. as none could be arrived at, the present action was instituted.
In his complaint plaintiff asks for the execution of the contract of partnership, an accounting of the profits,
and a share thereof of 30 per cent, as well as damages in the amount of P200,000. In his answer
defendant alleges by way of defense (1) that defendant's consent to the agreement, Exhibit A, was
secured by the representation of plaintiff that he was the owner, or was about to become owner of an
exclusive bottling franchise, which representation was false, and plaintiff did not secure the franchise,
but was given to defendant himself; (2) that defendant did not fail to carry out his undertakings, but that
it was plaintiff who failed; (3) that plaintiff agreed to contribute the exclusive franchise to the partnership,
but plaintiff failed to do so. He also presented a counter-claim for P200,000 as damages. On these issues
the parties went to trial, and thereafter the Court of First Instance rendered judgment ordering defendant
to render an accounting of the profits of the bottling and distribution business, subject of the action, and
to pay plaintiff 15 percent thereof. it held that the execution of the contract of partnership could not be
enforced upon the parties, but it also held that the defense of fraud was not proved. Against this judgment
both parties have appealed.
The most important question of fact to be determined is whether defendant had falsely represented that
he had an exclusive franchise to bottle Mission beverages, and whether this false representation or
fraud, if it existed, annuls the agreement to form the partnership. The trial court found that it is improbable
that defendant was never shown the letter, Exhibit J, granting plaintiff had; that the drafts of the contract
prior to the final one can not be considered for the purpose of determining the issue, as they are
presumed to have been already integrated into the final agreement; that fraud is never presumed and
must be proved; that the parties were represented by attorneys, and that if any party thereto got the
worse part of the bargain, this fact alone would not invalidate the agreement. On this appeal the
defendant, as appellant, insists that plaintiff did represent to the defendant that he had an exclusive
franchise, when as a matter of fact, at the time of its execution, he no longer had it as the same had
expired, and that, therefore, the consent of the defendant to the contract was vitiated by fraud and it is,
consequently, null and void.
Our study of the record and a consideration of all the surrounding circumstances lead us to believe that
defendant's contention is not without merit. Plaintiff's attorney, Mr. Laurea, testified that Woodhouse
presented himself as being the exclusive grantee of a franchise, thus:

A. I don't recall any discussion about that matter. I took along with me the file of the office with regards
to this matter. I notice from the first draft of the document which I prepared which calls for the organization
of a corporation, that the manager, that is, Mr. Woodhouse, is represented as being the exclusive grantee
of a franchise from the Mission Dry Corporation. . . . (t.s.n., p.518)
As a matter of fact, the first draft that Mr. Laurea prepared, which was made before the Manila Hotel
conference on November 27th, expressly states that plaintiff had the exclusive franchise. Thus, the first
paragraph states:

Whereas, the manager is the exclusive grantee of a franchise from the Mission Dry Corporation San
Francisco, California, for the bottling of Mission products and their sale to the public throughout the
Philippines; . . . .

3. The manager, upon the organization of the said corporation, shall forthwith transfer to the said
corporation his exclusive right to bottle Mission products and to sell them throughout the Philippines. . .
..
(Exhibit II; emphasis ours)
The trial court did not consider this draft on the principle of integration of jural acts. We find that the
principle invoked is inapplicable, since the purpose of considering the prior draft is not to vary, alter, or
modify the agreement, but to discover the intent of the parties thereto and the circumstances surrounding
the execution of the contract. The issue of fact is: Did plaintiff represent to defendant that he had an
exclusive franchise? Certainly, his acts or statements prior to the agreement are essential and relevant
to the determination of said issue. The act or statement of the plaintiff was not sought to be introduced
to change or alter the terms of the agreement, but to prove how he induced the defendant to enter into
it to prove the representations or inducements, or fraud, with which or by which he secured the other
party's consent thereto. These are expressly excluded from the parol evidence rule. (Bough and Bough
vs. Cantiveros and Hanopol, 40 Phil., 209; port Banga Lumber Co. vs. Export & Import Lumber Co., 26
Phil., 602; III Moran 221,1952 rev. ed.) Fraud and false representation are an incident to the creation of
a jural act, not to its integration, and are not governed by the rules on integration. Were parties prohibited
from proving said representations or inducements, on the ground that the agreement had already been
entered into, it would be impossible to prove misrepresentation or fraud. Furthermore, the parol evidence
rule expressly allows the evidence to be introduced when the validity of an instrument is put in issue by
the pleadings (section 22, par. (a), Rule 123, Rules of Court),as in this case.
That plaintiff did make the representation can also be easily gleaned from his own letters and his own
testimony. In his letter to Mission Dry Corporation, Exhibit H, he said:.

. . . He told me to come back to him when I was able to speak with authority so that we could come to
terms as far as he and I were concerned. That is the reason why the cable was sent. Without this
authority, I am in a poor bargaining position. . .
I would propose that you grant me the exclusive bottling and distributing rights for a limited period of
time, during which I may consummate my plants. . . .
By virtue of this letter the option on exclusive bottling was given to the plaintiff on October 14, 1947. (See
Exhibit J.) If this option for an exclusive franchise was intended by plaintiff as an instrument with which
to bargain with defendant and close the deal with him, he must have used his said option for the above-
indicated purpose, especially as it appears that he was able to secure, through its use, what he wanted.
Plaintiff's own version of the preliminary conversation he had with defendant is to the effect that when
plaintiff called on the latter, the latter answered, "Well, come back to me when you have the authority to
operate. I am definitely interested in the bottling business." (t. s. n., pp. 60-61.) When after the elections
of 1949 plaintiff went to see the defendant (and at that time he had already the option), he must have
exultantly told defendant that he had the authority already. It is improbable and incredible for him to have
disclosed the fact that he had only an option to the exclusive franchise, which was to last thirty days only,
and still more improbable for him to have disclosed that, at the time of the signing of the formal
agreement, his option had already expired. Had he done so, he would have destroyed all his bargaining
power and authority, and in all probability lost the deal itself.
The trial court reasoned, and the plaintiff on this appeal argues, that plaintiff only undertook in the
agreement "to secure the Mission Dry franchise for and in behalf of the proposed partnership." The
existence of this provision in the final agreement does not militate against plaintiff having represented
that he had the exclusive franchise; it rather strengthens belief that he did actually make the
representation. How could plaintiff assure defendant that he would get the franchise for the latter if he
had not actually obtained it for himself? Defendant would not have gone into the business unless the
franchise was raised in his name, or at least in the name of the partnership. Plaintiff assured defendant
he could get the franchise. Thus, in the draft prepared by defendant's attorney, Exhibit HH, the above
provision is inserted, with the difference that instead of securing the franchise for the defendant, plaintiff
was to secure it for the partnership. To show that the insertion of the above provision does not eliminate
the probability of plaintiff representing himself as the exclusive grantee of the franchise, the final
agreement contains in its third paragraph the following:

. . . and the manager is ready and willing to allow the capitalists to use the exclusive franchise . . .
and in paragraph 11 it also expressly states:
1. In the event of the dissolution or termination of the partnership, . . . the franchise from Mission Dry
Corporation shall be reassigned to the manager.
These statements confirm the conclusion that defendant believed, or was made to believe, that plaintiff
was the grantee of an exclusive franchise. Thus it is that it was also agreed upon that the franchise was
to be transferred to the name of the partnership, and that, upon its dissolution or termination, the same
shall be reassigned to the plaintiff.
Again, the immediate reaction of defendant, when in California he learned that plaintiff did not have the
exclusive franchise, was to reduce, as he himself testified, plaintiff's participation in the net profits to one
half of that agreed upon. He could not have had such a feeling had not plaintiff actually made him believe
that he (plaintiff) was the exclusive grantee of the franchise.
The learned trial judge reasons in his decision that the assistance of counsel in the making of the contract
made fraud improbable. Not necessarily, because the alleged representation took place before the
conferences were had, in other words, plaintiff had already represented to defendant, and the latter had
already believed in, the existence of plaintiff's exclusive franchise before the formal negotiations, and
they were assisted by their lawyers only when said formal negotiations actually took place. Furthermore,
plaintiff's attorney testified that plaintiff had said that he had the exclusive franchise; and defendant's
lawyer testified that plaintiff explained to him, upon being asked for the franchise, that he had left the
papers evidencing it.(t.s.n., p. 266.)
We conclude from all the foregoing that plaintiff did actually represent to defendant that he was the holder
of the exclusive franchise. The defendant was made to believe, and he actually believed, that plaintiff
had the exclusive franchise. Defendant would not perhaps have gone to California and incurred
expenses for the trip, unless he believed that plaintiff did have that exclusive privilege, and that the latter
would be able to get the same from the Mission Dry Corporation itself. Plaintiff knew what defendant
believed about his (plaintiff's) exclusive franchise, as he induced him to that belief, and he may not be
allowed to deny that defendant was induced by that belief. (IX Wigmore, sec. 2423; Sec. 65, Rule 123,
Rules of Court.)
We now come to the legal aspect of the false representation. Does it amount to a fraud that would vitiate
the contract? It must be noted that fraud is manifested in illimitable number of degrees or gradations,
from the innocent praises of a salesman about the excellence of his wares to those malicious
machinations and representations that the law punishes as a crime. In consequence, article 1270 of the
Spanish Civil Code distinguishes two kinds of (civil) fraud, the causal fraud, which may be a ground for
the annulment of a contract, and the incidental deceit, which only renders the party who employs it liable
for damages. This Court had held that in order that fraud may vitiate consent, it must be the causal (dolo
causante), not merely the incidental (dolo causante), inducement to the making of the contract. (Article
1270, Spanish Civil Code; Hill vs. Veloso, 31 Phil. 160.) The record abounds with circumstances
indicative that the fact that the principal consideration, the main cause that induced defendant to enter
into the partnership agreement with plaintiff, was the ability of plaintiff to get the exclusive franchise to
bottle and distribute for the defendant or for the partnership. The original draft prepared by defendant's
counsel was to the effect that plaintiff obligated himself to secure a franchise for the defendant.
Correction appears in this same original draft, but the change is made not as to the said obligation but
as to the grantee. In the corrected draft the word "capitalist"(grantee) is changed to "partnership." The
contract in its final form retains the substituted term "partnership." The defendant was, therefore, led to
the belief that plaintiff had the exclusive franchise, but that the same was to be secured for or transferred
to the partnership. The plaintiff no longer had the exclusive franchise, or the option thereto, at the time
the contract was perfected. But while he had already lost his option thereto (when the contract was
entered into), the principal obligation that he assumed or undertook was to secure said franchise for the
partnership, as the bottler and distributor for the Mission Dry Corporation. We declare, therefore, that if
he was guilty of a false representation, this was not the causal consideration, or the principal inducement,
that led plaintiff to enter into the partnership agreement.
But, on the other hand, this supposed ownership of an exclusive franchise was actually the consideration
or price plaintiff gave in exchange for the share of 30 percent granted him in the net profits of the
partnership business. Defendant agreed to give plaintiff 30 per cent share in the net profits because he
was transferring his exclusive franchise to the partnership. Thus, in the draft prepared by plaintiff's
lawyer, Exhibit II, the following provision exists:

3. That the MANAGER, upon the organization of the said corporation, shall forthwith transfer to the said
corporation his exclusive right to bottle Mission products and to sell them throughout the Philippines. As
a consideration for such transfer, the CAPITALIST shall transfer to the Manager fully paid non
assessable shares of the said corporation . . . twenty-five per centum of the capital stock of the said
corporation. (Par. 3, Exhibit II; emphasis ours.)
Plaintiff had never been a bottler or a chemist; he never had experience in the production or distribution
of beverages. As a matter of fact, when the bottling plant being built, all that he suggested was about the
toilet facilities for the laborers.
We conclude from the above that while the representation that plaintiff had the exclusive franchise did
not vitiate defendant's consent to the contract, it was used by plaintiff to get from defendant a share of
30 per cent of the net profits; in other words, by pretending that he had the exclusive franchise and
promising to transfer it to defendant, he obtained the consent of the latter to give him (plaintiff) a big slice
in the net profits. This is the dolo incidente defined in article 1270 of the Spanish Civil Code, because it
was used to get the other party's consent to a big share in the profits, an incidental matter in the
agreement.

El dolo incidental no es el que puede producirse en el cumplimiento del contrato sino que significa aqui,
el que concurriendoen el consentimiento, o precediendolo, no influyo para arrancar porsi solo el
consentimiento ni en la totalidad de la obligacion, sinoen algun extremo o accidente de esta, dando lugar
tan solo a una accion para reclamar indemnizacion de perjuicios. (8 Manresa 602.)
Having arrived at the conclusion that the agreement may not be declared null and void, the question that
next comes before us is, May the agreement be carried out or executed? We find no merit in the claim
of plaintiff that the partnership was already a fait accompli from the time of the operation of the plant, as
it is evident from the very language of the agreement that the parties intended that the execution of the
agreement to form a partnership was to be carried out at a later date. They expressly agreed that they
shall form a partnership. (Par. No. 1, Exhibit A.) As a matter of fact, from the time that the franchise from
the Mission Dry Corporation was obtained in California, plaintiff himself had been demanding that
defendant comply with the agreement. And plaintiff's present action seeks the enforcement of this
agreement. Plaintiff's claim, therefore, is both inconsistent with their intention and incompatible with his
own conduct and suit.
As the trial court correctly concluded, the defendant may not be compelled against his will to carry out
the agreement nor execute the partnership papers. Under the Spanish Civil Code, the defendant has an
obligation to do, not to give. The law recognizes the individual's freedom or liberty to do an act he has
promised to do, or not to do it, as he pleases. It falls within what Spanish commentators call a very
personal act (acto personalismo), of which courts may not compel compliance, as it is considered an act
of violence to do so.
Efectos de las obligaciones consistentes en hechos personalismo.Tratamos de la ejecucion de las
obligaciones de hacer en el solocaso de su incumplimiento por parte del deudor, ya sean los hechos
personalisimos, ya se hallen en la facultad de un tercero; porque el complimiento espontaneo de las
mismas esta regido por los preceptos relativos al pago, y en nada les afectan las disposiciones del art.
1.098.
Esto supuesto, la primera dificultad del asunto consiste en resolver si el deudor puede ser precisado a
realizar el hecho y porque medios.
Se tiene por corriente entre los autores, y se traslada generalmente sin observacion el principio
romano nemo potest precise cogi ad factum. Nadie puede ser obligado violentamente a haceruna cosa.
Los que perciben la posibilidad de la destruccion deeste principio, aaden que, aun cuando se pudiera
obligar al deudor, no deberia hacerse, porque esto constituiria una violencia, y noes la violenciamodo
propio de cumplir las obligaciones (Bigot, Rolland, etc.). El maestro Antonio Gomez opinaba lo mismo
cuandodecia que obligar por la violencia seria infrigir la libertad eimponer una especie de esclavitud.
xxx xxx xxx
En efecto; las obligaciones contractuales no se acomodan biencon el empleo de la fuerza fisica, no ya
precisamente porque seconstituya de este modo una especie de esclavitud, segun el dichode Antonio
Gomez, sino porque se supone que el acreedor tuvo encuenta el caracter personalisimo del hecho
ofrecido, y calculo sobre laposibilidad de que por alguna razon no se realizase. Repugna,ademas, a la
conciencia social el empleo de la fuerza publica, mediante coaccion sobre las personas, en las
relaciones puramente particulares; porque la evolucion de las ideas ha ido poniendo masde relieve cada
dia el respeto a la personalidad humana, y nose admite bien la violencia sobre el individuo la cual tiene
caracter visiblemente penal, sino por motivos que interesen a la colectividad de ciudadanos. Es, pues,
posible y licita esta violencia cuando setrata de las obligaciones que hemos llamado ex lege, que
afectanal orden social y a la entidad de Estado, y aparecen impuestas sinconsideracion a las
conveniencias particulares, y sin que por estemotivo puedan tampoco ser modificadas; pero no debe
serlo cuandola obligacion reviste un interes puramente particular, como sucedeen las contractuales, y
cuando, por consecuencia, paraceria salirseel Estado de su esfera propia, entrado a dirimir, con apoyo
dela fuerza colectiva, las diferencias producidas entre los ciudadanos. (19 Scaevola 428, 431-432.)
The last question for us to decide is that of damages,damages that plaintiff is entitled to receive because
of defendant's refusal to form the partnership, and damages that defendant is also entitled to collect
because of the falsity of plaintiff's representation. (Article 1101, Spanish Civil Code.) Under article 1106
of the Spanish Civil Code the measure of damages is the actual loss suffered and the profits reasonably
expected to be received, embraced in the terms dao emergente and lucro cesante. Plaintiff is entitled
under the terms of the agreement to 30 per cent of the net profits of the business. Against this amount
of damages, we must set off the damage defendant suffered by plaintiff's misrepresentation that he had
obtained a very high percentage of share in the profits. We can do no better than follow the appraisal
that the parties themselves had adopted.
When defendant learned in Los Angeles that plaintiff did not have the exclusive franchise which he
pretended he had and which he had agreed to transfer to the partnership, his spontaneous reaction was
to reduce plaintiff's share form 30 per cent to 15 per cent only, to which reduction defendant appears to
have readily given his assent. It was under this understanding, which amounts to a virtual modification
of the contract, that the bottling plant was established and plaintiff worked as Manager for the first three
months. If the contract may not be considered modified as to plaintiff's share in the profits, by the decision
of defendant to reduce the same to one-half and the assent thereto of plaintiff, then we may consider the
said amount as a fair estimate of the damages plaintiff is entitled to under the principle enunciated in the
case of Varadero de Manila vs. Insular Lumber Co., 46 Phil. 176. Defendant's decision to reduce
plaintiff's share and plaintiff's consent thereto amount to an admission on the part of each of the
reasonableness of this amount as plaintiff's share. This same amount was fixed by the trial court. The
agreement contains the stipulation that upon the termination of the partnership, defendant was to convey
the franchise back to plaintiff (Par. 11, Exhibit A). The judgment of the trial court does not fix the period
within which these damages shall be paid to plaintiff. In view of paragraph 11 of Exhibit A, we declare
that plaintiff's share of 15 per cent of the net profits shall continue to be paid while defendant uses the
franchise from the Mission Dry Corporation.
10. Jarantilla vs Jarantila 636 Scra 299 2010
G.R. No. 154486 December 1, 2010
FEDERICO JARANTILLA, JR., Petitioner,
vs.ANTONIETA JARANTILLA, BUENAVENTURA REMOTIGUE, substituted by CYNTHIA
REMOTIGUE, DOROTEO JARANTILLA and TOMASJARANTILLA,

This petition for review on certiorari1 seeks to modify the Decision2 of the Court of Appeals dated July
30, 2002 in CA-G.R. CV No. 40887, which set aside the Decision3 dated December 18, 1992 of the
Regional Trial Court (RTC) of Quezon City, Branch 98 in Civil Case No. Q-50464.
The pertinent facts are as follows:
The spouses Andres Jarantilla and Felisa Jaleco were survived by eight children: Federico, Delfin,
Benjamin, Conchita, Rosita, Pacita, Rafael and Antonieta.4 Petitioner Federico Jarantilla, Jr. is the
grandchild of the late Jarantilla spouses by their son Federico Jarantilla, Sr. and his wife Leda
Jamili.5 Petitioner also has two other brothers: Doroteo and Tomas Jarantilla.
Petitioner was one of the defendants in the complaint before the RTC while Antonieta Jarantilla, his aunt,
was the plaintiff therein. His co-respondents before he joined his aunt Antonieta in her complaint, were
his late aunt Conchita Jarantillas husband Buenaventura Remotigue, who died during the pendency of
the case, his cousin Cynthia Remotigue, the adopted daughter of Conchita Jarantilla and Buenaventura
Remotigue, and his brothers Doroteo and Tomas Jarantilla.6
In 1948, the Jarantilla heirs extrajudicially partitioned amongst themselves the real properties of their
deceased parents.7 With the exception of the real property adjudicated to Pacita Jarantilla, the heirs also
agreed to allot the produce of the said real properties for the years 1947-1949 for the studies of Rafael
and Antonieta Jarantilla.8
In the same year, the spouses Rosita Jarantilla and Vivencio Deocampo entered into an agreement with
the spouses Buenaventura Remotigue and Conchita Jarantilla to provide mutual assistance to each
other by way of financial support to any commercial and agricultural activity on a joint business
arrangement. This business relationship proved to be successful as they were able to establish a
manufacturing and trading business, acquire real properties, and construct buildings, among other
things.9 This partnership ended in 1973 when the parties, in an "Agreement,"10 voluntarily agreed to
completely dissolve their "joint business relationship/arrangement."11
On April 29, 1957, the spouses Buenaventura and Conchita Remotigue executed a document wherein
they acknowledged that while registered only in Buenaventura Remotigues name, they were not the
only owners of the capital of the businesses Manila Athletic Supply (712 Raon Street, Manila), Remotigue
Trading (Calle Real, Iloilo City) and Remotigue Trading (Cotabato City). In this same "Acknowledgement
of Participating Capital," they stated the participating capital of their co-owners as of the year 1952, with
Antonieta Jarantillas stated as eight thousand pesos (8,000.00) and Federico Jarantilla, Jr.s as five
thousand pesos (5,000.00).12
The present case stems from the amended complaint13 dated April 22, 1987 filed by Antonieta Jarantilla
against Buenaventura Remotigue, Cynthia Remotigue, Federico Jarantilla, Jr., Doroteo Jarantilla and
Tomas Jarantilla, for the accounting of the assets and income of the co-ownership, for its partition and
the delivery of her share corresponding to eight percent (8%), and for damages. Antonieta claimed that
in 1946, she had entered into an agreement with Conchita and Buenaventura Remotigue, Rafael
Jarantilla, and Rosita and Vivencio Deocampo to engage in business. Antonieta alleged that the initial
contribution of property and money came from the heirs inheritance, and her subsequent annual
investment of seven thousand five hundred pesos (7,500.00) as additional capital came from the
proceeds of her farm. Antonieta also alleged that from 1946-1969, she had helped in the management
of the business they co-owned without receiving any salary. Her salary was supposedly rolled back into
the business as additional investments in her behalf. Antonieta further claimed co-ownership of certain
properties14 (the subject real properties) in the name of the defendants since the only way the defendants
could have purchased these properties were through the partnership as they had no other source of
income.
The respondents, including petitioner herein, in their Answer,15 denied having formed a partnership with
Antonieta in 1946. They claimed that she was in no position to do so as she was still in school at that
time. In fact, the proceeds of the lands they partitioned were devoted to her studies. They also averred
that while she may have helped in the businesses that her older sister Conchita had formed with
Buenaventura Remotigue, she was paid her due salary. They did not deny the existence and validity of
the "Acknowledgement of Participating Capital" and in fact used this as evidence to support their claim
that Antonietas 8% share was limited to the businesses enumerated therein. With regard to Antonietas
claim in their other corporations and businesses, the respondents said these should also be limited to
the number of her shares as specified in the respective articles of incorporation. The respondents denied
using the partnerships income to purchase the subject real properties and said that the certificates of
title should be binding on her.16
During the course of the trial at the RTC, petitioner Federico Jarantilla, Jr., who was one of the original
defendants, entered into a compromise agreement17 with Antonieta Jarantilla wherein he supported
Antonietas claims and asserted that he too was entitled to six percent (6%) of the supposed partnership
in the same manner as Antonieta was. He prayed for a favorable judgment in this wise:
Defendant Federico Jarantilla, Jr., hereby joins in plaintiffs prayer for an accounting from the other
defendants, and the partition of the properties of the co-ownership and the delivery to the plaintiff and to
defendant Federico Jarantilla, Jr. of their rightful share of the assets and properties in the co-
ownership.181avvphi1
The RTC, in an Order19 dated March 25, 1992, approved the Joint Motion to Approve Compromise
Agreement20and on December 18, 1992, decided in favor of Antonieta, to wit:
WHEREFORE, premises above-considered, the Court renders judgment in favor of the plaintiff Antonieta
Jarantilla and against defendants Cynthia Remotigue, Doroteo Jarantilla and Tomas Jarantilla ordering
the latter:
1. to deliver to the plaintiff her 8% share or its equivalent amount on the real properties covered by TCT
Nos. 35655, 338398, 338399 & 335395, all of the Registry of Deeds of Quezon City; TCT Nos.
(18303)23341, 142882 & 490007(4615), all of the Registry of Deeds of Rizal; and TCT No. T-6309 of
the Registry of Deeds of Cotabato based on their present market value;
2. to deliver to the plaintiff her 8% share or its equivalent amount on the Remotigue Agro-Industrial
Corporation, Manila Athletic Supply, Inc., MAS Rubber Products, Inc. and Buendia Recapping
Corporation based on the shares of stocks present book value;
3. to account for the assets and income of the co-ownership and deliver to plaintiff her rightful share
thereof equivalent to 8%;
4. to pay plaintiff, jointly and severally, the sum of 50,000.00 as moral damages;
5. to pay, jointly and severally, the sum of 50,000.00 as attorneys fees; and
6. to pay, jointly and severally, the costs of the suit.21
Both the petitioner and the respondents appealed this decision to the Court of Appeals. The petitioner
claimed that the RTC "erred in not rendering a complete judgment and ordering the partition of the co-
ownership and giving to [him] six per centum (6%) of the properties."22
While the Court of Appeals agreed to some of the RTCs factual findings, it also established that
Antonieta Jarantilla was not part of the partnership formed in 1946, and that her 8% share was limited
to the businesses enumerated in the Acknowledgement of Participating Capital. On July 30, 2002, the
Court of Appeals rendered the herein challenged decision setting aside the RTCs decision, as follows:
WHEREFORE, the decision of the trial court, dated 18 December 1992 is SET ASIDE and a new one is
hereby entered ordering that:
(1) after accounting, plaintiff Antonieta Jarantilla be given her share of 8% in the assets and profits of
Manila Athletic Supply, Remotigue Trading in Iloilo City and Remotigue Trading in Cotabato City;
(2) after accounting, defendant Federico Jarantilla, Jr. be given his share of 6% of the assets and profits
of the above-mentioned enterprises; and, holding that
(3) plaintiff Antonieta Jarantilla is a stockholder in the following corporations to the extent stated in their
Articles of Incorporation:
(a) Rural Bank of Barotac Nuevo, Inc.;
(b) MAS Rubber Products, Inc.;
(c) Manila Athletic Supply, Inc.; and
(d) B. Remotigue Agro-Industrial Development Corp.
(4) No costs.23
The respondents, on August 20, 2002, filed a Motion for Partial Reconsideration but the Court of Appeals
denied this in a Resolution24 dated March 21, 2003.
Antonieta Jarantilla filed before this Court her own petition for review on certiorari25 dated September 16,
2002, assailing the Court of Appeals decision on "similar grounds and similar assignments of errors as
this present case"26 but it was dismissed on November 20, 2002 for failure to file the appeal within the
reglementary period of fifteen (15) days in accordance with Section 2, Rule 45 of the Rules of Court.27
Petitioner filed before us this petition for review on the sole ground that:
THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN NOT RULING THAT PETITIONER
FEDERICO JARANTILLA, JR. IS ENTITLED TO A SIX PER CENTUM (6%) SHARE OF THE
OWNERSHIP OF THE REAL PROPERTIES ACQUIRED BY THE OTHER DEFENDANTS USING
COMMON FUNDS FROM THE BUSINESSES WHERE HE HAD OWNED SUCH SHARE.28
Petitioner asserts that he was in a partnership with the Remotigue spouses, the Deocampo spouses,
Rosita Jarantilla, Rafael Jarantilla, Antonieta Jarantilla and Quintin Vismanos, as evidenced by the
Acknowledgement of Participating Capital the Remotigue spouses executed in 1957. He contends that
from this partnership, several other corporations and businesses were established and several real
properties were acquired. In this petition, he is essentially asking for his 6% share in the subject real
properties. He is relying on the Acknowledgement of Participating Capital, on his own testimony, and
Antonieta Jarantillas testimony to support this contention.
The core issue is whether or not the partnership subject of the Acknowledgement of Participating Capital
funded the subject real properties. In other words, what is the petitioners right over these real properties?
It is a settled rule that in a petition for review on certiorari under Rule 45 of the Rules of Civil Procedure,
only questions of law may be raised by the parties and passed upon by this Court.29
A question of law arises when there is doubt as to what the law is on a certain state of facts, while there
is a question of fact when the doubt arises as to the truth or falsity of the alleged facts. For a question to
be one of law, the same must not involve an examination of the probative value of the evidence presented
by the litigants or any of them. The resolution of the issue must rest solely on what the law provides on
the given set of circumstances. Once it is clear that the issue invites a review of the evidence presented,
the question posed is one of fact. Thus, the test of whether a question is one of law or of fact is not the
appellation given to such question by the party raising the same; rather, it is whether the appellate court
can determine the issue raised without reviewing or evaluating the evidence, in which case, it is a
question of law; otherwise it is a question of fact.30
Since the Court of Appeals did not fully adopt the factual findings of the RTC, this Court, in resolving the
questions of law that are now in issue, shall look into the facts only in so far as the two courts a quo
differed in their appreciation thereof.
The RTC found that an unregistered partnership existed since 1946 which was affirmed in the 1957
document, the "Acknowledgement of Participating Capital." The RTC used this as its basis for giving
Antonieta Jarantilla an 8% share in the three businesses listed therein and in the other businesses and
real properties of the respondents as they had supposedly acquired these through funds from the
partnership.31
The Court of Appeals, on the other hand, agreed with the RTC as to Antonietas 8% share in the business
enumerated in the Acknowledgement of Participating Capital, but not as to her share in the other
corporations and real properties. The Court of Appeals ruled that Antonietas claim of 8% is based on
the "Acknowledgement of Participating Capital," a duly notarized document which was specific as to the
subject of its coverage. Hence, there was no reason to pattern her share in the other corporations from
her share in the partnerships businesses. The Court of Appeals also said that her claim in the
respondents real properties was more "precarious" as these were all covered by certificates of title which
served as the best evidence as to all the matters contained therein.32 Since petitioners claim was
essentially the same as Antonietas, the Court of Appeals also ruled that petitioner be given his 6% share
in the same businesses listed in the Acknowledgement of Participating Capital.
Factual findings of the trial court, when confirmed by the Court of Appeals, are final and conclusive
except in the following cases: (1) when the inference made is manifestly mistaken, absurd or impossible;
(2) when there is a grave abuse of discretion; (3) when the finding is grounded entirely on speculations,
surmises or conjectures; (4) when the judgment of the Court of Appeals is based on misapprehension
of facts; (5) when the findings of fact are conflicting; (6) when the Court of Appeals, in making its findings,
went beyond the issues of the case and the same is contrary to the admissions of both appellant and
appellee; (7) when the findings of the Court of Appeals are contrary to those of the trial court; (8) when
the findings of fact are conclusions without citation of specific evidence on which they are based; (9)
when the Court of Appeals manifestly overlooked certain relevant facts not disputed by the parties and
which, if properly considered, would justify a different conclusion; and (10) when the findings of fact of
the Court of Appeals are premised on the absence of evidence and are contradicted by the evidence on
record.33
In this case, we find no error in the ruling of the Court of Appeals.
Both the petitioner and Antonieta Jarantilla characterize their relationship with the respondents as a co-
ownership, but in the same breath, assert that a verbal partnership was formed in 1946 and was affirmed
in the 1957 Acknowledgement of Participating Capital.
There is a co-ownership when an undivided thing or right belongs to different persons.34 It is a partnership
when two or more persons bind themselves to contribute money, property, or industry to a common fund,
with the intention of dividing the profits among themselves.35 The Court, in Pascual v. The Commissioner
of Internal Revenue,36 quoted the concurring opinion of Mr. Justice Angelo Bautista in Evangelista v. The
Collector of Internal Revenue37 to further elucidate on the distinctions between a co-ownership and a
partnership, to wit:
I wish however to make the following observation: Article 1769 of the new Civil Code lays down the rule
for determining when a transaction should be deemed a partnership or a co-ownership. Said article
paragraphs 2 and 3, provides;
(2) Co-ownership or co-possession does not itself establish a partnership, whether such co-owners or
co-possessors do or do not share any profits made by the use of the property;
(3) The sharing of gross returns does not of itself establish a partnership, whether or not the persons
sharing them have a joint or common right or interest in any property from which the returns are derived;
From the above it appears that the fact that those who agree to form a co- ownership share or do not
share any profits made by the use of the property held in common does not convert their venture into a
partnership. Or the sharing of the gross returns does not of itself establish a partnership whether or not
the persons sharing therein have a joint or common right or interest in the property. This only means
that, aside from the circumstance of profit, the presence of other elements constituting partnership is
necessary, such as the clear intent to form a partnership, the existence of a juridical personality different
from that of the individual partners, and the freedom to transfer or assign any interest in the property by
one with the consent of the others.
It is evident that an isolated transaction whereby two or more persons contribute funds to buy certain
real estate for profit in the absence of other circumstances showing a contrary intention cannot be
considered a partnership.
Persons who contribute property or funds for a common enterprise and agree to share the gross returns
of that enterprise in proportion to their contribution, but who severally retain the title to their respective
contribution, are not thereby rendered partners. They have no common stock or capital, and no
community of interest as principal proprietors in the business itself which the proceeds derived.
A joint purchase of land, by two, does not constitute a co-partnership in respect thereto; nor does an
agreement to share the profits and losses on the sale of land create a partnership; the parties are only
tenants in common.
Where plaintiff, his brother, and another agreed to become owners of a single tract of realty, holding as
tenants in common, and to divide the profits of disposing of it, the brother and the other not being entitled
to share in plaintiffs commission, no partnership existed as between the three parties, whatever their
relation may have been as to third parties.
In order to constitute a partnership inter sese there must be: (a) An intent to form the same; (b) generally
participating in both profits and losses; (c) and such a community of interest, as far as third persons are
concerned as enables each party to make contract, manage the business, and dispose of the whole
property. x x x.
The common ownership of property does not itself create a partnership between the owners, though
they may use it for the purpose of making gains; and they may, without becoming partners, agree among
themselves as to the management, and use of such property and the application of the proceeds
therefrom.38 (Citations omitted.)
Under Article 1767 of the Civil Code, there are two essential elements in a contract of partnership: (a)
an agreement to contribute money, property or industry to a common fund; and (b) intent to divide the
profits among the contracting parties. The first element is undoubtedly present in the case at bar, for,
admittedly, all the parties in this case have agreed to, and did, contribute money and property to a
common fund. Hence, the issue narrows down to their intent in acting as they did.39 It is not denied that
all the parties in this case have agreed to contribute capital to a common fund to be able to later on share
its profits. They have admitted this fact, agreed to its veracity, and even submitted one common
documentary evidence to prove such partnership - the Acknowledgement of Participating Capital.
As this case revolves around the legal effects of the Acknowledgement of Participating Capital, it would
be instructive to examine the pertinent portions of this document:
ACKNOWLEDGEMENT OF
PARTICIPATING CAPITAL
KNOW ALL MEN BY THESE PRESENTS:
That we, the spouses Buenaventura Remotigue and Conchita Jarantilla de Remotigue, both of legal age,
Filipinos and residents of Loyola Heights, Quezon City, P.I. hereby state:
That the Manila Athletic Supply at 712 Raon, Manila, the Remotigue Trading of Calle Real, Iloilo City
and the Remotigue Trading, Cotabato Branch, Cotabato, P.I., all dealing in athletic goods and
equipments, and general merchandise are recorded in their respective books with Buenaventura
Remotigue as the registered owner and are being operated by them as such:
That they are not the only owners of the capital of the three establishments and their participation in the
capital of the three establishments together with the other co-owners as of the year 1952 are stated as
follows:
1. Buenaventura Remotigue (TWENTY-FIVE THOUSAND)25,000.00
2. Conchita Jarantilla de Remotigue (TWENTY-FIVE THOUSAND) 25,000.00
3. Vicencio Deocampo (FIFTEEN THOUSAND) 15,000.00
4. Rosita J. Deocampo (FIFTEEN THOUSAND) 15,000.00
5. Antonieta Jarantilla (EIGHT THOUSAND).. 8,000.00
6. Rafael Jarantilla (SIX THOUSAND).. ... 6,000.00
7. Federico Jarantilla, Jr. (FIVE THOUSAND).. 5,000.00
8. Quintin Vismanos (TWO THOUSAND)... 2,000.00
That aside from the persons mentioned in the next preceding paragraph, no other person has any
interest in the above-mentioned three establishments.
IN WITNESS WHEREOF, they sign this instrument in the City of Manila, P.I., this 29th day of April, 1957.
[Sgd.] BUENAVENTURA REMOTIGUE
[Sgd.] CONCHITA JARANTILLA DE REMOTIGUE40
The Acknowledgement of Participating Capital is a duly notarized document voluntarily executed by
Conchita Jarantilla-Remotigue and Buenaventura Remotigue in 1957. Petitioner does not dispute its
contents and is actually relying on it to prove his participation in the partnership. Article 1797 of the Civil
Code provides:
Art. 1797. The losses and profits shall be distributed in conformity with the agreement. If only the share
of each partner in the profits has been agreed upon, the share of each in the losses shall be in the same
proportion.
In the absence of stipulation, the share of each partner in the profits and losses shall be in proportion to
what he may have contributed, but the industrial partner shall not be liable for the losses. As for the
profits, the industrial partner shall receive such share as may be just and equitable under the
circumstances. If besides his services he has contributed capital, he shall also receive a share in the
profits in proportion to his capital. (Emphases supplied.)
It is clear from the foregoing that a partner is entitled only to his share as agreed upon, or in the absence
of any such stipulations, then to his share in proportion to his contribution to the partnership. The
petitioner himself claims his share to be 6%, as stated in the Acknowledgement of Participating Capital.
However, petitioner fails to realize that this document specifically enumerated the businesses covered
by the partnership: Manila Athletic Supply, Remotigue Trading in Iloilo City and Remotigue Trading in
Cotabato City. Since there was a clear agreement that the capital the partners contributed went to the
three businesses, then there is no reason to deviate from such agreement and go beyond the stipulations
in the document. Therefore, the Court of Appeals did not err in limiting petitioners share to the assets of
the businesses enumerated in the Acknowledgement of Participating Capital.
In Villareal v. Ramirez,41 the Court held that since a partnership is a separate juridical entity, the shares
to be paid out to the partners is necessarily limited only to its total resources, to wit:
Since it is the partnership, as a separate and distinct entity, that must refund the shares of the partners,
the amount to be refunded is necessarily limited to its total resources. In other words, it can only pay out
what it has in its coffers, which consists of all its assets. However, before the partners can be paid their
shares, the creditors of the partnership must first be compensated. After all the creditors have been paid,
whatever is left of the partnership assets becomes available for the payment of the partners shares.42
There is no evidence that the subject real properties were assets of the partnership referred to in the
Acknowledgement of Participating Capital.
The petitioner further asserts that he is entitled to respondents properties based on the concept of trust.
He claims that since the subject real properties were purchased using funds of the partnership, wherein
he has a 6% share, then "law and equity mandates that he should be considered as a co-owner of those
properties in such proportion."43 In Pigao v. Rabanillo,44 this Court explained the concept of trusts, to wit:
Express trusts are created by the intention of the trustor or of the parties, while implied trusts come into
being by operation of law, either through implication of an intention to create a trust as a matter of law or
through the imposition of the trust irrespective of, and even contrary to, any such intention. In turn, implied
trusts are either resulting or constructive trusts. Resulting trusts are based on the equitable doctrine that
valuable consideration and not legal title determines the equitable title or interest and are presumed
always to have been contemplated by the parties. They arise from the nature or circumstances of the
consideration involved in a transaction whereby one person thereby becomes invested with legal title
but is obligated in equity to hold his legal title for the benefit of another.45
On proving the existence of a trust, this Court held that:
Respondent has presented only bare assertions that a trust was created. Noting the need to prove the
existence of a trust, this Court has held thus:
"As a rule, the burden of proving the existence of a trust is on the party asserting its existence, and such
proof must be clear and satisfactorily show the existence of the trust and its elements. While implied
trusts may be proved by oral evidence, the evidence must be trustworthy and received by the courts with
extreme caution, and should not be made to rest on loose, equivocal or indefinite declarations.
Trustworthy evidence is required because oral evidence can easily be fabricated." 46
The petitioner has failed to prove that there exists a trust over the subject real properties. Aside from his
bare allegations, he has failed to show that the respondents used the partnerships money to purchase
the said properties. Even assuming arguendo that some partnership income was used to acquire these
properties, the petitioner should have successfully shown that these funds came from his share in the
partnership profits. After all, by his own admission, and as stated in the Acknowledgement of
Participating Capital, he owned a mere 6% equity in the partnership.
In essence, the petitioner is claiming his 6% share in the subject real properties, by relying on his own
self-serving testimony and the equally biased testimony of Antonieta Jarantilla. Petitioner has not
presented evidence, other than these unsubstantiated testimonies, to prove that the respondents did not
have the means to fund their other businesses and real properties without the partnerships income. On
the other hand, the respondents have not only, by testimonial evidence, proven their case against the
petitioner, but have also presented sufficient documentary evidence to substantiate their claims,
allegations and defenses. They presented preponderant proof on how they acquired and funded such
properties in addition to tax receipts and tax declarations.47 It has been held that "while tax declarations
and realty tax receipts do not conclusively prove ownership, they may constitute strong evidence of
ownership when accompanied by possession for a period sufficient for prescription."48 Moreover, it is a
rule in this jurisdiction that testimonial evidence cannot prevail over documentary evidence.49 This Court
had on several occasions, expressed our disapproval on using mere self-serving testimonies to support
ones claim. In Ocampo v. Ocampo,50 a case on partition of a co-ownership, we held that:
Petitioners assert that their claim of co-ownership of the property was sufficiently proved by their
witnesses -- Luisa Ocampo-Llorin and Melita Ocampo. We disagree. Their testimonies cannot prevail
over the array of documents presented by Belen. A claim of ownership cannot be based simply on the
testimonies of witnesses; much less on those of interested parties, self-serving as they are.51
It is true that a certificate of title is merely an evidence of ownership or title over the particular property
described therein. Registration in the Torrens system does not create or vest title as registration is not a
mode of acquiring ownership; hence, this cannot deprive an aggrieved party of a remedy in
law.52 However, petitioner asserts ownership over portions of the subject real properties on the strength
of his own admissions and on the testimony of Antonieta Jarantilla.1avvphi1 As held by this Court in
Republic of the Philippines v. Orfinada, Sr.53:
Indeed, a Torrens title is generally conclusive evidence of ownership of the land referred to therein, and
a strong presumption exists that a Torrens title was regularly issued and valid. A Torrens title is
incontrovertible against any informacion possessoria, of other title existing prior to the issuance thereof
not annotated on the Torrens title. Moreover, persons dealing with property covered by a Torrens
certificate of title are not required to go beyond what appears on its face.54
As we have settled that this action never really was for partition of a co-ownership, to permit petitioners
claim on these properties is to allow a collateral, indirect attack on respondents admitted titles. In the
words of the Court of Appeals, "such evidence cannot overpower the conclusiveness of these certificates
of title, more so since plaintiffs [petitioners] claims amount to a collateral attack, which is prohibited
under Section 48 of Presidential Decree No. 1529, the Property Registration Decree."55
SEC. 48. Certificate not subject to collateral attack. A certificate of title shall not be subject to collateral
attack. It cannot be altered, modified, or cancelled except in a direct proceeding in accordance with law.
This Court has deemed an action or proceeding to be "an attack on a title when its objective is to nullify
the title, thereby challenging the judgment pursuant to which the title was decreed."56 In Aguilar v.
Alfaro,57 this Court further distinguished between a direct and an indirect or collateral attack, as follows:
A collateral attack transpires when, in another action to obtain a different relief and as an incident to the
present action, an attack is made against the judgment granting the title. This manner of attack is to be
distinguished from a direct attack against a judgment granting the title, through an action whose main
objective is to annul, set aside, or enjoin the enforcement of such judgment if not yet implemented, or to
seek recovery if the property titled under the judgment had been disposed of. x x x.
Petitioners only piece of documentary evidence is the Acknowledgement of Participating Capital, which
as discussed above, failed to prove that the real properties he is claiming co-ownership of were acquired
out of the proceeds of the businesses covered by such document. Therefore, petitioners theory has no
factual or legal leg to stand on.
WHEREFORE, the Petition is hereby DENIED and the Decision of the Court of Appeals in CA-G.R. CV
No. 40887, dated July 30, 2002 is AFFIRMED.

11. Binglawlaw vs COnstantino 109 Phil 168 1960 LUCINA BIGLANGAWA and LUCIA
ESPIRITU, Petitioners-Appellees, v. PASTOR. B. CONSTANTINO, ET AL., Respondents. PASTOR
B. CONSTANTINO, Respondent-Appellant.

1. COMPLAINTS; PRAYER; PURPOSE OF ACTION INDICATED BY PRAYER. Although the prayer

in a complaint does not determine the nature of the action, it not being a material part of the cause of
action, it logically indicates the purpose of the action.

2. ID.; NOTICE OF LIS PENDENS; COMPLAINT AS BASIS FOR ANNOTATION OF NOTICE. The
amended complaint in the instant case, not being "an action affecting the title or the right of possession
of real property" (Sec. 24, Rule 7, Rules of Court), nor one "to recover possession of real estate, or to
quiet title thereto, or to remove clouds upon the title thereof, or for partition or other proceeding of any
kind in court affecting the title to real estate or the use or occupation thereof or the buildings thereon"
(Sec. 79, Land Registration Act), can not be the basis for annotating a notice of lis pendens on the title
of the defendants.

DECISION
The only issue, which is of law, involved in this appeal, is the legality of the annotation of lis pendens
predicated on the complaint of respondent-appellant Pastor B. Constantino.

On June 25, 1953, respondent Pastor B. Constantino filed with the Court of First Instance of Rizal an
amended complaint (docketed as Civil Case No. 2138) against petitioners Lucina Biglangawa and Lucia
Espiritu, as follows: "AMENDED COMPLAINT

"Plaintiff, by his undersigned counsel, alleges "As First Cause of Action

"1. Plaintiff and defendants are residents of Malabon, Rizal.
"2. Defendants Lucina Biglangawa and Lucia Espiritu were or have been the owners of a parcel of land
in Marulas, Polo, Bulacan, more particularly described in "Transfer Certificate of Title No. 5459 as
follows: . . .
"3. On January 14, 1950, defendant Lucina Biglangawa, with the consent of her co-owner Lucia Espiritu,
appointed plaintiff their exclusive agent to develop the area described in paragraph 2 into subdivision
lots and to sell them to prospective homeowners; and as compensation for his services, defendants
promised to pay him a commission of 20% on the gross sales and a fee of 10% on the collections made
by him payable from the first collections received from the purchasers in respect to each lot sold. . . .
"4. The power thus conferred by Lucina Biglangawa to plaintiff was confirmed in a notarial document
executed on March 3, 1950 by her and her co-defendants, who are husband and wife, with the added
stipulation that they could not revoke the contract of agency without plaintiffs consent. . . .

"5. Advancing all the expenses incurred in the development and administration of the project, plaintiff
caused the subdivision of said property into 203 lots and advertised them for sale under the name BBB
MARULAS SUBDIVISION No. 3; and up to October, 1951 plaintiff had disposed of more than half of the
entire area at P10.00 and P12.00 per square meter.

"6. Although under the express terms of the contract of January 14, 1950 (Exhibit A) the commissions
of plaintiff for making those sales and his collection fees of 10% were to be paid to him from the first
collections received from the purchasers in respect to each lot sold, Defendants, in contravention of that
agreement, oppressively and in bad faith adopted the practice of paying the latters compensation out of
30% only of the gross monthly collections from the sales, such that, as of October 15, 1951 when a
liquidation was made, there was still a balance on plaintiffs commissions in the amount of P43,899.20.

7. "Later, in October, 1951, defendants wantonly, oppressively, and in evident bad faith terminated the
agency contracts Exhibits A and B depriving plaintiff of his rights to commission fees of 20% on the
sale of the remaining lots and 10% fee on the cash receipts of the business every month.

"8. Defendants nevertheless, expressly acknowledged their liability to plaintiff in the sum of P48,899.20
for unpaid commissions as of October 16, 1951; and they promised to pay said indebtedness to plaintiff
in successive monthly installments beginning November, 1951, as follows: . . .

"9. Plaintiff consented to the settlement of the balance of his commission in monthly installments after
the termination of the agency in consideration of defendants promises that they would compute and
faithfully pay the percentage of monthly installments on the basis of their monthly gross collections from
the operation of BBB MARULAS SUBDIVISION No. 3, as stipulated in Exhibit C, and shall follow that
procedure until their total indebtedness is fully settled.

"10. From October 16, 1951 to March 31, 1953, defendants made a total monthly gross collection of
around P52,849.63 from the business, and out of these receipts plaintiff was entitled to minimum
payments of P3,711.13 pursuant to Exhibit C; but again defendant wantonly, fraudulently, oppressively,
and in evident bad faith paid plaintiff only the sum of P6,204.13 or P2,507.00 short of what plaintiff should
have received during the period.

"11. Upon gaining information of the breach of the contract by defendants about the end of March, 1953
and verifying the existence of such breach, plaintiff immediately demanded of defendants the difference
between the amounts due to him under the contract Exhibit C and those actually paid by them, but
defendants wantonly, fraudulently, and without cause refused to make the necessary settlement.
x x x
"13. The balance of plaintiffs commissions remaining unpaid as of the filing of this complaint, excluding
the underpayments from November, 1951 to March, 1953, is P39,534.62.

"As to Second Cause of Action

"1. Plaintiff reproduces paragraphs 1 to 13 of the first cause of action.
"2. For defendants gross and evident bad faith in refusing plaintiffs valid, just, and demandable claim
against them, plaintiff was forced to prosecute the present case against them, and became liable for
attorneys fees in the sum of P7,000.00.

"WHEREFORE, plaintiff prays for judgment

"(a) Ordering defendants to pay plaintiff the sum of P2,507.00 which is defendants underpayments from
November, 1951 to March, 1953, with interest at the legal rate;

"(b) Declaring defendants to have lost the right to pay plaintiff in monthly installments and requiring them
to pay plaintiff at once the balance of his commissions and fees in the amount of P89,543.62, with interest
at the legal rate from the filing of this complaint;

"(c) Ordering defendants to pay plaintiff moral damages in the sum of P40,000.00, exemplary damages
in the sum of P30,000.00, and attorneys fees in the sum of P7,000.00.

"(d) Granting costs and such other reliefs as this court may deem just and equitable in the premises."

To this complaint, petitioners filed their answer on August 25, 1953.

While said Civil Case No. 2138 was pending in said court, respondent, on April 5, 1955, filed with the
Office of the Register of Deeds of Bulacan, the following notice of lis pendens:jgc:

"Please make of record the pendency of a complaint involving, among other things, rights and interest
and claims for services and damages on the following described property, which has been converted
into a subdivision as shown by the plan Psd-29964, situated in Marulas, Polo, Bulacan, to wit: (Technical
description of the real property mentioned in the complaint) which property is more particularly described
in Transfer Certificate of Title No. 5459 of the Register of Deeds of Bulacan. A copy of the complaint and
amended complaint, marked Appendices A and A-1, are attached hereto and made integral part
hereof."cralaw virtua1aw library

On April 6, 1955, the Register of Deeds of Bulacan requested petitioners to surrender their owners copy
of Transfer Certificate of Title No. 5459 for annotation of said notice of lis pendens, but petitioners refused
to do so. However, on May 17, 1955, when petitioners registered the absolute deed of sale in favor of
Carmelita L. Santos covering some of the lots of the subdivision, said official, without their knowledge
and consent, made the annotation of the lis pendens on petitioners aforementioned title, as well as on
the title issued to Carmelita L. Santos.

Petitioners, therefore, on June 11, 1955, filed with the Court of First Instance of Bulacan, a petition
praying for the cancellation of said notice of lis pendens. To this petition, respondent filed his answer on
June 17, 1955, to which, petitioners filed their reply on June 23, 1955. On June 24, 1955, respondent
filed a rejoinder to said reply.

Acting on said petition, the court issued an order on July 19, 1955, which reads:

"ORDER "Upon consideration of the petition filed by Lucina Biglangawa and Lucia Espiritu dated June
11, 1955 and the answer thereto, and it appearing from the amended complaint of Pastor B. Constantino,
plaintiff in Civil Case No. 2138 of the Court of First Instance of Rizal (respondent herein) that said action
is purely and clearly a claim for money judgment which does not affect the title or the right of possession
of real property covered by Transfer Certificate of Title No. T-5459 and it being a settled rule in this
jurisdiction that a notice of lis pendens may be invoked as a remedy in cases where the very lis mota of
the pending litigation concerns directly the possession of, or title to a specific real property;

"Wherefore, as prayed for, the Register of Deeds of Bulacan is hereby ordered to cancel Entry No. 28176
for lis pendens on Transfer Certificate of Title No. T-5459 of the petitioners as well as the annotation of
the same on Transfer Certificate of Title No. T-014480 of Carmelita L. Santos.

"So ordered."cralaw virtua1aw library

Respondent, on August 8, 1955, filed a motion for reconsideration of the above order, but the same was
denied by the court on September 30, 1955. Hence, this appeal.

Respondent-appellant claims that the lower court erred in holding that his pending action (Civil Case No.
2138) in the Court of First Instance of Rizal, is purely a claim for money judgment which does not affect
the title or right of possession of petitioners real property, covered by Transfer Certificate of Title No. T-
5459. Instead, he contends that the agreement whereby he was to be paid a commission of 20% on the
gross sales and a fee of 10% on the collections made by him, converted him into a partner and gave him
1/5 participation in the property itself. Hence, he argues, his suit is one for the settlement and adjustment
of partnership interest or a partition action or proceeding.

Appellants theory is neither supported by the allegations of his complaint, nor borne out by the purpose
of his action. There is no word or expression in the various paragraphs of his amended complaint that
suggests any idea of partnership. On the contrary, appellant expressly averred that petitioners
"appointed plaintiff (appellant) their exclusive agent to develop the area described in paragraph 2 into
subdivision lots and to sell them to prospective homeowners; and as compensation for his services
defendants (appellees) promised to pay him a commission of 20% on the gross sales and a fee of 10%
on the collections made by him . . ." (See paragraph 3 of amended complaint.) Categorically, appellant
referred to himself as an agent, not a partner; entitled to compensation, not participation, in the form of
commission or fee, not a share.

It is true that in paragraph 5 of the amended complaint (supra) appellant claims to have made advances
for the expenses incurred in the development and administration of the property. But again he never
considered these as contributions to the business as to make him a partner; otherwise, he would have
so stated it in his complaint. In fact, after a liquidation of these advances and the commissions due to
appellant at the time of the termination of the agency, the whole balance was considered as appellees
indebtedness which appellant consented to be settled in monthly installments (see paragraphs 6, 8, and
9 of the amended complaint).

While it is true again that the prayer in a complaint does not determine the nature of the action, it not
being a material part of the cause of action, still it logically indicates, as it does in this case, the purpose
of the actor. The four paragraphs of the prayer seeks the recovery of fixed amounts of underpayments
and commissions and fees; not liquidation or accounting or partition as now insisted upon by Appellant.

Appellants amended complaint, not being "an action affecting the title or the right of possession of real
property", 1 nor one "to recover possession of real estate, or to quiet title thereto, or to remove clouds
upon the title thereof, or for partition or other proceeding of any kind in court affecting the title to real
estate or the use or occupation thereof or the buildings thereon . . .", 2 the same can not be the basis for
annotating a notice of lis pendens on the title of the Petitioners-Appellees.

Having reached the above conclusion, this Court finds it unnecessary to decide the incidental matters
raised by the parties during the pendency of this appeal.

Wherefore, finding no error in the appealed order of the court a quo, the same is hereby affirmed, with
costs against the respondent- appellant. So ordered.

Art 1768
LUZVIMINDA J. VILLAREAL, DIOGENES VILLAREAL and CARMELITO JOSE,
vs.DONALDO EFREN C. RAMIREZ and Spouses CESAR G. RAMIREZ JR. and CARMELITA C.
RAMIREZ,respondents.
PANGANIBAN, J.:
A share in a partnership can be returned only after the completion of the latter's dissolution, liquidation
and winding up of the business.
The Case
The Petition for Review on Certiorari before us challenges the March 23, 2000 Decision1 and the July
26, 2000 Resolution2 of the Court of Appeals3 (CA) in CA-GR CV No. 41026. The assailed Decision
disposed as follows:
"WHEREFORE, foregoing premises considered, the Decision dated July 21, 1992 rendered by the
Regional Trial Court, Branch 148, Makati City is hereby SET ASIDE and NULLIFIED and in lieu thereof
a new decision is rendered ordering the [petitioners] jointly and severally to pay and reimburse to
[respondents] the amount of P253,114.00. No pronouncement as to costs."4
Reconsideration was denied in the impugned Resolution.
The Facts On July 25, 1984, Luzviminda J. Villareal, Carmelito Jose and Jesus Jose formed a
partnership with a capital of P750,000 for the operation of a restaurant and catering business under the
name "Aquarius Food House and Catering Services."5 Villareal was appointed general manager and
Carmelito Jose, operations manager.
Respondent Donaldo Efren C. Ramirez joined as a partner in the business on September 5, 1984. His
capital contribution of P250,000 was paid by his parents, Respondents Cesar and Carmelita Ramirez.6
After Jesus Jose withdrew from the partnership in January 1987, his capital contribution of P250,000
was refunded to him in cash by agreement of the partners.7
In the same month, without prior knowledge of respondents, petitioners closed down the restaurant,
allegedly because of increased rental. The restaurant furniture and equipment were deposited in the
respondents' house for storage.8
On March 1, 1987, respondent spouses wrote petitioners, saying that they were no longer interested in
continuing their partnership or in reopening the restaurant, and that they were accepting the latter's offer
to return their capital contribution.9
On October 13, 1987, Carmelita Ramirez wrote another letter informing petitioners of the deterioration
of the restaurant furniture and equipment stored in their house. She also reiterated the request for the
return of their one-third share in the equity of the partnership. The repeated oral and written requests
were, however, left unheeded.10
Before the Regional Trial Court (RTC) of Makati, Branch 59, respondents subsequently filed a
Complaint11 dated November 10, 1987, for the collection of a sum of money from petitioners.
In their Answer, petitioners contended that respondents had expressed a desire to withdraw from the
partnership and had called for its dissolution under Articles 1830 and 1831 of the Civil Code; that
respondents had been paid, upon the turnover to them of furniture and equipment worth over P400,000;
and that the latter had no right to demand a return of their equity because their share, together with the
rest of the capital of the partnership, had been spent as a result of irreversible business losses.12
In their Reply, respondents alleged that they did not know of any loan encumbrance on the restaurant.
According to them, if such allegation were true, then the loans incurred by petitioners should be regarded
as purely personal and, as such, not chargeable to the partnership. The former further averred that they
had not received any regular report or accounting from the latter, who had solely managed the business.
Respondents also alleged that they expected the equipment and the furniture stored in their house to be
removed by petitioners as soon as the latter found a better location for the restaurant.13
Respondents filed an Urgent Motion for Leave to Sell or Otherwise Dispose of Restaurant Furniture and
Equipment14 on July 8, 1988. The furniture and the equipment stored in their house were inventoried and
appraised at P29,000.15 The display freezer was sold for P5,000 and the proceeds were paid to them.16
After trial, the RTC 17 ruled that the parties had voluntarily entered into a partnership, which could be
dissolved at any time. Petitioners clearly intended to dissolve it when they stopped operating the
restaurant. Hence, the trial court, in its July 21, 1992 Decision, held there liable as follows:18
"WHEREFORE, judgment is hereby rendered in favor of [respondents] and against the [petitioners]
ordering the [petitioners] to pay jointly and severally the following:
(a) Actual damages in the amount of P250,000.00
(b) Attorney's fee in the amount of P30,000.00
(c) Costs of suit."
The CA Ruling
The CA held that, although respondents had no right to demand the return of their capital contribution,
the partnership was nonetheless dissolved when petitioners lost interest in continuing the restaurant
business with them. Because petitioners never gave a proper accounting of the partnership accounts for
liquidation purposes, and because no sufficient evidence was presented to show financial losses, the
CA. computed their liability as follows:
"Consequently, since what has been proven is only the outstanding obligation of the partnership in the
amount of P240,658.00, although contracted by the partnership before [respondents'] have joined the
partnership but in accordance with Article 1826 of the New Civil Code, they are liable which must have
to be deducted from the remaining capitalization of the said partnership which is in the amount of
P1,000,000.00 resulting in the amount of P759,342.00, and in order to get the share of [respondents],
this amount of P759,342.00 must be divided into three (3) shares or in the amount of P253,114.00 for
each share and which is the only amount which [petitioner] will return to [respondents'] representing the
contribution to the partnership minus the outstanding debt thereof."19
Hence, this Petition.20
Issues
In their Memorandum,21 petitioners submit the following issues for our consideration:
"9.1. Whether the Honorable Court of Appeals' decision ordering the distribution of the capital
contribution, instead of the net capital after the dissolution and liquidation of a partnership, thereby
treating the capital contribution like a loan, is in accordance with law and jurisprudence;
"9.2. Whether the Honorable Court of Appeals' decision ordering the petitioners to jointly and severally
pay and reimburse the amount of [P]253,114.00 is supported by the evidence on record; and
"9.3. Whether the Honorable Court of Appeals was correct in making [n]o pronouncement as to costs."22
On closer scrutiny, the issues are as follows: (1) whether petitioners are liable to respondents for the
latter's share in the partnership; (2) whether the CA's computation of P253,114 as respondents' share is
correct; and (3) whether the CA was likewise correct in not assessing costs.
This Court's Ruling
The Petition has merit.
First Issue: Share in Partnership
Both the trial and the appellate courts found that a partnership had indeed existed, and that it was
dissolved on March 1, 1987. They found that the dissolution took place when respondents informed
petitioners of the intention to discontinue it because of the former's dissatisfaction with, and loss of trust
in, the latter's management of the partnership affairs. These findings were amply supported by the
evidence on record. Respondents consequently demanded from petitioners the return of their one-third
equity in the partnership.
We hold that respondents have no right to demand from petitioners the return of their equity share.
Except as managers of the partnership, petitioners did not personally hold its equity or assets. "The
partnership has a juridical personality separate and distinct from that of each of the partners."23 Since
the capital was contributed to the partnership, not to petitioners, it is the partnership that must refund the
equity of the retiring partners.24
Second Issue: What Must Be Returned?
Since it is the partnership, as a separate and distinct entity, that must refund the shares of the partners,
the amount to be refunded is necessarily limited to its total resources. In other words, it can only pay out
what it has in its coffers, which consists of all its assets. However, before the partners can be paid their
shares, the creditors of the partnership must first be compensated.25 After all the creditors have been
paid, whatever is left of the partnership assets becomes available for the payment of the partners' shares.
Evidently, in the present case, the exact amount of refund equivalent to respondents' one-third share in
the partnership cannot be determined until all the partnership assets will have been liquidated in other
words, sold and converted to cash and all partnership creditors, if any, paid. The CA's computation of
the amount to be refunded to respondents as their share was thus erroneous.
First, it seems that the appellate court was under the misapprehension that the total capital contribution
was equivalent to the gross assets to be distributed to the partners at the time of the dissolution of the
partnership. We cannot sustain the underlying idea that the capital contribution at the beginning of the
partnership remains intact, unimpaired and available for distribution or return to the partners. Such idea
is speculative, conjectural and totally without factual or legal support.
Generally, in the pursuit of a partnership business, its capital is either increased by profits earned or
decreased by losses sustained. It does not remain static and unaffected by the changing fortunes of the
business. In the present case, the financial statements presented before the trial court showed that the
business had made meager profits.26However, notable therefrom is the omission of any provision for the
depreciation27 of the furniture and the equipment. The amortization of the goodwill28 (initially valued at
P500,000) is not reflected either. Properly taking these non-cash items into account will show that the
partnership was actually sustaining substantial losses, which consequently decreased the capital of the
partnership. Both the trial and the appellate courts in fact recognized the decrease of the partnership
assets to almost nil, but the latter failed to recognize the consequent corresponding decrease of the
capital.
Second, the CA's finding that the partnership had an outstanding obligation in the amount of P240,658
was not supported by evidence. We sustain the contrary finding of the RTC, which had rejected the
contention that the obligation belonged to the partnership for the following reason:
"x x x [E]vidence on record failed to show the exact loan owed by the partnership to its creditors. The
balance sheet (Exh. '4') does not reveal the total loan. The Agreement (Exh. 'A') par. 6 shows an
outstanding obligation of P240,055.00 which the partnership owes to different creditors, while the
Certification issued by Mercator Finance (Exh. '8') shows that it was Sps. Diogenes P. Villareal and
Luzviminda J. Villareal, the former being the nominal party defendant in the instant case, who obtained
a loan of P355,000.00 on Oct. 1983, when the original partnership was not yet formed."
Third, the CA failed to reduce the capitalization by P250,000, which was the amount paid by the
partnership to Jesus Jose when he withdrew from the partnership.
Because of the above-mentioned transactions, the partnership capital was actually reduced. When
petitioners and respondents ventured into business together, they should have prepared for the fact that
their investment would either grow or shrink. In the present case, the investment of respondents
substantially dwindled. The original amount of P250,000 which they had invested could no longer be
returned to them, because one third of the partnership properties at the time of dissolution did not amount
to that much.
It is a long established doctrine that the law does not relieve parties from the effects of unwise, foolish
or disastrous contracts they have entered into with all the required formalities and with full awareness of
what they were doing. Courts have no power to relieve them from obligations they have voluntarily
assumed, simply because their contracts turn out to be disastrous deals or unwise investments.29
Petitioners further argue that respondents acted negligently by permitting the partnership assets in their
custody to deteriorate to the point of being almost worthless. Supposedly, the latter should have
liquidated these sole tangible assets of the partnership and considered the proceeds as payment of their
net capital. Hence, petitioners argue that the turnover of the remaining partnership assets to respondents
was precisely the manner of liquidating the partnership and fully settling the latter's share in the
partnership.
We disagree. The delivery of the store furniture and equipment to private respondents was for the
purpose of storage. They were unaware that the restaurant would no longer be reopened by petitioners.
Hence, the former cannot be faulted for not disposing of the stored items to recover their capital
investment.
Third Issue:
Costs
Section 1, Rule 142, provides:
"SECTION 1. Costs ordinarily follow results of suit. Unless otherwise provided in these rules, costs
shall be allowed to the prevailing party as a matter of course, but the court shall have power, for special
reasons, to adjudge that either party shall pay the costs of an action, or that the same be divided, as
may be equitable. No costs shall be allowed against the Republic of the Philippines unless otherwise
provided by law."
Although, as a rule, costs are adjudged against the losing party, courts have discretion, "for special
reasons," to decree otherwise. When a lower court is reversed, the higher court normally does not award
costs, because the losing party relied on the lower court's judgment which is presumed to have been
issued in good faith, even if found later on to be erroneous. Unless shown to be patently capricious, the
award shall not be disturbed by a reviewing tribunal.
WHEREFORE, the Petition is GRANTED, and the assailed Decision and Resolution SET ASIDE. This
disposition is without prejudice to proper proceedings for the accounting, the liquidation and the
distribution of the remaining partnership assets, if any. No pronouncement as to costs.
SO ORDERED.

INVOLUNTARY INSOLVENCY OF CAMPOS RUEDA & CO., S. en C., appellee,

vs.PACIFIC COMMERCIAL CO., ASIATIC PETROLEUM CO., and INTERNATIONAL BANKING
CORPORATION
The record of this proceeding having been transmitted to this court by virtue of an appeal taken herein,
a motion was presented by the appellants praying this court that this case be considered purely a moot
question now, for the reason that subsequent to the decision appealed from, the partnership Campos
Rueda & Co., voluntarily filed an application for a judicial decree adjudging itself insolvent, which is just
what the herein petitioners and appellants tried to obtain from the lower court in this proceeding.
The motion now before us must be, and is hereby, denied even under the facts stated by the appellants
in their motion aforesaid. The question raised in this case is not purely moot one; the fact that a man
was insolvent on a certain day does not justify an inference that he was some time prior thereto.
Proof that a man was insolvent on a certain day does not justify an inference that he was on a day some
time prior thereto. Many contingencies, such as unwise investments, losing contracts, misfortune, or
accident, might happen to reduce a person from a state of solvency within a short space of time. (Kimball
vs. Dresser, 98 Me., 519; 57 Atl. Rep., 767.)
A decree of insolvency begins to operate on the date it is issued. It is one thing to adjudge Campos
Rueda & Co. insolvent in December, 1921, as prayed for in this case, and another to declare it insolvent
in July, 1922, as stated in the motion.
Turning to the merits of this appeal, we find that this limited partnership was, and is, indebted to the
appellants in various sums amounting to not less than P1,000, payable in the Philippines, which were
not paid more than thirty days prior to the date of the filing by the petitioners of the application for
involuntary insolvency now before us. These facts were sufficient established by the evidence.
The trial court denied the petition on the ground that it was not proven, nor alleged, that the members of
the aforesaid firm were insolvent at the time the application was filed; and that was said partners are
personally and solidarily liable for the consequence of the transactions of the partnership, it cannot be
adjudged insolvent so long as the partners are not alleged and proven to be insolvent. From this
judgment the petitioners appeal to this court, on the ground that this finding of the lower court is
erroneous.
The fundamental question that presents itself for decision is whether or not a limited partnership, such
as the appellee, which has failed to pay its obligation with three creditors for more than thirty days, may
be held to have committed an act of insolvency, and thereby be adjudged insolvent against its will.
Unlike the common law, the Philippine statutes consider a limited partnership as a juridical entity for all
intents and purposes, which personality is recognized in all its acts and contracts (art. 116, Code of
Commerce). This being so and the juridical personality of a limited partnership being different from that
of its members, it must, on general principle, answer for, and suffer, the consequence of its acts as such
an entity capable of being the subject of rights and obligations. If, as in the instant case, the limited
partnership of Campos Rueda & Co. Failed to pay its obligations with three creditors for a period of more
than thirty days, which failure constitutes, under our Insolvency Law, one of the acts of bankruptcy upon
which an adjudication of involuntary insolvency can be predicated, this partnership must suffer the
consequences of such a failure, and must be adjudged insolvent. We are not unmindful of the fact that
some courts of the United States have held that a partnership may not be adjudged insolvent in an
involuntary insolvency proceeding unless all of its members are insolvent, while others have maintained
a contrary view. But it must be borne in mind that under the American common law, partnerships have
no juridical personality independent from that of its members; and if now they have such personality for
the purpose of the insolvency law, it is only by virtue of general law enacted by the Congress of the
United States on July 1, 1898, section 5, paragraph (h), of which reads thus:
In the event of one or more but not all of the members of a partnership being adjudged bankrupt, the
partnership property shall not be administered in bankruptcy, unless by consent of the partner or partners
not adjudged bankrupt; but such partner or partners not adjudged bankrupt shall settle the partnership
business as expeditiously as its nature will permit, and account for the interest of the partner or partners
adjudged bankrupt.
The general consideration that these partnership had no juridical personality and the limitations
prescribed in subsection (h) above set forth gave rise to the conflict noted in American decisions, as
stated in the case of In reSamuels (215 Fed., 845), which mentions the two apparently conflicting
doctrines, citing one from In re Bertenshaw (157 Fed., 363), and the other from Francis vs. McNeal (186
Fed., 481).
But there being in our insolvency law no such provision as that contained in section 5 of said Act of
Congress of July 1, 1898, nor any rule similar thereto, and the juridical personality of limited partnership
being recognized by our statutes from their formation in all their acts and contracts the decision of
American courts on this point can have no application in this jurisdiction, nor we see any reason why
these partnerships cannot be adjudged bankrupt irrespective of the solvency or insolvency of their
members, provided the partnership has, as such, committed some of the acts of insolvency provided in
our law. Under this view it is unnecessary to discuss the other points raised by the parties, although in
the particular case under consideration it can be added that the liability of the limited partners for the
obligations and losses of the partnership is limited to the amounts paid or promised to be paid into the
common fund except when a limited partner should have included his name or consented to its inclusion
in the firm name (arts. 147 and 148, Code of Commerce).
Therefore, it having been proven that the partnership Campos Rueda & Co. failed for more than thirty
days to pay its obligations to the petitioners the Pacific Commercial Co. the Asiatic Petroleum Co. and
the International Banking Corporation, the case comes under paragraph 11 of section 20 of Act No.
1956, and consequently the petitioners have the right to a judicial decree declaring the involuntary
insolvency of said partnership.
Wherefore, the judgment appealed from is reversed, and it is adjudged that the limited partnership
Campos Rueda & Co. is and was on December 28, 1921, insolvent and liable for having failed for more
than thirty days to meet its obligations with the three petitioners herein, and it is ordered that this
proceeding be remanded to the Court of First Instance of Manila with instruction to said court to issue
the proper decrees under section 24 of Act No. 1956, and proceed therewith until its final disposition.
It is so ordered without special finding as to costs.

NGO TIAN TEK and NGO HAY, petitioner,

vs.PHILIPPINE EDUCATION CO., INC., respondent.
The plaintiff, Philippine Education Co., Inc., instituted in the Court of First Instance of Manila an action
against the defendants, Vicente Tan alias Chan Sy and the partnership of Ngo Tian Tek and Ngo Hay,
for the recovery of some P16,070.14, unpaid cost of merchandise purchased by Lee Guan Box Factory
from the plaintiff and five other corporate entities which, though not parties to the action, had previously
assigned their credits to the plaintiff, together with attorney's fees, interest and costs. /by agreement of
the parties, the case was heard before a referee, Attorney Francisco Dalupan, who in due time submitted
his report holding the defendants jointly and severally liable to the plaintiff for the sum of P16,070.14 plus
attorney's fees and interest at the rates specified in the report. On March 6, 1939, the Court of First
Instance of Manila rendered judgment was affirmed by the Court of Appeals in its decision of January
31, 1941, now the subject of our review at the instance of the partnership Ngo Tian Tek and Ngo Hay,
petitioner herein.
"It appears that," quoting from the decision of the Court of Appeals whose findings of fact are conclusive,
"as far back as the year 1925, the Modern Box Factory was established at 603 Magdalena Street, Manila.
It was at first owned by Ngo Hay, who three years later was joined by Ngo Tian Tek as a junior partner.
The modern Box Factory dealt in pare and similar merchandise and purchased goods from the plaintiff
and its assignors in the names of the Modern Box Factory, Ngo Hay and Co., Go Hay Box Factory, or
Go Hay. Then about the year 1930, the Lee Guan Box Factory was established a few meters from the
Modern Box Factory, under the management of Vicente Tan. When that concern, through Vicente Tan,
sought credit with the plaintiff and its assignors, Ngo Hay, in conversations and interviews with their
officers and employees, represented that he was the principal owner of such factory, that the Lee Guan
Box Factory and the Modern Box Factory belonged to the same owner, and that the Lee Guan Box
Factory was a subsidiary of the Modern Box Factory. There is evidence that many goods purchased in
the name of the Lee Guan Box Factory were delivered to the Modern Box Factory by the employees of
the plaintiff and its assignors upon the express direction of Vicente Tan. There is also evidence that the
collectors of the sellers were requested by Vicente Tan to collect and did collect from the Modern
Box Factory the bills against the Lee Guan Box Factory. In the fact the record shows many checks signed
by Ngo Hay or Ngo Tian Tek in payment of accounts of the Lee Guan Box Factory. Furthermore, and
this seems to be conclusive-Ngo Hay, testifying for the defense, admitted that 'he' was the owner of the
Lee Guan Box Factory in and before the year 1934, but that in January, 1935, 'he' sold it, by the contract
of sale Exhibit 7, to Vicente Tan, who had been his manager of the business. Tan declared also that
before January, 1935, the Lee Guan Box Factory pertained to Ngo Hay and Ngo Tian Tek. The contract
Exhibit 7 was found by the referee, to be untrue and simulated, for various convincing reasons that need
no repetition here. And the quoted statements serve effectively to confirm the evidence for the plaintiff
that it was Ngo Hay's representations of ownership of, and responsibility for, Lee Guan Box Factory that
induced them to open credit for that concern. It must be stated that in this connection to answer
appellant's fitting observation that the plaintiff and the assignors have considered Ngo Hay, the
Modern Box Factory and Ngo Hay and Co. as one and the same, through the acts of the partners
themselves, and that the proof as to Ngo Hay's statements regarding the ownership of Lee Guan Box
Factory must be taken in that view. Ngo Hay was wont to say 'he' owned the Modern Box Factory,
meaning that he was the principal owner, his other partner being Ngo Tian Tek. Now, it needs no
demonstration for appellant does not deny it that the obligations of the Lee Guan Box Factory must
rest upon its known owner. And that owner in Ngo Tian Tek and Ngo Hay."
We must overrule petitioner's contention that the Court of Appeals erred in holding that Lee Guan Box
Factory was a subsidiary of the Modern Box Factory and in disregarding the fact that the contracts
evidencing the debts in question were signed by Vicente Tan alias Chan Sy, without any indication that
tended to involve the Modern Box Factory or the petitioner. In the first place, we are concluded by the
finding of the Court of Appeals regarding the ownership by the petitioner of Lee Guan Box Factory.
Secondly, the circumstances that Vicente Tan alias Chan Sy acted in his own name cannot save the
petitioner, in view of said ownership, and because contracts entered into by a factor of a commercial
establishment known to belong to a well known enterprise or association, shall be understood as made
for the account of the owner of such enterprise or association, even when the factor has not so stated at
the time of executing the same, provided that such contracts involve objects comprised in the line and
business of the establishment. (Article 286, Code of Commerce.) The fact that Vicente Tan did not have
any recorded power of attorney executed by the petitioner will not operate to prejudice third persons, like
the respondent Philippine Education Co., Inc., and its assignors. (3 Echavarri, 133.)
Another defense set up by the petitioner is that prior to the transactions which gave rise to this suit,
Vicente Tan had purchased Lee Guan Box Factory from Ngo Hay under the contract, Exhibit 7; and the
petitioner assails, under the second assignment of error, the conclusion of the Court of Appeals that said
contract is simulated. This contention is purely factual and must also be overruled.
The petitioner questions the right of the respondent Philippine Education Co., Inc., to sue for the credits
assigned by the five entities with which Lee Guan Box Factory originally contracted, it being argued that
the assignment, intended only for purposes of collection, did not make said respondent the real party in
interest. The petitioner has cited 5 Corpus Juris, section 144, page 958, which points out that "under
statutes authorizing only a bona fide assignee of choses in action to sue thereon in his own name, an
assignee for collection merely is not entitled to sue in his own name."
The finding of the Court of Appeals that there is nothing "simulated in the assignment," precludes us
from ruling that respondent company is not a bona fide assignee. Even assuming, however, that said
assignment was only for collection, we are not prepared to say that, under section 114 of the Code of
Civil Procedure, in force at the time this action was instituted, ours is not one of those jurisdictions
following the rule that "when a choose, capable of legal assignment, is assigned absolutely to one, but
the assignment is made for purpose of collection, the legal title thereto vests in the assignee, and it is no
concern of the debtor that the equitable title is in another, and payment to the assignee discharges the
debtor." (5 C. J., section 144, p. 958.) No substantial right of the petitioner could indeed be prejudiced
by such assignment, because section 114 of the Code of Civil Procedure reserves to it "'any set-off or
other defense existing at the time of or before notice of the assignment.'"
Petitioner's allegation that "fraud in the inception of the debt is personal to the contracting parties and
does not follow assignment," and that the contracts assigned to the respondent company "are immoral
and against public policy and therefore void," constitute defenses on the merits, but do not affect the
efficacy of the assignment. It is obvious that, apart from the fact that the petitioner can not invoke fraud
of its authorship to evade liability, the appealed decision is founded on an obligation arising, not from
fraud, but from the very contracts under which merchandise had been purchased by Lee Guan Box
Factory.
The fourth and fifth assignments of error relate to the refusal of the Court of Appeals to hold that the writ
of attachment is issued at the commencement of this action by the Court of First Instance is illegal, and
to award in favor of the petitioner damages for such wrongful attachment. For us to sustain petitioner's
contention will amount to an unauthorized reversal of the following conclusion of fact of the Court of
Appeals: "The stereotyped manner in which defendants obtained goods on credit from the six
companies, Vicente Tan's sudden disappearance, the execution of the fake sale Exhibit 7 to throw the
whole responsibility upon the absent or otherwise insolvent Tan, defendant's mercurial and unbelievable
theories as to the ownership of the Modern Box Factory and Lee Guan Box Factory obviously adopted
in a vain effort to meet or explain away the evidentiary force of plaintiff's documentary evidence are
much too significant to permit a declaration that the attachment was not justified."
Regarding the suggestion in petitioner's memorandum that this case should be dismissed because of
the death of Ngo Hay, it is sufficient to state that the petitioner Ngo Tian Tek and Ngo Hay is sued as a
partnership possessing a personality distinct from any of the partners.
The appealed decision is affirmed, with costs against the petitioner. So ordered.
Moran, C.J., Pablo, Perfecto, Hilado, Briones, Hontiveros, and Tuason, JJ., concur.
Separate Opinions
FERIA, J., concurring and dissenting:
I concur in the majority except that portion thereof which deals with the question whether an assignee
for collection merely is entitled to sue in his own name, which need not be discussed, in view of the
finding of the Court of Appeals that there is nothing "simulated in the assignment" which according to the
very opinion of the majority "precludes us from ruling that the respondent company is not a bona
fide assignee;" because such being the conclusion of fact of the Court of Appeals, this Supreme Court
can not modify or reverse that conclusion and find that respondent Philippine Education Co. was not
a bona fide assignee, and the assignment was not absolute, but made merely for collection in order that
said respondent may sue in its own name.
But I dissent from the majority opinion when it further says:
Even assuming, however, that said assignment was only for collection, we are not prepared to say that,
under section 114 of the Code of Civil Procedure, in force at the time this action was instituted, ours is
not one of those jurisdictions following the rule that "when a choose, capable of legal assignment, is
assigned absolutely to one, but the assignment is made for purpose of collection, the legal title thereto
vests in the assignee, and it is no concern of the debtor that the equitable title is in another, and payment
to the assignee discharges the debtor." (5 C. J., section 114, p. 958.) No substantial right of the petitioner
could indeed be prejudiced by such assignment, because section 114 of the Code of Civil Procedure
reserves to it "any set-off or other defense exiting at the time of or before notice of the assignment."
The reason for my dissenting is that, after quoting the finding of the Court of Appeals and stating that
said conclusion precludes this Court "from ruling that the respondent company is not a bona
fide assignee," the majority should have stopped then and there. But having preferred to adduce an
additional ratio decidendi, and assume that the assignment was for collection only and not an absolute
and bona fide one, in order to meet the latter's argument, because the Court of Appeals' conclusion is
that the assignment was not simulated, that is, absolute and bona fide, the majority should have quoted
and discussed the second and third sentences of paragraph 144, page 958, of the Corpus Juris, quoted
and relied on by the petitioner, which refers to an assignment that is not absolutely and bona fide made.
However the majority opinion did not do so, and quotes and bases its conclusion to the contrary on the
first sentence of said paragraph, not relied on by the petitioner, and which deals with absolute and bona
fide assignment, and to the provision of section 114 of the Code of Civil Procedure on set-off and
defenses which defendant may set up to an action instituted by a bona fide assignee.
To clearly show the error, we transcribe below section 144, page 958, of Corpus Juris quoted and
underlined by the petitioner in his brief:

144. G. Assignments for Collection. When a chose, capable of legal assignment, is assigned
absolutely to one, but the assignment is made for purpose of collection, the legal title thereto vests in the
assignee, and it is no concern of the debtor that the equitable title is in another, and payment to the
assignee discharges the debtor. Under the statutes of most jurisdictions, the assignee may prosecute
an action thereon in his own name as the real party in interest or as a trustee of an express trust; but,
under statutes authorizing only a bona fide assignee of choses in action to sue thereon in his own name,
an assignee for collection merely is not entitled to sue in his own name. An assignment merely for
collection does not transfer the beneficial ownership to the assignee.
It is not only convenient but necessary to point this error in the present concurring and dissenting opinion,
for the conclusion set forth in the above quoted portion of the majority decision is misleading; because it
apparently lays down the ruling that an assignee not bona fide to whom a credit was assigned, not
absolutely, but for collection merely may sue in his own name (a debatable question which has not yet
been passed upon squarely by this Court [ Annotation; 64 L. R. A., 585]), but the premise on which the
majority's conclusion or ruling is predicated in said portion of the Corpus Juris quoted in the opinion,
which is a wrong premise laid down, not by the petitioner, but by the writer himself of the majority opinion.

Art 1769
PHILEX MINING CORPORATION, petitioner,
vs.COMMISSIONER OF INTERNAL

This is a petition for review on certiorari of the June 30, 2000 Decision1 of the Court of Appeals in CA-
G.R. SP No. 49385, which affirmed the Decision2 of the Court of Tax Appeals in C.T.A. Case No. 5200.
Also assailed is the April 3, 2001 Resolution3 denying the motion for reconsideration.
The facts of the case are as follows:
On April 16, 1971, petitioner Philex Mining Corporation (Philex Mining), entered into an agreement4 with
Baguio Gold Mining Company ("Baguio Gold") for the former to manage and operate the latters mining
claim, known as the Sto. Nino mine, located in Atok and Tublay, Benguet Province. The parties
agreement was denominated as "Power of Attorney" and provided for the following terms:
4. Within three (3) years from date thereof, the PRINCIPAL (Baguio Gold) shall make available to the
MANAGERS (Philex Mining) up to ELEVEN MILLION PESOS (P11,000,000.00), in such amounts as
from time to time may be required by the MANAGERS within the said 3-year period, for use in the
MANAGEMENT of the STO. NINO MINE. The said ELEVEN MILLION PESOS (P11,000,000.00) shall
be deemed, for internal audit purposes, as the owners account in the Sto. Nino PROJECT. Any part of
any income of the PRINCIPAL from the STO. NINO MINE, which is left with the Sto. Nino PROJECT,
shall be added to such owners account.
5. Whenever the MANAGERS shall deem it necessary and convenient in connection with the
MANAGEMENT of the STO. NINO MINE, they may transfer their own funds or property to the Sto. Nino
PROJECT, in accordance with the following arrangements:
(a) The properties shall be appraised and, together with the cash, shall be carried by the Sto. Nino
PROJECT as a special fund to be known as the MANAGERS account.
(b) The total of the MANAGERS account shall not exceed P11,000,000.00, except with prior approval
of the PRINCIPAL; provided, however, that if the compensation of the MANAGERS as herein provided
cannot be paid in cash from the Sto. Nino PROJECT, the amount not so paid in cash shall be added to
the MANAGERS account.
(c) The cash and property shall not thereafter be withdrawn from the Sto. Nino PROJECT until
termination of this Agency.
(d) The MANAGERS account shall not accrue interest. Since it is the desire of the PRINCIPAL to extend
to the MANAGERS the benefit of subsequent appreciation of property, upon a projected termination of
this Agency, the ratio which the MANAGERS account has to the owners account will be determined,
and the corresponding proportion of the entire assets of the STO. NINO MINE, excluding the claims,
shall be transferred to the MANAGERS, except that such transferred assets shall not include mine
development, roads, buildings, and similar property which will be valueless, or of slight value, to the
MANAGERS. The MANAGERS can, on the other hand, require at their option that property originally
transferred by them to the Sto. Nino PROJECT be re-transferred to them. Until such assets are
transferred to the MANAGERS, this Agency shall remain subsisting.
xxxx
12. The compensation of the MANAGER shall be fifty per cent (50%) of the net profit of the Sto. Nino
PROJECT before income tax. It is understood that the MANAGERS shall pay income tax on their
compensation, while the PRINCIPAL shall pay income tax on the net profit of the Sto. Nino PROJECT
after deduction therefrom of the MANAGERS compensation.
xxxx
16. The PRINCIPAL has current pecuniary obligation in favor of the MANAGERS and, in the future, may
incur other obligations in favor of the MANAGERS. This Power of Attorney has been executed as security
for the payment and satisfaction of all such obligations of the PRINCIPAL in favor of the MANAGERS
and as a means to fulfill the same. Therefore, this Agency shall be irrevocable while any obligation of
the PRINCIPAL in favor of the MANAGERS is outstanding, inclusive of the MANAGERS account. After
all obligations of the PRINCIPAL in favor of the MANAGERS have been paid and satisfied in full, this
Agency shall be revocable by the PRINCIPAL upon 36-month notice to the MANAGERS.
17. Notwithstanding any agreement or understanding between the PRINCIPAL and the MANAGERS to
the contrary, the MANAGERS may withdraw from this Agency by giving 6-month notice to the
PRINCIPAL. The MANAGERS shall not in any manner be held liable to the PRINCIPAL by reason alone
of such withdrawal. Paragraph 5(d) hereof shall be operative in case of the MANAGERS withdrawal.
x x x x5
In the course of managing and operating the project, Philex Mining made advances of cash and property
in accordance with paragraph 5 of the agreement. However, the mine suffered continuing losses over
the years which resulted to petitioners withdrawal as manager of the mine on January 28, 1982 and in
the eventual cessation of mine operations on February 20, 1982.6
Thereafter, on September 27, 1982, the parties executed a "Compromise with Dation in
Payment"7 wherein Baguio Gold admitted an indebtedness to petitioner in the amount of
P179,394,000.00 and agreed to pay the same in three segments by first assigning Baguio Golds tangible
assets to petitioner, transferring to the latter Baguio Golds equitable title in its Philodrill assets and finally
settling the remaining liability through properties that Baguio Gold may acquire in the future.
On December 31, 1982, the parties executed an "Amendment to Compromise with Dation in
Payment"8 where the parties determined that Baguio Golds indebtedness to petitioner actually
amounted to P259,137,245.00, which sum included liabilities of Baguio Gold to other creditors that
petitioner had assumed as guarantor. These liabilities pertained to long-term loans amounting to
US$11,000,000.00 contracted by Baguio Gold from the Bank of America NT & SA and Citibank N.A.
This time, Baguio Gold undertook to pay petitioner in two segments by first assigning its tangible assets
for P127,838,051.00 and then transferring its equitable title in its Philodrill assets for P16,302,426.00.
The parties then ascertained that Baguio Gold had a remaining outstanding indebtedness to petitioner
in the amount of P114,996,768.00.
Subsequently, petitioner wrote off in its 1982 books of account the remaining outstanding indebtedness
of Baguio Gold by charging P112,136,000.00 to allowances and reserves that were set up in 1981 and
P2,860,768.00 to the 1982 operations.
In its 1982 annual income tax return, petitioner deducted from its gross income the amount of
P112,136,000.00 as "loss on settlement of receivables from Baguio Gold against reserves and
allowances."9 However, the Bureau of Internal Revenue (BIR) disallowed the amount as deduction for
bad debt and assessed petitioner a deficiency income tax of P62,811,161.39.
Petitioner protested before the BIR arguing that the deduction must be allowed since all requisites for a
bad debt deduction were satisfied, to wit: (a) there was a valid and existing debt; (b) the debt was
ascertained to be worthless; and (c) it was charged off within the taxable year when it was determined
to be worthless.
Petitioner emphasized that the debt arose out of a valid management contract it entered into with Baguio
Gold. The bad debt deduction represented advances made by petitioner which, pursuant to the
management contract, formed part of Baguio Golds "pecuniary obligations" to petitioner. It also included
payments made by petitioner as guarantor of Baguio Golds long-term loans which legally entitled
petitioner to be subrogated to the rights of the original creditor.
Petitioner also asserted that due to Baguio Golds irreversible losses, it became evident that it would not
be able to recover the advances and payments it had made in behalf of Baguio Gold. For a debt to be
considered worthless, petitioner claimed that it was neither required to institute a judicial action for
collection against the debtor nor to sell or dispose of collateral assets in satisfaction of the debt. It is
enough that a taxpayer exerted diligent efforts to enforce collection and exhausted all reasonable means
to collect.
On October 28, 1994, the BIR denied petitioners protest for lack of legal and factual basis. It held that
the alleged debt was not ascertained to be worthless since Baguio Gold remained existing and had not
filed a petition for bankruptcy; and that the deduction did not consist of a valid and subsisting debt
considering that, under the management contract, petitioner was to be paid fifty percent (50%) of the
projects net profit.10
Petitioner appealed before the Court of Tax Appeals (CTA) which rendered judgment, as follows:
WHEREFORE, in view of the foregoing, the instant Petition for Review is hereby DENIED for lack of
merit. The assessment in question, viz: FAS-1-82-88-003067 for deficiency income tax in the amount of
P62,811,161.39 is hereby AFFIRMED.
ACCORDINGLY, petitioner Philex Mining Corporation is hereby ORDERED to PAY respondent
Commissioner of Internal Revenue the amount of P62,811,161.39, plus, 20% delinquency interest due
computed from February 10, 1995, which is the date after the 20-day grace period given by the
respondent within which petitioner has to pay the deficiency amount x x x up to actual date of payment.
SO ORDERED.11
The CTA rejected petitioners assertion that the advances it made for the Sto. Nino mine were in the
nature of a loan. It instead characterized the advances as petitioners investment in a partnership with
Baguio Gold for the development and exploitation of the Sto. Nino mine. The CTA held that the "Power
of Attorney" executed by petitioner and Baguio Gold was actually a partnership agreement. Since the
advanced amount partook of the nature of an investment, it could not be deducted as a bad debt from
petitioners gross income.
The CTA likewise held that the amount paid by petitioner for the long-term loan obligations of Baguio
Gold could not be allowed as a bad debt deduction. At the time the payments were made, Baguio Gold
was not in default since its loans were not yet due and demandable. What petitioner did was to pre-pay
the loans as evidenced by the notice sent by Bank of America showing that it was merely demanding
payment of the installment and interests due. Moreover, Citibank imposed and collected a "pre-
termination penalty" for the pre-payment.
The Court of Appeals affirmed the decision of the CTA.12 Hence, upon denial of its motion for
reconsideration,13petitioner took this recourse under Rule 45 of the Rules of Court, alleging that:
I.
The Court of Appeals erred in construing that the advances made by Philex in the management of the
Sto. Nino Mine pursuant to the Power of Attorney partook of the nature of an investment rather than a
loan.
II.
The Court of Appeals erred in ruling that the 50%-50% sharing in the net profits of the Sto. Nino Mine
indicates that Philex is a partner of Baguio Gold in the development of the Sto. Nino Mine notwithstanding
the clear absence of any intent on the part of Philex and Baguio Gold to form a partnership.
III.
The Court of Appeals erred in relying only on the Power of Attorney and in completely disregarding the
Compromise Agreement and the Amended Compromise Agreement when it construed the nature of the
advances made by Philex.
IV.
The Court of Appeals erred in refusing to delve upon the issue of the propriety of the bad debts write-
off.14
Petitioner insists that in determining the nature of its business relationship with Baguio Gold, we should
not only rely on the "Power of Attorney", but also on the subsequent "Compromise with Dation in
Payment" and "Amended Compromise with Dation in Payment" that the parties executed in 1982. These
documents, allegedly evinced the parties intent to treat the advances and payments as a loan and
establish a creditor-debtor relationship between them.
The petition lacks merit.
The lower courts correctly held that the "Power of Attorney" is the instrument that is material in
determining the true nature of the business relationship between petitioner and Baguio Gold. Before
resort may be had to the two compromise agreements, the parties contractual intent must first be
discovered from the expressed language of the primary contract under which the parties business
relations were founded. It should be noted that the compromise agreements were mere collateral
documents executed by the parties pursuant to the termination of their business relationship created
under the "Power of Attorney". On the other hand, it is the latter which established the juridical relation
of the parties and defined the parameters of their dealings with one another.
The execution of the two compromise agreements can hardly be considered as a subsequent or
contemporaneous act that is reflective of the parties true intent. The compromise agreements were
executed eleven years after the "Power of Attorney" and merely laid out a plan or procedure by which
petitioner could recover the advances and payments it made under the "Power of Attorney". The parties
entered into the compromise agreements as a consequence of the dissolution of their business
relationship. It did not define that relationship or indicate its real character.
An examination of the "Power of Attorney" reveals that a partnership or joint venture was indeed intended
by the parties. Under a contract of partnership, two or more persons bind themselves to contribute
money, property, or industry to a common fund, with the intention of dividing the profits among
themselves.15 While a corporation, like petitioner, cannot generally enter into a contract of partnership
unless authorized by law or its charter, it has been held that it may enter into a joint venture which is akin
to a particular partnership:
The legal concept of a joint venture is of common law origin. It has no precise legal definition, but it has
been generally understood to mean an organization formed for some temporary purpose. x x x It is in
fact hardly distinguishable from the partnership, since their elements are similar community of interest
in the business, sharing of profits and losses, and a mutual right of control. x x x The main distinction
cited by most opinions in common law jurisdictions is that the partnership contemplates a general
business with some degree of continuity, while the joint venture is formed for the execution of a single
transaction, and is thus of a temporary nature. x x x This observation is not entirely accurate in this
jurisdiction, since under the Civil Code, a partnership may be particular or universal, and a particular
partnership may have for its object a specific undertaking. x x x It would seem therefore that under
Philippine law, a joint venture is a form of partnership and should be governed by the law of partnerships.
The Supreme Court has however recognized a distinction between these two business forms, and has
held that although a corporation cannot enter into a partnership contract, it may however engage in a
joint venture with others. x x x (Citations omitted) 16
Perusal of the agreement denominated as the "Power of Attorney" indicates that the parties had intended
to create a partnership and establish a common fund for the purpose. They also had a joint interest in
the profits of the business as shown by a 50-50 sharing in the income of the mine.
Under the "Power of Attorney", petitioner and Baguio Gold undertook to contribute money, property and
industry to the common fund known as the Sto. Nio mine.17 In this regard, we note that there is a
substantive equivalence in the respective contributions of the parties to the development and operation
of the mine. Pursuant to paragraphs 4 and 5 of the agreement, petitioner and Baguio Gold were to
contribute equally to the joint venture assets under their respective accounts. Baguio Gold would
contribute P11M under its owners account plus any of its income that is left in the project, in addition to
its actual mining claim. Meanwhile, petitioners contribution would consist of its expertise in the
management and operation of mines, as well as the managers account which is comprised of P11M in
funds and property and petitioners "compensation" as manager that cannot be paid in cash.
However, petitioner asserts that it could not have entered into a partnership agreement with Baguio Gold
because it did not "bind" itself to contribute money or property to the project; that under paragraph 5 of
the agreement, it was only optional for petitioner to transfer funds or property to the Sto. Nio project
"(w)henever the MANAGERS shall deem it necessary and convenient in connection with the
MANAGEMENT of the STO. NIO MINE."18
The wording of the parties agreement as to petitioners contribution to the common fund does not detract
from the fact that petitioner transferred its funds and property to the project as specified in paragraph 5,
thus rendering effective the other stipulations of the contract, particularly paragraph 5(c) which prohibits
petitioner from withdrawing the advances until termination of the parties business relations. As can be
seen, petitioner became bound by its contributions once the transfers were made. The contributions
acquired an obligatory nature as soon as petitioner had chosen to exercise its option under paragraph
5.
There is no merit to petitioners claim that the prohibition in paragraph 5(c) against withdrawal of
advances should not be taken as an indication that it had entered into a partnership with Baguio Gold;
that the stipulation only showed that what the parties entered into was actually a contract of agency
coupled with an interest which is not revocable at will and not a partnership.
In an agency coupled with interest, it is the agency that cannot be revoked or withdrawn by the
principal due to an interest of a third party that depends upon it, or the mutual interest of both principal
and agent.19 In this case, the non-revocation or non-withdrawal under paragraph 5(c) applies to
the advances made by petitioner who is supposedly the agent and not the principal under the contract.
Thus, it cannot be inferred from the stipulation that the parties relation under the agreement is one of
agency coupled with an interest and not a partnership.
Neither can paragraph 16 of the agreement be taken as an indication that the relationship of the parties
was one of agency and not a partnership. Although the said provision states that "this Agency shall be
irrevocable while any obligation of the PRINCIPAL in favor of the MANAGERS is outstanding, inclusive
of the MANAGERS account," it does not necessarily follow that the parties entered into an agency
contract coupled with an interest that cannot be withdrawn by Baguio Gold.
It should be stressed that the main object of the "Power of Attorney" was not to confer a power in favor
of petitioner to contract with third persons on behalf of Baguio Gold but to create a business relationship
between petitioner and Baguio Gold, in which the former was to manage and operate the latters mine
through the parties mutual contribution of material resources and industry. The essence of an agency,
even one that is coupled with interest, is the agents ability to represent his principal and bring about
business relations between the latter and third persons.20 Where representation for and in behalf of the
principal is merely incidental or necessary for the proper discharge of ones paramount undertaking
under a contract, the latter may not necessarily be a contract of agency, but some other agreement
depending on the ultimate undertaking of the parties.21
In this case, the totality of the circumstances and the stipulations in the parties agreement indubitably
lead to the conclusion that a partnership was formed between petitioner and Baguio Gold.
First, it does not appear that Baguio Gold was unconditionally obligated to return the advances made by
petitioner under the agreement. Paragraph 5 (d) thereof provides that upon termination of the parties
business relations, "the ratio which the MANAGERS account has to the owners account will be
determined, and the corresponding proportion of the entire assets of the STO. NINO MINE, excluding
the claims" shall be transferred to petitioner.22 As pointed out by the Court of Tax Appeals, petitioner was
merely entitled to a proportionate return of the mines assets upon dissolution of the parties business
relations. There was nothing in the agreement that would require Baguio Gold to make payments of the
advances to petitioner as would be recognized as an item of obligation or "accounts payable" for Baguio
Gold.
Thus, the tax court correctly concluded that the agreement provided for a distribution of assets of the
Sto. Nio mine upon termination, a provision that is more consistent with a partnership than a creditor-
debtor relationship. It should be pointed out that in a contract of loan, a person who receives a loan or
money or any fungible thing acquires ownership thereof and is bound to pay the creditor an equal
amount of the same kind and quality.23 In this case, however, there was no stipulation for Baguio Gold
to actually repay petitioner the cash and property that it had advanced, but only the return of an amount
pegged at a ratio which the managers account had to the owners account.
In this connection, we find no contractual basis for the execution of the two compromise agreements in
which Baguio Gold recognized a debt in favor of petitioner, which supposedly arose from the termination
of their business relations over the Sto. Nino mine. The "Power of Attorney" clearly provides that
petitioner would only be entitled to the return of a proportionate share of the mine assets to be computed
at a ratio that the managers account had to the owners account. Except to provide a basis for claiming
the advances as a bad debt deduction, there is no reason for Baguio Gold to hold itself liable to petitioner
under the compromise agreements, for any amount over and above the proportion agreed upon in the
"Power of Attorney".
Next, the tax court correctly observed that it was unlikely for a business corporation to lend hundreds of
millions of pesos to another corporation with neither security, or collateral, nor a specific deed evidencing
the terms and conditions of such loans. The parties also did not provide a specific maturity date for the
advances to become due and demandable, and the manner of payment was unclear. All these point to
the inevitable conclusion that the advances were not loans but capital contributions to a partnership.
The strongest indication that petitioner was a partner in the Sto Nio mine is the fact that it would receive
50% of the net profits as "compensation" under paragraph 12 of the agreement. The entirety of the
parties contractual stipulations simply leads to no other conclusion than that petitioners "compensation"
is actually its share in the income of the joint venture.
Article 1769 (4) of the Civil Code explicitly provides that the "receipt by a person of a share in the profits
of a business is prima facie evidence that he is a partner in the business." Petitioner asserts, however,
that no such inference can be drawn against it since its share in the profits of the Sto Nio project was
in the nature of compensation or "wages of an employee", under the exception provided in Article 1769
(4) (b).24
On this score, the tax court correctly noted that petitioner was not an employee of Baguio Gold who will
be paid "wages" pursuant to an employer-employee relationship. To begin with, petitioner was the
manager of the project and had put substantial sums into the venture in order to ensure its viability and
profitability. By pegging its compensation to profits, petitioner also stood not to be remunerated in case
the mine had no income. It is hard to believe that petitioner would take the risk of not being paid at all for
its services, if it were truly just an ordinary employee.
Consequently, we find that petitioners "compensation" under paragraph 12 of the agreement actually
constitutes its share in the net profits of the partnership. Indeed, petitioner would not be entitled to an
equal share in the income of the mine if it were just an employee of Baguio Gold.25 It is not surprising
that petitioner was to receive a 50% share in the net profits, considering that the "Power of Attorney"
also provided for an almost equal contribution of the parties to the St. Nino mine. The "compensation"
agreed upon only serves to reinforce the notion that the parties relations were indeed of partners and
not employer-employee.
All told, the lower courts did not err in treating petitioners advances as investments in a partnership
known as the Sto. Nino mine. The advances were not "debts" of Baguio Gold to petitioner inasmuch as
the latter was under no unconditional obligation to return the same to the former under the "Power of
Attorney". As for the amounts that petitioner paid as guarantor to Baguio Golds creditors, we find no
reason to depart from the tax courts factual finding that Baguio Golds debts were not yet due and
demandable at the time that petitioner paid the same. Verily, petitioner pre-paid Baguio Golds
outstanding loans to its bank creditors and this conclusion is supported by the evidence on record.26
In sum, petitioner cannot claim the advances as a bad debt deduction from its gross income. Deductions
for income tax purposes partake of the nature of tax exemptions and are strictly construed against the
taxpayer, who must prove by convincing evidence that he is entitled to the deduction claimed.27 In this
case, petitioner failed to substantiate its assertion that the advances were subsisting debts of Baguio
Gold that could be deducted from its gross income. Consequently, it could not claim the advances as a
valid bad debt deduction.
WHEREFORE, the petition is DENIED. The decision of the Court of Appeals in CA-G.R. SP No. 49385
dated June 30, 2000, which affirmed the decision of the Court of Tax Appeals in C.T.A. Case No. 5200
is AFFIRMED. Petitioner Philex Mining Corporation is ORDERED to PAY the deficiency tax on its 1982
income in the amount of P62,811,161.31, with 20% delinquency interest computed from February 10,
1995, which is the due date given for the payment of the deficiency income tax, up to the actual date of
payment

MARIANO P. PASCUAL and RENATO P. DRAGON, petitioners, vs.THE COMMISSIONER OF

INTERNAL REVENUE and COURT OF TAX APPEALS, respondents.

The distinction between co-ownership and an unregistered partnership or joint venture for income tax
purposes is the issue in this petition.
On June 22, 1965, petitioners bought two (2) parcels of land from Santiago Bernardino, et al. and on
May 28, 1966, they bought another three (3) parcels of land from Juan Roque. The first two parcels of
land were sold by petitioners in 1968 toMarenir Development Corporation, while the three parcels of land
were sold by petitioners to Erlinda Reyes and Maria Samson on March 19,1970. Petitioners realized a
net profit in the sale made in 1968 in the amount of P165,224.70, while they realized a net profit of
P60,000.00 in the sale made in 1970. The corresponding capital gains taxes were paid by petitioners in
1973 and 1974 by availing of the tax amnesties granted in the said years.
However, in a letter dated March 31, 1979 of then Acting BIR Commissioner Efren I. Plana, petitioners
were assessed and required to pay a total amount of P107,101.70 as alleged deficiency corporate
income taxes for the years 1968 and 1970.
Petitioners protested the said assessment in a letter of June 26, 1979 asserting that they had availed of
tax amnesties way back in 1974.
In a reply of August 22, 1979, respondent Commissioner informed petitioners that in the years 1968 and
1970, petitioners as co-owners in the real estate transactions formed an unregistered partnership or joint
venture taxable as a corporation under Section 20(b) and its income was subject to the taxes prescribed
under Section 24, both of the National Internal Revenue Code 1 that the unregistered partnership was
subject to corporate income tax as distinguished from profits derived from the partnership by them which
is subject to individual income tax; and that the availment of tax amnesty under P.D. No. 23, as amended,
by petitioners relieved petitioners of their individual income tax liabilities but did not relieve them from
the tax liability of the unregistered partnership. Hence, the petitioners were required to pay the deficiency
income tax assessed.
Petitioners filed a petition for review with the respondent Court of Tax Appeals docketed as CTA Case
No. 3045. In due course, the respondent court by a majority decision of March 30, 1987, 2 affirmed the
decision and action taken by respondent commissioner with costs against petitioners.
It ruled that on the basis of the principle enunciated in Evangelista 3 an unregistered partnership was in
fact formed by petitioners which like a corporation was subject to corporate income tax distinct from that
imposed on the partners.
In a separate dissenting opinion, Associate Judge Constante Roaquin stated that considering the
circumstances of this case, although there might in fact be a co-ownership between the petitioners, there
was no adequate basis for the conclusion that they thereby formed an unregistered partnership which
made "hem liable for corporate income tax under the Tax Code.
Hence, this petition wherein petitioners invoke as basis thereof the following alleged errors of the
respondent court:
A. IN HOLDING AS PRESUMPTIVELY CORRECT THE DETERMINATION OF THE RESPONDENT
COMMISSIONER, TO THE EFFECT THAT PETITIONERS FORMED AN UNREGISTERED
PARTNERSHIP SUBJECT TO CORPORATE INCOME TAX, AND THAT THE BURDEN OF OFFERING
EVIDENCE IN OPPOSITION THERETO RESTS UPON THE PETITIONERS.
B. IN MAKING A FINDING, SOLELY ON THE BASIS OF ISOLATED SALE TRANSACTIONS, THAT
AN UNREGISTERED PARTNERSHIP EXISTED THUS IGNORING THE REQUIREMENTS LAID
DOWN BY LAW THAT WOULD WARRANT THE PRESUMPTION/CONCLUSION THAT A
PARTNERSHIP EXISTS.
C. IN FINDING THAT THE INSTANT CASE IS SIMILAR TO THE EVANGELISTA CASE AND
THEREFORE SHOULD BE DECIDED ALONGSIDE THE EVANGELISTA CASE.
D. IN RULING THAT THE TAX AMNESTY DID NOT RELIEVE THE PETITIONERS FROM PAYMENT
OF OTHER TAXES FOR THE PERIOD COVERED BY SUCH AMNESTY. (pp. 12-13, Rollo.)
The petition is meritorious.
The basis of the subject decision of the respondent court is the ruling of this Court in Evangelista. 4
In the said case, petitioners borrowed a sum of money from their father which together with their own
personal funds they used in buying several real properties. They appointed their brother to manage their
properties with full power to lease, collect, rent, issue receipts, etc. They had the real properties rented
or leased to various tenants for several years and they gained net profits from the rental income. Thus,
the Collector of Internal Revenue demanded the payment of income tax on a corporation, among others,
from them.
In resolving the issue, this Court held as follows:
The issue in this case is whether petitioners are subject to the tax on corporations provided for in section
24 of Commonwealth Act No. 466, otherwise known as the National Internal Revenue Code, as well as
to the residence tax for corporations and the real estate dealers' fixed tax. With respect to the tax on
corporations, the issue hinges on the meaning of the terms corporation and partnership as used in
sections 24 and 84 of said Code, the pertinent parts of which read:
Sec. 24. Rate of the tax on corporations.There shall be levied, assessed, collected, and paid annually
upon the total net income received in the preceding taxable year from all sources by every corporation
organized in, or existing under the laws of the Philippines, no matter how created or organized but not
including duly registered general co-partnerships (companies collectives), a tax upon such income equal
to the sum of the following: ...
Sec. 84(b). The term "corporation" includes partnerships, no matter how created or organized, joint-stock
companies, joint accounts (cuentas en participation), associations or insurance companies, but does not
include duly registered general co-partnerships (companies colectivas).
Article 1767 of the Civil Code of the Philippines provides:
By the contract of partnership two or more persons bind themselves to contribute money, property, or
industry to a common fund, with the intention of dividing the profits among themselves.
Pursuant to this article, the essential elements of a partnership are two, namely: (a) an agreement to
contribute money, property or industry to a common fund; and (b) intent to divide the profits among the
contracting parties. The first element is undoubtedly present in the case at bar, for, admittedly, petitioners
have agreed to, and did, contribute money and property to a common fund. Hence, the issue narrows
down to their intent in acting as they did. Upon consideration of all the facts and circumstances
surrounding the case, we are fully satisfied that their purpose was to engage in real estate transactions
for monetary gain and then divide the same among themselves, because:
1. Said common fund was not something they found already in existence. It was not a property inherited
by them pro indiviso. They created it purposely. What is more they jointly borrowed a substantial portion
thereof in order to establish said common fund.
2. They invested the same, not merely in one transaction, but in a series of transactions. On February
2, 1943, they bought a lot for P100,000.00. On April 3, 1944, they purchased 21 lots for P18,000.00.
This was soon followed, on April 23, 1944, by the acquisition of another real estate for P108,825.00. Five
(5) days later (April 28, 1944), they got a fourth lot for P237,234.14. The number of lots (24) acquired
and transcations undertaken, as well as the brief interregnum between each, particularly the last three
purchases, is strongly indicative of a pattern or common design that was not limited to the conservation
and preservation of the aforementioned common fund or even of the property acquired by petitioners in
February, 1943. In other words, one cannot but perceive a character of habituality peculiar to business
transactions engaged in for purposes of gain.
3. The aforesaid lots were not devoted to residential purposes or to other personal uses, of petitioners
herein. The properties were leased separately to several persons, who, from 1945 to 1948 inclusive,
paid the total sum of P70,068.30 by way of rentals. Seemingly, the lots are still being so let, for petitioners
do not even suggest that there has been any change in the utilization thereof.
Since August, 1945, the properties have been under the management of one person, namely, Simeon
Evangelists, with full power to lease, to collect rents, to issue receipts, to bring suits, to sign letters and
contracts, and to indorse and deposit notes and checks. Thus, the affairs relative to said properties have
been handled as if the same belonged to a corporation or business enterprise operated for profit.
The foregoing conditions have existed for more than ten (10) years, or, to be exact, over fifteen (15)
years, since the first property was acquired, and over twelve (12) years, since Simeon Evangelists
became the manager.
Petitioners have not testified or introduced any evidence, either on their purpose in creating the set up
already adverted to, or on the causes for its continued existence. They did not even try to offer an
explanation therefor.
Although, taken singly, they might not suffice to establish the intent necessary to constitute a
partnership, the collective effect of these circumstances is such as to leave no room for doubt on the
existence of said intent in petitioners herein. Only one or two of the aforementioned circumstances were
present in the cases cited by petitioners herein, and, hence, those cases are not in point. 5
In the present case, there is no evidence that petitioners entered into an agreement to contribute money,
property or industry to a common fund, and that they intended to divide the profits among themselves.
Respondent commissioner and/ or his representative just assumed these conditions to be present on
the basis of the fact that petitioners purchased certain parcels of land and became co-owners thereof.
In Evangelists, there was a series of transactions where petitioners purchased twenty-four (24)
lots showing that the purpose was not limited to the conservation or preservation of the common fund or
even the properties acquired by them. The character of habituality peculiar to business transactions
engaged in for the purpose of gain was present.
In the instant case, petitioners bought two (2) parcels of land in 1965. They did not sell the same nor
make any improvements thereon. In 1966, they bought another three (3) parcels of land from one seller.
It was only 1968 when they sold the two (2) parcels of land after which they did not make any additional
or new purchase. The remaining three (3) parcels were sold by them in 1970. The transactions were
isolated. The character of habituality peculiar to business transactions for the purpose of gain was not
present.
In Evangelista, the properties were leased out to tenants for several years. The business was under the
management of one of the partners. Such condition existed for over fifteen (15) years. None of the
circumstances are present in the case at bar. The co-ownership started only in 1965 and ended in 1970.
Thus, in the concurring opinion of Mr. Justice Angelo Bautista in Evangelista he said:
I wish however to make the following observation Article 1769 of the new Civil Code lays down the rule
for determining when a transaction should be deemed a partnership or a co-ownership. Said article
paragraphs 2 and 3, provides;
(2) Co-ownership or co-possession does not itself establish a partnership, whether such co-owners or
co-possessors do or do not share any profits made by the use of the property;
(3) The sharing of gross returns does not of itself establish a partnership, whether or not the persons
sharing them have a joint or common right or interest in any property from which the returns are derived;
From the above it appears that the fact that those who agree to form a co- ownership share or do not
share any profits made by the use of the property held in common does not convert their venture into a
partnership. Or the sharing of the gross returns does not of itself establish a partnership whether or not
the persons sharing therein have a joint or common right or interest in the property. This only means
that, aside from the circumstance of profit, the presence of other elements constituting partnership is
necessary, such as the clear intent to form a partnership, the existence of a juridical personality different
from that of the individual partners, and the freedom to transfer or assign any interest in the property by
one with the consent of the others (Padilla, Civil Code of the Philippines Annotated, Vol. I, 1953 ed., pp.
635-636)
It is evident that an isolated transaction whereby two or more persons contribute funds to buy certain
real estate for profit in the absence of other circumstances showing a contrary intention cannot be
considered a partnership.
Persons who contribute property or funds for a common enterprise and agree to share the gross returns
of that enterprise in proportion to their contribution, but who severally retain the title to their respective
contribution, are not thereby rendered partners. They have no common stock or capital, and no
community of interest as principal proprietors in the business itself which the proceeds derived.
(Elements of the Law of Partnership by Flord D. Mechem 2nd Ed., section 83, p. 74.)
A joint purchase of land, by two, does not constitute a co-partnership in respect thereto; nor does an
agreement to share the profits and losses on the sale of land create a partnership; the parties are only
tenants in common. (Clark vs. Sideway, 142 U.S. 682,12 Ct. 327, 35 L. Ed., 1157.)
Where plaintiff, his brother, and another agreed to become owners of a single tract of realty, holding as
tenants in common, and to divide the profits of disposing of it, the brother and the other not being entitled
to share in plaintiffs commission, no partnership existed as between the three parties, whatever their
relation may have been as to third parties. (Magee vs. Magee 123 N.E. 673, 233 Mass. 341.)
In order to constitute a partnership inter sese there must be: (a) An intent to form the same; (b) generally
participating in both profits and losses; (c) and such a community of interest, as far as third persons are
concerned as enables each party to make contract, manage the business, and dispose of the whole
property.-Municipal Paving Co. vs. Herring 150 P. 1067, 50 III 470.)
The common ownership of property does not itself create a partnership between the owners, though
they may use it for the purpose of making gains; and they may, without becoming partners, agree among
themselves as to the management, and use of such property and the application of the proceeds
therefrom. (Spurlock vs. Wilson, 142 S.W. 363,160 No. App. 14.) 6
The sharing of returns does not in itself establish a partnership whether or not the persons sharing therein
have a joint or common right or interest in the property. There must be a clear intent to form a partnership,
the existence of a juridical personality different from the individual partners, and the freedom of each
party to transfer or assign the whole property.
In the present case, there is clear evidence of co-ownership between the petitioners. There is no
adequate basis to support the proposition that they thereby formed an unregistered partnership. The two
isolated transactions whereby they purchased properties and sold the same a few years thereafter did
not thereby make them partners. They shared in the gross profits as co- owners and paid their capital
gains taxes on their net profits and availed of the tax amnesty thereby. Under the circumstances, they
cannot be considered to have formed an unregistered partnership which is thereby liable for corporate
income tax, as the respondent commissioner proposes.
And even assuming for the sake of argument that such unregistered partnership appears to have been
formed, since there is no such existing unregistered partnership with a distinct personality nor with assets
that can be held liable for said deficiency corporate income tax, then petitioners can be held individually
liable as partners for this unpaid obligation of the partnership p. 7 However, as petitioners have availed
of the benefits of tax amnesty as individual taxpayers in these transactions, they are thereby relieved of
any further tax liability arising therefrom.
WHEREFROM, the petition is hereby GRANTED and the decision of the respondent Court of Tax
Appeals of March 30, 1987 is hereby REVERSED and SET ASIDE and another decision is hereby
rendered relieving petitioners of the corporate income tax liability in this case, without pronouncement
as to costs.

G.R. No. 101847 May 27, 1993

LOURDES NAVARRO AND MENARDO NAVARRO, petitioners, vs.COURT OF APPEALS, JUDGE
BETHEL KATALBAS-MOSCARDON, Presiding Judge, Regional Trial Court of Bacolod City,
Branch 52, Sixth Judicial Region and Spouses OLIVIA V. YANSON AND RICARDO B. YANSON
Assailed and sought to be set aside by the petition before us is the Resolution of the Court of Appeals
dated June 20, 1991 which dismissed the petition for annulment of judgment filed by the Spouses
Lourdes and Menardo Navarro, thusly:

The instant petition for annulment of decision is DISMISSED.

1. Judgments may be annulled only on the ground of extrinsic or collateral fraud, as distinguished from
intrinsic fraud (Canlas vs. Court of Appeals, 164 SCRA 160, 170). No such ground is alleged in the
petition.
2. Even if the judgment rendered by the respondent Court were erroneous, it is not necessarily void
(Chereau vs. Fuentebella, 43 Phil. 216). Hence, it cannot be annulled by the proceeding sought to be
commenced by the petitioners.
3. The petitioners' remedy against the judgment enforcement of which is sought to be stopped should
have been appeal.
SO ORDERED. (pp. 24-25, Rollo.)
The antecedent facts of the case are as follows: On July 23, 1976, herein private respondent Olivia V.
Yanson filed a complaint against petitioner Lourdes Navarro for "Delivery of Personal Properties With
Damages". The complaint incorporated an application for a writ of replevin. The complaint was later
docketed as Civil Case No. 716 (12562) of the then Court of First Instance of Bacolod (Branch 55) and
was subsequently amended to include private respondent's husband, Ricardo B. Yanson, as co-plaintiff,
and petitioner's husband, as co-defendant.
On July 27, 1976, then Executive Judge Oscar R. Victoriano (later to be promoted and to retire as
Presiding Justice of the Court of Appeals) approved private respondents' application for a writ of replevin.
The Sheriff's Return of Service dated March 3, 1978 affirmed receipt by private respondents of all pieces
of personal property sought to be recovered from petitioners.
On April 30, 1990, Presiding Judge Bethel Katalbas-Moscardon rendered a decision, disposing as
follows :
Accordingly, in the light of the aforegoing findings, all chattels already recovered by plaintiff by virtue of
the Writ of Replevin and as listed in the complaint are hereby sustained to belong to plaintiff being the
owner of these properties; the motor vehicle, particularly that Ford Fiera Jeep registered in and which
had remain in the possession of the defendant is likewise declared to belong to her, however, said
defendant is hereby ordered to reimburse plaintiff the sum of P6,500.00 representing the amount
advanced to pay part of the price therefor; and said defendant is likewise hereby ordered to return to
plaintiff such other equipment[s] as were brought by the latter to and during the operation of their
business as were listed in the complaint and not recovered as yet by virtue of the previous Writ of
Replevin. (p. 12, Rollo.) Petitioner received a copy of the decision on January 10, 1991 (almost 9 months
after its rendition) and filed on January 16, 1991 a "Motion for Extension of Time To File a Motion for
Reconsideration". This was granted on January 18, 1991. Private respondents filed their
opposition, citing the ruling in the case of Habaluyas Enterprises, Inc. vs. Japson (142 SCRA 208
[1986]) proscribing the filing of any motion for extension of time to file a motion for a new trial or
reconsideration. The trial judge vacated the order dated January 18, 1991 and declared the decision of
April 30, 1990 as final and executory. (Petitioners' motion for reconsideration was subsequently filed on
February 1, 1991 or 22 days after the receipt of the decision). On February 4, 1991, the trial court issued
a writ of execution (Annex "5", p. 79, Rollo). The Sheriff's Return of Service (Annex "6", p. 82, Rollo)
declared that the writ was "duly served and satisfied". A receipt for the amount of P6,500.00 issued by
Mrs. Lourdes Yanson, co-petitioner in this case, was likewise submitted by the Sheriff (Annex "7", p.
83, Rollo). On June 26, 1991, petitioners filed with respondent court a petition for annulment of the trial
court's decision, claiming that the trial judge erred in declaring the non-existence of a partnership,
contrary to the evidence on record. The appellate court, as aforesaid, outrightly dismissed the petition
due to absence of extrinsic or collateral fraud, observing further that an appeal was the proper remedy.
In the petition before us, petitioners claim that the trial judge ignored evidence that would show that the
parties "clearly intended to form, and (in fact) actually formed a verbal partnership engaged in the
business of Air Freight Service Agency in Bacolod"; and that the decision sustaining the writ of replevin
is void since the properties belonging to the partnership do not actually belong to any of the parties until
the final disposition and winding up of the partnership" (p. 15, Rollo). These issues, however, were
extensively discussed by the trial judge in her 16-page, single-spaced decision.
We agree with respondents that the decision in this case has become final. In fact a writ of execution
had been issued and was promptly satisfied by the payment of P6,500.00 to private respondents.
Having lost their right to appeal, petitioners resorted to annulment proceedings to justify a belated judicial
review of their case. This was, however, correctly thrown out by the Court of Appeals because petitioners
failed to cite extrinsic or collateral fraud to warrant the setting aside of the trial court's decision. We
respect the appellate court's finding in this regard.
Petitioners have come to us in a petition for review. However, the petition is focused solely on factual
issues which can no longer be entertained. Petitioners' arguments are all directed against the decision
of the regional trial court; not a word is said in regard to the appellate's court disposition of their petition
for annulment of judgment. Verily, petitioners keeps on pressing that the idea of a partnership exists on
account of the so-called admissions in judicio. But the factual premises of the trial court were more than
enough to suppress and negate petitioners submissions along this line:
To be resolved by this Court factually involved in the issue of whether there was a partnership that
existed between the parties based on their verbal contention; whether the properties that were commonly
used in the operation of Allied Air Freight belonged to the alleged partnership business; and the status
of the parties in this transaction of alleged partnership. On the other hand, the legal issues revolves on
the dissolution and winding up in case a partnership so existed as well as the issue of ownership over
the properties subject matter of recovery.
As a premise, Article 1767 of the New Civil Code defines the contract of partnership to quote:
Art. 1767. By the contract of partnership two or more persons bind themselves to contribute money,
property, or industry to a common fund, with the intention of dividing the proceeds among themselves.
xxx xxx xxx
Corollary to this definition is the provision in determining whether a partnership exist as so provided
under Article 1769, to wit:
xxx xxx xxx
Furthermore, the Code provides under Article 1771 and 1772 that while a partnership may be constituted
in any form, a public instrument is necessary where immovables or any rights is constituted. Likewise, if
the partnership involves a capitalization of P3,000.00 or more in money or property, the same must
appear in a public instrument which must be recorded in the Office of the Securities and Exchange
Commission. Failure to comply with these requirements shall only affect liability of the partners to third
persons.

In consideration of the above, it is undeniable that both the plaintiff and the defendant-wife made
admission to have entered into an agreement of operating this Allied Air Freight Agency of which the
plaintiff personally constituted with the Manila Office in a sense that the plaintiff did supply the necessary
equipments and money while her brother Atty. Rodolfo Villaflores was the Manager and the defendant
the Cashier. It was also admitted that part of this agreement was an equal sharing of whatever proceeds
realized. Consequently, the plaintiff brought into this transaction certain chattels in compliance with her
obligation. The same has been done by the herein brother and the herein defendant who started to work
in the business. A cursory examination of the evidences presented no proof that a partnership, whether
oral or written had been constituted at the inception of this transaction. True it is that even up to the filing
of this complaint those movables brought by the plaintiff for the use in the operation of the business
remain registered in her name. While there may have been co-ownership or co-possession of some
items and/or any sharing of proceeds by way of advances received by both plaintiff and the defendant,
these are not indicative and supportive of the existence of any partnership between them. Article 1769
of the New Civil Code is explicit. Even the books and records retrieved by the Commissioner appointed
by the Court did not show proof of the existence of a partnership as conceptualized by law. Such that if
assuming that there were profits realized in 1975 after the two-year deficits were compensated, this
could only be subject to an equal sharing consonant to the agreement to equally divide any profit realized.
However, this Court cannot overlook the fact that the Audit Report of the appointed Commissioner was
not highly reliable in the sense that it was more of his personal estimate of what is available on hand.
Besides, the alleged profits was a difference found after valuating the assets and not arising from the
real operation of the business. In accounting procedures, strictly, this could not be profit but a net worth.

In view of the above factual findings of the Court it follows inevitably therefore that there being no
partnership that existed, any dissolution, liquidation or winding up is beside the point. The plaintiff himself
had summarily ceased from her contract of agency and it is a personal prerogative to desist. On the
other hand, the assumption by the defendant in negotiating for herself the continuance of the Agency
with the principal in Manila is comparable to plaintiff's. Any account of plaintiff with the principal as
alleged, bore no evidence as no collection was ever demanded of from her. The alleged P20,000.00
assumption specifically, as would have been testified to by the defendant's husband remain a mere
allegation.
As to the properties sought to be recovered, the Court sustains the possession by plaintiff of all
equipments and chattels recovered by virtue of the Writ of Replevin. Considering the other vehicle which
appeared registered in the name of the defendant, and to which even she admitted that part of the
purchase price came from the business claimed mutually operated, although the Court have not as much
considered all entries in the Audit Report as totally reliable to be sustained insofar as the operation of
the business is concerned, nevertheless, with this admission of the defendant and the fact that as borne
out in said Report there has been disbursed and paid for in this vehicle out of the business funds in the
total sum of P6,500.00, it is only fitting and proper that validity of these disbursements must be sustained
as true (Exhs. M-1 to M-3, p. 180, Records). In this connection and taking into account the earlier
agreement that only profits were to be shared equally, the plaintiff must be reimbursed of this cost if only
to allow the defendant continuous possession of the vehicle in question. It is a fundamental moral, moral
and civil injunction that no one shall enrich himself at the expense of another. (pp. 71-75, Rollo.) Withal,
the appellate court acted properly in dismissing the petition for annulment of judgment, the issue raised
therein having been directly litigated in, and passed upon by, the trial court.
WHEREFORE, the petition is DISMISSED. The Resolution of the Court of Appeals dated June 20, 1991
is AFFIRMED in all respects.
No special pronouncement is made as to costs.

4. Obillos vs CIR 139 SCRA 436 1985

JOSE P. OBILLOS, JR., SARAH P. OBILLOS, ROMEO P. OBILLOS and REMEDIOS P. OBILLOS,
brothers and sisters, petitioners
vs.COMMISSIONER OF INTERNAL REVENUE and COURT OF TAX APPEALS,

This case is about the income tax liability of four brothers and sisters who sold two parcels of land which
they had acquired from their father.
On March 2, 1973 Jose Obillos, Sr. completed payment to Ortigas & Co., Ltd. on two lots with areas of
1,124 and 963 square meters located at Greenhills, San Juan, Rizal. The next day he transferred his
rights to his four children, the petitioners, to enable them to build their residences. The company sold the
two lots to petitioners for P178,708.12 on March 13 (Exh. A and B, p. 44, Rollo). Presumably, the Torrens
titles issued to them would show that they were co-owners of the two lots.
In 1974, or after having held the two lots for more than a year, the petitioners resold them to the Walled
City Securities Corporation and Olga Cruz Canda for the total sum of P313,050 (Exh. C and D). They
derived from the sale a total profit of P134,341.88 or P33,584 for each of them. They treated the profit
as a capital gain and paid an income tax on one-half thereof or of P16,792.
In April, 1980, or one day before the expiration of the five-year prescriptive period, the Commissioner of
Internal Revenue required the four petitioners to pay corporate income tax on the total profit of P134,336
in addition to individual income tax on their shares thereof He assessed P37,018 as corporate income
tax, P18,509 as 50% fraud surcharge and P15,547.56 as 42% accumulated interest, or a total
of P71,074.56.
Not only that. He considered the share of the profits of each petitioner in the sum of P33,584 as a "
taxable in full (not a mere capital gain of which is taxable) and required them to pay deficiency income
taxes aggregating P56,707.20 including the 50% fraud surcharge and the accumulated interest.
Thus, the petitioners are being held liable for deficiency income taxes and penalties totalling P127,781.76
on their profit of P134,336, in addition to the tax on capital gains already paid by them.
The Commissioner acted on the theory that the four petitioners had formed an unregistered partnership
or joint venture within the meaning of sections 24(a) and 84(b) of the Tax Code (Collector of Internal
Revenue vs. Batangas Trans. Co., 102 Phil. 822).
The petitioners contested the assessments. Two Judges of the Tax Court sustained the same. Judge
Roaquin dissented. Hence, the instant appeal.
We hold that it is error to consider the petitioners as having formed a partnership under article 1767 of
the Civil Code simply because they allegedly contributed P178,708.12 to buy the two lots, resold the
same and divided the profit among themselves.
To regard the petitioners as having formed a taxable unregistered partnership would result in oppressive
taxation and confirm the dictum that the power to tax involves the power to destroy. That eventuality
should be obviated.
As testified by Jose Obillos, Jr., they had no such intention. They were co-owners pure and simple. To
consider them as partners would obliterate the distinction between a co-ownership and a partnership.
The petitioners were not engaged in any joint venture by reason of that isolated transaction.
Their original purpose was to divide the lots for residential purposes. If later on they found it not feasible
to build their residences on the lots because of the high cost of construction, then they had no choice
but to resell the same to dissolve the co-ownership. The division of the profit was merely incidental to
the dissolution of the co-ownership which was in the nature of things a temporary state. It had to be
terminated sooner or later. Castan Tobeas says:

Article 1769(3) of the Civil Code provides that "the sharing of gross returns does not of itself establish a
partnership, whether or not the persons sharing them have a joint or common right or interest in any
property from which the returns are derived". There must be an unmistakable intention to form a
partnership or joint venture.* Such intent was present in Gatchalian vs. Collector of Internal Revenue,
67 Phil. 666, where 15 persons contributed small amounts to purchase a two-peso sweepstakes ticket
with the agreement that they would divide the prize The ticket won the third prize of P50,000. The 15
persons were held liable for income tax as an unregistered partnership.
The instant case is distinguishable from the cases where the parties engaged in joint ventures for profit.
Thus, in Oa vs.
** This view is supported by the following rulings of respondent Commissioner:

Co-owership distinguished from partnership.We find that the case at bar is fundamentally similar to
the De Leon case. Thus, like the De Leon heirs, the Longa heirs inherited the 'hacienda' in question pro
indiviso from their deceased parents; they did not contribute or invest additional ' capital to increase or
expand the inherited properties; they merely continued dedicating the property to the use to which it had
been put by their forebears; they individually reported in their tax returns their corresponding shares in
the income and expenses of the 'hacienda', and they continued for many years the status of co-
ownership in order, as conceded by respondent, 'to preserve its (the 'hacienda') value and to continue
the existing contractual relations with the Central Azucarera de Bais for milling purposes. Longa vs.
Aranas, CTA Case No. 653, July 31, 1963).

All co-ownerships are not deemed unregistered pratnership.Co-Ownership who own properties which
produce income should not automatically be considered partners of an unregistered partnership,or a
corporation, within the purview of the income tax law. To hold otherwise, would be to subject the income
of all co-ownerships of inherited properties to the tax on corporations, inasmuch as if a property does
not produce an income at all, it is not subject to any kind of income tax, whether the income tax on
individuals or the income tax on corporation. (De Leon vs. CI R, CTA Case No. 738, September 11,
1961, cited in Araas, 1977 Tax Code Annotated, Vol. 1, 1979 Ed., pp. 77-78). Commissioner of Internal
Revenue, L-19342, May 25, 1972, 45 SCRA 74, where after an extrajudicial settlement the co-heirs used
the inheritance or the incomes derived therefrom as a common fund to produce profits for themselves,
it was held that they were taxable as an unregistered partnership.
It is likewise different from Reyes vs. Commissioner of Internal Revenue, 24 SCRA 198, where father
and son purchased a lot and building, entrusted the administration of the building to an administrator and
divided equally the net income, and from Evangelista vs. Collector of Internal Revenue, 102 Phil. 140,
where the three Evangelista sisters bought four pieces of real property which they leased to various
tenants and derived rentals therefrom. Clearly, the petitioners in these two cases had formed an
unregistered partnership.
In the instant case, what the Commissioner should have investigated was whether the father donated
the two lots to the petitioners and whether he paid the donor's tax (See Art. 1448, Civil Code). We are
not prejudging this matter. It might have already prescribed.
WHEREFORE, the judgment of the Tax Court is reversed and set aside. The assessments are cancelled.
No costs.

5. Ona vs CIR 45 SCRA 74 1972

LORENZO T. OA and HEIRS OF JULIA BUALES, namely: RODOLFO B. OA, MARIANO B.
OA, LUZ B. OA, VIRGINIA B. OA and LORENZO B. OA, JR., vs. THE COMMISSIONER OF
INTERNAL REVENUE,

Petition for review of the decision of the Court of Tax Appeals in CTA Case No. 617, similarly entitled as
above, holding that petitioners have constituted an unregistered partnership and are, therefore, subject
to the payment of the deficiency corporate income taxes assessed against them by respondent
Commissioner of Internal Revenue for the years 1955 and 1956 in the total sum of P21,891.00, plus 5%
surcharge and 1% monthly interest from December 15, 1958, subject to the provisions of Section 51 (e)
(2) of the Internal Revenue Code, as amended by Section 8 of Republic Act No. 2343 and the costs of
the suit,1 as well as the resolution of said court denying petitioners' motion for reconsideration of said
decision.
The facts are stated in the decision of the Tax Court as follows: Julia Buales died on March 23, 1944,
leaving as heirs her surviving spouse, Lorenzo T. Oa and her five children. In 1948, Civil Case No.
4519 was instituted in the Court of First Instance of Manila for the settlement of her estate. Later, Lorenzo
T. Oa the surviving spouse was appointed administrator of the estate of said deceased (Exhibit 3, pp.
34-41, BIR rec.). On April 14, 1949, the administrator submitted the project of partition, which was
approved by the Court on May 16, 1949 (See Exhibit K). Because three of the heirs, namely Luz, Virginia
and Lorenzo, Jr., all surnamed Oa, were still minors when the project of partition was approved, Lorenzo
T. Oa, their father and administrator of the estate, filed a petition in Civil Case No. 9637 of the Court of
First Instance of Manila for appointment as guardian of said minors. On November 14, 1949, the Court
appointed him guardian of the persons and property of the aforenamed minors (See p. 3, BIR rec.). The
project of partition (Exhibit K; see also pp. 77-70, BIR rec.) shows that the heirs have undivided one-half
(1/2) interest in ten parcels of land with a total assessed value of P87,860.00, six houses with a total
assessed value of P17,590.00 and an undetermined amount to be collected from the War Damage
Commission. Later, they received from said Commission the amount of P50,000.00, more or less. This
amount was not divided among them but was used in the rehabilitation of properties owned by them in
common (t.s.n., p. 46). Of the ten parcels of land aforementioned, two were acquired after the death of
the decedent with money borrowed from the Philippine Trust Company in the amount of P72,173.00
(t.s.n., p. 24; Exhibit 3, pp. 31-34 BIR rec.).
(See Exhibits 3 & K t.s.n., pp. 22, 25-26, 40, 50, 102-104) From said investments and properties
petitioners derived such incomes as profits from installment sales of subdivided lots, profits from sales
of stocks, dividends, rentals and interests (see p. 3 of Exhibit 3; p. 32, BIR rec.; t.s.n., pp. 37-38). The
said incomes are recorded in the books of account kept by Lorenzo T. Oa where the corresponding
shares of the petitioners in the net income for the year are also known. Every year, petitioners returned
for income tax purposes their shares in the net income derived from said properties and securities and/or
from transactions involving them (Exhibit 3, supra; t.s.n., pp. 25-26). However, petitioners did not actually
receive their shares in the yearly income. (t.s.n., pp. 25-26, 40, 98, 100). The income was always left in
the hands of Lorenzo T. Oa who, as heretofore pointed out, invested them in real properties and
securities. (See Exhibit 3, t.s.n., pp. 50, 102-104)

On the basis of the foregoing facts, respondent (Commissioner of Internal Revenue) decided that
petitioners formed an unregistered partnership and therefore, subject to the corporate income tax,
pursuant to Section 24, in relation to Section 84(b), of the Tax Code. Accordingly, he assessed against
the petitioners the amounts of P8,092.00 and P13,899.00 as corporate income taxes for 1955 and 1956,
respectively. (See Exhibit 5, amended by Exhibit 17, pp. 50 and 86, BIR rec.). Petitioners protested
against the assessment and asked for reconsideration of the ruling of respondent that they have formed
an unregistered partnership. Finding no merit in petitioners' request, respondent denied it (See Exhibit
17, p. 86, BIR rec.). (See pp. 1-4, Memorandum for Respondent, June 12, 1961).

The original assessment was as follows:

1955 Net income as per investigation ................ P40,209.89

Income tax due thereon ................... 8,042.00

25% surcharge .......................... 2,010.50
Compromise for non-filing ............. 50.00
Total ..................................... P10,102.50
1956
Net income as per investigation ... P69,245.23
Income tax due thereon ............. 13,849.00
25% surcharge .......................... 3,462.25
Compromise for non-filing .............. 50.00
Total .............................................. P17,361.25
(See Exhibit 13, page 50, BIR records)
Upon further consideration of the case, the 25% surcharge was eliminated in line with the ruling of the
Supreme Court in Collector v. Batangas Transportation Co., G.R. No. L-9692, Jan. 6, 1958, so that the
questioned assessment refers solely to the income tax proper for the years 1955 and 1956 and the
"Compromise for non filing," the latter item obviously referring to the compromise in lieu of the criminal
liability for failure of petitioners to file the corporate income tax returns for said years. (See Exh. 17, page
86, BIR records). (Pp. 1-3, Annex C to Petition)
Petitioners have assigned the following as alleged errors of the Tax Court:
I.
THE COURT OF TAX APPEALS ERRED IN HOLDING THAT THE PETITIONERS FORMED AN
UNREGISTERED PARTNERSHIP;
II.
THE COURT OF TAX APPEALS ERRED IN NOT HOLDING THAT THE PETITIONERS WERE CO-
OWNERS OF THE PROPERTIES INHERITED AND (THE) PROFITS DERIVED FROM
TRANSACTIONS THEREFROM (sic);
III.
THE COURT OF TAX APPEALS ERRED IN HOLDING THAT PETITIONERS WERE LIABLE FOR
CORPORATE INCOME TAXES FOR 1955 AND 1956 AS AN UNREGISTERED PARTNERSHIP;
IV.
ON THE ASSUMPTION THAT THE PETITIONERS CONSTITUTED AN UNREGISTERED
PARTNERSHIP, THE COURT OF TAX APPEALS ERRED IN NOT HOLDING THAT THE
PETITIONERS WERE AN UNREGISTERED PARTNERSHIP TO THE EXTENT ONLY THAT THEY
INVESTED THE PROFITS FROM THE PROPERTIES OWNED IN COMMON AND THE LOANS
RECEIVED USING THE INHERITED PROPERTIES AS COLLATERALS;
V.
ON THE ASSUMPTION THAT THERE WAS AN UNREGISTERED PARTNERSHIP, THE COURT OF
TAX APPEALS ERRED IN NOT DEDUCTING THE VARIOUS AMOUNTS PAID BY THE PETITIONERS
AS INDIVIDUAL INCOME TAX ON THEIR RESPECTIVE SHARES OF THE PROFITS ACCRUING
FROM THE PROPERTIES OWNED IN COMMON, FROM THE DEFICIENCY TAX OF THE
UNREGISTERED PARTNERSHIP.
In other words, petitioners pose for our resolution the following questions: (1) Under the facts found by
the Court of Tax Appeals, should petitioners be considered as co-owners of the properties inherited by
them from the deceased Julia Buales and the profits derived from transactions involving the same, or,
must they be deemed to have formed an unregistered partnership subject to tax under Sections 24 and
84(b) of the National Internal Revenue Code? (2) Assuming they have formed an unregistered
partnership, should this not be only in the sense that they invested as a common fund the profits earned
by the properties owned by them in common and the loans granted to them upon the security of the said
properties, with the result that as far as their respective shares in the inheritance are concerned, the total
income thereof should be considered as that of co-owners and not of the unregistered partnership? And
(3) assuming again that they are taxable as an unregistered partnership, should not the various amounts
already paid by them for the same years 1955 and 1956 as individual income taxes on their respective
shares of the profits accruing from the properties they owned in common be deducted from the deficiency
corporate taxes, herein involved, assessed against such unregistered partnership by the respondent
Commissioner?
Pondering on these questions, the first thing that has struck the Court is that whereas petitioners'
predecessor in interest died way back on March 23, 1944 and the project of partition of her estate was
judicially approved as early as May 16, 1949, and presumably petitioners have been holding their
respective shares in their inheritance since those dates admittedly under the administration or
management of the head of the family, the widower and father Lorenzo T. Oa, the assessment in
question refers to the later years 1955 and 1956. We believe this point to be important because,
apparently, at the start, or in the years 1944 to 1954, the respondent Commissioner of Internal Revenue
did treat petitioners as co-owners, not liable to corporate tax, and it was only from 1955 that he
considered them as having formed an unregistered partnership. At least, there is nothing in the record
indicating that an earlier assessment had already been made. Such being the case, and We see no
reason how it could be otherwise, it is easily understandable why petitioners' position that they are co-
owners and not unregistered co-partners, for the purposes of the impugned assessment, cannot be
upheld. Truth to tell, petitioners should find comfort in the fact that they were not similarly assessed
earlier by the Bureau of Internal Revenue.
The Tax Court found that instead of actually distributing the estate of the deceased among themselves
pursuant to the project of partition approved in 1949, "the properties remained under the management
of Lorenzo T. Oa who used said properties in business by leasing or selling them and investing the
income derived therefrom and the proceed from the sales thereof in real properties and securities," as a
result of which said properties and investments steadily increased yearly from P87,860.00 in "land
account" and P17,590.00 in "building account" in 1949 to P175,028.68 in "investment account,"
P135.714.68 in "land account" and P169,262.52 in "building account" in 1956. And all these became
possible because, admittedly, petitioners never actually received any share of the income or profits from
Lorenzo T. Oa and instead, they allowed him to continue using said shares as part of the common fund
for their ventures, even as they paid the corresponding income taxes on the basis of their respective
shares of the profits of their common business as reported by the said Lorenzo T. Oa.
It is thus incontrovertible that petitioners did not, contrary to their contention, merely limit themselves to
holding the properties inherited by them. Indeed, it is admitted that during the material years herein
involved, some of the said properties were sold at considerable profit, and that with said profit, petitioners
engaged, thru Lorenzo T. Oa, in the purchase and sale of corporate securities. It is likewise admitted
that all the profits from these ventures were divided among petitioners proportionately in accordance
with their respective shares in the inheritance. In these circumstances, it is Our considered view that
from the moment petitioners allowed not only the incomes from their respective shares of the inheritance
but even the inherited properties themselves to be used by Lorenzo T. Oa as a common fund in
undertaking several transactions or in business, with the intention of deriving profit to be shared by them
proportionally, such act was tantamonut to actually contributing such incomes to a common fund and, in
effect, they thereby formed an unregistered partnership within the purview of the above-mentioned
provisions of the Tax Code.
It is but logical that in cases of inheritance, there should be a period when the heirs can be considered
as co-owners rather than unregistered co-partners within the contemplation of our corporate tax laws
aforementioned. Before the partition and distribution of the estate of the deceased, all the income thereof
does belong commonly to all the heirs, obviously, without them becoming thereby unregistered co-
partners, but it does not necessarily follow that such status as co-owners continues until the inheritance
is actually and physically distributed among the heirs, for it is easily conceivable that after knowing their
respective shares in the partition, they might decide to continue holding said shares under the common
management of the administrator or executor or of anyone chosen by them and engage in business on
that basis. Withal, if this were to be allowed, it would be the easiest thing for heirs in any inheritance to
circumvent and render meaningless Sections 24 and 84(b) of the National Internal Revenue Code.
It is true that in Evangelista vs. Collector, 102 Phil. 140, it was stated, among the reasons for holding the
appellants therein to be unregistered co-partners for tax purposes, that their common fund "was not
something they found already in existence" and that "it was not a property inherited by them pro indiviso,"
but it is certainly far fetched to argue therefrom, as petitioners are doing here, that ergo, in all instances
where an inheritance is not actually divided, there can be no unregistered co-partnership. As already
indicated, for tax purposes, the co-ownership of inherited properties is automatically converted into an
unregistered partnership the moment the said common properties and/or the incomes derived therefrom
are used as a common fund with intent to produce profits for the heirs in proportion to their respective
shares in the inheritance as determined in a project partition either duly executed in an extrajudicial
settlement or approved by the court in the corresponding testate or intestate proceeding. The reason for
this is simple. From the moment of such partition, the heirs are entitled already to their respective definite
shares of the estate and the incomes thereof, for each of them to manage and dispose of as exclusively
his own without the intervention of the other heirs, and, accordingly he becomes liable individually for all
taxes in connection therewith. If after such partition, he allows his share to be held in common with his
co-heirs under a single management to be used with the intent of making profit thereby in proportion to
his share, there can be no doubt that, even if no document or instrument were executed for the purpose,
for tax purposes, at least, an unregistered partnership is formed. This is exactly what happened to
petitioners in this case.
In this connection, petitioners' reliance on Article 1769, paragraph (3), of the Civil Code, providing that:
"The sharing of gross returns does not of itself establish a partnership, whether or not the persons
sharing them have a joint or common right or interest in any property from which the returns are derived,"
and, for that matter, on any other provision of said code on partnerships is unavailing.
In Evangelista, supra, this Court clearly differentiated the concept of partnerships under the Civil Code
from that of unregistered partnerships which are considered as "corporations" under Sections 24 and
84(b) of the National Internal Revenue Code. Mr. Justice Roberto Concepcion, now Chief Justice,
elucidated on this point thus:

To begin with, the tax in question is one imposed upon "corporations", which, strictly speaking, are
distinct and different from "partnerships". When our Internal Revenue Code includes "partnerships"
among the entities subject to the tax on "corporations", said Code must allude, therefore, to organizations
which are not necessarily "partnerships", in the technical sense of the term. Thus, for instance, section
24 of said Code exempts from the aforementioned tax "duly registered general partnerships," which
constitute precisely one of the most typical forms of partnerships in this jurisdiction. Likewise, as defined
in section 84(b) of said Code, "the term corporation includes partnerships, no matter how created or
organized." This qualifying expression clearly indicates that a joint venture need not be undertaken in
any of the standard forms, or in confirmity with the usual requirements of the law on partnerships, in
order that one could be deemed constituted for purposes of the tax on corporation. Again, pursuant to
said section 84(b),the term "corporation" includes, among others, "joint accounts,(cuentas en
participacion)" and "associations", none of which has a legal personality of its own, independent of that
of its members. Accordingly, the lawmaker could not have regarded that personality as a condition
essential to the existence of the partnerships therein referred to. In fact, as above stated, "duly registered
general co-partnerships" which are possessed of the aforementioned personality have been
expressly excluded by law (sections 24 and 84[b]) from the connotation of the term "corporation." ....
xxx xxx xxx
Similarly, the American Law
provides its own concept of a partnership. Underthe term "partnership" it includes not only a partnership
as known in common law but, as well, a syndicate, group, pool, joint venture, or other unincorporated
organization which carries on any business, financial operation, or venture, and which is not, within the
meaning of the Code, a trust, estate, or a corporation. ... . (7A Merten's Law of Federal Incoe Taxation,
p. 789; emphasis ours.)
The term "partnership" includes a syndicate, group,pool, joint venture or other unincorporated
organization, through or by means of which any business, financial operat on, or venture is carried on.
... . (8 Merten's Law of Federal Income Taxation, p. 562 Note 63; emphasis ours.)
For purposes of the tax on corporations, our National Internal Revenue Code includes these
partnerships with the exception only of duly registered general copartnerships within the purview
of the term "corporation." It is, therefore, clear to our mind that petitioners herein constitute a partnership,
insofar as said Code is concerned, and are subject to the income tax for corporations.
We reiterated this view, thru Mr. Justice Fernando, in Reyes vs. Commissioner of Internal Revenue, G.
R. Nos. L-24020-21, July 29, 1968, 24 SCRA 198, wherein the Court ruled against a theory of co-
ownership pursued by appellants therein.
As regards the second question rai
sed by petitioners about the segregation, for the purposes of the corporate taxes in question, of their
inherited properties from those acquired by them subsequently, We consider as justified the following
ratiocination of the Tax Court in denying their motion for reconsideration: In connection with the second
ground, it is alleged that, if there was an unregistered partnership, the holding should be limited to the
business engaged in apart from the properties inherited by petitioners. In other words, the taxable income
of the partnership should be limited to the income derived from the acquisition and sale of real properties
and corporate securities and should not include the income derived from the inherited properties. It is
admitted that the inherited properties and the income derived therefrom were used in the business of
buying and selling other real properties and corporate securities. Accordingly, the partnership income
must include not only the income derived from the purchase and sale of other properties but also the
income of the inherited properties.
Besides, as already observed earlier, the income derived from inherited properties may be considered
as individual income of the respective heirs only so long as the inheritance or estate is not distributed or,
at least, partitioned, but the moment their respective known shares are used as part of the common
assets of the heirs to be used in making profits, it is but proper that the income of such shares should be
considered as the part of the taxable income of an unregistered partnership. This, We hold, is the clear
intent of the law.
Likewise, the third question of petitioners appears to have been adequately resolved by the Tax Court
in the aforementioned resolution denying petitioners' motion for reconsideration of the decision of said
court. Pertinently, the court ruled this wise:
In support of the third ground, counsel for petitioners alleges:
Even if we were to yield to the decision of this Honoable Court that the herein petitioners have formed
an unregistered partnership and, there ore, have to be taxed as such, it might be recalled that the
petitioners in their individual income tax returns reported their shares of the profits of the unregistered
partn rship. We think it only fair and equitable that the various amounts paid by the individual petiti ners
as income tax on their respective shares of the unregistered partnership should be deducted from the
deficiency income tax found by this Honorable Court against the unreg stered partnership. (page 7, Mem
randum for the Petitioner in Support of Their Motion for Reconsideration, Oct. 28, 1961.)
In other words, it is the position of petitioners that the taxable income of the partnership must be reduced
by the amounts of income tax paid by each petitioner on his share of partnership profits. This is not
correct; rather, itshould be the other way around. The partnership profits distributable to the partners
(petitioners herein) should be reduced by the amounts of income tax assessed against the partnership.
Consequently, each of the petitioners in his individual capacity overpaid his income tax for the years in
question, but the income tax due from the partnership has been correctly assessed. Since the individual
income tax liabilities of petitioners are not in issue in this proceeding, it is not proper for the Court to pass
upon the same. Petitioners insist that it was error for the Tax Court to so rule that whatever excess they
might have paid as individual income tax cannot be credited as part payment of the taxes herein in
question. It is argued that to sanction the view of the Tax Court is to oblige petitioners to pay double
income tax on the same income, and, worse, considering the time that has lapsed since they paid their
individual income taxes, they may already be barred by prescription from recovering their overpayments
in a separate action. We do not agree. As We see it, the case of petitioners as regards the point under
discussion is simply that of a taxpayer who has paid the wrong tax, assuming that the failure to pay the
corporate taxes in question was not deliberate. Of course, such taxpayer has the right to be reimbursed
what he has erroneously paid, but the law is very clear that the claim and action for such reimbursement
are subject to the bar of prescription. And since the period for the recovery of the excess income taxes
in the case of herein petitioners has already lapsed, it would not seem right to virtually disregard
prescription merely upon the ground that the reason for the delay is precisely because the taxpayers
failed to make the proper return and payment of the corporate taxes legally due from them. In principle,
it is but proper not to allow any relaxation of the tax laws in favor of persons who are not exactly above
suspicion in their conduct vis-a-vis their tax obligation to the State.
IN VIEW OF ALL THE FOREGOING, the judgment of the Court of Tax Appeals appealed from is affirm
with costs against petitioners.
6. Gatchalian vs CIR 67 Phil 666 1939
JOSE GATCHALIAN, ET AL., plaintiffs-appellants, vs.THE COLLECTOR OF INTERNAL
REVENUE, defendant-appellee.

The plaintiff brought this action to recover from the defendant Collector of Internal Revenue the sum of
P1,863.44, with legal interest thereon, which they paid under protest by way of income tax. They
appealed from the decision rendered in the case on October 23, 1936 by the Court of First Instance of
the City of Manila, which dismissed the action with the costs against them.
The case was submitted for decision upon the following stipulation of facts:

Come now the parties to the above-mentioned case, through their respective undersigned attorneys,
and hereby agree to respectfully submit to this Honorable Court the case upon the following statement
of facts:
1. That plaintiff are all residents of the municipality of Pulilan, Bulacan, and that defendant is the Collector
of Internal Revenue of the Philippines;
2. That prior to December 15, 1934 plaintiffs, in order to enable them to purchase one sweepstakes ticket
valued at two pesos (P2), subscribed and paid therefor the amounts as follows:
1. Jose Gatchalian P0.18
2. Gregoria Cristobal. .18
3. Saturnina Silva .08
4. Guillermo Tapia .13
5. Jesus Legaspi .15
6. Jose Silva .07
7. Tomasa Mercado. .08
8. Julio Gatchalian .13
9. Emiliana Santiago .13
10. Maria C. Legaspi .16
11. Francisco Cabral .13
12. Gonzalo Javier .14
13. Maria Santiago .17
14. Buenaventura Guzman .13
15. Mariano Santos .14
Total
 2.00
3. That immediately thereafter but prior to December 15, 1934, plaintiffs purchased, in the ordinary
course of business, from one of the duly authorized agents of the National Charity Sweepstakes Office
one ticket bearing No. 178637 for the sum of two pesos (P2) and that the said ticket was registered in
the name of Jose Gatchalian and Company;

4. That as a result of the drawing of the sweepstakes on December 15, 1934, the above-mentioned ticket
bearing No. 178637 won one of the third prizes in the amount of P50,000 and that the corresponding
check covering the above-mentioned prize of P50,000 was drawn by the National Charity Sweepstakes
Office in favor of Jose Gatchalian & Company against the Philippine National Bank, which check was
cashed during the latter part of December, 1934 by Jose Gatchalian & Company;
5. That on December 29, 1934, Jose Gatchalian was required by income tax examiner Alfredo David to
file the corresponding income tax return covering the prize won by Jose Gatchalian & Company and that
on December 29, 1934, the said return was signed by Jose Gatchalian, a copy of which return is enclosed
as Exhibit A and made a part hereof;
6. That on January 8, 1935, the defendant made an assessment against Jose Gatchalian & Company
requesting the payment of the sum of P1,499.94 to the deputy provincial treasurer of Pulilan, Bulacan,
giving to said Jose Gatchalian & Company until January 20, 1935 within which to pay the said amount
of P1,499.94, a copy of which letter marked Exhibit B is enclosed and made a part hereof;
7. That on January 20, 1935, the plaintiffs, through their attorney, sent to defendant a reply, a copy of
which marked Exhibit C is attached and made a part hereof, requesting exemption from payment of the
income tax to which reply there were enclosed fifteen (15) separate individual income tax returns filed
separately by each one of the plaintiffs, copies of which returns are attached and marked Exhibit D-1 to
D-15, respectively, in order of their names listed in the caption of this case and made parts hereof; a
statement of sale signed by Jose Gatchalian showing the amount put up by each of the plaintiffs to cover
up the attached and marked as Exhibit E and made a part hereof; and a copy of the affidavit signed by
Jose Gatchalian dated December 29, 1934 is attached and marked Exhibit F and made part thereof;

That the defendant in his letter dated January 28, 1935, a copy of which marked Exhibit G is enclosed,
denied plaintiffs' request of January 20, 1935, for exemption from the payment of tax and reiterated his
demand for the payment of the sum of P1,499.94 as income tax and gave plaintiffs until February 10,
1935 within which to pay the said tax;
9. That in view of the failure of the plaintiffs to pay the amount of tax demanded by the defendant,
notwithstanding subsequent demand made by defendant upon the plaintiffs through their attorney on
March 23, 1935, a copy of which marked Exhibit H is enclosed, defendant on May 13, 1935 issued a
warrant of distraint and levy against the property of the plaintiffs, a copy of which warrant marked Exhibit
I is enclosed and made a part hereof;
10. That to avoid embarrassment arising from the embargo of the property of the plaintiffs, the said
plaintiffs on June 15, 1935, through Gregoria Cristobal, Maria C. Legaspi and Jesus Legaspi, paid under
protest the sum of P601.51 as part of the tax and penalties to the municipal treasurer of Pulilan, Bulacan,
as evidenced by official receipt No. 7454879 which is attached and marked Exhibit J and made a part
hereof, and requested defendant that plaintiffs be allowed to pay under protest the balance of the tax
and penalties by monthly installments;
11. That plaintiff's request to pay the balance of the tax and penalties was granted by defendant subject
to the condition that plaintiffs file the usual bond secured by two solvent persons to guarantee prompt
payment of each installments as it becomes due;
12. That on July 16, 1935, plaintiff filed a bond, a copy of which marked Exhibit K is enclosed and made
a part hereof, to guarantee the payment of the balance of the alleged tax liability by monthly installments
at the rate of P118.70 a month, the first payment under protest to be effected on or before July 31, 1935;
13. That on July 16, 1935 the said plaintiffs formally protested against the payment of the sum of
P602.51, a copy of which protest is attached and marked Exhibit L, but that defendant in his letter dated
August 1, 1935 overruled the protest and denied the request for refund of the plaintiffs;
14. That, in view of the failure of the plaintiffs to pay the monthly installments in accordance with the
terms and conditions of bond filed by them, the defendant in his letter dated July 23, 1935, copy of which
is attached and marked Exhibit M, ordered the municipal treasurer of Pulilan, Bulacan to execute within
five days the warrant of distraint and levy issued against the plaintiffs on May 13, 1935;
15. That in order to avoid annoyance and embarrassment arising from the levy of their property, the
plaintiffs on August 28, 1936, through Jose Gatchalian, Guillermo Tapia, Maria Santiago and Emiliano
Santiago, paid under protest to the municipal treasurer of Pulilan, Bulacan the sum of P1,260.93
representing the unpaid balance of the income tax and penalties demanded by defendant as evidenced
by income tax receipt No. 35811 which is attached and marked Exhibit N and made a part hereof; and
that on September 3, 1936, the plaintiffs formally protested to the defendant against the payment of said
amount and requested the refund thereof, copy of which is attached and marked Exhibit O and made
part hereof; but that on September 4, 1936, the defendant overruled the protest and denied the refund
thereof; copy of which is attached and marked Exhibit P and made a part hereof; and
16. That plaintiffs demanded upon defendant the refund of the total sum of one thousand eight hundred
and sixty three pesos and forty-four centavos (P1,863.44) paid under protest by them but that defendant
refused and still refuses to refund the said amount notwithstanding the plaintiffs' demands.

17. The parties hereto reserve the right to present other and additional evidence if necessary.
Exhibit E referred to in the stipulation is of the following tenor:
To whom it may concern:
I, Jose Gatchalian, a resident of Pulilan, Bulacan, married, of age, hereby certify, that on the 11th day of
August, 1934, I sold parts of my shares on ticket No. 178637 to the persons and for the amount indicated
below and the part of may share remaining is also shown to wit: ticket; and that, therefore, the persons
named above are entitled to the parts of whatever prize that might be won by said ticket.

Pulilan, Bulacan, P.I.

(Sgd.) JOSE GATCHALIAN
And a summary of Exhibits D-1 to D-15 is inserted in the bill of exceptions as follows:
RECAPITULATIONS OF 15 INDIVIDUAL INCOME TAX RETURNS FOR 1934 ALL DATED JANUARY
19, 1935 SUBMITTED TO THE COLLECTOR OF INTERNAL REVENUE.

The legal questions raised in plaintiffs-appellants' five assigned errors may properly be reduced to the
two following: (1) Whether the plaintiffs formed a partnership, or merely a community of property without
a personality of its own; in the first case it is admitted that the partnership thus formed is liable for the
payment of income tax, whereas if there was merely a community of property, they are exempt from
such payment; and (2) whether they should pay the tax collectively or whether the latter should be
prorated among them and paid individually.
The Collector of Internal Revenue collected the tax under section 10 of Act No. 2833, as last amended
by section 2 of Act No. 3761, reading as follows:
SEC. 10. (a) There shall be levied, assessed, collected, and paid annually upon the total net income
received in the preceding calendar year from all sources by every corporation, joint-stock company,
partnership, joint account (cuenta en participacion), association or insurance company, organized in the
Philippine Islands, no matter how created or organized, but not including duly registered general
copartnership (compaias colectivas), a tax of three per centum upon such income; and a like tax shall
be levied, assessed, collected, and paid annually upon the total net income received in the preceding
calendar year from all sources within the Philippine Islands by every corporation, joint-stock company,
partnership, joint account (cuenta en participacion), association, or insurance company organized,
authorized, or existing under the laws of any foreign country, including interest on bonds, notes, or other
interest-bearing obligations of residents, corporate or otherwise: Provided, however, That nothing in this
section shall be construed as permitting the taxation of the income derived from dividends or net profits
on which the normal tax has been paid.
The gain derived or loss sustained from the sale or other disposition by a corporation, joint-stock
company, partnership, joint account (cuenta en participacion), association, or insurance company, or
property, real, personal, or mixed, shall be ascertained in accordance with subsections (c) and (d) of
section two of Act Numbered Two thousand eight hundred and thirty-three, as amended by Act
Numbered Twenty-nine hundred and twenty-six.
The foregoing tax rate shall apply to the net income received by every taxable corporation, joint-stock
company, partnership, joint account (cuenta en participacion), association, or insurance company in the
calendar year nineteen hundred and twenty and in each year thereafter.
There is no doubt that if the plaintiffs merely formed a community of property the latter is exempt from
the payment of income tax under the law. But according to the stipulation facts the plaintiffs organized a
partnership of a civil nature because each of them put up money to buy a sweepstakes ticket for the sole
purpose of dividing equally the prize which they may win, as they did in fact in the amount of P50,000
(article 1665, Civil Code). The partnership was not only formed, but upon the organization thereof and
the winning of the prize, Jose Gatchalian personally appeared in the office of the Philippines Charity
Sweepstakes, in his capacity as co-partner, as such collection the prize, the office issued the check for
P50,000 in favor of Jose Gatchalian and company, and the said partner, in the same capacity, collected
the said check. All these circumstances repel the idea that the plaintiffs organized and formed a
community of property only.
Having organized and constituted a partnership of a civil nature, the said entity is the one bound to pay
the income tax which the defendant collected under the aforesaid section 10 (a) of Act No. 2833, as
amended by section 2 of Act No. 3761. There is no merit in plaintiff's contention that the tax should be
prorated among them and paid individually, resulting in their exemption from the tax.
In view of the foregoing, the appealed decision is affirmed, with the costs of this instance to the plaintiffs
appellants. So ordered.

7. Sardane vs CA 167 SCRA 524 1988

NOBIO SARDANE, , vs.THE COURT OF APPEALS and ROMEO J. ACOJEDO,

The extensive discussion and exhaustive disquisition in the decision 1 of the respondent Court 2 should
have written finis to this case without further recourse to Us. The assignment of errors and arguments
raised in the respondent Court by herein private respondent, as the petitioner therein, having been
correctly and justifiedly sustained by said court without any reversible error in its conclusions, the present
petition must fail.
The assailed decision details the facts and proceedings which spawned the present controversy as
follows:
Petitioner brought an action in the City Court of Dipolog for collection of a sum of P5,217.25 based on
promissory notes executed by the herein private respondent Nobio Sardane in favor of the herein
petitioner. Petitioner bases his right to collect on Exhibits B, C, D, E, F, and G executed on different
dates and signed by private respondent Nobio Sardane. Exhibit B is a printed promissory note involving
Pl,117.25 and dated May 13, 1972. Exhibit C is likewise a printed promissory note and denotes on its
face that the sum loaned was Pl,400.00. Exhibit D is also a printed promissory note dated May 31, 1977
involving an amount of P100.00. Exhibit E is what is commonly known to the layman as 'vale' which
reads: 'Good for: two hundred pesos (Sgd) Nobio Sardane'. Exhibit F is stated in the following tenor:
'Received from Mr. Romeo Acojedo the sum Pesos: Two Thousand Two Hundred (P2,200.00) ONLY,
to be paid on or before December 25, 1975. (Sgd) Nobio Sardane.' Exhibit G and H are both vales'
involving the same amount of one hundred pesos, and dated August 25, 1972 and September 12, 1972
respectively.

It has been established in the trial court that on many occasions, the petitioner demanded the payment
of the total amount of P5,217.25. The failure of the private respondent to pay the said amount prompted
the petitioner to seek the services of lawyer who made a letter (Exhibit 1) formally demanding the return
of the sum loaned. Because of the failure of the private respondent to heed the demands extrajudicially
made by the petitioner, the latter was constrained to bring an action for collection of sum of money.

During the scheduled day for trial, private respondent failed to appear and to file an answer. On motion
by the petitioner, the City Court of Dipolog issued an order dated May 18, 1976 declaring the private
respondent in default and allowed the petitioner to present his evidence ex-parte. Based on petitioner's
evidence, the City Court of Dipolog rendered judgment by default in favor of the petitioner.

Private respondent filed a motion to lift the order of default which was granted by the City Court in an
order dated May 24, 1976, taking into consideration that the answer was filed within two hours after the
hearing of the evidence presented ex-parte by the petitioner.

After the trial on the merits, the City Court of Dipolog rendered its decision on September 14, 1976, the
dispositive portion of which reads:
IN VIEW OF THE FOREGOING, judgment is hereby rendered in favor of the plaintiff and against the
defendant as follows:
(a) Ordering the defendant to pay unto the plaintiff the sum of Five Thousand Two Hundred Seventeen
Pesos and Twenty-five centavos (P5,217.25) plus legal interest to commence from April 23, 1976 when
this case was filed in court; and
(b) Ordering the defendant to pay the plaintiff the sum of P200.00 as attorney's fee and to pay the cost
of this proceeding. 3
Therein defendant Sardane appealed to the Court of First Instance of Zamboanga del Norte which
reversed the decision of the lower court by dismissing the complaint and ordered the plaintiff-appellee
Acojedo to pay said defendant-appellant P500.00 each for actual damages, moral damages, exemplary
damages and attorney's fees, as well as the costs of suit. Plaintiff-appellee then sought the review of
said decision by petition to the respondent Court.
The assignment of errors in said petition for review can be capsulized into two decisive issues, firstly,
whether the oral testimony for the therein private respondent Sardane that a partnership existed between
him and therein petitioner Acojedo are admissible to vary the meaning of the abovementioned
promissory notes; and, secondly, whether because of the failure of therein petitioner to cross-examine
therein private respondent on his sur-rebuttal testimony, there was a waiver of the presumption accorded
in favor of said petitioner by Section 8, Rule 8 of the Rules of Court.
On the first issue, the then Court of First Instance held that "the pleadings of the parties herein put in
issue the imperfection or ambiguity of the documents in question", hence "the appellant can avail of the
parol evidence rule to prove his side of the case, that is, the said amount taken by him from appellee is
or was not his personal debt to appellee, but expenses of the partnership between him and appellee."
Consequently, said trial court concluded that the promissory notes involved were merely receipts for the
contributions to said partnership and, therefore, upheld the claim that there was ambiguity in the
promissory notes, hence parol evidence was allowable to vary or contradict the terms of the represented
loan contract.
The parol evidence rule in Rule 130 provides:
Sec. 7. Evidence of written agreements.When the terms of an agreement have been reduced to
writing, it is to be considered as containing all such terms, and, therefore, there can be, between the
parties and their successors in interest, no evidence of the terms of the agreement other than the
contents of the writing except in the following cases:
(a) Where a mistake or imperfection of the writing or its failure to express the the true intent and
agreement of the parties, or the validity of the agreement is put in issue by the pleadings;
(b) When there is an intrinsic ambiguity in the writing.
As correctly pointed out by the respondent Court the exceptions to the rule do not apply in this case as
there is no ambiguity in the writings in question, thus:
In the case at bar, Exhibits B, C, and D are printed promissory notes containing a promise to pay a sum
certain in money, payable on demand and the promise to bear the costs of litigation in the event of the
private respondent's failure to pay the amount loaned when demanded extrajudicially. Likewise, the vales
denote that the private respondent is obliged to return the sum loaned to him by the petitioner. On their
face, nothing appears to be vague or ambigous, for the terms of the promissory notes clearly show that
it was incumbent upon the private respondent to pay the amount involved in the promissory notes if and
when the petitioner demands the same. It was clearly the intent of the parties to enter into a contract of
loan for how could an educated man like the private respondent be deceived to sign a promissory note
yet intending to make such a writing to be mere receipts of the petitioner's supposed contribution to the
alleged partnership existing between the parties?
It has been established in the trial court that, the private respondent has been engaged in business for
quite a long period of time--as owner of the Sardane Trucking Service, entering into contracts with the
government for the construction of wharfs and seawall; and a member of the City Council of Dapitan
(TSN, July 20, 1976, pp. 57-58 indeed puzzles us how the private respondent could have been misled
into signing a document containing terms which he did not mean them to be. ...
The private respondent admitted during the cross-examination made by petitioner's counsel that he was
the one who was responsible for the printing of Exhibits B, C, and D (TSN, July 28, 1976, p. 64). How
could he purportedly rely on such a flimsy pretext that the promissory notes were receipts of the
petitioner's contribution? 4

The Court of Appeals held, and We agree, that even if evidence aliunde other than the promissory notes
may be admitted to alter the meaning conveyed thereby, still the evidence is insufficient to prove that a
partnership existed between the private parties hereto.
As manager of the basnig Sarcado naturally some degree of control over the operations and
maintenance thereof had to be exercised by herein petitioner. The fact that he had received 50% of the
net profits does not conclusively establish that he was a partner of the private respondent herein. Article
1769(4) of the Civil Code is explicit that while the receipt by a person of a share of the profits of a business
is prima facie evidence that he is a partner in the business, no such inference shall be drawn if such
profits were received in payment as wages of an employee. Furthermore, herein petitioner had no voice
in the management of the affairs of the basnig. Under similar facts, this Court in the early case of Fortis
vs. Gutierrez Hermanos, 5 in denying the claim of the plaintiff therein that he was a partner in the
business of the defendant, declared:

This contention cannot be sustained. It was a mere contract of employment. The plaintiff had no voice
nor vote in the management of the affairs of the company. The fact that the compensation received by
him was to be determined with reference to the profits made by the defendant in their business did not
in any sense make him a partner therein. ...
The same rule was reiterated in Bastida vs. Menzi & Co., Inc., et al. 6 which involved the same factual
and legal milieu.

There are other considerations noted by respondent Court which negate herein petitioner's pretension
that he was a partner and not a mere employee indebted to the present private respondent. Thus, in an
action for damages filed by herein private respondent against the North Zamboanga Timber Co., Inc.
arising from the operations of the business, herein petitioner did not ask to be joined as a party plaintiff.
Also, although he contends that herein private respondent is the treasurer of the alleged partnership, yet
it is the latter who is demanding an accounting. The advertence of the Court of First Instance to the fact
that the casco bears the name of herein petitioner disregards the finding of the respondent Court that it
was just a concession since it was he who obtained the engine used in the Sardaco from the Department
of Local Government and Community Development. Further, the use by the parties of the pronoun "our"
in referring to "our basnig, our catch", "our deposit", or "our boseros" was merely indicative of the
camaraderie and not evidentiary of a partnership, between them.
The foregoing factual findings, which belie the further claim that the aforesaid promissory notes do not
express the true intent and agreement of the parties, are binding on Us since there is no showing that
they fall within the exceptions to the rule limiting the scope of appellate review herein to questions of law.
On the second issue, the pertinent rule on actionable documents in Rule 8, for ready reference, reads:

Sec. 8. How to contest genuineness of such documents.When an action or defense is founded upon
a written instrument, copied in or attached to the corresponding pleading as provided in the preceding
section, the genuineness and due execution of the instrument shall be deemed admitted unless the
adverse party, under oath, specifically denies them, and sets forth what he claims to be the facts; but
this provision does not apply when the adverse party does not appear to be a party to the instrument or
when compliance with an order for the inspection of the original instrument is refused.

The record shows that herein petitioner did not deny under oath in his answer the authenticity and due
execution of the promissory notes which had been duly pleaded and attached to the complaint, thereby
admitting their genuineness and due execution. Even in the trial court, he did not at all question the fact
that he signed said promissory notes and that the same were genuine. Instead, he presented parol
evidence to vary the import of the promissory notes by alleging that they were mere receipts of his
contribution to the alleged partnership.

His arguments on this score reflect a misapprehension of the rule on parol evidence as distinguished
from the rule on actionable documents. As the respondent Court correctly explained to herein petitioner,
what he presented in the trial Court was testimonial evidence that the promissory notes were receipts of
his supposed contributions to the alleged partnership which testimony, in the light of Section 7, Rule 130,
could not be admitted to vary or alter the explicit meaning conveyed by said promissory notes. On the
other hand, the presumed genuineness and due execution of said promissory notes were not affected,
pursuant to the provisions of Section 8, Rule 8, since such aspects were not at all questioned but, on the
contrary, were admitted by herein petitioner.
Petitioner's invocation of the doctrines in Yu Chuck, et al. vs. Kong Li Po, 7 which was reiterated
in Central Surety & Insurance Co. vs. C. N. Hodges, et al. 8 does not sustain his thesis that the herein
private respondent had "waived the mantle of protection given him by Rule 8, Sec. 8". It is true that such
implied admission of genuineness and due execution may be waived by a party but only if he acts in a
manner indicative of either an express or tacit waiver thereof. Petitioner, however, either overlooked or
ignored the fact that, as held in Yu Chuck, and the same is true in other cases of Identical factual settings,
such a finding of waiver is proper where a case has been tried in complete disregard of the rule and the
plaintiff having pleaded a document by copy, presents oral evidence to prove the due execution of the
document and no objections are made to the defendant's evidence in refutation. This situation does not
obtain in the present case hence said doctrine is obviously inapplicable.
Neither did the failure of herein private respondent to cross-examine herein petitioner on the latter's sur-
rebuttal testimony constitute a waiver of the aforesaid implied admission. As found by the respondent
Court, said sur-rebuttal testimony consisted solely of the denial of the testimony of herein private
respondent and no new or additional matter was introduced in that sur-rebuttal testimony to exonerate
herein petitioner from his obligations under the aforesaid promissory notes.
On the foregoing premises and considerations, the respondent Court correctly reversed and set aside
the appealed decision of the Court of First Instance of Zamboanga del Norte and affirmed in full the
decision of the City Court of Dipolog City in Civil Case No. A-1838, dated September 14, 1976.
Belatedly, in his motion for reconsideration of said decision of the respondent Court, herein petitioner,
as the private respondent therein, raised a third unresolved issue that the petition for review therein
should have been dismissed for lack of jurisdiction since the lower Court's decision did not affirm in full
the judgment of the City Court of Dipolog, and which he claimed was a sine qua non for such a petition
under the law then in force. He raises the same point in his present appeal and We will waive the
procedural technicalities in order to put this issue at rest.
Parenthetically, in that same motion for reconsideration he had sought affirmative relief from the
respondent Court praying that it sustain the decision of the trial Court, thereby invoking and submitting
to its jurisdiction which he would now assail. Furthermore, the objection that he raises is actually not one
of jurisdiction but of procedure. 9
At any rate, it will be noted that petitioner anchors his said objection on the provisions of Section 29,
Republic Act 296 as amended by Republic Act 5433 effective September 9, 1968. Subsequently, the
procedure for appeal to the Court of Appeals from decisions of the then courts of first instance in the
exercise of their appellate jurisdiction over cases originating from the municipal courts was provided for
by Republic Act 6031, amending Section 45 of the Judiciary Act effective August 4, 1969. The
requirement for affirmance in full of the inferior court's decision was not adopted or reproduced in
Republic Act 6031. Also, since Republic Act 6031 failed to provide for the procedure or mode of appeal
in the cases therein contemplated, the Court of Appeals en banc provided thereof in its Resolution of
August 12, 1971, by requiring a petition for review but which also did not require for its availability that
the judgment of the court of first instance had affirmed in full that of the lower court. Said mode of appeal
and the procedural requirements thereof governed the appeal taken in this case from the aforesaid Court
of First Instance to the Court of Appeals in 1977. 10 Herein petitioner's plaint on this issue is, therefore,
devoid of merit.
WHEREFORE, the judgment of the respondent Court of Appeals is AFFIRMED, with costs against herein
petitioner.
8. Fortis vs Gutierrez Hermanos 6 Phil 188
JOHN FORTIS, plaintiff-appellee, vs. GUTIERREZ HERMANOS, defendants-
Plaintiff, an employee of defendants during the years 1900, 1901, and 1902, brought this action to
recover a balance due him as salary for the year 1902. He alleged that he was entitled, as salary, to 5
per cent of the net profits of the business of the defendants for said year. The complaint also contained
a cause of action for the sum of 600 pesos, money expended by plaintiff for the defendants during the
year 1903. The court below, in its judgment, found that the contract had been made as claimed by the
plaintiff; that 5 per cent of the net profits of the business for the year 1902 amounted to 26,378.68 pesos,
Mexican currency; that the plaintiff had received on account of such salary 12,811.75 pesos, Mexican
currency, and ordered judgment against the defendants for the sum 13,566.93 pesos, Mexican currency,
with interest thereon from December 31, 1904. The court also ordered judgment against the defendants
for the 600 pesos mentioned in the complaint, and intereat thereon. The total judgment rendered against
the defendants in favor of the plaintiff, reduced to Philippine currency, amounted to P13,025.40. The
defendants moved for a new trial, which was denied, and they have brought the case here by bill of
exceptions.
(1) The evidence is sufifcient to support the finding of the court below to the effect that the plaintiff worked
for the defendants during the year 1902 under a contract by which he was to receive as compensation
5 per cent of the net profits of the business. The contract was made on the part of the defendants by
Miguel Alonzo Gutierrez. By the provisions of the articles of partnership he was made one of the
managers of the company, with full power to transact all of the business thereof. As such manager he
had authority to make a contract of employment with the plaintiff.
(2) Before answering in the court below, the defendants presented a motion that the complaint be made
more definite and certain. This motion was denied. To the order denying it the defendants excepted, and
they have assigned as error such ruling of the court below. There is nothing in the record to show that
the defendants were in any way prejudiced by this ruling of the court below. If it were error it was error
without prejudice, and not ground for reversal. (Sec. 503, Code of Civil Procedure.)
(3) It is claimed by the appellants that the contract alleged in the complaint made the plaintiff a copartner
of the defendants in the business which they were carrying on. This contention can not bo sustained. It
was a mere contract of employnent. The plaintiff had no voice nor vote in the management of the affairs
of the company. The fact that the compensation received by him was to be determined with reference to
the profits made by the defendants in their business did not in any sense make by a partner therein. The
articles of partnership between the defendants provided that the profits should be divided among the
partners named in a certain proportion. The contract made between the plaintiff and the then manager
of the defendant partnership did not in any way vary or modify this provision of the articles of partnership.
The profits of the business could not be determined until all of the expenses had been paid. A part of the
expenses to be paid for the year 1902 was the salary of the plaintiff. That salary had to be deducted
before the net profits of the business, which were to be divided among the partners, could be ascertained.
It was undoubtedly necessary in order to determine what the salary of the plaintiff was, to determine
what the profits of the business were, after paying all of the expenses except his, but that determination
was not the final determination of the net profits of the business. It was made for the purpose of fixing
the basis upon which his compensation should be determined.
(4) It was no necessary that the contract between the plaintiff and the defendants should be made in
writing. (Thunga Chui vs. Que Bentec,1 1 Off. Gaz., 818, October 8, 1903.)
(5) It appearred that Miguel Alonzo Gutierrez, with whom the plaintiff had made the contract, had died
prior to the trial of the action, and the defendants claim that by reasons of the provisions of section 383,
paragraph 7, of the Code of Civil Procedure, plaintiff could not be a witness at the trial. That paragraph
provides that parties to an action against an executor or aministrator upon a claim or demand against
the estate of a deceased person can not testify as to any matter of fact occurring before the death of
such deceased person. This action was not brought against the administrator of Miguel Alonzo, nor was
it brought upon a claim against his estate. It was brought against a partnership which was in existence
at the time of the trial of the action, and which was juridical person. The fact that Miguel Alonzo had been
a partner in this company, and that his interest therein might be affected by the result of this suit, is not
sufficient to bring the case within the provisions of the section above cited.
(6) The plaintiff was allowed to testify against the objection and exception of the defendants, that he had
been paid as salary for the year 1900 a part of the profits of the business. This evidence was competent
for the purpose of corroborating the testimony of the plaintiff as to the existence of the contract set out
in the complaint.
(7) The plaintiff was allowed to testify as to the contents of a certain letter written by Miguel Glutierrez,
one of the partners in the defendant company, to Miguel Alonzo Gutierrez, another partner, which letter
was read to plaintiff by Miguel Alonzo. It is not necessary to inquire whether the court committed an error
in admitting this evidence. The case already made by the plaintiff was in itself sufficient to prove the
contract without reference to this letter. The error, if any there were, was not prejudicial, and is not ground
for revesal. (Sec. 503, Code of Civil Procedure.)
(8) For the purpose of proving what the profits of the defendants were for the year 1902, the plaintiff
presented in evidence the ledger of defendants, which contained an entry made on the 31st of
December, 1902, as follows:
Perdidas y Ganancias........ a Varios Ps. 527,573.66 Utilidades liquidas obtenidas durante el ano y que
abonamos conforme a la proporcion que hemos establecido segun el convenio de sociedad.
The defendant presented as a witness on, the subject of profits Miguel Gutierrez, one of the defendants,
who testiffied, among other things, that there were no profits during the year 1902, but, on the contrary,
that the company suffered considerable loss during that year. We do not think the evidence of this
witnees sufficiently definite and certain to overcome the positive evidence furnished by the books of the
defendants themselves.
(9) In reference to the cause of action relating to the 600 pesos, it appears that the plaintiff left the employ
of the defendants on the 19th of Macrh, 1903; that at their request he went to Hongkong, and was there
for about two months looking after the business of the defendants in the matter of the repair of a certain
steamship. The appellants in their brief say that the plaintiff is entitled to no compensation for his services
thus rendered, because by the provisions of article 1711 of the Civil Code, in the absence of an
agreement to the contrary, the contract of agency is supposed to be gratuitous. That article i not
applicable to this case, because the amount of 600 pesos not claimed as compensation for services but
as a reimbursment for money expended by the plaintiff in the business of the defendants. The article of
the code that is applicable is article 1728.
The judgment of the court below is affirmed, with the costs, of this instance against the appellants. After
the expiration of twenty days from the date of this decision let final judgment be entered herein, and ten
days thereafter let the case be remanded to the lower court for execution. So ordered.

FRANCISCO BASTIDA, plaintiff-appellee,

vs. MENZI & Co., INC., J.M. MENZI and P.C. SCHLOBOHM, defendants.
MENZI & CO., appellant.
This is an appeal by Menzi & Co., Inc., one of the defendants, from a decision of the Court of First
Instance of Manila. The case was tried on the amended complaint dated May 26, 1928 and defendants'
amended answer thereto of September 1, 1928. For the sake of clearness, we shall incorporate herein
the principal allegations of the parties.
FIRST CAUSE OF ACTION
Plaintiff alleged:
I
That the defendant J.M. Menzi, together with his wife and daughter, owns ninety-nine per cent (99%) of
the capital stock of the defendant Menzi & Co., Inc., that the plaintiff has been informed and therefore
believes that the defendant J.M. Menzi, his wife and daughter, together with the defendant P.C.
Schlobohm and one Juan Seiboth, constitute the board of directors of the defendant, Menzi & Co., Inc.;
II
That on April 27, 1922, the defendant Menzi & Co., Inc. through its president and general manager, J.M.
Menzi, under the authority of the board of directors, entered into a contract with the plaintiff to engage in
the business of exploiting prepared fertilizers, as evidenced by the contract marked Exhibit A, attached
to the original complaint as a part thereof, and likewise made a part of the amended complaint, as if it
were here copied verbatim;
III
That in pursuance of said contract, plaintiff and defendant Menzi & Co., Inc., began to manufacture
prepared fertilizers, the former superintending the work of actual preparation, and the latter, through
defendants J.M. Menzi and P. C. Schlobohm, managing the business and opening an account entitled
"FERTILIZERS" on the books of the defendant Menzi & Co., Inc., where all the accounts of the
partnership business were supposed to be kept; the plaintiff had no participation in the making of these
entries, which were wholly in the defendants' charge, under whose orders every entry was made;
IV That according to paragraph 7 of the contract Exhibit A, the defendant Menzi & Co., Inc., was obliged
to render annual balance sheets to be plaintiff upon the 30th day of June of each year; that the plaintiff
had no intervention in the preparation of these yearly balances, nor was he permitted to have any access
to the books of account; and when the balance sheets were shown him, he, believing in good faith that
they contained the true statement of the partnership business, and relying upon the good faith of the
defendants, Menzi & Co., Inc., J.M. Menzi, and P.C. Schlobohm, accepted and signed them, the last
balance sheet having been rendered in the year 1926;
V That by reason of the foregoing facts and especially those set forth in the preceding paragraph, the
plaintiff was kept in ignorance of the defendants' acts relating to the management of the partnership
funds, and the keeping of accounts, until he was informed and so believes and alleges, that the
defendants had conspired to conceal from him the true status of the business, and to his damage and
prejudice made false entries in the books of account and in the yearly balance sheets, the exact nature
and amount of which it is impossible to ascertain, even after the examination of the books of the business,
due to the defendants' refusal to furnish all the books and data required for the purpose, and the constant
obstacles they have placed in the way of the examination of the books of account and vouchers;
VI
That when the plaintiff received the information mentioned in the preceding paragraph, he demanded
that the defendants permit him to examine the books and vouchers of the business, which were in their
possession, in order to ascertain the truth of the alleged false entries in the books and balance sheets
submitted for his approval, but the defendants refused, and did not consent to the examination until after
the original complaint was filed in this case; but up to this time they have refused to furnish all the books,
data, and vouchers necessary for a complete and accurate examination of all the partnership's accounts;
and
VII
That as a result of the partial examination of the books of account of the business, the plaintiff has,
through his accountants, discovered that the defendants, conspiring and confederating together,
presented to the plaintiff during the period covered by the partnership contract false and incorrect
accounts,
(a) For having included therein undue interest;
(b) For having entered, as a charge to fertilizers, salaries and wages which should have been paid and
were in fact paid by the defendant Menzi & Co., Inc.;
(c) For having collected from the partnership the income tax which should have been paid for its own
account by Menzi & Co., Inc.;
(d) For having collected, to the damage and prejudice of the plaintiff, commissions on the purchase of
materials for the manufacture of fertilizers;
(e) For having appropriated, to the damage and prejudice of the plaintiff, the profits obtained from the
sale of fertilizers belonging to the partnership and bought with its own funds; and
(f) For having appropriated to themselves all rebates for freight insurance, taxes, etc., upon materials for
fertilizer bought abroad, no entries of said rebates having been made on the books to the credit of the
partnership.
Upon the strength of the facts set out in this first cause of action, the plaintiff prays the court:
1. To prohibit the defendants, each and every one of them, from destroying and concealing the books
and papers of the partnership constituted between the defendant Menzi & Co., Inc., and the plaintiff;
2. To summon each and every defendant to appear and give a true account of all facts relating to the
partnership between the plaintiff and the defendant Menzi & Co., Inc., and of each and every act and
transaction connected with the business of said partnership from the beginning to April 27, 1927, and a
true statement of all merchandise of whatever description, purchased for said partnership, and of all the
expenditures and sale of every kind, together with the true amount thereof, besides the sums received
by the partnership from every source together with their exact nature, and a true and complete account
of the vouchers for all sums paid by the partnership, and of the salaries paid to its employees;
3. To declare null and void the yearly balances submitted by the defendants to the plaintiff from 1922 to
1926, both inclusive;
4. To order the defendants to give a true statement of all receipts and disbursements of the partnership
during the period of its existence, besides granting the plaintiff any other remedy that the court may deem
just and equitable.
EXHIBIT A
CONTRATO
que se celebra entre los Sres. Menzi y Compaia, de Manila, como Primera Parte, y D. Francisco
Bastada, tambien de Manila, como Segunda Parte, bajo las siguientes
CONDICIONES
1. El objeto de este contrato es la explotacion del negocio de Abonos o Fertilizantes Preparados, para
diversas aplicaciones agricolas;
2. La duracion de este contrato sera de cinco aos, a contrar desde la fecha de su firma;
3. La Primera Parte se compromete a facilitar la ayuda financiera necesaria para el negocio;
4. La Segunda Parte se compromete a poner su entero tiempo y toda su experiencia a la disposicion
del negocio;
5. La Segunda Parte no podra, directa o indirectamente, dedicarse por si sola ni en sociedad con otras
personas, o de manera alguna que no sea con la Primera Parte, al negecio de Abonos, simples o
preparados, o de materia alguna que se aplique comunmente a la fertilizacion de suelos y plantas,
durante la vigencia de este contrato, a menos que obtenga autorizacion expresa de la Primera Parte
para ello;
6. La Primera Parte no podra dedicarse, por si sola ni en sociedad o combinacion con otras personas
o entidades, ni de otro modo que en sociedad con la Segunda Parte, al negocio de Abonos o
Fertilizantes preparados, ya sean ellos importados, ya preparados en las Islas Fllipinas; tampoco podra
dedicarse a la venta o negocio de materias o productos que tengan aplicacion como fertilizantes, o que
se usen en la composicion de fertilizantes o abonos, si ellos son productos de suelo de la manufactura
filipinos, pudiendo sin embargo vender o negociar en materim fertilizantes simples importados de los
Estados Unidos o del Extranjero;
7. La Primera Parte se obliga a ceder y a hacer efectivo a la Segunda Parte el 35 por ciento (treinta y
cinco por ciento) de las utilidades netas del negocio de abonos, liquidables el 30 de junio de cada ao;
8. La Primera Parte facilitara la Segunda, mensualmente, la cantidad de P300 (trescientos pesos), a
cuenta de su parte de beneficios.
9. Durante el ao 1923 la Parte concedera a la Segunda permiso para que este se ausente de Filipinas
por un periodo de tiempo que no exceda de un ao, sin menoscabo para derechos de la Segunda Parte
con arreglo a este contrato.
En testimonio de lo cual firmamos el presente en la Ciudad de Manila, I. F., a veintisiete de abril de
1922.
MENZI & CO., INC.
Por (Fdo.) J. MENZI
General Manager
Primera Parte
(Fdo.) F. BASTIDA
Segunda Parte
MENZI & CO., INC.
(Fdo.) MAX KAEGI
Acting Secretary
Defendants denied all the allegations of the amended complaint, except the formal allegations as to the
parties, and as a special defense to the first cause of action alleged:
1. That the defendant corporation, Menzi & Co., Inc., has been engaged in the general merchandise
business in the Philippine Islands since its organization in October, 1921, including the importation and
sale of all kinds of goods, wares, and merchandise, and especially simple fertilizer and fertilizer
ingredients, and as a part of that business, it has been engaged since its organization in the manufacture
and sale of prepared fertilizers for agricultural purposes, and has used for that purpose trade-marks
belonging to it;
2. That on or about November, 1921, the defendant, Menzi & CO., Inc., made and entered into an
employment agreement with the plaintiff, who represented that he had had much experience in the
mixing of fertilizers, to superintend the mixing of the ingredients in the manufacture of prepared fertilizers
in its fertilizer department and to obtain orders for such prepared fertilizers subject to its approval, for a
compensation of 50 per cent of the net profits which it might derive from the sale of the fertilizers prepared
by him, and that said Francisco Bastida worked under said agreement until April 27, 1922, and received
the compensation agreed upon for his services; that on the said 27th of April, 1922, the said Menzi &
Co., Inc., and the said Francisco Bastida made and entered into the written agreement, which is marked
Exhibit A, and made a part of the amended complaint in this case, whereby they mutually agreed that
the employment of the said Francisco Bastida by the said Menzi & Co., Inc., in the capacity stated,
should be for a definite period of five years from that date and under the other terms and conditions
stated therein, but with the understanding and agreement that the said Francisco Bastida should receive
as compensation for his said services only 35 per cent of the net profits derived from the sale of the
fertilizers prepared by him during the period of the contract instead of 50 per cent of such profits, as
provided in his former agreement; that the said Francisco Bastida was found to be incompetent to do
anything in relation to its said fertilizer business with the exception of over-seeing the mixing of the
ingredients in the manufacture of the same, and on or about the month of December, 1922, the
defendant, Menzi & Inc., in order to make said business successful, was obliged to and actually did
assume the full management and direction of said business;
3. That the accounts of the business of the said fertilizer department of Menzi & Co., Inc., were duly kept
in the regular books of its general business, in the ordinary course thereof, up to June 30, 1923, and that
after that time and during the remainder of the period of said agreement, for the purpose of convenience
in determining the amount of compensation due to the plaintiff under his agreement, separate books of
account for its said fertilizer business were duly, kept in the name of 'Menzi & Co., Inc., Fertilizer', and
used exclusively for that purpose and it was mutually agreed between the said Francisco Bastida and
the said Menzi & Co., Inc., that the yearly balances for the determination of the net profits of said business
due to the said plaintiff as compensation for his services under said agreement would be made as of
December 31st, instead of June 30th, of each year, during the period of said agreement; that the
accounts of the business of its said fertilizer department, as recorded in its said books, and the vouchers
and records supporting the same, for each year of said business have been duly audited by Messrs.
White, Page & Co., certified public accountants, of Manila, who, shortly after the close of business at the
end of each year up to and including the year 1926, have prepared therefrom a manufacturing and profit
and loss account and balance sheet, showing the status of said business and the share of the net profits
pertaining to the plaintiff as his compensation under said agreement; that after the said manufacturing
and profit and the loss account and balance sheet for each year of the business of its said fertilizer
department up to and including the year 1926, had been prepared by the said auditors and certified by
them, they were shown to and examined by the plaintiff, and duly accepted, and approved by him, with
full knowledge of their contents, and as evidence of such approval, he signed his name on each of them,
as shown on the copies of said manufacturing and profit and loss account and balance sheet for each
year up to and including the year 1926, which are attached to the record of this case, and which are
hereby referred to and made a part of this amended answer, and in accordance therewith, the said
plaintiff has actually received the portion of the net profits of its said business for those years pertaining
to him for his services under said agreement; that at no time during the course of said fertilizer business
and the liquidation thereof has the plaintiff been in any way denied access to the books and records
pertaining thereto, but on the contrary, said books and records have been subject to his inspection and
examination at any time during business hours, and even since the commencement of this action, the
plaintiff and his accountants, Messrs. Haskins & Sells, of Manila, have been going over and examining
said books and records for months and the defendant, Menzi & Co. Inc., through its officers, have turned
over to said plaintiff and his accountant the books and records of said business and even furnished them
suitable accommodations in its own office to examine the same;
4. That prior to the termination of the said agreement, Exhibit A, the defendant, Menzi & Co., Inc., duly
notified the plaintiff that it would not under any conditions renew his said agreement or continue his said
employment with it after its expiration, and after the termination of said agreement of April 27, 1927, the
said Menzi & Co., Inc., had the certified public accountants, White, Page & Co., audit the accounts of
the business of its said fertilizer department for the four months of 1927 covered by plaintiff's agreement
and prepare a manufacturing and profit and loss account and balance sheet of said business showing
the status of said business at the termination of said agreement, a copy of which was shown to and
explained to the plaintiff; that at that time there were accounts receivable to be collected for business
covered by said agreement of over P100,000, and there was guano, ashes, fine tobacco and other
fertilizer ingredients on hand of over P75,000, which had to be disposed of by Menzi & Co., Inc., or
valued by the parties, before the net profits of said business for the period of the agreement could be
determined; that Menzi & Co., Inc., offered to take the face value of said accounts and the cost value of
the other properties for the purpose of determining the profits of said business for that period, and to pay
to the plaintiff at that time his proportion of such profits on that basis, which the plaintiff refused to accept,
and being disgruntled because the said Menzi & Co., Inc., would not continue him in its service, the said
plaintiff commenced this action, including therein not only Menzi & Co. Inc., but also it managers J.M.
Menzi and P.C. Schlobohm, wherein he knowingly make various false and malicious allegations against
the defendants; that since that time the said Menzi & Co., Inc., has been collecting the accounts
receivable and disposing of the stocks on hand, and there is still on hand old stock of approximately
P25,000, which it has been unable to dispose of up to this time; that as soon as possible a final liquidation
and amounting of the net profits of the business covered by said agreement for the last four months
thereof will be made and the share thereof appertaining to the plaintiff will be paid to him; that the plaintiff
has been informed from time to time as to the status of the disposition of such properties, and he and
his auditors have fully examined the books and records of said business in relation thereto.
SECOND CAUSE OF ACTION
As a second cause of action plaintiff alleged:
I. That the plaintiff hereby reproduces paragraphs I, II, III, IV, and V of the first cause of action.
II. That the examination made by the plaintiff's auditors of some of the books of the partnership that were
furnished by the defendants disclosed the fact that said defendants had charged to "purchases" of the
business, undue interest, the amount of which the plaintiff is unable to determine, as he has never had
at his disposal the books and vouchers necessary for that purpose, and especially, owning to the fact
that the partnership constituted between the plaintiff and the defendant Menzi & Co., Inc., never kept its
own cash book, but that its funds were maliciously included in the private funds of the defendant entity,
neither was there a separate BANK ACCOUNT of the partnership, such account being included in the
defendant's bank account.
III. That from the examination of the partnership books as aforesaid, the plaintiff estimates that the
partnership between himself and the defendant Menzi & Co., Inc., has been defrauded by the defendants
by way of interest in an amount of approximately P184,432.51, of which 35 per cent, or P64,551.38,
belongs to the plaintiff exclusively.
Wherefore, the plaintiff prays the court to render judgment ordering the defendants jointly and severally
to pay him the sum of P64,551.38, or any amount which may finally appear to be due and owing from
the defendants to the plaintiff upon this ground, with legal interest from the filing of the original complaint
until payment.
Defendants alleged:
1. That they repeat and make a part of this special defense paragraphs 1, 2, 3 and 4, of the special
defense to the first cause of action in this amended answer;
2. That under the contract of employment, Exhibit A, of the amended complaint, the defendant, Menzi &
Co., Inc., only undertook and agreed to facilitate financial aid in carrying on the said fertilizer business,
as it had been doing before the plaintiff was employed under the said agreement; that the said defendant,
Menzi & Co., Inc., in the course of the said business of its fertilizer department, opened letters of credit
through the banks of Manila, accepted and paid drafts drawn upon it under said letters of credit, and
obtained loans and advances of moneys for the purchase of materials to be used in mixing and
manufacturing its fertilizers and in paying the expenses of said business; that such drafts and loans
naturally provided for interest at the banking rate from the dates thereof until paid, as is the case in all,
such business enterprises, and that such payments of interest as were actually made on such drafts,
loans and advances during the period of the said employment agreement constituted legitimate
expenses of said business under said agreement.
THIRD CAUSE OF ACTION
As third cause of action, plaintiff alleged:
I. That he hereby reproduces paragraphs I, II, III, IV, and V of the first cause of action.
II. That under the terms of the contract Exhibit A, neither the defendants J.M. Menzi and P.C. Schlobohm,
nor the defendant Menzi & Co., Inc., had a right to collect for itself or themselves any amount whatsoever
by way of salary for services rendered to the partnership between the plaintiff and the defendant,
inasmuch as such services were compensated with the 65% of the net profits of the business constituting
their share.
III. That the plaintiff has, on his on account and with his own money, paid all the employees he has
placed in the service of the partnership, having expended for their account, during the period of the
contract, over P88,000, without ever having made any claim upon the defendants for this sum because
it was included in the compensation of 35 per cent which he was to receive in accordance with the
contract Exhibit A.
IV. That the defendants J.M. Menzi and P.C. Schlobohm, not satisfied with collecting undue and
excessive salaries for themselves, have made the partnership, or the fertilizer business, pay the salaries
of a number of the employees of the defendant Menzi & Co., Inc.
V. That under this item of undue salaries the defendants have appropriated P43,920 of the partnership
funds, of which 35 per cent, or P15,372 belongs exclusively to the plaintiff.
Wherefore, the plaintiff prays the court to render judgment ordering the defendants to pay jointly and
severally to the plaintiff the amount of P15,372, with legal interest from the date of the filing of the original
complaint until the date of payment.
Defendants alleged:
1. That they repeat and make a part of this special defense paragraphs 1, 2, 3 and 4 of the special
defense the first cause of action in this amended answer;
2. That the defendant, Menzi & Co., Inc., through its manager, exclusively managed and conducted its
said fertilizer business, in which the plaintiff was to receive 35 percent of the net profits as compensation
for this services, as hereinbefore alleged, from on or about January 1, 1923, when its other departments
had special experienced Europeans in charge thereof, who received not only salaries but also a
percentage of the net profits of such departments; that its said fertilizer business, after its manager took
charge of it, became very successful, and owing to the large volume of business transacted, said
business required great deal of time and attention, and actually consumed at least one-half of the time
of the manager and certain employees of Menzi & Co., Inc., in carrying it on; that the said Menzi & Co.,
furnished office space, stationery and other incidentals, for said business, and had its employees perform
the duties of cashiers, accountants, clerks, messengers, etc., for the same, and for that reason the said
Menzi & Co., Inc., charged each year, from and after 1922, as expenses of said business, which
pertained to the fertilizer department, as certain amount as salaries and wages to cover the proportional
part of the overhead expenses of Menzi & Co., Inc.; that the same method is followed in each of the
several departments of the business of Menzi & Co., Inc., that each and every year from and after 1922,
a just proportion of said overhead expenses were charged to said fertilizer departments and entered on
the books thereof, with the knowledge and consent of the plaintiff, and included in the auditors' reports,
which were examined, accepted and approved by him, and he is now estopped from saying that such
expenses were not legitimate and just expenses of said business.
FOURTH CAUSE OF ACTION
As fourth cause of action, the plaintiff alleged:
I. That he hereby reproduces paragraph I, II, III, IV, and V of the first cause of action.
II. That the defendant Menzi & Co., Inc., through the defendant J. M.Menzi and P. C. Schlobohm, has
paid, with the funds of the partnership between the defendant entity and the plaintiff, the income tax due
from said defendant entity for the fertilizer business, thereby defrauding the partnership in the amount of
P10,361.72 of which 35 per cent belongs exclusively to the plaintiff, amounting to P3,626.60.
III. That the plaintiff has, during the period of the contract, paid with his own money the income tax
corresponding to his share which consists in 35 per cent of the profits of the fertilizer business, expending
about P5,000 without ever having made any claim for reimbursement against the partnership, inasmuch
as it has always been understood among the partners that each of them would pay his own income tax.
Wherefore, the plaintiff prays the court to order the defendants jointly and severally to pay the plaintiff
the sum of P3,362.60, with legal interest from the date of the filing of the original complaint until its
payment.
Defendants alleged:
1. That they repeat and make a part of this special defense paragraphs 1, 2, 3 and 4, of the special
defense to the first cause of action in this amended answer;
2. That under the Income Tax Law Menzi & Co., Inc., was obliged to and did make return to the
Government of the Philippine Islands each year during the period of the agreement, Exhibit A, of the
income of its whole business, including its fertilizer department; that the proportional share of such
income taxes found to be due on the business of the fertilizer department was charged as a proper and
legitimate expense of that department, in the same manner as was done in the other departments of its
business; that inasmuch as the agreement with the plaintiff was an employment agreement, he was
required to make his own return under the Income Tax Law and to pay his own income taxes, instead of
having them paid at the source, as might be done under the law, so that he would be entitled to the
personal exemptions allowed by the law; that the income taxes paid by the said Menzi & Co., Inc.,
pertaining to the business, were duly entered on the books of that department, and included in the
auditors' reports hereinbefore referred to, which reports were examined, accepted and approved by the
plaintiff, with full knowledge of their contents, and he is now estopped from saying that such taxes are
not a legitimate expense of said business.
FIFTH CAUSE OF ACTION
As fifth cause of action, plaintiff alleged:
I. That hereby reproduces paragraphs I, II, III, IV, and V of the first cause of action.
II. That the plaintiff has discovered that the defendants Menzi & Co., Inc., had been receiving, during the
period of the contract Exhibit A, from foreign firms selling fertilizing material, a secret commission
equivalent to 5 per cent of the total value of the purchases of fertilizing material made by the partnership
constituted between the plaintiff and the defendant Menzi Co., Inc., and that said 5 per cent commission
was not entered by the defendants in the books of the business, to the credit and benefit of the
partnership constituted between the plaintiff and the defendant, but to the credit of the defendant Menzi
Co., Inc., which appropriated it to itself.
III. That the exact amount, or even the approximate amount of the fraud thus suffered by the plaintiff
cannot be determined, because the entries referring to these items do not appear in the partnership
books, although the plaintiff believes and alleges that they do appear in the private books of the
defendant Menzi & Co., Inc., which the latter has refused to furnish, notwithstanding the demands made
therefore by the auditors and the lawyers of the plaintiff.
IV. That taking as basis the amount of the purchases of some fertilizing material made by the partnership
during the first four years of the contract Exhibit A, the plaintiff estimates that this 5 per cent commission
collected by the defendant Menzi Co., Inc., to the damage and prejudice of the plaintiff, amounts to
P127,375.77 of which 35 per cent belongs exclusively to the plaintiff.
Wherefore, the plaintiff prays the court to order the defendants to pay jointly and severally to the plaintiff
the amount of P44,581.52, or the exact amount owed upon this ground, after both parties have adduced
their evidence upon the point.
Defendants alleged:
1. That they repeat and make a part of this special defense paragraph 1, 2, 3 and 4, of the special
defense to the first cause of action in this amended answer;
2. That the defendant, Menzi & Co., Inc., did have during the period of said agreement, Exhibit A, and
has now what is called a "Propaganda Agency Agreement" which the Deutsches Kalesyndikat, G.M.B.,
of Berlin, which is a manufacturer of potash, by virtue of which said Menzi & Co., Inc., was to receive for
its propaganda work in advertising and bringing about sales of its potash a commission of 5 per cent on
all orders of potash received by it from the Philippine Islands; that during the period of said agreement,
Exhibit A, orders were sent to said concern for potash, through C. Andre & Co., of Hamburg, as the agent
of the said Menzi & Co., Inc., upon which the said Menzi & Co., Inc., received a 5 per cent commission,
amounting in all to P2,222.32 for the propaganda work which it did for said firm in the Philippine Islands;
that said commissioners were not in any sense discounts on the purchase price of said potash, and have
no relation to the fertilizer business of which the plaintiff was to receive a share of the net profits for his
services, and consequently were not credited to that department;
3. That in going over the books of Menzi Co., Inc., it has been found that there are only two items of
commissions, which were received from the United Supply Co., of San Francisco, in the total of sum
$66.51, which through oversight, were not credited on the books of the fertilizer department of Menzi &
Co., Inc., but due allowance has now been given to the department for such item.
SIXTH CAUSE OF ACTION
As sixth cause of action, plaintiff alleged:
I. That hereby reproduces paragraphs I, II, III, IV and V, of the first cause of action.
II. That the defendant Menzi Co., Inc., in collusion with and through the defendants J.M. Menzi and P.C.
Schlobohm and their assistants, has tampered with the books of the business making fictitious transfers
in favor of the defendant Menzi & Co., Inc., of merchandise belonging to the partnership, purchased with
the latter's money, and deposited in its warehouses, and then sold by Menzi & Co., Inc., to third persons,
thereby appropriating to itself the profits obtained from such resale.
III. That it is impossible to ascertain the amount of the fraud suffered by the plaintiff in this respect as the
real amount obtained from such sales can only be ascertained from the examination of the private books
of the defendant entity, which the latter has refused to permit notwithstanding the demand made for the
purpose by the auditors and the lawyers of the plaintiff, and no basis of computation can be established,
even approximately, to ascertain the extent of the fraud sustained by the plaintiff in this respect, by
merely examining the partnership books.
Wherefore, the plaintiff prays the court to order the defendants J.M. Menzi and P.C. Schlobohm, to make
a sworn statement as to all the profits received from the sale to third persons of the fertilizers pertaining
to the partnership, and the profits they have appropriated, ordering them jointly and severally to pay 35
per cent of the net amount, with legal interest from the filing of the original complaint until the payment
thereof.
Defendant alleged:
1. That they repeat and make a part of this special defense paragraphs 1, 2, 3 and 4, of the special
defense to the first cause of action in this amended answer:
2. That under the express terms of the employment agreement, Exhibit A, the defendant, Menzi & Co.,
Inc., had the right to import into the Philippine Islands in the course of its fertilizer business and sell fro
its exclusive account and benefit simple fertilizer ingredients; that the only materials imported by it and
sold during the period of said agreement were simple fertilizer ingredients, which had nothing whatever
to do with the business of mixed fertilizers, of which the plaintiff was to receive a share of the net profits
as a part of his compensation.
SEVENTH CAUSE OF ACTION
As seventh cause of action, plaintiff alleged:
I. That he hereby reproduces paragraphs I, II, III, IV, and V of the first cause of action.
II. That during the existence of the contract Exhibit A, the defendant Menzi & Co., Inc., for the account
of the partnership constituted between itself and the plaintiff, and with the latter's money, purchased from
a several foreign firms various simple fertilizing material for the use of the partnership.
III. That in the paid invoices for such purchases there are charged, besides the cost price of the
merchandise, other amounts for freight, insurance, duty, etc., some of which were not entirely thus spent
and were later credited by the selling firms to the defendant Menzi & Co., Inc.
IV. That said defendant Menzi & Co., Inc., through and in collusion with the defendants J.M. Menzi and
P.C. Schlobohm upon receipt of the credit notes remitted by the selling firms of fertilizing material, for
rebates upon freight, insurance, duty, etc., charged in the invoice but not all expended, did not enter
them upon the books to the credit of the partnership constituted between the defendant and the plaintiff,
but entered or had them entered to the credit on Menzi & Co., Inc., thereby defrauding the plaintiff of 35
per cent of the value of such reductions.
V. That the total amount, or even the approximate amount of this fraud cannot be ascertained without
an examination of the private books of Menzi & Co., Inc., which the latter has refused to permit
notwithstanding the demand to this effect made upon them by the auditors and the lawyers of the plaintiff.
Wherefore, the plaintiff prays the court to order the defendants J.M. Menzi and P.C. Schlobohm, to make
a sworn statement as to the total amount of such rebates, and to sentence the defendants to pay the
plaintiff jointly and severally 35 per cent of the net amount. Defendants alleged:
1. That they repeat and make a part of this special defense paragraphs 1, 2, 3 and 4, of the special
defense to the first cause of action in this amended answer:
2. That during the period of said employment agreement, Exhibit A, the defendant, Menzi & Co., Inc.,
received from its agent, C. Andre & Co., of Hamburg, certain credits pertaining to the fertilizer business
in the profits of which the plaintiff was interested, by way of refunds of German Export Taxes, in the total
sum of P1,402.54; that all of department as received, but it has just recently been discovered that through
error an additional sum of P216.22 was credited to said department, which does not pertain to said
business in the profits of which the plaintiff is interested.
EIGHT CAUSE OF ACTION
A eighth cause of action, plaintiff alleged:
I. That he hereby reproduces paragraphs I, II, III, IV and V of the first cause of action.
II. That on or about April 21, 1927, that is, before the expiration of the contract Exhibit A of the complaint,
the defendant Menzi & Co., Inc., acting as manager of the fertilizer business constituted between said
defendant and the plaintiff, entered into a contract with the Compaia General de Tabacos de Filipinas
for the sale of said entity of three thousand tons of fertilizers of the trade mark "Corona No. 1", at the
rate of P111 per ton, f. o. b. Bais, Oriental Negros, to be delivered, as they were delivered, according to
information received by the plaintiff, during the months of November and December, 1927, and January,
February, March, and April, 1928.
III. That both the contract mentioned above and the benefits derived therefrom, which the plaintiff
estimates at P90,000, Philippine currency, belongs to the fertilizer business constituted between the
plaintiff and the defendant, of which 35 per cent, or P31,500, belongs to said plaintiff.
IV. That notwithstanding the expiration of the partnership contract Exhibit A, on April 27, 1927, the
defendants have not rendered a true accounting of the profits obtained by the business during the last
four months thereof, as the purposed balance submitted to the plaintiff was incorrect with regard to the
inventory of merchandise, transportation equipment, and the value of the trade marks, for which reason
such proposed balance did not represent the true status of the business of the partnership on April 30,
1927.
V. That the proposed balance submitted to the plaintiff with reference to the partnership operations during
the last four months of its existence, was likewise incorrect, inasmuch as it did not include the profit
realized or to be realized from the contract entered into with the Compaia General de Tabacos de
Filipinas, notwithstanding the fact that this contract was negotiated during the existence of the
partnership, and while the defendant Menzi & Co., Inc., was the manager thereof.
VI. That the defendant entity now contends that the contract entered into with the Compaia General de
Tabacos de Filipinas belongs to it exclusively, and refuses to give the plaintiff his share consisting in 35
per cent of the profits produced thereby.
Wherefore, the plaintiff prays the honorable court to order the defendants to render a true and detailed
account of the business during the last four months of the existence of the partnership, i. e., from January
1, 1927 to April 27, 1927, and to sentence them likewise to pay the plaintiff 35 per cent of the net profits.
Defendants alleged:
1. That they repeat and make a part of this special defense paragraphs 1, 2, 3 and 4, of the special
defense to the first cause of action in this amended answer;
2. That the said order for 3,000 tons of mixed fertilizer, received by Menzi & Co., Inc., from the Compaia
General de Tabacos Filipinas on April 21, 1927, was taken by it in the
regular course of its fertilizer business, and was
to be manufactured and delivered in December, 1927, and up to April, 1928; that the employment
agreement of the plaintiff expired by its own terms on April 27, 1927, and he has not been in any way in
the service of the defendant, Menzi & Co., Inc., since that time, and he cannot possibly have any interest
in the fertilizers manufactured and delivered by the said Menzi & Co., Inc., after the expiration of his
contract for any service rendered to it.
NINTH CAUSE OF ACTION
As ninth cause of action, plaintiff alleged:
I. That he hereby reproduces paragraphs I, II, III, IV, and V of the first cause of action.
II. That during the period of the contract Exhibit A, the partnership constituted thereby registered in the
Bureau of Commerce and
Industry the trade marks "CORONA NO. 1",
CORONA NO. 2", "ARADO", and "HOZ", the plaintiff and the defendant having by their efforts succeeded
in making them favorably known in the market.
III. That the plaintiff and the defendant, laboring jointly, have succeeded in making the fertilizing
business a prosperous concern to such an extent that the profits obtained from the business during the
five years it has existed, amount to approximately P1,000,000, Philippine currency.
IV. That the value of the good will and the trade marks of a business of this nature amounts to at least
P1,000,000, of which sum 35 per cent belongs to the plaintiff, or, P350,000.
V. That at the time of the expiration of the contract Exhibit A, the defendant entity, notwithstanding and
in spite of the plaintiff's
insistent opposition, has assumed the charge of liquidating the fertilizing business, without having
rendered a monthly account of the state of the liquidation, as required by law, thereby causing the plaintiff
damages.
VI. That the damages sustained by the plaintiff,
as well as the amount of his share in the remaining property of the plaintiff, and may only e truly and
correctly ascertained by compelling the defendants J. M. Menzi and P. C.
Schlobohm to declare under oath and explain to the court in detail the sums obtained from the sale of
the remaining merchandise, after the expiration of the partnership contract.
VII. That after the contract Exhibit A had expired, the defendant continued to use for its own benefit the
good-will and trade marks belonging to the partnership, as well as its
ransportation equipment and other machinery, thereby indicating its intention to retain such
good-will, trade marks, transportation
equipment and machinery, for the manufacture of fertilizers, by virtue of which the defendant is bound
to pay the plaintiff 35 per cent of the value of said property.
VIII. That the true value of the transportation equipment and machinery employed in the preparation of
the fertilizers amounts
of P20,000, 35 per cent of which amount to P7,000.
IX. That the plaintiff has repeatedly demanded that the defendant entity render a true and detailed
account of the state of the liquidation of the partnership business, but said
defendants has ignored such demands, so that
the plaintiff does not, and this date, know whether the liquidation of the business has been finished, or
what the status of it is at present.
Wherefore, the plaintiff prays the Honorable Court:
1. To order the defendants J.M. Menzi and P.C. Schlobohm to render a true and detailed account of the
status of business in liquidation, that is, from April 28, 1927, until it is finished, ordering all the defendants
to pay the plaintiff jointly and severally 35 per cent of the net amount.
2. To order the defendants to pay the plaintiff jointly and severally the amount of P350,000, which is 35
per cent of the value of the goodwill and the trade marks of the fertilizer business;
3. To order the defendants to pay the plaintiff jointly and severally the amount of P7,000 which is 35 per
cent of the value of the transportation equipment and machinery of the business; and
4. To order the defendants to pay the costs of this trial, and further, to grant any other remedy that this
Honorable Court may deem just and equitable.
Defendants alleged:
1. That they repeat and make a part of this special defense paragraphs 1, 2, 3 and 4, of the special
defense to the first cause of action in this amended answer;
2. That the good-will, if any, of said fertilizer business of the defendant, Menzi & Co., Inc., pertains
exclusively to it, and the plaintiff can have no interest therein of any nature under his said employment
agreement; that the trade-marks mentioned by the plaintiff in his amended complaint, as a part of such
good-will, belonged to and have been used by the said Menzi & Co., Inc., in its fertilizer business from
and since its organization, and the plaintiff can have no rights to or interest therein under his said
employment agreement; that the transportation equipment pertains to the fertilizer department of Menzi
& Co., Inc., and whenever it has been used by the said Menzi & Co., Inc., in its own business, due and
reasonable compensation for its use has been allowed to said business; that the machinery pertaining
to the said fertilizer business was destroyed by fire in October, 1926, and the value thereof in the sum
of P20,000 was collected from the Insurance Company, and the plaintiff has been given credit for 35 per
cent of that amount; that the present machinery used by Menzi & Co., Inc., was constructed by it, and
the costs thereof was not charged to the fertilizer department, and the plaintiff has no right to have it
taken into consideration in arriving at the net profits due to him under his said employment agreement.
The dispositive part of the decision of the trial court is as follows:
Wherefore, let judgment be entered:
(a) Holding that the contract entered into by the parties, evidenced by Exhibit A, as a contract of general
regular commercial partnership, wherein Menzi & Co., Inc., was the capitalist, and the plaintiff, the
industrial partner;
(b) Holding the plaintiff, by the mere fact of having signed and approved the balance sheets, Exhibits C
to C-8, is not estopped from questioning the statements of the accounts therein contained;
(c) Ordering Menzi & Co., Inc., upon the second ground of action, to pay the plaintiff the sum of P
60,385.67 with legal interest from the date of the filing of the original complaint until paid;
(d) Dismissing the third cause of action;
(e) Ordering Menzi & Co., Inc., upon the fourth cause of action, to pay the plaintiff the sum of P3,821.41,
with legal interest from the date of the filing of the original until paid;
(f ) Dismissing the fifth cause of action;
(g) Dismissing the sixth cause of action;
(h) Dismissing the seventh cause of action;
(i) Ordering the defendant Menzi & Co., Inc., upon the eighth cause of action, to pay the plaintiff the sum
of P6,578.38 with legal interest from January 1, 1929, the date of the liquidation of the fertilizer business,
until paid;
(j ) Ordering Menzi & Co., Inc., upon the ninth cause of action to pay the plaintiff the sum of P196,709.20
with legal interest from the date of the filing of the original complaint until paid;
(k) Ordering the said defendant corporation, in view of the plaintiff's share of the profits of the business
accruing from January 1, 1927 to December 31, 1928, to pay the plaintiff 35 per cent of the net balance
shown in Exhibits 51 and 51-A, after deducting the item of P2,410 for income tax, and any other sum
charged for interest under the entry "Purchases";
(l) Ordering the defendant corporation, in connection with the final liquidation set in Exhibit 52 and 52-A,
to pay the plaintiff the sum of P17,463.54 with legal interest from January 1, 1929, until fully paid;
(m) Dismissing the case with reference to the other defendants, J. M. Menzi and P. C. Schlobohm; and
(n) Menzi & Co., Inc., shall pay the costs of the trial.
The appellant makes the following assignment of error:
I. The trial court erred in finding and holding that the contract Exhibit A constitutes a regular collective
commercial copartnership between the defendant corporation, Menzi & Co., Inc., and the plaintiff,
FranciscoBastida, and not a contract of employment.
II. The trial court erred in finding and holding that the defendant, Menzi & Co., Inc., had wrongfully
charged to the fertilizer business in question the sum of P10,918.33 as income taxes partners' balances,
foreign drafts, local drafts, and on other credit balances in the sum of P172,530.49, and that 35 per cent
thereof, or the sum of P60,358.67, with legal interest thereon from the date of filing his complaint,
corresponds to the plaintiff.
III. The trial court erred finding and holding that the defendant, Menzi & Co., Inc., had wrongfully charged
to the fertilizer business in question the sum of P10,918.33 as income taxes for the years 1923, 1924,
1925 and 1926, and that the plaintiff is entitled to 35 per cent thereof, or the sum of P3,821.41, with legal
interest thereon from the date of filing his complaint, and in disallowing the item of P2,410 charged as
income tax in the liquidation in Exhibits 51 and 51 A for the period from January 1 to April 27, 1927.
IV. The trial court erred in refusing to find and hold under the evidence in this case that the contract,
Exhibit A was daring the whole period thereof considered by the parties and
performed by them as a contract of employment in relation to the fertilizer business of the defendant,
and thatthe accounts of said business were kept by the defendant, Menzi & Co., Inc., on that theory with
theknowledge and consent of the plaintiff, and that at the end of each year for five years a balance sheet
and profit and loss statement of saidbusiness were prepared from the books of account of said business
on the same theory and submitted to the plaintiff, and that each year said balance sheet and profit and
lossstatement were examined, approved and signed by said contract in accordance therewith with
fullknowledge of the manner in which said business was conducted and the charges for interest and
income taxes made against the same andthat by reason of such facts, the plaintiff is now estopped from
raising any question as to the nature of said contract or the propriety of such charges.
V. The trial court erred in finding and holding that the plaintiff, Francisco Bastida, is entitled to 35 per
cent of the net profits in the sum of P18,795.38 received by the defendant, Menzi & Co., Inc., from its
contract with the Compaia General de Tabacos de Filipinas, or the sum of P6.578.38, with legal interest
thereon from January 1, 1929, the date upon which the liquidation of said business was terminated.
VI. The trial court erred in finding and holding that the value of the good-will of the fertilizer business in
question was P562,312, and that the plaintiff, Francisco Bastida, was entitled to 35 per cent of such
valuation, or the sum of P196,709.20, with legal interest thereon from the date of filing his complaint.
2281598
VII. The trial court erred in rendering judgment in favor of the plaintiff and against defendant, Menzi &
Co., Inc., (a) on the second cause of action, for the sum of P60,385.67, with legal interest thereon from
the date of filing the complaint; (b) on the fourth cause of action, for the sum of P3,821.41, with legal
interest thereon from the date of filing the complaint; (c) on the eight cause of action, for the sum of
P6,578.38, with legal interest thereon from January 1, 1929; and (d) on the ninth cause of action, for the
sum of P196,709.20, with legal interest thereon from the date of filing the original complaint; and (e) for
the costs of the action, and in not approving the final liquidation of said business, Exhibits 51 and 51-A
and 52 and 52-A, as true and correct, and entering judgment against said defendant only for the amounts
admitted therein as due the plaintiff with legal interest, with the costs against the plaintiff.
VIII. The trial court erred in overruling the defendants' motion for a new trial.
It appears from the evidence that the defendants corporation was organized in 1921 for purpose of
importing and selling general merchandise, including fertilizers and fertilizer ingredients. It appears
through John Bordman and the Menzi-Bordman Co. the good-will, trade-marks, business, and other
assets of the old German firm of Behn, Meyer & Co., Ltd., including its fertilizer business with its stocks
and trade-marks. Behn, Meyer & Co., Ltd., had owned and carried on this fertilizer business from 1910
until that firm was taken over the Alien Property Custodian in 1917. Among the trade-marks thus acquired
by the appellant were those known as the "ARADO", "HOZ", and "CORONA". They were registered in
the Bureau of Commerce and Industry in the name of Menzi & Co. The trade marks "ARADO" and "HOZ"
had been used by Behn, Meyer & Co., Ltd., in the sale of its mixed fertilizers, and the trade mark
"CORONA" had been used in its other business. The "HOZ" trade-mark was used by John Bordman and
the Menzi-Bordman Co. in the continuation of the fertilizer business that had belonged to Behn, Meyer
& Co., Ltd.
The business of Menzi & Co., Inc., was divided into several different departments, each of which was in
charge of a manager, who received a fixed salary and a percentage of the profits. The corporation had
to borrow money or obtain credits from time to time and to pay interest thereon. The amount paid for
interest was charged against the department concerned, and the interest charges were taken into
account in determining the net profits of each department. The practice of the corporation was to debit
or credit each department with interest at the bank rate on its daily balance. The fertilizer business of
Menzi & Co., Inc., was carried on in accordance with this practice under the "Sundries Department" until
July, 1923, and after that as a separate department.
In November, 1921, the plaintiff, who had had some experience in mixing and selling fertilizer, went to
see Toehl, the manager of the sundries department of Menzi & Co., Inc., and told him that he had a
written contract with the Philippine Sugar Centrals Agency for 1,250 tons of mixed fertilizers, and that he
could obtain other contracts, including one from the Calamba Sugar Estates for 450 tons, but the he did
not have the money to buy the ingredients to fill the order and carry on the on the business. He offered
to assign to Menzi & Co., Inc., his contract with the Philippine Sugar Centrals Agency and to supervise
the mixing of the fertilizer and to obtain other orders for fifty per cent of the net profits that Menzi & Co.,
might derive therefrom. J.M. Menzi, the general manager of Menzi & Co., accepted plaintiff's offer.
Plaintiff assigned to Menzi & Co., Inc., his contract with the Sugar Centrals Agency, and the defendant
corporation proceeded to fill the order. Plaintiff supervised the mixing of the fertilizer.
On January 10, 1922 the defendant corporation at plaintiff's request gave him the following letter, Exhibit
B:
MANILA, 10 de enero de 1922 Sr. FRANCISCO BASTIDA Manila MUY SR. NUESTRO: Interin
formalizamos el contrato que, en principio, tenemos convenido para la explotacion del negocio de abono
y fertilizantes, por la presente venimos en confirmar su derecho de 50 por ciento de las untilidades que
se deriven del contrato obtenido por Vd. de la Philippine Sugar Centrals (por 1250 tonel.) y del contrato
con la Calamba Sugar Estates, asi como de cuantos contratos se cierren con definitiva de nuestro
contrato mutuo, lo que formalizacion definitiva de nuestro contrato mutuo, lo que hacemos para garantia
y seguridad de Vd.
MENZI & CO., Por (Fdo.) W. TOEHL
Menzi & Co., Inc., continued to carry on its fertilizer business under this arrangement with the plaintiff. It
ordered ingredients from the United States and other countries, and the interest on the drafts for the
purchase of these materials was changed to the business as a part of the cost of the materials. The
mixed fertilizers were sold by Menzi & Co., Inc., between January 19 and April 1, 1922 under its
"CORONA" brand. Menzi & Co., Inc., had only one bank account for its whole business. The fertilizer
business had no separate capital. A fertilizer account was opened in the general ledger, and interest at
the rate charged by the Bank of the Philippine Islands was debited or credited to that account on the
daily balances of the fertilizer business. This was in accordance with appellant's established practice, to
which the plaintiff assented.
On or about April 24, 1922 the net profits of the business carried on under the oral agreement were
determined by Menzi & Co., Inc., after deducting interest charges, proportional part of warehouse rent
and salaries and wages, and the other expenses of said business, and the plaintiff was paid some twenty
thousand pesos in full satisfaction of his share of the profits.
Pursuant to the aforementioned verbal agreement, confirmed by the letter, Exhibit B, the defendant
corporation April 27, 1922 entered a written contract with the plaintiff, marked Exhibit A, which is the
basis of the present action.
The fertilizer business was carried on by Menzi & Co., Inc., after the execution of Exhibit A in practically
the same manner as it was prior thereto. The intervention of the plaintiff was limited to supervising the
mixing of the fertilizers in Menzi & Co.'s, Inc., bodegas.
The trade-marks used in the sale of the fertilizer were registered in the Bureau of Commerce & Industry
in the name of Menzi & Co., Inc., and the fees were paid by that company. They were not changed to
the fertilizer business, in which the plaintiff was interested. Only the fees for registering the formulas in
the Bureau of Science were charged to the fertilizer business, and the total amount thereof was credited
to this business in the final liquidation on April 27, 1927.
On May 3, 1924 the plaintiff made a contract with Menzi & Co., Inc., to furnish it all the stems and scraps
to tobacco that it might need for its fertilizer business either in the Philippine Islands or for export to other
countries. This contract is rendered to in the record as the "Vastago Contract". Menzi & Co., Inc.,
advanced the plaintiff, paying the salaries of his employees, and other expenses in performing his
contract.
White, Page & Co., certified public accountants, audited the books of Menzi & Co., Inc., every month,
and at the end of each year they prepared a balance sheet and a profit and loss statement of the fertilizer
business. These statements were delivered to the plaintiff for examination, and after he had had an
opportunity of verifying them he approved them without objection and returned them to Menzi & Co., Inc.
Plaintiff collected from Menzi Co., Inc., as his share or 35 per cent of the net profits of the fertilizer
business the following amounts:
1922 . . . . . . . . . . . . . . . . . . . . . P1,874.73
 1923 . . . . . . . . . . . . . . . . . . . . . 30,212.62
1924 . . . . . . . . . . . . . . . . . . . . . 101,081.56
1925 . . . . . . . . . . . . . . . . . . . . . 35,665.03
1926 . . . . . . . . . . . . . . . . . . . . . 27,649.98

Total . . . . . . . . . . . . . . . . . . . . P196,483.92
To this amount must be added plaintiff's share of the net profits from January 1 to April 27, 1927,
amounting to P34,766.87, making a total of P231,250.79.
Prior to the expiration of the contract, Exhibit A, the manager of Menzi & Co. Inc., notified the plaintiff
that the contract for his services would not be renewed.
When plaintiff's contract expired on April 27, 1927, the fertilizer department of Menzi & Co., Inc., had on
hand materials and ingredients and two Ford trucks of the book value of approximately P75,000, and
accounts receivable amounting to P103,000. There were claims outstanding and bills to pay. Before the
net profits could be finally determined, it was necessary to dispose of the materials and equipment,
collect the outstanding accounts for Menzi & Co., Inc., prepared a balance sheet and a profit and loss
statement for the period from January 1 to April 27, 1927 as a basis of settlement, but the plaintiff refused
to accept it, and filed the present action.
Menzi & Co., Inc., then proceeded to liquidate fertilizer business in question. In October, 1927 it proposed
to the plaintiff that the old and damaged stocks on hand having a book value of P40,000, which the
defendant corporation had been unable to dispose of, be sold at public or private sale, or divided between
the parties. The plaintiff refused to agree to this. The defendant corporation then applied to the trial court
for an order for the sale of the remaining property at public auction, but apparently the court did not act
on the petition.
The old stocks were taken over by Menzi & Co., Inc., and the final liquidation of the fertilizer business
was completed in December, 1928 and a final balance sheet and a profit and loss statement were
submitted to the plaintiff during the trial. During the liquidation the books of Menzi & Co., Inc., for the
whole period of the contract in question were reaudited by White, Page & Co.., certain errors of
bookkeeping were discovered by them. After making the corrections they found the balance due the
plaintiff to be P21,633.20.
Plaintiff employed a certified public accountant, Vernon Thompson, to examine the books and vouchers
of Menzi & Co. Thompson assumed the plaintiff and Menzi & Co., Inc., to be partners, and that Menzi &
Co., Inc., was obliged to furnish free of charge all the capital the partnership should need. He naturally
reached very different conclusions from those of the auditors of Menzi Co., Inc.
We come now to a consideration of appellant's assignment of error. After considering the evidence and
the arguments of counsel, we are unanimously of the opinion that under the facts of this case the
relationship established between Menzi & Co. and by the plaintiff was to receive 35 per cent of the net
profits of the fertilizer business of Menzi & Co., Inc., in compensation for his services of supervising the
mixing of the fertilizers. Neither the provisions of the contract nor the conduct of the parties prior or
subsequent to its execution justified the finding that it was a contract of copartnership. Exhibit A, as
appears from the statement of facts, was in effect a continuation of the verbal agreement between the
parties, whereby the plaintiff worked for the defendant corporation for one-half of the net profits derived
by the corporation from certain fertilizer contracts. Plaintiff was paid his share of the profits from those
transactions after Menzi & Co., Inc., had deducted the same items of expense which he now protests.
Plaintiff never made any objection to defendant's manner of keeping the accounts or to the charges. The
business was continued in the same manner under the written agreement, Exhibit A, and for four years
the plaintiff never made any objection. On the contrary he approved and signed every year the balance
sheet and the profit and loss statement. It was only when plaintiff's contract was about to expire and the
defendant corporation had notified him that it would not renew it that the plaintiff began to make
objections.
The trial court relied on article 116 of the Code of Commerce, which provides that articles of association
by which two or more persons obligate themselves to place in a common fund any property, industry, or
any of these things, in order to obtain profit, shall be commercial, no matter what its class may be,
provided it has been established in accordance with the provisions of this Code; but in the case at bar
there was no common fund, that is, a fund belonging to the parties as joint owners or partners. The
business belonged to Menzi & Co., Inc. The plaintiff was working for Menzi & Co., Inc. Instead of
receiving a fixed salary or a fixed salary and a small percentage of the net profits, he was to receive 35
per cent of the net profits as compensation for his services. Menzi & Co., Inc., was to advanced him
P300 a month on account of his participation in the profits. It will be noted that no provision was made
for reimbursing Menzi & Co., Inc., in case there should be no net profits at the end of the year. It is now
well settled that the old rule that sharing profits as profits made one a partner is overthrown. (Mechem,
second edition, p. 89.)
It is nowhere stated in Exhibit A that the parties were establishing a partnership or intended to become
partners. Great stress in laid by the trial judge and plaintiff's attorneys on the fact that in the sixth
paragraph of Exhibit A the phrase "en sociedad con" is used in providing that defendant corporation not
engage in the business of prepared fertilizers except in association with the plaintiff (en sociedad con).
The fact is that en sociedad con as there used merely means en reunion con or in association with, and
does not carry the meaning of "in partnership with".
The trial judge found that the defendant corporation had not always regarded the contract in question as
an employment agreement, because in its answer to the original complaint it stated that before the
expiration of Exhibit A it notified the plaintiff that it would not continue associated with him in said
business. The trial judge concluded that the phrase "associated with", used by the defendant corporation,
indicated that it regarded the contract, Exhibit A, as an agreement of copartnership.
In the first place, the complaint and answer having been superseded by the amended complaint and the
answer thereto, and the answer to the original complaint not having been presented in evidence as an
exhibit, the trial court was not authorized to take it into account. "Where amended pleadings have been
filed, allegations in the original pleadings are held admissible, but in such case the original pleadings
can have no effect, unless formally offered in evidence." (Jones on Evidence, sec. 273; Lucido vs.
Calupitan, 27 Phil., 148.)
In the second place, although the word "associated" may be related etymologically to the Spanish word
"socio", meaning partner, it does not in its common acceptation imply any partnership relation.
The 7th, 8th, and 9th paragraphs of Exhibit A, whereby the defendant corporation obligated itself to pay
to the plaintiff 35 per cent of the net profits of the fertilizer business, to advance to him P300 a month on
account of his share of the profits, and to grant him permission during 1923 to absent himself from the
Philippines for not more than one year are utterly incompatible with the claim that it was the intention of
the parties to form a copartnership. Various other reasons for holding that the parties were not partners
are advanced in appellant's brief. We do not deem it necessary to discuss them here. We merely wish
to add that in the Vastago contract, Exhibit A, the plaintiff clearly recognized Menzi & Co., Inc., as the
owners of the fertilizer business in question.
As to the various items of the expense rejected by the trial judge, they were in our opinion proper charges
and erroneously disallowed, and this would true even if the parties had been partners. Although Menzi
& Co., Inc., agreed to furnish the necessary financial aid for the fertilizer business, it did not obligate itself
to contribute any fixed sum as capital or to defray at its own expense the cost of securing the necessary
credit. Some of the contentions of the plaintiff and his expert witness Thompson are so obviously without
merit as not to merit serious consideration. For instance, they objected to the interest charges on draft
for materials purchased abroad. Their contention is that the corporation should have furnished the money
to purchase these materials for cash, overlooking the fact that the interest was added to the cost price,
and that the plaintiff was not prejudiced by the practice complained of. It was also urged, and this seems
to us the height of absurdity, that the defendant corporation should have furnished free of charge such
financial assistance as would have made it unnecessary to discount customers' notes, thereby enabling
the business to reap the interest. In other words, the defendant corporation should have enabled the
fertilizer department to do business on a credit instead of a cash basis.
The charges now complained of, as we have already stated, are the same as those made under the
verbal agreement, upon the termination of which the parties made a settlement; the charges in question
were acquiesced in by the plaintiff for years, and it is now too late for him to contest them. The decision
of this court in the case of Kriedt vs. E.C. McCullough & Co. (37 Phil., 474), is in point. A portion of the
syllabus of that case reads as follows:
CONTRACTS; INTERPRETATION; CONTEMPORANEOUS ACTS OF PARTIES. Acts done by the
parties to a contract in the course of its performance are admissible in evidence upon the question of its
meaning, as being their own contemporaneous interpretation of its terms.
2. ID, ID; ACTION OF PARTIES UNDER PRIOR CONTRACT. In an action upon a contract containing
a provision a doubtful application it appeared that under a similar prior contract the parties had, upon the
termination of said contract, adjusted their rights and made a settlement in which the doubtful clause had
been given effect in conformity with the interpretation placed thereon by one of the parties. Held: That
this action of the parties under the prior contract could properly be considered upon the question of the
interpretation of the same clause in the later contract.
3. ID.; ID.; ACQUIESCENCE. Where one of the parties to a contract acquiesces in the interpretation
placed by the other upon a provision of doubtful application, the party so acquiescing is bound by such
interpretation.
4. ID.; ID.; ILLUSTRATION. One of the parties to a contract, being aware at the time of the execution
thereof that the other placed a certain interpretation upon a provision of doubtful application,
nevertheless proceeded, without raising any question upon the point, to perform the services which he
was bound to render under the contract. Upon the termination of the contract by mutual consent a
question was raised as to the proper interpretation of the doubtful provision. Held: That the party raising
such question had acquiesced in the interpretation placed upon the contract by the other party and was
bound thereby.
The trial court held that the plaintiff was entitled to P6,578.38 or 35 per cent of the net profits derived by
Menzi & Co., Inc., from its contract for fertilizers with the Tabacalera. This finding in our opinion is not
justified by the evidence. This contract was obtained by Menzi & Co., Inc., shortly before plaintiff's
contract with the defendant corporation expired. Plaintiff tried to get the Tabacalera contract for himself.
When this contract was filled, plaintiff had ceased to work for Menzi & Co., Inc., and he has no right to
participate in the profits derived therefrom.
Appellant's sixth assignment of error is that the trial court erred in finding the value of the good-will of the
fertilizer business in question to be P562,312, and that the plaintiff was entitled to 35 per cent thereof or
P196,709.20. In reaching this conclusion the trial court unfortunately relied on the opinion of the
accountant, Vernon Thompson, who assumed, erroneously as we have seen, that the plaintiff and Menzi
& Co., Inc., were partners; but even if they had been partners there would have been no good-will to
dispose of. The defendant corporation had a fertilizer business before it entered into any agreement with
the plaintiff; plaintiff's agreement was for a fixed period, five years, and during that time the business was
carried on in the name of Menzi & Co., Inc., and in Menzi & Co.'s warehouses and after the expiration of
plaintiff's contract Menzi & Co., Inc., continued its fertilizer business, as it had a perfect right to do. There
was really nothing to which any good-will could attach. Plaintiff maintains, however, that the trade-marks
used in the fertilizer business during the time that he was connected with it acquired great value, and
that they have been appropriated by the appellant to its own use. That seems to be the only basis of the
alleged good-will, to which a fabulous valuation was given. As we have seen, the trade- marks were not
new. They had been used by Behn, Meyer & Co. in its business for other goods and one of them for
fertilizer. They belonged to Menzi & Co., Inc., and were registered in its name; only the expense of
registering the formulas in the Bureau of Science was charged to the business in which the plaintiff was
interested. These trade-marks remained the exclusive property of Menzi & Co., and the plaintiff had no
interest therein on the expiration of his contract.
The balance due the plaintiff, as appears from Exhibit 52, is P21,633.20. We are satisfied by the evidence
that said balance is correct.
For the foregoing reasons, the decision appealed from is modified and the defendant corporation is
sentenced to pay the plaintiff twenty-one thousand, six hundred and thirty-three pesos and twenty
centavos (P21,633.20), with legal interest thereon from the date of the filing of the complaint on June 17,
1927, without a special finding as to costs.
Street, Villamor, and Villa-Real, JJ., concur.
Justice Hull participated in this case, but on account of his absence on leave at the time of the
promulgation of the decision he authorized the undersigned to certify that he voted to modify the decision
of the trial court as appears in the foregoing decision of this court. VILLAMOR, J., Presiding.

10. Heirs of Jose Lim vs Juliet Villa Lim GR 172690 March 3 2010
HEIRS OF JOSE LIM, represented by ELENITO LIM, Petitioners, vs.JULIET VILLA LIM, Respondent.
Before this Court is a Petition for Review on Certiorari1 under Rule 45 of the Rules of Civil Procedure,
assailing the Court of Appeals (CA) Decision2 dated June 29, 2005, which reversed and set aside the
decision3 of the Regional Trial Court (RTC) of Lucena City, dated April 12, 2004.
The facts of the case are as follows:
Petitioners are the heirs of the late Jose Lim (Jose), namely: Jose's widow Cresencia Palad (Cresencia);
and their children Elenito, Evelia, Imelda, Edelyna and Edison, all surnamed Lim (petitioners),
represented by Elenito Lim (Elenito). They filed a Complaint4 for Partition, Accounting and Damages
against respondent Juliet Villa Lim (respondent), widow of the late Elfledo Lim (Elfledo), who was the
eldest son of Jose and Cresencia.
Petitioners alleged that Jose was the liaison officer of Interwood Sawmill in Cagsiay, Mauban, Quezon.
Sometime in 1980, Jose, together with his friends Jimmy Yu (Jimmy) and Norberto Uy (Norberto), formed
a partnership to engage in the trucking business. Initially, with a contribution of 50,000.00 each, they
purchased a truck to be used in the hauling and transport of lumber of the sawmill. Jose managed the
operations of this trucking business until his death on August 15, 1981. Thereafter, Jose's heirs, including
Elfledo, and partners agreed to continue the business under the management of Elfledo. The shares in
the partnership profits and income that formed part of the estate of Jose were held in trust by Elfledo,
with petitioners' authority for Elfledo to use, purchase or acquire properties using said funds.
Petitioners also alleged that, at that time, Elfledo was a fresh commerce graduate serving as his fathers
driver in the trucking business. He was never a partner or an investor in the business and merely
supervised the purchase of additional trucks using the income from the trucking business of the partners.
By the time the partnership ceased, it had nine trucks, which were all registered in Elfledo's name.
Petitioners asseverated that it was also through Elfledos management of the partnership that he was
able to purchase numerous real properties by using the profits derived therefrom, all of which were
registered in his name and that of respondent. In addition to the nine trucks, Elfledo also acquired five
other motor vehicles.
On May 18, 1995, Elfledo died, leaving respondent as his sole surviving heir. Petitioners claimed that
respondent took over the administration of the aforementioned properties, which belonged to the estate
of Jose, without their consent and approval. Claiming that they are co-owners of the properties,
petitioners required respondent to submit an accounting of all income, profits and rentals received from
the estate of Elfledo, and to surrender the administration thereof. Respondent refused; thus, the filing of
this case.
Respondent traversed petitioners' allegations and claimed that Elfledo was himself a partner of Norberto
and Jimmy. Respondent also claimed that per testimony of Cresencia, sometime in 1980, Jose gave
Elfledo 50,000.00 as the latter's capital in an informal partnership with Jimmy and Norberto. When
Elfledo and respondent got married in 1981, the partnership only had one truck; but through the efforts
of Elfledo, the business flourished. Other than this trucking business, Elfledo, together with respondent,
engaged in other business ventures. Thus, they were able to buy real properties and to put up their own
car assembly and repair business. When Norberto was ambushed and killed on July 16, 1993, the
trucking business started to falter. When Elfledo died on May 18, 1995 due to a heart attack, respondent
talked to Jimmy and to the heirs of Norberto, as she could no longer run the business. Jimmy suggested
that three out of the nine trucks be given to him as his share, while the other three trucks be given to the
heirs of Norberto. However, Norberto's wife, Paquita Uy, was not interested in the vehicles. Thus, she
sold the same to respondent, who paid for them in installments.
Respondent also alleged that when Jose died in 1981, he left no known assets, and the partnership with
Jimmy and Norberto ceased upon his demise. Respondent also stressed that Jose left no properties that
Elfledo could have held in trust. Respondent maintained that all the properties involved in this case were
purchased and acquired through her and her husbands joint efforts and hard work, and without any
participation or contribution from petitioners or from Jose. Respondent submitted that these are conjugal
partnership properties; and thus, she had the right to refuse to render an accounting for the income or
profits of their own business.
Trial on the merits ensued. On April 12, 2004, the RTC rendered its decision in favor of petitioners, thus:
WHEREFORE, premises considered, judgment is hereby rendered:
1) Ordering the partition of the above-mentioned properties equally between the plaintiffs and heirs of
Jose Lim and the defendant Juliet Villa-Lim; and
2) Ordering the defendant to submit an accounting of all incomes, profits and rentals received by her
from said properties.
SO ORDERED.
Aggrieved, respondent appealed to the CA.
On June 29, 2005, the CA reversed and set aside the RTC's decision, dismissing petitioners' complaint
for lack of merit. Undaunted, petitioners filed their Motion for Reconsideration,5 which the CA, however,
denied in its Resolution6 dated May 8, 2006.
Hence, this Petition, raising the sole question, viz.:
IN THE APPRECIATION BY THE COURT OF THE EVIDENCE SUBMITTED BY THE PARTIES, CAN
THE TESTIMONY OF ONE OF THE PETITIONERS BE GIVEN GREATER WEIGHT THAN THAT BY
A FORMER PARTNER ON THE ISSUE OF THE IDENTITY OF THE OTHER PARTNERS IN THE
PARTNERSHIP?7
In essence, petitioners argue that according to the testimony of Jimmy, the sole surviving partner, Elfledo
was not a partner; and that he and Norberto entered into a partnership with Jose. Thus, the CA erred in
not giving that testimony greater weight than that of Cresencia, who was merely the spouse of Jose and
not a party to the partnership.8
Respondent counters that the issue raised by petitioners is not proper in a petition for review on certiorari
under Rule 45 of the Rules of Civil Procedure, as it would entail the review, evaluation, calibration, and
re-weighing of the factual findings of the CA. Moreover, respondent invokes the rationale of the CA
decision that, in light of the admissions of Cresencia and Edison and the testimony of respondent, the
testimony of Jimmy was effectively refuted; accordingly, the CA's reversal of the RTC's findings was fully
justified.9
We resolve first the procedural matter regarding the propriety of the instant Petition.
Verily, the evaluation and calibration of the evidence necessarily involves consideration of factual issues
an exercise that is not appropriate for a petition for review on certiorari under Rule 45. This rule
provides that the parties may raise only questions of law, because the Supreme Court is not a trier of
facts. Generally, we are not duty-bound to analyze again and weigh the evidence introduced in and
considered by the tribunals below.10 When supported by substantial evidence, the findings of fact of the
CA are conclusive and binding on the parties and are not reviewable by this Court, unless the case falls
under any of the following recognized exceptions:
(1) When the conclusion is a finding grounded entirely on speculation, surmises and conjectures;
(2) When the inference made is manifestly mistaken, absurd or impossible;
(3) Where there is a grave abuse of discretion;
(4) When the judgment is based on a misapprehension of facts;
(5) When the findings of fact are conflicting;
(6) When the Court of Appeals, in making its findings, went beyond the issues of the case and the same
is contrary to the admissions of both appellant and appellee;
(7) When the findings are contrary to those of the trial court;
(8) When the findings of fact are conclusions without citation of specific evidence on which they are
based;
(9) When the facts set forth in the petition as well as in the petitioners' main and reply briefs are not
disputed by the respondents; and
(10) When the findings of fact of the Court of Appeals are premised on the supposed absence of evidence
and contradicted by the evidence on record.11
We note, however, that the findings of fact of the RTC are contrary to those of the CA. Thus, our review
of such findings is warranted.
On the merits of the case, we find that the instant Petition is bereft of merit.
A partnership exists when two or more persons agree to place their money, effects, labor, and skill in
lawful commerce or business, with the understanding that there shall be a proportionate sharing of the
profits and losses among them. A contract of partnership is defined by the Civil Code as one where two
or more persons bind themselves to contribute money, property, or industry to a common fund, with the
intention of dividing the profits among themselves.12
Undoubtedly, the best evidence would have been the contract of partnership or the articles of
partnership. Unfortunately, there is none in this case, because the alleged partnership was never formally
organized. Nonetheless, we are asked to determine who between Jose and Elfledo was the "partner" in
the trucking business.
A careful review of the records persuades us to affirm the CA decision. The evidence presented by
petitioners falls short of the quantum of proof required to establish that: (1) Jose was the partner and not
Elfledo; and (2) all the properties acquired by Elfledo and respondent form part of the estate of Jose,
having been derived from the alleged partnership.
Petitioners heavily rely on Jimmy's testimony. But that testimony is just one piece of evidence against
respondent. It must be considered and weighed along with petitioners' other evidence vis--vis
respondent's contrary evidence. In civil cases, the party having the burden of proof must establish his
case by a preponderance of evidence. "Preponderance of evidence" is the weight, credit, and value of
the aggregate evidence on either side and is usually considered synonymous with the term "greater
weight of the evidence" or "greater weight of the credible evidence." "Preponderance of evidence" is a
phrase that, in the last analysis, means probability of the truth. It is evidence that is more convincing to
the court as worthy of belief than that which is offered in opposition thereto.13 Rule 133, Section 1 of the
Rules of Court provides the guidelines in determining preponderance of evidence, thus:
SECTION I. Preponderance of evidence, how determined. In civil cases, the party having burden of proof
must establish his case by a preponderance of evidence. In determining where the preponderance or
superior weight of evidence on the issues involved lies, the court may consider all the facts and
circumstances of the case, the witnesses' manner of testifying, their intelligence, their means and
opportunity of knowing the facts to which they are testifying, the nature of the facts to which they testify,
the probability or improbability of their testimony, their interest or want of interest, and also their personal
credibility so far as the same may legitimately appear upon the trial. The court may also consider the
number of witnesses, though the preponderance is not necessarily with the greater number.
At this juncture, our ruling in Heirs of Tan Eng Kee v. Court of Appeals14 is enlightening. Therein, we
cited Article 1769 of the Civil Code, which provides:
Art. 1769. In determining whether a partnership exists, these rules shall apply:
(1) Except as provided by Article 1825, persons who are not partners as to each other are not partners
as to third persons;
(2) Co-ownership or co-possession does not of itself establish a partnership, whether such co-owners or
co-possessors do or do not share any profits made by the use of the property;
(3) The sharing of gross returns does not of itself establish a partnership, whether or not the persons
sharing them have a joint or common right or interest in any property from which the returns are derived;
(4) The receipt by a person of a share of the profits of a business is a prima facie evidence that he is a
partner in the business, but no such inference shall be drawn if such profits were received in payment:
(a) As a debt by installments or otherwise;
(b) As wages of an employee or rent to a landlord;
(c) As an annuity to a widow or representative of a deceased partner;
(d) As interest on a loan, though the amount of payment vary with the profits of the business;
(e) As the consideration for the sale of a goodwill of a business or other property by installments or
otherwise.
Applying the legal provision to the facts of this case, the following circumstances tend to prove that
Elfledo was himself the partner of Jimmy and Norberto: 1) Cresencia testified that Jose gave Elfledo
50,000.00, as share in the partnership, on a date that coincided with the payment of the initial capital
in the partnership;15 (2) Elfledo ran the affairs of the partnership, wielding absolute control, power and
authority, without any intervention or opposition whatsoever from any of petitioners herein;16 (3) all of the
properties, particularly the nine trucks of the partnership, were registered in the name of Elfledo; (4)
Jimmy testified that Elfledo did not receive wages or salaries from the partnership, indicating that what
he actually received were shares of the profits of the business;17 and (5) none of the petitioners, as heirs
of Jose, the alleged partner, demanded periodic accounting from Elfledo during his lifetime. As
repeatedly stressed in Heirs of Tan Eng Kee,18 a demand for periodic accounting is evidence of a
partnership.
Furthermore, petitioners failed to adduce any evidence to show that the real and personal properties
acquired and registered in the names of Elfledo and respondent formed part of the estate of Jose, having
been derived from Jose's alleged partnership with Jimmy and Norberto. They failed to refute
respondent's claim that Elfledo and respondent engaged in other businesses. Edison even admitted that
Elfledo also sold Interwood lumber as a sideline.19 Petitioners could not offer any credible evidence other
than their bare assertions. Thus, we apply the basic rule of evidence that between documentary and oral
evidence, the former carries more weight.20
Finally, we agree with the judicious findings of the CA, to wit:
The above testimonies prove that Elfledo was not just a hired help but one of the partners in the trucking
business, active and visible in the running of its affairs from day one until this ceased operations upon
his demise. The extent of his control, administration and management of the partnership and its
business, the fact that its properties were placed in his name, and that he was not paid salary or other
compensation by the partners, are indicative of the fact that Elfledo was a partner and a controlling one
at that. It is apparent that the other partners only contributed in the initial capital but had no say thereafter
on how the business was ran. Evidently it was through Elfredos efforts and hard work that the partnership
was able to acquire more trucks and otherwise prosper. Even the appellant participated in the affairs of
the partnership by acting as the bookkeeper sans salary.1avvphi1
It is notable too that Jose Lim died when the partnership was barely a year old, and the partnership and
its business not only continued but also flourished. If it were true that it was Jose Lim and not Elfledo
who was the partner, then upon his death the partnership should have
been dissolved and its assets liquidated. On the contrary, these were not done but instead its operation
continued under the helm of Elfledo and without any participation from the heirs of Jose Lim.
Whatever properties appellant and her husband had acquired, this was through their own concerted
efforts and hard work. Elfledo did not limit himself to the business of their partnership but engaged in
other lines of businesses as well.
In sum, we find no cogent reason to disturb the findings and the ruling of the CA as they are amply
supported by the law and by the evidence on record.
WHEREFORE, the instant Petition is DENIED. The assailed Court of Appeals Decision dated June 29,
2005 is AFFIRMED. Costs against petitioners.

Art 1770
1. Arbes vs Polistico 53 Phil 489 1929
ADRIANO ARBES, ET AL., plaintiffs-appellees, vs. VICENTE POLISTICO, ET AL., defendants-
appellants.

This is an action to bring about liquidation of the funds and property of the association called "Turnuhan
Polistico & Co." The plaintiffs were members or shareholders, and the defendants were designated as
president-treasurer, directors and secretary of said association.
It is well to remember that this case is now brought before the consideration of this court for the second
time. The first one was when the same plaintiffs appeared from the order of the court below sustaining
the defendant's demurrer, and requiring the former to amend their complaint within a period, so as to
include all the members of "Turnuhan Polistico & Co.," either as plaintiffs or as a defendants. This court
held then that in an action against the officers of a voluntary association to wind up its affairs and enforce
an accounting for money and property in their possessions, it is not necessary that all members of the
association be made parties to the action. (Borlasa vs. Polistico, 47 Phil., 345.) The case having been
remanded to the court of origin, both parties amend, respectively, their complaint and their answer, and
by agreement of the parties, the court appointed Amadeo R. Quintos, of the Insular Auditor's Office,
commissioner to examine all the books, documents, and accounts of "Turnuhan Polistico & Co.," and to
receive whatever evidence the parties might desire to present.
The commissioner rendered his report, which is attached to the record, with the following resume:
The defendants objected to the commissioner's report, but the trial court, having examined the reasons
for the objection, found the same sufficiently explained in the report and the evidence, and accepting it,
rendered judgment, holding that the association "Turnuhan Polistico & Co." is unlawful, and sentencing
the defendants jointly and severally to return the amount of P24,607.80, as well as the documents
showing the uncollected credits of the association, to the plaintiffs in this case, and to the rest of the
members of the said association represented by said plaintiffs, with costs against the defendants.
The defendants assigned several errors as grounds for their appeal, but we believe they can all be
reduced to two points, to wit: (1) That not all persons having an interest in this association are included
as plaintiffs or defendants; (2) that the objection to the commissioner's report should have been admitted
by the court below.
As to the first point, the decision on the case of Borlasa vs. Polistico, supra, must be followed.
With regard to the second point, despite the praiseworthy efforts of the attorney of the defendants, we
are of opinion that, the trial court having examined all the evidence touching the grounds for the objection
and having found that they had been explained away in the commissioner's report, the conclusion
reached by the court below, accepting and adopting the findings of fact contained in said report, and
especially those referring to the disposition of the association's money, should not be disturbed.
In Tan Dianseng Tan Siu Pic vs. Echauz Tan Siuco (5 Phil., 516), it was held that the findings of facts
made by a referee appointed under the provisions of section 135 of the Code of Civil Procedure stand
upon the same basis, when approved by the Court, as findings made by the judge himself. And in Kriedt
vs. E. C. McCullogh & Co.(37 Phil., 474), the court held: "Under section 140 of the Code of Civil
Procedure it is made the duty of the court to render judgment in accordance with the report of the referee
unless the court shall unless for cause shown set aside the report or recommit it to the referee. This
provision places upon the litigant parties of the duty of discovering and exhibiting to the court any error
that may be contained therein." The appellants stated the grounds for their objection. The trial examined
the evidence and the commissioner's report, and accepted the findings of fact made in the report. We
find no convincing arguments on the appellant's brief to justify a reversal of the trial court's conclusion
admitting the commissioner's findings.
There is no question that "Turnuhan Polistico & Co." is an unlawful partnership (U.S. vs. Baguio, 39 Phil.,
962), but the appellants allege that because it is so, some charitable institution to whom the partnership
funds may be ordered to be turned over, should be included, as a party defendant. The appellants refer
to article 1666 of the Civil Code, which provides:
A partnership must have a lawful object, and must be established for the common benefit of the partners.
When the dissolution of an unlawful partnership is decreed, the profits shall be given to charitable
institutions of the domicile of the partnership, or, in default of such, to those of the province.
Appellant's contention on this point is untenable. According to said article, no charitable institution is a
necessary party in the present case of determination of the rights of the parties. The action which may
arise from said article, in the case of unlawful partnership, is that for the recovery of the amounts paid
by the member from those in charge of the administration of said partnership, and it is not necessary for
the said parties to base their action to the existence of the partnership, but on the fact that of having
contributed some money to the partnership capital. And hence, the charitable institution of the domicile
of the partnership, and in the default thereof, those of the province are not necessary parties in this case.
The article cited above permits no action for the purpose of obtaining the earnings made by the unlawful
partnership, during its existence as result of the business in which it was engaged, because for the
purpose, as Manresa remarks, the partner will have to base his action upon the partnership contract,
which is to annul and without legal existence by reason of its unlawful object; and it is self evident that
what does not exist cannot be a cause of action. Hence, paragraph 2 of the same article provides that
when the dissolution of the unlawful partnership is decreed, the profits cannot inure to the benefit of the
partners, but must be given to some charitable institution.
We deem in pertinent to quote Manresa's commentaries on article 1666 at length, as a clear explanation
of the scope and spirit of the provision of the Civil Code which we are concerned. Commenting on said
article Manresa, among other things says:
When the subscriptions of the members have been paid to the management of the partnership, and
employed by the latter in transactions consistent with the purposes of the partnership may the former
demand
the return of the reimbursement thereof from the manager or administrator withholding them?
Apropos of this, it is asserted: If the partnership has no valid existence, if it is considered juridically non-
existent, the contract entered into can have no legal effect; and in that case, how can it give rise to an
action in favor of the partners to judicially demand from the manager or the administrator of the
partnership capital, each one's contribution?
The authors discuss this point at great length, but Ricci decides the matter quite clearly, dispelling all
doubts thereon. He holds that the partner who limits himself to demanding only the amount contributed
by him need not resort to the partnership contract on which to base his action. And he adds in explanation
that the partner makes his contribution, which passes to the managing partner for the purpose of carrying
on the business or industry which is the object of the partnership; or in other words, to breathe the breath
of life into a partnership contract with an objection forbidden by law. And as said contrast does not exist
in the eyes of the law, the purpose from which the contribution was made has not come into
existence, and the administrator of the
partnership holding said contribution retains what belongs to others, without any consideration; for which
reason he is not bound to return it and he who has paid in his share is entitled to recover it.
But this is not the case with regard to profits earned in the course of the partnership, because they do
not constitute or represent the partner's contribution but are the result of the industry, business or
speculation which is the object of the partnership,
and therefor, in order to demand the proportional part of the said profits, the partner would have to base
his action on the contract which is null and void, since this partition or distribution of the profits is one of
the juridical effects thereof. Wherefore considering this contract as non-existent, by reason of its illicit
object, it cannot give rise to the necessary action, which must be the basis of the judicial complaint.
Furthermore, it would be immoral and unjust for the law to permit a profit from an industry prohibited by
it.
Hence the distinction made in the second paragraph of this article of this Code, providing that the profits
obtained by unlawful means shall not enrich the partners, but shall upon the dissolution of the
partnership, be given to the charitable institutions of the domicile of the partnership, or, in default of such,
to those of the province.
This is a new rule, unprecedented by our law, introduced to supply an obvious deficiency of the former
law, which did not describe the purpose to which those profits denied the partners were to be applied,
nor state what to be done with them.
The profits are so applied, and not the contributions, because this would be an excessive and unjust
sanction for, as we have seen, there is no reason, in such a case, for depriving the partner of the portion
of the capital that he contributed, the circumstances of the two cases being entirely different.
Our Code does not state whether, upon the dissolution of the unlawful partnership, the amounts
contributed are to be returned by the partners, because it only deals with the disposition of the profits;
but the fact that said contributions are not
included in the disposal prescribed profits, shows that in consequences of said exclusion, the general
law must be followed, and hence the partners should reimburse the amount of their respective
contributions. Any other solution is immoral, and the law will not consent to the latter remaining in the
possession of the manager or administrator who has refused to return them, by denying to the partners
the action to demand them. (Manresa, Commentaries on the Spanish Civil Code, vol. XI, pp. 262-264)
The judgment appealed from, being in accordance with law, should be, as it is hereby, affirmed with
costs against the appellants; provided, however, the defendants shall pay the legal interest on the sum
of P24,607.80 from the date of the decision of the court, and provided, further, that the defendants shall
deposit this sum of money and other documents evidencing uncollected credits in the office of the clerk
of the trial court, in order that said court may distribute them among the members of said association,
upon being duly identified in the manner that it may deem proper. So ordered.

Art 1771 to 1773

Fernandez vs Dela Rosa 1 Phil 671 1903

JOSE FERNANDEZ, plaintiff-appellant,
vs.FRANCISCO DE LA ROSA, defendant-
The object of this action is to obtain from the court a declaration that a partnership exists between the
parties, that the plaintiff has a consequent interested in certain cascoes which are alleged to be
partnership property, and that the defendant is bound to render an account of his administration of the
cascoes and the business carried on with them.
Judgment was rendered for the defendant in the court below and the plaintiff appealed.
The respective claims of the parties as to the facts, so far as it is necessary to state them in order to
indicate the point in dispute, may be briefly summarized. The plaintiff alleges that in January, 1900, he
entered into a verbal agreement with the defendant to form a partnership for the purchase of cascoes
and the carrying on of the business of letting the same for hire in Manila, the defendant to buy the
cascoes and each partner to furnish for that purpose such amount of money as he could, the profits to
be divided proportionately; that in the same January the plaintiff furnished the defendant 300 pesos to
purchase a casco designated as No. 1515, which the defendant did purchase for 500 pesos of Doa
Isabel Vales, taking the title in his own name; that the plaintiff furnished further sums aggregating about
300 pesos for repairs on this casco; that on the fifth of the following March he furnished the defendant
825 pesos to purchase another casco designated as No. 2089, which the defendant did purchase for
1,000 pesos of Luis R. Yangco, taking the title to this casco also in his own name; that in April the parties
undertook to draw up articles of partnership for the purpose of embodying the same in an authentic
document, but that the defendant having proposed a draft of such articles which differed materially from
the terms of the earlier verbal agreement, and being unwillingly to include casco No. 2089 in the
partnership, they were unable to come to any understanding and no written agreement was executed;
that the defendant having in the meantime had the control and management of the two cascoes, the
plaintiff made a demand for an accounting upon him, which the defendant refused to render, denying the
existence of the partnership altogether.
The defendant admits that the project of forming a partnership in the casco business in which he was
already engaged to some extent individually was discussed between himself and the plaintiff in January,
1900, and earlier, one Marcos Angulo, who was a partner of the plaintiff in a bakery business, being also
a party to the negotiations, but he denies that any agreement was ever consummated. He denies that
the plaintiff furnished any money in January, 1900, for the purchase of casco No. 1515, or for repairs on
the same, but claims that he borrowed 300 pesos on his individual account in January from the bakery
firm, consisting of the plaintiff, Marcos Angulo, and Antonio Angulo. The 825 pesos, which he admits he
received from the plaintiff March 5, he claims was for the purchase of casco No. 1515, which he alleged
was bought March 12, and he alleges that he never received anything from the defendant toward the
purchase of casco No. 2089. He claims to have paid, exclusive of repairs, 1,200 pesos for the first casco
and 2,000 pesos for the second one.
The case comes to this court under the old procedure, and it is therefore necessary for us the review the
evidence and pass upon the facts. Our general conclusions may be stated as follows:
(1) Doa Isabel Vales, from whom the defendant bought casco No. 1515, testifies that the sale was
made and the casco delivered in January, although the public document of sale was not executed till
some time afterwards. This witness is apparently disinterested, and we think it is safe to rely upon the
truth of her testimony, especially as the defendant, while asserting that the sale was in March, admits
that he had the casco taken to the ways for repairs in January.
It is true that the public document of sale was executed March 10, and that the vendor declares therein
that she is the owner of the casco, but such declaration does not exclude proof as to the actual date of
the sale, at least as against the plaintiff, who was not a party to the instrument. (Civil Code, sec. 1218.)
It often happens, of course, in such cases, that the actual sale precedes by a considerable time the
execution of the formal instrument of transfer, and this is what we think occurred here.
(2) The plaintiff presented in evidence the following receipt: "I have this day received from D. Jose
Fernandez eight hundred and twenty-five pesos for the cost of a casco which we are to purchase in
company. Manila, March 5, 1900. Francisco de la Rosa." The authenticity of this receipt is admitted by
the defendant. If casco No. 1515 was bought, as we think it was, in January, the casco referred to in the
receipt which the parties "are to purchase in company" must be casco No. 2089, which was bought
March 22. We find this to be the fact, and that the plaintiff furnished and the defendant received 825
pesos toward the purchase of this casco, with the understanding that it was to be purchased on joint
account.
(3) Antonio Fernandez testifies that in the early part of January, 1900, he saw Antonio Angulo give the
defendant, in the name of the plaintiff, a sum of money, the amount of which he is unable to state, for
the purchase of a casco to be used in the plaintiff's and defendant's business. Antonio Angulo also
testifies, but the defendant claims that the fact that Angulo was a partner of the plaintiff rendered him
incompetent as a witness under the provisions of article 643 of the then Code of Civil Procedure, and
without deciding whether this point is well taken, we have discarded his testimony altogether in
considering the case. The defendant admits the receipt of 300 pesos from Antonio Angulo in January,
claiming, as has been stated, that it was a loan from the firm. Yet he sets up the claim that the 825 pesos
which he received from the plaintiff in March were furnished toward the purchase of casco No. 1515,
thereby virtually admitting that casco was purchased in company with the plaintiff. We discover nothing
in the evidence to support the claim that the 300 pesos received in January was a loan, unless it may be
the fact that the defendant had on previous occasions borrowed money from the bakery firm. We think
all the probabilities of the case point to the truth of the evidence of Antonio Fernandez as to this
transaction, and we find the fact to be that the sum in question was furnished by the plaintiff toward the
purchase for joint ownership of casco No. 1515, and that the defendant received it with the understanding
that it was to be used for this purposed. We also find that the plaintiff furnished some further sums of
money for the repair of casco.
(4) The balance of the purchase price of each of the two cascoes over and above the amount contributed
by the plaintiff was furnished by the defendant.
(5) We are unable to find upon the evidence before us that there was any specific verbal agreement of
partnership, except such as may be implied from the fact as to the purchase of the casco.
(6) Although the evidence is somewhat unsatisfactory upon this point, we think it more probable than
otherwise that no attempt was made to agree upon articles of partnership till about the middle of the April
following the purchase of the cascoes.
(7) At some time subsequently to the failure of the attempt to agree upon partnership articles and after
the defendant had been operating the cascoes for some time, the defendant returned to the plaintiff
1,125 pesos, in two different sums, one of 300 and one of 825 pesos. The only evidence in the record
as to the circumstances under which the plaintiff received these sums is contained in his answer to the
interrogatories proposed to him by the defendant, and the whole of his statement on this point may
properly be considered in determining the fact as being in the nature of an indivisible admission. He
states that both sums were received with an express reservation on his part of all his rights as a partner.
We find this to be the fact.
Two questions of law are raised by the foregoing facts: (1) Did a partnership exist between the parties?
(2) If such partnership existed, was it terminated as a result of the act of the defendant in receiving back
the 1,125 pesos?
(1) "Partnership is a contract by which two or more persons bind themselves to contribute money,
property, or industry to a common fund, with the intention of dividing the profits among themselves."
(Civil Code, art. 1665.)
The essential points upon which the minds of the parties must meet in a contract of partnership are,
therefore, (1) mutual contribution to a common stock, and (2) a joint interest in the profits. If the contract
contains these two elements the partnership relation results, and the law itself fixes the incidents of this
relation if the parties fail to do so. (Civil Code, secs. 1689, 1695.)
We have found as a fact that money was furnished by the plaintiff and received by the defendant with
the understanding that it was to be used for the purchase of the cascoes in question. This establishes
the first element of the contract, namely, mutual contribution to a common stock. The second element,
namely, the intention to share profits, appears to be an unavoidable deduction from the fact of the
purchase of the cascoes in common, in the absence of any other explanation of the object of the parties
in making the purchase in that form, and, it may be added, in view of the admitted fact that prior to the
purchase of the first casco the formation of a partnership had been a subject of negotiation between
them.
Under other circumstances the relation of joint ownership, a relation distinct though perhaps not
essentially different in its practical consequence from that of partnership, might have been the result of
the joint purchase. If, for instance, it were shown that the object of the parties in purchasing in company
had been to make a more favorable bargain for the two cascoes that they could have done by purchasing
them separately, and that they had no ulterior object except to effect a division of the common property
when once they had acquired it, the affectio societatiswould be lacking and the parties would have
become joint tenants only; but, as nothing of this sort appears in the case, we must assume that the
object of the purchase was active use and profit and not mere passive ownership in common.
It is thus apparent that a complete and perfect contract of partnership was entered into by the parties.
This contract, it is true, might have been subject to a suspensive condition, postponing its operation until
an agreement was reached as to the respective participation of the partners in the profits, the character
of the partnership as collective or en comandita, and other details, but although it is asserted by counsel
for the defendant that such was the case, there is little or nothing in the record to support this claim, and
that fact that the defendant did actually go on and purchase the boat, as it would seem, before any
attempt had been made to formulate partnership articles, strongly discountenances the theory.
The execution of a written agreement was not necessary in order to give efficacy to the verbal contract
of partnership as a civil contract, the contributions of the partners not having been in the form of
immovables or rights in immovables. (Civil Code, art. 1667.) The special provision cited, requiring the
execution of a public writing in the single case mentioned and dispensing with all formal requirements in
other cases, renders inapplicable to this species of contract the general provisions of article 1280 of the
Civil Code.
(2) The remaining question is as to the legal effect of the acceptance by the plaintiff of the money returned
to him by the defendant after the definitive failure of the attempt to agree upon partnership articles. The
amount returned fell short, in our view of the facts, of that which the plaintiff had contributed to the capital
of the partnership, since it did not include the sum which he had furnished for the repairs of casco No.
1515. Moreover, it is quite possible, as claimed by the plaintiff, that a profit may have been realized from
the business during the period in which the defendant have been administering it prior to the return of
the money, and if so he still retained that sum in his hands. For these reasons the acceptance of the
money by the plaintiff did not have the effect of terminating the legal existence of the partnership by
converting it into a societas leonina, as claimed by counsel for the defendant.
Did the defendant waive his right to such interest as remained to him in the partnership property by
receiving the money? Did he by so doing waive his right to an accounting of the profits already realized,
if any, and a participation in them in proportion to the amount he had originally contributed to the common
fund? Was the partnership dissolved by the "will or withdrawal of one of the partners" under article 1705
of the Civil Code? We think these questions must be answered in the negative.
There was no intention on the part of the plaintiff in accepting the money to relinquish his rights as a
partner, nor is there any evidence that by anything that he said or by anything that he omitted to say he
gave the defendant any ground whatever to believe that he intended to relinquish them. On the contrary
he notified the defendant that he waived none of his rights in the partnership. Nor was the acceptance
of the money an act which was in itself inconsistent with the continuance of the partnership relation, as
would have been the case had the plaintiff withdrawn his entire interest in the partnership. There is,
therefore, nothing upon which a waiver, either express or implied, can be predicated. The defendant
might have himself terminated the partnership relation at any time, if he had chosen to do so, by
recognizing the plaintiff's right in the partnership property and in the profits. Having failed to do this he
can not be permitted to force a dissolution upon his co-partner upon terms which the latter is unwilling
to accept. We see nothing in the case which can give the transaction in question any other aspect than
that of the withdrawal by one partner with the consent of the other of a portion of the common capital.
The result is that we hold and declare that a partnership was formed between the parties in January,
1900, the existence of which the defendant is bound to recognize; that cascoes No. 1515 and 2089
constitute partnership property, and that the plaintiff is entitled to an accounting of the defendant's
administration of such property, and of the profits derived therefrom. This declaration does not involve
an adjudication as to any disputed items of the partnersip account.
The judgment of the court below will be reversed without costs, and the record returned for the execution
of the judgment now rendered. So ordered.

ON MOTION FOR A REHEARING.

MAPA, J.:
This case has been decided on appeal in favor of the plaintiff, and the defendant has moved for a
rehearing upon the following grounds:
1. Because that part of the decision which refers to the existence of the partnership which is the object
of the complaint is not based upon clear and decisive legal grounds; and
2. Because, upon the supposition of the existence of the partnership, the decision does not clearly
determine whether the juridical relation between the partners suffered any modification in consequence
of the withdrawal by the plaintiff of the sum of 1,125 pesos from the funds of the partnership, or if it
continued as before, the parties being thereby deprived, he alleges, of one of the principal bases for
determining with exactness the amount due to each.
With respect to the first point, the appellant cites the fifth conclusion of the decision, which is as follows:
"We are unable to find from the evidence before us that there was any specific verbal agreement of
partnership, except such as may be implied from the facts as to the purchase of the cascoes."
Discussing this part of the decision, the defendant says that, in the judgment of the court, if on the one
hand there is no direct evidence of a contract, on the other its existence can only be inferred from certain
facts, and the defendant adds that the possibility of an inference is not sufficient ground upon which to
consider as existing what may be inferred to exist, and still less as sufficient ground for declaring its
efficacy to produce legal effects.
This reasoning rests upon a false basis. We have not taken into consideration the mere possibility of an
inference, as the appellant gratuitously stated, for the purpose of arriving at a conclusion that a contract
of partnership was entered into between him and the plaintiff, but have considered the proof which is
derived from the facts connected with the purchase of the cascoes. It is stated in the decision that with
the exception of this evidence we find no other which shows the making of the contract. But this does
not mean (for it says exactly the contrary) that this fact is not absolutely proven, as the defendant
erroneously appears to think. From this data we infer a fact which to our mind is certain and positive,
and not a mere possibility; we infer not that it is possible that the contract may have existed, but that it
actually did exist. The proofs constituted by the facts referred to, although it is the only evidence, and in
spite of the fact that it is not direct, we consider, however, sufficient to produce such a conviction, which
may certainly be founded upon any of the various classes of evidence which the law admits. There is all
the more reason for its being so in this case, because a civil partnership may be constituted in any form,
according to article 1667 of the Civil Code, unless real property or real rights are contributed to it the
only case of exception in which it is necessary that the agreement be recorded in a public instrument.
It is of no importance that the parties have failed to reach an agreement with respect to the minor details
of contract. These details pertain to the accidental and not to the essential part of the contract. We have
already stated in the opinion what are the essential requisites of a contract of partnership, according to
the definition of article 1665. Considering as a whole the probatory facts which appears from the record,
we have reached the conclusion that the plaintiff and the defendant agreed to the essential parts of that
contract, and did in fact constitute a partnership, with the funds of which were purchased the cascoes
with which this litigation deals, although it is true that they did not take the precaution to precisely
establish and determine from the beginning the conditions with respect to the participation of each
partner in the profits or losses of the partnership. The disagreements subsequently arising between
them, when endeavoring to fix these conditions, should not and can not produce the effect of destroying
that which has been done, to the prejudice of one of the partners, nor could it divest his rights under the
partnership which had accrued by the actual contribution of capital which followed the agreement to
enter into a partnership, together with the transactions effected with partnership funds. The law has
foreseen the possibility of the constitution of a partnership without an express stipulation by the partners
upon those conditions, and has established rules which may serve as a basis for the distribution of profits
and losses among the partners. (Art. 1689 of the Civil Code. ) We consider that the partnership entered
into by the plaintiff and the defendant falls within the provisions of this article.
With respect to the second point, it is obvious that upon declaring the existence of a partnership and the
right of the plaintiff to demand from the defendant an itemized accounting of his management thereof, it
was impossible at the same time to determine the effects which might have been produced with respect
to the interest of the partnership by the withdrawal by the plaintiff of the sum of 1,125 pesos. This could
only be determined after a liquidation of the partnership. Then, and only then, can it be known if this sum
is to be charged to the capital contributed by the plaintiff, or to his share of the profits, or to both. It might
well be that the partnership has earned profits, and that the plaintiff's participation therein is equivalent
to or exceeds the sum mentioned. In this case it is evident that, notwithstanding that payment, his interest
in the partnership would still continue. This is one case. It would be easy to imagine many others, as the
possible results of a liquidation are innumerable. The liquidation will finally determine the condition of the
legal relations of the partners inter se at the time of the withdrawal of the sum mentioned. It was not, nor
is it possible to determine this status a priori without prejudging the result, as yet unknown, of the
litigation. Therefore it is that in the decision no direct statement has been made upon this point. It is for
the same reason that it was expressly stated in the decision that it "does not involve an adjudication as
to any disputed item of the partnership account."
The contentions advanced by the moving party are so evidently unfounded that we can not see the
necessity or convenience of granting the rehearing prayed for, and the motion is therefore denied.

2. Estanislao vs CA 160 SCRA 830 1988

ELIGIO ESTANISLAO, JR., petitioner,
vs.THE HONORABLE COURT OF APPEALS, REMEDIOS ESTANISLAO, EMILIO and LEOCADIO
SANTIAGO, respondents.

GANCAYCO, J.:
By this petition for certiorari the Court is asked to determine if a partnership exists between members of
the same family arising from their joint ownership of certain properties.
Petitioner and private respondents are brothers and sisters who are co-owners of certain lots at the
corner of Annapolis and Aurora Blvd., QuezonCity which were then being leased to the Shell Company
of the Philippines Limited (SHELL). They agreed to open and operate a gas station thereat to be known
as Estanislao Shell Service Station with an initial investment of P 15,000.00 to be taken from the advance
rentals due to them from SHELL for the occupancy of the said lots owned in common by them. A joint
affidavit was executed by them on April 11, 1966 which was prepared byAtty. Democrito Angeles 1 They
agreed to help their brother, petitioner herein, by allowing him to operate and manage the gasoline
service station of the family. They negotiated with SHELL. For practical purposes and in order not to run
counter to the company's policy of appointing only one dealer, it was agreed that petitioner would apply
for the dealership. Respondent Remedios helped in managing the bussiness with petitioner from May 3,
1966 up to February 16, 1967.
On May 26, 1966, the parties herein entered into an Additional Cash Pledge Agreement with SHELL
wherein it was reiterated that the P 15,000.00 advance rental shall be deposited with SHELL to cover
advances of fuel to petitioner as dealer with a proviso that said agreement "cancels and supersedes the
Joint Affidavit dated 11 April 1966 executed by the co-owners." 2
For sometime, the petitioner submitted financial statements regarding the operation of the business to
private respondents, but therafter petitioner failed to render subsequent accounting. Hence through Atty.
Angeles, a demand was made on petitioner to render an accounting of the profits.
The financial report of December 31, 1968 shows that the business was able to make a profit of P
87,293.79 and that by the year ending 1969, a profit of P 150,000.00 was realized. 3
Thus, on August 25, 1970 private respondents filed a complaint in the Court of First Instance of Rizal
against petitioner praying among others that the latter be ordered:
to execute a public document embodying all the provisions of the partnership agreement entered into
between plaintiffs and defendant as provided in Article 1771 of the New Civil Code;
2. to render a formal accounting of the business operation covering the period from May 6, 1966 up to
December 21, 1968 and from January 1, 1969 up to the time the order is issued and that the same be
subject to proper audit;
3. to pay the plaintiffs their lawful shares and participation in the net profits of the business in an amount
of no less than P l50,000.00 with interest at the rate of 1% per month from date of demand until full
payment thereof for the entire duration of the business; and
4. to pay the plaintiffs the amount of P 10,000.00 as attorney's fees and costs of the suit (pp. 13-14
Record on Appeal.)
After trial on the merits, on October 15, 1975, Hon. Lino Anover who was then the temporary presiding
judge of Branch IV of the trial court, rendered judgment dismissing the complaint and counterclaim and
ordering private respondents to pay petitioner P 3,000.00 attorney's fee and costs. Private respondent
filed a motion for reconsideration of the decision. On December 10, 1975, Hon. Ricardo Tensuan who
was the newly appointed presiding judge of the same branch, set aside the aforesaid derision and
rendered another decision in favor of said respondents.
The dispositive part thereof reads as follows:
WHEREFORE, the Decision of this Court dated October 14, 1975 is hereby reconsidered and a
new judgment is hereby
rendered in favor of the plaintiffs and as against
the defendant:
Ordering the defendant to execute a public
instrument embodying all the provisions of the partnership agreement entered into between plaintiffs and
defendant as provided for in Article 1771, Civil Code of the Philippines;
(2) Ordering the defendant to render a formal accounting of the business operation from April 1969 up
to the time this order is issued, the same to be subject to examination and audit by the plaintiff,
(3) Ordering the defendant to pay plaintiffs their lawful shares and participation in the net profits of the
business in the amount of P 150,000.00, with interest thereon at the rate of One (1%) Per Cent per
month from date of demand until full payment thereof;
(4) Ordering the defendant to pay the plaintiffs the sum of P 5,000.00 by way of attorney's fees of
plaintiffs' counsel; as well as the costs of suit. (pp. 161-162. Record on Appeal).
Petitioner then interposed an appeal to the Court of Appeals enumerating seven (7) errors allegedly
committed by the trial court. In due course, a decision was rendered by the Court of Appeals on
November 28,1978 affirming in toto the decision of the lower court with costs against petitioner. *
A motion for reconsideration of said decision filed by petitioner was denied on January 30, 1979. Not
satisfied therewith, the petitioner now comes to this court by way of this petition for certiorari alleging that
the respondent court erred:
1. In interpreting the legal import of the Joint Affidavit (Exh. 'A') vis-a-vis the Additional Cash Pledge
Agreement (Exhs. "B-2","6", and "L"); and
2. In declaring that a partnership was established by and among the petitioner and the private
respondents as regards the ownership and or operation of the gasoline service station business.
Petitioner relies heavily on the provisions of the Joint Affidavit of April 11, 1966 (Exhibit A) and the
Additional Cash Pledge Agreement of May 20, 1966 (Exhibit 6) which are herein reproduced-
(a) The joint Affidavit of April 11, 1966, Exhibit A reads:
(1) That we are the Lessors of two parcels of land fully describe in Transfer Certificates of Title Nos.
45071 and 71244 of the Register of Deeds of Quezon City, in favor of the LESSEE - SHELL COMPANY
OF THE PHILIPPINES LIMITED a corporation duly licensed to do business in the Philippines;
(2) That we have requested the said SHELL COMPANY OF THE PHILIPPINE LIMITED advanced
rentals in the total amount of FIFTEEN THOUSAND PESOS (P l5,000.00) Philippine Currency, so that
we can use the said amount to augment our capital investment in the operation of that gasoline station
constructed ,by the said company on our two lots aforesaid by virtue of an outstanding Lease Agreement
we have entered into with the said company;
(3) That the and SHELL COMPANY OF THE PHILIPPINE LIMITED out of its benevolence and desire to
help us in aumenting our capital investment in the operation of the said gasoline station, has agreed to
give us the said amount of P 15,000.00, which amount will partake the nature of ADVANCED RENTALS;
(4) That we have freely and voluntarily agreed that upon receipt of the said amount of FIFTEEN
THOUSAND PESOS (P l6,000.00) from he SHELL COMPANY OF THE PHILIPPINES LIMITED, the
said sum as ADVANCED RENTALS to us be applied as monthly rentals for the sai two lots under our
Lease Agreement starting on the 25th of May, 1966 until such time that the said of P 15,000.00 be
applicable, which time to our estimate and one-half months from May 25, 1966 or until the 10th of
October, 1966 more or less;
(5) That we have likewise agreed among ourselves that the SHELL COMPANY OF THE PHILIPPINES
LIMITED execute an instrument for us to sign embodying our conformity that the said amount that it will
generously grant us as requested be applied as ADVANCED RENTALS; and
(6) FURTHER AFFIANTS SAYETH NOT.,
(b) The Additional Cash Pledge Agreement of May 20,1966, Exhibit 6, is as follows:
WHEREAS, under the lease Agreement dated 13th November, 1963 (identified as doc. Nos. 491 & 1407,
Page Nos. 99 & 66, Book Nos. V & III, Series of 1963 in the Notarial Registers of Notaries Public Rosauro
Marquez, and R.D. Liwanag, respectively) executed in favour of SHELL by the herein CO-OWNERS and
another Lease Agreement dated 19th March 1964 . . . also executed in favour of SHELL by CO-
OWNERS Remedios and MARIA ESTANISLAO for the lease of adjoining portions of two parcels of land
at Aurora Blvd./ Annapolis, Quezon City, the CO OWNERS RECEIVE a total monthly rental of PESOS
THREE THOUSAND THREE HUNDRED EIGHTY TWO AND 29/100 (P 3,382.29), Philippine Currency;
WHEREAS, CO-OWNER Eligio Estanislao Jr. is the Dealer of the Shell Station constructed on the leased
land, and as Dealer under the Cash Pledge Agreement dated llth May 1966, he deposited to SHELL in
cash the amount of PESOS TEN THOUSAND (P 10,000), Philippine Currency, to secure his purchase
on credit of Shell petroleum products; . . .
WHEREAS, said DEALER, in his desire, to be granted an increased the limit up to P 25,000, has secured
the conformity of his CO-OWNERS to waive and assign to SHELL the total monthly rentals due to all of
them to accumulate the equivalent amount of P 15,000, commencing 24th May 1966, this P 15,000 shall
be treated as additional cash deposit to SHELL under the same terms and conditions of the
aforementioned Cash Pledge Agreement dated llth May 1966.
NOW, THEREFORE, for and in consideration of the foregoing premises,and the mutual covenants
among the CO-OWNERS herein and SHELL, said parties have agreed and hereby agree as follows:

l. The CO-OWNERS dohere by waive in favor of DEALER the monthly rentals due to all CO-OWNERS,
collectively, under the above describe two Lease Agreements, one dated 13th November 1963 and the
other dated 19th March 1964 to enable DEALER to increase his existing cash deposit to SHELL, from P
10,000 to P 25,000, for such purpose, the SHELL CO-OWNERS and DEALER hereby irrevocably assign
to SHELL the monthly rental of P 3,382.29 payable to them respectively as they fall due, monthly,
commencing 24th May 1966, until such time that the monthly rentals accumulated, shall be equal to P
l5,000.
2. The above stated monthly rentals accumulated shall be treated as additional cash deposit by DEALER
to SHELL, thereby in increasing his credit limit from P 10,000 to P 25,000. This agreement, therefore,
cancels and supersedes the Joint affidavit dated 11 April 1966 executed by the CO-OWNERS.

3. Effective upon the signing of this agreement, SHELL agrees to allowDEALER to purchase from SHELL
petroleum products, on credit, up to the amount of P 25,000.
4. This increase in the credit shall also be subject to the same terms and conditions of the above-
mentioned Cash Pledge Agreement dated llth May 1966. (Exhs. "B-2," "L," and "6"; emphasis supplied)
In the aforesaid Joint Affidavit of April 11, 1966 (Exhibit A), it is clearly stipulated by the parties that the
P 15,000.00 advance rental due to them from SHELL shall augment their "capital investment" in the
operation of the gasoline station, which advance rentals shall be credited as rentals from May 25, 1966
up to four and one-half months or until 10 October 1966, more or less covering said P 15,000.00.
In the subsequent document entitled "Additional Cash Pledge Agreement" above reproduced (Exhibit 6),
the private respondents and petitioners assigned to SHELL the monthly rentals due them commencing
the 24th of May 1966 until such time that the monthly rentals accumulated equal P 15,000.00 which
private respondents agree to be a cash deposit of petitioner in favor of SHELL to increase his credit limit
as dealer. As above-stated it provided therein that "This agreement, therefore, cancels and supersedes
the Joint Affidavit dated 11 April 1966 executed by the CO-OWNERS."
Petitioner contends that because of the said stipulation cancelling and superseding that previous Joint
Affidavit, whatever partnership agreement there was in said previous agreement had thereby been
abrogated. We find no merit in this argument. Said cancelling provision was necessary for the Joint
Affidavit speaks of P 15,000.00 advance rentals starting May 25, 1966 while the latter agreement also
refers to advance rentals of the same amount starting May 24, 1966. There is, therefore, a duplication
of reference to the P 15,000.00 hence the need to provide in the subsequent document that it "cancels
and supersedes" the previous one. True it is that in the latter document, it is silent as to the statement in
the Joint Affidavit that the P 15,000.00 represents the "capital investment" of the parties in the gasoline
station business and it speaks of petitioner as the sole dealer, but this is as it should be for in the latter
document SHELL was a signatory and it would be against its policy if in the agreement it should be
stated that the business is a partnership with private respondents and not a sole proprietorship of
petitioner.
Moreover other evidence in the record shows that there was in fact such partnership agreement between
the parties. This is attested by the testimonies of private respondent Remedies Estanislao and Atty.
Angeles. Petitioner submitted to private respondents periodic accounting of the business. 4 Petitioner
gave a written authority to private respondent Remedies Estanislao, his sister, to examine and audit the
books of their "common business' aming negosyo). 5 Respondent Remedios assisted in the running of
the business. There is no doubt that the parties hereto formed a partnership when they bound
themselves to contribute money to a common fund with the intention of dividing the profits among
themselves.6 The sole dealership by the petitioner and the issuance of all government permits and
licenses in the name of petitioner was in compliance with the afore-stated policy of SHELL and the
understanding of the parties of having only one dealer of the SHELL products.
Further, the findings of facts of the respondent court are conclusive in this proceeding, and its conclusion
based on the said facts are in accordancewith the applicable law.
WHEREFORE, the judgment appealed from is AFFIRMED in toto with costs against petitioner. This
decision is immediately executory and no motion for extension of time to file a motion for reconsideration
shag beentertained.

3. Lourdes Navarro vs CA GR 101847 May 27 1993

LOURDES NAVARRO AND MENARDO NAVARRO, petitioners,
vs.COURT OF APPEALS, JUDGE BETHEL KATALBAS-MOSCARDON, Presiding Judge, Regional
Trial Court of Bacolod City, Branch 52, Sixth Judicial Region and Spouses OLIVIA V. YANSON
AND RICARDO B. YANSON, respondents.
Assailed and sought to be set aside by the petition before us is the Resolution of the Court of Appeals
dated June 20, 1991 which dismissed the petition for annulment of judgment filed by the Spouses
Lourdes and Menardo Navarro, thusly:
The instant petition for annulment of decision is DISMISSED.
1. Judgments may be annulled only on the ground of extrinsic or collateral fraud, as distinguished from
intrinsic fraud (Canlas vs. Court of Appeals, 164 SCRA 160, 170). No such ground is alleged in the
petition.
2. Even if the judgment rendered by the respondent Court were erroneous, it is not necessarily void
(Chereau vs. Fuentebella, 43 Phil. 216). Hence, it cannot be annulled by the proceeding sought to be
commenced by the petitioners.
3. The petitioners' remedy against the judgment enforcement of which is sought to be stopped should
have been appeal.
SO ORDERED. (pp. 24-25, Rollo.)
The antecedent facts of the case are as follows:
On July 23, 1976, herein private respondent Olivia V. Yanson filed a complaint against petitioner Lourdes
Navarro for "Delivery of Personal Properties With Damages". The complaint incorporated an application
for a writ of replevin. The complaint was later docketed as Civil Case No. 716 (12562) of the then Court
of First Instance of Bacolod (Branch 55) and was subsequently amended to include private respondent's
husband, Ricardo B. Yanson, as co-plaintiff, and petitioner's husband, as co-defendant.
On July 27, 1976, then Executive Judge Oscar R. Victoriano (later to be promoted and to retire as
Presiding Justice of the Court of Appeals) approved private respondents' application for a writ of replevin.
The Sheriff's Return of Service dated March 3, 1978 affirmed receipt by private respondents of all pieces
of personal property sought to be recovered from petitioners.
On April 30, 1990, Presiding Judge Bethel Katalbas-Moscardon rendered a decision, disposing as
follows :
Accordingly, in the light of the aforegoing findings, all chattels already recovered by plaintiff by virtue of
the Writ of Replevin and as listed in the complaint are hereby sustained to belong to plaintiff being the
owner of these properties; the motor vehicle, particularly that Ford Fiera Jeep registered in and which
had remain in the possession of the defendant is likewise declared to belong to her, however, said
defendant is hereby ordered to reimburse plaintiff the sum of P6,500.00 representing the amount
advanced to pay part of the price therefor; and said defendant is likewise hereby ordered to return to
plaintiff such other equipment[s] as were brought by the latter to and during the operation of their
business as were listed in the complaint and not recovered as yet by virtue of the previous Writ of
Replevin. (p. 12, Rollo.)
Petitioner received a copy of the decision on January 10, 1991 (almost 9 months after its rendition) and
filed on January 16, 1991 a "Motion for Extension of Time To File a Motion for Reconsideration". This
was granted on January 18, 1991. Private respondents filed their opposition, citing the ruling in the case
of Habaluyas Enterprises, Inc. vs. Japson (142 SCRA 208 [1986]) proscribing the filing of any motion for
extension of time to file a motion for a new trial or reconsideration. The trial judge vacated the order
dated January 18, 1991 and declared the decision of April 30, 1990 as final and executory. (Petitioners'
motion for reconsideration was subsequently filed on February 1, 1991 or 22 days after the receipt of the
decision).
On February 4, 1991, the trial court issued a writ of execution (Annex "5", p. 79, Rollo). The Sheriff's
Return of Service (Annex "6", p. 82, Rollo) declared that the writ was "duly served and satisfied". A
receipt for the amount of P6,500.00 issued by Mrs. Lourdes Yanson, co-petitioner in this case, was
likewise submitted by the Sheriff (Annex "7", p. 83, Rollo).
On June 26, 1991, petitioners filed with respondent court a petition for annulment of the trial court's
decision, claiming that the trial judge erred in declaring the non-existence of a partnership, contrary to
the evidence on record.
The appellate court, as aforesaid, outrightly dismissed the petition due to absence of extrinsic or
collateral fraud, observing further that an appeal was the proper remedy.
In the petition before us, petitioners claim that the trial judge ignored evidence that would show that the
parties "clearly intended to form, and (in fact) actually formed a verbal partnership engaged in the
business of Air Freight Service Agency in Bacolod"; and that the decision sustaining the writ of replevin
is void since the properties belonging to the partnership do not actually belong to any of the parties until
the final disposition and winding up of the partnership" (p. 15, Rollo). These issues, however, were
extensively discussed by the trial judge in her 16-page, single-spaced decision.
We agree with respondents that the decision in this case has become final. In fact a writ of execution
had been issued and was promptly satisfied by the payment of P6,500.00 to private respondents.
Having lost their right to appeal, petitioners resorted to annulment proceedings to justify a belated judicial
review of their case. This was, however, correctly thrown out by the Court of Appeals because petitioners
failed to cite extrinsic or collateral fraud to warrant the setting aside of the trial court's decision. We
respect the appellate court's finding in this regard.
Petitioners have come to us in a petition for review. However, the petition is focused solely on factual
issues which can no longer be entertained. Petitioners' arguments are all directed against the decision
of the regional trial court; not a word is said in regard to the appellate's court disposition of their petition
for annulment of judgment. Verily, petitioners keeps on pressing that the idea of a partnership exists on
account of the so-called admissions in judicio. But the factual premises of the trial court were more than
enough to suppress and negate petitioners submissions along this line:
To be resolved by this Court factually involved in the issue of whether there was a partnership that
existed between the parties based on their verbal contention; whether the properties that were commonly
used in the operation of Allied Air Freight belonged to the alleged partnership business; and the status
of the parties in this transaction of alleged partnership. On the other hand, the legal issues revolves on
the dissolution and winding up in case a partnership so existed as well as the issue of ownership over
the properties subject matter of recovery.\ As a premise, Article 1767 of the New Civil Code defines the
contract of partnership to quote:
Art. 1767. By the contract of partnership two or more persons bind themselves to contribute money,
property, or industry to a common fund, with the intention of dividing the proceeds among themselves.
xxx xxx xxx
Corollary to this definition is the provision in determining whether a partnership exist as so provided
under Article 1769, to wit:

Furthermore, the Code provides under Article 1771 and 1772 that while a partnership may be constituted
in any form, a public instrument is necessary where immovables or any rights is constituted. Likewise, if
the partnership involves a capitalization of P3,000.00 or more in money or property, the same must
appear in a public instrument which must be recorded in the Office of the Securities and Exchange
Commission. Failure to comply with these requirements shall only affect liability of the partners to third
persons.
In consideration of the above, it is undeniable that both the plaintiff and the defendant-wife made
admission to have entered into an agreement of operating this Allied Air Freight Agency of which the
plaintiff personally constituted with the Manila Office in a sense that the plaintiff did supply the necessary
equipments and money while her brother Atty. Rodolfo Villaflores was the Manager and the defendant
the Cashier. It was also admitted that part of this agreement was an equal sharing of whatever proceeds
realized. Consequently, the plaintiff brought into this transaction certain chattels in compliance with her
obligation. The same has been done by the herein brother and the herein defendant who started to work
in the business. A cursory examination of the evidences presented no proof that a partnership, whether
oral or written had been constituted at the inception of this transaction. True it is that even up to the filing
of this complaint those movables brought by the plaintiff for the use in the operation of the business
remain registered in her name.
While there may have been co-ownership or co-possession of some items and/or any sharing of
proceeds by way of advances received by both plaintiff and the defendant, these are not indicative and
supportive of the existence of any partnership between them. Article 1769 of the New Civil Code is
explicit. Even the books and records retrieved by the Commissioner appointed by the Court did not show
proof of the existence of a partnership as conceptualized by law. Such that if assuming that there were
profits realized in 1975 after the two-year deficits were compensated, this could only be subject to an
equal sharing consonant to the agreement to equally divide any profit realized. However, this Court
cannot overlook the fact that the Audit Report of the appointed Commissioner was not highly reliable in
the sense that it was more of his personal estimate of what is available on hand. Besides, the alleged
profits was a difference found after valuating the assets and not arising from the real operation of the
business. In accounting procedures, strictly, this could not be profit but a net worth.
In view of the above factual findings of the Court it follows inevitably therefore that there being no
partnership that existed, any dissolution, liquidation or winding up is beside the point. The plaintiff himself
had summarily ceased from her contract of agency and it is a personal prerogative to desist. On the
other hand, the assumption by the defendant in negotiating for herself the continuance of the Agency
with the principal in Manila is comparable to plaintiff's. Any account of plaintiff with the principal as
alleged, bore no evidence as no collection was ever demanded of from her. The alleged P20,000.00
assumption specifically, as would have been testified to by the defendant's husband remain a mere
allegation.
As to the properties sought to be recovered, the Court sustains the possession by plaintiff of all
equipments and chattels recovered by virtue of the Writ of Replevin. Considering the other vehicle which
appeared registered in the name of the defendant, and to which even she admitted that part of the
purchase price came from the business claimed mutually operated, although the Court have not as much
considered all entries in the Audit Report as totally reliable to be sustained insofar as the operation of
the business is concerned, nevertheless, with this admission of the defendant and the fact that as borne
out in said Report there has been disbursed and paid for in this vehicle out of the business funds in the
total sum of P6,500.00, it is only fitting and proper that validity of these disbursements must be sustained
as true (Exhs. M-1 to M-3, p. 180, Records). In this connection and taking into account the earlier
agreement that only profits were to be shared equally, the plaintiff must be reimbursed of this cost if only
to allow the defendant continuous possession of the vehicle in question. It is a fundamental moral, moral
and civil injunction that no one shall enrich himself at the expense of another. (pp. 71-75, Rollo.)
Withal, the appellate court acted properly in dismissing the petition for annulment of judgment, the issue
raised therein having been directly litigated in, and passed upon by, the trial court.
WHEREFORE, the petition is DISMISSED. The Resolution of the Court of Appeals dated June 20, 1991
is AFFIRMED in all respects.

4. Marjorie Tocao and William Belo vs CA GR 127405 Oct 4 2000

MARJORIE TOCAO and WILLIAM T. BELO, petitioners, vs.COURT OF APPEALS and NENITA A.
ANAY, respondents.
This is a petition for review of the Decision of the Court of Appeals in CA-G.R. CV No. 41616,1 affirming
the Decision of the Regional Trial Court of Makati, Branch 140, in Civil Case No. 88-509.2
Fresh from her stint as marketing adviser of Technolux in Bangkok, Thailand, private respondent Nenita
A. Anay met petitioner William T. Belo, then the vice-president for operations of Ultra Clean Water
Purifier, through her former employer in Bangkok. Belo introduced Anay to petitioner Marjorie Tocao,
who conveyed her desire to enter into a joint venture with her for the importation and local distribution of
kitchen cookwares. Belo volunteered to finance the joint venture and assigned to Anay the job of
marketing the product considering her experience and established relationship with West Bend
Company, a manufacturer of kitchen wares in Wisconsin, U.S.A. Under the joint venture, Belo acted as
capitalist, Tocao as president and general manager, and Anay as head of the marketing department and
later, vice-president for sales. Anay organized the administrative staff and sales force while Tocao hired
and fired employees, determined commissions and/or salaries of the employees, and assigned them to
different branches. The parties agreed that Belos name should not appear in any documents relating to
their transactions with West Bend Company. Instead, they agreed to use Anays name in securing
distributorship of cookware from that company. The parties agreed further that Anay would be entitled
to: (1) ten percent (10%) of the annual net profits of the business; (2) overriding commission of six percent
(6%) of the overall weekly production; (3) thirty percent (30%) of the sales she would make; and (4) two
percent (2%) for her demonstration services. The agreement was not reduced to writing on the strength
of Belos assurances that he was sincere, dependable and honest when it came to financial
commitments.
Anay having secured the distributorship of cookware products from the West Bend Company and
organized the administrative staff and the sales force, the cookware business took off successfully. They
operated under the name of Geminesse Enterprise, a sole proprietorship registered in Marjorie Tocaos
name, with office at 712 Rufino Building, Ayala Avenue, Makati City. Belo made good his monetary
commitments to Anay. Thereafter, Roger Muencheberg of West Bend Company invited Anay to the
distributor/dealer meeting in West Bend, Wisconsin, U.S.A., from July 19 to 21, 1987 and to the
southwestern regional convention in Pismo Beach, California, U.S.A., from July 25-26, 1987. Anay
accepted the invitation with the consent of Marjorie Tocao who, as president and general manager of
Geminesse Enterprise, even wrote a letter to the Visa Section of the U.S. Embassy in Manila on July 13,
1987. A portion of the letter reads:
"Ms. Nenita D. Anay (sic), who has been patronizing and supporting West Bend Co. for twenty (20) years
now, acquired the distributorship of Royal Queen cookware for Geminesse Enterprise, is the Vice
President Sales Marketing and a business partner of our company, will attend in response to the
invitation." (Italics supplied.)3
Anay arrived from the U.S.A. in mid-August 1987, and immediately undertook the task of saving the
business on account of the unsatisfactory sales record in the Makati and Cubao offices. On August 31,
1987, she received a plaque of appreciation from the administrative and sales people through Marjorie
Tocao4 for her excellent job performance. On October 7, 1987, in the presence of Anay, Belo signed a
memo5 entitling her to a thirty-seven percent (37%) commission for her personal sales "up Dec 31/87."
Belo explained to her that said commission was apart from her ten percent (10%) share in the profits.
On October 9, 1987, Anay learned that Marjorie Tocao had signed a letter6 addressed to the Cubao sales
office to the effect that she was no longer the vice-president of Geminesse Enterprise. The following day,
October 10, she received a note from Lina T. Cruz, marketing manager, that Marjorie Tocao had barred
her from holding office and conducting demonstrations in both Makati and Cubao offices.7 Anay
attempted to contact Belo. She wrote him twice to demand her overriding commission for the period of
January 8, 1988 to February 5, 1988 and the audit of the company to determine her share in the net
profits. When her letters were not answered, Anay consulted her lawyer, who, in turn, wrote Belo a letter.
Still, that letter was not answered.
Anay still received her five percent (5%) overriding commission up to December 1987. The following
year, 1988, she did not receive the same commission although the company netted a gross sales of
P13,300,360.00.
On April 5, 1988, Nenita A. Anay filed Civil Case No. 88-509, a complaint for sum of money with
damages8 against Marjorie D. Tocao and William Belo before the Regional Trial Court of Makati, Branch
140.
In her complaint, Anay prayed that defendants be ordered to pay her, jointly and severally, the following:
(1) P32,00.00 as unpaid overriding commission from January 8, 1988 to February 5, 1988; (2)
P100,000.00 as moral damages, and (3) P100,000.00 as exemplary damages. The plaintiff also prayed
for an audit of the finances of Geminesse Enterprise from the inception of its business operation until
she was "illegally dismissed" to determine her ten percent (10%) share in the net profits. She further
prayed that she be paid the five percent (5%) "overriding commission" on the remaining 150 West Bend
cookware sets before her "dismissal."
In their answer,9 Marjorie Tocao and Belo asserted that the "alleged agreement" with Anay that was
"neither reduced in writing, nor ratified," was "either unenforceable or void or inexistent." As far as Belo
was concerned, his only role was to introduce Anay to Marjorie Tocao. There could not have been a
partnership because, as Anay herself admitted, Geminesse Enterprise was the sole proprietorship of
Marjorie Tocao. Because Anay merely acted as marketing demonstrator of Geminesse Enterprise for an
agreed remuneration, and her complaint referred to either her compensation or dismissal, such complaint
should have been lodged with the Department of Labor and not with the regular court.
Petitioners (defendants therein) further alleged that Anay filed the complaint on account of "ill-will and
resentment" because Marjorie Tocao did not allow her to "lord it over in the Geminesse Enterprise." Anay
had acted like she owned the enterprise because of her experience and expertise. Hence, petitioners
were the ones who suffered actual damages "including unreturned and unaccounted stocks of
Geminesse Enterprise," and "serious anxiety, besmirched reputation in the business world, and various
damages not less than P500,000.00." They also alleged that, to "vindicate their names," they had to hire
counsel for a fee of P23,000.00.
At the pre-trial conference, the issues were limited to: (a) whether or not the plaintiff was an employee
or partner of Marjorie Tocao and Belo, and (b) whether or not the parties are entitled to damages.10
In their defense, Belo denied that Anay was supposed to receive a share in the profit of the business.
He, however, admitted that the two had agreed that Anay would receive a three to four percent (3-4%)
share in the gross sales of the cookware. He denied contributing capital to the business or receiving a
share in its profits as he merely served as a guarantor of Marjorie Tocao, who was new in the business.
He attended and/or presided over business meetings of the venture in his capacity as a guarantor but
he never participated in decision-making. He claimed that he wrote the memo granting the plaintiff thirty-
seven percent (37%) commission upon her dismissal from the business venture at the request of Tocao,
because Anay had no other income.
For her part, Marjorie Tocao denied having entered into an oral partnership agreement with Anay.
However, she admitted that Anay was an expert in the cookware business and hence, they agreed to
grant her the following commissions: thirty-seven percent (37%) on personal sales; five percent (5%) on
gross sales; two percent (2%) on product demonstrations, and two percent (2%) for recruitment of
personnel. Marjorie denied that they agreed on a ten percent (10%) commission on the net profits.
Marjorie claimed that she got the capital for the business out of the sale of the sewing machines used in
her garments business and from Peter Lo, a Singaporean friend-financier who loaned her the funds with
interest. Because she treated Anay as her "co-equal," Marjorie received the same amounts of
commissions as her. However, Anay failed to account for stocks valued at P200,000.00.
On April 22, 1993, the trial court rendered a decision the dispositive part of which is as follows:
"WHEREFORE, in view of the foregoing, judgment is hereby rendered:
1. Ordering defendants to submit to the Court a formal account as to the partnership affairs for the years
1987 and 1988 pursuant to Art. 1809 of the Civil Code in order to determine the ten percent (10%) share
of plaintiff in the net profits of the cookware business;
2. Ordering defendants to pay five percent (5%) overriding commission for the one hundred and fifty
(150) cookware sets available for disposition when plaintiff was wrongfully excluded from the partnership
by defendants;
3. Ordering defendants to pay plaintiff overriding commission on the total production which for the period
covering January 8, 1988 to February 5, 1988 amounted to P32,000.00;
4. Ordering defendants to pay P100,000.00 as moral damages and P100,000.00 as exemplary damages,
and
5. Ordering defendants to pay P50,000.00 as attorneys fees and P20,000.00 as costs of suit.
SO ORDERED."
The trial court held that there was indeed an "oral partnership agreement between the plaintiff and the
defendants," based on the following: (a) there was an intention to create a partnership; (b) a common
fund was established through contributions consisting of money and industry, and (c) there was a joint
interest in the profits. The testimony of Elizabeth Bantilan, Anays cousin and the administrative officer
of Geminesse Enterprise from August 21, 1986 until it was absorbed by Royal International, Inc.,
buttressed the fact that a partnership existed between the parties. The letter of Roger Muencheberg of
West Bend Company stating that he awarded the distributorship to Anay and Marjorie Tocao because
he was convinced that with Marjories financial contribution and Anays experience, the combination of
the two would be invaluable to the partnership, also supported that conclusion. Belos claim that he was
merely a "guarantor" has no basis since there was no written evidence thereof as required by Article
2055 of the Civil Code. Moreover, his acts of attending and/or presiding over meetings of Geminesse
Enterprise plus his issuance of a memo giving Anay 37% commission on personal sales belied this. On
the contrary, it demonstrated his involvement as a partner in the business.
The trial court further held that the payment of commissions did not preclude the existence of the
partnership inasmuch as such practice is often resorted to in business circles as an impetus to bigger
sales volume. It did not matter that the agreement was not in writing because Article 1771 of the Civil
Code provides that a partnership may be "constituted in any form." The fact that Geminesse Enterprise
was registered in Marjorie Tocaos name is not determinative of whether or not the business was
managed and operated by a sole proprietor or a partnership. What was registered with the Bureau of
Domestic Trade was merely the business name or style of Geminesse Enterprise.
The trial court finally held that a partner who is excluded wrongfully from a partnership is an innocent
partner. Hence, the guilty partner must give him his due upon the dissolution of the partnership as well
as damages or share in the profits "realized from the appropriation of the partnership business and
goodwill." An innocent partner thus possesses "pecuniary interest in every existing contract that was
incomplete and in the trade name of the co-partnership and assets at the time he was wrongfully
expelled."
Petitioners appeal to the Court of Appeals11 was dismissed, but the amount of damages awarded by the
trial court were reduced to P50,000.00 for moral damages and P50,000.00 as exemplary damages. Their
Motion for Reconsideration was denied by the Court of Appeals for lack of merit.12 Petitioners Belo and
Marjorie Tocao are now before this Court on a petition for review on certiorari, asserting that there was
no business partnership between them and herein private respondent Nenita A. Anay who is, therefore,
not entitled to the damages awarded to her by the Court of Appeals.
Petitioners Tocao and Belo contend that the Court of Appeals erroneously held that a partnership existed
between them and private respondent Anay because Geminesse Enterprise "came into being" exactly a
year before the "alleged partnership" was formed, and that it was very unlikely that petitioner Belo would
invest the sum of P2,500,000.00 with petitioner Tocao contributing nothing, without any "memorandum
whatsoever regarding the alleged partnership."13
The issue of whether or not a partnership exists is a factual matter which are within the exclusive domain
of both the trial and appellate courts. This Court cannot set aside factual findings of such courts absent
any showing that there is no evidence to support the conclusion drawn by the court a quo.14 In this case,
both the trial court and the Court of Appeals are one in ruling that petitioners and private respondent
established a business partnership. This Court finds no reason to rule otherwise.
To be considered a juridical personality, a partnership must fulfill these requisites: (1) two or more
persons bind themselves to contribute money, property or industry to a common fund; and (2) intention
on the part of the partners to divide the profits among themselves.15 It may be constituted in any form; a
public instrument is necessary only where immovable property or real rights are contributed
thereto.16 This implies that since a contract of partnership is consensual, an oral contract of partnership
is as good as a written one. Where no immovable property or real rights are involved, what matters is
that the parties have complied with the requisites of a partnership. The fact that there appears to be no
record in the Securities and Exchange Commission of a public instrument embodying the partnership
agreement pursuant to Article 1772 of the Civil Code17 did not cause the nullification of the partnership.
The pertinent provision of the Civil Code on the matter states:
Art. 1768. The partnership has a juridical personality separate and distinct from that of each of the
partners, even in case of failure to comply with the requirements of article 1772, first paragraph.
Petitioners admit that private respondent had the expertise to engage in the business of distributorship
of cookware. Private respondent contributed such expertise to the partnership and hence, under the law,
she was the industrial or managing partner. It was through her reputation with the West Bend Company
that the partnership was able to open the business of distributorship of that companys cookware
products; it was through the same efforts that the business was propelled to financial success. Petitioner
Tocao herself admitted private respondents indispensable role in putting up the business when, upon
being asked if private respondent held the positions of marketing manager and vice-president for sales,
she testified thus:
"A: No, sir at the start she was the marketing manager because there were no one to sell yet, its only
me there then her and then two (2) people, so about four (4). Now, after that when she recruited already
Oscar Abella and Lina Torda-Cruz these two (2) people were given the designation of marketing
managers of which definitely Nita as superior to them would be the Vice President."18
By the set-up of the business, third persons were made to believe that a partnership had indeed been
forged between petitioners and private respondents. Thus, the communication dated June 4, 1986 of
Missy Jagler of West Bend Company to Roger Muencheberg of the same company states:
"Marge Tocao is president of Geminesse Enterprises. Geminesse will finance the operations. Marge
does not have cookware experience. Nita Anay has started to gather former managers, Lina Torda and
Dory Vista. She has also gathered former demonstrators, Betty Bantilan, Eloisa Lamela, Menchu Javier.
They will continue to gather other key people and build up the organization. All they need is the finance
and the products to sell."19
On the other hand, petitioner Belos denial that he financed the partnership rings hollow in the face of
the established fact that he presided over meetings regarding matters affecting the operation of the
business. Moreover, his having authorized in writing on October 7, 1987, on a stationery of his own
business firm, Wilcon Builders Supply, that private respondent should receive thirty-seven (37%) of the
proceeds of her personal sales, could not be interpreted otherwise than that he had a proprietary interest
in the business. His claim that he was merely a guarantor is belied by that personal act of proprietorship
in the business. Moreover, if he was indeed a guarantor of future debts of petitioner Tocao under Article
2053 of the Civil Code,20 he should have presented documentary evidence therefor. While Article 2055
of the Civil Code simply provides that guaranty must be "express," Article 1403, the Statute of Frauds,
requires that "a special promise to answer for the debt, default or miscarriage of another" be in writing.21
Petitioner Tocao, a former ramp model,22 was also a capitalist in the partnership. She claimed that she
herself financed the business. Her and petitioner Belos roles as both capitalists to the partnership with
private respondent are buttressed by petitioner Tocaos admissions that petitioner Belo was her
boyfriend and that the partnership was not their only business venture together. They also established a
firm that they called "Wiji," the combination of petitioner Belos first name, William, and her nickname,
Jiji.23 The special relationship between them dovetails with petitioner Belos claim that he was acting in
behalf of petitioner Tocao. Significantly, in the early stage of the business operation, petitioners
requested West Bend Company to allow them to "utilize their banking and trading facilities in Singapore"
in the matter of importation and payment of the cookware products.24 The inevitable conclusion,
therefore, was that petitioners merged their respective capital and infused the amount into the
partnership of distributing cookware with private respondent as the managing partner.
The business venture operated under Geminesse Enterprise did not result in an employer-employee
relationship between petitioners and private respondent. While it is true that the receipt of a percentage
of net profits constitutes only prima facie evidence that the recipient is a partner in the business,25 the
evidence in the case at bar controverts an employer-employee relationship between the parties. In the
first place, private respondent had a voice in the management of the affairs of the cookware
distributorship,26 including selection of people who would constitute the administrative staff and the sales
force. Secondly, petitioner Tocaos admissions militate against an employer-employee relationship. She
admitted that, like her who owned Geminesse Enterprise,27 private respondent received only
commissions and transportation and representation allowances28 and not a fixed salary.29 Petitioner
Tocao testified:
"Q: Of course. Now, I am showing to you certain documents already marked as Exhs. X and Y. Please
go over this. Exh. Y is denominated `Cubao overrides 8-21-87 with ending August 21, 1987, will you
please go over this and tell the Honorable Court whether you ever came across this document and know
of your own knowledge the amount ---
A: Yes, sir this is what I am talking about earlier. Thats the one I am telling you earlier a certain
percentage for promotions, advertising, incentive.
Q: I see. Now, this promotion, advertising, incentive, there is a figure here and words which I quote:
Overrides Marjorie Ann Tocao P21,410.50 this means that you have received this amount?
A: Oh yes, sir.
Q: I see. And, by way of amplification this is what you are saying as one representing commission,
representation, advertising and promotion?
A: Yes, sir.
Q: I see. Below your name is the words and figure and I quote Nita D. Anay P21,410.50, what is this?
A: Thats her overriding commission.
Q: Overriding commission, I see. Of course, you are telling this Honorable Court that there being the
same P21,410.50 is merely by coincidence?
A: No, sir, I made it a point that we were equal because the way I look at her kasi, you know in a sense
because of her expertise in the business she is vital to my business. So, as part of the incentive I offer
her the same thing.
Q: So, in short you are saying that this you have shared together, I mean having gotten from the company
P21,140.50 is your way of indicating that you were treating her as an equal?
A: As an equal.
Q: As an equal, I see. You were treating her as an equal?
A: Yes, sir.
Q: I am calling again your attention to Exh. Y Overrides Makati the other one is ---
A: That is the same thing, sir.
Q: With ending August 21, words and figure Overrides Marjorie Ann Tocao P15,314.25 the amount
there you will acknowledge you have received that?
A: Yes, sir.
Q: Again in concept of commission, representation, promotion, etc.?
A: Yes, sir.
Q: Okey. Below your name is the name of Nita Anay P15,314.25 that is also an indication that she
received the same amount?
A: Yes, sir.
Q: And, as in your previous statement it is not by coincidence that these two (2) are the same?
A: No, sir.
Q: It is again in concept of you treating Miss Anay as your equal?
A: Yes, sir." (Italics supplied.)30
If indeed petitioner Tocao was private respondents employer, it is difficult to believe that they shall
receive the same income in the business. In a partnership, each partner must share in the profits and
losses of the venture, except that the industrial partner shall not be liable for the losses.31 As an industrial
partner, private respondent had the right to demand for a formal accounting of the business and to
receive her share in the net profit.32
The fact that the cookware distributorship was operated under the name of Geminesse Enterprise, a
sole proprietorship, is of no moment. What was registered with the Bureau of Domestic Trade on August
19, 1987 was merely the name of that enterprise.33 While it is true that in her undated application for
renewal of registration of that firm name, petitioner Tocao indicated that it would be engaged in retail of
"kitchenwares, cookwares, utensils, skillet,"34 she also admitted that the enterprise was only "60% to
70% for the cookware business," while 20% to 30% of its business activity was devoted to the sale of
water sterilizer or purifier.35 Indubitably then, the business name Geminesse Enterprise was used only
for practical reasons - it was utilized as the common name for petitioner Tocaos various business
activities, which included the distributorship of cookware.
Petitioners underscore the fact that the Court of Appeals did not return the "unaccounted and unremitted
stocks of Geminesse Enterprise amounting to P208,250.00."36 Obviously a ploy to offset the damages
awarded to private respondent, that claim, more than anything else, proves the existence of a partnership
between them. In Idos v. Court of Appeals, this Court said:
"The best evidence of the existence of the partnership, which was not yet terminated (though in the
winding up stage), were the unsold goods and uncollected receivables, which were presented to the trial
court. Since the partnership has not been terminated, the petitioner and private complainant remained
as co-partners. x x x."37
It is not surprising then that, even after private respondent had been unceremoniously booted out of the
partnership in October 1987, she still received her overriding commission until December 1987.
Undoubtedly, petitioner Tocao unilaterally excluded private respondent from the partnership to reap for
herself and/or for petitioner Belo financial gains resulting from private respondents efforts to make the
business venture a success. Thus, as petitioner Tocao became adept in the business operation, she
started to assert herself to the extent that she would even shout at private respondent in front of other
people.38 Her instruction to Lina Torda Cruz, marketing manager, not to allow private respondent to hold
office in both the Makati and Cubao sales offices concretely spoke of her perception that private
respondent was no longer necessary in the business operation,39 and resulted in a falling out between
the two. However, a mere falling out or misunderstanding between partners does not convert the
partnership into a sham organization.40 The partnership exists until dissolved under the law. Since the
partnership created by petitioners and private respondent has no fixed term and is therefore a
partnership at will predicated on their mutual desire and consent, it may be dissolved by the will of a
partner. Thus:
"x x x. The right to choose with whom a person wishes to associate himself is the very foundation and
essence of that partnership. Its continued existence is, in turn, dependent on the constancy of that mutual
resolve, along with each partners capability to give it, and the absence of cause for dissolution provided
by the law itself. Verily, any one of the partners may, at his sole pleasure, dictate a dissolution of the
partnership at will. He must, however, act in good faith, not that the attendance of bad faith can prevent
the dissolution of the partnership but that it can result in a liability for damages."41
An unjustified dissolution by a partner can subject him to action for damages because by the mutual
agency that arises in a partnership, the doctrine of delectus personae allows the partners to have
the power, although not necessarily the right to dissolve the partnership.42
In this case, petitioner Tocaos unilateral exclusion of private respondent from the partnership is shown
by her memo to the Cubao office plainly stating that private respondent was, as of October 9, 1987, no
longer the vice-president for sales of Geminesse Enterprise.43 By that memo, petitioner Tocao effected
her own withdrawal from the partnership and considered herself as having ceased to be associated with
the partnership in the carrying on of the business. Nevertheless, the partnership was not terminated
thereby; it continues until the winding up of the business.44
The winding up of partnership affairs has not yet been undertaken by the partnership.1wphi1 This is
manifest in petitioners claim for stocks that had been entrusted to private respondent in the pursuit of
the partnership business.
The determination of the amount of damages commensurate with the factual findings upon which it is
based is primarily the task of the trial court.45 The Court of Appeals may modify that amount only when
its factual findings are diametrically opposed to that of the lower court,46 or the award is palpably or
scandalously and unreasonably excessive.47 However, exemplary damages that are awarded "by way
of example or correction for the public good,"48should be reduced to P50,000.00, the amount correctly
awarded by the Court of Appeals. Concomitantly, the award of moral damages of P100,000.00 was
excessive and should be likewise reduced to P50,000.00. Similarly, attorneys fees that should be
granted on account of the award of exemplary damages and petitioners evident bad faith in refusing to
satisfy private respondents plainly valid, just and demandable claims,49 appear to have been excessively
granted by the trial court and should therefore be reduced to P25,000.00.
WHEREFORE, the instant petition for review on certiorari is DENIED. The partnership among petitioners
and private respondent is ordered dissolved, and the parties are ordered to effect the winding up and
liquidation of the partnership pursuant to the pertinent provisions of the Civil Code. This case is
remanded to the Regional Trial Court for proper proceedings relative to said dissolution. The appealed
decisions of the Regional Trial Court and the Court of Appeals are AFFIRMED with MODIFICATIONS,
as follows ---
1. Petitioners are ordered to submit to the Regional Trial Court a formal account of the partnership affairs
for the years 1987 and 1988, pursuant to Article 1809 of the Civil Code, in order to determine private
respondents ten percent (10%) share in the net profits of the partnership;
2. Petitioners are ordered, jointly and severally, to pay private respondent five percent (5%) overriding
commission for the one hundred and fifty (150) cookware sets available for disposition since the time
private respondent was wrongfully excluded from the partnership by petitioners;
3. Petitioners are ordered, jointly and severally, to pay private respondent overriding commission on the
total production which, for the period covering January 8, 1988 to February 5, 1988, amounted to
P32,000.00;
4. Petitioners are ordered, jointly and severally, to pay private respondent moral damages in the amount
of P50,000.00, exemplary damages in the amount of P50,000.00 and attorneys fees in the amount of
P25,000.00.

5. Rojas vs Maglana 192 SCRA 110 1990

EUFRACIO D. ROJAS, Plaintiff-Appellant, vs. CONSTANCIO B.MAGLANA,Defendant-

This is a direct appeal to this Court from a decision ** of the then Court of First Instance of Davao,
Seventh Judicial District, Branch III, in Civil Case No. 3518, dismissing appellant's complaint.
As found by the trial court, the antecedent facts of the case are as follows:
On January 14, 1955, Maglana and Rojas executed their Articles of Co-Partnership (Exhibit "A") called
Eastcoast Development Enterprises (EDE) with only the two of them as partners. The partnership EDE
with an indefinite term of existence was duly registered on January 21, 1955 with the Securities and
Exchange Commission.
One of the purposes of the duly-registered partnership was to "apply or secure timber and/or minor
forests products licenses and concessions over public and/or private forest lands and to operate, develop
and promote such forests rights and concessions." (Rollo, p. 114).
A duly registered Articles of Co-Partnership was filed together with an application for a timber concession
covering the area located at Cateel and Baganga, Davao with the Bureau of Forestry which was
approved and Timber License No. 35-56 was duly issued and became the basis of subsequent renewals
made for and in behalf of the duly registered partnership EDE.
Under the said Articles of Co-Partnership, appellee Maglana shall manage the business affairs of the
partnership, including marketing and handling of cash and is authorized to sign all papers and
instruments relating to the partnership, while appellant Rojas shall be the logging superintendent and
shall manage the logging operations of the partnership. It is also provided in the said articles of co-
partnership that all profits and losses of the partnership shall be divided share and share alike between
the partners.
During the period from January 14, 1955 to April 30, 1956, there was no operation of said partnership
(Record on Appeal [R.A.] p. 946).
Because of the difficulties encountered, Rojas and Maglana decided to avail of the services of
Pahamotang as industrial partner.
On March 4, 1956, Maglana, Rojas and Agustin Pahamotang executed their Articles of Co-Partnership
(Exhibit "B" and Exhibit "C") under the firm name EASTCOAST DEVELOPMENT ENTERPRISES (EDE).
Aside from the slight difference in the purpose of the second partnership which is to hold and secure
renewal of timber license instead of to secure the license as in the first partnership and the term of the
second partnership is fixed to thirty (30) years, everything else is the same.
The partnership formed by Maglana, Pahamotang and Rojas started operation on May 1, 1956, and was
able to ship logs and realize profits. An income was derived from the proceeds of the logs in the sum of
P643,633.07 (Decision, R.A. 919).
On October 25, 1956, Pahamotang, Maglana and Rojas executed a document entitled "CONDITIONAL
SALE OF INTEREST IN THE PARTNERSHIP, EASTCOAST DEVELOPMENT ENTERPRISE" (Exhibits
"C" and "D") agreeing among themselves that Maglana and Rojas shall purchase the interest, share and
participation in the Partnership of Pahamotang assessed in the amount of P31,501.12. It was also agreed
in the said instrument that after payment of the sum of P31,501.12 to Pahamotang including the amount
of loan secured by Pahamotang in favor of the partnership, the two (Maglana and Rojas) shall become
the owners of all equipment contributed by Pahamotang and the EASTCOAST DEVELOPMENT
ENTERPRISES, the name also given to the second partnership, be dissolved. Pahamotang was paid in
fun on August 31, 1957. No other rights and obligations accrued in the name of the second partnership
(R.A. 921).
After the withdrawal of Pahamotang, the partnership was continued by Maglana and Rojas without the
benefit of any written agreement or reconstitution of their written Articles of Partnership (Decision, R.A.
948).
On January 28, 1957, Rojas entered into a management contract with another logging enterprise, the
CMS Estate, Inc. He left and abandoned the partnership (Decision, R.A. 947).
On February 4, 1957, Rojas withdrew his equipment from the partnership for use in the newly acquired
area (Decision, R.A. 948).
The equipment withdrawn were his supposed contributions to the first partnership and was transferred
to CMS Estate, Inc. by way of chattel mortgage (Decision, R.A. p. 948).
On March 17, 1957, Maglana wrote Rojas reminding the latter of his obligation to contribute, either in
cash or in equipment, to the capital investments of the partnership as well as his obligation to perform
his duties as logging superintendent.
Two weeks after March 17, 1957, Rojas told Maglana that he will not be able to comply with the promised
contributions and he will not work as logging superintendent. Maglana then told Rojas that the latter's
share will just be 20% of the net profits. Such was the sharing from 1957 to 1959 without complaint or
dispute (Decision, R.A. 949).: nad
Meanwhile, Rojas took funds from the partnership more than his contribution. Thus, in a letter dated
February 21, 1961 (Exhibit "10") Maglana notified Rojas that he dissolved the partnership (R.A. 949).
On April 7, 1961, Rojas filed an action before the Court of First Instance of Davao against Maglana for
the recovery of properties, accounting, receivership and damages, docketed as Civil Case No. 3518
(Record on Appeal, pp. 1-26).
Rojas' petition for appointment of a receiver was denied (R.A. 894).
Upon motion of Rojas on May 23, 1961, Judge Romero appointed commissioners to examine the long
and voluminous accounts of the Eastcoast Development Enterprises (Ibid., pp. 894-895).
The motion to dismiss the complaint filed by Maglana on June 21, 1961 (Ibid., pp. 102-114) was denied
by Judge Romero for want of merit (Ibid., p. 125). Judge Romero also required the inclusion of the entire
year 1961 in the report to be submitted by the commissioners (Ibid., pp. 138-143). Accordingly, the
commissioners started examining the records and supporting papers of the partnership as well as the
information furnished them by the parties, which were compiled in three (3) volumes.
On May 11, 1964, Maglana filed his motion for leave of court to amend his answer with counterclaim,
attaching thereto the amended answer (Ibid., pp. 26-336), which was granted on May 22, 1964 (Ibid., p.
336).
On May 27, 1964, Judge M.G. Reyes approved the submitted Commissioners' Report (Ibid., p. 337).
On June 29, 1965, Rojas filed his motion for reconsideration of the order dated May 27, 1964 approving
the report of the commissioners which was opposed by the appellee.
On September 19, 1964, appellant's motion for reconsideration was denied (Ibid., pp. 446-451).
A mandatory pre-trial was conducted on September 8 and 9, 1964 and the following issues were agreed
upon to be submitted to the trial court:
(a) The nature of partnership and the legal relations of Maglana and Rojas after the dissolution of the
second partnership;
(b) Their sharing basis: whether in proportion to their contribution or share and share alike;
(c) The ownership of properties bought by Maglana in his wife's name;
(d) The damages suffered and who should be liable for them; and
(e) The legal effect of the letter dated February 23, 1961 of Maglana dissolving the partnership (Decision,
R.A. pp. 895-896).- nad
After trial, the lower court rendered its decision on March 11, 1968, the dispositive portion of which reads
as follows:
"WHEREFORE, the above facts and issues duly considered, judgment is hereby rendered by the Court
declaring that:
"1. The nature of the partnership and the legal relations of Maglana and Rojas after Pahamotang retired
from the second partnership, that is, after August 31, 1957, when Pahamotang was finally paid his share
the partnership of the defendant and the plaintiff is one of a de facto and at will;
"2. Whether the sharing of partnership profits should be on the basis of computation, that is the ratio and
proportion of their respective contributions, or on the basis of share and share alike this covered by
actual contributions of the plaintiff and the defendant and by their verbal agreement; that the sharing of
profits and losses is on the basis of actual contributions; that from 1957 to 1959, the sharing is on the
basis of 80% for the defendant and 20% for the plaintiff of the profits, but from 1960 to the date of
dissolution, February 23, 1961, the plaintiff's share will be on the basis of his actual contribution and,
considering his indebtedness to the partnership, the plaintiff is not entitled to any share in the profits of
the said partnership;
"3. As to whether the properties which were bought by the defendant and placed in his or in his wife's
name were acquired with partnership funds or with funds of the defendant and the Court declares that
there is no evidence that these properties were acquired by the partnership funds, and therefore the
same should not belong to the partnership;
"4. As to whether damages were suffered and, if so, how much, and who caused them and who should
be liable for them the Court declares that neither parties is entitled to damages, for as already stated
above it is not a wise policy to place a price on the right of a person to litigate and/or to come to Court
for the assertion of the rights they believe they are entitled to;
"5. As to what is the legal effect of the letter of defendant to the plaintiff dated February 23, 1961; did it
dissolve the partnership or not the Court declares that the letter of the
defendant to the plaintiff dated February 23, 1961, in effect dissolved the partnership;
"6. Further, the Court relative to the canteen, which sells foodstuffs, supplies, and other merchandise to
the laborers and employees of the Eastcoast Development Enterprises, the COURT DECLARES THE
SAME AS NOT BELONGING TO THE PARTNERSHIP;
"7. That the alleged sale of forest concession Exhibit 9-B, executed by Pablo Angeles David is VALID
AND BINDING UPON THE PARTIES AND SHOULD BE CONSIDERED AS PART OF MAGLANA'S
CONTRIBUTION TO THE PARTNERSHIP;
"8. Further, the Court orders and directs plaintiff Rojas to pay or turn over to the partnership the amount
of P69,000.00 the profits he received from the CMS Estate, Inc. operated by him;
"9. The claim that plaintiff Rojas should be ordered to pay the further sum of P85,000.00 which according
to him he is still entitled to receive from the CMS Estate, Inc. is hereby denied considering that it has not
yet been actually received, and further the receipt is merely based upon an expectancy and/or still
speculative;
"10. The Court also directs and orders plaintiff Rojas to pay the sum of P62,988.19 his personal account
to the partnership;
"11. The Court also credits the defendant the amount of P85,000.00 the amount he should have received
as logging superintendent, and which was not paid to him, and this should be considered as part of
Maglana's contribution likewise to the partnership; and
"12. The complaint is hereby dismissed with costs against the plaintiff.: rd
"SO ORDERED." Decision, Record on Appeal, pp. 985-989).
Rojas interposed the instant appeal.
The main issue in this case is the nature of the partnership and legal relationship of the Maglana-Rojas
after Pahamotang retired from the second partnership.
The lower court is of the view that the second partnership superseded the first, so that when the second
partnership was dissolved there was no written contract of co-partnership; there was no reconstitution
as provided for in the Maglana, Rojas and Pahamotang partnership contract. Hence, the partnership
which was carried on by Rojas and Maglana after the dissolution of the second partnership was a de
facto partnership and at will. It was considered as a partnership at will because there was no term,
express or implied; no period was fixed, expressly or impliedly (Decision, R.A. pp. 962-963).
On the other hand, Rojas insists that the registered partnership under the firm name of Eastcoast
Development Enterprises (EDE) evidenced by the Articles of Co-Partnership dated January 14, 1955
(Exhibit "A") has not been novated, superseded and/or dissolved by the unregistered articles of co-
partnership among appellant Rojas, appellee Maglana and Agustin Pahamotang, dated March 4, 1956
(Exhibit "C") and accordingly, the terms and stipulations of said registered Articles of Co-Partnership
(Exhibit "A") should govern the relations between him and Maglana. Upon withdrawal of Agustin
Pahamotang from the unregistered partnership (Exhibit "C"), the legally constituted partnership EDE
(Exhibit "A") continues to govern the relations between them and it was legal error to consider a de facto
partnership between said two partners or a partnership at will. Hence, the letter of appellee Maglana
dated February 23, 1961, did not legally dissolve the registered partnership between them, being in
contravention of the partnership agreement agreed upon and stipulated in their Articles of Co-Partnership
(Exhibit "A"). Rather, appellant is entitled to the rights enumerated in Article 1837 of the Civil Code and
to the sharing profits between them of "share and share alike" as stipulated in the registered Articles of
Co-Partnership (Exhibit "A"). After a careful study of the records as against the conflicting claims of Rojas
and Maglana, it appears evident that it was not the intention of the partners to dissolve the first
partnership, upon the constitution of the second one, which they unmistakably called an "Additional
Agreement" (Exhibit "9-B") (Brief for Defendant-Appellee, pp. 24-25). Except for the fact that they took
in one industrial partner; gave him an equal share in the profits and fixed the term of the second
partnership to thirty (30) years, everything else was the same. Thus, they adopted the same name,
EASTCOAST DEVELOPMENT ENTERPRISES, they pursued the same purposes and the capital
contributions of Rojas and Maglana as stipulated in both partnerships call for the same amounts. Just
as important is the fact that all subsequent renewals of Timber License No. 35-36 were secured in favor
of the First Partnership, the original licensee. To all intents and purposes therefore, the First Articles of
Partnership were only amended, in the form of Supplementary Articles of Co-Partnership (Exhibit "C")
which was never registered (Brief for Plaintiff-Appellant, p. 5). Otherwise stated, even during the
existence of the second partnership, all business transactions were carried out under the duly registered
articles. As found by the trial court, it is an admitted fact that even up to now, there are still subsisting
obligations and contracts of the latter (Decision, R.A. pp. 950-957). No rights and obligations accrued in
the name of the second partnership except in favor of Pahamotang which was fully paid by the duly
registered partnership (Decision, R.A., pp. 919-921).
On the other hand, there is no dispute that the second partnership was dissolved by common consent.
Said dissolution did not affect the first partnership which continued to exist. Significantly, Maglana and
Rojas agreed to purchase the interest, share and participation in the second partnership of Pahamotang
and that thereafter, the two (Maglana and Rojas) became the owners of equipment contributed by
Pahamotang. Even more convincing, is the fact that Maglana on March 17, 1957, wrote Rojas, reminding
the latter of his obligation to contribute either in cash or in equipment, to the capital investment of the
partnership as well as his obligation to perform his duties as logging superintendent. This reminder
cannot refer to any other but to the provisions of the duly registered Articles of Co-Partnership. As earlier
stated, Rojas replied that he will not be able to comply with the promised contributions and he will not
work as logging superintendent. By such statements, it is obvious that Roxas understood what Maglana
was referring to and left no room for doubt that both considered themselves governed by the articles of
the duly registered partnership.
Under the circumstances, the relationship of Rojas and Maglana after the withdrawal of Pahamotang
can neither be considered as a De Facto Partnership, nor a Partnership at Will, for as stressed, there is
an existing partnership, duly registered.
As to the question of whether or not Maglana can unilaterally dissolve the partnership in the case at bar,
the answer is in the affirmative.
Hence, as there are only two parties when Maglana notified Rojas that he dissolved the partnership, it is
in effect a notice of withdrawal.
Under Article 1830, par. 2 of the Civil Code, even if there is a specified term, one partner can cause its
dissolution by expressly withdrawing even before the expiration of the period, with or without justifiable
cause. Of course, if the cause is not justified or no cause was given, the withdrawing partner is liable for
damages but in no case can he be compelled to remain in the firm. With his withdrawal, the number of
members is decreased, hence, the dissolution. And in whatever way he may view the situation, the
conclusion is inevitable that Rojas and Maglana shall be guided in the liquidation of the partnership by
the provisions of its duly registered Articles of Co-Partnership; that is, all profits and losses of the
partnership shall be divided "share and share alike" between the partners.
But an accounting must first be made and which in fact was ordered by the trial court and accomplished
by the commissioners appointed for the purpose.
On the basis of the Commissioners' Report, the corresponding contribution of the partners from 1956-
1961 are as follows: Eufracio Rojas who should have contributed P158,158.00, contributed only
P18,750.00 while Maglana who should have contributed P160,984.00, contributed P267,541.44
(Decision, R.A. p. 976). It is a settled rule that when a partner who has undertaken to contribute a sum
of money fails to do so, he becomes a debtor of the partnership for whatever he may have promised to
contribute (Article 1786, Civil Code) and for interests and damages from the time he should have
complied with his obligation (Article 1788, Civil Code) (Moran, Jr. v. Court of Appeals, 133 SCRA 94
[1984]). Being a contract of partnership, each partner must share in the profits and losses of the venture.
That is the essence of a partnership (Ibid., p. 95).
Thus, as reported in the Commissioners' Report, Rojas is not entitled to any profits. In their voluminous
reports which was approved by the trial court, they showed that on 50-50% basis, Rojas will be liable in
the amount of P131,166.00; on 80-20%, he will be liable for P40,092.96 and finally on the basis of actual
capital contribution, he will be liable for P52,040.31.
Consequently, except as to the legal relationship of the partners after the withdrawal of Pahamotang
which is unquestionably a continuation of the duly registered partnership and the sharing of profits and
losses which should be on the basis of share and share alike as provided for in the duly registered
Articles of Co-Partnership, no plausible reason could be found to disturb the findings and conclusions of
the trial court.: nad
As to whether Maglana is liable for damages because of such withdrawal, it will be recalled that after the
withdrawal of Pahamotang, Rojas entered into a management contract with another logging enterprise,
the CMS Estate, Inc., a company engaged in the same business as the partnership. He withdrew his
equipment, refused to contribute either in cash or in equipment to the capital investment and to perform
his duties as logging superintendent, as stipulated in their partnership agreement. The records also show
that Rojas not only abandoned the partnership but also took funds in an amount more than his
contribution (Decision, R.A., p. 949).
In the given situation Maglana cannot be said to be in bad faith nor can he be liable for damages.
PREMISES CONSIDERED, the assailed decision of the Court of First Instance of Davao, Branch III, is
hereby MODIFIED in the sense that the duly registered partnership of Eastcoast Development
Enterprises continued to exist until liquidated and that the sharing basis of the partners should be on
share and share alike as provided for in its Articles of Partnership, in accordance with the computation
of the commissioners. We also hereby AFFIRM the decision of the trial court in all other respects.: nad
SO ORDERED.

Art 1774-1783
CIR vs William Suter GR L 25532 Feb 28 1969
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. WILLIAM J. SUTER and THE COURT OF
TAX APPEALS,
A limited partnership, named "William J. Suter 'Morcoin' Co., Ltd.," was formed on 30 September 1947
by herein respondent William J. Suter as the general partner, and Julia Spirig and Gustav Carlson, as
the limited partners. The partners contributed, respectively,
P20,000.00, P18,000.00 and P2,000.00 to the partnership. On 1 October 1947, the limited partnership
was registered with the Securities and Exchange Commission. The firm engaged, among other activities,
in the importation, marketing, distribution and operation of automatic phonographs, radios, television
sets and amusement machines, their parts and accessories. It had an office and held itself out as a
limited partnership, handling and carrying merchandise, using invoices, bills and letterheads bearing its
trade-name, maintaining its own books of accounts and bank accounts, and had a quota allocation with
the Central Bank.
In 1948, however, general partner Suter and limited partner Spirig got married and, thereafter, on 18
December 1948, limited partner Carlson sold his share in the partnership to Suter and his wife. The sale
was duly recorded with the Securities and Exchange Commission on 20 December 1948.
The limited partnership had been filing its income tax returns as a corporation, without objection by the
herein petitioner, Commissioner of Internal Revenue, until in 1959 when the latter, in an assessment,
consolidated the income of the firm and the individual incomes of the partners-spouses Suter and Spirig
resulting in a determination of a deficiency income tax against respondent Suter in the amount of
P2,678.06 for 1954 and P4,567.00 for 1955.
Respondent Suter protested the assessment, and requested its cancellation and withdrawal, as not in
accordance with law, but his request was denied. Unable to secure a reconsideration, he appealed to
the Court of Tax Appeals, which court, after trial, rendered a decision, on 11 November 1965, reversing
that of the Commissioner of Internal Revenue.
The present case is a petition for review, filed by the Commissioner of Internal Revenue, of the tax court's
aforesaid decision. It raises these issues:
(a) Whether or not the corporate personality of the William J. Suter "Morcoin" Co., Ltd. should be
disregarded for income tax purposes, considering that respondent William J. Suter and his wife, Julia
Spirig Suter actually formed a single taxable unit; and
(b) Whether or not the partnership was dissolved after the marriage of the partners, respondent William
J. Suter and Julia Spirig Suter and the subsequent sale to them by the remaining partner, Gustav
Carlson, of his participation of P2,000.00 in the partnership for a nominal amount of P1.00.
The theory of the petitioner, Commissioner of Internal Revenue, is that the marriage of Suter and Spirig
and their subsequent acquisition of the interests of remaining partner Carlson in the partnership
dissolved the limited partnership, and if they did not, the fiction of juridical personality of the partnership
should be disregarded for income tax purposes because the spouses have exclusive ownership and
control of the business; consequently the income tax return of respondent Suter for the years in question
should have included his and his wife's individual incomes and that of the limited partnership, in
accordance with Section 45 (d) of the National Internal Revenue Code, which provides as follows:
(d) Husband and wife. In the case of married persons, whether citizens, residents or non-residents,
only one consolidated return for the taxable year shall be filed by either spouse to cover the income of
both spouses; ....
In refutation of the foregoing, respondent Suter maintains, as the Court of Tax Appeals held, that his
marriage with limited partner Spirig and their acquisition of Carlson's interests in the partnership in 1948
is not a ground for dissolution of the partnership, either in the Code of Commerce or in the New Civil
Code, and that since its juridical personality had not been affected and since, as a limited partnership,
as contra distinguished from a duly registered general partnership, it is taxable on its income similarly
with corporations, Suter was not bound to include in his individual return the income of the limited
partnership.
We find the Commissioner's appeal unmeritorious.
The thesis that the limited partnership, William
J. Suter "Morcoin" Co., Ltd., has been dissolved by operation of law because of the marriage of the only
general partner, William J. Suter to the originally limited partner, Julia Spirig one year after the
partnership was organized is rested by the appellant upon the opinion of now Senator Tolentino in
Commentaries and Jurisprudence on Commercial Laws of the Philippines, Vol. 1, 4th Ed., page 58, that
reads as follows:
A husband and a wife may not enter into a
contract of general copartnership, because under the Civil Code, which applies in the absence of
express provision in the Code of Commerce, persons prohibited from making donations to each other
are prohibited from entering into universal partnerships. (2 Echaverri 196) It follows that the marriage of
partners necessarily brings about the dissolution of a pre-existing partnership. (1 Guy de Montella 58)
The petitioner-appellant has evidently failed to observe the fact that William J. Suter "Morcoin" Co., Ltd.
was not a universal partnership, but a particular one. As appears from Articles 1674 and 1675 of the
Spanish Civil Code, of 1889 (which was the law in force when the subject firm was organized in 1947),
a universal partnership requires either that the object of the association be all the present property of the
partners, as contributed by them to the common fund, or else "all that the partners may acquire by
their industry or work during the existence of the partnership". William J. Suter "Morcoin" Co., Ltd. was
not such a universal partnership, since the contributions of the partners were fixed sums of money,
P20,000.00 by William Suter and P18,000.00 by Julia Spirig and neither one of them was an industrial
partner. It follows that William J. Suter "Morcoin" Co., Ltd. was not a partnership that spouses were
forbidden to enter by Article 1677 of the Civil Code of 1889.
The former Chief Justice of the Spanish Supreme Court, D. Jose Casan, in his Derecho Civil, 7th Edition,
1952, Volume 4, page 546, footnote 1, says with regard to the prohibition contained in the aforesaid
Article 1677:
Los conyuges, segun esto, no pueden celebrar entre si el contrato de sociedad universal, pero o podran
constituir sociedad particular? Aunque el punto ha sido muy debatido, nos inclinamos a la tesis permisiva
de los contratos de sociedad particular entre esposos, ya que ningun precepto de nuestro Codigo los
prohibe, y hay que estar a la norma general segun la que toda persona es capaz para contratar mientras
no sea declarado incapaz por la ley. La jurisprudencia de la Direccion de los Registros fue favorable a
esta misma tesis en su resolution de 3 de febrero de 1936, mas parece cambiar de rumbo en la de 9 de
marzo de 1943.
Nor could the subsequent marriage of the partners operate to dissolve it, such marriage not being one
of the causes provided for that purpose either by the Spanish Civil Code or the Code of Commerce.
The appellant's view, that by the marriage of both partners the company became a single proprietorship,
is equally erroneous. The capital contributions of partners William J. Suter and Julia Spirig were
separately owned and contributed by them before their marriage; and after they were joined in wedlock,
such contributions remained their respective separate property under the Spanish Civil Code (Article
1396):
The following shall be the exclusive property of each spouse:
That which is brought to the marriage as his or her own; ....
Thus, the individual interest of each consort in William J. Suter "Morcoin" Co., Ltd. did not become
common property of both after their marriage in 1948.
It being a basic tenet of the Spanish and Philippine law that the partnership has a juridical personality of
its own, distinct and separate from that of its partners (unlike American and English law that does not
recognize such separate juridical personality), the bypassing of the existence of the limited partnership
as a taxpayer can only be done by ignoring or disregarding clear statutory mandates and basic principles
of our law. The limited partnership's separate individuality makes it impossible to equate its income with
that of the component members. True, section 24 of the Internal Revenue Code merges registered
general co-partnerships (compaias colectivas) with the personality of the individual partners for income
tax purposes. But this rule is exceptional in its disregard of a cardinal tenet of our partnership laws, and
can not be extended by mere implication to limited partnerships.
The rulings cited by the petitioner (Collector of Internal Revenue vs. University of the Visayas, L-13554,
Resolution of 30 October 1964, and Koppel [Phil.], Inc. vs. Yatco, 77 Phil. 504) as authority for
disregarding the fiction of legal personality of the corporations involved therein are not applicable to the
present case. In the cited cases, the corporations were already subject to tax when the fiction of their
corporate personality was pierced; in the present case, to do so would exempt the limited partnership
from income taxation but would throw the tax burden upon the partners-spouses in their individual
capacities. The corporations, in the cases cited, merely served as business conduits or alter egos of the
stockholders, a factor that justified a disregard of their corporate personalities for tax purposes. This is
not true in the present case. Here, the limited partnership is not a mere business conduit of the partner-
spouses; it was organized for legitimate business purposes; it conducted its own dealings with its
customers prior to appellee's marriage, and had been filing its own income tax returns as such
independent entity. The change in its membership, brought about by the marriage of the partners and
their subsequent acquisition of all interest therein, is no ground for withdrawing the partnership from the
coverage of Section 24 of the tax code, requiring it to pay income tax. As far as the records show, the
partners did not enter into matrimony and thereafter buy the interests of the remaining partner with the
premeditated scheme or design to use the partnership as a business conduit to dodge the tax laws.
Regularity, not otherwise, is presumed.
As the limited partnership under consideration is taxable on its income, to require that income to be
included in the individual tax return of respondent Suter is to overstretch the letter and intent of the law.
In fact, it would even conflict with what it specifically provides in its Section 24: for the appellant
Commissioner's stand results in equal treatment, tax wise, of a general copartnership (compaia
colectiva) and a limited partnership, when the code plainly differentiates the two. Thus, the code taxes
the latter on its income, but not the former, because it is in the case of compaias colectivas that the
members, and not the firm, are taxable in their individual capacities for any dividend or share of the profit
derived from the duly registered general partnership (Section 26, N.I.R.C.; Araas, Anno. & Juris. on the
N.I.R.C., As Amended, Vol. 1, pp. 88-89)
But it is argued that the income of the limited partnership is actually or constructively the income of the
spouses and forms part of the conjugal partnership of gains. This is not wholly correct. As pointed out in
Agapito vs. Molo 50 Phil. 779, and People's Bank vs. Register of Deeds of Manila, 60 Phil. 167, the fruits
of the wife's parapherna become conjugal only when no longer needed to defray the expenses for the
administration and preservation of the paraphernal capital of the wife. Then again, the appellant's
argument erroneously confines itself to the question of the legal personality of the limited partnership,
which is not essential to the income taxability of the partnership since the law taxes the income of even
joint accounts that have no personality of their own. 1 Appellant is, likewise, mistaken in that it assumes
that the conjugal partnership of gains is a taxable unit, which it is not. What is taxable is the "income of
both spouses" (Section 45 [d] in their individual capacities. Though the amount of income (income of the
conjugal partnership vis-a-vis the joint income of husband and wife) may be the same for a given taxable
year, their consequences would be different, as their contributions in the business partnership are not
the same.
The difference in tax rates between the income of the limited partnership being consolidated with, and
when split from the income of the spouses, is not a justification for requiring consolidation; the revenue
code, as it presently stands, does not authorize it, and even bars it by requiring the limited partnership
to pay tax on its own income.
FOR THE FOREGOING REASONS, the decision under review is hereby affirmed. No costs.

2. Aurback vs Sanitary Wares GR 75875 Dec 15 1989

WOLRGANG AURBACH, JOHN GRIFFIN, DAVID P. WHITTINGHAM and CHARLES
CHAMSAY, petitioners, vs.SANITARYWARES MANUFACTURING CORPORATOIN, ERNESTO V.
LAGDAMEO, ERNESTO R. LAGDAMEO, JR., ENRIQUE R. LAGDAMEO, GEORGE F. LEE, RAUL
A. BONCAN, BALDWIN YOUNG and AVELINO V. CRUZ, respondents.
G.R. No. 75951 December 15, 1989
SANITARY WARES MANUFACTURING CORPORATION, ERNESTO R. LAGDAMEO, ENRIQUE B.
LAGDAMEO, GEORGE FL .EE RAUL A. BONCAN, BALDWIN YOUNG and AVELINO V.
CRUX, petitioners,
vs.THE COURT OF APPEALS, WOLFGANG AURBACH, JOHN GRIFFIN, DAVID P. WHITTINGHAM,
CHARLES CHAMSAY and LUCIANO SALAZAR, respondents.
G.R. Nos. 75975-76 December 15, 1989
LUCIANO E. SALAZAR, petitioner,
vs.SANITARY WARES MANUFACTURING CORPORATION, ERNESTO V. LAGDAMEO, ERNESTO
R. LAGDAMEO, JR., ENRIQUE R. LAGDAMEO, GEORGE F. LEE, RAUL A. BONCAN, BALDWIN
YOUNG, AVELINO V. CRUZ and the COURT OF APPEALS, respondents.

GUTIERREZ, JR., J.:

These consolidated petitions seek the review of the amended decision of the Court of Appeals in CA-
G.R. SP Nos. 05604 and 05617 which set aside the earlier decision dated June 5, 1986, of the then
Intermediate Appellate Court and directed that in all subsequent elections for directors of Sanitary Wares
Manufacturing Corporation (Saniwares), American Standard Inc. (ASI) cannot nominate more than three
(3) directors; that the Filipino stockholders shall not interfere in ASI's choice of its three (3) nominees;
that, on the other hand, the Filipino stockholders can nominate only six (6) candidates and in the event
they cannot agree on the six (6) nominees, they shall vote only among themselves to determine who the
six (6) nominees will be, with cumulative voting to be allowed but without interference from ASI.
The antecedent facts can be summarized as follows:
In 1961, Saniwares, a domestic corporation was incorporated for the primary purpose of manufacturing
and marketing sanitary wares. One of the incorporators, Mr. Baldwin Young went abroad to look for
foreign partners, European or American who could help in its expansion plans. On August 15, 1962, ASI,
a foreign corporation domiciled in Delaware, United States entered into an Agreement with Saniwares
and some Filipino investors whereby ASI and the Filipino investors agreed to participate in the ownership
of an enterprise which would engage primarily in the business of manufacturing in the Philippines and
selling here and abroad vitreous china and sanitary wares. The parties agreed that the business
operations in the Philippines shall be carried on by an incorporated enterprise and that the name of the
corporation shall initially be "Sanitary Wares Manufacturing Corporation."
The Agreement has the following provisions relevant to the issues in these cases on the nomination and
election of the directors of the corporation:
3. Articles of Incorporation
(a) The Articles of Incorporation of the Corporation shall be substantially in the form annexed hereto as
Exhibit A and, insofar as permitted under Philippine law, shall specifically provide for
(1)Cumulative voting for directors:
xxx xxx xxx
5. Management
(a) The management of the Corporation shall be vested in a Board of Directors, which shall consist of
nine individuals. As long as American-Standard shall own at least 30% of the outstanding stock of the
Corporation, three of the nine directors shall be designated by American-Standard, and the other six
shall be designated by the other stockholders of the Corporation. (pp. 51 & 53, Rollo of 75875)
At the request of ASI, the agreement contained provisions designed to protect it as a minority group,
including the grant of veto powers over a number of corporate acts and the right to designate certain
officers, such as a member of the Executive Committee whose vote was required for important corporate
transactions.
Later, the 30% capital stock of ASI was increased to 40%. The corporation was also registered with the
Board of Investments for availment of incentives with the condition that at least 60% of the capital stock
of the corporation shall be owned by Philippine nationals.
The joint enterprise thus entered into by the Filipino investors and the American corporation prospered.
Unfortunately, with the business successes, there came a deterioration of the initially harmonious
relations between the two groups. According to the Filipino group, a basic disagreement was due to their
desire to expand the export operations of the company to which ASI objected as it apparently had other
subsidiaries of joint joint venture groups in the countries where Philippine exports were contemplated.
On March 8, 1983, the annual stockholders' meeting was held. The meeting was presided by Baldwin
Young. The minutes were taken by the Secretary, Avelino Cruz. After disposing of the preliminary items
in the agenda, the stockholders then proceeded to the election of the members of the board of directors.
The ASI group nominated three persons namely; Wolfgang Aurbach, John Griffin and David P.
Whittingham. The Philippine investors nominated six, namely; Ernesto Lagdameo, Sr., Raul A. Boncan,
Ernesto R. Lagdameo, Jr., George F. Lee, and Baldwin Young. Mr. Eduardo R, Ceniza then nominated
Mr. Luciano E. Salazar, who in turn nominated Mr. Charles Chamsay. The chairman, Baldwin Young
ruled the last two nominations out of order on the basis of section 5 (a) of the Agreement, the consistent
practice of the parties during the past annual stockholders' meetings to nominate only nine persons as
nominees for the nine-member board of directors, and the legal advice of Saniwares' legal counsel. The
following events then, transpired:
... There were protests against the action of the Chairman and heated arguments ensued. An appeal
was made by the ASI representative to the body of stockholders present that a vote be taken on the
ruling of the Chairman. The Chairman, Baldwin Young, declared the appeal out of order and no vote on
the ruling was taken. The Chairman then instructed the Corporate Secretary to cast all the votes present
and represented by proxy equally for the 6 nominees of the Philippine Investors and the 3 nominees of
ASI, thus effectively excluding the 2 additional persons nominated, namely, Luciano E. Salazar and
Charles Chamsay. The ASI representative, Mr. Jaqua protested the decision of the Chairman and
announced that all votes accruing to ASI shares, a total of 1,329,695 (p. 27, Rollo, AC-G.R. SP No.
05617) were being cumulatively voted for the three ASI nominees and Charles Chamsay, and instructed
the Secretary to so vote. Luciano E. Salazar and other proxy holders announced that all the votes owned
by and or represented by them 467,197 shares (p. 27, Rollo, AC-G.R. SP No. 05617) were being voted
cumulatively in favor of Luciano E. Salazar. The Chairman, Baldwin Young, nevertheless instructed the
Secretary to cast all votes equally in favor of the three ASI nominees, namely, Wolfgang Aurbach, John
Griffin and David Whittingham and the six originally nominated by Rogelio Vinluan, namely, Ernesto
Lagdameo, Sr., Raul Boncan, Ernesto Lagdameo, Jr., Enrique Lagdameo, George F. Lee, and Baldwin
Young. The Secretary then certified for the election of the following Wolfgang Aurbach, John Griffin,
David Whittingham Ernesto Lagdameo, Sr., Ernesto Lagdameo, Jr., Enrique Lagdameo, George F. Lee,
Raul A. Boncan, Baldwin Young. The representative of ASI then moved to recess the meeting which
was duly seconded. There was also a motion to adjourn (p. 28, Rollo, AC-G.R. SP No. 05617). This
motion to adjourn was accepted by the Chairman, Baldwin Young, who announced that the motion was
carried and declared the meeting adjourned. Protests against the adjournment were registered and
having been ignored, Mr. Jaqua the ASI representative, stated that the meeting was not adjourned but
only recessed and that the meeting would be reconvened in the next room. The Chairman then
threatened to have the stockholders who did not agree to the decision of the Chairman on the casting of
votes bodily thrown out. The ASI Group, Luciano E. Salazar and other stockholders, allegedly
representing 53 or 54% of the shares of Saniwares, decided to continue the meeting at the elevator
lobby of the American Standard Building. The continued meeting was presided by Luciano E. Salazar,
while Andres Gatmaitan acted as Secretary. On the basis of the cumulative votes cast earlier in the
meeting, the ASI Group nominated its four nominees; Wolfgang Aurbach, John Griffin, David
Whittingham and Charles Chamsay. Luciano E. Salazar voted for himself, thus the said five directors
were certified as elected directors by the Acting Secretary, Andres Gatmaitan, with the explanation that
there was a tie among the other six (6) nominees for the four (4) remaining positions of directors and
that the body decided not to break the tie. (pp. 37-39, Rollo of 75975-76)
These incidents triggered off the filing of separate petitions by the parties with the Securities and
Exchange Commission (SEC). The first petition filed was for preliminary injunction by Saniwares, Emesto
V. Lagdameo, Baldwin Young, Raul A. Bonean Ernesto R. Lagdameo, Jr., Enrique Lagdameo and
George F. Lee against Luciano Salazar and Charles Chamsay. The case was denominated as SEC
Case No. 2417. The second petition was for quo warranto and application for receivership by Wolfgang
Aurbach, John Griffin, David Whittingham, Luciano E. Salazar and Charles Chamsay against the group
of Young and Lagdameo (petitioners in SEC Case No. 2417) and Avelino F. Cruz. The case was
docketed as SEC Case No. 2718. Both sets of parties except for Avelino Cruz claimed to be the
legitimate directors of the corporation.
The two petitions were consolidated and tried jointly by a hearing officer who rendered a decision
upholding the election of the Lagdameo Group and dismissing the quo warranto petition of Salazar and
Chamsay. The ASI Group and Salazar appealed the decision to the SEC en banc which affirmed the
hearing officer's decision.
The SEC decision led to the filing of two separate appeals with the Intermediate Appellate Court by
Wolfgang Aurbach, John Griffin, David Whittingham and Charles Chamsay (docketed as AC-G.R. SP
No. 05604) and by Luciano E. Salazar (docketed as AC-G.R. SP No. 05617). The petitions were
consolidated and the appellate court in its decision ordered the remand of the case to the Securities and
Exchange Commission with the directive that a new stockholders' meeting of Saniwares be ordered
convoked as soon as possible, under the supervision of the Commission.
Upon a motion for reconsideration filed by the appellees Lagdameo Group) the appellate court (Court of
Appeals) rendered the questioned amended decision. Petitioners Wolfgang Aurbach, John Griffin, David
P. Whittingham and Charles Chamsay in G.R. No. 75875 assign the following errors:
THE COURT OF APPEALS, IN EFFECT, UPHELD THE ALLEGED ELECTION OF PRIVATE
RESPONDENTS AS MEMBERS OF THE BOARD OF DIRECTORS OF SANIWARES WHEN IN FACT
THERE WAS NO ELECTION AT ALL.
II. THE COURT OF APPEALS PROHIBITS THE STOCKHOLDERS FROM EXERCISING THEIR FULL
VOTING RIGHTS REPRESENTED BY THE NUMBER OF SHARES IN SANIWARES, THUS
DEPRIVING PETITIONERS AND THE CORPORATION THEY REPRESENT OF THEIR PROPERTY
RIGHTS WITHOUT DUE PROCESS OF LAW.
III. THE COURT OF APPEALS IMPOSES CONDITIONS AND READS PROVISIONS INTO THE
AGREEMENT OF THE PARTIES WHICH WERE NOT THERE, WHICH ACTION IT CANNOT LEGALLY
DO. (p. 17, Rollo-75875)
Petitioner Luciano E. Salazar in G.R. Nos. 75975-76 assails the amended decision on the following
grounds:
11.1ThatAmendedDecisionwouldsanctiontheCA'sdisregard of binding contractual agreements entered
into by stockholders and the replacement of the conditions of such agreements with terms never
contemplated by the stockholders but merely dictated by the CA
11.2. The Amended decision would likewise sanction the deprivation of the property rights of
stockholders without due process of law in order that a favored group of stockholders may be illegally
benefitted and guaranteed a continuing monopoly of the control of a corporation. (pp. 14-15, Rollo-
75975-76)
On the other hand, the petitioners in G.R. No. 75951 contend that:

ITHE AMENDED DECISION OF THE RESPONDENT COURT, WHILE RECOGNIZING THAT THE
STOCKHOLDERS OF SANIWARES ARE DIVIDED INTO TWO BLOCKS, FAILS TO FULLY ENFORCE
THE BASIC INTENT OF THE AGREEMENT AND THE LAW.
IITHE AMENDED DECISION DOES NOT CATEGORICALLY RULE THAT PRIVATE PETITIONERS
HEREIN WERE THE DULY ELECTED DIRECTORS DURING THE 8 MARCH 1983 ANNUAL
STOCKHOLDERS MEETING OF SANTWARES. (P. 24, Rollo-75951)
The issues raised in the petitions are interrelated, hence, they are discussed jointly.
The main issue hinges on who were the duly elected directors of Saniwares for the year 1983 during its
annual stockholders' meeting held on March 8, 1983. To answer this question the following factors should
be determined: (1) the nature of the business established by the parties whether it was a joint venture or
a corporation and (2) whether or not the ASI Group may vote their additional 10% equity during elections
of Saniwares' board of directors.
The rule is that whether the parties to a particular contract have thereby established among themselves
a joint venture or some other relation depends upon their actual intention which is determined in
accordance with the rules governing the interpretation and construction of contracts. (Terminal Shares,
Inc. v. Chicago, B. and Q.R. Co. (DC MO) 65 F Supp 678; Universal Sales Corp. v. California Press Mfg.
Co. 20 Cal. 2nd 751, 128 P 2nd 668)
The ASI Group and petitioner Salazar (G.R. Nos. 75975-76) contend that the actual intention of the
parties should be viewed strictly on the "Agreement" dated August 15,1962 wherein it is clearly stated
that the parties' intention was to form a corporation and not a joint venture.

They specifically mention number 16 under Miscellaneous Provisions which states:

xxx xxx xxx
c) nothing herein contained shall be construed to constitute any of the parties hereto partners or joint
venturers in respect of any transaction hereunder. (At P. 66, Rollo-GR No. 75875)
They object to the admission of other evidence which tends to show that the parties' agreement was to
establish a joint venture presented by the Lagdameo and Young Group on the ground that it contravenes
the parol evidence rule under section 7, Rule 130 of the Revised Rules of Court. According to them, the
Lagdameo and Young Group never pleaded in their pleading that the "Agreement" failed to express the
true intent of the parties.
The parol evidence Rule under Rule 130 provides:
Evidence of written agreements-When the terms of an agreement have been reduced to writing, it is to
be considered as containing all such terms, and therefore, there can be, between the parties and their
successors in interest, no evidence of the terms of the agreement other than the contents of the writing,
except in the following cases:
(a) Where a mistake or imperfection of the writing, or its failure to express the true intent and agreement
of the parties or the validity of the agreement is put in issue by the pleadings.
(b) When there is an intrinsic ambiguity in the writing.
Contrary to ASI Group's stand, the Lagdameo and Young Group pleaded in their Reply and Answer to
Counterclaim in SEC Case No. 2417 that the Agreement failed to express the true intent of the parties,
to wit:
xxx xxx xxx
4. While certain provisions of the Agreement would make it appear that the parties thereto disclaim being
partners or joint venturers such disclaimer is directed at third parties and is not inconsistent with, and
does not preclude, the existence of two distinct groups of stockholders in Saniwares one of which (the
Philippine Investors) shall constitute the majority, and the other ASI shall constitute the minority
stockholder. In any event, the evident intention of the Philippine Investors and ASI in entering into the
Agreement is to enter into ajoint venture enterprise, and if some words in the Agreement appear to be
contrary to the evident intention of the parties, the latter shall prevail over the former (Art. 1370, New
Civil Code). The various stipulations of a contract shall be interpreted together attributing to the doubtful
ones that sense which may result from all of them taken jointly (Art. 1374, New Civil Code). Moreover,
in order to judge the intention of the contracting parties, their contemporaneous and subsequent acts
shall be principally considered. (Art. 1371, New Civil Code). (Part I, Original Records, SEC Case No.
2417)
It has been ruled:
In an action at law, where there is evidence tending to prove that the parties joined their efforts in
furtherance of an enterprise for their joint profit, the question whether they intended by their agreement
to create a joint adventure, or to assume some other relation is a question of fact for the jury. (Binder v.
Kessler v 200 App. Div. 40,192 N Y S 653; Pyroa v. Brownfield (Tex. Civ. A.) 238 SW 725; Hoge v.
George, 27 Wyo, 423, 200 P 96 33 C.J. p. 871)
In the instant cases, our examination of important provisions of the Agreement as well as the testimonial
evidence presented by the Lagdameo and Young Group shows that the parties agreed to establish a
joint venture and not a corporation. The history of the organization of Saniwares and the unusual
arrangements which govern its policy making body are all consistent with a joint venture and not with an
ordinary corporation. As stated by the SEC:
According to the unrebutted testimony of Mr. Baldwin Young, he negotiated the Agreement with ASI in
behalf of the Philippine nationals. He testified that ASI agreed to accept the role of minority vis-a-vis the
Philippine National group of investors, on the condition that the Agreement should contain provisions to
protect ASI as the minority.
An examination of the Agreement shows that certain provisions were included to protect the interests of
ASI as the minority. For example, the vote of 7 out of 9 directors is required in certain enumerated
corporate acts [Sec. 3 (b) (ii) (a) of the Agreement]. ASI is contractually entitled to designate a member
of the Executive Committee and the vote of this member is required for certain transactions [Sec. 3 (b)
(i)].
The Agreement also requires a 75% super-majority vote for the amendment of the articles and by-laws
of Saniwares [Sec. 3 (a) (iv) and (b) (iii)]. ASI is also given the right to designate the president and plant
manager [Sec. 5 (6)]. The Agreement further provides that the sales policy of Saniwares shall be that
which is normally followed by ASI [Sec. 13 (a)] and that Saniwares should not export "Standard" products
otherwise than through ASI's Export Marketing Services [Sec. 13 (6)]. Under the Agreement, ASI agreed
to provide technology and know-how to Saniwares and the latter paid royalties for the same. (At p. 2).
xxx xxx xxx
It is pertinent to note that the provisions of the Agreement requiring a 7 out of 9 votes of the board of
directors for certain actions, in effect gave ASI (which designates 3 directors under the Agreement) an
effective veto power. Furthermore, the grant to ASI of the right to designate certain officers of the
corporation; the super-majority voting requirements for amendments of the articles and by-laws; and
most significantly to the issues of tms case, the provision that ASI shall designate 3 out of the 9 directors
and the other stockholders shall designate the other 6, clearly indicate that there are two distinct groups
in Saniwares, namely ASI, which owns 40% of the capital stock and the Philippine National stockholders
who own the balance of 60%, and that 2) ASI is given certain protections as the minority stockholder.
Premises considered, we believe that under the Agreement there are two groups of stockholders who
established a corporation with provisions for a special contractual relationship between the parties, i.e.,
ASI and the other stockholders. (pp. 4-5)
Section 5 (a) of the agreement uses the word "designated" and not "nominated" or "elected" in the
selection of the nine directors on a six to three ratio. Each group is assured of a fixed number of directors
in the board.
Moreover, ASI in its communications referred to the enterprise as joint venture. Baldwin Young also
testified that Section 16(c) of the Agreement that "Nothing herein contained shall be construed to
constitute any of the parties hereto partners or joint venturers in respect of any transaction hereunder"
was merely to obviate the possibility of the enterprise being treated as partnership for tax purposes and
liabilities to third parties.
Quite often, Filipino entrepreneurs in their desire to develop the industrial and manufacturing capacities
of a local firm are constrained to seek the technology and marketing assistance of huge multinational
corporations of the developed world. Arrangements are formalized where a foreign group becomes a
minority owner of a firm in exchange for its manufacturing expertise, use of its brand names, and other
such assistance. However, there is always a danger from such arrangements. The foreign group may,
from the start, intend to establish its own sole or monopolistic operations and merely uses the joint
venture arrangement to gain a foothold or test the Philippine waters, so to speak. Or the covetousness
may come later. As the Philippine firm enlarges its operations and becomes profitable, the foreign group
undermines the local majority ownership and actively tries to completely or predominantly take over the
entire company. This undermining of joint ventures is not consistent with fair dealing to say the least. To
the extent that such subversive actions can be lawfully prevented, the courts should extend protection
especially in industries where constitutional and legal requirements reserve controlling ownership to
Filipino citizens.
The Lagdameo Group stated in their appellees' brief in the Court of Appeal
In fact, the Philippine Corporation Code itself recognizes the right of stockholders to enter into
agreements regarding the exercise of their voting rights.
Sec. 100. Agreements by stockholders.-
2. An agreement between two or more stockholders, if in writing and signed by the parties thereto, may
provide that in exercising any voting rights, the shares held by them shall be voted as therein provided,
or as they may agree, or as determined in accordance with a procedure agreed upon by them.
Appellants contend that the above provision is included in the Corporation Code's chapter on close
corporations and Saniwares cannot be a close corporation because it has 95 stockholders. Firstly,
although Saniwares had 95 stockholders at the time of the disputed stockholders meeting, these 95
stockholders are not separate from each other but are divisible into groups representing a single
Identifiable interest. For example, ASI, its nominees and lawyers count for 13 of the 95 stockholders.
The YoungYutivo family count for another 13 stockholders, the Chamsay family for 8 stockholders, the
Santos family for 9 stockholders, the Dy family for 7 stockholders, etc. If the members of one family
and/or business or interest group are considered as one (which, it is respectfully submitted, they should
be for purposes of determining how closely held Saniwares is there were as of 8 March 1983, practically
only 17 stockholders of Saniwares. (Please refer to discussion in pp. 5 to 6 of appellees' Rejoinder
Memorandum dated 11 December 1984 and Annex "A" thereof).
Secondly, even assuming that Saniwares is technically not a close corporation because it has more than
20 stockholders, the undeniable fact is that it is a close-held corporation. Surely, appellants cannot
honestly claim that Saniwares is a public issue or a widely held corporation.
In the United States, many courts have taken a realistic approach to joint venture corporations and have
not rigidly applied principles of corporation law designed primarily for public issue corporations. These
courts have indicated that express arrangements between corporate joint ventures should be construed
with less emphasis on the ordinary rules of law usually applied to corporate entities and with more
consideration given to the nature of the agreement between the joint venturers (Please see Wabash Ry
v. American Refrigerator Transit Co., 7 F 2d 335; Chicago, M & St. P. Ry v. Des Moines Union Ry; 254
Ass'n. 247 US. 490'; Seaboard Airline Ry v. Atlantic Coast Line Ry; 240 N.C. 495,.82 S.E. 2d 771; Deboy
v. Harris, 207 Md., 212,113 A 2d 903; Hathway v. Porter Royalty Pool, Inc., 296 Mich. 90, 90, 295 N.W.
571; Beardsley v. Beardsley, 138 U.S. 262; "The Legal Status of Joint Venture Corporations", 11 Vand
Law Rev. p. 680,1958). These American cases dealt with legal questions as to the extent to which the
requirements arising from the corporate form of joint venture corporations should control, and the courts
ruled that substantial justice lay with those litigants who relied on the joint venture agreement rather than
the litigants who relied on the orthodox principles of corporation law.
As correctly held by the SEC Hearing Officer:
It is said that participants in a joint venture, in organizing the joint venture deviate from the traditional
pattern of corporation management. A noted authority has pointed out that just as in close corporations,
shareholders' agreements in joint venture corporations often contain provisions which do one or more of
the following: (1) require greater than majority vote for shareholder and director action; (2) give certain
shareholders or groups of shareholders power to select a specified number of directors; (3) give to the
shareholders control over the selection and retention of employees; and (4) set up a procedure for the
settlement of disputes by arbitration (See I O' Neal, Close Corporations, 1971 ed., Section 1.06a, pp.
15-16) (Decision of SEC Hearing Officer, P. 16)
Thirdly paragraph 2 of Sec. 100 of the Corporation Code does not necessarily imply that agreements
regarding the exercise of voting rights are allowed only in close corporations. As Campos and Lopez-
Campos explain:
Paragraph 2 refers to pooling and voting agreements in particular. Does this provision necessarily imply
that these agreements can be valid only in close corporations as defined by the Code? Suppose that a
corporation has twenty five stockholders, and therefore cannot qualify as a close corporation under
section 96, can some of them enter into an agreement to vote as a unit in the election of directors? It is
submitted that there is no reason for denying stockholders of corporations other than close ones the right
to enter into not voting or pooling agreements to protect their interests, as long as they do not intend to
commit any wrong, or fraud on the other stockholders not parties to the agreement. Of course, voting or
pooling agreements are perhaps more useful and more often resorted to in close corporations. But they
may also be found necessary even in widely held corporations. Moreover, since the Code limits the legal
meaning of close corporations to those which comply with the requisites laid down by section 96, it is
entirely possible that a corporation which is in fact a close corporation will not come within the definition.
In such case, its stockholders should not be precluded from entering into contracts like voting
agreements if these are otherwise valid. (Campos & Lopez-Campos, op cit, p. 405)
In short, even assuming that sec. 5(a) of the Agreement relating to the designation or nomination of
directors restricts the right of the Agreement's signatories to vote for directors, such contractual provision,
as correctly held by the SEC, is valid and binding upon the signatories thereto, which include appellants.
(Rollo No. 75951, pp. 90-94)
In regard to the question as to whether or not the ASI group may vote their additional equity during
elections of Saniwares' board of directors, the Court of Appeals correctly stated:
As in other joint venture companies, the extent of ASI's participation in the management of the
corporation is spelled out in the Agreement. Section 5(a) hereof says that three of the nine directors shall
be designated by ASI and the remaining six by the other stockholders, i.e., the Filipino stockholders.
This allocation of board seats is obviously in consonance with the minority position of ASI.
Having entered into a well-defined contractual relationship, it is imperative that the parties should honor
and adhere to their respective rights and obligations thereunder. Appellants seem to contend that any
allocation of board seats, even in joint venture corporations, are null and void to the extent that such may
interfere with the stockholder's rights to cumulative voting as provided in Section 24 of the Corporation
Code. This Court should not be prepared to hold that any agreement which curtails in any way cumulative
voting should be struck down, even if such agreement has been freely entered into by experienced
businessmen and do not prejudice those who are not parties thereto. It may well be that it would be more
cogent to hold, as the Securities and Exchange Commission has held in the decision appealed from,
that cumulative voting rights may be voluntarily waived by stockholders who enter into special
relationships with each other to pursue and implement specific purposes, as in joint venture relationships
between foreign and local stockholders, so long as such agreements do not adversely affect third parties.
In any event, it is believed that we are not here called upon to make a general rule on this question.
Rather, all that needs to be done is to give life and effect to the particular contractual rights and
obligations which the parties have assumed for themselves.
On the one hand, the clearly established minority position of ASI and the contractual allocation of board
seats Cannot be disregarded. On the other hand, the rights of the stockholders to cumulative voting
should also be protected.
In our decision sought to be reconsidered, we opted to uphold the second over the first. Upon further
reflection, we feel that the proper and just solution to give due consideration to both factors suggests
itself quite clearly. This Court should recognize and uphold the division of the stockholders into two
groups, and at the same time uphold the right of the stockholders within each group to cumulative voting
in the process of determining who the group's nominees would be. In practical terms, as suggested by
appellant Luciano E. Salazar himself, this means that if the Filipino stockholders cannot agree who their
six nominees will be, a vote would have to be taken among the Filipino stockholders only. During this
voting, each Filipino stockholder can cumulate his votes. ASI, however, should not be allowed to interfere
in the voting within the Filipino group. Otherwise, ASI would be able to designate more than the three
directors it is allowed to designate under the Agreement, and may even be able to get a majority of the
board seats, a result which is clearly contrary to the contractual intent of the parties.
Such a ruling will give effect to both the allocation of the board seats and the stockholder's right to
cumulative voting. Moreover, this ruling will also give due consideration to the issue raised by the
appellees on possible violation or circumvention of the Anti-Dummy Law (Com. Act No. 108, as
amended) and the nationalization requirements of the Constitution and the laws if ASI is allowed to
nominate more than three directors. (Rollo-75875, pp. 38-39)
The ASI Group and petitioner Salazar, now reiterate their theory that the ASI Group has the right to vote
their additional equity pursuant to Section 24 of the Corporation Code which gives the stockholders of a
corporation the right to cumulate their votes in electing directors. Petitioner Salazar adds that this right if
granted to the ASI Group would not necessarily mean a violation of the Anti-Dummy Act (Commonwealth
Act 108, as amended). He cites section 2-a thereof which provides:
And provided finally that the election of aliens as members of the board of directors or governing body
of corporations or associations engaging in partially nationalized activities shall be allowed in proportion
to their allowable participation or share in the capital of such entities. (amendments introduced by
Presidential Decree 715, section 1, promulgated May 28, 1975)
The ASI Group's argument is correct within the context of Section 24 of the Corporation Code. The point
of query, however, is whether or not that provision is applicable to a joint venture with clearly defined
agreements:
The legal concept of ajoint venture is of common law origin. It has no precise legal definition but it has
been generally understood to mean an organization formed for some temporary purpose. (Gates v.
Megargel, 266 Fed. 811 [1920]) It is in fact hardly distinguishable from the partnership, since their
elements are similar community of interest in the business, sharing of profits and losses, and a mutual
right of control. Blackner v. Mc Dermott, 176 F. 2d. 498, [1949]; Carboneau v. Peterson, 95 P. 2d., 1043
[1939]; Buckley v. Chadwick, 45 Cal. 2d. 183, 288 P. 2d. 12 289 P. 2d. 242 [1955]). The main distinction
cited by most opinions in common law jurisdictions is that the partnership contemplates a general
business with some degree of continuity, while the joint venture is formed for the execution of a single
transaction, and is thus of a temporary nature. (Tufts v. Mann 116 Cal. App. 170, 2 P. 2d. 500 [1931];
Harmon v. Martin, 395 111. 595, 71 NE 2d. 74 [1947]; Gates v. Megargel 266 Fed. 811 [1920]). This
observation is not entirely accurate in this jurisdiction, since under the Civil Code, a partnership may be
particular or universal, and a particular partnership may have for its object a specific undertaking. (Art.
1783, Civil Code). It would seem therefore that under Philippine law, a joint venture is a form of
partnership and should thus be governed by the law of partnerships. The Supreme Court has however
recognized a distinction between these two business forms, and has held that although a corporation
cannot enter into a partnership contract, it may however engage in a joint venture with others. (At p. 12,
Tuazon v. Bolanos, 95 Phil. 906 [1954]) (Campos and Lopez-Campos Comments, Notes and Selected
Cases, Corporation Code 1981)
Moreover, the usual rules as regards the construction and operations of contracts generally apply to a
contract of joint venture. (O' Hara v. Harman 14 App. Dev. (167) 43 NYS 556)
Bearing these principles in mind, the correct view would be that the resolution of the question of whether
or not the ASI Group may vote their additional equity lies in the agreement of the parties.
Necessarily, the appellate court was correct in upholding the agreement of the parties as regards the
allocation of director seats under Section 5 (a) of the "Agreement," and the right of each group of
stockholders to cumulative voting in the process of determining who the group's nominees would be
under Section 3 (a) (1) of the "Agreement." As pointed out by SEC, Section 5 (a) of the Agreement
relates to the manner of nominating the members of the board of directors while Section 3 (a) (1) relates
to the manner of voting for these nominees.
This is the proper interpretation of the Agreement of the parties as regards the election of members of
the board of directors.
To allow the ASI Group to vote their additional equity to help elect even a Filipino director who would be
beholden to them would obliterate their minority status as agreed upon by the parties. As aptly stated by
the appellate court:
... ASI, however, should not be allowed to interfere in the voting within the Filipino group. Otherwise, ASI
would be able to designate more than the three directors it is allowed to designate under the Agreement,
and may even be able to get a majority of the board seats, a result which is clearly contrary to the
contractual intent of the parties.
Such a ruling will give effect to both the allocation of the board seats and the stockholder's right to
cumulative voting. Moreover, this ruling will also give due consideration to the issue raised by the
appellees on possible violation or circumvention of the Anti-Dummy Law (Com. Act No. 108, as
amended) and the nationalization requirements of the Constitution and the laws if ASI is allowed to
nominate more than three directors. (At p. 39, Rollo, 75875)
Equally important as the consideration of the contractual intent of the parties is the consideration as
regards the possible domination by the foreign investors of the enterprise in violation of the
nationalization requirements enshrined in the Constitution and circumvention of the Anti-Dummy Act. In
this regard, petitioner Salazar's position is that the Anti-Dummy Act allows the ASI group to elect board
directors in proportion to their share in the capital of the entity. It is to be noted, however, that the same
law also limits the election of aliens as members of the board of directors in proportion to their allowance
participation of said entity. In the instant case, the foreign Group ASI was limited to designate three
directors. This is the allowable participation of the ASI Group. Hence, in future dealings, this limitation of
six to three board seats should always be maintained as long as the joint venture agreement exists
considering that in limiting 3 board seats in the 9-man board of directors there are provisions already
agreed upon and embodied in the parties' Agreement to protect the interests arising from the minority
status of the foreign investors.
With these findings, we the decisions of the SEC Hearing Officer and SEC which were impliedly affirmed
by the appellate court declaring Messrs. Wolfgang Aurbach, John Griffin, David P Whittingham, Emesto
V. Lagdameo, Baldwin young, Raul A. Boncan, Emesto V. Lagdameo, Jr., Enrique Lagdameo, and
George F. Lee as the duly elected directors of Saniwares at the March 8,1983 annual stockholders'
meeting.
On the other hand, the Lagdameo and Young Group (petitioners in G.R. No. 75951) object to a
cumulative voting during the election of the board of directors of the enterprise as ruled by the appellate
court and submits that the six (6) directors allotted the Filipino stockholders should be selected by
consensus pursuant to section 5 (a) of the Agreement which uses the word "designate" meaning
"nominate, delegate or appoint."
They also stress the possibility that the ASI Group might take control of the enterprise if the Filipino
stockholders are allowed to select their nominees separately and not as a common slot determined by
the majority of their group.
Section 5 (a) of the Agreement which uses the word designates in the allocation of board directors should
not be interpreted in isolation. This should be construed in relation to section 3 (a) (1) of the Agreement.
As we stated earlier, section 3(a) (1) relates to the manner of voting for these nominees which
is cumulative voting while section 5(a) relates to the manner of nominating the members of the board of
directors. The petitioners in G.R. No. 75951 agreed to this procedure, hence, they cannot now impugn
its legality.
The insinuation that the ASI Group may be able to control the enterprise under the cumulative voting
procedure cannot, however, be ignored. The validity of the cumulative voting procedure is dependent on
the directors thus elected being genuine members of the Filipino group, not voters whose interest is to
increase the ASI share in the management of Saniwares. The joint venture character of the enterprise
must always be taken into account, so long as the company exists under its original agreement.
Cumulative voting may not be used as a device to enable ASI to achieve stealthily or indirectly what they
cannot accomplish openly. There are substantial safeguards in the Agreement which are intended to
preserve the majority status of the Filipino investors as well as to maintain the minority status of the
foreign investors group as earlier discussed. They should be maintained.
WHEREFORE, the petitions in G.R. Nos. 75975-76 and G.R. No. 75875 are DISMISSED and the petition
in G.R. No. 75951 is partly GRANTED. The amended decision of the Court of Appeals is MODIFIED in
that Messrs. Wolfgang Aurbach John Griffin, David Whittingham Emesto V. Lagdameo, Baldwin Young,
Raul A. Boncan, Ernesto R. Lagdameo, Jr., Enrique Lagdameo, and George F. Lee are declared as the
duly elected directors of Saniwares at the March 8,1983 annual stockholders' meeting. In all other
respects, the questioned decision is AFFIRMED. Costs against the petitioners in G.R. Nos. 75975-76
and G.R. No. 75875.

3. Lyons vs Rosentock, 56 Phil 632 1932

E. S. LYONS, plaintiff-appellant, vs.C. W. ROSENSTOCK, Executor of the Estate of Henry W. Elser,
deceased, defendant-
This action was institute in the Court of First Instance of the City of Manila, by E. S. Lyons against C. W.
Rosenstock, as executor of the estate of H. W. Elser, deceased, consequent upon the taking of an appeal
by the executor from the allowance of the claim sued upon by the committee on claims in said estate.
The purpose of the action is to recover four hundred forty-six and two thirds shares of the stock of J. K.
Pickering & Co., Ltd., together with the sum of about P125,000, representing the dividends which
accrued on said stock prior to October 21, 1926, with lawful interest. Upon hearing the cause the trial
court absolved the defendant executor from the complaint, and the plaintiff appealed.
Prior to his death on June 18, 1923, Henry W. Elser had been a resident of the City of Manila where he
was engaged during the years with which we are here concerned in buying, selling, and administering
real estate. In several ventures which he had made in buying and selling property of this kind the plaintiff,
E. S. Lyons, had joined with him, the profits being shared by the two in equal parts. In April, 1919, Lyons,
whose regular vocation was that of a missionary, or missionary agent, of the Methodist Episcopal
Church, went on leave to the United States and was gone for nearly a year and a half, returning on
September 21, 1920. On the eve of his departure Elser made a written statements showing that Lyons
was, at that time, half owner with Elser of three particular pieces of real property. Concurrently with this
act Lyons execute in favor of Elser a general power of attorney empowering him to manage and dispose
of said properties at will and to represent Lyons fully and amply, to the mutual advantage of both. During
the absence of Lyons two of the pieces of property above referred to were sold by Elser, leaving in his
hands a single piece of property located at 616-618 Carried Street, in the City of Manila, containing about
282 square meters of land, with the improvements thereon.
In the spring of 1920 the attention of Elser was drawn to a piece of land, containing about 1,500,000
square meters, near the City of Manila, and he discerned therein a fine opportunity for the promotion and
development of a suburban improvement. This property, which will be herein referred to as the San Juan
Estate, was offered by its owners for P570,000. To afford a little time for maturing his plans, Elser
purchased an option on this property for P5,000, and when this option was about to expire without his
having been able to raise the necessary funds, he paid P15,000 more for an extension of the option,
with the understanding in both cases that, in case the option should be exercised, the amounts thus paid
should be credited as part of the first payment. The amounts paid for this option and its extension were
supplied by Elser entirely from his own funds. In the end he was able from his own means, and with the
assistance which he obtained from others, to acquire said estate. The amount required for the first
payment was P150,000, and as Elser had available only about P120,000, including the P20,000
advanced upon the option, it was necessary to raise the remainder by obtaining a loan for P50,000. This
amount was finally obtained from a Chinese merchant of the city named Uy Siuliong. This loan was
secured through Uy Cho Yee, a son of the lender; and in order to get the money it was necessary for
Elser not only to give a personal note signed by himself and his two associates in the projected
enterprise, but also by the Fidelity & Surety Company. The money thus raised was delivered to Elser by
Uy Siuliong on June 24, 1920. With this money and what he already had in bank Elser purchased the
San Juan Estate on or about June 28, 1920. For the purpose of the further development of the property
a limited partnership had, about this time, been organized by Elser and three associates, under the name
of J. K. Pickering & Company; and when the transfer of the property was effected the deed was made
directly to this company. As Elser was the principal capitalist in the enterprise he received by far the
greater number of the shares issued, his portion amount in the beginning to 3,290 shares.
While these negotiations were coming to a head, Elser contemplated and hoped that Lyons might be
induced to come in with him and supply part of the means necessary to carry the enterprise through. In
this connection it appears that on May 20, 1920, Elser wrote Lyons a letter, informing him that he had
made an offer for a big subdivision and that, if it should be acquired and Lyons would come in, the two
would be well fixed. (Exhibit M-5.) On June 3, 1920, eight days before the first option expired, Elser
cabled Lyons that he had bought the San Juan Estate and thought it advisable for Lyons to resign (Exhibit
M-13), meaning that he should resign his position with the mission board in New York. On the same date
he wrote Lyons a letter explaining some details of the purchase, and added "have advised in my cable
that you resign and I hope you can do so immediately and will come and join me on the lines we have
so often spoken about. . . . There is plenty of business for us all now and I believe we have started
something that will keep us going for some time." In one or more communications prior to this, Elser had
sought to impress Lyons with the idea that he should raise all the money he could for the purpose of
giving the necessary assistance in future deals in real estate.
The enthusiasm of Elser did not communicate itself in any marked degree to Lyons, and found him
averse from joining in the purchase of the San Juan Estate. In fact upon this visit of Lyons to the United
States a grave doubt had arisen as to whether he would ever return to Manila, and it was only in the
summer of 1920 that the board of missions of his church prevailed upon him to return to Manila and
resume his position as managing treasurer and one of its trustees. Accordingly, on June 21, 1920, Lyons
wrote a letter from New York thanking Elser for his offer to take Lyons into his new project and adding
that from the standpoint of making money, he had passed up a good thing.
One source of embarrassment which had operated on Lyson to bring him to the resolution to stay out of
this venture, was that the board of mission was averse to his engaging in business activities other than
those in which the church was concerned; and some of Lyons' missionary associates had apparently
been criticizing his independent commercial activities. This fact was dwelt upon in the letter above-
mentioned. Upon receipt of this letter Elser was of course informed that it would be out of the question
to expect assistance from Lyons in carrying out the San Juan project. No further efforts to this end were
therefore made by Elser.
When Elser was concluding the transaction for the purchase of the San Juan Estate, his book showed
that he was indebted to Lyons to the extent of, possibly, P11,669.72, which had accrued to Lyons from
profits and earnings derived from other properties; and when the J. K. Pickering & Company was
organized and stock issued, Elser indorsed to Lyons 200 of the shares allocated to himself, as he then
believed that Lyons would be one of his associates in the deal. It will be noted that the par value of these
200 shares was more than P8,000 in excess of the amount which Elser in fact owed to Lyons; and when
the latter returned to the Philippine Islands, he accepted these shares and sold them for his own benefit.
It seems to be supposed in the appellant's brief that the transfer of these shares to Lyons by Elser
supplies some sort of basis for the present action, or at least strengthens the considerations involved in
a feature of the case to be presently explained. This view is manifestly untenable, since the ratification
of the transaction by Lyons and the appropriation by him of the shares which were issued to him leaves
no ground whatever for treating the transaction as a source of further equitable rights in Lyons. We
should perhaps add that after Lyons' return to the Philippine Islands he acted for a time as one of the
members of the board of directors of the J. K. Pickering & Company, his qualification for this office being
derived precisely from the ownership of these shares.
We now turn to the incident which supplies the main basis of this action. It will be remembered that,
when Elser obtained the loan of P50,000 to complete the amount needed for the first payment on the
San Juan Estate, the lender, Uy Siuliong, insisted that he should procure the signature of the Fidelity &
Surety Co. on the note to be given for said loan. But before signing the note with Elser and his associates,
the Fidelity & Surety Co. insisted upon having security for the liability thus assumed by it. To meet this
requirements Elser mortgaged to the Fidelity & Surety Co. the equity of redemption in the property owned
by himself and Lyons on Carriedo Street. This mortgage was executed on June 30, 1920, at which time
Elser expected that Lyons would come in on the purchase of the San Juan Estate. But when he learned
from the letter from Lyons of July 21, 1920, that the latter had determined not to come into this deal,
Elser began to cast around for means to relieve the Carriedo property of the encumbrance which he had
placed upon it. For this purpose, on September 9, 1920, he addressed a letter to the Fidelity & Surety
Co., asking it to permit him to substitute a property owned by himself at 644 M. H. del Pilar Street, Manila,
and 1,000 shares of the J. K. Pickering & Company, in lieu of the Carriedo property, as security. The
Fidelity & Surety Co. agreed to the proposition; and on September 15, 1920, Elser executed in favor of
the Fidelity & Surety Co. a new mortgage on the M. H. del Pillar property and delivered the same, with
1,000 shares of J. K. Pickering & Company, to said company. The latter thereupon in turn executed a
cancellation of the mortgage on the Carriedo property and delivered it to Elser. But notwithstanding the
fact that these documents were executed and delivered, the new mortgage and the release of the old
were never registered; and on September 25, 1920, thereafter, Elser returned the cancellation of the
mortgage on the Carriedo property and took back from the Fidelity & Surety Co. the new mortgage on
the M. H. del Pilar property, together with the 1,000 shares of the J. K. Pickering & Company which he
had delivered to it.
The explanation of this change of purpose is undoubtedly to be found in the fact that Lyons had arrived
in Manila on September 21, 1920, and shortly thereafter, in the course of a conversation with Elser told
him to let the Carriedo mortgage remain on the property ("Let the Carriedo mortgage ride"). Mrs. Elser
testified to the conversation in which Lyons used the words above quoted, and as that conversation
supplies the most reasonable explanation of Elser's recession from his purpose of relieving the Carriedo
property, the trial court was, in our opinion, well justified in accepting as a proven fact the consent of
Lyons for the mortgage to remain on the Carriedo property. This concession was not only reasonable
under the circumstances, in view of the abundant solvency of Elser, but in view of the further fact that
Elser had given to Lyons 200 shares of the stock of the J. K. Pickering & Co., having a value of nearly
P8,000 in excess of the indebtedness which Elser had owed to Lyons upon statement of account. The
trial court found in effect that the excess value of these shares over Elser's actual indebtedness was
conceded by Elser to Lyons in consideration of the assistance that had been derived from the mortgage
placed upon Lyon's interest in the Carriedo property. Whether the agreement was reached exactly upon
this precise line of thought is of little moment, but the relations of the parties had been such that it was
to be expected that Elser would be generous; and he could scarcely have failed to take account of the
use he had made of the joint property of the two.
As the development of the San Juan Estate was a success from the start, Elser paid the note of P50,000
to Uy Siuliong on January 18, 1921, although it was not due until more than five months later. It will thus
be seen that the mortgaging of the Carriedo property never resulted in damage to Lyons to the extent of
a single cent; and although the court refused to allow the defendant to prove the Elser was solvent at
this time in an amount much greater than the entire encumbrance placed upon the property, it is evident
that the risk imposed upon Lyons was negligible. It is also plain that no money actually deriving from this
mortgage was ever applied to the purchase of the San Juan Estate. What really happened was the Elser
merely subjected the property to a contingent liability, and no actual liability ever resulted therefrom. The
financing of the purchase of the San Juan Estate, apart from the modest financial participation of his
three associates in the San Juan deal, was the work of Elser accomplished entirely upon his own
account.
The case for the plaintiff supposes that, when Elser placed a mortgage for P50,000 upon the equity of
redemption in the Carriedo property, Lyons, as half owner of said property, became, as it were,
involuntarily the owner of an undivided interest in the property acquired partly by that money; and it is
insisted for him that, in consideration of this fact, he is entitled to the four hundred forty-six and two-thirds
shares of J. K. Pickering & Company, with the earnings thereon, as claimed in his complaint.
Lyons tells us that he did not know until after Elser's death that the money obtained from Uy Siuliong in
the manner already explained had been used to held finance the purchase of the San Juan Estate. He
seems to have supposed that the Carried property had been mortgaged to aid in putting through another
deal, namely, the purchase of a property referred to in the correspondence as the "Ronquillo property";
and in this connection a letter of Elser of the latter part of May, 1920, can be quoted in which he uses
this language:
As stated in cablegram I have arranged for P50,000 loan on Carriedo property. Will use part of the money
for Ronquillo buy (P60,000) if the owner comes through.
Other correspondence shows that Elser had apparently been trying to buy the Ronquillo property, and
Lyons leads us to infer that he thought that the money obtained by mortgaging the Carriedo property
had been used in the purchase of this property. It doubtedless appeared so to him in the retrospect, but
certain consideration show that he was inattentive to the contents of the quotation from the letter above
given. He had already been informed that, although Elser was angling for the Ronquillo property, its price
had gone up, thus introducing a doubt as to whether he could get it; and the quotation above given shows
that the intended use of the money obtained by mortgaging the Carriedo property was that only part of
the P50,000 thus obtained would be used in this way, if the deal went through. Naturally, upon the arrival
of Lyons in September, 1920, one of his first inquiries would have been, if he did not know before, what
was the status of the proposed trade for the Ronquillo property.
Elser's widow and one of his clerks testified that about June 15, 1920, Elser cabled Lyons something to
this effect;: "I have mortgaged the property on Carriedo Street, secured by my personal note. You are
amply protected. I wish you to join me in the San Juan Subdivision. Borrow all money you can." Lyons
says that no such cablegram was received by him, and we consider this point of fact of little moment,
since the proof shows that Lyons knew that the Carriedo mortgage had been executed, and after his
arrival in Manila he consented for the mortgage to remain on the property until it was paid off, as shortly
occurred. It may well be that Lyons did not at first clearly understand all the ramifications of the situation,
but he knew enough, we think, to apprise him of the material factors in the situation, and we concur in
the conclusion of the trial court that Elser did not act in bad faith and was guilty of no fraud.
In the purely legal aspect of the case, the position of the appellant is, in our opinion, untenable. If Elser
had used any money actually belonging to Lyons in this deal, he would under article 1724 of the Civil
Code and article 264 of the Code of Commerce, be obligated to pay interest upon the money so applied
to his own use. Under the law prevailing in this jurisdiction a trust does not ordinarily attach with respect
to property acquired by a person who uses money belonging to another (Martinez vs. Martinez, 1 Phil.,
647; Enriquez vs. Olaguer, 25 Phil., 641.). Of course, if an actual relation of partnership had existed in
the money used, the case might be difference; and much emphasis is laid in the appellant's brief upon
the relation of partnership which, it is claimed, existed. But there was clearly no general relation of
partnership, under article 1678 of the Civil Code. It is clear that Elser, in buying the San Juan Estate,
was not acting for any partnership composed of himself and Lyons, and the law cannot be distorted into
a proposition which would make Lyons a participant in this deal contrary to his express determination.
It seems to be supposed that the doctrines of equity worked out in the jurisprudence of England and the
United States with reference to trust supply a basis for this action. The doctrines referred to operate,
however, only where money belonging to one person is used by another for the acquisition of property
which should belong to both; and it takes but little discernment to see that the situation here involved is
not one for the application of that doctrine, for no money belonging to Lyons or any partnership composed
of Elser and Lyons was in fact used by Elser in the purchase of the San Juan Estate. Of course, if any
damage had been caused to Lyons by the placing of the mortgage upon the equity of redemption in the
Carriedo property, Elser's estate would be liable for such damage. But it is evident that Lyons was not
prejudice by that act.
The appellee insist that the trial court committed error in admitting the testimony of Lyons upon matters
that passed between him and Elser while the latter was still alive. While the admission of this testimony
was of questionable propriety, any error made by the trial court on this point was error without injury, and
the determination of the question is not necessary to this decision. We therefore pass the point without
further discussion.
The judgment appealed from will be affirmed, and it is so ordered, with costs against the appellant.

Art 1784 to 1804

Lozana bs Depakabibo 107 Phil 728
MAURO LOZANA, plaintiff-appellee,
vs.SERAFIN DEPAKAKIBO, defendant-
This is an appeal from a judgment of the Court of First Instance of Iloilo, certified to us by the Court of
Appeals, for the reason that only questions of law are involved in said appeal.
The record discloses that on November 16, 1954 plaintiff Mauro Lozana entered into a contract with
defendant Serafin Depakakibo wherein they established a partnership capitalized at the sum of P30,000,
plaintiff furnishing 60% thereof and the defendant, 40%, for the purpose of maintaining, operating and
distributing electric light and power in the Municipality of Dumangas, Province of Iloilo, under a franchise
issued to Mrs. Piadosa Buenaflor. However, the franchise or certificate of public necessity and
convenience in favor of the said Mrs. Piadosa Buenaflor was cancelled and revoked by the Public
Service Commission on May 15, 1955. But the decision of the Public Service Commission was appealed
to Us on October 21, 1955. A temporary certificate of public convenience was issued in the name of
Olimpia D. Decolongon on December 22, 1955 (Exh. "B"). Evidently because of the cancellation of the
franchise in the name of Mrs. Piadosa Buenaflor, plaintiff herein Mauro Lozana sold a generator, Buda
(diesel), 75 hp. 30 KVA capacity, Serial No. 479, to the new grantee Olimpia D. Decolongon, by a deed
dated October 30, 1955 (Exhibit "C"). Defendant Serafin Depakakibo, on the other hand, sold one
Crossly Diesel Engine, 25 h. p., Serial No. 141758, to the spouses Felix Jimenea and Felina Harder, by
a deed dated July 10, 1956.
On November 15, 1955, plaintiff Mauro Lozana brought an action against the defendant, alleging that he
is the owner of the Generator Buda (Diesel), valued at P8,000 and 70 wooden posts with the wires
connecting the generator to the different houses supplied by electric current in the Municipality of
Dumangas, and that he is entitled to the possession thereof, but that the defendant has wrongfully
detained them as a consequence of which plaintiff suffered damages. Plaintiff prayed that said properties
be delivered back to him. Three days after the filing of the complaint, that is on November 18, 1955,
Judge Pantaleon A. Pelayo issued an order in said case authorizing the sheriff to take possession of the
generator and 70 wooden posts, upon plaintiff's filing of a bond in the amount of P16,000 in favor of the
defendant (for subsequent delivery to the plaintiff). On December 5, 1955, defendant filed an answer,
denying that the generator and the equipment mentioned in the complaint belong to the plaintiff and
alleging that the same had been contributed by the plaintiff to the partnership entered into between them
in the same manner that defendant had contributed equipments also, and therefore that he is not
unlawfully detaining them. By way of counterclaim, defendant alleged that under the partnership
agreement the parties were to contribute equipments, plaintiff contributing the generator and the
defendant, the wires for the purpose of installing the main and delivery lines; that the plaintiff sold his
contribution to the partnership, in violation of the terms of their agreement. He, therefore, prayed that the
complaint against him be dismissed; that plaintiff be adjudged guilty of violating the partnership contract
and be ordered to pay the defendant the sum of P3,000, as actual damages, P600.00 as attorney's fees
and P2,600 annually as actual damages; that the court order dissolution of the partnership, after the
accounting and liquidation of the same.
On September 27, 1956, the defendant filed a motion to declare plaintiff in default on his counterclaim,
but this was denied by the court. Hearings on the case were conducted on October 25, 1956 and
November 5, 1956, and on the latter date the judge entered a decision declaring plaintiff owner of the
equipment and entitled to the possession thereof, with costs against defendant. It is against this judgment
that the defendant has appealed.
The above judgment of the court was rendered on a stipulation of facts, which is as follows:
1. That on November 16, 1954, in the City of Iloilo, the aforementioned plaintiff, and the defendant
entered into a contract of Partnership, a copy of which is attached as Annex "A" of defendant's answer
and counterclaim, for the purpose set forth therein and under the national franchise granted to Mrs.
Piaosa Buenaflor;
2. That according to the aforementioned Partnership Contract, the plaintiff Mr. Mauro Lozana, contributed
the amount of Eighteen Thousand Pesos (P18,000.00); said contributions of both parties being the
appraised values of their respective properties brought into the partnership;
3. That the said Certificate of Public Convenience and Necessity was revoked and cancelled by order of
the Public Service Commission dated March 15, 1955, promulgated in case No. 58188, entitled, "Piadosa
Buenaflor, applicant", which order has been appealed to the Supreme Court by Mrs. Buenaflor;
4. That on October 30, 1955, the plaintiff sold properties brought into by him to the said partnership in
favor of Olimpia Decolongon in the amount of P10,000.00 as per Deed of Sale dated October 30, 1955
executed and ratified before Notary Public, Delfin Demaisip, in and for the Municipality of Dumangas,
Iloilo and entered in his Notarial Registry as Doc. No. 832; Page No. 6; Book No. XIII; and Series of
1955, a copy thereof is made as Annex "B" of defendant's answer and counterclaim;
5. That there was no liquidation of partnership and that at the time of said Sale on October 30, 1955,
defendant was the manager thereof;
6. That by virtue of the Order of this Honorable Court dated November 18, 1955, those properties sold
were taken by the Provincial Sheriff on November 20, 1955 and delivered to the plaintiff on November
25, 1955 upon the latter posting the required bond executed by himself and the Luzon Surety Co., dated
November 17, 1955 and ratified before the Notary Public, Eleuterio del Rosario in and for the province
of Iloilo known as Doc. No. 200; Page 90; Book No. VII; and Series of 1955; of said Notary Public;
7. That the said properties sold are now in the possession of Olimpia Decolongon, the purchaser, who
is presently operating an electric light plant in Dumangas, Iloilo;
8. That the defendant sold certain properties in favor of the spouses, Felix Jimenea and Felisa Harder
contributed by him to the partnership for P3,500.00 as per Deed of Sale executed and ratified before the
Notary Public Rodrigo J. Harder in and for the Province of Iloilo, known as Doc. No. 76; Page 94; Book
No. V; and Series of 1955, a certified copy of which is hereto attached marked as Annex "A", and made
an integral part hereof; (pp, 27-29 ROA).
As it appears from the above stipulation of facts that the plaintiff and the defendant entered into the
contract of partnership, plaintiff contributing the amount of P18,000, and as it is not stated therein that
there bas been a liquidation of the partnership assets at the time plaintiff sold the Buda Diesel Engine
on October 15, 1955, and since the court below had found that the plaintiff had actually contributed one
engine and 70 posts to the partnership, it necessarily follows that the Buda diesel engine contributed by
the plaintiff had become the property of the partnership. As properties of the partnership, the same could
not be disposed of by the party contributing the same without the consent or approval of the partnership
or of the other partner. (Clemente vs. Galvan, 67 Phil., 565).
The lower court declared that the contract of partnership was null and void, because by the contract of
partnership, the parties thereto have become dummies of the owner of the franchise. The reason for this
holding was the admission by defendant when being cross-examined by the court that he and the plaintiff
are dummies. We find that this admission by the defendant is an error of law, not a statement of a fact.
The Anti-Dummy law has not been violated as parties plaintiff and defendant are not aliens but Filipinos.
The Anti-Dummy law refers to aliens only (Commonwealth Act 108 as amended).
Upon examining the contract of partnership, especially the provision thereon wherein the parties agreed
to maintain, operate and distribute electric light and power under the franchise belonging to Mrs.
Buenaflor, we do not find the agreement to be illegal, or contrary to law and public policy such as to
make the contract of partnership, null and void ab initio. The agreement could have been submitted to
the Public Service Commission if the rules of the latter require them to be so presented. But the fact of
furnishing the current to the holder of the franchise alone, without the previous approval of the Public
Service Commission, does not per se make the contract of partnership null and void from the beginning
and render the partnership entered into by the parties for the purpose also void and non-existent. Under
the circumstances, therefore, the court erred in declaring that the contract was illegal from the beginning
and that parties to the partnership are not bound therefor, such that the contribution of the plaintiff to the
partnership did not pass to it as its property. It also follows that the claim of the defendant in his
counterclaim that the partnership be dissolved and its assets liquidated is the proper remedy, not for
each contributing partner to claim back what he had contributed.
For the foregoing considerations, the judgment appealed from as well as the order of the court for the
taking of the property into custody by the sheriff must be, as they hereby are set aside and the case
remanded to the court below for further proceedings in accordance with law.
2. Gregorio Ortega vs CA GR 109248 Jul 3
GREGORIO F. ORTEGA, TOMAS O. DEL CASTILLO, JR., and BENJAMIN T.
BACORRO, petitioners,
vs.HON. COURT OF APPEALS, SECURITIES AND EXCHANGE COMMISSION and JOAQUIN L.
MISA, respondents.
The instant petition seeks a review of the decision rendered by the Court of Appeals, dated 26 February
1993, in CA-G.R. SP No. 24638 and No. 24648 affirming in toto that of the Securities and Exchange
Commission ("SEC") in SEC AC 254.
The antecedents of the controversy, summarized by respondent Commission and quoted at length by
the appellate court in its decision, are hereunder restated.
The law firm of ROSS, LAWRENCE, SELPH and CARRASCOSO was duly registered in the Mercantile
Registry on 4 January 1937 and reconstituted with the Securities and Exchange Commission on 4
August 1948. The SEC records show that there were several subsequent amendments to the articles of
partnership on 18 September 1958, to change the firm [name] to ROSS, SELPH and CARRASCOSO;
on 6 July 1965 . . . to ROSS, SELPH, SALCEDO, DEL ROSARIO, BITO & MISA; on 18 April 1972 to
SALCEDO, DEL ROSARIO, BITO, MISA & LOZADA; on 4 December 1972 to SALCEDO, DEL
ROSARIO, BITO, MISA & LOZADA; on 11 March 1977 to DEL ROSARIO, BITO, MISA & LOZADA; on
7 June 1977 to BITO, MISA & LOZADA; on 19 December 1980, [Joaquin L. Misa] appellees Jesus B.
Bito and Mariano M. Lozada associated themselves together, as senior partners with respondents-
appellees Gregorio F. Ortega, Tomas O. del Castillo, Jr., and Benjamin Bacorro, as junior partners.
On February 17, 1988, petitioner-appellant wrote the respondents-appellees a letter stating:
I am withdrawing and retiring from the firm of Bito, Misa and Lozada, effective at the end of this month.
"I trust that the accountants will be instructed to make the proper liquidation of my participation in the
firm."
On the same day, petitioner-appellant wrote respondents-appellees another letter stating:
"Further to my letter to you today, I would like to have a meeting with all of you with regard to the
mechanics of liquidation, and more particularly, my interest in the two floors of this building. I would like
to have this resolved soon because it has to do with my own plans."
On 19 February 1988, petitioner-appellant wrote respondents-appellees another letter stating:
"The partnership has ceased to be mutually satisfactory because of the working conditions of our
employees including the assistant attorneys. All my efforts to ameliorate the below subsistence level of
the pay scale of our employees have been thwarted by the other partners. Not only have they refused
to give meaningful increases to the employees, even attorneys, are dressed down publicly in a loud voice
in a manner that deprived them of their self-respect. The result of such policies is the formation of the
union, including the assistant attorneys."
On 30 June 1988, petitioner filed with this Commission's Securities Investigation and Clearing
Department (SICD) a petition for dissolution and liquidation of partnership, docketed as SEC Case No.
3384 praying that the Commission:
"1. Decree the formal dissolution and order the immediate liquidation of (the partnership of) Bito, Misa &
Lozada;
"2. Order the respondents to deliver or pay for petitioner's share in the partnership assets plus the profits,
rent or interest attributable to the use of his right in the assets of the dissolved partnership;
"3. Enjoin respondents from using the firm name of Bito, Misa & Lozada in any of their correspondence,
checks and pleadings and to pay petitioners damages for the use thereof despite the dissolution of the
partnership in the amount of at least P50,000.00;
"4. Order respondents jointly and severally to pay petitioner attorney's fees and expense of litigation in
such amounts as maybe proven during the trial and which the Commission may deem just and equitable
under the premises but in no case less than ten (10%) per cent of the value of the shares of petitioner
or P100,000.00;
"5. Order the respondents to pay petitioner moral damages with the amount of P500,000.00 and
exemplary damages in the amount of P200,000.00.
"Petitioner likewise prayed for such other and further reliefs that the Commission may deem just and
equitable under the premises."
On 13 July 1988, respondents-appellees filed their opposition to the petition.
On 13 July 1988, petitioner filed his Reply to the Opposition.
On 31 March 1989, the hearing officer rendered a decision ruling that:
"[P]etitioner's withdrawal from the law firm Bito, Misa & Lozada did not dissolve the said law partnership.
Accordingly, the petitioner and respondents are hereby enjoined to abide by the provisions of the
Agreement relative to the matter governing the liquidation of the shares of any retiring or withdrawing
partner in the partnership interest."1
On appeal, the SEC en banc reversed the decision of the Hearing Officer and held that the withdrawal
of Attorney Joaquin L. Misa had dissolved the partnership of "Bito, Misa & Lozada." The Commission
ruled that, being a partnership at will, the law firm could be dissolved by any partner at anytime, such as
by his withdrawal therefrom, regardless of good faith or bad faith, since no partner can be forced to
continue in the partnership against his will. In its decision, dated 17 January 1990, the SEC held:
WHEREFORE, premises considered the appealed order of 31 March 1989 is hereby REVERSED insofar
as it concludes that the partnership of Bito, Misa & Lozada has not been dissolved. The case is hereby
REMANDED to the Hearing Officer for determination of the respective rights and obligations of the
parties.2
The parties sought a reconsideration of the above decision. Attorney Misa, in addition, asked for an
appointment of a receiver to take over the assets of the dissolved partnership and to take charge of the
winding up of its affairs. On 4 April 1991, respondent SEC issued an order denying reconsideration, as
well as rejecting the petition for receivership, and reiterating the remand of the case to the Hearing
Officer.
The parties filed with the appellate court separate appeals (docketed CA-G.R. SP No. 24638 and CA-
G.R. SP No. 24648).
During the pendency of the case with the Court of Appeals, Attorney Jesus Bito and Attorney Mariano
Lozada both died on, respectively, 05 September 1991 and 21 December 1991. The death of the two
partners, as well as the admission of new partners, in the law firm prompted Attorney Misa to renew his
application for receivership (in CA G.R. SP No. 24648). He expressed concern over the need to preserve
and care for the partnership assets. The other partners opposed the prayer.
The Court of Appeals, finding no reversible error on the part of respondent Commission, AFFIRMED in
toto the SEC decision and order appealed from. In fine, the appellate court held, per its decision of 26
February 1993, (a) that Atty. Misa's withdrawal from the partnership had changed the relation of the
parties and inevitably caused the dissolution of the partnership; (b) that such withdrawal was not in bad
faith; (c) that the liquidation should be to the extent of Attorney Misa's interest or participation in the
partnership which could be computed and paid in the manner stipulated in the partnership agreement;
(d) that the case should be remanded to the SEC Hearing Officer for the corresponding determination of
the value of Attorney Misa's share in the partnership assets; and (e) that the appointment of a receiver
was unnecessary as no sufficient proof had been shown to indicate that the partnership assets were in
any such danger of being lost, removed or materially impaired.
In this petition for review under Rule 45 of the Rules of Court, petitioners confine themselves to the
following issues:
1. Whether or not the Court of Appeals has erred in holding that the partnership of Bito, Misa & Lozada
(now Bito, Lozada, Ortega & Castillo) is a partnership at will;
2. Whether or not the Court of Appeals has erred in holding that the withdrawal of private respondent
dissolved the partnership regardless of his good or bad faith; and
3. Whether or not the Court of Appeals has erred in holding that private respondent's demand for the
dissolution of the partnership so that he can get a physical partition of partnership was not made in bad
faith; to which matters we shall, accordingly, likewise limit ourselves.
A partnership that does not fix its term is a partnership at will. That the law firm "Bito, Misa & Lozada,"
and now "Bito, Lozada, Ortega and Castillo," is indeed such a partnership need not be unduly belabored.
We quote, with approval, like did the appellate court, the findings and disquisition of respondent SEC on
this matter; viz:
The partnership agreement (amended articles of 19 August 1948) does not provide for a specified period
or undertaking. The "DURATION" clause simply states:
"5. DURATION. The partnership shall continue so long as mutually satisfactory and upon the death or
legal incapacity of one of the partners,
shall be continued by the surviving partners."
The hearing officer however opined that the partnership is one for a specific undertaking and hence not
a partnership at will, citing paragraph 2 of the Amended Articles of Partnership (19 August 1948):
"2. Purpose. The purpose for which the partnership is formed, is to act as legal adviser and
representative of any individual, firm and corporation engaged in commercial, industrial or other lawful
businesses and occupations; to counsel and advise such persons and entities with respect to their legal
and other affairs; and to appear for and represent their principals and client in all courts of justice and
government departments and offices in the Philippines, and elsewhere when legally authorized to do
so."
The "purpose" of the partnership is not the specific undertaking referred to in the law. Otherwise, all
partnerships, which necessarily must have a purpose, would all be considered as partnerships for a
definite undertaking. There would therefore be no need to provide for articles on partnership at will as
none would so exist. Apparently what the law contemplates, is a specific undertaking or "project" which
has a definite or definable period of completion.3
The birth and life of a partnership at will is predicated on the mutual desire and consent of the partners.
The right to choose with whom a person wishes to associate himself is the very foundation and essence
of that partnership. Its continued existence is, in turn, dependent on the constancy of that mutual resolve,
along with each partner's capability to give it, and the absence of a cause for dissolution provided by the
law itself. Verily, any one of the partners may, at his sole pleasure, dictate a dissolution of the partnership
at will. He must, however, act in good faith, not that the attendance of bad faith can prevent the
dissolution of the partnership4 but that it can result in a liability for damages.5
In passing, neither would the presence of a period for its specific duration or the statement of a particular
purpose for its creation prevent the dissolution of any partnership by an act or will of a partner. 6 Among
partners,7 mutual agency arises and the doctrine of delectus personae allows them to have the power,
although not necessarily theright, to dissolve the partnership. An unjustified dissolution by the partner
can subject him to a possible action for damages.
The dissolution of a partnership is the change in the relation of the parties caused by any partner ceasing
to be associated in the carrying on, as might be distinguished from the winding up of, the business.8 Upon
its dissolution, the partnership continues and its legal personality is retained until the complete winding
up of its business culminating in its termination.9
The liquidation of the assets of the partnership following its dissolution is governed by various provisions
of the Civil Code; 10 however, an agreement of the partners, like any other contract, is binding among
them and normally takes precedence to the extent applicable over the Code's general provisions. We
here take note of paragraph 8 of the "Amendment to Articles of Partnership" reading thusly:
. . . In the event of the death or retirement of any partner, his interest in the partnership shall be liquidated
and paid in accordance with the existing agreements and his partnership participation shall revert to the
Senior Partners for allocation as the Senior Partners may determine; provided, however, that with
respect to the two (2) floors of office condominium which the partnership is now acquiring, consisting of
the 5th and the 6th floors of the Alpap Building, 140 Alfaro Street, Salcedo Village, Makati, Metro Manila,
their true value at the time of such death or retirement shall be determined by two (2) independent
appraisers, one to be appointed (by the partnership and the other by the) retiring partner or the heirs of
a deceased partner, as the case may be. In the event of any disagreement between the said appraisers
a third appraiser will be appointed by them whose decision shall be final. The share of the retiring or
deceased partner in the aforementioned two (2) floor office condominium shall be determined upon the
basis of the valuation above mentioned which shall be paid monthly within the first ten (10) days of every
month in installments of not less than P20,000.00 for the Senior Partners, P10,000.00 in the case of two
(2) existing Junior Partners and P5,000.00 in the case of the new Junior Partner. 11
The term "retirement" must have been used in the articles, as we so hold, in a generic sense to mean
the dissociation by a partner, inclusive of resignation or withdrawal, from the partnership that thereby
dissolves it.
On the third and final issue, we accord due respect to the appellate court and respondent Commission
on their common factual finding, i.e., that Attorney Misa did not act in bad faith. Public respondents
viewed his withdrawal to have been spurred by "interpersonal conflict" among the partners. It would not
be right, we agree, to let any of the partners remain in the partnership under such an atmosphere of
animosity; certainly, not against their will. 12 Indeed, for as long as the reason for withdrawal of a partner
is not contrary to the dictates of justice and fairness, nor for the purpose of unduly visiting harm and
damage upon the partnership, bad faith cannot be said to characterize the act. Bad faith, in the context
here used, is no different from its normal concept of a conscious and intentional design to do a wrongful
act for a dishonest purpose or moral obliquity.
3. Uy vs Puzon 79 SCRA 598 1977
WILLIAM UY, plaintiff-appellee,
vs.BARTOLOME PUZON, substituted by FRANCO PUZON, defendant-appellant.
Appeal from the decision of the Court of First Instanre of Manila, dissolving the "U.P. Construction
Company" and ordering the defendant Bartolome Puzon to pay the plaintiff the amounts of: (1)
P115,102.13, with legal interest thereon from the date of the filing of the complaint until fully paid; (2)
P200,000.00, as plaintiffs share in the unrealized profits of the "U.P. Construction Company" and (3)
P5,000.00, as and for attorney's fees.
It is of record that the defendant Bartolome Puzon had a contract with the Republic of the Philippines for
the construction of the Ganyangan Bato Section of the Pagadian Zamboanga City Road, province of
Zamboanga del Sur 1 and of five (5) bridges in the Malangas-Ganyangan Road. 2 Finding difficulty in
accomplishing both projects, Bartolome Puzon sought the financial assistance of the plaintiff, William
Uy. As an inducement, Puzon proposed the creation of a partnership between them which would be the
sub-contractor of the projects and the profits to be divided equally between them. William Uy inspected
the projects in question and, expecting to derive considerable profits therefrom, agreed to the
proposition, thus resulting in the formation of the "U.P. Construction Company" 3 which was
subsequently engaged as subcontractor of the construction projects. 4
The partners agreed that the capital of the partnership would be P100,000.00 of which each partner shall
contribute the amount of P50,000.00 in cash. 5 But, as heretofore stated, Puzon was short of cash and
he promised to contribute his share in the partnership capital as soon as his application for a loan with
the Philippine National Bank in the amount of P150,000.00 shall have been approved. However, before
his loan application could be acted upon, he had to clear his collaterals of its incumbrances first. For this
purpose, on October 24, 1956, Wilham Uy gave Bartolome Puzon the amount of P10,000.00 as advance
contribution of his share in the partnership to be organized between them under the firm name U.P.
CONSTRUCTION COMPANY which amount mentioned above will be used by Puzon to pay his
obligations with the Philippine National Bank to effect the release of his mortgages with the said
Bank. 6 On October 29, 1956, William Uy again gave Puzon the amount of P30,000.00 as his partial
contribution to the proposed partnership and which the said Puzon was to use in payment of his
obligation to the Rehabilitation Finance Corporation. 7 Puzon promised William Uy that the amount of
P150,000.00 would be given to the partnership to be applied thusly: P40,000.00, as reimbursement of
the capital contribution of William Uy which the said Uy had advanced to clear the title of Puzon's
property; P50,000.00, as Puzon's contribution to the partnership; and the balance of P60,000.00 as
Puzon's personal loan to the partnership. 8
Although the partnership agreement was signed by the parties on January 18, 1957,9 work on the
projects was started by the partnership on October 1, 1956 in view of the insistence of the Bureau of
Public Highways to complete the project right away. 10 Since Puzon was busy with his other projects,
William Uy was entrusted with the management of the projects and whatever expense the latter might
incur, would be considered as part of his contribution. 11 At the end of December, 1957, William Uy had
contributed to the partnership the amount of P115,453.39, including his capital. 12
The loan of Puzon was approved by the Philippine National Bank in November, 1956 and he gave to
William Uy the amount of P60,000.00. Of this amount, P40,000.00 was for the reimbursement of Uy's
contribution to the partnership which was used to clear the title to Puzon's property, and the P20,000.00
as Puzon's contribution to the partnership capital. 13
To guarantee the repayment of the above-mentioned loan, Bartolome Puzon, without the knowledge and
consent of William Uy, 14 assigned to the Philippine National Bank all the payments to be received on
account of the contracts with the Bureau of Public Highways for the construction of the afore-mentioned
projects. 15 By virtue of said assignment, the Bureau of Public Highways paid the money due on the
partial accomplishments on the government projects in question to the Philippine National Bank which,
in turn, applied portions of it in payment of Puzon's loan. Of the amount of P1,047,181.07, released by
the Bureau of Public Highways in payment of the partial work completed by the partnership on the
projects, the amount of P332,539.60 was applied in payment of Puzon's loan and only the amount of
P27,820.80 was deposited in the partnership funds, 16 which, for all practical purposes, was also under
Puzon's account since Puzon was the custodian of the common funds.
As time passed and the financial demands of the projects increased, William Uy, who supervised the
said projects, found difficulty in obtaining the necessary funds with which to pursue the construction
projects. William Uy correspondingly called on Bartolome Puzon to comply with his obligations under the
terms of their partnership agreement and to place, at lest, his capital contribution at the disposal of the
partnership. Despite several promises, Puzon, however, failed to do so. 17 Realizing that his verbal
demands were to no avail, William Uy consequently wrote Bartolome Puzon pormal letters of
demand, 18 to which Puzon replied that he is unable to put in additional capital to continue with the
projects. 19
Failing to reach an agreement with William Uy, Bartolome Puzon, as prime contractor of the construction
projects, wrote the subcontractor, U.P. Construction Company, on November 20, 1957, advising the
partnership, of which he is also a partner, that unless they presented an immediate solution and capacity
to prosecute the work effectively, he would be constrained to consider the sub-contract terminated and,
thereafter, to assume all responsibilities in the construction of the projects in accordance with his original
contract with the Bureau of Public Highways. 20 On November 27, 1957, Bartolome Puzon again wrote
the U.P.Construction Company finally terminating their subcontract agreement as of December 1,
1957. 21
Thereafter, William Uy was not allowed to hold office in the U.P. Construction Company and his authority
to deal with the Bureau of Public Highways in behalf of the partnership was revoked by Bartolome Puzon
who continued with the construction projects alone. 22
On May 20, 1958, William Uy, claiming that Bartolome Puzon had violated the terms of their partnership
agreement, instituted an action in court, seeking, inter alia, the dissolution of the partnership and
payment of damages.
Answering, Bartolome Puzon denied that he violated the terms of their agreement claiming that it was
the plaintiff, William Uy, who violated the terms thereof. He, likewise, prayed for the dissolution of the
partnership and for the payment by the plaintiff of his, share in the losses suffered by the partnership.
After appropriate proceedings, the trial court found that the defendant, contrary to the terms of their
partnership agreement, failed to contribute his share in the capital of the partnership applied partnership
funds to his personal use; ousted the plaintiff from the management of the firm, and caused the failure
of the partnership to realize the expected profits of at least P400,000.00. As a consequence, the trial
court dismissed the defendant's counterclaim and ordered the dissolution of the partnership. The trial
court further ordered the defendant to pay the plaintiff the sum of P320,103.13.
Hence, the instant appeal by the defendant Bartolome Puzon during the pendency of the appeal before
this Court, the said Bartolome Puzon died, and was substituted by Franco Puzon.
The appellant makes in his brief nineteen (19) assignment of errors, involving questions of fact, which
relates to the following points:
(1) That the appellant is not guilty of breach of contract; and
(2) That the amounts of money the appellant has been order to pay the appellee is not supported by the
evidence and the law.
After going over the record, we find no reason for rejecting the findings of fact below, justifying the
reversal of the decision appealed from.
The findings of the trial court that the appellant failed to contribute his share in the capital of the
partnership is clear incontrovertible. The record shows that after the appellant's loan the amount of
P150,000.00 was approved by the Philippin National Bank in November, 1956, he gave the amount
P60,000.00 to the appellee who was then managing the construction projects. Of this amount,
P40,000.00 was to be applied a reimbursement of the appellee's contribution to the partnership which
was used to clear the title to the appellant's property, and th balance of P20,000.00, as Puzon's
contribution to the partnership. 23 Thereafter, the appellant failed to make any further contributions the
partnership funds as shown in his letters to the appellee wherein he confessed his inability to put in
additional capital to continue with the projects. 24
Parenthetically, the claim of the appellant that the appellee is equally guilty of not contributing his share
in the partnership capital inasmuch as the amount of P40,000.00, allegedly given to him in October, 1956
as partial contribution of the appellee is merely a personal loan of the appellant which he had paid to the
appellee, is plainly untenable. The terms of the receipts signed by the appellant are clear and
unequivocal that the sums of money given by the appellee are appellee's partial contributions to the
partnership capital. Thus, in the receipt for P10,000.00 dated October 24, 1956, 25 the appellant stated
Received from Mr. William Uy the sum of TEN THOUSAND PESOS (P10,000.00) in Check No. SC
423285 Equitable Banking Corporation, dated October 24, 1956, as advance contribution of the share
of said William Uy in the partnership to be organized between us under the firm name U.P.
CONSTRUCTION COMPANY which amount mentioned above will be used by the undersigned to pay
his obligations with the Philippine National Bank to effect the release of his mortgages with the said bank.
(Emphasis supplied)
In the receipt for the amount of P30,000.00 dated October 29, 1956, 26 the appellant also said:
Received from William Uy the sum of THIRTY THOUSAND PESOS (P30,000.00) in Check No.
SC423287, of the Equitable Banking Corporation, as partial contribution of the share of the said William
Uy to the U.P. CONSTRUCTION COMPANY for which the undersigned will use the said amount in
payment of his obligation to the Rehabilitation Finance Corporation. (Emphasis supplied)
The findings of the trial court that the appellant misapplied partnership funds is, likewise, sustained by
competent evidence. It is of record that the appellant assigned to the Philippine National Bank all the
payments to be received on account of the contracts with the Bureau of Public Highways for the
construction of the aforementioned projects to guarantee the repayment of the bank. 27 By virtue of the
said appeflant's personal loan with the said bank assignment, the Bureau of Public Highways paid the
money due on the partial accomplishments on the construction projects in question to the Philippine
National Bank who, in turn, applied portions of it in payment of the appellant's loan. 28
The appellant claims, however, that the said assignment was made with the consent of the appellee and
that the assignment not prejudice the partnership as it was reimbursed by the appellant.
But, the appellee categorically stated that the assignment to the Philippine National Bank was made
without his prior knowledge and consent and that when he learned of said assignment, he cal the
attention of the appellant who assured him that the assignment was only temporary as he would transfer
the loan to the Rehabilitation Finance Corporation within three (3) months time. 29
The question of whom to believe being a matter large dependent on the trier's discretion, the findings of
the trial court who had the better opportunity to examine and appraise the fact issue, certainly deserve
respect.
That the assignment to the Philippine National Bank prejudicial to the partnership cannot be denied. The
record show that during the period from March, 1957 to September, 1959, the appellant Bartolome Puzon
received from the Bureau of Public highways, in payment of the work accomplished on the construction
projects, the amount of P1,047,181.01, which amount rightfully and legally belongs to the partnership by
virtue of the subcontract agreements between the appellant and the U.P. Construction Company. In view
of the assignemt made by Puzon to the Philippine National Bank, the latter withheld and applied the
amount of P332,539,60 in payment of the appellant's personal loan with the said bank. The balance was
deposited in Puzon's current account and only the amount of P27,820.80 was deposited in the current
account of the partnership. 30 For sure, if the appellant gave to the partnership all that were eamed and
due it under the subcontract agreements, the money would have been used as a safe reserve for the
discharge of all obligations of the firm and the partnership would have been able to successfully and
profitably prosecute the projects it subcontracted.
When did the appellant make the reimbursement claimed by him?
For the same period, the appellant actually disbursed for the partnership, in connection with the
construction projects, the amount of P952,839.77. 31 Since the appellant received from the Bureau of
Public Highways the sum of P1,047,181.01, the appellant has a deficit balance of P94,342.24. The
appellant, therefore, did not make complete restitution.
The findings of the trial court that the appellee has been ousted from the management of the partnership
is also based upon persuasive evidence. The appellee testified that after he had demanded from the
appellant payment of the latter's contribution to the partnership capital, the said appellant did not allow
him to hold office in the U.P. Construction Company and his authority to deal with the Bureau of Public
Highways was revoked by the appellant. 32
As the record stands, We cannot say, therefore, that the decis of the trial court is not sustained by the
evidence of record as warrant its reverw.
Since the defendantappellant was at fauh, the tral court properly ordered him to reimburse the plaintiff-
appellee whatever amount latter had invested in or spent for the partnership on account of construction
projects.
How much did the appellee spend in the construction projects question?
It appears that although the partnership agreement stated the capital of the partnership is P100,000.00
of which each part shall contribute to the partnership the amount of P50,000.00 cash 33 the partners of
the U.P. Construction Company did contribute their agreed share in the capitalization of the enterprise
in lump sums of P50,000.00 each. Aside from the initial amount P40,000.00 put up by the appellee in
October, 1956, 34 the partners' investments took, the form of cash advances coveting expenses of the
construction projects as they were incurred. Since the determination of the amount of the disbursements
which each of them had made for the construction projects require an examination of the books of
account, the trial court appointed two commissioners, designated by the parties, "to examine the books
of account of the defendant regarding the U.P. Construction Company and his personal account with
particular reference to the Public Works contract for the construction of the Ganyangan-Bato Section,
Pagadian-Zamboanga City Road and five (5) Bridges in Malangas-Ganyangan Road, including the
payments received by defendant from the Bureau of Public Highways by virtue of the two projects above
mentioned, the disbursements or disposition made by defendant of the portion thereof released to him
by the Philippine National Bank and in whose account these funds are deposited . 35
In due time, the loners so appointed, 36 submitted their report 37 they indicated the items wherein they
are in agreement, as well as their points of disagreement.
In the commissioners' report, the appellant's advances are listed under Credits; the money received from
the firm, under Debits; and the resulting monthly investment standings of the partners, under Balances.
The commissioners are agreed that at the end of December, 1957, the appellee had a balance of
P8,242.39. 38 It is in their respective adjustments of the capital account of the appellee that the
commissioners had disagreed.
Mr. Ablaza, designated by the appellant, would want to charge the appellee with the sum of P24,239.48,
representing the checks isssued by the appellant, 39 and encashed by the appellee or his brother, Uy
Han so that the appellee would owe the partnership the amount of P15,997.09
Mr. Tayag, designated by the appellee, upon the other hand, would credit the appellee the following
additional amounts:
(1) P7,497.80 items omitted from the books of partnership but recognized and charged to
Miscellaneous Expenses by Mr. Ablaza;
(2) P65,103.77 payrolls paid by the appellee in the amount P128,103.77 less payroll remittances from
the appellant in amount of P63,000.00; and
(3) P26,027.04 other expeses incurred by the appellee at construction site.
With respect to the amount of P24,239.48, claimed by appellant, we are hereunder adopting the findings
of the trial which we find to be in accord with the evidence:
To enhance defendant's theory that he should be credited P24,239.48, he presented checks allegedly
given to plaintiff and the latter's brother, Uy Han, marked as Exhibits 2 to 11. However, defendant
admitted that said cheeks were not entered nor record their books of account, as expenses for and in
behalf of partnership or its affairs. On the other hand, Uy Han testified that of the cheeks he received
were exchange for cash, while other used in the purchase of spare parts requisitioned by defendant.
This testimony was not refuted to the satisfaction of the Court, considering that Han's explanation thereof
is the more plausible because if they were employed in the prosecution of the partners projects, the
corresponding disbursements would have certainly been recorded in its books, which is not the case.
Taking into account defendant is the custodian of the books of account, his failure to so enter therein the
alleged disbursements, accentuates the falsity of his claim on this point. 40
Besides, as further noted by the trial court, the report Commissioner Ablaza is unreliable in view of his
proclivity to favor the appellant and because of the inaccurate accounting procedure adopted by him in
auditing the books of account of the partnership unlike Mr. Tayag's report which inspires faith and
credence. 41
As explained by Mr. Tayag, the amount of P7,497.80 represen expenses paid by the appellee out of his
personal funds which not been entered in the books of the partnership but which been recognized and
conceded to by the auditor designated by the appellant who included the said amount under Expenses. 42
The explanation of Mr. Tayag on the inclusion of the amount of P65,103.77 is likewise clear and
convincing. 43
As for the sum of of P26,027.04, the same represents the expenses which the appelle paid in connection
withe the projects and not entered in the books of the partnership since all vouchers and receipts were
sent to the Manila office which were under the control of the appellant. However, officer which were
under the control of the appellant. However, a list of these expenses are incorporated in Exhibits ZZ, ZZ-
1 to ZZ-4.
In resume', the appelllee's credit balance would be as follows:
 Undisputed balance as of
Dec. 1967
Add: Items omitted from P 8,242.
the books but
recognized and charged to
Miscellaneous
Expenses by Mr. Ablaza 7,497.80
At the trial, the appellee presented a claim for the amounts of P3,917.39 and P4,665.00 which he also
advanced for the construction projects but which were not included in the Commissioner's Report. 44
Appellee's total investments in the partnership would, therefore, be:
Appellee's total credits P106,871.00
Add: unrecorded 3,917,39
balances for the
month of Dec. 1957
(Exhs. KKK, KK-1 to
KKK_19, KKK-22)
Add: Payments to 4,665.00
Munoz, as
subcontractor of
five,(5) Bridges (p.
264 tsn; Exhs. KKK-
20, KKK-21)
Total Investments Pl 15,453.39
Regarding the award of P200,000.00 as his share in the unrealized profits of the partnership, the
appellant contends that the findings of the trial court that the amount of P400,000.00 as reasonable
profits of the partnership venture is without any basis and is not supported by the evidence. The appemnt
maintains that the lower court, in making its determination, did not take into consideration the great risks
involved in business operations involving as it does the completion of the projects within a definite period
of time, in the face of adverse and often unpredictable circumstances, as well as the fact that the
appellee, who was in charge of the projects in the field, contributed in a large measure to the failure of
the partnership to realize such profits by his field management.
This argument must be overruled in the light of the law and evidence on the matter. Under Article 2200
of the Civil Code, indemnification for damages shall comprehend not only the value of the loss suffered,
but also that of the profits which the obligee failed to obtain. In other words lucrum cessans is also a
basis for indemnification.
Has the appellee failed to make profits because of appellant's breach of contract?
There is no doubt that the contracting business is a profitable one and that the U.P. Construction
Company derived some profits from' co io oa ects its sub ntracts in the construction of the road and
bridges projects its deficient working capital and the juggling of its funds by the appellant.
Contrary to the appellant's claim, the partnership showed some profits during the period from July 2,
1956 to December 31, 1957. If the Profit and Loss Statement 45 showed a net loss of P134,019.43, this
was primarily due to the confusing accounting method employed by the auditor who intermixed h and
accthe cas ruamethod of accounting and the erroneous inclusion of certain items, like personal expenses
of the appellant and afteged extraordinary losses due to an accidental plane crash, in the operating
expenses of the partnership, Corrected, the Profit and Loss Statement would indicate a net profit of
P41,611.28.
For the period from January 1, 1958 to September 30, 1959, the partnership admittedly made a net profit
of P52,943.89. 46
Besides, as We have heretofore pointed out, the appellant received from the Bureau of Public Highways,
in payment of the zonstruction projects in question, the amount of P1,047,181.01 47 and disbursed the
amount of P952,839.77, 48 leaving an unaccounted balance of P94,342.24. Obviously, this amount is
also part of the profits of the partnership.
During the trial of this case, it was discovered that the appellant had money and credits receivable froin
the projects in question, in the custody of the Bureau of Public Highways, in the amount of P128,669.75,
representing the 10% retention of said projects.49 After the trial of this case, it was shown that the total
retentions Wucted from the appemnt amounted to P145,358.00. 50 Surely, these retained amounts also
form part of the profits of the partnership.
Had the appellant not been remiss in his obligations as partner and as prime contractor of the
construction projects in question as he was bound to perform pursuant to the partnership and subcontract
agreements, and considering the fact that the total contract amount of these two projects is
P2,327,335.76, it is reasonable to expect that the partnership would have earned much more than the
P334,255.61 We have hereinabove indicated. The award, therefore, made by the trial court of the
amount of P200,000.00, as compensatory damages, is not speculative, but based on reasonable
estimate.
WHEREFORE, finding no error in the decision appealed from, the said decision is hereby affirmed with
costs against the appellant, it being understood that the liability mentioned herein shall be home by the
estate of the deceased Bartolome Puzon, represented in this instance by the administrator thereof,
Franco Puzon.

4. Sancho vs Lizarraga 55 Phil 60 1930

MAXIMILIANO SANCHO, plaintiff-appellant,
vs. SEVERIANO LIZARRAGA, defendant-
ROMUALDEZ, J.:
The plaintiff brought an action for the rescission of a partnership contract between himself and the
defendant, entered into on October 15, 1920, the reimbursement by the latter of his 50,000 peso
investment therein, with interest at 12 per cent per annum form October 15, 1920, with costs, and any
other just and equitable remedy against said defendant.
The defendant denies generally and specifically all the allegations of the complaint which are
incompatible with his special defenses, cross-complaint and counterclaim, setting up the latter and
asking for the dissolution of the partnership, and the payment to him as its manager and administrator
of P500 monthly from October 15, 1920, until the final dissolution, with interest, one-half of said amount
to be charged to the plaintiff. He also prays for any other just and equitable remedy.
The Court of First Instance of Manila, having heard the cause, and finding it duly proved that the
defendant had not contributed all the capital he had bound himself to invest, and that the plaintiff had
demanded that the defendant liquidate the partnership, declared it dissolved on account of the expiration
of the period for which it was constituted, and ordered the defendant, as managing partner, to proceed
without delay to liquidate it, submitting to the court the result of the liquidation together with the accounts
and vouchers within the period of thirty days from receipt of notice of said judgment, without costs.
The plaintiff appealed from said decision making the following assignments of error:
1. In holding that the plaintiff and appellant is not entitled to the rescission of the partnership contract,
Exhibit A, and that article 1124 of the Civil Code is not applicable to the present case.
2. In failing to order the defendant to return the sum of P50,000 to the plaintiff with interest from October
15, 1920, until fully paid.
3. In denying the motion for a new trial.
In the brief filed by counsel for the appellee, a preliminary question is raised purporting to show that this
appeal is premature and therefore will not lie. The point is based on the contention that inasmuch as the
liquidation ordered by the trial court, and the consequent accounts, have not been made and submitted,
the case cannot be deemed terminated in said court and its ruling is not yet appealable. In support of
this contention counsel cites section 123 of the Code of Civil Procedure, and the decision of this court in
the case of Natividad vs. Villarica (31 Phil., 172).
This contention is well founded. Until the accounts have been rendered as ordered by the trial court, and
until they have been either approved or disapproved, the litigation involved in this action cannot be
considered as completely decided; and, as it was held in said case of Natividad vs .Villarica, also with
reference to an appeal taken from a decision ordering the rendition of accounts following the dissolution
of partnership, the appeal in the instant case must be deemed premature.
But even going into the merits of the case, the affirmation of the judgment appealed from is inevitable.
In view of the lower court's findings referred to above, which we cannot revise because the parol
evidence has not been forwarded to this court, articles 1681 and 1682 of the Civil Code have been
properly applied. Owing to the defendant's failure to pay to the partnership the whole amount which he
bound himself to pay, he became indebted to it for the remainder, with interest and any damages
occasioned thereby, but the plaintiff did not thereby acquire the right to demand rescission of the
partnership contract according to article 1124 of the Code. This article cannot be applied to the case in
question, because it refers to the resolution of obligations in general, whereas article 1681 and 1682
specifically refer to the contract of partnership in particular. And it is a well known principle that special
provisions prevail over general provisions.
By virtue of the foregoing, this appeal is hereby dismissed, leaving the decision appealed from in full
force, without special pronouncement of costs. So ordered.

5. US vs Clarin 17 Phil 84
THE UNITED STATES, plaintiff-appellee,
vs.EUSEBIO CLARIN, defendant-
Pedro Larin delivered to Pedro Tarug P172, in order that the latter, in company with Eusebio Clarin and
Carlos de Guzman, might buy and sell mangoes, and, believing that he could make some money in this
business, the said Larin made an agreement with the three men by which the profits were to be divided
equally between him and them.
Pedro Tarug, Eusebio Clarin, and Carlos de Guzman did in fact trade in mangoes and obtained P203
from the business, but did not comply with the terms of the contract by delivering to Larin his half of the
profits; neither did they render him any account of the capital.
Larin charged them with the crime of estafa, but the provincial fiscal filed an information only against
Eusebio Clarin in which he accused him of appropriating to himself not only the P172 but also the share
of the profits that belonged to Larin, amounting to P15.50.
Pedro Tarug and Carlos de Guzman appeared in the case as witnesses and assumed that the facts
presented concerned the defendant and themselves together.
The trial court, that of First Instance of Pampanga, sentenced the defendant, Eusebio Clarin, to six
months' arresto mayor, to suffer the accessory penalties, and to return to Pedro Larin P172, besides
P30.50 as his share of the profits, or to subsidiary imprisonment in case of insolvency, and to pay the
costs. The defendant appealed, and in deciding his appeal we arrive at the following conclusions:
When two or more persons bind themselves to contribute money, property, or industry to a common
fund, with the intention of dividing the profits among themselves, a contract is formed which is called
partnership. (Art. 1665, Civil Code.)
When Larin put the P172 into the partnership which he formed with Tarug, Clarin, and Guzman, he
invested his capital in the risks or benefits of the business of the purchase and sale of mangoes, and,
even though he had reserved the capital and conveyed only the usufruct of his money, it would not
devolve upon of his three partners to return his capital to him, but upon the partnership of which he
himself formed part, or if it were to be done by one of the three specifically, it would be Tarug, who,
according to the evidence, was the person who received the money directly from Larin.
The P172 having been received by the partnership, the business commenced and profits accrued, the
action that lies with the partner who furnished the capital for the recovery of his money is not a criminal
action for estafa, but a civil one arising from the partnership contract for a liquidation of the partnership
and a levy on its assets if there should be any.
No. 5 of article 535 of the Penal Code, according to which those are guilty of estafa "who, to the prejudice
of another, shall appropriate or misapply any money, goods, or any kind of personal property which they
may have received as a deposit on commission for administration or in any other character producing
the obligation to deliver or return the same," (as, for example, in commodatum, precarium, and other
unilateral contracts which require the return of the same thing received) does not include money received
for a partnership; otherwise the result would be that, if the partnership, instead of obtaining profits,
suffered losses, as it could not be held liable civilly for the share of the capitalist partner who reserved
the ownership of the money brought in by him, it would have to answer to the charge of estafa, for which
it would be sufficient to argue that the partnership had received the money under obligation to return it.
We therefore freely acquit Eusebio Clarin, with the costs de oficio. The complaint for estafa is dismissed
without prejudice to the institution of a civil action.

6. Pedro Martinez vs Ong Pong Co and Ong Lay Jan 10 1910

PEDRO MARTINEZ, plaintiff-appellee,
vs.ONG PONG CO and ONG LAY, defendants. ONG PONG CO., appellant.

On the 12th of December, 1900, the plaintiff herein delivered P1,500 to the defendants who, in a private
document, acknowledged that they had received the same with the agreement, as stated by them, "that
we are to invest the amount in a store, the profits or losses of which we are to divide with the former, in
equal shares."
The plaintiff filed a complaint on April 25, 1907, in order to compel the defendants to render him an
accounting of the partnership as agreed to, or else to refund him the P1,500 that he had given them for
the said purpose. Ong Pong Co alone appeared to answer the complaint; he admitted the fact of the
agreement and the delivery to him and to Ong Lay of the P1,500 for the purpose aforesaid, but he alleged
that Ong Lay, who was then deceased, was the one who had managed the business, and that nothing
had resulted therefrom save the loss of the capital of P1,500, to which loss the plaintiff agreed.
The judge of the Court of First Instance of the city of Manila who tried the case ordered Ong Pong Co to
return to the plaintiff one-half of the said capital of P1,500 which, together with Ong Lay, he had received
from the plaintiff, to wit, P750, plus P90 as one-half of the profits, calculated at the rate of 12 per cent
per annum for the six months that the store was supposed to have been open, both sums in Philippine
currency, making a total of P840, with legal interest thereon at the rate of 6 per cent per annum, from
the 12th of June, 1901, when the business terminated and on which date he ought to have returned the
said amount to the plaintiff, until the full payment thereof with costs.
From this judgment Ong Pong Co appealed to this court, and assigned the following errors:
1. For not having taken into consideration the fact that the reason for the closing of the store was the
ejectment from the premises occupied by it.
2. For not having considered the fact that there were losses.
3. For holding that there should have been profits.
4. For having applied article 1138 of the Civil Code.
5. and 6. For holding that the capital ought to have yielded profits, and that the latter should be calculated
12 per cent per annum; and
7. The findings of the ejectment.
As to the first assignment of error, the fact that the store was closed by virtue of ejectment proceedings
is of no importance for the effects of the suit. The whole action is based upon the fact that the defendants
received certain capital from the plaintiff for the purpose of organizing a company; they, according to the
agreement, were to handle the said money and invest it in a store which was the object of the association;
they, in the absence of a special agreement vesting in one sole person the management of the business,
were the actual administrators thereof; as such administrators they were the agent of the company and
incurred the liabilities peculiar to every agent, among which is that of rendering account to the principal
of their transactions, and paying him everything they may have received by virtue of the mandatum.
(Arts. 1695 and 1720, Civil Code.) Neither of them has rendered such account nor proven the losses
referred to by Ong Pong Co; they are therefore obliged to refund the money that they received for the
purpose of establishing the said store the object of the association. This was the principal
pronouncement of the judgment.
With regard to the second and third assignments of error, this court, like the court below, finds no
evidence that the entire capital or any part thereof was lost. It is no evidence of such loss to aver, without
proof, that the effects of the store were ejected. Even though this were proven, it could not be inferred
therefrom that the ejectment was due to the fact that no rents were paid, and that the rent was not paid
on account of the loss of the capital belonging to the enterprise.
With regard to the possible profits, the finding of the court below are based on the statements of the
defendant Ong Pong Co, to the effect that "there were some profits, but not large ones." This court,
however, does not find that the amount thereof has been proven, nor deem it possible to estimate them
to be a certain sum, and for a given period of time; hence, it can not admit the estimate, made in the
judgment, of 12 per cent per annum for the period of six months.
Inasmuch as in this case nothing appears other than the failure to fulfill an obligation on the part of a
partner who acted as agent in receiving money for a given purpose, for which he has rendered no
accounting, such agent is responsible only for the losses which, by a violation of the provisions of the
law, he incurred. This being an obligation to pay in cash, there are no other losses than the legal interest,
which interest is not due except from the time of the judicial demand, or, in the present case, from the
filing of the complaint. (Arts. 1108 and 1100, Civil Code.) We do not consider that article 1688 is
applicable in this case, in so far as it provides "that the partnership is liable to every partner for the
amounts he may have disbursed on account of the same and for the proper interest," for the reason that
no other money than that contributed as is involved.
As in the partnership there were two administrators or agents liable for the above-named amount, article
1138 of the Civil Code has been invoked; this latter deals with debts of a partnership where the obligation
is not a joint one, as is likewise provided by article 1723 of said code with respect to the liability of two
or more agents with respect to the return of the money that they received from their principal. Therefore,
the other errors assigned have not been committed.
In view of the foregoing judgment appealed from is hereby affirmed, provided, however, that the
defendant Ong Pong Co shall only pay the plaintiff the sum of P750 with the legal interest thereon at the
rate of 6 per cent per annum from the time of the filing of the complaint, and the costs, without special
ruling as to the costs of this instance. So ordered.
8. Evangelista and CO vs Estrella Abad Santos June 28 1973
EVANGELISTA & CO., DOMINGO C. EVANGELISTA, JR., CONCHITA B. NAVARRO and
LEONARDA ATIENZA ABAD SABTOS, petitioners,
vs.ESTRELLA ABAD SANTOS, respondent.

On October 9, 1954 a co-partnership was formed under the name of "Evangelista & Co." On June 7,
1955 the Articles of Co-partnership was amended as to include herein respondent, Estrella Abad Santos,
as industrial partner, with herein petitioners Domingo C. Evangelista, Jr., Leonardo Atienza Abad Santos
and Conchita P. Navarro, the original capitalist partners, remaining in that capacity, with a contribution
of P17,500 each. The amended Articles provided, inter alia, that "the contribution of Estrella Abad Santos
consists of her industry being an industrial partner", and that the profits and losses "shall be divided and
distributed among the partners ... in the proportion of 70% for the first three partners, Domingo C.
Evangelista, Jr., Conchita P. Navarro and Leonardo Atienza Abad Santos to be divided among them
equally; and 30% for the fourth partner Estrella Abad Santos."
On December 17, 1963 herein respondent filed suit against the three other partners in the Court of First
Instance of Manila, alleging that the partnership, which was also made a party-defendant, had been
paying dividends to the partners except to her; and that notwithstanding her demands the defendants
had refused and continued to refuse and let her examine the partnership books or to give her information
regarding the partnership affairs to pay her any share in the dividends declared by the partnership. She
therefore prayed that the defendants be ordered to render accounting to her of the partnership business
and to pay her corresponding share in the partnership profits after such accounting, plus attorney's fees
and costs.
The defendants, in their answer, denied ever having declared dividends or distributed profits of the
partnership; denied likewise that the plaintiff ever demanded that she be allowed to examine the
partnership books; and byway of affirmative defense alleged that the amended Articles of Co-partnership
did not express the true agreement of the parties, which was that the plaintiff was not an industrial
partner; that she did not in fact contribute industry to the partnership; and that her share of 30% was to
be based on the profits which might be realized by the partnership only until full payment of the loan
which it had obtained in December, 1955 from the Rehabilitation Finance Corporation in the sum of
P30,000, for which the plaintiff had signed a promisory note as co-maker and mortgaged her property
as security.
The parties are in agreement that the main issue in this case is "whether the plaintiff-appellee
(respondent here) is an industrial partner as claimed by her or merely a profit sharer entitled to 30% of
the net profits that may be realized by the partnership from June 7, 1955 until the mortgage loan from
the Rehabilitation Finance Corporation shall be fully paid, as claimed by appellants (herein petitioners)."
On that issue the Court of First Instance found for the plaintiff and rendered judgement "declaring her an
industrial partner of Evangelista & Co.; ordering the defendants to render an accounting of the business
operations of the (said) partnership ... from June 7, 1955; to pay the plaintiff such amounts as may be
due as her share in the partnership profits and/or dividends after such an accounting has been properly
made; to pay plaintiff attorney's fees in the sum of P2,000.00 and the costs of this suit."
The defendants appealed to the Court of Appeals, which thereafter affirmed judgments of the court a
quo.
In the petition before Us the petitioners have assigned the following errors:
I. The Court of Appeals erred in the finding that the respondent is an industrial partner of Evangelista &
Co., notwithstanding the admitted fact that since 1954 and until after promulgation of the decision of the
appellate court the said respondent was one of the judges of the City Court of Manila, and despite its
findings that respondent had been paid for services allegedly contributed by her to the partnership. In
this connection the Court of Appeals erred:
(A) In finding that the "amended Articles of Co-partnership," Exhibit "A" is conclusive evidence that
respondent was in fact made an industrial partner of Evangelista & Co.
(B) In not finding that a portion of respondent's testimony quoted in the decision proves that said
respondent did not bind herself to contribute her industry, and she could not, and in fact did not, because
she was one of the judges of the City Court of Manila since 1954.
(C) In finding that respondent did not in fact contribute her industry, despite the appellate court's own
finding that she has been paid for the services allegedly rendered by her, as well as for the loans of
money made by her to the partnership.
II. The lower court erred in not finding that in any event the respondent was lawfully excluded from, and
deprived of, her alleged share, interests and participation, as an alleged industrial partner, in the
partnership Evangelista & Co., and its profits or net income.
III. The Court of Appeals erred in affirming in toto the decision of the trial court whereby respondent was
declared an industrial partner of the petitioner, and petitioners were ordered to render an accounting of
the business operation of the partnership from June 7, 1955, and to pay the respondent her alleged
share in the net profits of the partnership plus the sum of P2,000.00 as attorney's fees and the costs of
the suit, instead of dismissing respondent's complaint, with costs, against the respondent.
It is quite obvious that the questions raised in the first assigned errors refer to the facts as found by the
Court of Appeals. The evidence presented by the parties as the trial in support of their respective
positions on the issue of whether or not the respondent was an industrial partner was thoroughly
analyzed by the Court of Appeals on its decision, to the extent of reproducing verbatim therein the
lengthy testimony of the witnesses.
It is not the function of the Supreme Court to analyze or weigh such evidence all over again, its jurisdiction
being limited to reviewing errors of law that might have been commited by the lower court. It should be
observed, in this regard, that the Court of Appeals did not hold that the Articles of Co-partnership,
identified in the record as Exhibit "A", was conclusive evidence that the respondent was an industrial
partner of the said company, but considered it together with other factors, consisting of both testimonial
and documentary evidences, in arriving at the factual conclusion expressed in the decision.
The findings of the Court of Appeals on the various points raised in the first assignment of error are
hereunder reproduced if only to demonstrate that the same were made after a through analysis of then
evidence, and hence are beyond this Court's power of review.
The aforequoted findings of the lower Court are assailed under Appellants' first assigned error, wherein
it is pointed out that "Appellee's documentary evidence does not conclusively prove that appellee was in
fact admitted by appellants as industrial partner of Evangelista & Co." and that "The grounds relied upon
by the lower Court are untenable" (Pages 21 and 26, Appellant's Brief).
The first point refers to Exhibit A, B, C, K, K-1, J, N and S, appellants' complaint being that "In finding
that the appellee is an industrial partner of appellant Evangelista & Co., herein referred to as the
partnership the lower court relied mainly on the appellee's documentary evidence, entirely
disregarding facts and circumstances established by appellants" evidence which contradict the said
finding' (Page 21, Appellants' Brief). The lower court could not have done otherwise but rely on the
exhibits just mentioned, first, because appellants have admitted their genuineness and due execution,
hence they were admitted without objection by the lower court when appellee rested her case and,
secondly the said exhibits indubitably show the appellee is an industrial partner of appellant company.
Appellants are virtually estopped from attempting to detract from the probative force of the said exhibits
because they all bear the imprint of their knowledge and consent, and there is no credible showing that
they ever protested against or opposed their contents prior of the filing of their answer to appellee's
complaint. As a matter of fact, all the appellant Evangelista, Jr., would have us believe as against the
cumulative force of appellee's aforesaid documentary evidence is the appellee's Exhibit "A", as
confirmed and corroborated by the other exhibits already mentioned, does not express the true intent
and agreement of the parties thereto, the real understanding between them being the appellee would be
merely a profit sharer entitled to 30% of the net profits that may be realized between the partners from
June 7, 1955, until the mortgage loan of P30,000.00 to be obtained from the RFC shall have been fully
paid. This version, however, is discredited not only by the aforesaid documentary evidence brought
forward by the appellee, but also by the fact that from June 7, 1955 up to the filing of their answer to the
complaint on February 8, 1964 or a period of over eight (8) years appellants did nothing to correct
the alleged false agreement of the parties contained in Exhibit "A". It is thus reasonable to suppose that,
had appellee not filed the present action, appellants would not have advanced this obvious afterthought
that Exhibit "A" does not express the true intent and agreement of the parties thereto.
At pages 32-33 of appellants' brief, they also make much of the argument that 'there is an overriding fact
which proves that the parties to the Amended Articles of Partnership, Exhibit "A", did not contemplate to
make the appellee Estrella Abad Santos, an industrial partner of Evangelista & Co. It is an admitted fact
that since before the execution of the amended articles of partnership, Exhibit "A", the appellee Estrella
Abad Santos has been, and up to the present time still is, one of the judges of the City Court of Manila,
devoting all her time to the performance of the duties of her public office. This fact proves beyond
peradventure that it was never contemplated between the parties, for she could not lawfully contribute
her full time and industry which is the obligation of an industrial partner pursuant to Art. 1789 of the Civil
Code.
The Court of Appeals then proceeded to consider appellee's testimony on this point, quoting it in the
decision, and then concluded as follows:
One cannot read appellee's testimony just quoted without gaining the very definite impression that, even
as she was and still is a Judge of the City Court of Manila, she has rendered services for appellants
without which they would not have had the wherewithal to operate the business for which appellant
company was organized. Article 1767 of the New Civil Code which provides that "By contract of
partnership two or more persons bind themselves, to contribute money, property, or industry to a
common fund, with the intention of dividing the profits among themselves, 'does not specify the kind of
industry that a partner may thus contribute, hence the said services may legitimately be considered as
appellee's contribution to the common fund. Another article of the same Code relied upon appellants
reads:
'ART. 1789. An industrial partner cannot engage in business for himself, unless the partnership expressly
permits him to do so; and if he should do so, the capitalist partners may either exclude him from the firm
or avail themselves of the benefits which he may have obtained in violation of this provision, with a right
to damages in either case.'
It is not disputed that the provision against the industrial partner engaging in business for himself seeks
to prevent any conflict of interest between the industrial partner and the partnership, and to insure faithful
compliance by said partner with this prestation. There is no pretense, however, even on the part of the
appellee is engaged in any business antagonistic to that of appellant company, since being a Judge of
one of the branches of the City Court of Manila can hardly be characterized as a business. That appellee
has faithfully complied with her prestation with respect to appellants is clearly shown by the fact that it
was only after filing of the complaint in this case and the answer thereto appellants exercised their right
of exclusion under the codal art just mentioned by alleging in their Supplemental Answer dated June 29,
1964 or after around nine (9) years from June 7, 1955 subsequent to the filing of defendants'
answer to the complaint, defendants reached an agreement whereby the herein plaintiff been excluded
from, and deprived of, her alleged share, interests or participation, as an alleged industrial partner, in the
defendant partnership and/or in its net profits or income, on the ground plaintiff has never contributed
her industry to the partnership, instead she has been and still is a judge of the City Court (formerly
Municipal Court) of the City of Manila, devoting her time to performance of her duties as such judge and
enjoying the privilege and emoluments appertaining to the said office, aside from teaching in law school
in Manila, without the express consent of the herein defendants' (Record On Appeal, pp. 24-25). Having
always knows as a appellee as a City judge even before she joined appellant company on June 7, 1955
as an industrial partner, why did it take appellants many yearn before excluding her from said company
as aforequoted allegations? And how can they reconcile such exclusive with their main theory that
appellee has never been such a partner because "The real agreement evidenced by Exhibit "A" was to
grant the appellee a share of 30% of the net profits which the appellant partnership may realize from
June 7, 1955, until the mortgage of P30,000.00 obtained from the Rehabilitation Finance Corporal shall
have been fully paid." (Appellants Brief, p. 38).
What has gone before persuades us to hold with the lower Court that appellee is an industrial partner of
appellant company, with the right to demand for a formal accounting and to receive her share in the net
profit that may result from such an accounting, which right appellants take exception under their second
assigned error. Our said holding is based on the following article of the New Civil Code:
'ART. 1899. Any partner shall have the right to a formal account as to partnership affairs:
(1) If he is wrongfully excluded from the partnership business or possession of its property by his co-
partners;
(2) If the right exists under the terms of any agreement;
(3) As provided by article 1807;
(4) Whenever other circumstance render it just and reasonable.
We find no reason in this case to depart from the rule which limits this Court's appellate jurisdiction to
reviewing only errors of law, accepting as conclusive the factual findings of the lower court upon its own
assessment of the evidence.
The judgment appealed from is affirmed, with costs.

9. Juan Agustinvs Bartolome Inocencio Oct 26

JUAN AGUSTIN, ET AL., plaintiffs;
VICTOR DEL ROSARIO, appellant,
vs.BARTOLOME INOCENCIO, defendant-

The parties to this controversy, who had been conducting a partnership as industrial partners without
capital, contributed from its profits the sum of P807.28 as a fund toward the construction of a casco for
use in their business, to which they added P3,500, borrowed from Maria del Rosario, the wife of the
defendant, Bartolome Inocencio, he being the managing partner. It is admitted that this total, a little over
P4,300, was the estimated cost of the casco, but in the progress of the work the defendant found that it
called for additional funds, which he advanced to the amount of P2,024.49. It is satisfactorily appears
from the evidence that this amount is necessary in order to complete the work undertaken. Although it
would seem that he failed to notify his partners of the various items from time to time going to make up
this sum, it is shown that the books were at all times open to their inspection, and that, being asked to
examine them, they omitted to do so, and that the plaintiff Juan Agustin, representing all the partners,
was also present at the construction of the casco, in charge of the practical work and cognizant of its
needs and its progress.
The work done in the casco having been within the scope of the association and necessary to carry out
its express object, the borrowing of the money required to carry it on, with the acquiescence if not with
the affirmative consent of his associates, was not outside the powers of the managing partner and
constitutes a debt for which all the associates are liable.
The note passed into the hands of the defendant by reason of the successive deaths of his wife and of
their only child, each without debts, and for the amount thereof he became a creditor, subject, however,
to the deduction therefrom of his proportionate part of the indebtedness.
The trial court treated his claim on this note, as well as the sum of P2,024.49 furnished by him, as an
addition to his capital in the firm, rather than as a loan, and this constitutes one of the grounds of error
stated by the appellant. We do not deem it necessary to pass upon this objection, for the reason that,
considered as a loan, this sum would place the defendant as a creditor in a stronger position as against
his associates than if regarded as a mere contribution to capital. The error, if it be an error, is not,
therefore, prejudicial to the plaintiff, but is rather beneficial to him. The respondent did not except to
it. lawphil.net
Various small sums have been paid out of the profits to some of the partners and these were properly
allowed him in the judgment.
On the theory on which the action was disposed of, the trial court committed no error in the computation
of the various shares.
Of the four parties plaintiff, but one, Victor del Rosario, is interested in this appeal, which has been
dismissed as to the others, and as to him the judgment of the trial court must be affirmed, with costs of
this instance. So ordered.

ISABELO MORAN, JR., petitioner,

vs.THE HON. COURT OF APPEALS and MARIANO E. PECSON, respondents.

This is a petition for review on certiorari of the decision of the respondent Court of Appeals which ordered
petitioner Isabelo Moran, Jr. to pay damages to respondent Mariano E, Pecson.
As found by the respondent Court of Appeals, the undisputed facts indicate that: t.hqw
xxx xxx xxx
... on February 22, 1971 Pecson and Moran entered into an agreement whereby both would contribute
P15,000 each for the purpose of printing 95,000 posters (featuring the delegates to the 1971
Constitutional Convention), with Moran actually supervising the work; that Pecson would receive a
commission of P l,000 a month starting on April 15, 1971 up to December 15, 1971; that on December
15, 1971, a liquidation of the accounts in the distribution and printing of the 95,000 posters would be
made, that Pecson gave Moran P10,000 for which the latter issued a receipt; that only a few posters
were printed; that on or about May 28, 1971, Moran executed in favor of Pecson a promissory note in
the amount of P20,000 payable in two equal installments (P10,000 payable on or before June 15, 1971
and P10,000 payable on or before June 30, 1971), the whole sum becoming due upon default in the
payment of the first installment on the date due, complete with the costs of collection.
Private respondent Pecson filed with the Court of First Instance of Manila an action for the recovery of a
sum of money and alleged in his complaint three (3) causes of action, namely: (1) on the alleged
partnership agreement, the return of his contribution of P10,000.00, payment of his share in the profits
that the partnership would have earned, and, payment of unpaid commission; (2) on the alleged
promissory note, payment of the sum of P20,000.00; and, (3) moral and exemplary damages and
attorney's fees.
After the trial, the Court of First Instance held that: t.hqw
From the evidence presented it is clear in the mind of the court that by virtue of the partnership agreement
entered into by the parties-plaintiff and defendant the plaintiff did contribute P10,000.00, and another
sum of P7,000.00 for the Voice of the Veteran or Delegate Magazine. Of the expected 95,000 copies of
the posters, the defendant was able to print 2,000 copies only authorized of which, however, were sold
at P5.00 each. Nothing more was done after this and it can be said that the venture did not really get off
the ground. On the other hand, the plaintiff failed to give his full contribution of P15,000.00. Thus, each
party is entitled to rescind the contract which right is implied in reciprocal obligations under Article 1385
of the Civil Code whereunder 'rescission creates the obligation to return the things which were the object
of the contract ...
WHEREFORE, the court hereby renders judgment ordering defendant Isabelo C. Moran, Jr. to return to
plaintiff Mariano E. Pecson the sum of P17,000.00, with interest at the legal rate from the filing of the
complaint on June 19, 1972, and the costs of the suit.
For insufficiency of evidence, the counterclaim is hereby dismissed.
From this decision, both parties appealed to the respondent Court of Appeals. The latter likewise
rendered a decision against the petitioner. The dispositive portion of the decision reads:
PREMISES CONSIDERED, the decision appealed from is hereby SET ASIDE, and a new one is hereby
rendered, ordering defendant-appellant Isabelo C. Moran, Jr. to pay plaintiff- appellant Mariano E.
Pecson:
(a) Forty-seven thousand five hundred (P47,500) (the amount that could have accrued to Pecson under
their agreement);
(b) Eight thousand (P8,000), (the commission for eight months);
(c) Seven thousand (P7,000) (as a return of Pecson's investment for the Veteran's Project);
(d) Legal interest on (a), (b) and (c) from the date the complaint was filed (up to the time payment is
made)
The petitioner contends that the respondent Court of Appeals decided questions of substance in a way
not in accord with law and with Supreme Court decisions when it committed the following errors:
ITHE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN HOLDING PETITIONER
ISABELO C. MORAN, JR. LIABLE TO RESPONDENT MARIANO E. PECSON IN THE SUM OF
P47,500 AS THE SUPPOSED EXPECTED PROFITS DUE HIM.
IITHE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN HOLDING PETITIONER
ISABELO C. MORAN, JR. LIABLE TO RESPONDENT MARIANO E. PECSON IN THE SUM OF P8,000,
AS SUPPOSED COMMISSION IN THE PARTNERSHIP ARISING OUT OF PECSON'S INVESTMENT.
IIITHE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN HOLDING PETITIONER
ISABELO C. MORAN, JR. LIABLE TO RESPONDENT MARIANO E. PECSON IN THE SUM OF P7,000
AS A SUPPOSED RETURN OF INVESTMENT IN A MAGAZINE VENTURE.
IVASSUMING WITHOUT ADMITTING THAT PETITIONER IS AT ALL LIABLE FOR ANY AMOUNT,
THE HONORABLE COURT OF APPEALS DID NOT EVEN OFFSET PAYMENTS ADMITTEDLY
RECEIVED BY PECSON FROM MORAN.
VTHE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN NOT GRANTING THE
PETITIONER'S COMPULSORY COUNTERCLAIM FOR DAMAGES.
The first question raised in this petition refers to the award of P47,500.00 as the private respondent's
share in the unrealized profits of the partnership. The petitioner contends that the award is highly
speculative. The petitioner maintains that the respondent court did not take into account the great risks
involved in the business undertaking.
We agree with the petitioner that the award of speculative damages has no basis in fact and law.
There is no dispute over the nature of the agreement between the petitioner and the private respondent.
It is a contract of partnership. The latter in his complaint alleged that he was induced by the petitioner to
enter into a partnership with him under the following terms and conditions:
1. That the partnership will print colored posters of the delegates to the Constitutional Convention;
2. That they will invest the amount of Fifteen Thousand Pesos (P15,000.00) each
3. That they will print Ninety Five Thousand (95,000) copies of the said posters;
4. That plaintiff will receive a commission of One Thousand Pesos (P1,000.00) a month starting April 15,
1971 up to December 15, 1971;
5. That upon the termination of the partnership on December 15, 1971, a liquidation of the account
pertaining to the distribution and printing of the said 95,000 posters shall be made.
The petitioner on the other hand admitted in his answer the existence of the partnership.
The rule is, when a partner who has undertaken to contribute a sum of money fails to do so, he becomes
a debtor of the partnership for whatever he may have promised to contribute (Art. 1786, Civil Code) and
for interests and damages from the time he should have complied with his obligation (Art. 1788, Civil
Code). Thus in Uy v. Puzon (79 SCRA 598), which interpreted Art. 2200 of the Civil Code of the
Philippines, we allowed a total of P200,000.00 compensatory damages in favor of the appellee because
the appellant therein was remiss in his obligations as a partner and as prime contractor of the
construction projects in question. This case was decided on a particular set of facts. We awarded
compensatory damages in the Uy case because there was a finding that the constructing business is a
profitable one and that the UP construction company derived some profits from its contractors in the
construction of roads and bridges despite its deficient capital." Besides, there was evidence to show that
the partnership made some profits during the periods from July 2, 1956 to December 31, 1957 and from
January 1, 1958 up to September 30, 1959. The profits on two government contracts worth
P2,327,335.76 were not speculative. In the instant case, there is no evidence whatsoever that the
partnership between the petitioner and the private respondent would have been a profitable venture. In
fact, it was a failure doomed from the start. There is therefore no basis for the award of speculative
damages in favor of the private respondent.
Furthermore, in the Uy case, only Puzon failed to give his full contribution while Uy contributed much
more than what was expected of him. In this case, however, there was mutual breach. Private
respondent failed to give his entire contribution in the amount of P15,000.00. He contributed only
P10,000.00. The petitioner likewise failed to give any of the amount expected of him. He further failed to
comply with the agreement to print 95,000 copies of the posters. Instead, he printed only 2,000 copies.
Article 1797 of the Civil Code provides: t.hqw
The losses and profits shall be distributed in conformity with the agreement. If only the share of each
partner in the profits has been agreed upon, the share of each in the losses shall be in the same
proportion.
Being a contract of partnership, each partner must share in the profits and losses of the venture. That is
the essence of a partnership. And even with an assurance made by one of the partners that they would
earn a huge amount of profits, in the absence of fraud, the other partner cannot claim a right to recover
the highly speculative profits. It is a rare business venture guaranteed to give 100% profits. In this case,
on an investment of P15,000.00, the respondent was supposed to earn a guaranteed P1,000.00 a month
for eight months and around P142,500.00 on 95,000 posters costing P2.00 each but 2,000 of which were
sold at P5.00 each. The fantastic nature of expected profits is obvious. We have to take various factors
into account. The failure of the Commission on Elections to proclaim all the 320 candidates of the
Constitutional Convention on time was a major factor. The petitioner undesirable his best business
judgment and felt that it would be a losing venture to go on with the printing of the agreed 95,000 copies
of the posters. Hidden risks in any business venture have to be considered.
It does not follow however that the private respondent is not entitled to recover any amount from the
petitioner. The records show that the private respondent gave P10,000.00 to the petitioner. The latter
used this amount for the printing of 2,000 posters at a cost of P2.00 per poster or a total printing cost of
P4,000.00. The records further show that the 2,000 copies were sold at P5.00 each. The gross income
therefore was P10,000.00. Deducting the printing costs of P4,000.00 from the gross income of
P10,000.00 and with no evidence on the cost of distribution, the net profits amount to only P6,000.00.
This net profit of P6,000.00 should be divided between the petitioner and the private respondent. And
since only P4,000.00 was undesirable by the petitioner in printing the 2,000 copies, the remaining
P6,000.00 should therefore be returned to the private respondent.
Relative to the second alleged error, the petitioner submits that the award of P8,000.00 as Pecson's
supposed commission has no justifiable basis in law.
Again, we agree with the petitioner.
The partnership agreement stipulated that the petitioner would give the private respondent a monthly
commission of Pl,000.00 from April 15, 1971 to December 15, 1971 for a total of eight (8) monthly
commissions. The agreement does not state the basis of the commission. The payment of the
commission could only have been predicated on relatively extravagant profits. The parties could not have
intended the giving of a commission inspite of loss or failure of the venture. Since the venture was a
failure, the private respondent is not entitled to the P8,000.00 commission.
Anent the third assigned error, the petitioner maintains that the respondent Court of Appeals erred in
holding him liable to the private respondent in the sum of P7,000.00 as a supposed return of investment
in a magazine venture.
In awarding P7,000.00 to the private respondent as his supposed return of investment in the "Voice of
the Veterans" magazine venture, the respondent court ruled that: t.hqw
xxx xxx xxx
... Moran admittedly signed the promissory note of P20,000 in favor of Pecson. Moran does not question
the due execution of said note. Must Moran therefore pay the amount of P20,000? The evidence
indicates that the P20,000 was assigned by Moran to cover the following: in Moran's other project (the
publication and printing of the 'Voice of the Veterans'),000 Moran has to pay P7,000 (as a return of
Pecson's investment for the Veterans' project, for this project never left the ground) ...
As a rule, the findings of facts of the Court of Appeals are final and conclusive and cannot be reviewed
on appeal to this Court (Amigo v. Teves, 96 Phil. 252), provided they are borne out by the record or are
based on substantial evidence (Alsua-Betts v. Court of Appeals, 92 SCRA 332). However, this rule
admits of certain exceptions. Thus, in Carolina Industries Inc. v. CMS Stock Brokerage, Inc., et al., (97
SCRA 734), we held that this Court retains the power to review and rectify the findings of fact of the
Court of Appeals when (1) the conclusion is a finding grounded entirely on speculation, surmises and
conjectures; (2) when the inference made is manifestly mistaken absurd and impossible; (3) where there
is grave abuse of discretion; (4) when the judgment is based on a misapprehension of facts; and (5)
when the court, in making its findings, went beyond the issues of the case and the same are contrary to
the admissions of both the appellant and the appellee.
In this case, there is misapprehension of facts. The evidence of the private respondent himself shows
that his investment in the "Voice of Veterans" project amounted to only P3,000.00. The remaining
P4,000.00 was the amount of profit that the private respondent expected to receive.
The records show the following exhibits- t.hqw
E Xerox copy of PNB Manager's Check No. 234265 dated March 22, 1971 in favor of defendant.
Defendant admitted the authenticity of this check and of his receipt of the proceeds thereof (t.s.n., pp. 3-
4, Nov. 29, 1972). This exhibit is being offered for the purpose of showing plaintiff's capital investment in
the printing of the "Voice of the Veterans" for which he was promised a fixed profit of P8,000. This
investment of P6,000.00 and the promised profit of P8,000 are covered by defendant's promissory note
for P14,000 dated March 31, 1971 marked by defendant as Exhibit 2 (t.s.n., pp. 20-21, Nov. 29, 1972),
and by plaintiff as Exhibit P. Later, defendant returned P3,000.00 of the P6,000.00 investment thereby
proportionately reducing the promised profit to P4,000. With the balance of P3,000 (capital) and P4,000
(promised profit), defendant signed and executed the promissory note for P7,000 marked Exhibit 3 for
the defendant and Exhibit M for plaintiff. Of this P7,000, defendant paid P4,000 representing full return
of the capital investment and P1,000 partial payment of the promised profit. The P3,000 balance of the
promised profit was made part consideration of the P20,000 promissory note (t.s.n., pp. 22-24, Nov. 29,
1972). It is, therefore, being presented to show the consideration for the P20,000 promissory note.
F Xerox copy of PNB Manager's check dated May 29, 1971 for P7,000 in favor of defendant. The
authenticity of the check and his receipt of the proceeds thereof were admitted by the defendant (t.s.n.,
pp. 3-4, Nov. 29, 1972). This P 7,000 is part consideration, and in cash, of the P20,000 promissory note
(t.s.n., p. 25, Nov. 29, 1972), and it is being presented to show the consideration for the P20,000 note
and the existence and validity of the obligation.
xxx xxx xxx
L-Book entitled "Voice of the Veterans" which is being offered for the purpose of showing the subject
matter of the other partnership agreement and in which plaintiff invested the P6,000 (Exhibit E) which,
together with the promised profit of P8,000 made up for the consideration of the P14,000 promissory
note (Exhibit 2; Exhibit P). As explained in connection with Exhibit E. the P3,000 balance of the promised
profit was later made part consideration of the P20,000 promissory note.
M-Promissory note for P7,000 dated March 30, 1971. This is also defendant's Exhibit E. This document
is being offered for the purpose of further showing the transaction as explained in connection with
Exhibits E and L.
N-Receipt of plaintiff dated March 30, 1971 for the return of his P3,000 out of his capital investment of
P6,000 (Exh. E) in the P14,000 promissory note (Exh. 2; P). This is also defendant's Exhibit 4. This
document is being offered in support of plaintiff's explanation in connection with Exhibits E, L, and M to
show the transaction mentioned therein.
xxx xxx xxx
P-Promissory note for P14,000.00. This is also defendant's Exhibit 2. It is being offered for the purpose
of showing the transaction as explained in connection with Exhibits E, L, M, and N above.
Explaining the above-quoted exhibits, respondent Pecson testified that: t.hqw
Q During the pre-trial of this case, Mr. Pecson, the defendant presented a promissory note in the amount
of P14,000.00 which has been marked as Exhibit 2. Do you know this promissory note?
A Yes, sir.
Q What is this promissory note, in connection with your transaction with the defendant?
A This promissory note is for the printing of the "Voice of the Veterans".
Q What is this "Voice of the Veterans", Mr. Pecson?A It is a book.
.S.N., p. 19, Nov. 29, 1972)
Q And what does the amount of P14,000.00 indicated in the promissory note, Exhibit 2, represent?
A It represents the P6,000.00 cash which I gave to Mr. Moran, as evidenced by the Philippine National
Bank Manager's check and the P8,000.00 profit assured me by Mr. Moran which I will derive from the
printing of this "Voice of the Veterans" book.
Q You said that the P6,000.00 of this P14,000.00 is covered by, a Manager's check. I show you Exhibit
E, is this the Manager's check that mentioned?A Yes, sir.
Q What happened to this promissory note of P14,000.00 which you said represented
P6,000.00 of your investment and P8,000.00 promised profits?
A Latter, Mr. Moran returned to me P3,000.00 which represented one-half (1/2) of the P6,000.00 capital
I gave to him.
Q As a consequence of the return by Mr. Moran of one-half (1/2) of the P6,000.00 capital you gave to
him, what happened to the promised profit of P8,000.00?
A It was reduced to one-half (1/2) which is P4,000.00.
Q Was there any document executed by Mr. Moran in connection with the Balance of P3,000.00 of your
capital investment and the P4,000.00 promised profits?
A Yes, sir, he executed a promissory note.
Q I show you a promissory note in the amount of P7,000.00 dated March 30, 1971 which for purposes
of Identification I request the same to be marked as Exhibit M. . . as Exhibit M.
Q (continuing) is this the promissory note which you said was executed by Mr. Moran in connection with
your transaction regarding the printing of the "Voice of the Veterans"?
A Yes, sir. (T.S.N., pp. 20-22, Nov. 29, 1972).
Q What happened to this promissory note executed by Mr. Moran, Mr. Pecson?
A Mr. Moran paid me P4,000.00 out of the P7,000.00 as shown by the promissory note.
Q Was there a receipt issued by you covering this payment of P4,000.00 in favor of Mr. Moran?
A Yes, sir.(T.S.N., p. 23, Nov. 29, 1972).
Q You stated that Mr. Moran paid the amount of P4,000.00 on account of the P7,000.00 covered by the
promissory note, Exhibit M. What does this P4,000.00 covered by Exhibit N represent?
A This P4,000.00 represents the P3,000.00 which he has returned of my P6,000.00 capital investment
and the P1,000.00 represents partial payment of the P4,000.00 profit that was promised to me by Mr.
Moran.
Q And what happened to the balance of P3,000.00 under the promissory note, Exhibit M?
A The balance of P3,000.00 and the rest of the profit was applied as part of the consideration of the
promissory note of P20,000.00.
(T.S.N., pp. 23-24, Nov. 29, 1972).
The respondent court erred when it concluded that the project never left the ground because the project
did take place. Only it failed. It was the private respondent himself who presented a copy of the book
entitled "Voice of the Veterans" in the lower court as Exhibit "L". Therefore, it would be error to state that
the project never took place and on this basis decree the return of the private respondent's investment.
As already mentioned, there are risks in any business venture and the failure of the undertaking cannot
entirely be blamed on the managing partner alone, specially if the latter exercised his best business
judgment, which seems to be true in this case. In view of the foregoing, there is no reason to pass upon
the fourth and fifth assignments of errors raised by the petitioner. We likewise find no valid basis for the
grant of the counterclaim.
WHEREFORE, the petition is GRANTED. The decision of the respondent Court of Appeals (now
Intermediate Appellate Court) is hereby SET ASIDE and a new one is rendered ordering the petitioner
Isabelo Moran, Jr., to pay private respondent Mariano Pecson SIX THOUSAND (P6,000.00) PESOS
representing the amount of the private respondent's contribution to the partnership but which remained
unused; and THREE THOUSAND (P3,000.00) PESOS representing one half (1/2) of the net profits
gained by the partnership in the sale of the two thousand (2,000) copies of the posters, with interests at
the legal rate on both amounts from the date the complaint was filed until full payment is made.

11. Miguel Cuenco vs Concepcion Cuenco Vda de Manguerra Oct 31 2004

MIGUEL CUENCO, Substituted by MARIETTA C. CUYEGKENG, petitioner,
vs.CONCEPCION CUENCO Vda. DE MANGUERRA, respondent.
Inasmuch as the facts indubitably and eloquently show an implied trust in favor of respondent, the Court
of Appeals did not err in affirming the Decision of the Regional Trial Court ordering petitioner to convey
the subject property to her. That Decision satisfied the demands of justice and prevented unjust
enrichment.
The Case
Before us is a Petition for Review1 under Rule 45 of the Rules of Court, challenging the August 22, 2001
Decision2of the Court of Appeals (CA) in CA-GR CV No. 54852. The assailed Decision disposed as
follows:
"WHEREFORE, the decision appealed from is AFFIRMED."3
On the other hand, the Regional Trial Court (RTC) Decision affirmed by the CA disposed as follows:
"WHEREFORE, considering that this action is essentially one for reconveyance or enforcement of a
trust, judgment is hereby rendered ordering the substituted defendant Marietta Cuenco Cuyegkeng to
reconvey or transfer, in a duly registrable public instrument, Lot No 903-A-6 under TCT No. 113781 of
the Registry of Deeds of Cebu City, of the Banilad Estate with an area of 834 square meters, in favor of
plaintiff Concepcion Cuenco Vda. De Manguerra; or should the substituted defendant, for one reason or
another, fail to execute the necessary instrument once the decision becomes final, the Clerk of Court of
this Court (RTC) is hereby instructed, in accordance with the Rules of Court, to prepare and execute the
appropriate and requisite conveyance and instrument in favor of herein plaintiff which, in either case,
shall be registered with the Office of the Register of Deeds of Cebu City.
Without costs in this instance."4
The Facts
The facts were summarized by the appellate court as follows:
"On September 19, 1970, the [respondent] filed the initiatory complaint herein for specific performance
against her uncle [Petitioner] Miguel Cuenco which averred, inter alia that her father, the late Don
Mariano Jesus Cuenco (who became Senator) and said [petitioner] formed the Cuenco and Cuenco
Law Offices; that on or around August 4, 1931, the Cuenco and Cuenco Law Offices served as lawyers
in two (2) cases entitled Valeriano Solon versus Zoilo Solon (Civil Case 9037) and Valeriano Solon
versus Apolonia Solon (Civil Case 9040) involving a dispute among relatives over ownership of lot 903
of the Banilad Estate which is near the Cebu Provincial Capitol; that records of said cases indicate the
name of the [petitioner] alone as counsel of record, but in truth and in fact, the real lawyer behind the
success of said cases was the influential Don Mariano Jesus Cuenco; that after winning said cases, the
awardees of Lot 903 subdivided said lot into three (3) parts as follows:
Lot 903-A: 5,000 [square meters]: Mariano Cuencos attorneys fees
Lot 903-B: 5,000 [square meters]: Miguel Cuencos attorneys fees
Lot 903-C: 54,000 [square meters]: Solons retention
"That at the time of distribution of said three (3) lots in Cebu, Mariano Jesus Cuenco was actively
practicing law in Manila, and so he entrusted his share (Lot 903-A) to his brother law partner (the
[petitioner]); that on September 10, 1938, the [petitioner] was able to obtain in his own name a title for
Lot 903-A (Transfer Certificate of Title [TCT] RT-6999 [T-21108]); that he was under the obligation to
hold the title in trust for his brother Marianos children by first marriage; that sometime in 1947, the
Cuenco family was anticipating Marianos second marriage, and so on February 1, 1947, they partitioned
Lot 903-A into six (6) sub-lots (Lots 903-A-1 to 903-A-6) to correspond to the six (6) children of Marianos
first marriage (Teresita, Manuel, Lourdes, Carmen, Consuelo, and Concepcion); that the [petitioner] did
not object nor oppose the partition plan; that on June 4, 1947, the [petitioner] executed four (4) deeds of
donation in favor of Marianos four (4) children: Teresita, Manuel, Lourdes, and Carmen, pursuant to the
partition plan (per notary documents 183, 184, 185, 186, Book III, Series 1947 of Cebu City Notary Public
Candido Vasquez); that on June 24, 1947, the [petitioner] executed the fifth deed of donation in favor of
Marianos fifth child Consuelo (per notary document 214, Book III, Series 1947 of Cebu City Notary
Public Candido Vasquez) (Exhibits 2 to 5); that said five (5) deeds of donation left out Marianos sixth
child Concepcion who later became the [respondent] in this case; that in 1949, [respondent] occupied
and fenced a portion of Lot 903-A-6 for taxation purposes (Exhibit F, Exhibit 6); that she also paid the
taxes thereon (Exhibit G); that her father died on February 25, 1964 with a Last Will and Testament;
that the pertinent portion of her fathers Last Will and Testament bequeaths the lot.
near the Cebu provincial capitol, which were my attorneys fees from my clients, Victoria Rallos and
Zoilo Solon, respectively have already long been disposed of, and distributed by me, through my
brother, Miguel, to all my said children in the first marriage;
"That on June 3, 1966, the [petitioner] wrote a letter petitioning the Register of Deeds of Cebu to transfer
Lot 903-A-6 to his name on the ground that Lot 903-A-6 is a portion of Lot 903-A; that on April 6, 1967,
the [respondent] requested the Register of Deeds to annotate an affidavit of adverse claim against the
[petitioners] TCT RT-6999 (T-21108) which covers Lot 903-A; that on June 3, 1967, the Register of
Deeds issued TCT 35275 covering Lot 903-A-6 in the name of the [petitioner] but carrying the earlier
annotation of adverse claim; that in 1969, the [petitioner] tore down the wire fence which the [respondent]
constructed on Lot 903-A-6 which compelled the latter to institute the instant complaint dated August 20,
1970 on September 19, 1970.
"On December 5, 1970, the answer with counterclaim dated December 3, 1970 of [petitioner] Miguel
Cuenco was filed where he alleged that he was the absolute owner of Lot 903-A-6; that this lot was a
portion of Lot 903-A which in turn was part of Lot 903 which was the subject matter of litigation; that he
was alone in defending the cases involving Lot 903 without the participation of his brother Mariano
Cuenco; that he donated five (5) of the six (6) portions of Lot 903-A to the five (5) children of his brother
Mariano out of gratitude for the love and care they exhibited to him (Miguel) during the time of his long
sickness; that he did not give or donate any portion of the lot to the [respondent] because she never
visited him nor took care of him during his long sickness; that he became critically ill on February 11,
1946 and was confined at the Singians Clinic in Manila and then transferred to Cebu where he nearly
died in 1946; that his wife Fara Remia Ledesma Cuenco had an operation on January 1951 and was
confined at the University of Santo Tomas Hospital and John Hopkins Hospital in the United States; that
two of his children died at the University of Santo Tomas Hospital in 1951 and 1952; and that his wife
was blind for many months due to malignant hypertension but [respondent] never remembered her nor
did she commiserate with him and his wife in their long period of sorrow.
"[Petitioner] Miguel Cuenco took the witness stand as early as September 13, 1974. His self-conducted
direct examination lasted until 1985, the last one on November 22, 1985. Unfortunately, he died5 before
he was able to submit himself for cross-examination and so his testimony had to be stricken off the
record. His only surviving daughter, Marietta Cuyegkeng, stood as the substitute [petitioner] in this case.
She testified that she purchased Lot 903-A-6 (the property subject matter of this case) from her late
father sometime in 1990 and constructed a house thereon in the same year; that she became aware of
this case because her late father used to commute to Cebu City to attend to this case; and that Lot 903-
A-6 is in her name per Transfer Certificate of Title #113781 of the Registry of Deeds for Cebu."6
Ruling of the Court of Appeals
The CA found respondents action not barred by res judicata, because there was "no identity of causes
of action between the Petition for cancellation of adverse claim in L.R.C. Records 5988 and the
Complaint for specific performance to resolve the issue of ownership in Civil Case No. R-11891."
The appellate court further found no reason to disturb the findings of the trial court that respondent "has
the legal right of ownership over lot 903-A-6." The CA ruled that the subject land "is part of the attorneys
fees of Don Mariano Cuenco, predecessor-in-interest of [Respondent] Concepcion Cuenco vda. de
Manguerra and [petitioner] merely holds such property in trust for [her], his title there[to] notwithstanding."
Finally, the CA held that the right of action of respondent "has not yet prescribed as she was in
possession of the lot in dispute and the prescriptive period to file the case commences to run only from
the time she acquired knowledge of an adverse claim over [her] possession."
Hence, this Petition.7
The Issues
In her Memorandum, petitioner raises the following issues for our consideration:
"I.On question of law, the Court of Appeals failed to consider facts of substance and significance which,
if considered, will show that the preponderance of evidence is in favor of the petitioner.
"II.On question of law, the Court of Appeals failed to appreciate the proposition that, contrary to the
position taken by the trial court, no constructive or implied trust exists between the parties, and neither
is the action one for reconveyance based upon a constructive or implied trust.
"III.On question of law, the Court of Appeals erred in not finding that even where implied trust is admitted
to exist the respondents action for relief is barred by laches and prescription.
"IV.On question of law, the trial court and the appellate court erred in expunging from the records the
testimony of Miguel Cuenco."8
This Courts Ruling
The Petition has no merit.
First Issue:
Evaluation of Evidence
Petitioner asks us to appreciate and weigh the evidence offered in support of the finding that Lot 903-A-
6 constituted a part of Mariano Cuencos share in the attorneys fees. In other words, she seeks to involve
us in a reevaluation of the veracity and probative value of the evidence submitted to the lower court.
What she wants us to do is contrary to the dictates of Rule 45 that only questions of law may be raised
and resolved in a petition for review. "Absent any whimsical or capricious exercise of judgment, and
unless the lack of any basis for the conclusions made by the lower courts be amply demonstrated, the
Supreme Court will not disturb such factual findings."9
As a rule, findings of fact of the Court of Appeals affirming those of the trial court are binding and
conclusive. Normally, such factual findings are not disturbed by this Court, to which only questions of
law may be raised in an appeal by certiorari.10 This Court has consistently ruled that these questions
"must involve no examination of the probative value of the evidence presented by the litigants or any of
them."11 Emphasizing the difference between the two types of question, it has explained that "there is a
question of law in a given case when the doubt or difference arises as to what the law is pertaining to a
certain state of facts, and there is a question of fact when the doubt arises as the truth or the falsity of
alleged facts."12
Indeed, after going over the records of the present case, we are not inclined to disturb the factual findings
of the trial and the appellate courts, just because of the insistent claim of petitioner. His witnesses
allegedly testified that Civil Case No. 9040 involving Lot 903 had not been handled by Mariano for
defendants therein -- Apolonia Solon, Zoilo Solon, et al. It has sufficiently been proven, however, that
these defendants were represented by the Cuenco and Cuenco Law Office, composed of Partners
Mariano Cuenco and Miguel Cuenco.
Given as attorneys fees was one hectare of Lot 903, of which two five-thousand square meter portions
were identified as Lot 903-A and Lot 903-B. That only Miguel handled Civil Case No. 9040 does not
mean that he alone is entitled to the attorneys fees in the said cases. "When a client employs the
services of a law firm, he does not employ the services of the lawyer who is assigned to personally
handle the case. Rather, he employs the entire law firm."13 Being a partner in the law firm, Mariano --
like Miguel -- was likewise entitled14 to a share in the attorneys fees from the firms clients. Hence, the
lower courts finding that Lot 903-A was a part of Mariano Cuencos attorneys fees has ample support.
Second Issue:
Implied TrustPetitioner then contends that no constructive or implied trust exists between the parties.A
trust is a legal relationship between one having an equitable ownership in a property and another having
legal title to it.15
Trust relations between parties may either be express or implied.16 Express trusts are created by the
direct and positive acts of the parties, indicated through some writing, deed, will, or words evidencing an
intention to create a trust.17 On the other hand, implied trusts are those that, "without being express, are
deducible from the nature of the transaction as matters of intent[;] or which are superinduced on the
transaction by operation of law as a matter of equity, independently of the particular intention of the
parties. Implied trusts may either be resulting or constructive trusts, both coming into being by operation
of law."18
Resulting trusts are presumed to have been contemplated by the parties and are based on the equitable
doctrine that valuable consideration, not legal title, determines the equitable title or interest.19 These
trusts arise from the nature of or the circumstances involved in a transaction,20 whereby legal title
becomes vested in one person, who is obligated in equity to hold that title for the benefit of another.
Constructive trusts are "created by the construction of equity in order to satisfy the demands of justice
and prevent unjust enrichment. They arise contrary to intention 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."21
A review of the records shows that indeed there is an implied trust between the parties.
Although Lot 903-A was titled in Miguels name, the circumstances surrounding the acquisition and the
subsequent partial dispositions of this property eloquently speak of the intent that the equitable or
beneficial ownership of the property should belong to Mariano and his heirs.
First, Lot 903-A was one half of the one-hectare portion of Lot 903 given as attorneys fees by a client of
the law firm of Partners Miguel and Mariano Cuenco. It constituted the latters share in the attorneys
fees and thus equitably belonged to him, as correctly found by the CA. That Lot 903-A had been titled in
the name of Miguel gave rise to an implied trust between him and Mariano, specifically, the former holds
the property in trust for the latter. In the present case, it is of no moment that the implied trust arose from
the circumstance -- a share in the attorneys fees -- that does not categorically fall under Articles 1448
to 1456 of the Civil Code. The cases of implied trust enumerated therein "does not exclude others
established by the general law of trust."22
Second, from the time it was titled in his name in 1938,23 Lot 903-A remained undivided and
untouched24 by Miguel. Only on February 3, 1947, did Lourdes Cuenco,25 upon the instruction of
Mariano, have it surveyed and subdivided into six almost equal portions -- 903-A-1 to 903-A-6. Each
portion was specifically allocated to each of the six children of Mariano with his first wife.26
Third, Miguel readily surrendered his Certificate of Title27 and interposed no objection28 to the subdivision
and the allocation of the property to Marianos six children, including Concepcion.
Fourth, Marianos children, including Concepcion,29 were the ones who shouldered the expenses
incurred for the subdivision of the property
Fifth, after the subdivision of the property, Marianos children -- including Concepcion30 -- took
possession of their respective portions thereof.
Sixth, the legal titles to five portions of the property were transferred via a gratuitous deed of conveyance
to Marianos five children, following the allocations specified in the subdivision plan prepared for Lourdes
Cuenco.3
With respect to Lot 903-A-6 in particular, the existence of Concepcions equitable ownership thereof is
bolstered, not just by the above circumstances, but also by the fact that respondent fenced the portion
allocated to her and planted trees thereon.32
More significantly, she also paid real property taxes on Lot 903-A-6 yearly, from 1956 until 196933 -- the
year when she was dispossessed of the property. "Although tax declarations or realty tax payments of
property are not conclusive evidence of ownership, nevertheless, they are good indicia of possession in
the concept of owner, for no one in his right mind would be paying taxes for a property that is not in his
actual or at least constructive possession."34 Such realty tax payments constitute proof that the holder
has a claim of title over the property.
Tellingly, Miguel started paying real property taxes on Lot 903-A-6 only on April 4, 1964,35 after the death
of Mariano.36 This fact shows that it was only in that year that he was emboldened to claim the property
as his own and to stop recognizing Marianos, and subsequently Concepcions, ownership rights over it.
It was only by then that the one who could have easily refuted his claim had already been silenced by
death. Such a situation cannot be permitted to arise, as will be explained below.
Estoppel
From the time Lot 903-A was subdivided and Marianos six children -- including Concepcion -- took
possession as owners of their respective portions, no whimper of protest from petitioner was heard until
1963. By his acts as well as by his omissions, Miguel led Mariano and the latters heirs, including
Concepcion, to believe that Petitioner Cuenco respected the ownership rights of respondent over Lot
903-A-6. That Mariano acted and relied on Miguels tacit recognition of his ownership thereof is evident
from his will, executed in 1963, which states:
"I hereby make it known and declare that x x x all properties which my first wife and I had brought to, or
acquired during our marriage, or which I had acquired during the years I was a widower including
jewelry, war damage compensation, and two other lots also located at Cebu City, one near the South-
Western University and the other near the Cebu provincial capitol, which were my attorneys fees from
my clients, Victoria Rallos and Zoilo Solon, respectively have already long been disposed of, and
distributed by me, through my brother, Miguel, to all my said six children in the first
marriage."37 (emphasis supplied)
Indeed, as early as 1947, long before Mariano made his will in 1963, Lot 903-A -- situated along Juana
Osmea Extension, Kamputhaw, Cebu City,38 near the Cebu Provincial Capitol -- had been subdivided
and distributed to his six children in his first marriage. Having induced him and his heirs to believe that
Lot 903-A-6 had already been distributed to Concepcion as her own, petitioner is estopped from
asserting the contrary and claiming ownership thereof.
The principle of estoppel in pais applies when -- by ones acts, representations, admissions, or silence
when there is a need to speak out -- one, intentionally or through culpable negligence, induces another
to believe certain facts to exist; and the latter rightfully relies and acts on such belief, so as to be
prejudiced if the former is permitted to deny the existence of those facts.39
Third Issue:
Laches
Petitioner claims that respondents action is already barred by laches.
We are not persuaded. Laches is negligence or omission to assert a right within a reasonable time,
warranting a presumption that the party entitled to it has either abandoned or declined to assert it.40 In
the present case, respondent has persistently asserted her right to Lot 903-A-6 against petitioner.
Concepcion was in possession as owner of the property from 1949 to 1969.41 When Miguel took steps
to have it separately titled in his name, despite the fact that she had the owners duplicate copy of TCT
No. RT-6999 -- the title covering the entire Lot 903-A -- she had her adverse claim annotated on the title
in 1967. When petitioner ousted her from her possession of the lot by tearing down her wire fence in
1969,42 she commenced the present action on September 19, 1970,43 to protect and assert her rights to
the property. We find that she cannot be held guilty of laches, as she did not sleep on her rights.
Fourth Issue:
Expunging of Testimony
Petitioner Cuyegkeng questions the expunging of the direct testimony of Miguel Cuenco. Respondent
points out that this issue was not raised before the CA. Neither had petitioner asked the trial court to
reconsider its Order expunging the testimony. Hence, this issue cannot for the first time be raised at this
point of the appeal. Issues, arguments and errors not adequately and seriously brought below cannot be
raised for the first time on appeal.44"Basic considerationns of due process impel this rule."45
WHEREFORE, the Petition is DENIED, and the assailed Decision AFFIRMED. Costs against petitioner.

12. Taitong Chuache and Co vs Insurance Commission Feb 29 1988

AI TONG CHUACHE & CO., petitioner,
vs.THE INSURANCE COMMISSION and TRAVELLERS MULTI-INDEMNITY

This petition for review on certiorari seeks the reversal of the decision of the Insurance Commission in
IC Case #367 1 dismissing the complaint 2 for recovery of the alleged unpaid balance of the proceeds of
the Fire Insurance Policies issued by herein respondent insurance company in favor of petitioner-
intervenor.
The facts of the case as found by respondent Insurance Commission are as follows:
Complainants acquired from a certain Rolando Gonzales a parcel of land and a building located at San
Rafael Village, Davao City. Complainants assumed the mortgage of the building in favor of S.S.S., which
building was insured with respondent S.S.S. Accredited Group of Insurers for P25,000.00.
On April 19, 1975, Azucena Palomo obtained a loan from Tai Tong Chuache Inc. in the amount of
P100,000.00. To secure the payment of the loan, a mortgage was executed over the land and the
building in favor of Tai Tong Chuache & Co. (Exhibit "1" and "1-A"). On April 25, 1975, Arsenio
Chua, representative of Thai Tong Chuache & Co. insured the latter's interest with Travellers Multi-
Indemnity Corporation for P100,000.00 (P70,000.00 for the building and P30,000.00 for the contents
thereof) (Exhibit "A-a," contents thereof) (Exhibit "A-a").
On June 11, 1975, Pedro Palomo secured a Fire Insurance Policy No. F- 02500 (Exhibit "A"), covering
the building for P50,000.00 with respondent Zenith Insurance Corporation. On July 16, 1975, another
Fire Insurance Policy No. 8459 (Exhibit "B") was procured from respondent Philippine British Assurance
Company, covering the same building for P50,000.00 and the contents thereof for P70,000.00.
On July 31, 1975, the building and the contents were totally razed by fire.
Adjustment Standard Corporation submitted a report as follow
xxx xxx xxx
... Thus the apportioned share of each company is as follows:
We are showing hereunder another apportionment of the loss which includes the Travellers Multi-
Indemnity policy for reference purposes.
Based on the computation of the loss, including the Travellers Multi- Indemnity, respondents, Zenith
Insurance, Phil. British Assurance and S.S.S. Accredited Group of Insurers, paid their corresponding
shares of the loss. Complainants were paid the following: P41,546.79 by Philippine British Assurance
Co., P11,877.14 by Zenith Insurance Corporation, and P5,936.57 by S.S.S. Group of Accredited Insurers
(Par. 6. Amended Complaint). Demand was made from respondent Travellers Multi-Indemnity for its
share in the loss but the same was refused. Hence, complainants demanded from the other three (3)
respondents the balance of each share in the loss based on the computation of the Adjustment
Standards Report excluding Travellers Multi-Indemnity in the amount of P30,894.31 (P5,732.79-Zenith
Insurance: P22,294.62, Phil. British: and P2,866.90, SSS Accredited) but the same was refused, hence,
this action.
In their answers, Philippine British Assurance and Zenith Insurance Corporation admitted the material
allegations in the complaint, but denied liability on the ground that the claim of the complainants had
already been waived, extinguished or paid. Both companies set up counterclaim in the total amount of
P 91,546.79.
Instead of filing an answer, SSS Accredited Group of Insurers informed the Commission in its letter of
July 22, 1977 that the herein claim of complainants for the balance had been paid in the amount of P
5,938.57 in full, based on the Adjustment Standards Corporation Report of September 22, 1975.
Travellers Insurance, on its part, admitted the issuance of the Policy No. 599 DV and alleged as its
special and affirmative defenses the following, to wit: that Fire Policy No. 599 DV, covering the furniture
and building of complainants was secured by a certain Arsenio Chua, mortgage creditor, for the purpose
of protecting his mortgage credit against the complainants; that the said policy was issued in the name
of Azucena Palomo, only to indicate that she owns the insured premises; that the policy contains an
endorsement in favor of Arsenio Chua as his mortgage interest may appear to indicate that insured was
Arsenio Chua and the complainants; that the premium due on said fire policy was paid by Arsenio Chua;
that respondent Travellers is not liable to pay complainants.
On May 31, 1977, Tai Tong Chuache & Co. filed a complaint in intervention claiming the proceeds of the
fire Insurance Policy No. F-559 DV, issued by respondent Travellers Multi-Indemnity
Travellers Insurance, in answer to the complaint in intervention, alleged that the Intervenor is not entitled
to indemnity under its Fire Insurance Policy for lack of insurable interest before the loss of the insured
premises and that the complainants, spouses Pedro and Azucena Palomo, had already paid in full their
mortgage indebtedness to the intervenor. 3
As adverted to above respondent Insurance Commission dismissed spouses Palomos' complaint on the
ground that the insurance policy subject of the complaint was taken out by Tai Tong Chuache &
Company, petitioner herein, for its own interest only as mortgagee of the insured property and thus
complainant as mortgagors of the insured property have no right of action against herein respondent. It
likewise dismissed petitioner's complaint in intervention in the following words:
We move on the issue of liability of respondent Travellers Multi-Indemnity to the Intervenor-mortgagee.
The complainant testified that she was still indebted to Intervenor in the amount of P100,000.00. Such
allegation has not however, been sufficiently proven by documentary evidence. The certification (Exhibit
'E-e') issued by the Court of First Instance of Davao, Branch 11, indicate that the complainant was
Antonio Lopez Chua and not Tai Tong Chuache & Company. 4
From the above decision, only intervenor Tai Tong Chuache filed a motion for reconsideration but it was
likewise denied hence, the present petition.
It is the contention of the petitioner that respondent Insurance Commission decided an issue not raised
in the pleadings of the parties in that it ruled that a certain Arsenio Lopez Chua is the one entitled to the
insurance proceeds and not Tai Tong Chuache & Company
This Court cannot fault petitioner for the above erroneous interpretation of the decision appealed from
considering the manner it was written. 5 As correctly pointed out by respondent insurance commission
in their comment, the decision did not pronounce that it was Arsenio Lopez Chua who has insurable
interest over the insured property. Perusal of the decision reveals however that it readily absolved
respondent insurance company from liability on the basis of the commissioner's conclusion that at the
time of the occurrence of the peril insured against petitioner as mortgagee had no more insurable interest
over the insured property. It was based on the inference that the credit secured by the mortgaged
property was already paid by the Palomos before the said property was gutted down by fire. The
foregoing conclusion was arrived at on the basis of the certification issued by the then Court of First
Instance of Davao, Branch II that in a certain civil action against the Palomos, Antonio Lopez Chua
stands as the complainant and not petitioner Tai Tong Chuache & Company.
We find the petition to be impressed with merit. It is a well known postulate that the case of a party is
constituted by his own affirmative allegations. Under Section 1, Rule 1316 each party must prove his own
affirmative allegations by the amount of evidence required by law which in civil cases as in the present
case is preponderance of evidence. The party, whether plaintiff or defendant, who asserts the affirmative
of the issue has the burden of presenting at the trial such amount of evidence as required by law to
obtain favorable judgment.7 Thus, petitioner who is claiming a right over the insurance must prove its
case. Likewise, respondent insurance company to avoid liability under the policy by setting up an
affirmative defense of lack of insurable interest on the part of the petitioner must prove its own affirmative
allegations.
It will be recalled that respondent insurance company did not assail the validity of the insurance policy
taken out by petitioner over the mortgaged property. Neither did it deny that the said property was totally
razed by fire within the period covered by the insurance. Respondent, as mentioned earlier advanced
an affirmative defense of lack of insurable interest on the part of the petitioner that before the occurrence
of the peril insured against the Palomos had already paid their credit due the petitioner. Respondent
having admitted the material allegations in the complaint, has the burden of proof to show that petitioner
has no insurable interest over the insured property at the time the contingency took place. Upon that
point, there is a failure of proof. Respondent, it will be noted, exerted no effort to present any evidence
to substantiate its claim, while petitioner did. For said respondent's failure, the decision must be adverse
to it.
However, as adverted to earlier, respondent Insurance Commission absolved respondent insurance
company from liability on the basis of the certification issued by the then Court of First Instance of Davao,
Branch II, that in a certain civil action against the Palomos, Arsenio Lopez Chua stands as the
complainant and not Tai Tong Chuache. From said evidence respondent commission inferred that the
credit extended by herein petitioner to the Palomos secured by the insured property must have been
paid. Such is a glaring error which this Court cannot sanction. Respondent Commission's findings are
based upon a mere inference.
The record of the case shows that the petitioner to support its claim for the insurance proceeds offered
as evidence the contract of mortgage (Exh. 1) which has not been cancelled nor released. It has been
held in a long line of cases that when the creditor is in possession of the document of credit, he need not
prove non-payment for it is presumed. 8 The validity of the insurance policy taken b petitioner was not
assailed by private respondent. Moreover, petitioner's claim that the loan extended to the Palomos has
not yet been paid was corroborated by Azucena Palomo who testified that they are still indebted to herein
petitioner. 9
Public respondent argues however, that if the civil case really stemmed from the loan granted to Azucena
Palomo by petitioner the same should have been brought by Tai Tong Chuache or by its representative
in its own behalf. From the above premise respondent concluded that the obligation secured by the
insured property must have been paid.
The premise is correct but the conclusion is wrong. Citing Rule 3, Sec. 2 10 respondent pointed out that
the action must be brought in the name of the real party in interest. We agree. However, it should be
borne in mind that petitioner being a partnership may sue and be sued in its name or by its duly
authorized representative. The fact that Arsenio Lopez Chua is the representative of petitioner is not
questioned. Petitioner's declaration that Arsenio Lopez Chua acts as the managing partner of the
partnership was corroborated by respondent insurance company. 11 Thus Chua as the managing partner
of the partnership may execute all acts of administration 12 including the right to sue debtors of the
partnership in case of their failure to pay their obligations when it became due and demandable. Or at
the very least, Chua being a partner of petitioner Tai Tong Chuache & Company is an agent of the
partnership. Being an agent, it is understood that he acted for and in behalf of the firm.13 Public
respondent's allegation that the civil case flied by Arsenio Chua was in his capacity as personal creditor
of spouses Palomo has no basis.
The respondent insurance company having issued a policy in favor of herein petitioner which policy was
of legal force and effect at the time of the fire, it is bound by its terms and conditions. Upon its failure to
prove the allegation of lack of insurable interest on the part of the petitioner, respondent insurance
company is and must be held liable.
IN VIEW OF THE FOREGOING, the decision appealed from is hereby SET ASIDE and ANOTHER
judgment is rendered order private respondent Travellers Multi-Indemnity Corporation to pay petitioner
the face value of Insurance Policy No. 599-DV in the amount of P100,000.00. Costs against said private
respondent.

13. Garcia Ron vs La Compania Minsa de Batau 12 ph 130 1908

JOSE GARCIA RON, plaintiff-appellee,
vs.LA COMPAIA DE MINAS DE BATAN, defendant-appellant.Ortigas and

This was an action brought by the plaintiff to recover from the defendant the sum of 9,558 1/3 Spanish
pesetas for services rendered. The trial judge found, and the evidence of record fully sustains his finding,
that the plaintiff was employed as foreman or capataz by one Genaro Ansuategui, the local manager of
certain mines of the defendant company, situated on the Islands of Bataan; and that this employment
continued from November 1, 1903; until August 4, 1904. The trial judge found further that, while the
plaintiff failed to establish satisfactorily his claim that the salary promised him by the company's manager
was 1,000 pesestas per month, nevertheless he is entitled to reasonable compensation for the services
rendered which were fixed at P5 per day, or P150 per month, the record disclosing that the plaintiff had
worked for the defendant company as foreman or capataz and received compensation that the rate a
short time prior to his employment under his contract with Ansuategui.
The defendant comply alleged that it had never received such services of the plaintiff and denied the
fact of the employment, but us we have said, the evidence of record affirmatively establishes the finding
of the trial judge that the services were rendered, and that they were rendered under contract of
employment between the plaintiff and one Ansuategui, the local manager of the defendant company; the
only evidence introduced by the defendant in this connection being the testimony of the general manager
of the company, who lived in Manila, to the effect that it does not appear from the books of the company
that the plaintiff was employed by the defendants, or that any record of the employment was forwarded
to the central office in Manila.
Counsel for the defendant company insists, however, that, granting that the plaintiff did in fact work in
the mines of the defendant company and was employed by its local manager, nevertheless, defendant
is not indebted to the plaintiff for these service, because the local manager at the mines was not
authorized to enter into the alleged contract of employment, such authority not having been granted to
him under his letter of instructions, a copy of which appears in the record.
It is not necessary for us to discuss the question of the liability of the defendant company to the plaintiff
for the value of the services rendered, if it in fact appeared that the manager at the mines was not
expressly authorized to employ the plaintiff and to contract for his services, because we are of opinion
that the authority to contract for the employment of the plaintiff was clearly conferred upon Ansuategui
by the terms of this letter of instructions.
These transactions, which were introduced into the record, were dated in Manila, May 23, 1903, and
among other provisions contain the following:
Es tambien derroche los sueldos que dicen pagan a los faginantes y el exceso de gente para poco
trabajo; debe tenerse la gente necesaria y pagar lo razonable, y al que no le convenga que se marche.
Deben hacer por contrata el corte de trozos y maderas de todas clases, y a sueldo le gente que se
emplea para hacer los barracones y otros trabajos que su criterio le dicte, pero no permitiendo por
ningun concepto que abusen.
(The salaries which it is said are paid to the faginantes and the excess of employees for little work is also
a waste. The necessary employees should be kept and paid reasonably, and he who is not needed
[satisfied], let him go. The cutting of logs and wood of all kinds ought to be done by contract, and the
persons employed in digging the barracones and other work at wages which your good judgment may
dictate, but on account permitting abuses.)
And at the conclusion of the letter of instructions, we find the following:
Lo que aqui no va anotado, esperamos lo subsane Vd. con su buen criterio, y le recomendamos por
ultimo nos tenga al corriente de todo.
(We trust you to correct and supply (subsanar) anything which is not noted herein, in accordance with
your good judgment, and finally we urgently request that you keep us informed of everything.)
Other provisions of the letter of instructions expressly authorized Ansuategui, as the local manager of
the defendant company at the mines, to discharge employees who did not prove satisfactory, and leave
no room for doubt that he was duly authorized to represent the company at the mines so far as this was
necessary for their proper local management.lawphil.net
Taking into consideration the fact that the mines of the defendant company are located upon an island
some two days' distance by steamer from the office of the company at Manila, that the only
communication therewith was by mail a few times per month, and that in the very nature of the enterprise,
it was necessary, in order that the local manager might successfully perform his duties, to confer upon
him wide scope in the employment and discharge of labor, we think that there can be no doubt that
Genaro Ansuategui was fully and expressly authorized by the terms of this letter of instructions to enter
into the alleged contract of employment with the plaintiff on behalf of the defendant company; and the
evidence of record establishing the fact that he did so, and that the plaintiff worked for the company for
the period set out in the findings of the trial court, we are of opinion that the trial court properly rendered
judgment in favor of the plaintiff and against the defendant for the value of the services rendered.
The plaintiff not having appealed from the judgment of the trial court denying him the alleged contract
value of the services rendered, and the evidence of record fully sustaining the findings as to the
reasonable value of these services, the judgment of the trial court should be and is hereby affirmed, with
the costs of this instance against the defendant. So ordered.

14. Martinez vs Cordoba and Conde 5 phil 545

MARIANO GARCIA MARTINEZ, Plaintiff-Appellants, v. CORDOBA & CONDE, Defendants-
Appellees.

1. PARTNERSHIP; MANAGING PARTNERS; DISMISSAL OF EMPLOYEES. When the articles of

partnership make each of the two partners managers, either one has the right to dismiss an employee
engaged for no definite term.

2. ID.; ACTION AGAINST; ANSWER BY ONE PARTNER. In an action against a general partnership
an answer in the name of the firm made by one of the partners can not be disregarded.

In 1902 and 1903 the partners in the defendant firm, Cordoba & Conde, were Luciano Cordoba and
Angel Conde. Prior to the month of September, 1902, the plaintiff had been employed by the defendant
firm in the store which it then had on the Escolta, in Manila. In that month Cordoba returned from a visit
to Spain. At his return a disagreement arose between the partners in connection with their business. At
an interview between the parties Conde stated to Cordoba that he wished to discharge the plaintiff.
Cordoba stated that he did not wish to have him discharged. Conde then told the plaintiff not to return to
the store again as an employee of the firm. Cordoba told him to return the next day. On the next morning
he presented himself at the store, and Conde refused him admission, while Cordoba told him to enter.
He thereupon seated himself in a chair near the door, stayed there that day, and returned and occupied
the same position every day for thirteen months thereafter. During this time he rendered no service
whatever to the firm. He has now brought this action against the firm to recover the value of his services
during that time.

Judgment was entered against Cordoba by the court below for P1,350. Judgment was also entered
against the plaintiff and in favor of Conde. From this judgment Cordoba has not appealed, but from the
judgment in favor of Conde plaintiff has appealed.
The articles of partnership contained the following:j
"Primera: La sociedad que en este acto se constituye sera mercantil colectiva, girara bajo la razon de
Cordoba y Conde y en ella la gerencia y el uso de la firma social correra a cargo de ambos socios Don
Luciano Cordoba y Pascual y Don Angel Conde Y Moreno, cada uno de los cueles indistintamente tanto
en juicio como fuera de el y enalquier punto en que se encuentren, tendran la plena representacion de
la sociedad
The contract of employment existing between plaintiff and the firm prior to September, 1902, was for no
definite time. By the terms of article 302 of the Code of Commerce the firm had the right to discharge the
plaintiff at any time. By the terms of the contract of partnership which made each one of the partners a
manager, Conde had the right to discharge the plaintiff at any time. He did discharge him at the interview
above referred to. This discharge was in no sense the making of a new contract, as is claimed by the
appellant in his brief. If it be claimed that by the terms of the articles of partnership Cordoba had the right
to and did employ the plaintiff again immediately upon his discharge by Conde, it is also true that Conde
at once discharged him, and as often as Cordoba employed him, Conde dismissed him. He was therefore
never in the employ of the firm, and the evidence shows that he rendered no service to the firm.
The defendant in this case is the partnership of Cordoba & Conde, a juridical person. Conde appeared
and presented an answer as one of the partners. The prayer of this answer is as follows:jgc
"Por esta suplica el Juzgado se sirva dictar sentencia absolviendole de la demanda por la parte que a
el le corresponde como socio de la sociedad demandada condenando en costas al demandante."
The appellant claims in this court that the judge below committed an error in considering the answer of
Conde as the answer of the partnership. This contention can not be sustained.

The judgment is affirmed, with the costs of this instance against the plaintiff, and after the expiration of
twenty days judgment should be entered in accordance herewith and the case remanded to the court
below for execution. So ordered.

Goquilay and Partnership tan Sin An and Antonio Goquiolay vs Washington Sycip et al
ANTONIO C. GOQUIOLAY and THE PARTNERSHIP "TAN SIN AN and ANTONIO C.
GOQUIOLAY, plaintiffs-appellants,
vs.WASHINGTON Z. SYCIP, ET AL., defendants-appellees.
Direct appeal from the decision of the Court of First Instance of Davao (the amount involved being more
than P200,00) dismissing the plaintiffs-appellants' complaint.
From the stipulation of facts of the parties and the evidence on record, it would appear that on May 29,
1940, Tan Sin An and Antonio C. Goquiolay", entered into a general commercial partnership under the
partnership name "Tan Sin An and Antonio C. Goquiolay", for the purpose in dealing in real state. The
partnership had a capital of P30,000.00, P18,000.00 of which was contributed by Goquiolay and
P12,000.00 by Tan Sin An. The agreement lodge upon Tan Sin An the sole management of the
partnership affairs, stipulating that
III. The co-partnership shall be composed of said Tan Sin An as sole managing and partner (sic),
and Antonio C. Goquiolay as co-partner.
IV. Vhe affairs of co-partnership shall be managed exclusively by the managing and partner (sic) or by
his authorized agent, and it is expressly stipulated that the managing and partner (sic) may delegate the
entire management of the affairs of the co-partnership by irrevocable power of attorney to any person,
firm or corporation he may select upon such terms as regards compensation as he may deem proper,
and vest in such persons, firm or corporation full power and authority, as the agent of the co-partnership
and in his name, place and stead to do anything for it or on his behalf which he as such managing and
partner (sic) might do or cause to be done.
V. The co-partner shall have no voice or participation in the management of the affairs of the co-
partnership; but he may examine its accounts once every six (6) months at any time during ordinary
business hours, and in accordance with the provisions of the Code of Commerce. (Article of Co-
Partnership).
The lifetime of the partnership was fixed at ten (10) years and also that
In the event of the death of any of the partners at any time before the expiration of said term, the co-
partnership shall not be dissolved but will have to be continued and the deceased partner shall be
represented by his heirs or assigns in said co-partnership (Art. XII, Articles of Co-Partnership).
However, the partnership could be dissolved and its affairs liquidated at any time upon mutual agreement
in writing of the partners (Art. XIII, articles of Co-Partnership).
On May 31, 1940, Antonio Goquiolay executed a general power of attorney to this effect:
That besides the powers and duties granted the said Tan Sin An by the articles of co-partnership of said
co-partnership "Tan Sin An and Antonio Goquiolay", that said Tan Sin An should act as the Manager for
said co-partnership for the full period of the term for which said co-partnership was organized or until the
whole period that the said capital of P30,000.00 of the co-partnership should last, to carry on to the best
advantage and interest of the said co-partnership, to make and execute, sign, seal and deliver for the
co-partnership, and in its name, all bills, bonds, notes, specialties, and trust receipts or other instruments
or documents in writing whatsoever kind or nature which shall be necessary to the proper conduction of
the said businesses, including the power to mortgage and pledge real and personal properties, to secure
the obligation of the co-partnership, to buy real or personal properties for cash or upon such terms as he
may deem advisable, to sell personal or real properties, such as lands and buildings of the co-partnership
in any manner he may deem advisable for the best interest of said co-partnership, to borrow money on
behalf of the co-partnership and to issue promissory notes for the repayment thereof, to deposit the
funds of the co-partnership in any local bank or elsewhere and to draw checks against funds so deposited
... .
On May 29, 1940, the plaintiff partnership "Tan Sin An and Goquiolay" purchased the three (3) parcels
of land, known as Lots Nos. 526, 441 and 521 of the Cadastral Survey of Davao, subject-matter of the
instant litigation, assuming the payment of a mortgage obligation of P25,000.00, payable to "La Urbana
Sociedad Mutua de Construccion y Prestamos" for a period of ten (10) years, with 10% interest per
annum. Another 46 parcels were purchased by Tan Sin An in his individual capacity, and he assumed
payment of a mortgage debt thereon for P35,000.00 with interest. The downpayment and the
amortization were advanced by Yutivo and Co., for the account of the purchasers.
On September 25, 1940, the two separate obligations were consolidated in an instrument executed by
the partnership and Tan Sin An, whereby the entire 49 lots were mortgaged in favor of the "Banco
Hipotecario de Filipinas" (as successor to "La Urbana") and the covenantors bound themselves to pay,
jointly and severally, the remaining balance of their unpaid accounts amounting to P52,282.80 within
eight 8 years, with 8% annual interest, payable in 96 equal monthly installments.
On June 26, 1942, Tan Sin An died, leaving as surviving heirs his widow, Kong Chai Pin, and four minor
children, namely: Tan L. Cheng, Tan L. Hua, Tan C. Chiu and Tan K. Chuan. Defendant Kong Chai Pin
was appointed administratrix of the intestate estate of her deceased husband.
In the meantime, repeated demands for payment were made by the Banco Hipotecario on the
partnership and on Tan Sin An. In March, 1944, the defendant Sing Yee and Cuan, Co., Inc., upon
request of defendant Yutivo Sans Hardware Co., paid the remaining balance of the mortgage debt, and
the mortgage was cancelled.
Then in 1946, Yutivo Sons Hardware Co. and Sing Yee and Cuan Co., Inc. filed their claims in the
intestate proceedings of Tan Sin An for P62,415.91 and P54,310.13, respectively, as alleged obligations
of the partnership "Tan Sin An and Antonio C. Goquiolay" and Tan Sin An, for advances, interest and
taxes paid in amortizing and discharging their obligations to "La Urbana" and the "Banco Hipotecario".
Disclaiming knowledge of said claims at first, Kong Chai Pin later admitted the claims in her amended
answer and they were accordingly approved by the Court.
On March 29, 1949, Kong Chai Pin filed a petition with the probate court for authority to sell all the 49
parcels of land to Washington Z, Sycip and Betty Y. Lee, for the purpose preliminary of settling the
aforesaid debts of Tan Sin An and the partnership. Pursuant to a court order of April 2, 1949, the
administratrix executed on April 4, 1949, a deed of sale1 of the 49 parcels of land to the defendants
Washington Sycip and Betty Lee in consideration of P37,000.00 and of vendees' assuming payments of
the claims filed by Yutivo Sons Hardware Co. and Sing Yee and Cuan Co., Inc. Later, in July, 1949,
defendants Sycip and Betty Lee executed in favor of the Insular Development Co., Inc. a deed of transfer
covering the said 49 parcels of land.
Learning about the sale to Sycip and Lee, the surviving partner Antonio Goquiolay filed, on or about July
25, 1949, a petition in the intestate proceedings seeking to set aside the order of the probate court
approving the sale in so far as his interest over the parcels of land sold was concerned. In its order of
December 29, 1949, the probate court annulled the sale executed by the administratrix with respect to
the 60% interest of Antonio Goquiolay over the properties sold. Kong Chai Pin appealed to the Court of
Appeals, which court later certified the case to us (93 Phil., 413; 49 Off. Gaz. [7] 2307). On June 30,
1953, we rendered decision setting aside the orders of the probate court complained of and remanding
the case for new trial, due to the non-inclusion of indispensable parties. Thereafter, new pleadings were
filed.
The second amended complaint in the case at bar prays, among other things, for the annulment of the
sale in favor of Washington Sycip and Betty Lee, and their subsequent conveyance in favor of Insular
Development Co., Inc., in so far as the three (3) lots owned by the plaintiff partnership are concerned.
The answer averred the validity of the sale by Kong Chai Pin as successor partner, in lieu of the late Tan
Sin An. After hearing, the complaint was dismissed by the lower court in its decision dated October 30,
1956; hence, this appeal taken directly to us by the plaintiffs, as the amount involved is more than
P200,000.00. Plaintiffs-appellants assign as errors that
I The lower court erred in holding that Kong Chai Pin became the managing partner of the partnership
upon the death of her husband, Tan Sin An, by virtue of the articles of Partnership executed between
Tan Sin An and Antonio Goquiolay, and the general power of attorney granted by Antonio Goquiolay.
II The lower court erred in holding that Kong Chai Pin could act alone as sole managing partner in
view of the minority of the other heirs.
III The lower court erred in holding that Kong Chai Pin was the only heir qualified to act as managing
partner.
IV The lower court erred in holding that Kong Chai Pin had authority to sell the partnership properties
by virtue of the articles of partnership and the general power of attorney granted to Tan Sin An in order
to pay the partnership indebtedness.
V The lower court erred in finding that the partnership did not pay its obligation to the Banco
Hipotecario.
VI The lower court erred in holding that the consent of Antonio Goquiolay was not necessary to
consummate the sale of the partnership properties.
VII The lower court erred in finding that Kong Chai Pin managed the business of the partnership after
the death of her husband, and that Antonio Goquiolay knew it.
VIII The lower court erred in holding that the failure of Antonio Goquiolay to oppose the management
of the partnership by Kong Chai Pin estops him now from attacking the validity of the sale of the
partnership properties.
IX The lower court erred in holding that the buyers of the partnership properties acted in good faith.
X The lower court erred in holding that the sale was not fraudulent against the partnership and Antonio
Goquiolay.
XI The lower court erred in holding that the sale was not only necessary but beneficial to the
partnership.
XII The lower court erred in dismissing the complaint and in ordering Antonio Goquiolay to pay the
costs of suit.
There is a merit in the contention that the lower court erred in holding that the widow, Kong Chai Pin,
succeeded her husband, Tan Sin An, in the sole management of the partnership, upon the latter's death.
While, as we previously stated in our narration of facts, the Articles of Co-Partnership and the power of
attorney executed by Antonio Goquiolay, conferred upon Tan Sin An the exclusive management of the
business, such power, premised as it is upon trust and confidence, was a mere personal right that
terminated upon Tan's demise. The provision in the articles stating that "in the event of death of any one
of the partners within the 10-year term of the partnership, the deceased partner shall be represented by
his heirs", could not have referred to the managerial right given to Tan Sin An; more appropriately, it
related to the succession in the proprietary interest of each partner. The covenant that Antonio Goquiolay
shall have no voice or participation in the management of the partnership, being a limitation upon his
right as a general partner, must be held coextensive only with Tan's right to manage the affairs, the
contrary not being clearly apparent.
Upon the other hand, consonant with the articles of co-partnership providing for the continuation of the
firm notwithstanding the death of one of the partners, the heirs of the deceased, by never repudiating or
refusing to be bound under the said provision in the articles, became individual partners with Antonio
Goquiolay upon Tan's demise. The validity of like clauses in partnership agreements is expressly
sanctioned under Article 222 of the Code of Commerce.2
Minority of the heirs is not a bar to the application of that clause in the articles of co-partnership (2
Vivante, Tratado de Derecho Mercantil, 493; Planiol, Traite Elementaire de Droit Civil, English translation
by the Louisiana State Law Institute, Vol. 2, Pt. 2, p. 177).
Appellants argue, however, that since the "new" members' liability in the partnership was limited merely
to the value of the share or estate left by the deceased Tan Sin An, they became no more than limited
partners and, as such, were disqualified from the management of the business under Article 148 of the
Code of Commerce. Although ordinarily, this effect follows from the continuance of the heirs in the
partnership,3 it was not so with respect to the widow Kong Chai Pin, who, by her affirmative actions,
manifested her intent to be bound by the partnership agreement not only as a limited but as a general
partner. Thus, she managed and retained possession of the partnership properties and was admittedly
deriving income therefrom up to and until the same were sold to Washington Sycip and Betty Lee. In
fact, by executing the deed of sale of the parcels of land in dispute in the name of the partnership, she
was acting no less than as a managing partner. Having thus preferred to act as such, she could be held
liable for the partnership debts and liabilities as a general partner, beyond what she might have derived
only from the estate of her deceased husband. By allowing her to retain control of the firm's property
from 1942 to 1949, plaintiff estopped himself to deny her legal representation of the partnership, with the
power to bind it by the proper contracts.
The question now arises as to whether or not the consent of the other partners was necessary to perfect
the sale of the partnership properties to Washington Sycip and Betty Lee. The answer is, we believe, in
the negative. Strangers dealing with a partnership have the right to assume, in the absence of restrictive
clauses in the co-partnership agreement, that every general partner has power to bind the partnership,
specially those partners acting with ostensible authority. And so, we held in one case:
. . . Third persons, like the plaintiff, are not bound in entering into a contract with any of the two partners,
to ascertain whether or not this partner with whom the transaction is made has the consent of the other
partner. The public need not make inquiries as to the agreements had between the partners. Its
knowledge is enough that it is contracting with the partnership which is represented by one of the
managing partners.
"There is a general presumption that each individual partner is an agent for the firm and that he has
authority to bind the firm in carrying on the partnership transactions." [Mills vs. Riggle, 112 Pac., 617]
"The presumption is sufficient to permit third persons to hold the firm liable on transactions entered into
by one of the members of the firm acting apparently in its behalf and within the scope of his authority."
[Le Roy vs. Johnson, 7 U.S. Law, Ed., 391] (George Litton vs. Hill & Ceron, et al., 67 Phil., 513-514).
We are not unaware of the provision of Article 129 of the Code of Commerce to the effect that
If the management of the general partnership has not been limited by special agreement to any of the
members, all shall have the power to take part in the direction and management of the common business,
and the members present shall come to an agreement for all contracts or obligations which may concern
the association. (Emphasis supplied)
but this obligation is one imposed by law on the partners among themselves, that does not necessarily
affect the validity of the acts of a partner, while acting within the scope of the ordinary course of business
of the partnership, as regards third persons without notice. The latter may rightfully assume that the
contracting partner was duly authorized to contract for and in behalf of the firm and that, furthermore, he
would not ordinarily act to the prejudice of his co-partners. The regular course of business procedure
does not require that each time a third person contracts with one of the managing partners, he should
inquire as to the latter's authority to do so, or that he should first ascertain whether or not the other
partners had given their consent thereto. In fact, Article 130 of the same Code of Commerce provides
that even if a new obligation was contracted against the express will of one of the managing partners, "it
shall not be annulled for such reason, and it shall produce its effects without prejudice to the
responsibility of the member or members who contracted it, for the damages they may have caused to
the common fund."
Cesar Vivante (2 Tratado de Derecho Mercantil, pp. 114-115) points out:
Although the partnership under consideration is a commercial partnership and, therefore, to be governed
by the Code of Commerce, the provisions of the old Civil Code may give us some light on the right of
one partner to bind the partnership. States Art. 1695 thereof:
Should no agreement have been made with respect to the form of management, the following rules shall
be observed:
1. All the partners shall be considered agents, and whatever any one of the may do individually shall
bind the partnership; but each one may oppose any act of the others before it has become legally binding.
The records fail to disclose that appellant Goquiolay made any opposition to the sale of the partnership
realty to Washington Z. Sycip and Betty Lee; on the contrary, it appears that he (Goquiolay) only
interposed his objections after the deed of conveyance was executed and approved by the probate court,
and, consequently, his opposition came too late to be effective.
Appellants assails the correctness of the amounts paid for the account of the partnership as found by
the trial court. This question, however, need not be resolved here, as in the deed of conveyance executed
by Kong Chai Pin, the purchasers Washington Sycip and Betty Lee assumed, as part consideration of
the purchase, the full claims of the two creditors, Sing Yee and Cuan Co., Inc. and Yutivo Sons Hardware
Co.
Appellants also question the validity of the sale covering the entire firm realty, on the ground that it, in
effect, threw the partnership into dissolution, which requires consent of all the partners. This view is
untenable. That the partnership was left without the real property it originally had will not work its
dissolution, since the firm was not organized to exploit these precise lots but to engage in buying and
selling real estate, and "in general real estate agency and brokerage business". Incidentally, it is to be
noted that the payment of the solidary obligation of both the partnership and the late Tan Sin An, leaves
open the question of accounting and contribution between the co-debtors, that should be ventilated
separately.
Lastly, appellants point out that the sale of the partnership properties was only a fraudulent device by
the appellees, with the connivance of Kong Chai Pin, to ease out Antonio Goquiolay from the partnership.
The "devise", according to the appellants, started way back sometime in 1945, when one Yu Khe Thai
sounded out Antonio Goquiolay on the possibility of selling his share in the partnership; and upon his
refusal to sell, was followed by the filing of the claims of Yutivo Sons Hardware Co. and Sing Yee and
Cuan Co., Inc. in the intestate estate proceedings of Tan Sin An. As creditors of Tan Sin An and the
plaintiff partnership (whose liability was alleged to be joint and several), Yutivo Sons Hardware Co., and
Sing Yee Cuan Co., Inc. had every right to file their claims in the intestate proceedings. The denial of the
claims at first by Kong Chai Pin ( for lack of sufficient knowledge) negatives any conspiracy on her part
in the alleged fraudulent scheme, even if she subsequently decided to admit their validity after studying
the claims and finding it best to admit the same. It may not be amiss to remark that the probate court
approved the questioned claims.
There is complete failure of proof, moreover, that the price for which the properties were sold was
unreasonably low, or in any way unfair, since appellants presented no evidence of the market value of
the lots as of the time of their sale to appellees Sycip and Lee. The alleged value of P31,056.58 in May
of 1955 is no proof of the market value in 1949, specially because in the interval, the new owners appear
to have converted the land into a subdivision, which they could not do without opening roads and
otherwise improving the property at their own expense. Upon the other hand, Kong Chai Pin hardly had
any choice but to execute the questioned sale, as it appears that the partnership had neither cash nor
other properties with which to pay its obligations. Anyway, we cannot consider seriously the inferences
freely indulged in by the appellants as allegedly indicating fraud in the questioned transactions, leading
to the conveyance of the lots in dispute to the appellee Insular Development Co., Inc.
Wherefore, finding no reversible error in the appealed judgment, we affirm the same, with costs against
appellant Antonio Goquiolay.
Padilla, Montemayor, Bautista Angelo, Labrador, Concepcion, Endencia, Barrera, and Gutierrez David,
JJ., concur.
RESOLUTION
REYES, J. B. L., J.:
The matter now pending is the appellant's motion for reconsideration of our main decision, wherein we
have upheld the validity of the sale of the lands owned by the partnership Goquiolay & Tan Sin An, made
 in 1949 by the widow of the managing partner, Tan Sin An
Cash paid P37,000.00 (executed in her dual capacity of Administratrix of her
husband's estate and as partner, in lieu of the husband), in
favor of buyers Washington Sycip and Betty Lee for the
following consideration:
Appellant Goquiolay, in his motion for reconsideration, insists
Debts assumed by that, contrary to our holding, Kong Chai Pin, widow of the
purchase: deceased partner Tan Sin An, never became more than
To Yutivo 62,415.91 a limited partner, incapacitated by law to manage the affairs
of the partnership; that the testimony of her witnesses Young
To Sing Yee Cuan & 54,310.13
and Lim belies that she took over administration of the
Co.
partnership property; and that, in any event, the sale should
TOTAL P153,726.04 be set aside because it was executed with the intent to
defraud appellant of his share in the properties sold.
Three things must be always held in mind in the discussion of this motion to reconsider, being basic and
beyond controversy:
(a) That we are dealing here with the transfer of partnership property by one partner, acting in behalf of
the firm, to a stranger. There is no question between partners inter se, and this aspects of the case was
expressly reserved in the main decision of 26 July 1960;
(b) That the partnership was expressly organized "to engage in real estate business, either by buying
and selling real estate". The Article of co-partnership, in fact, expressly provided that:
IV. The object and purpose of the co-partnership are as follows:
1. To engage in real estate business, either by buying and selling real estates; to subdivide real estates
into lots for the purpose of leasing and selling them.;
(c) That the properties sold were not part of the contributed capital (which was in cash) but land precisely
acquired to be sold, although subject a mortgage in favor of the original owners, from whom the
partnership had acquired them.
With these points firmly in mind, let us turn to the points insisted upon by appellant.
It is first averred that there is "not one iota evidence" that Kong Chai Pin managed and retained
possession of the partnership properties. Suffice it to point out that appellant Goquiolay himself admitted
that
. . . Mr. Yu Eng Lai asked me if I can just let Mrs. Kong Chai Pin continue to manage the properties (as)
she had no other means of income. Then I said, because I wanted to help Mrs. Kong Chai Pin, she could
just do it and besides I am not interested in agricultural lands. I allowed her to take care of the
properties in order to help her and because I believe in God and I wanted to help her.
Q. So the answer to my question is you did not take any steps?
A. I did not.
Q. And this conversation which you had with Mrs. Yu Eng Lai was few months after 1945?
A. In the year 1945. (Emphasis supplied)
The appellant subsequently ratified this testimony in his deposition of 30 June 1956, page 8-9, wherein
he sated:that plantation was being occupied at that time by the widow, Mrs. Tan Sin An, and of course
they are receiving quite a lot of benefit from that plantation.
Discarding the self-serving expressions, these admissions of Goquiolay are certainly entitled to greater
weight than those of Hernando Young and Rufino Lim, having been made against the party's own
interest.
Moreover, the appellant's reference to the testimony of Hernando Young, that the witness found the
properties "abandoned and undeveloped", omits to mention that said part of the testimony started with
the question:
Now, you said that about 1942 or 1943 you returned to Davao. Did you meet Mrs. Kong Chai Pin there
in Davao at that time?
Similarly, the testimony of Rufino Lim, to the effect that the properties of the partnership were
undeveloped, and the family of the widow (Kong Chai Pin) did not receive any income from the
partnership properties, was given in answer to the question:
According to Mr. Goquiolay, during the Japanese occupation Tan Sin An and his family lived on the
plantation of the partnership and derived their subsistence from that plantation. What can you say to
that? (Dep. 19 July 1956, p. 8)
And also
What can you say so to the development of these other properties of the partnership which you
saw during the occupation?" (Dep., p. 13, Emphasis supplied)
to which witness gave the following answer:
I saw the properties in Mamay still undeveloped. The third property which is in Tigatto is about eleven
(11) hectares and planted with abaca seedlings planted by Mr. Sin An. When I went there with Hernando
Young we saw all the abaca destroyed. The place was occupied by the Japanese Army. They planted
camotes and vegetables to feed the Japanese Army. Of course they never paid any money to Tan Sin
An or his family. (Dep., Lim. pp. 13-14.) (Emphasis supplied)
Plainly, Both Young and Lim's testimonies do not belie, or contradict, Goquiolay's admission that he told
Mr. Yu Eng Lai that the widow "could just do it" (i e., continue to manage the properties. Witnesses Lim
and Young referred to the period of Japanese occupation; but Goquiolay's authority was, in fact, given
to the widow in 1945, after the occupation.
Again, the disputed sale by the widow took place in 1949. That Kong Chai Pin carried out no acts of
management during the Japanese occupation (1942-1944) does not mean that she did not do so from
1945 to 1949.
We thus fine that Goquiolay did not merely rely on reports from Lim and Young; he actually manifested
his willingness that the widow should manage the partnership properties. Whether or not she complied
with this authority is a question between her and the appellant, and is not here involved. But the authority
was given, and she did have it when she made the questioned sale, because it has never revoked.
It is argued that the authority given by Goquiolay to the widow Kong Chai Pin was only to manage the
property, and that it did not include the power to alienate, citing Article 1713 of the Civil Code of 1889.
What this argument overlooks is that the widow was not a mere agent, because she had become a
partner upon her husband's death, as expressly provided by the articles of co-partnership. Even more,
granting that by succession to her husband, Tan Sin An, the widow only a became
the limited partner, Goquiolay's authorization to manage the partnership property was proof that he
considered and recognized her has general partner, at least since 1945. The reason is plain: Under the
law (Article 148, last paragraph, Code of Commerce), appellant could not empower the widow, if she
were only a limited partner, to administer the properties of the firm, even as a mere agent:
Limited partners may not perform any act of administration with respect to the interests of the co-
partnership, not even in the capacity agents of the managing partners.(Emphasis supplied)
By seeking authority to manage partnership property, Tan Sin An's widow showed that she desired to
be considered a general partner. By authorizing the widow to manage partnership property (which a
limited partner could not be authorized to do), Goquiolay recognized her as such partner, and is now in
estoppel to deny her position as a general partner, with authority to administer and alienate partnership
property.
Besides, as we pointed out in our main decision, the heir ordinarily (and we did not say "necessarily")
becomes a limited partner for his own protection, because he would normally prefer to avoid any liability
in excess of the value of the estate inherited so as not to jeopardize his personal assets. But this statutory
limitation of responsibility being designed to protect the heir, the latter may disregard it and instead elect
to become a collective or general partner, with all the rights and privileges of one, and answering for the
debts of the firm not only with the inheritance bud also with the heir's personal fortune. This choice
pertains exclusively to the heir, and does not require the assent of the surviving partner.
It must be remembered that the articles of co-partnership here involved expressly stipulated that:
In that event of the death of any of the partners at any time before the expiration of said term, the co-
partnership shall not be dissolved but will have to be continued and the deceased partner shall be
represented by his heirs or assigns in said co-partnership" (Art. XII, Articles of Co-Partnership).
The Articles did not provide that the heirs of the deceased would be merely limited partner; on the
contrary they expressly stipulated that in case of death of either partner "the co-partnership ... will have
to be continued" with the heirs or assigns. It certainly could not be continued if it were to be converted
from a general partnership into a limited partnership, since the difference between the two kinds of
associations is fundamental; and specially because the conversion into a limited association would leave
the heirs of the deceased partner without a share in the management. Hence, the contractual stipulation
does actually contemplate that the heirs would become general partners rather than limited ones.
Of course, the stipulation would not bind the heirs of the deceased partner should they refuse to assume
personal and unlimited responsibility for the obligations of the firm. The heirs, in other words, can not be
compelled to become general partners against their wishes. But because they are not so compellable, it
does not legitimately follow that they may not voluntarily choose to become general partners, waiving
the protective mantle of the general laws of succession. And in the latter event, it is pointless to discuss
the legality of any conversion of a limited partner into a general one. The heir never was a limited partner,
but chose to be, and became, a general partner right at the start.
It is immaterial that the heirs name was not included in the firm name, since no conversion of status is
involved, and the articles of co-partnership expressly contemplated the admission of the partner's heirs
into the partnership.
It must never be overlooked that this case involves the rights acquired by strangers, and does not deal
with the rights arising between partners Goquiolay and the widow of Tan Sin An. The issues between
the partners inter se were expressly reversed in our main decision. Now, in determining what kind of
partner the widow of partner Tan Sin An had elected to become, strangers had to be guided by her
conduct and actuations and those of appellant Goquiolay. Knowing that by law a limited partner is barred
from managing the partnership business or property, third parties (like the purchasers) who found the
widow possessing and managing the firm property with the acquiescense (or at least without apparent
opposition) of the surviving partners were perfectly justified in assuming that she had become a general
partner, and, therefore, in negotiating with her as such a partner, having authority to act for, and in behalf
of, the firm. This belief, be it noted, was shared even by the probate court that approved the sale by the
widow of the real property standing in the partnership name. That belief was fostered by the very inaction
of appellant Goquiolay. Note that for seven long years, from partner Tan Sin An's death in 1942 to the
sale in 1949, there was more than ample time for Goquiolay to take up the management of these
properties, or at least ascertain how its affairs stood. For seven years Goquiolay could have asserted
his alleged rights, and by suitable notice in the commercial registry could have warned strangers that
they must deal with him alone, as sole general partner. But he did nothing of the sort, because he was
not interested (supra), and he did not even take steps to pay, or settle, the firm debts that were overdue
since before the outbreak of the last war. He did not even take steps, after Tan Sin An died, to cancel,
or modify, the provisions of the partnership articles that he (Goquiolay) would have no intervention in the
management of the partnership. This laches certainly contributed to confirm the view that the widow of
Tan Sin An had, or was given, authority to manage and deal with the firm's properties, apart from the
presumption that a general partner dealing with partnership property has the requisite authority from his
co-partners (Litton vs. Hill and Ceron, et al., 67 Phil., 513; quoted in our main decision, p. 11).
The stipulation in the articles of partnership that any of the two managing partners may contract and sign
in the name of the partnership with the consent of the other, undoubtedly creates an obligation between
the two partners, which consists in asking the other's consent before contracting for the partnership. This
obligation of course is not imposed upon a third person who contracts with the partnership. Neither is it
necessary for the third person to ascertain if the managing partner with whom he contracts has previously
obtained the consent of the other. A third person may and has a right to presume that the partner with
whom he contracts has, in the ordinary and natural course of business, the consent of his co-partner; for
otherwise he would not enter into the contract. The third person would naturally not presume that the
partner with whom he enters into the transaction is violating the articles of partnership, but on the
contrary, is acting in accordance therewith. And this finds support in the legal presumption that the
ordinary course of business has been followed (No. 18, section 334, Code of Civil Procedure), and that
the law has been obeyed (No. 31, section 334). This last presumption is equally applicable to contracts
which have the force of law between the parties. (Litton vs. Hill & Ceron, et al., 67 Phil., 509, 516)
(Emphasis supplied)
It is next urged that the widow, even as a partner, had no authority to sell the real estate of the firm. This
argument is lamentably superficial because it fails to differentiate between real estate acquired and held
as stock-in-trade and real state held merely as business site (Vivante's "taller o banco social") for the
partnership. Where the partnership business is to deal in merchandise and goods, i.e., movable property,
the sale of its real property (immovables) is not within the ordinary powers of a partner, because it is not
in line with the normal business of the firm. But where the express and avowed purpose of the partnership
is to buy and sell real estate (as in the present case), the immovables thus acquired by the firm form part
of its stock-in-trade, and the sale thereof is in pursuance of partnership purposes, hence within the
ordinary powers of the partner. This distinction is supported by the opinion of Gay de Montella1, in the
very passage quoted in the appellant's motion for reconsideration:
La enajenacion puede entrar en las facultades del gerente: cuando es conforme a los fines sociales.
Pero esta facultad de enajenar limitada a las ventas conforme a los fines sociales, viene limitada a los
objetos de comecio o a los productos de la fabrica para explotacion de los cuales se ha constituido la
Sociedad. Ocurrira una cosa parecida cuando el objeto de la Sociedad fuese la compra y venta de
inmuebles, en cuyo caso el gerente estaria facultado para otorgar las ventas que fuere
necesario. (Montella) (Emphasis supplied)
The same rule obtains in American law.
In Rosen vs. Rosen, 212 N. Y. Supp. 405, 406, it was held:
a partnership to deal in real estate may be created and either partner has the legal right to sell the firm
real estate
In Chester vs. Dickerson, 54 N. Y. 1, 13 Am. Rep. 550:
And hence, when the partnership business is to deal in real estate, one partner has ample power, as a
general agent of the firm, to enter into an executory contract for the sale of real estate.
And in Rovelsky vs. Brown, 92 Ala. 522, 9 South 182, 25 Am. St., Rep. 83:
If the several partners engaged in the business of buying and selling real estate can not bind the firm by
purchases or sales of such property made in the regular course of business, then they are incapable of
exercising the essential rights and powers of general partners and their association is not really a
partnership at all, but a several agency.
Since the sale by the widow was in conformity with the express objective of the partnership, "to engage
* * * in buying and selling real estate" (Art IV, No. 1, Articles of Copartnership), it can not be maintained
that the sale was made in excess of her powers as general partner.
Considerable stress is laid by appellant in the ruling of the Supreme Court of Ohio in McGrath, et al., vs.
Cowen, et al., 49 N. E., 338. But the facts of that case are vastly different from the one before us. In the
McGrath case, the Court expressly found that:
The firm was then, and for some time had been, insolvent, in the sense that its property was insufficient
to pay its debts, though it still had good credit, and was actively engaged in the prosecution of its
business. On that day, which was Saturday, the plaintiff caused to be prepared, ready for execution, the
four chattel mortgages in question, which cover all the tangible property then belonging to the
firm, including the counters, shelving, and other furnishings and fixtures necessary for, and used in
carrying on, its business, and signed the same in this form: "In witness whereof, the said Cowen &
McGrath, a firm, and Owen McGrath, surviving partner of said firm, and Owen McGrath, individually,
have here-unto set their hands, this 20th day of May, A. D. 1893. Cowen & McGrath, by Owen McGrath.
Owen McGrath, Surviving partner of Cowen & McGrath. Owen McGrath" At the same time, the plaintiff
had prepared, ready for filing, the petition for the dissolution of the partnership and appointment of a
receiver, which he subsequently filed, as hereinafter stated. On the day the mortgages were signed, they
were placed in the hands of the mortgagees, which was the first intimation to them that there was any
intention to make then. At that time none of the claims secured by the mortgages were due, except, it
may be, a small part of one of them, and none of the creditors to whom the mortgages were made had
requested security, or were pressing for the payment of their debts. ... The mortgages appear to be
without a sufficient condition of defeasance, and contain a stipulation authorizing the mortgagees to take
immediate possession of the property, which they did as soon as the mortgages were filed, through the
attorney who then represented them, as well as the plaintiff; and the stores were at once
closed, andpossession delivered by them to the receiver appointed upon the filing of the petition. The
avowed purpose of the plaintiff in the course pursued by him, was to terminate the partnership, place its
property beyond the control of the firm, and insure the preference of the mortgages, all of which was
known to them at the time: ... . (Cas cit., p. 343, Emphasis supplied)
It is natural that from these facts the Supreme Court of Ohio should draw the conclusion that
conveyances were made with intent to terminate the partnership, and that they were not within the
powers of McGrath as partner. But there is no similarly between those acts and the sale by the widow of
Tan Sin An. In the McGrath case, the sale included even the fixtures used in the business, in our case,
the lands sold were those acquired to be sold. In the McGrath case, none of the creditors were pressing
for payment; in our case, the creditors had been unpaid for more than seven years, and their claims had
been approved by the probate court for payment. In the McGrath case, the partnership received nothing
beyond the discharge of its debts; in the present case, not only were its debts assumed by the buyers,
but the latter paid, in addition, P37,000.00 in cash to the widow, to the profit of the partnership. Clearly,
the McGrath ruling is not applicable.
We will now turn to the question to fraud. No direct evidence of it exists; but appellant points out, as
indicia thereof, the allegedly low price paid for the property, and the relationship between the buyers, the
creditors of the partnership, and the widow of Tan Sin An.
First, as to the price: As already noted, this property was actually sold for a total of P153,726.04, of which
P37,000.00 was in cash, and the rest in partnership debts assumed by the purchaser. These debts
(P62,415.91 to Yutivo, and P54,310.13 to Sing Yee Cuan & Co.) are not questioned; they were approved
by the Court, and its approval is now final. The claims were, in fact, for the balance on the original
purchase price of the land sold (due first to La Urbana, later to the Banco Hipotecario) plus accrued
interests and taxes, redeemed by the two creditors-claimants. To show that the price was inadequate,
appellant relies on the testimony of the realtor Mata, who in 1955, six years after the sale in question,
asserted that the land was worth P312,000.00. Taking into account the continued rise of real estate
values since liberation, and the fact that the sale in question was practically a forced sale because the
partnership had no other means to pay its legitimate debts, this evidence certainly does not show such
"gross inadequacy" as to justify rescission of the sale. If at the time of the sale (1949 the price of
P153,726.04 was really low, how is it that appellant was not able to raise the amount, even if the creditor's
representative, Yu Khe Thai, had already warned him four years before (1946) that the creditors wanted
their money back, as they were justly entitled to?
It is argued that the land could have been mortgaged to raise the sum needed to discharge the debts.
But the lands were already mortgaged, and had been mortgaged since 1940, first to La Urbana, and
then to the Banco Hipotecario. Was it reasonable to expect that other persons would loan money to the
partnership when it was unable even to pay the taxes on the property, and the interest on the principal
since 1940? If it had been possible to find lenders willing to take a chance on such a bad financial record,
would not Goquiolay have taken advantage of it? But the fact is clear on the record that since liberation
until 1949 Goquiolay never lifted a finger to discharge the debts of the partnership. Is he entitled now to
cry fraud after the debts were discharged with no help from him?
With regard to the relationship between the parties, suffice it to say that the Supreme Court has ruled
that relationship alone is not a badge of fraud (Oria Hnos. vs. McMicking, 21 Phil., 243; also Hermandad
de Smo. Nombre de Jesus vs. Sanchez, 40 Off. Gaz., 1685). There is no evidence that the original
buyers, Washington Sycip and Betty Lee, were without independent means to purchase the property.
That the Yutivos should be willing to extend credit to them, and not to appellant, is neither illegal nor
immoral; at the very least, these buyers did not have a record of inveterate defaults like the partnership
"Tan Sin An & Goquiolay".
Appellant seeks to create the impression that he was the victim of a conspiracy between the Yutivo firm
and their component members. But no proof is adduced. If he was such a victim, he could have easily
defeated the conspirators by raising money and paying off the firm's debts between 1945 and 1949; but
he did; he did not even care to look for a purchaser of the partnership assets. Were it true that the
conspiracy to defraud him arose (as he claims) because of his refusal to sell the lands when in 1945 Yu
Khe Thai asked him to do so, it is certainly strange that the conspirators should wait 4 years, until 1949,
to have the sale effected by the widow of Tan Sin An, and that the sale should have been routed through
the probate court taking cognizance of Tan Sin An's estate, all of which increased the risk that the
supposed fraud should be detected.
Neither was there any anomaly in the filing of the claims of Yutivo and Sing Yee Cuan & Co., (as
subrogees of the Banco Hipotecario) in proceedings for the settlement of the estate of Tan Sin An. This
for two reasons: First, Tan Sin An and the partnership "Tan Sin An & Goquiolay" were solidary (joint and
several) debtors (Exhibit "N" mortgage to the Banco Hipotecario), and Rule 87, section 6, is to the effect
that:
Where the obligation of the decedent is joint and several with another debtor, the claim shall be
filed against the decedent as if he were the only debtor, without prejudice to the right of the estate to
recover contribution from the other debtor. (Emphasis supplied)
Secondly, the solidary obligation was guaranteed by a mortgage on the properties of the partnership and
those of Tan Sin An personally, and a mortgage in indivisible, in the sense that each and every parcel
under mortgage answers for the totality of the debt (Civ. Code of 1889, Article 1860; New Civil Code,
Art. 2089).
A final and conclusive consideration. The fraud charged not being one used to obtain a party's consent
to a contract (i.e., not being deceit or dolus in contrahendo), if there is fraud at all, it can only be a fraud
of creditors that gives rise to a rescission of the offending contract. But by express provision of law
(Article 1294, Civil Code of 1889; Article 1383, New Civil Code), "the action for rescission is subsidiary;
it can not be instituted except when the party suffering damage has no other legal means to obtain
reparation for the same". Since there is no allegation, or evidence, that Goquiolay can not obtain
reparation from the widow and heirs of Tan Sin An, the present suit to rescind the sale in question is not
maintenable, even if the fraud charged actually did exist.
Premises considered, the motion for reconsideration is denied.
Bengzon, C. J., Padilla, Concepcion, Barrera, and Dizon, JJ., concur.

Separate Opinions
BAUTISTA ANGELO, J., dissenting:
This is an appeal from a decision of the Court of First Instance of Davao dismissing the complaint filed
by Antonio C. Goquiolay, et al., seeking to annul the sale made by Kong Chai Pin of three parcels of
land to Washington Z. Sycip and Betty Y. Lee on the ground that it was executed without proper authority
and under fraudulent circumstances. In a decision rendered on July 26, 1960, we affirmed this decision
although on grounds different from those on which the latter is predicated. The case is once more before
us on a motion for reconsideration filed by appellants raising both questions of fact and of law.
On May 29, 1940, Tan Sin An and Antonio C. Goquiolay executed in Davao City a commercial
partnership for a period of ten years with a capital of P30,000.00 of which Goquiolay contributed
P18,000.00 representing 60% while Tan Sin An P12,000.00 representing 40%. The business of the
partnership was to engage in buying real estate properties for subdivision, resale and lease. The
partnership was duly registered, and among the conditions agreed upon in the partnership agreement
which are material to this case are: (1) that Tan Sin An would be the exclusive managing partner, and
(2) in the event of the death of any of the partners the partnership would continue, the deceased to be
represented by his heirs. On May 31, 1940, Goquiolay executed a general power of attorney in favor of
Tan Sin An appointing the latter manager of the partnership and conferring upon him the usual powers
of management.
On May 29, 1940, the partnership acquired three parcels of land known as Lots Nos. 526, 441 and 521
of the cadastral survey of Davao, the only assets of the partnership, with the capital originally invested,
financing the balance of the purchase price with a mortgage in favor of "La Urbana Sociedad Mutua de
Construccion Prestamos" in the amount of P25,000.00 payable in ten years. On the same date, Tan Sin
An, in his individual capacity, acquired 46 parcels of land executing a mortgage thereon in favor of the
same company for the sum of P35,000.00. On September 25, 1940, these two mortgage obligations
were consolidated and transferred to the Banco Hipotecario de Filipinas and as a result Tan Sin An, in
his individual capacity, and the partnership bound themselves to pay jointly and severally the total
amount of P52,282.80, with 8% annual interest thereon within the period of eight years mortgaging in
favor of said entity the 3 parcels of land belonging to the partnership to Tan Sin An.
Tan Sin An died on June 26, 1942 and was survived by his widow, defendant Kong Chai Pin, and four
children, all of whom are minors of tender age. On March 18, 1944, Kong Chai Pin was appointed
administratrix of the intestate estate of Tan Sin An. And on the same date, Sing, Yee and Cuan Co., Inc.
paid to the Banco Hipotecario the remaining unpaid balance of the mortgage obligation of the partnership
amounting to P46,116.75 in Japanese currency.
Sometime in 1945, after the liberation of Manila, Yu Khe Thai, president and general manager of Yutivo
Sons Hardware Co. and Sing, Yee and Cuan Co., Inc., called for Goquiolay and the two had a conference
in the office of the former during which he offered to buy the interest of Goquiolay in the partnership. In
1948, Kong Chai Pin, the widow, sent her counsel, Atty. Dominador Zuo, to ask Goquiolay to execute
in her favor a power of attorney. Goquiolay refused both to sell his interest in the partnership as well as
to execute the power of attorney.
Having failed to get Goquiolay to sell his share in the partnership, Yutivo Sons Hardware Co., and Sing,
Yee and Cuan Co., Inc. filed in November, 1946 a claim each in the intestate proceedings of Tan Sin An
for the sum of P84,705.48 and P66,529.91, respectively, alleging that they represent obligations of both
Tan Sin An and the partnership. After first denying any knowledge of the claims, Kong Chai Pin, as
administratrix, admitted later without qualification the two claims in an amended answer she filed on
February 28, 1947. The admission was predicated on the ground that she and the creditors were closely
related by blood, affinity and business ties. On due course, these two claims were approved by the court.
On March 29, 1949, more than two years after the approval of the claims, Kong Chai Pin filed a petition
in the probate court to sell all the properties of the partnership as well as some of the conjugal properties
left by Tan Sin An for the purpose of paying the claims. Following approval by the court of the petition
for authority to sell, Kong Chai Pin, in her capacity as administratrix, and presuming to act as managing
partner of the partnership, executed on April 4, 1949 a deed of sale of the properties owned by Tan Sin
An and by the partnership in favor of Betty Y. Lee and Washington Z. Sycip in consideration of the
payment to Kong Chai Pin of the sum of P37,000.00, and the assumption by the buyers of the claims
filed by Yutivo Sons Hardware Co. and Sing, Yee and Cuan Co., Inc. in whose favor the buyers executed
a mortgage on the properties purchased. Betty Y. Lee and Washington Z. Sycip subsequently executed
a deed of sale of the same properties in favor of their co-defendant Insular Development Company, Inc.
It should be noted that these transactions took place without the knowledge of Goquiolay and it is
admitted that Betty Y. Lee and Washington Z. Sycip bought the properties on behalf of the ultimate
buyer, the Insular Development Company, Inc., with money given by the latter.
Upon learning of the sale of the partnership properties, Goquiolay filed on July 25, 1949 in the intestate
proceedings a petition to set aside the order of the court approving the sale. The court granted the
petition. While the order was pending appeal in the Supreme Court, Goquiolay filed the present case on
January 15, 1953 seeking to nullify the sale as stated in the early part of this decision. In the meantime,
the Supreme Court remanded the original case to the probate court for rehearing due to lack of necessary
parties.
The plaintiffs in their complaint challenged the authority of Kong Chai Pin to sell the partnership
properties on the ground that she had no authority to sell because even granting that she became a
partner upon the death of Tan Sin An the power of attorney granted in favor of the latter expired after his
death.
Defendants, on the other hand, defended the validity of the sale on the theory that she succeeded to all
the rights and prerogatives of Tan Sin An as managing partner.
The trial court sustained the validity of the sale on the ground that under the provisions of the articles of
partnership allowing the heirs of the deceased partner to represent him in the partnership after hid death
Kong Chai Pin became a managing partner, this being the capacity held by Tan Sin An when he died.
In the decision rendered by this Court on July 26, 1960, we affirmed this decision but on different
grounds, among which the salient points are: (1) the power of attorney given by Goquiolay to Tan Sin
An as manager of the partnership expired after his death; (2) his widow Kong Chai Pin did not inherit the
management of the partnership, it being a personal right; (3) as a general rule, the heirs of a deceased
general partner come into the partnership in the capacity only of limited partners; (4) Kong Chai Pin,
however, became a general partner because she exercised certain alleged acts of management; and
(5) the sale being necessary to pay the obligations of the partnership, she was therefore authorized to
sell the partnership properties without the consent of Goquiolay under the principle of estoppel, the
buyers having the right to rely on her acts of management and to believe her to be in fact the managing
partner.
Considering that some of the above findings of fact and conclusions of law are without legal or factual
basis, appellants have in due course filed a motion for reconsideration which because of the importance
of the issues therein raised has been the subject of mature deliberation.
In support of said motion, appellants advanced the following arguments:
1. If the conclusion of the Court is that heirs as a general rule enter the partnership as limited partners
only, therefore Kong Chai Pin, who must necessarily have entered the partnership as a limited
partner originally, could have not chosen to be a general partner by exercising the alleged acts of
management, because under Article 148 of the Code of Commerce a limited partner cannot intervene in
the management of the partnership even if given a power of attorney by the general partners. An Act
prohibited by law cannot give rise to any right and is void under the express provisions of the Civil Code.
2. The buyers were not strangers to Kong Chai Pin, all of them being members of the Yu (Yutivo) family,
the rest, members of the law firm which handles the Yutivo interests and handled the papers of sale.
They did not rely on the alleged acts of management they believed (this was the opinion of their
lawyers) that Kong Chai Pin succeeded her husband as a managing partner and it was on this theory
alone that they submitted the case in the lower court.
3. The alleged acts of management were denied and repudiated by the very witnesses presented by the
defendants themselves.
The arguments advanced by appellants are in our opinion well-taken and furnish sufficient basis to
reconsider our decision if we want to do justice to Antonio C. Goquiolay. And to justify this conclusion, it
is enough that we lay stress on the following points: (1) there is no sufficient factual basis to conclude
that Kong Chai Pin executed acts of management to give her the character of general manager of the
partnership, or to serve as basis for estoppel that may benefit the purchasers of the partnership
properties; (2) the alleged acts of management, even if proven, could not give Kong Chai Pin the
character of general manager for the same is contrary to law and well-known authorities; (3) even if Kong
Chai Pin acted as general manager she had no authority to sell the partnership properties as to make it
legal and valid; and (4) Kong Chai Pin had no necessity to sell the properties to pay the obligation of the
partnership and if she did so it was merely to favor the purchasers who were close relatives to the
prejudice of Goquiolay.
1. This point is pivotal for if Kong Chai Pin did not execute the acts of management imputed to her our
ruling we apparently gave particular importance to the fact that it was Goquiolay himself who tried to
prove the acts of management. Appellants, however, have emphasized the fact, and with reason, that
the appellees themselves are the ones who denied and refuted the so-called acts of management
imputed to Kong Chai Pin. To have a clear view of this factual situation, it becomes necessary that we
analyze the evidence of record.
Plaintiff Goquiolay, it is intimated, testified on cross-examination that he had a conversation with one
Hernando Young in Manila in the year 1945 who informed him that Kong Chai Pin "was attending to the
properties and deriving some income therefrom and she had no other means of livelihood except those
properties and some rentals derived from the properties." He went on to say by way of remark that she
could continue doing this because he wanted to help her. On point that he emphasized was that he was
"not interested in agricultural lands."
On the other hand, defendants presented Hernando Young, the same person referred to by Goquiolay,
who was a close friend of the family of Kong Chai Pin, for the purpose of denying the testimony of
Goquiolay. Young testified that in 1945 he was still in Davao, and insisted no less than six times during
his testimony that he was not in Manila in 1945, the year when he allegedly gave the information to
Goquiolay, stating that he arrived in Manila for the first time in 1947. He testified further that he had
visited the partnership properties during the period covered by the alleged information given by him to
Goquiolay and that he found them "abandoned and underdeveloped," and that Kong Chai Pin was not
deriving any income from them.
The other witness for the defendants, Rufino Lim, also testified that he had seen the partnership
properties and corroborated the testimony of Hernando Young in all respects: "the properties in Mamay
were underdeveloped, the shacks were destroyed in Tigato, and the family of Kong Chai Pin did not
receive any income from the partnership properties." He specifically rebutted the testimony of Goquiolay
in his deposition given on June 30, 1956 that Kong Chai Pin and her family were living in the partnership
properties and stated that the 'family never actually lived in the properties of the partnership even before
the war or after the war."
It is unquestionable that Goquiolay was merely repeating an information given to him by a third person,
Hernando Young he stressed this point twice. A careful analysis of the substance of Goquiolay's
testimony will show that he merely had no objection to allowing Kong Chai Pin to continue attending to
the properties in order to give her some means of livelihood, because, according to the information given
him by Hernando Young, which he assumed to be true, Kong Chai Pin had no other means of livelihood.
But certainly he made it very clear that he did not allow her tomanage the partnership when he explained
his reason for refusing to sign a general power of attorney for Kong Chai Pin which her counsel, Atty.
Zuo, brought with him to his house in 1948. He said:
. . . Then Mr. Yu Eng Lai told me that he brought with him Atty. Zuo and he asked me if I could execute
a general power of attorney for Mrs. Kong Chai Pin. Then I told Atty. Zuo what is the use of executing
a general power of attorney for Mrs. Kong Chai Pin when Mrs. Kong Chai Pin had already got that
plantation for agricultural purposes, I said for agricultural purposes she can use that plantation ... (T.s.n.,
p. 9, Hearing on May 5, 1955)
It must be noted that in his testimony Goquiolay was categorically stating his opposition to the
management of the partnership by Kong Chai Pin and carefully made the distinction that his conformity
was for her to attend to the partnership properties in order to give her merely a means of livelihood. It
should be stated that the period covered by the testimony refers to the period of occupation when living
condition was difficult and precarious. And Atty. Zuo, it should also be stated, did not deny the statement
of Goquiolay.
It can therefore be seen that the question as to whether Kong Chai Pin exercised certain acts of
management of the partnership properties is highly controverted. The most that we can say is that the
alleged acts are doubtful more so when they are disputed by the defendants themselves who later
became the purchasers of the properties, and yet these alleged acts, if at all, only refer to management
of the properties and not to management of the partnership, which are two different things.
In resume, we may conclude that the sale of the partnership properties by Kong Chai Pin cannot be
upheld on the ground of estoppel, first, because the alleged acts of management have not been clearly
proven; second, because the record clearly shows that the defendants, or the buyers, were not misled
nor did they rely on the acts of management, but instead they acted solely on the opinion of their counsel,
Atty. Quisumbing, to the effect that she succeeded her husband in the partnership as managing partner
by operation of law; and third, because the defendants are themselves estopped to invoke a defense
which they tried to dispute and repudiate.
2. Assuming arguendo that the acts of management imputed to Kong Chai Pin are true, could such acts
give her the character of general manager of the partnership as we have concluded in our decision?
Out answer is in the negative because it is contrary to law and precedents. Garrigues, a well-known
commentator, is clearly of the opinion that mere acceptance of the inheritance does not make the heir
of a general partner a general partner himself. He emphasized that the heir must declare that he is
entering the partnership as a general partner unless the deceased partner has made it an express
condition in his will that the heir accepts the condition of entering the partnership as a prerequisite of
inheritance, in which case acceptance of the inheritance is enough.1But here Tan Sin An died intestate.
Now, could Kong Chai Pin be deemed to have declared her intention to become general partner by
exercising acts of management? We believe not, for, in consonance with out ruling that as a general rule
the heirs of a deceased partner succeed as limited partners only by operation of law, it is obvious that
the heir, upon entering the partnership, must make a declaration of his character, otherwise he should
be deemed as having succeeded as limited partner by the mere acceptance of inheritance. And here
Kong Chai Pin did not make such declaration. Being then a limited partner upon the death of Tan Sin An
by operation of law, the peremptory prohibition contained in Article 1482 of the Code of Commerce
became binding upon her and as a result she could not change her status by violating its provisions not
only under the general principle that prohibited acts cannot produce any legal effect, but also because
under the provisions of Article 1473 of the same Code she was precluded from acquiring more rights
than those pertaining to her as a limited partner. The alleged acts of management, therefore, did not give
Kong Chai Pin the character of general manager to authorize her to bind the partnership.
Assuming also arguendo that the alleged acts of management imputed to Kong Chai Pin gave her the
character of a general partner, could she sell the partnership properties without authority from the other
partners?
Our answer is also in the negative in the light of the provisions of the articles of partnership and the
pertinent provisions of the Code of Commerce and the Civil Code. Thus, Article 129 of the Code of
Commerce says:
If the management of the general partnership has not been limited by special agreement to any of the
members, all shall have the power to take part in the direction and management of the common business,
and the members present shall come to an agreement for all contracts or obligations which may concern
the association.
And the pertinent portions of the Articles of partnership provides:
VII. The affairs of the co-partnership shall be managed exclusively by the managing partner or by his
authorized agent, and it is expressly stipulated that the managing partner may delegate the entire
management of the affairs of the co-partnership by irrevocable power of attorney to any person, firm or
corporation he may select, upon such terms as regards compensation as he may deem proper, and vest
in such person, firm or corporation full power and authority, as the agent of the co-partnership and in his
name, place and stead to do anything for it or on his behalf which he as such managing partner might
do or cause to be done. (Page 23, Record on Appeal)
It would thus be seen that the powers of the managing partner are not defined either under the provisions
of the Code of Commerce or in the articles of partnership, a situation which, under Article 2 of the same
Code, renders applicable herein the provisions of the Civil Code, And since, according to well-known
authorities, the relationship between a managing partner and the partnership is substantially the same
as that of the agent and his principal,4the extent of the power of Kong Chai Pin must, therefore, be
determined under the general principles governing agency. And, on this point, the law says that an
agency created in general terms includes only acts of administration, but with regard to the power to
compromise, sell, mortgage, and other acts of strict ownership, an express power of attorney is
required.5 Here Kong Chai Pin did not have such power when she sold the properties of the partnership.
Of course, there is authority to the effect that a managing partner, even without express power of
attorney, may perform acts affecting ownership if the same are necessary to promote or accomplish a
declared object of the partnership, but here the transaction is not for this purpose. It was effected not to
promote any avowed object of the partnership.6 Rather, the sale was effected to pay an obligation of the
partnership by selling its real properties which Kong Chai Pin could not do without express authority. The
authorities supporting this view are overwhelming.
La enajenacion puede entrar en las facultades del gerente, cuando es conforme a los fines sociales.
Pero esta facultad de enajenar limitada a las ventas conforme a los fines sociales, viene limitada a los
objetos de comercio, o los productos de la fabrica para explotacion de los cuales se ha constituido la
Sociedad. Ocurrira una cosa parecida cuando el objeto de la Sociedad fuese la compra y venta de
inmuebles, en cuyo caso el gerente estaria facultado para otorgar las ventas que fuere necesario. Por
el contrario, el gerente no tiene atribuciones para vender las instalaciones del comercio ni la fabrica, ni
las maquinarias, vehiculos de transporte, etc., que forman parte de la explotacion social. En todos estas
casos, igualmente que si tratase de la venta de una marca o procedimiento mecanico o quimico,
etc., siendo actos de disposicion seria necesario contar con la conformidad expresa de todos los socios.
(R. Gay de Montella, id., pp. 223-224, Emphasis supplied)
Los poderes de los Administradores no tienen ante el silencio del contrato otros limites que los
sealados por el objeto de la Sociedad y, por consiguiente, pueden llevar a cabo todas las operaciones
que sirven para aquel ejercicio, incluso cambiando repetidas veces los propios acuerdos segun el
interes convenido de la Sociedad. Pueden contratar y despedir a los empleados, tomar en arriendo
almacenas y tiendas, expedir cambiales, girarlas, avalarlas, dar en prenda o en hipoteca los bienes de
la sociedad y adquirir inmuebles destinados a su explotacion o al empleo estable de sus capitales. Pero
no podran ejecutar los actos que estan en contradiccion con la explotacion que les fue confiada no
podran cambiar el objeto, el domicilio la razon social; fundir a la Sociedad en otra; ceder la accion, y por
tanto, el uso de la firma social a otro renunciar definitivamente el ejercicio de uno de otro ramo comercio
que se les haya confiado y enajenar o piqnorar el taller o el banco social excepto que la venta o
piqnoracion tengan por el objeto procurar los medios necesarios para la continuacion de la empresa
social. (Cesar Vivante, Tratado de Derecho Mercantil, pp.
124-125, Vol II, la. ed.; Emphasis supplied)
The act of one partner to bind the firm, must be necessary for the carrying on of its business. If all that
can be said of it was that it was convenient, or that it facilitated the transaction of the business of the
firm, that is not sufficient, in the absence of evidence of saction by other partners. Nor, it seems, will
necessity itself be sufficient if it be an extraordinary necessity. What is necessary for carrying on the
business of the firm under ordinary circumstances and in the usual way, is the test. Lindl. Partn. Sec.
126. While, within this rule, one member of a partnership may, in the usual and ordinary course of its
business, make a valid sale or pledge, by way of mortgage or otherwise, of all or part of its effects
intended for sale, to a bona fide purchaser or mortgage, without the consent of the other members of the
firm, it is not within the scope of his implied authority to make a final disposition of all of its effects,
including those employed as the means of carrying on its business, the object and effect of which is to
immediately terminate the partnership, and place its property beyond its control. Such a disposition,
instead of being within the scope of the partnership business, or in the usual and ordinary way of carrying
it on, is necessarily subversive of the object of the partnership, and contrary to the presumed intention
of the partnership in its formation. (McGrath, et al. vs. Cowen, et al., 49 N.F. 338, 343; Emphasis
supplied)
Since Kong Chai Pin sold the partnership properties not in line with the business of the partnership but
to pay its obligation without first obtaining the consent of the other partners, the sale is invalid being in
excess of her authority.
4. Finally, the same under consideration was effected in a suspicious manner as may be gleaned from
the following circumstances:
(a) The properties subject of the instant sale which consist of three parcels of land situated in the City of
Davao have an area of 200 hectares more or less, or 2,000,000 square meters. These properties were
purchased by the partnership for purposes of subdivision. According to realtor Mata, who testified in
court, these properties could command at the time he testified a value of not less than P312,000.00, and
according to Dalton Chen, manager of the firm which took over the administration, since the date of sale
no improvement was ever made thereon precisely because of this litigation. And yet, for said properties,
aside from the sum of P37,000.00 which was paid for the properties of the deceased and the partnership,
only the paltry sum of P66,529.91 was paid as a consideration therefor, of which the sum of P46,116.75
was even paid in Japanese currency.
(b) Considering the area of the properties Kong Chai Pin had no valid reason to sell them if her purpose
was only to pay the partnership's obligation. She could have negotiated a loan if she wanted to pay it by
placing the properties as security, but preferred to sell them even at such low prices because of her close
relationship with the purchasers and creditors who conveniently organized a partnership to exploit them,
as may be seen from the following relationship of their pedigree:

KONG CHAI PIN, the administratrix, was a granddaughter of Jose P. Yutivo, founder of the defendant
Yutivo Sons Hardware Co. YUTIVO SONS HARDWARE CO, and SIN YEE CUAN CO, INC., alleged
creditors, are owned by the heirs of Jose P. Yutivo (Sing, Yee & Cuan are the three children of Jose).
YU KHE THAI is a grandson of the same Jose P. Yutivo, and president of the two alleged creditors. He
is the acknowledged head of the Yu families. WASHINGTON Z. SYCIP, one of the original buyers, is
married to Ana Yu, a daughter of Yu Khe Thai, BETTY Y. LEE, the other original buyer is also a daughter
of Yu Khe Thai. The INSULAR DEVELOPMENT CO., the ultimate buyer, was organized for the specific
purpose of buying the partnership properties. Its incorporators were: Ana Yu and Betty V. Lee, Atty.
Quisumbing and Salazar the lawyers who studied the papers of sale and have been counsel for the
Yutivo interests; Dalton Chen a brother-in-law of Yu Khe Thai and an executive of Sing Yee & Cuan Co;
Lillian Yu, daughter of Yu Eng Poh, an executive of Yutivo Sons Hardware, and Simeon Daguiwag, a
trusted employee of the Yutivos.
(c) Lastly, even since Tan Sin An died in 1942 the creditors, who were close relatives of Kong Chai Pin,
have already conceived the idea of possessing the lands for purposes of subdivision, excluding
Goquiolay from their plan, and this is evident from the following sequence of events:
Tan Sin An died in 1942 and intestate proceedings were opened in 1944. In 1946, the creditors of the
partnership filed their claim against the partnership in the intestate proceedings. The creditors studied
ways and means of liquidating the obligation of the partnership, leading to the formation of the defendant
Insular Development Co., composed of members of the Yutivo family and the counsel of record of the
defendants, which subsequently bought the properties of the partnership and assumed the obligation of
the latter in favor of the creditors of the partnership, Yutivo Sons Hardware and Sing, Yee & Cuan, also
of the Yutivo family. The buyers took time to study the commercial potentialities of the partnership
properties and their lawyers carefully studied the document and other papers involved in the transaction.
All these steps led finally to the sale of the three partnership properties.
Upon the strength of the foregoing considerations, I vote to grant motion for reconsideration.

16. Bachrach vs La Protectora 1918 37 Phil

E. M. BACHRACH, PLAINTIFF AND APPELLEE, VS. "LA PROTECTORA" ET AL., DEFENDANTS
AND APPELLANTS.

In the year 1913, the individuals named as defendants in this action formed a civil partnership, called
"La Protectora," for the purpose of engaging in the business of transporting passengers and freight at
Laoag, Ilocos Norte. In order to provide the enterprise with means of transportation, Marcelo Barba,
acting as manager, came to Manila and upon June 23, 1913, negotiated the purchase of two automobile
trucks from the plaintiff, E. M. Bachrach, for the agreed price of P16,500. He paid the sum of 3,000 in
cash, and for the balance executed promissory notes representing the deferred payments. These notes
provided for the payment of interest from June 23, 1913, the date of the notes, at the rate of 10 per cent
per annum. Provision was also made in the notes for the payment of 25 per cent of the amount due if it
should be necessary to place the notes in the hands of an attorney for collection. Three of these notes,
for the sum of P3,375 each, have been made the subject of the present action, and are exhibited with
the complaint in the cause. One was signed by Marcelo Barba in the following manner:
"P. P. La Protectora
By Marcelo Barba
Marcelo Barba,"
The other two notes are signed in the same way with the word "By" omitted before the name of Marcelo
Barba in the second line of the signature. It is obvious that in thus signing the notes Marcelo Barba
intended to bind both . the partnership and himself. In the body of the note the word "I" (yo) instead of
"we" (nosotros) is used before the words "promise to pay" (prometemos) used in the printed form. It is
plain that the singular pronoun here has all the force of the plural.
As preliminary to the purchase of these trucks, the defendants Nicolas Segundo, Antonio Adiarte, Ignacio
Flores, and Modesto Serrano, upon June 12, 1913, executed in due form a document in which they
declared that they were members of the firm "La Protectora" and that they had granted to its president
full authority "in the name and representation of said partnership to contract for the purchase of two
automobiles" (en nombre y representation de la mencionada sociedad contratante la compra de dos
automoviles). This document was apparently executed in obedience to the requirements of subsection
2 of article 1697 of the Civil Code, for the purpose of evidencing the authority of Marcelo Barba to bind
the partnership by the purchase. The document in question was delivered by him to Bachrach at the time
the automobiles were purchased.
From time to time after this purchase was made, Marcelo Barba purchased of the plaintiff various
automobile effects and accessories to be used in the business of "La Protectora." Upon May 21, 1914,
the indebtedness resulting from these additional purchases amounted to the sum of P2,916.57
In May, 1914, the plaintiff foreclosed a chattel mortgage which he had retained on the trucks in order to
secure the purchase price. The amount realized from this sale was Pl,000. This was credited upon the
notes, but a considerable sum still remained unpaid. To recover this balance, together with the sum due
for the additional purchases, the present action was instituted in the Court of First Instance of the city of
Manila, upon May 29, 1914, against "La Protectora" and the five individuals Marcelo Barba, Nicolas
Segundo, Antonio Adiarte, Ignacio Flores, and Modesto Serrano. No question has been made as to the
propriety of impleading "La Protectora" as if it were a legal entity. At the hearing, judgment was rendered
against all of the defendants. From this judgment no appeal was taken in behalf either of "La Protectora'
or Marcelo Barba; and their liability is not here under consideration. The four individuals who signed the
document to which reference has been made, authorizing Barba to purchase the two trucks have,
however, appealed and assigned errors. The question here to be determined is whether or not these
individuals are liable for the firm debts and if so to what extent.
The amount of the indebtedness owing to the plaintiff is not in dispute, as the principal of the debt is
agreed to be P7,037. Of this amount it must now be assumed, in view of the finding of the trial court,
from which no appeal has been taken by the plaintiff, that the unpaid balance of the notes amounts to
P4,121, while the remainder (P2,916) represents the amount due for automobile supplies and
accessories.
The business conducted under the name of "La Protectora" was evidently that of a civil partnership; and
the liability of the partners to this association must be determined under the provisions of the Civil Code.
The authority of Marcelo Barba to bind the partnership, in the purchase of the trucks, is fully established
by the document executed by the four appellants upon June 12, 1913. The transaction by which Barba
secured these trucks was in conformity with the tenor of this document. The promissory notes constitute
the obligation exclusively of "La protectora" and of Marcelo Barba; and they do not in any sense
constitute an obligation directly binding on the four appellants. Their liability is based on the fact that they
are members of the civil partnership and as such are liable for its debts. It is true that article 1698 of the
Civil Code declares that a member of a civil partnership is not liable in solidum(solidariamente) with his
fellows for its entire indebtedness; but it results from this article, in connection with article 1137 of the
Civil Code, that each is liable with the others (mancomunadamente) for his aliquot part of such
indebtedness. And so it has been held by this court. (Co-Pitco vs. Yulo, 8 Phil. Rep., 544.)
The Court of First Instance seems to have founded its judgment against the appellants in part upon the
idea that the document executed by them constituted an authority for Marcelo Barba to bind them
personally, as contemplated in the second clause of article 1698 of the Civil Code. That clause says that
no member of the partnership can bind the others by a personal act if they have not given him authority
to do so. We think that the document referred to was intended merely as an authority to enable Barba to
bind the partnership and that the parties to that instrument did not intend thereby to confer upon Barba
an authority to bind them personally. It is obvious that the contract which Barba in fact executed in
pursuance of that authority did not by its terms profess to bind the appellants personally at all, but only
the partnership and himself. It follows that the four appellants cannot be held to have been personally
obligated by that instrument; but, as we have already seen, their liability rests upon the general principles
underlying partnership liability.
As to so much of the indebtedness as is based upon the claim for automobile supplies and accessories,
it is obvious that the document of June 12, 1313, affords no authority for holding the appellants liable.
Their liability upon this account is, however, no less obvious than upon the debt incurred by the purchase
of the trucks; and such liability is derived from the fact that the debt was lawfully incurred in the
prosecution of the partnership enterprise.
There is no proof in the record showing what agreement, if any, was made with regard to the form of
management. Under these circumstances it is declared in article 1695 of the Civil Code that all the
partners are considered agents of the partnership. Barba therefore must be held to have had authority
to incur these expenses. But in addition to this he is shown to have been in fact the president or manager,
and there can be no doubt that he had actual authority to incur this obligation.
From what has been said it results that the appellants are severally liable for their respective shares of
the entire indebtedness found to be due; and the Court of First Instance committed no error in giving
judgment against them. The amount for which judgment should be entered is P7,037, to which shall be
added (1) interest at 10 per cent per annum from June 23, 1913, to be calculated upon the sum of
P4.121; (2). interest at 6 per cent per annum from July 21,1915, to be calculated upon the sum of P2,961;
(3) the further sum of P1,030.25, this being the amount stipulated to be paid by way of attorney's fees.
However, it should be noted that any property pertaining to "La Protectora" should first be applied to this
indebtedness pursuant to the judgment already entered in this case in the court below; and each of the
four appellants shall be liable only for the one-fifth part of the remainder unpaid.
Let judgment be entered accordingly, without any express finding of costs of this instance. So ordered.

Art 1805-1809
Antonio Pardo vs Hercules Lumber Aug 1 1924
ANTONIO PARDO, petitioner,
vs.THE HERCULES LUMBER CO., INC., and IGNACIO FERRER, respondents.
The petitioner, Antonio Pardo, a stockholder in the Hercules Lumber Company, Inc., one of the
respondents herein, seeks by this original proceeding in the Supreme Court to obtain a writ
of mandamus to compel the respondents to permit the plaintiff and his duly authorized agent and
representative to examine the records and business transactions of said company. To this petition the
respondents interposed an answer, in which, after admitting certain allegations of the petition, the
respondents set forth the facts upon which they mainly rely as a defense to the petition. To this answer
the petitioner in turn interposed a demurrer, and the cause is now before us for determination of the
issue thus presented.
It is inferentially, if not directly admitted that the petitioner is in fact a stockholder in the Hercules Lumber
Company, Inc., and that the respondent, Ignacio Ferrer, as acting secretary of the said company, has
refused to permit the petitioner or his agent to inspect the records and business transactions of the said
Hercules Lumber Company, Inc., at times desired by the petitioner. No serious question is of course
made as to the right of the petitioner, by himself or proper representative, to exercise the right of
inspection conferred by section 51 of Act No. 1459. Said provision was under the consideration of this
court in the case of Philpotts vs. Philippine Manufacturing Co., and Berry (40 Phil., 471), where we held
that the right of examination there conceded to the stockholder may be exercised either by a stockholder
in person or by any duly authorized agent or representative.
The main ground upon which the defense appears to be rested has reference to the time, or times, within
which the right of inspection may be exercised. In this connection the answer asserts that in article 10 of
the By-laws of the respondent corporation it is declared that "Every shareholder may examine the books
of the company and other documents pertaining to the same upon the days which the board of directors
shall annually fix." It is further averred that at the directors' meeting of the respondent corporation held
on February 16, 1924, the board passed a resolution to the following effect:
The board also resolved to call the usual general (meeting of shareholders) for March 30 of the present
year, with notice to the shareholders that the books of the company are at their disposition from the 15th
to 25th of the same month for examination, in appropriate hours.
The contention for the respondent is that this resolution of the board constitutes a lawful restriction on
the right conferred by statute; and it is insisted that as the petitioner has not availed himself of the
permission to inspect the books and transactions of the company within the ten days thus defined, his
right to inspection and examination is lost, at least for this year.
We are entirely unable to concur in this contention. The general right given by the statute may not be
lawfully abridged to the extent attempted in this resolution. It may be admitted that the officials in charge
of a corporation may deny inspection when sought at unusual hours or under other improper conditions;
but neither the executive officers nor the board of directors have the power to deprive a stockholder of
the right altogether. A by-law unduly restricting the right of inspection is undoubtedly invalid. Authorities
to this effect are too numerous and direct to require extended comment. (14 C.J., 859; 7 R.C.L., 325; 4
Thompson on Corporations, 2nd ed., sec. 4517; Harkness vs. Guthrie, 27 Utah, 248; 107 Am., St. Rep.,
664. 681.) Under a statute similar to our own it has been held that the statutory right of inspection is not
affected by the adoption by the board of directors of a resolution providing for the closing of transfer
books thirty days before an election. (State vs. St. Louis Railroad Co., 29 Mo., Ap., 301.)
It will be noted that our statute declares that the right of inspection can be exercised "at reasonable
hours." This means at reasonable hours on business days throughout the year, and not merely during
some arbitrary period of a few days chosen by the directors.
In addition to relying upon the by-law, to which reference is above made, the answer of the respondents
calls in question the motive which is supposed to prompt the petitioner to make inspection; and in this
connection it is alleged that the information which the petitioner seeks is desired for ulterior purposes in
connection with a competitive firm with which the petitioner is alleged to be connected. It is also insisted
that one of the purposes of the petitioner is to obtain evidence preparatory to the institution of an action
which he means to bring against the corporation by reason of a contract of employment which once
existed between the corporation and himself. These suggestions are entirely apart from the issue, as,
generally speaking, the motive of the shareholder exercising the right is immaterial. (7 R.C.L., 327.)
We are of the opinion that, upon the allegations of the petition and the admissions of the answer, the
petitioner is entitled to relief. The demurrer is, therefore, sustained; and the writ of mandamus will issue
as prayed, with the costs against the respondent. So ordered.

Evangelista and Co vs Estrella Abad Santos

EVANGELISTA & CO., DOMINGO C. EVANGELISTA, JR., CONCHITA B. NAVARRO and
LEONARDA ATIENZA ABAD SABTOS, petitioners,
vs.ESTRELLA ABAD SANTOS, respondent.
On October 9, 1954 a co-partnership was formed under the name of "Evangelista & Co." On June 7,
1955 the Articles of Co-partnership was amended as to include herein respondent, Estrella Abad Santos,
as industrial partner, with herein petitioners Domingo C. Evangelista, Jr., Leonardo Atienza Abad Santos
and Conchita P. Navarro, the original capitalist partners, remaining in that capacity, with a contribution
of P17,500 each. The amended Articles provided, inter alia, that "the contribution of Estrella Abad Santos
consists of her industry being an industrial partner", and that the profits and losses "shall be divided and
distributed among the partners ... in the proportion of 70% for the first three partners, Domingo C.
Evangelista, Jr., Conchita P. Navarro and Leonardo Atienza Abad Santos to be divided among them
equally; and 30% for the fourth partner Estrella Abad Santos."
On December 17, 1963 herein respondent filed suit against the three other partners in the Court of First
Instance of Manila, alleging that the partnership, which was also made a party-defendant, had been
paying dividends to the partners except to her; and that notwithstanding her demands the defendants
had refused and continued to refuse and let her examine the partnership books or to give her information
regarding the partnership affairs to pay her any share in the dividends declared by the partnership. She
therefore prayed that the defendants be ordered to render accounting to her of the partnership business
and to pay her corresponding share in the partnership profits after such accounting, plus attorney's fees
and costs.
The defendants, in their answer, denied ever having declared dividends or distributed profits of the
partnership; denied likewise that the plaintiff ever demanded that she be allowed to examine the
partnership books; and byway of affirmative defense alleged that the amended Articles of Co-partnership
did not express the true agreement of the parties, which was that the plaintiff was not an industrial
partner; that she did not in fact contribute industry to the partnership; and that her share of 30% was to
be based on the profits which might be realized by the partnership only until full payment of the loan
which it had obtained in December, 1955 from the Rehabilitation Finance Corporation in the sum of
P30,000, for which the plaintiff had signed a promisory note as co-maker and mortgaged her property
as security.
The parties are in agreement that the main issue in this case is "whether the plaintiff-appellee
(respondent here) is an industrial partner as claimed by her or merely a profit sharer entitled to 30% of
the net profits that may be realized by the partnership from June 7, 1955 until the mortgage loan from
the Rehabilitation Finance Corporation shall be fully paid, as claimed by appellants (herein petitioners)."
On that issue the Court of First Instance found for the plaintiff and rendered judgement "declaring her an
industrial partner of Evangelista & Co.; ordering the defendants to render an accounting of the business
operations of the (said) partnership ... from June 7, 1955; to pay the plaintiff such amounts as may be
due as her share in the partnership profits and/or dividends after such an accounting has been properly
made; to pay plaintiff attorney's fees in the sum of P2,000.00 and the costs of this suit."
The defendants appealed to the Court of Appeals, which thereafter affirmed judgments of the court a
quo.
In the petition before Us the petitioners have assigned the following errors:
I. The Court of Appeals erred in the finding that the respondent is an industrial partner of Evangelista &
Co., notwithstanding the admitted fact that since 1954 and until after promulgation of the decision of the
appellate court the said respondent was one of the judges of the City Court of Manila, and despite its
findings that respondent had been paid for services allegedly contributed by her to the partnership. In
this connection the Court of Appeals erred:
(A) In finding that the "amended Articles of Co-partnership," Exhibit "A" is conclusive evidence that
respondent was in fact made an industrial partner of Evangelista & Co.
(B) In not finding that a portion of respondent's testimony quoted in the decision proves that said
respondent did not bind herself to contribute her industry, and she could not, and in fact did not, because
she was one of the judges of the City Court of Manila since 1954.
(C) In finding that respondent did not in fact contribute her industry, despite the appellate court's own
finding that she has been paid for the services allegedly rendered by her, as well as for the loans of
money made by her to the partnership.
II. The lower court erred in not finding that in any event the respondent was lawfully excluded from, and
deprived of, her alleged share, interests and participation, as an alleged industrial partner, in the
partnership Evangelista & Co., and its profits or net income.
III. The Court of Appeals erred in affirming in toto the decision of the trial court whereby respondent was
declared an industrial partner of the petitioner, and petitioners were ordered to render an accounting of
the business operation of the partnership from June 7, 1955, and to pay the respondent her alleged
share in the net profits of the partnership plus the sum of P2,000.00 as attorney's fees and the costs of
the suit, instead of dismissing respondent's complaint, with costs, against the respondent.
It is quite obvious that the questions raised in the first assigned errors refer to the facts as found by the
Court of Appeals. The evidence presented by the parties as the trial in support of their respective
positions on the issue of whether or not the respondent was an industrial partner was thoroughly
analyzed by the Court of Appeals on its decision, to the extent of reproducing verbatim therein the
lengthy testimony of the witnesses.
It is not the function of the Supreme Court to analyze or weigh such evidence all over again, its jurisdiction
being limited to reviewing errors of law that might have been commited by the lower court. It should be
observed, in this regard, that the Court of Appeals did not hold that the Articles of Co-partnership,
identified in the record as Exhibit "A", was conclusive evidence that the respondent was an industrial
partner of the said company, but considered it together with other factors, consisting of both testimonial
and documentary evidences, in arriving at the factual conclusion expressed in the decision.
The findings of the Court of Appeals on the various points raised in the first assignment of error are
hereunder reproduced if only to demonstrate that the same were made after a through analysis of then
evidence, and hence are beyond this Court's power of review.
The aforequoted findings of the lower Court are assailed under Appellants' first assigned error, wherein
it is pointed out that "Appellee's documentary evidence does not conclusively prove that appellee was in
fact admitted by appellants as industrial partner of Evangelista & Co." and that "The grounds relied upon
by the lower Court are untenable" (Pages 21 and 26, Appellant's Brief).
The first point refers to Exhibit A, B, C, K, K-1, J, N and S, appellants' complaint being that "In finding
that the appellee is an industrial partner of appellant Evangelista & Co., herein referred to as the
partnership the lower court relied mainly on the appellee's documentary evidence, entirely
disregarding facts and circumstances established by appellants" evidence which contradict the said
finding' (Page 21, Appellants' Brief). The lower court could not have done otherwise but rely on the
exhibits just mentioned, first, because appellants have admitted their genuineness and due execution,
hence they were admitted without objection by the lower court when appellee rested her case and,
secondly the said exhibits indubitably show the appellee is an industrial partner of appellant company.
Appellants are virtually estopped from attempting to detract from the probative force of the said exhibits
because they all bear the imprint of their knowledge and consent, and there is no credible showing that
they ever protested against or opposed their contents prior of the filing of their answer to appellee's
complaint. As a matter of fact, all the appellant Evangelista, Jr., would have us believe as against the
cumulative force of appellee's aforesaid documentary evidence is the appellee's Exhibit "A", as
confirmed and corroborated by the other exhibits already mentioned, does not express the true intent
and agreement of the parties thereto, the real understanding between them being the appellee would be
merely a profit sharer entitled to 30% of the net profits that may be realized between the partners from
June 7, 1955, until the mortgage loan of P30,000.00 to be obtained from the RFC shall have been fully
paid. This version, however, is discredited not only by the aforesaid documentary evidence brought
forward by the appellee, but also by the fact that from June 7, 1955 up to the filing of their answer to the
complaint on February 8, 1964 or a period of over eight (8) years appellants did nothing to correct
the alleged false agreement of the parties contained in Exhibit "A". It is thus reasonable to suppose that,
had appellee not filed the present action, appellants would not have advanced this obvious afterthought
that Exhibit "A" does not express the true intent and agreement of the parties thereto.
At pages 32-33 of appellants' brief, they also make much of the argument that 'there is an overriding fact
which proves that the parties to the Amended Articles of Partnership, Exhibit "A", did not contemplate to
make the appellee Estrella Abad Santos, an industrial partner of Evangelista & Co. It is an admitted fact
that since before the execution of the amended articles of partnership, Exhibit "A", the appellee Estrella
Abad Santos has been, and up to the present time still is, one of the judges of the City Court of Manila,
devoting all her time to the performance of the duties of her public office. This fact proves beyond
peradventure that it was never contemplated between the parties, for she could not lawfully contribute
her full time and industry which is the obligation of an industrial partner pursuant to Art. 1789 of the Civil
Code.
The Court of Appeals then proceeded to consider appellee's testimony on this point, quoting it in the
decision, and then concluded as follows:
One cannot read appellee's testimony just quoted without gaining the very definite impression that, even
as she was and still is a Judge of the City Court of Manila, she has rendered services for appellants
without which they would not have had the wherewithal to operate the business for which appellant
company was organized. Article 1767 of the New Civil Code which provides that "By contract of
partnership two or more persons bind themselves, to contribute money, property, or industry to a
common fund, with the intention of dividing the profits among themselves, 'does not specify the kind of
industry that a partner may thus contribute, hence the said services may legitimately be considered as
appellee's contribution to the common fund. Another article of the same Code relied upon appellants
reads:
'ART. 1789. An industrial partner cannot engage in business for himself, unless the partnership expressly
permits him to do so; and if he should do so, the capitalist partners may either exclude him from the firm
or avail themselves of the benefits which he may have obtained in violation of this provision, with a right
to damages in either case.'
It is not disputed that the provision against the industrial partner engaging in business for himself seeks
to prevent any conflict of interest between the industrial partner and the partnership, and to insure faithful
compliance by said partner with this prestation. There is no pretense, however, even on the part of the
appellee is engaged in any business antagonistic to that of appellant company, since being a Judge of
one of the branches of the City Court of Manila can hardly be characterized as a business. That appellee
has faithfully complied with her prestation with respect to appellants is clearly shown by the fact that it
was only after filing of the complaint in this case and the answer thereto appellants exercised their right
of exclusion under the codal art just mentioned by alleging in their Supplemental Answer dated June 29,
1964 or after around nine (9) years from June 7, 1955 subsequent to the filing of defendants'
answer to the complaint, defendants reached an agreement whereby the herein plaintiff been excluded
from, and deprived of, her alleged share, interests or participation, as an alleged industrial partner, in the
defendant partnership and/or in its net profits or income, on the ground plaintiff has never contributed
her industry to the partnership, instead she has been and still is a judge of the City Court (formerly
Municipal Court) of the City of Manila, devoting her time to performance of her duties as such judge and
enjoying the privilege and emoluments appertaining to the said office, aside from teaching in law school
in Manila, without the express consent of the herein defendants' (Record On Appeal, pp. 24-25). Having
always knows as a appellee as a City judge even before she joined appellant company on June 7, 1955
as an industrial partner, why did it take appellants many yearn before excluding her from said company
as aforequoted allegations? And how can they reconcile such exclusive with their main theory that
appellee has never been such a partner because "The real agreement evidenced by Exhibit "A" was to
grant the appellee a share of 30% of the net profits which the appellant partnership may realize from
June 7, 1955, until the mortgage of P30,000.00 obtained from the Rehabilitation Finance Corporal shall
have been fully paid." (Appellants Brief, p. 38).
What has gone before persuades us to hold with the lower Court that appellee is an industrial partner of
appellant company, with the right to demand for a formal accounting and to receive her share in the net
profit that may result from such an accounting, which right appellants take exception under their second
assigned error. Our said holding is based on the following article of the New Civil Code:
'ART.1899. Any partner shall have the right to a formal account as to partnership affairs:
(1) If he is wrongfully excluded from the partnership business or possession of its property by his co-
partners;
(2) If the right exists under the terms of any agreement;
(3) As provided by article 1807;
(4) Whenever other circumstance render it just and reasonable.
We find no reason in this case to depart from the rule which limits this Court's appellate jurisdiction to
reviewing only errors of law, accepting as conclusive the factual findings of the lower court upon its own
assessment of the evidence.
The judgment appealed from is affirmed, with costs.

Fue Leung vs IAC 169 SCRA 746 1989

DAN FUE LEUNG, petitioner,
vs.
HON. INTERMEDIATE APPELLATE COURT and LEUNG YIU, respondents.

The petitioner asks for the reversal of the decision of the then Intermediate Appellate Court in AC-G.R.
No. CV-00881 which affirmed the decision of the then Court of First Instance of Manila, Branch II in Civil
Case No. 116725 declaring private respondent Leung Yiu a partner of petitioner Dan Fue Leung in the
business of Sun Wah Panciteria and ordering the petitioner to pay to the private respondent his share in
the annual profits of the said restaurant
This case originated from a complaint filed by respondent Leung Yiu with the then Court of First Instance
of Manila, Branch II to recover the sum equivalent to twenty-two percent (22%) of the annual profits
derived from the operation of Sun Wah Panciteria since October, 1955 from petitioner Dan Fue Leung.
The Sun Wah Panciteria, a restaurant, located at Florentino Torres Street, Sta. Cruz, Manila, was
established sometime in October, 1955. It was registered as a single proprietorship and its licenses and
permits were issued to and in favor of petitioner Dan Fue Leung as the sole proprietor. Respondent
Leung Yiu adduced evidence during the trial of the case to show that Sun Wah Panciteria was actually
a partnership and that he was one of the partners having contributed P4,000.00 to its initial
establishment.
The private respondents evidence is summarized as follows:
About the time the Sun Wah Panciteria started to become operational, the private respondent gave
P4,000.00 as his contribution to the partnership. This is evidenced by a receipt identified as Exhibit "A"
wherein the petitioner acknowledged his acceptance of the P4,000.00 by affixing his signature thereto.
The receipt was written in Chinese characters so that the trial court commissioned an interpreter in the
person of Ms. Florence Yap to translate its contents into English. Florence Yap issued a certification and
testified that the translation to the best of her knowledge and belief was correct. The private respondent
identified the signature on the receipt as that of the petitioner (Exhibit A-3) because it was affixed by the
latter in his (private respondents') presence. Witnesses So Sia and Antonio Ah Heng corroborated the
private respondents testimony to the effect that they were both present when the receipt (Exhibit "A")
was signed by the petitioner. So Sia further testified that he himself received from the petitioner a similar
receipt (Exhibit D) evidencing delivery of his own investment in another amount of P4,000.00 An
examination was conducted by the PC Crime Laboratory on orders of the trial court granting the private
respondents motion for examination of certain documentary exhibits. The signatures in Exhibits "A" and
'D' when compared to the signature of the petitioner appearing in the pay envelopes of employees of the
restaurant, namely Ah Heng and Maria Wong (Exhibits H, H-1 to H-24) showed that the signatures in
the two receipts were indeed the signatures of the petitioner.
Furthermore, the private respondent received from the petitioner the amount of P12,000.00 covered by
the latter's Equitable Banking Corporation Check No. 13389470-B from the profits of the operation of the
restaurant for the year 1974. Witness Teodulo Diaz, Chief of the Savings Department of the China
Banking Corporation testified that said check (Exhibit B) was deposited by and duly credited to the private
respondents savings account with the bank after it was cleared by the drawee bank, the Equitable
Banking Corporation. Another witness Elvira Rana of the Equitable Banking Corporation testified that
the check in question was in fact and in truth drawn by the petitioner and debited against his own account
in said bank. This fact was clearly shown and indicated in the petitioner's statement of account after the
check (Exhibit B) was duly cleared. Rana further testified that upon clearance of the check and pursuant
to normal banking procedure, said check was returned to the petitioner as the maker thereof.
The petitioner denied having received from the private respondent the amount of P4,000.00. He
contested and impugned the genuineness of the receipt (Exhibit D). His evidence is summarized as
follows:
The petitioner did not receive any contribution at the time he started the Sun Wah Panciteria. He used
his savings from his salaries as an employee at Camp Stotsenberg in Clark Field and later as waiter at
the Toho Restaurant amounting to a little more than P2,000.00 as capital in establishing Sun Wah
Panciteria. To bolster his contention that he was the sole owner of the restaurant, the petitioner
presented various government licenses and permits showing the Sun Wah Panciteria was and still is a
single proprietorship solely owned and operated by himself alone. Fue Leung also flatly denied having
issued to the private respondent the receipt (Exhibit G) and the Equitable Banking Corporation's Check
No. 13389470 B in the amount of P12,000.00 (Exhibit B).
As between the conflicting evidence of the parties, the trial court gave credence to that of the plaintiffs.
Hence, the court ruled in favor of the private respondent. The dispositive portion of the decision reads:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendant, ordering
the latter to deliver and pay to the former, the sum equivalent to 22% of the annual profit derived from
the operation of Sun Wah Panciteria from October, 1955, until fully paid, and attorney's fees in the
amount of P5,000.00 and cost of suit. (p. 125, Rollo)
The private respondent filed a verified motion for reconsideration in the nature of a motion for new trial
and, as supplement to the said motion, he requested that the decision rendered should include the net
profit of the Sun Wah Panciteria which was not specified in the decision, and allow private respondent
to adduce evidence so that the said decision will be comprehensively adequate and thus put an end to
further litigation.
The motion was granted over the objections of the petitioner. After hearing the trial court rendered an
amended decision, the dispositive portion of which reads:
FOR ALL THE FOREGOING CONSIDERATIONS, the motion for reconsideration filed by the plaintiff,
which was granted earlier by the Court, is hereby reiterated and the decision rendered by this Court on
September 30, 1980, is hereby amended. The dispositive portion of said decision should read now as
follows:
WHEREFORE, judgment is hereby rendered, ordering the plaintiff (sic) and against the defendant,
ordering the latter to pay the former the sum equivalent to 22% of the net profit of P8,000.00 per day
from the time of judicial demand, until fully paid, plus the sum of P5,000.00 as and for attorney's fees
and costs of suit. (p. 150, Rollo)
The petitioner appealed the trial court's amended decision to the then Intermediate Appellate Court. The
questioned decision was further modified by the appellate court. The dispositive portion of the appellate
court's decision reads:
WHEREFORE, the decision appealed from is modified, the dispositive portion thereof reading as follows:
1. Ordering the defendant to pay the plaintiff by way of temperate damages 22% of the net profit of
P2,000.00 a day from judicial demand to May 15, 1971;
2. Similarly, the sum equivalent to 22% of the net profit of P8,000.00 a day from May 16, 1971 to August
30, 1975;
3. And thereafter until fully paid the sum equivalent to 22% of the net profit of P8,000.00 a day.
Except as modified, the decision of the court a quo is affirmed in all other respects. (p. 102, Rollo)
Later, the appellate court, in a resolution, modified its decision and affirmed the lower court's decision.
The dispositive portion of the resolution reads:
WHEREFORE, the dispositive portion of the amended judgment of the court a quo reading as follows:
WHEREFORE, judgment is rendered in favor of the plaintiff and against the defendant, ordering the
latter to pay to the former the sum equivalent to 22% of the net profit of P8,000.00 per day from the time
of judicial demand, until fully paid, plus the sum of P5,000.00 as and for attorney's fees and costs of suit.
is hereby retained in full and affirmed in toto it being understood that the date of judicial demand is July
13, 1978. (pp. 105-106, Rollo).
In the same resolution, the motion for reconsideration filed by petitioner was denied.
Both the trial court and the appellate court found that the private respondent is a partner of the petitioner
in the setting up and operations of the panciteria. While the dispositive portions merely ordered the
payment of the respondents share, there is no question from the factual findings that the respondent
invested in the business as a partner. Hence, the two courts declared that the private petitioner is entitled
to a share of the annual profits of the restaurant. The petitioner, however, claims that this factual finding
is erroneous. Thus, the petitioner argues: "The complaint avers that private respondent extended
'financial assistance' to herein petitioner at the time of the establishment of the Sun Wah Panciteria, in
return of which private respondent allegedly will receive a share in the profits of the restaurant. The same
complaint did not claim that private respondent is a partner of the business. It was, therefore, a serious
error for the lower court and the Hon. Intermediate Appellate Court to grant a relief not called for by the
complaint. It was also error for the Hon. Intermediate Appellate Court to interpret or construe 'financial
assistance' to mean the contribution of capital by a partner to a partnership;" (p. 75, Rollo)
The pertinent portions of the complaint state:
xxx xxx xxx
2. That on or about the latter (sic) of September, 1955, defendant sought the financial assistance of
plaintiff in operating the defendant's eatery known as Sun Wah Panciteria, located in the given address
of defendant; as a return for such financial assistance. plaintiff would be entitled to twenty-two percentum
(22%) of the annual profit derived from the operation of the said panciteria;
3. That on October 1, 1955, plaintiff delivered to the defendant the sum of four thousand pesos
(P4,000.00), Philippine Currency, of which copy for the receipt of such amount, duly acknowledged by
the defendant is attached hereto as Annex "A", and form an integral part hereof; (p. 11, Rollo)
In essence, the private respondent alleged that when Sun Wah Panciteria was established, he gave
P4,000.00 to the petitioner with the understanding that he would be entitled to twenty-two percent (22%)
of the annual profit derived from the operation of the said panciteria. These allegations, which were
proved, make the private respondent and the petitioner partners in the establishment of Sun Wah
Panciteria because Article 1767 of the Civil Code provides that "By the contract of partnership two or
more persons bind themselves to contribute money, property or industry to a common fund, with the
intention of dividing the profits among themselves".
Therefore, the lower courts did not err in construing the complaint as one wherein the private respondent
asserted his rights as partner of the petitioner in the establishment of the Sun Wah Panciteria,
notwithstanding the use of the term financial assistance therein. We agree with the appellate court's
observation to the effect that "... given its ordinary meaning, financial assistance is the giving out of
money to another without the expectation of any returns therefrom'. It connotes an ex gratia dole out in
favor of someone driven into a state of destitution. But this circumstance under which the P4,000.00 was
given to the petitioner does not obtain in this case.' (p. 99, Rollo) The complaint explicitly stated that "as
a return for such financial assistance, plaintiff (private respondent) would be entitled to twenty-two
percentum (22%) of the annual profit derived from the operation of the said panciteria.' (p. 107, Rollo)
The well-settled doctrine is that the '"... nature of the action filed in court is determined by the facts
alleged in the complaint as constituting the cause of action." (De Tavera v. Philippine Tuberculosis
Society, Inc., 113 SCRA 243; Alger Electric, Inc. v. Court of Appeals, 135 SCRA 37).
The appellate court did not err in declaring that the main issue in the instant case was whether or not the
private respondent is a partner of the petitioner in the establishment of Sun Wah Panciteria.
The petitioner also contends that the respondent court gravely erred in giving probative value to the PC
Crime Laboratory Report (Exhibit "J") on the ground that the alleged standards or specimens used by
the PC Crime Laboratory in arriving at the conclusion were never testified to by any witness nor has any
witness identified the handwriting in the standards or specimens belonging to the petitioner. The
supposed standards or specimens of handwriting were marked as Exhibits "H" "H-1" to "H-24" and
admitted as evidence for the private respondent over the vigorous objection of the petitioner's counsel.
The records show that the PC Crime Laboratory upon orders of the lower court examined the signatures
in the two receipts issued separately by the petitioner to the private respondent and So Sia (Exhibits "A"
and "D") and compared the signatures on them with the signatures of the petitioner on the various pay
envelopes (Exhibits "H", "H-1" to 'H-24") of Antonio Ah Heng and Maria Wong, employees of the
restaurant. After the usual examination conducted on the questioned documents, the PC Crime
Laboratory submitted its findings (Exhibit J) attesting that the signatures appearing in both receipts
(Exhibits "A" and "D") were the signatures of the petitioner.
The records also show that when the pay envelopes (Exhibits "H", "H-1" to "H-24") were presented by
the private respondent for marking as exhibits, the petitioner did not interpose any objection. Neither did
the petitioner file an opposition to the motion of the private respondent to have these exhibits together
with the two receipts examined by the PC Crime Laboratory despite due notice to him. Likewise, no
explanation has been offered for his silence nor was any hint of objection registered for that purpose.
Under these circumstances, we find no reason why Exhibit "J" should be rejected or ignored. The records
sufficiently establish that there was a partnership.
The petitioner raises the issue of prescription. He argues: The Hon. Respondent Intermediate Appellate
Court gravely erred in not resolving the issue of prescription in favor of petitioner. The alleged receipt is
dated October 1, 1955 and the complaint was filed only on July 13, 1978 or after the lapse of twenty-two
(22) years, nine (9) months and twelve (12) days. From October 1, 1955 to July 13, 1978, no written
demands were ever made by private respondent.
The petitioner's argument is based on Article 1144 of the Civil Code which provides:
Art. 1144. The following actions must be brought within ten years from the time the right of action accrues:
(1) Upon a written contract;
(2) Upon an obligation created by law;
(3) Upon a judgment.
in relation to Article 1155 thereof which provides:
Art. 1155. The prescription of actions is interrupted when they are filed before the court, when there is a
written extra-judicial demand by the creditor, and when there is any written acknowledgment of the debt
by the debtor.'
The argument is not well-taken.
The private respondent is a partner of the petitioner in Sun Wah Panciteria. The requisites of a
partnership which are 1) two or more persons bind themselves to contribute money, property, or
industry to a common fund; and 2) intention on the part of the partners to divide the profits among
themselves (Article 1767, Civil Code; Yulo v. Yang Chiao Cheng, 106 Phil. 110)-have been established.
As stated by the respondent, a partner shares not only in profits but also in the losses of the firm. If
excellent relations exist among the partners at the start of business and all the partners are more
interested in seeing the firm grow rather than get immediate returns, a deferment of sharing in the profits
is perfectly plausible. It would be incorrect to state that if a partner does not assert his rights anytime
within ten years from the start of operations, such rights are irretrievably lost. The private respondent's
cause of action is premised upon the failure of the petitioner to give him the agreed profits in the operation
of Sun Wah Panciteria. In effect the private respondent was asking for an accounting of his interests in
the partnership.
It is Article 1842 of the Civil Code in conjunction with Articles 1144 and 1155 which is applicable. Article
1842 states:
The right to an account of his interest shall accrue to any partner, or his legal representative as against
the winding up partners or the surviving partners or the person or partnership continuing the business,
at the date of dissolution, in the absence or any agreement to the contrary.
Regarding the prescriptive period within which the private respondent may demand an accounting,
Articles 1806, 1807, and 1809 show that the right to demand an accounting exists as long as the
partnership exists. Prescription begins to run only upon the dissolution of the partnership when the final
accounting is done.
Finally, the petitioner assails the appellate court's monetary awards in favor of the private respondent for
being excessive and unconscionable and above the claim of private respondent as embodied in his
complaint and testimonial evidence presented by said private respondent to support his claim in the
complaint.
Apart from his own testimony and allegations, the private respondent presented the cashier of Sun Wah
Panciteria, a certain Mrs. Sarah L. Licup, to testify on the income of the restaurant.
Mrs. Licup stated:
ATTY. HIPOLITO (direct examination to Mrs. Licup).
Q Mrs. Witness, you stated that among your duties was that you were in charge of the custody of the
cashier's box, of the money, being the cashier, is that correct?
A Yes, sir.
Q So that every time there is a customer who pays, you were the one who accepted the money and you
gave the change, if any, is that correct?
A Yes.
Q Now, after 11:30 (P.M.) which is the closing time as you said, what do you do with the money?
A We balance it with the manager, Mr. Dan Fue Leung.
ATTY. HIPOLITO:I see.
Q So, in other words, after your job, you huddle or confer together?
A Yes, count it all. I total it. We sum it up.
Q Now, Mrs. Witness, in an average day, more or less, will you please tell us, how much is the gross
income of the restaurant?
A For regular days, I received around P7,000.00 a day during my shift alone and during pay days I
receive more than P10,000.00. That is excluding the catering outside the place.
Q What about the catering service, will you please tell the Honorable Court how many times a week were
there catering services?
A Sometimes three times a month; sometimes two times a month or more.
xxx xxx xxx
Q Now more or less, do you know the cost of the catering service?
A Yes, because I am the one who receives the payment also of the catering.
Q How much is that?
A That ranges from two thousand to six thousand pesos, sir.
Q Per service?
A Per service, Per catering.
Q So in other words, Mrs. witness, for your shift alone in a single day from 3:30 P.M. to 11:30 P.M. in
the evening the restaurant grosses an income of P7,000.00 in a regular day?
A Yes.
Q And ten thousand pesos during pay day.?
A Yes.(TSN, pp. 53 to 59, inclusive, November 15,1978)
COURT:Any cross?
ATTY. UY (counsel for defendant):
No cross-examination, Your Honor. (T.S.N. p. 65, November 15, 1978). (Rollo, pp. 127-128)
The statements of the cashier were not rebutted. Not only did the petitioner's counsel waive the cross-
examination on the matter of income but he failed to comply with his promise to produce pertinent
records. When a subpoena duces tecum was issued to the petitioner for the production of their records
of sale, his counsel voluntarily offered to bring them to court. He asked for sufficient time prompting the
court to cancel all hearings for January, 1981 and reset them to the later part of the following month. The
petitioner's counsel never produced any books, prompting the trial court to state:
Counsel for the defendant admitted that the sales of Sun Wah were registered or recorded in the daily
sales book. ledgers, journals and for this purpose, employed a bookkeeper. This inspired the Court to
ask counsel for the defendant to bring said records and counsel for the defendant promised to bring
those that were available. Seemingly, that was the reason why this case dragged for quite sometime. To
bemuddle the issue, defendant instead of presenting the books where the same, etc. were recorded,
presented witnesses who claimed to have supplied chicken, meat, shrimps, egg and other poultry
products which, however, did not show the gross sales nor does it prove that the same is the best
evidence. This Court gave warning to the defendant's counsel that if he failed to produce the books, the
same will be considered a waiver on the part of the defendant to produce the said books inimitably
showing decisive records on the income of the eatery pursuant to the Rules of Court (Sec. 5(e) Rule
131). "Evidence willfully suppressed would be adverse if produced." (Rollo, p. 145)
The records show that the trial court went out of its way to accord due process to the petitioner.
The defendant was given all the chance to present all conceivable witnesses, after the plaintiff has rested
his case on February 25, 1981, however, after presenting several witnesses, counsel for defendant
promised that he will present the defendant as his last witness. Notably there were several postponement
asked by counsel for the defendant and the last one was on October 1, 1981 when he asked that this
case be postponed for 45 days because said defendant was then in Hongkong and he (defendant) will
be back after said period. The Court acting with great concern and understanding reset the hearing to
November 17, 1981. On said date, the counsel for the defendant who again failed to present the
defendant asked for another postponement, this time to November 24, 1981 in order to give said
defendant another judicial magnanimity and substantial due process. It was however a condition in the
order granting the postponement to said date that if the defendant cannot be presented, counsel is
deemed to have waived the presentation of said witness and will submit his case for decision.
On November 24, 1981, there being a typhoon prevailing in Manila said date was declared a partial non-
working holiday, so much so, the hearing was reset to December 7 and 22, 1981. On December 7, 1981,
on motion of defendant's counsel, the same was again reset to December 22, 1981 as previously
scheduled which hearing was understood as intransferable in character. Again on December 22, 1981,
the defendant's counsel asked for postponement on the ground that the defendant was sick. the Court,
after much tolerance and judicial magnanimity, denied said motion and ordered that the case be
submitted for resolution based on the evidence on record and gave the parties 30 days from December
23, 1981, within which to file their simultaneous memoranda. (Rollo, pp. 148-150)
The restaurant is located at No. 747 Florentino Torres, Sta. Cruz, Manila in front of the Republic
Supermarket. It is near the corner of Claro M. Recto Street. According to the trial court, it is in the heart
of Chinatown where people who buy and sell jewelries, businessmen, brokers, manager, bank
employees, and people from all walks of life converge and patronize Sun Wah.
There is more than substantial evidence to support the factual findings of the trial court and the appellate
court. If the respondent court awarded damages only from judicial demand in 1978 and not from the
opening of the restaurant in 1955, it is because of the petitioner's contentions that all profits were being
plowed back into the expansion of the business. There is no basis in the records to sustain the petitioners
contention that the damages awarded are excessive. Even if the Court is minded to modify the factual
findings of both the trial court and the appellate court, it cannot refer to any portion of the records for
such modification. There is no basis in the records for this Court to change or set aside the factual
findings of the trial court and the appellate court. The petitioner was given every opportunity to refute or
rebut the respondent's submissions but, after promising to do so, it deliberately failed to present its books
and other evidence.
The resolution of the Intermediate Appellate Court ordering the payment of the petitioner's obligation
shows that the same continues until fully paid. The question now arises as to whether or not the payment
of a share of profits shall continue into the future with no fixed ending date.
Considering the facts of this case, the Court may decree a dissolution of the partnership under Article
1831 of the Civil Code which, in part, provides:
Art. 1831. On application by or for a partner the court shall decree a dissolution whenever:
xxx xxx xxx
(3) A partner has been guilty of such conduct as tends to affect prejudicially the carrying on of the
business;
(4) A partner willfully or persistently commits a breach of the partnership agreement, or otherwise so
conducts himself in matters relating to the partnership business that it is not reasonably practicable to
carry on the business in partnership with him;
xxx xxx xxx
(6) Other circumstances render a dissolution equitable.
There shall be a liquidation and winding up of partnership affairs, return of capital, and other incidents of
dissolution because the continuation of the partnership has become inequitable.
WHEREFORE, the petition for review is hereby DISMISSED for lack of merit. The decision of the
respondent court is AFFIRMED with a MODIFICATION that as indicated above, the partnership of the
parties is ordered dissolved.

Lim tanhu vs Ramolete 66 SCRA 425 (1975)

ANTONIO LIM TANHU, DY OCHAY, ALFONSO LEONARDO NG SUA and CO OYO, petitioners,
vs.HON. JOSE R. RAMOLETE as Presiding Judge, Branch III, CFI, Cebu and TAN
Petition for (1) certiorari to annul and set aside certain actuations of respondent Court of First Instance
of Cebu Branch III in its Civil Case No. 12328, an action for accounting of properties and money totalling
allegedly about P15 million pesos filed with a common cause of action against six defendants, in which
after declaring four of the said defendants herein petitioners, in default and while the trial as against the
two defendants not declared in default was in progress, said court granted plaintiff's motion to dismiss
the case in so far as the non-defaulted defendants were concerned and thereafter proceeded to hear
ex-parte the rest of the plaintiffs evidence and subsequently rendered judgment by default against the
defaulted defendants, with the particularities that notice of the motion to dismiss was not duly served on
any of the defendants, who had alleged a compulsory counterclaim against plaintiff in their joint answer,
and the judgment so rendered granted reliefs not prayed for in the complaint, and (2) prohibition to enjoin
further proceedings relative to the motion for immediate execution of the said judgment.
Originally, this litigation was a complaint filed on February 9, 1971 by respondent Tan Put only against
the spouses-petitioners Antonio Lim Tanhu and Dy Ochay. Subsequently, in an amended complaint
dated September 26, 1972, their son Lim Teck Chuan and the other spouses-petitioners Alfonso
Leonardo Ng Sua and Co Oyo and their son Eng Chong Leonardo were included as defendants. In said
amended complaint, respondent Tan alleged that she "is the widow of Tee Hoon Lim Po Chuan, who
was a partner in the commercial partnership, Glory Commercial Company ... with Antonio Lim Tanhu
and Alfonso Ng Sua that "defendant Antonio Lim Tanhu, Alfonso Leonardo Ng Sua, Lim Teck Chuan,
and Eng Chong Leonardo, through fraud and machination, took actual and active management of the
partnership and although Tee Hoon Lim Po Chuan was the manager of Glory Commercial Company,
defendants managed to use the funds of the partnership to purchase lands and building's in the cities of
Cebu, Lapulapu, Mandaue, and the municipalities of Talisay and Minglanilla, some of which were hidden,
but the description of those already discovered were as follows: (list of properties) ...;" and that:
13. (A)fter the death of Tee Hoon Lim Po Chuan, the defendants, without liquidation continued the
business of Glory Commercial Company by purportedly organizing a corporation known as the Glory
Commercial Company, Incorporated, with paid up capital in the sum of P125,000.00, which money and
other assets of the said Glory Commercial Company, Incorporated are actually the assets of the defunct
Glory Commercial Company partnership, of which the plaintiff has a share equivalent to one third (/3 )
thereof;
14. (P)laintiff, on several occasions after the death of her husband, has asked defendants of the above-
mentioned properties and for the liquidation of the business of the defunct partnership, including
investments on real estate in Hong Kong, but defendants kept on promising to liquidate said properties
and just told plaintiff to
15. (S)ometime in the month of November, 1967, defendants, Antonio Lim Tanhu, by means of fraud
deceit and misrepresentations did then and there, induce and convince the plaintiff to execute a quitclaim
of all her rights and interests, in the assets of the partnership of Glory Commercial Company, which is
null and void, executed through fraud and without any legal effect. The original of said quitclaim is in the
possession of the adverse party defendant Antonio Lim Tanhu.
16. (A)s a matter of fact, after the execution of said quitclaim, defendant Antonio Lim Tanhu offered to
pay the plaintiff the amount P65,000.00 within a period of one (1) month, for which plaintiff was made to
sign a receipt for the amount of P65,000.00 although no such amount was given and plaintiff was not
even given a copy of said document;
17. (T)hereafter, in the year 1968-69, the defendants who had earlier promised to liquidate the aforesaid
properties and assets in favor among others of plaintiff and until the middle of the year 1970 when the
plaintiff formally demanded from the defendants the accounting of real and personal properties of the
Glory Commercial Company, defendants refused and stated that they would not give the share of the
plaintiff. (Pp. 36-37, Record.)She prayed as follows:
WHEREFORE, it is most respectfully prayed that judgment be rendered:
a) Ordering the defendants to render an accounting of the real and personal properties of the Glory
Commercial Company including those registered in the names of the defendants and other persons,
which properties are located in the Philippines and in Hong Kong;
b) Ordering the defendants to deliver to the plaintiff after accounting, one third (/3 ) of the total value of
all the properties which is approximately P5,000,000.00 representing the just share of the plaintiff;
c) Ordering the defendants to pay the attorney of the plaintiff the sum of Two Hundred Fifty Thousand
Pesos (P250,000.00) by way of attorney's fees and damages in the sum of One Million Pesos
(P1,000,000.00).
This Honorable Court is prayed for other remedies and reliefs consistent with law and equity and order
the defendants to pay the costs. (Page 38, Record.)
The admission of said amended complaint was opposed by defendants upon the ground that there were
material modifications of the causes of action previously alleged, but respondent judge nevertheless
allowed the amendment reasoning that:
The present action is for accounting of real and personal properties as well as for the recovery of the
same with damages.
An objective consideration of pars. 13 and 15 of the amended complaint pointed out by the defendants
to sustain their opposition will show that the allegations of facts therein are merely to amplify material
averments constituting the cause of action in the original complaint. It likewise include necessary and
indispensable defendants without whom no final determination can be had in the action and in order that
complete relief is to be accorded as between those already parties.
Considering that the amendments sought to be introduced do not change the main causes of action in
the original complaint and the reliefs demanded and to allow amendments is the rule, and to refuse them
the exception and in order that the real question between the parties may be properly and justly threshed
out in a single proceeding to avoid multiplicity of actions. (Page 40, Record.)
In a single answer with counterclaim, over the signature of their common counsel, defendants denied
specifically not only the allegation that respondent Tan is the widow of Tee Hoon because, according to
them, his legitimate wife was Ang Siok Tin still living and with whom he had four (4) legitimate children,
a twin born in 1942, and two others born in 1949 and 1965, all presently residing in Hongkong, but also
all the allegations of fraud and conversion quoted above, the truth being, according to them, that proper
liquidation had been regularly made of the business of the partnership and Tee Hoon used to receive
his just share until his death, as a result of which the partnership was dissolved and what corresponded
to him were all given to his wife and children. To quote the pertinent portions of said answer:
AND BY WAY OF SPECIAL AND AFFIRMATIVE DEFENSES,
defendants hereby incorporate all facts averred and alleged in the answer, and further most respectfully
declare:
1. That in the event that plaintiff is filing the present complaint as an heir of Tee Hoon Lim Po Chuan,
then, she has no legal capacity to sue as such, considering that the legitimate wife, namely: Ang Siok
Tin, together with their children are still alive. Under Sec. 1, (d), Rule 16 of the Revised Rules of Court,
lack of legal capacity to sue is one of the grounds for a motion to dismiss and so defendants prays that
a preliminary hearing be conducted as provided for in Sec. 5, of the same rule;
2. That in the alternative case or event that plaintiff is filing the present case under Art. 144 of the Civil
Code, then, her claim or demand has been paid, waived abandoned or otherwise extinguished as
evidenced by the 'quitclaim' Annex 'A' hereof, the ground cited is another ground for a motion to dismiss
(Sec. 1, (h), Rule 16) and hence defendants pray that a preliminary hearing be made in connection
therewith pursuant to Section 5 of the aforementioned rule;
3. That Tee Hoon Lim Po Chuan was legally married to Ang Siok Tin and were blessed with the following
children, to wit: Ching Siong Lim and Ching Hing Lim (twins) born on February 16, 1942; Lim Shing Ping
born on March 3, 1949 and Lim Eng Lu born on June 25, 1965 and presently residing in Hongkong;
4. That even before the death of Tee Hoon Lim Po Chuan, the plaintiff was no longer his common law
wife and even though she was not entitled to anything left by Tee Hoon Lim Po Chuan, yet, out of the
kindness and generosity on the part of the defendants, particularly Antonio Lain Tanhu, who, was
inspiring to be monk and in fact he is now a monk, plaintiff was given a substantial amount evidenced by
the 'quitclaim' (Annex 'A');
5. That the defendants have acquired properties out of their own personal fund and certainly not from
the funds belonging to the partnership, just as Tee Hoon Lim Po Chuan had acquired properties out of
his personal fund and which are now in the possession of the widow and neither the defendants nor the
partnership have anything to do about said properties;
6. That it would have been impossible to buy properties from funds belonging to the partnership without
the other partners knowing about it considering that the amount taken allegedly is quite big and with
such big amount withdrawn the partnership would have been insolvent;
7. That plaintiff and Tee Hoon Lim Po Chuan were not blessed with children who would have been
lawfully entitled to succeed to the properties left by the latter together with the widow and legitimate
children;
8. That despite the fact that plaintiff knew that she was no longer entitled to anything of the shares of the
late Tee Hoon Lim Po Chuan, yet, this suit was filed against the defendant who have to interpose the
following
COUNTERCLAIM
A. That the defendants hereby reproduced, by way of reference, all the allegations and foregoing
averments as part of this counterclaim; .
B. That plaintiff knew and was aware she was merely the common-law wife of Tee Hoon Lim Po Chuan
and that the lawful and legal is still living, together with the legitimate children, and yet she deliberately
suppressed this fact, thus showing her bad faith and is therefore liable for exemplary damages in an
amount which the Honorable Court may determine in the exercise of its sound judicial discretion. In the
event that plaintiff is married to Tee Hoon Lim Po Chuan, then, her marriage is bigamous and should
suffer the consequences thereof;
C. That plaintiff was aware and had knowledge about the 'quitclaim', even though she was not entitled
to it, and yet she falsely claimed that defendants refused even to see her and for filing this unfounded,
baseless, futile and puerile complaint, defendants suffered mental anguish and torture conservatively
estimated to be not less than P3,000.00;
D. That in order to defend their rights in court, defendants were constrained to engage the services of
the undersigned counsel, obligating themselves to pay P500,000.00 as attorney's fees;
E. That by way of litigation expenses during the time that this case will be before this Honorable Court
and until the same will be finally terminated and adjudicated, defendants will have to spend at least
P5,000.00. (Pp. 44-47. Record.)
After unsuccessfully trying to show that this counterclaim is merely permissive and should be dismissed
for non-payment of the corresponding filing fee, and after being overruled by the court, in due time,
plaintiff answered the same, denying its material allegations.
On February 3, 1973, however, the date set for the pre-trial, both of the two defendants-spouses the Lim
Tanhus and Ng Suas, did not appear, for which reason, upon motion of plaintiff dated February 16, 1973,
in an order of March 12, 1973, they were all "declared in DEFAULT as of February 3, 1973 when they
failed to appear at the pre-trial." They sought to hive this order lifted thru a motion for reconsideration,
but the effort failed when the court denied it. Thereafter, the trial started, but at the stage thereof where
the first witness of the plaintiff by the name of Antonio Nuez who testified that he is her adopted son,
was up for re-cross-examination, said plaintiff unexpectedly filed on October 19, 1974 the following
simple and unreasoned
MOTION TO DROP DEFENDANTS LIM TECK CHUAN AND ENG CHONG LEONARDO COMES now
plaintiff, through her undersigned counsel, unto the Honorable Court most respectfully moves to drop
from the complaint the defendants Lim Teck Chuan and Eng Chong Leonardo and to consider the case
dismissed insofar as said defendants Lim Teck Chuan and Eng Chong Leonardo are concerned.
WHEREFORE, it is most respectfully prayed of the Honorable Court to drop from the complaint the
defendants Lim Teck Chuan and Eng Chong Leonardo and to dismiss the case against them without
pronouncement as to costs. (Page 50, Record.) which she set for hearing on December 21, 1974.
According to petitioners, none of the defendants declared in default were notified of said motion, in
violation of Section 9 of Rule 13, since they had asked for the lifting of the order of default, albeit
unsuccessfully, and as regards the defendants not declared in default, the setting of the hearing of said
motion on October 21, 1974 infringed the three-day requirement of Section
4 of Rule 15, inasmuch as Atty. Adelino Sitoy of Lim Teck Chuan was served with a copy of the motion
personally only on October 19, 1974, while Atty. Benjamin Alcudia of Eng Chong Leonardo was served
by registered mail sent only on the same date.
Evidently without even verifying the notices of service, just as simply as plaintiff had couched her motion,
and also without any legal grounds stated, respondent court granted the prayer of the above motion thus:
ORDER
Acting on the motion of the plaintiff praying for the dismissal of the complaint as against defendants Lim
Teck Chuan and Eng Chong Leonardo.
The same is hereby GRANTED. The complaint as against defendant Lim Teck Chuan and Eng Chong
Leonardo is hereby ordered DISMISSED without pronouncement as to costs.
Simultaneously, the following order was also issued:
Considering that defendants Antonio Lim Tanhu and his spouse Dy Ochay as well as defendants Alfonso
Ng Sua and his spouse Co Oyo have been declared in default for failure to appear during the pre-trial
and as to the other defendants the complaint had already been ordered dismissed as against them.
Let the hearing of thplaintiff's evidence ex-parte be set on November 20, 1974, at 8:30 A.M. before the
Branch Clerk of Court who is deputized for the purpose, to swear in witnesses and to submit her report
within ten (10) days thereafter. Notify the plaintiff.
SO ORDERED.
Cebu City, Philippines, October 21, 1974. (Page 52, Record.)
But, in connection with this last order, the scheduled ex-parte reception of evidence did not take place
on November 20, 1974, for on October 28, 1974, upon verbal motion of plaintiff, the court issued the
following self-explanatory order: .
Acting favorably on the motion of the plaintiff dated October 18, 1974, the Court deputized the Branch
Clerk of Court to receive the evidence of the plaintiff ex-parte to be made on November 20, 1974.
However, on October 28, 1974, the plaintiff, together with her witnesses, appeared in court and asked,
thru counsel, that she be allowed to present her evidence.Considering the time and expenses incurred
by the plaintiff in bringing her witnesses to the court, the Branch Clerk of Court is hereby authorized to
receive immediately the evidence of the plaintiff ex-parte.
SO ORDERED.
Cebu City, Philippines, October 28, 1974. (Page 53. Record.)
Upon learning of these orders on October 23, 1973, the defendant Lim Teck Cheng, thru counsel, Atty.
Sitoy, filed a motion for reconsideration thereof, and on November 1, 1974, defendant Eng Chong
Leonardo, thru counsel Atty. Alcudia, filed also his own motion for reconsideration and clarification of the
same orders. These motions were denied in an order dated December 6, 1974 but received by the
movants only on December 23, 1974. Meanwhile, respondent court rendered the impugned decision on
December 20, 1974. It does not appear when the parties were served copies of this decision
Subsequently, on January 6, 1975, all the defendants, thru counsel, filed a motion to quash the order of
October 28, 1974. Without waiting however for the resolution thereof, on January 13, 1974, Lim Teck
Chuan and Eng Chong Leonardo went to the Court of Appeals with a petition for certiorari seeking the
annulment of the above-mentioned orders of October 21, 1974 and October 28, 1974 and decision of
December 20, 1974. By resolution of January 24, 1975, the Court of Appeals dismissed said petition,
holding that its filing was premature, considering that the motion to quash the order of October 28, 1974
was still unresolved by the trial court. This holding was reiterated in the subsequent resolution of
February 5, 1975 denying the motion for reconsideration of the previous dismissal.
On the other hand, on January 20, 1975, the other defendants, petitioners herein, filed their notice of
appeal, appeal bond and motion for extension to file their record on appeal, which was granted, the
extension to expire after fifteen (15) days from January 26 and 27, 1975, for defendants Lim Tanhu and
Ng Suas, respectively. But on February 7, 1975, before the perfection of their appeal, petitioners filed
the present petition with this Court. And with the evident intent to make their procedural position clear,
counsel for defendants, Atty. Manuel Zosa, filed with respondent court a manifestation dated February
14, 1975 stating that "when the non-defaulted defendants Eng Chong Leonardo and Lim Teck Chuan
filed their petition in the Court of Appeals, they in effect abandoned their motion to quash the order of
October 28, 1974," and that similarly "when Antonio Lim Tanhu, Dy Ochay, Alfonso Leonardo Ng Sua
and Co Oyo, filed their petition for certiorari and prohibition ... in the Supreme Court, they likewise
abandoned their motion to quash." This manifestation was acted upon by respondent court together with
plaintiffs motion for execution pending appeal in its order of the same date February 14, 1975 this wise:
ORDER
When these incidents, the motion to quash the order of October 28, 1974 and the motion for execution
pending appeal were called for hearing today, counsel for the defendants-movants submitted their
manifestation inviting the attention of this Court that by their filing for certiorari and prohibition with
preliminary injunction in the Court of Appeals which was dismissed and later the defaulted defendants
filed with the Supreme Court certiorari with prohibition they in effect abandoned their motion to quash.
IN VIEW HEREOF, the motion to quash is ordered ABANDONED. The resolution of the motion for
execution pending appeal shall be resolved after the petition for certiorari and prohibition shall have been
resolved by the Supreme Court.
SO ORDERED.
Cebu City, Philippines, February 14, 1975. (Page 216, Record.)
Upon these premises, it is the position of petitioners that respondent court acted illegally, in violation of
the rules or with grave abuse of discretion in acting on respondent's motion to dismiss of October 18,
1974 without previously ascertaining whether or not due notice thereof had been served on the adverse
parties, as, in fact, no such notice was timely served on the non-defaulted defendants Lim Teck Chuan
and Eng Chong Leonardo and no notice at all was ever sent to the other defendants, herein petitioners,
and more so, in actually ordering the dismissal of the case by its order of October 21, 1974 and at the
same time setting the case for further hearing as against the defaulted defendants, herein petitioners,
actually hearing the same ex-parte and thereafter rendering the decision of December 20, 1974 granting
respondent Tan even reliefs not prayed for in the complaint. According to the petitioners, to begin with,
there was compulsory counterclaim in the common answer of the defendants the nature of which is such
that it cannot be decided in an independent action and as to which the attention of respondent court was
duly called in the motions for reconsideration. Besides, and more importantly, under Section 4 of Rule
18, respondent court had no authority to divide the case before it by dismissing the same as against the
non-defaulted defendants and thereafter proceeding to hear it ex-parte and subsequently rendering
judgment against the defaulted defendants, considering that in their view, under the said provision of the
rules, when a common cause of action is alleged against several defendants, the default of any of them
is a mere formality by which those defaulted are not allowed to take part in the proceedings, but
otherwise, all the defendants, defaulted and not defaulted, are supposed to have but a common fate,
win or lose. In other words, petitioners posit that in such a situation, there can only be one common
judgment for or against all the defendant, the non-defaulted and the defaulted. Thus, petitioners contend
that the order of dismissal of October 21, 1974 should be considered also as the final judgment insofar
as they are concerned, or, in the alternative, it should be set aside together with all the proceedings and
decision held and rendered subsequent thereto, and that the trial be resumed as of said date, with the
defendants Lim Teck Chuan and Eng Chong Leonardo being allowed to defend the case for all the
defendants.
On the other hand, private respondent maintains the contrary view that inasmuch as petitioners had
been properly declared in default, they have no personality nor interest to question the dismissal of the
case as against their non-defaulted co-defendants and should suffer the consequences of their own
default. Respondent further contends, and this is the only position discussed in the memorandum
submitted by her counsel, that since petitioners have already made or at least started to make their
appeal, as they are in fact entitled to appeal, this special civil action has no reason for being. Additionally,
she invokes the point of prematurity upheld by the Court of Appeals in regard to the above-mentioned
petition therein of the non-defaulted defendants Lim Teck Chuan and Eng Chong Leonardo. Finally, she
argues that in any event, the errors attributed to respondent court are errors of judgment and may be
reviewed only in an appeal.
After careful scrutiny of all the above-related proceedings, in the court below and mature deliberation,
the Court has arrived at the conclusion that petitioners should be granted relief, if only to stress
emphatically once more that the rules of procedure may not be misused and abused as instruments for
the denial of substantial justice. A review of the record of this case immediately discloses that here is
another demonstrative instance of how some members of the bar, availing of their proficiency in invoking
the letter of the rules without regard to their real spirit and intent, succeed in inducing courts to act
contrary to the dictates of justice and equity, and, in some instances, to wittingly or unwittingly abet unfair
advantage by ironically camouflaging their actuations as earnest efforts to satisfy the public clamor for
speedy disposition of litigations, forgetting all the while that the plain injunction of Section 2 of Rule 1 is
that the "rules shall be liberally construed in order to promote their object and to assist the parties in
obtaining not only 'speedy' but more imperatively, "just ... and inexpensive determination of every action
and proceeding." We cannot simply pass over the impression that the procedural maneuvers and tactics
revealed in the records of the case at bar were deliberately planned with the calculated end in view of
depriving petitioners and their co-defendants below of every opportunity to properly defend themselves
against a claim of more than substantial character, considering the millions of pesos worth of properties
involved as found by respondent judge himself in the impugned decision, a claim that appears, in the
light of the allegations of the answer and the documents already brought to the attention of the court at
the pre-trial, to be rather dubious. What is most regrettable is that apparently, all of these alarming
circumstances have escaped respondent judge who did not seem to have hesitated in acting favorably
on the motions of the plaintiff conducive to the deplorable objective just mentioned, and which motions,
at the very least, appeared to be 'of highly controversial' merit, considering that their obvious tendency
and immediate result would be to convert the proceedings into a one-sided affair, a situation that should
be readily condemnable and intolerable to any court of justice.
Indeed, a seeming disposition on the part of respondent court to lean more on the contentions of private
respondent may be discerned from the manner it resolved the attempts of defendants Dy Ochay and
Antonio Lim Tanhu to have the earlier order of default against them lifted. Notwithstanding that Dy
Ochay's motion of October 8, 1971, co-signed by her with their counsel, Atty. Jovencio Enjambre (Annex
2 of respondent answer herein) was over the jurat of the notary public before whom she took her oath,
in the order of November 2, 1971, (Annex 3 id.) it was held that "the oath appearing at the bottom of the
motion is not the one contemplated by the abovequoted pertinent provision (See. 3, Rule 18) of the rules.
It is not even a verification. (See. 6, Rule 7.) What the rule requires as interpreted by the Supreme Court
is that the motion must have to be accompanied by an affidavit of merits that the defendant has a
meritorious defense, thereby ignoring the very simple legal point that the ruling of the Supreme Court
in Ong Peng vs. Custodio, 1 SCRA 781, relied upon by His Honor, under which a separate affidavit of
merit is required refers obviously to instances where the motion is not over oath of the party concerned,
considering that what the cited provision literally requires is no more than a "motion under oath." Stated
otherwise, when a motion to lift an order of default contains the reasons for the failure to answer as well
as the facts constituting the prospective defense of the defendant and it is sworn to by said defendant,
neither a formal verification nor a separate affidavit of merit is necessary.
What is worse, the same order further held that the motion to lift the order of default "is an admission
that there was a valid service of summons" and that said motion could not amount to a challenge against
the jurisdiction of the court over the person of the defendant. Such a rationalization is patently specious
and reveals an evident failure to grasp the import of the legal concepts involved. A motion to lift an order
of default on the ground that service of summons has not been made in accordance with the rules is in
order and is in essence verily an attack against the jurisdiction of the court over the person of the
defendant, no less than if it were worded in a manner specifically embodying such a direct challenge.
And then, in the order of February 14, 1972 (Annex 6, id.) lifting at last the order of default as against
defendant Lim Tanhu, His Honor posited that said defendant "has a defense (quitclaim) which renders
the claim of the plaintiff contentious." We have read defendants' motion for reconsideration of November
25, 1971 (Annex 5, id.), but We cannot find in it any reference to a "quitclaim". Rather, the allegation of
a quitclaim is in the amended complaint (Pars. 15-16, Annex B of the petition herein) in which plaintiff
maintains that her signature thereto was secured through fraud and deceit. In truth, the motion for
reconsideration just mentioned, Annex 5, merely reiterated the allegation in Dy Ochay's earlier motion
of October 8, 1971, Annex 2, to set aside the order of default, that plaintiff Tan could be but the common
law wife only of Tee Hoon, since his legitimate wife was still alive, which allegation, His Honor held in
the order of November 2, 1971, Annex 3, to be "not good and meritorious defense". To top it all, whereas,
as already stated, the order of February 19, 1972, Annex 6, lifted the default against Lim Tanhu because
of the additional consideration that "he has a defense (quitclaim) which renders the claim of the plaintiff
contentious," the default of Dy Ochay was maintained notwithstanding that exactly the same
"contentions" defense as that of her husband was invoked by her.
Such tenuous, if not altogether erroneous reasonings and manifest inconsistency in the legal postures
in the orders in question can hardly convince Us that the matters here in issue were accorded due and
proper consideration by respondent court. In fact, under the circumstances herein obtaining, it seems
appropriate to stress that, having in view the rather substantial value of the subject matter involved
together with the obviously contentious character of plaintiff's claim, which is discernible even on the
face of the complaint itself, utmost care should have been taken to avoid the slightest suspicion of
improper motivations on the part of anyone concerned. Upon the considerations hereunder to follow, the
Court expresses its grave concern that much has to be done to dispel the impression that herein
petitioners and their co-defendants are being railroaded out of their rights and properties without due
process of law, on the strength of procedural technicalities adroitly planned by counsel and seemingly
unnoticed and undetected by respondent court, whose orders, gauged by their tenor and the citations of
supposedly pertinent provisions and jurisprudence made therein, cannot be said to have proceeded from
utter lack of juridical knowledgeability and competence.
1
The first thing that has struck the Court upon reviewing the record is the seeming alacrity with which the
motion to dismiss the case against non-defaulted defendants Lim Teck Chuan and Eng Chong Leonardo
was disposed of, which definitely ought not to have been the case. The trial was proceeding with the
testimony of the first witness of plaintiff and he was still under re-cross-examination. Undoubtedly, the
motion to dismiss at that stage and in the light of the declaration of default against the rest of the
defendants was a well calculated surprise move, obviously designed to secure utmost advantage of the
situation, regardless of its apparent unfairness. To say that it must have been entirely unexpected by all
the defendants, defaulted and non-defaulted , is merely to rightly assume that the parties in a judicial
proceeding can never be the victims of any procedural waylaying as long as lawyers and judges are
imbued with the requisite sense of equity and justice.
But the situation here was aggravated by the indisputable fact that the adverse parties who were entitled
to be notified of such unanticipated dismissal motion did not get due notice thereof. Certainly, the non-
defaulted defendants had the right to the three-day prior notice required by Section 4 of Rule 15. How
could they have had such indispensable notice when the motion was set for hearing on Monday, October
21, 1974, whereas the counsel for Lim Teck Chuan, Atty. Sitoy was personally served with the notice
only on Saturday, October 19, 1974 and the counsel for Eng Chong Leonardo, Atty. Alcudia, was notified
by registered mail which was posted only that same Saturday, October 19, 1974? According to Chief
Justice Moran, "three days at least must intervene between the date of service of notice and the date
set for the hearing, otherwise the court may not validly act on the motion." (Comments on the Rules of
Court by Moran, Vol. 1, 1970 ed. p. 474.) Such is the correct construction of Section 4 of Rule 15. And
in the instant case, there can be no question that the notices to the non-defaulted defendants were short
of the requirement of said provision.
We can understand the over-anxiety of counsel for plaintiff, but what is incomprehensible is the seeming
inattention of respondent judge to the explicit mandate of the pertinent rule, not to speak of the
imperatives of fairness, considering he should have realized the far-reaching implications, specially from
the point of view he subsequently adopted, albeit erroneously, of his favorably acting on it. Actually, he
was aware of said consequences, for simultaneously with his order of dismissal, he immediately set the
case for the ex-parte hearing of the evidence against the defaulted defendants, which, incidentally, from
the tenor of his order which We have quoted above, appears to have been done by him motu propio As
a matter of fact, plaintiff's motion also quoted above did not pray for it.
Withal, respondent court's twin actions of October 21, 1974 further ignores or is inconsistent with a
number of known juridical principles concerning defaults, which We will here take occasion to reiterate
and further elucidate on, if only to avoid a repetition of the unfortunate errors committed in this case.
Perhaps some of these principles have not been amply projected and elaborated before, and such
paucity of elucidation could be the reason why respondent judge must have acted as he did. Still, the
Court cannot but express its vehement condemnation of any judicial actuation that unduly deprives any
party of the right to be heard without clear and specific warrant under the terms of existing rules or
binding jurisprudence. Extreme care must be the instant reaction of every judge when confronted with a
situation involving risks that the proceedings may not be fair and square to all the parties concerned.
Indeed, a keen sense of fairness, equity and justice that constantly looks for consistency between the
letter of the adjective rules and these basic principles must be possessed by every judge, If substance
is to prevail, as it must, over form in our courts. Literal observance of the rules, when it is conducive to
unfair and undue advantage on the part of any litigant before it, is unworthy of any court of justice and
equity. Withal, only those rules and procedure informed, with and founded on public policy deserve
obedience in accord with their unequivocal language or words..
Before proceeding to the discussion of the default aspects of this case, however, it should not be amiss
to advert first to the patent incorrectness, apparent on the face of the record, of the aforementioned order
of dismissal of October 21, 1974 of the case below as regards non-defaulted defendants Lim and
Leonardo. While it is true that said defendants are not petitioners herein, the Court deems it necessary
for a full view of the outrageous procedural strategy conceived by respondent's counsel and sanctioned
by respondent court to also make reference to the very evident fact that in ordering said dismissal
respondent court disregarded completely the existence of defendant's counterclaim which it had itself
earlier held if indirectly, to be compulsory in nature when it refused to dismiss the same on the ground
alleged by respondent Tan that he docketing fees for the filing thereof had not been paid by defendants.
Indeed, that said counterclaim is compulsory needs no extended elaboration. As may be noted in the
allegations hereof aforequoted, it arose out of or is necessarily connected with the occurrence that is the
subject matter of the plaintiff's claim, (Section 4, Rule 9) namely, plaintiff's allegedly being the widow of
the deceased Tee Hoon entitled, as such, to demand accounting of and to receive the share of her
alleged late husband as partner of defendants Antonio Lim Tanhu and Alfonso Leonardo Ng Sua in Glory
Commercial Company, the truth of which allegations all the defendants have denied. Defendants
maintain in their counterclaim that plaintiff knew of the falsity of said allegations even before she filed
her complaint, for she had in fact admitted her common-law relationship with said deceased in a
document she had jointly executed with him by way of agreement to terminate their illegitimate
relationship, for which she received P40,000 from the deceased, and with respect to her pretended share
in the capital and profits in the partnership, it is also defendants' posture that she had already quitclaimed,
with the assistance of able counsel, whatever rights if any she had thereto in November, 1967, for the
sum of P25,000 duly receipted by her, which quitclaim was, however, executed, according to respondent
herself in her amended complaint, through fraud. And having filed her complaint knowing, according to
defendants, as she ought to have known, that the material allegations thereof are false and baseless,
she has caused them to suffer damages. Undoubtedly, with such allegations, defendants' counterclaim
is compulsory, not only because the same evidence to sustain it will also refute the cause or causes of
action alleged in plaintiff's complaint, (Moran, supra p. 352) but also because from its very nature, it is
obvious that the same cannot "remain pending for independent adjudication by the court." (Section 2,
Rule 17.)
The provision of the rules just cited specifically enjoins that "(i)f a counterclaim has been pleaded by a
defendant prior to the service upon him of the plaintiff's motion to dismiss, the action shall not be
dismissed against the defendant's objection unless the counterclaim can remain pending for independent
adjudication by the court." Defendants Lim and Leonardo had no opportunity to object to the motion to
dismiss before the order granting the same was issued, for the simple reason that they were not
opportunity notified of the motion therefor, but the record shows clearly that at least defendant Lim
immediately brought the matter of their compulsory counterclaim to the attention of the trial court in his
motion for reconsideration of October 23, 1974, even as the counsel for the other defendant, Leonardo,
predicated his motion on other grounds. In its order of December 6, 1974, however, respondent court
not only upheld the plaintiffs supposed absolute right to choose her adversaries but also held that the
counterclaim is not compulsory, thereby virtually making unexplained and inexplicable 180-degree
turnabout in that respect.
There is another equally fundamental consideration why the motion to dismiss should not have been
granted. As the plaintiff's complaint has been framed, all the six defendants are charged with having
actually taken part in a conspiracy to misappropriate, conceal and convert to their own benefit the profits,
properties and all other assets of the partnership Glory Commercial Company, to the extent that they
have allegedly organized a corporation, Glory Commercial Company, Inc. with what they had illegally
gotten from the partnership. Upon such allegations, no judgment finding the existence of the alleged
conspiracy or holding the capital of the corporation to be the money of the partnership is legally possible
without the presence of all the defendants. The non-defaulted defendants are alleged to be stockholders
of the corporation and any decision depriving the same of all its assets cannot but prejudice the interests
of said defendants. Accordingly, upon these premises, and even prescinding from the other reasons to
be discussed anon it is clear that all the six defendants below, defaulted and non-defaulted, are
indispensable parties. Respondents could do no less than grant that they are so on page 23 of their
answer. Such being the case, the questioned order of dismissal is exactly the opposite of what ought to
have been done. Whenever it appears to the court in the course of a proceeding that an indispensable
party has not been joined, it is the duty of the court to stop the trial and to order the inclusion of such
party. (The Revised Rules of Court, Annotated & Commented by Senator Vicente J. Francisco, Vol. 1,
p. 271, 1973 ed. See also Cortez vs. Avila, 101 Phil. 705.) Such an order is unavoidable, for the "general
rule with reference to the making of parties in a civil action requires the joinder of all necessary parties
wherever possible, and the joinder of all indispensable parties under any and all conditions, the presence
of those latter being a sine qua non of the exercise of judicial power." (Borlasa vs. Polistico, 47 Phil. 345,
at p. 347.) It is precisely " when an indispensable party is not before the court (that) the action should be
dismissed." (People v. Rodriguez, 106 Phil. 325, at p. 327.) The absence of an indispensable party
renders all subsequent actuations of the court null and void, for want of authority to act, not only as to
the absent parties but even as to those present. In short, what respondent court did here was exactly
the reverse of what the law ordains it eliminated those who by law should precisely be joined.
As may he noted from the order of respondent court quoted earlier, which resolved the motions for
reconsideration of the dismissal order filed by the non-defaulted defendants, His Honor rationalized his
position thus:
It is the rule that it is the absolute prerogative of the plaintiff to choose, the theory upon
which he predicates his right of action, or the parties he desires to sue, without dictation
or imposition by the court or the adverse party. If he makes a mistake in the choice of his
right of action, or in that of the parties against whom he seeks to enforce it, that is his own
concern as he alone suffers therefrom. The plaintiff cannot be compelled to choose his
defendants, He may not, at his own expense, be forced to implead anyone who, under the
adverse party's theory, is to answer for defendant's liability. Neither may the Court compel
him to furnish the means by which defendant may avoid or mitigate their liability. (Vao
vs. Alo, 95 Phil. 495-496.)
 This being the rule this court cannot compel the plaintiff to continue prosecuting her cause
of action against the defendants-movants if in the course of the trial she believes she can
enforce it against the remaining defendants subject only to the limitation provided in
Section 2, Rule 17 of the Rules of Court. ... (Pages 6263, Record.)
Noticeably, His Honor has employed the same equivocal terminology as in plaintiff's motion of October
18, 1974 by referring to the action he had taken as being "dismissal of the complaint against them or
their being dropped therefrom", without perceiving that the reason for the evidently intentional ambiguity
is transparent. The apparent idea is to rely on the theory that under Section 11 of Rule 3, parties may be
dropped by the court upon motion of any party at any stage of the action, hence "it is the absolute right
prerogative of the plaintiff to choosethe parties he desires to sue, without dictation or imposition by the
court or the adverse party." In other words, the ambivalent pose is suggested that plaintiff's motion of
October 18, 1974 was not predicated on Section 2 of Rule 17 but more on Section 11 of Rule 3. But the
truth is that nothing can be more incorrect. To start with, the latter rule does not comprehend whimsical
and irrational dropping or adding of parties in a complaint. What it really contemplates is erroneous or
mistaken non-joinder and misjoinder of parties. No one is free to join anybody in a complaint in court
only to drop him unceremoniously later at the pleasure of the plaintiff. The rule presupposes that the
original inclusion had been made in the honest conviction that it was proper and the subsequent dropping
is requested because it has turned out that such inclusion was a mistake. And this is the reason why the
rule ordains that the dropping be "on such terms as are just" just to all the other parties. In the case
at bar, there is nothing in the record to legally justify the dropping of the non-defaulted defendants, Lim
and Leonardo. The motion of October 18, 1974 cites none. From all appearances, plaintiff just decided
to ask for it, without any relevant explanation at all. Usually, the court in granting such a motion inquires
for the reasons and in the appropriate instances directs the granting of some form of compensation for
the trouble undergone by the defendant in answering the complaint, preparing for or proceeding partially
to trial, hiring counsel and making corresponding expenses in the premises. Nothing of these, appears
in the order in question. Most importantly, His Honor ought to have considered that the outright dropping
of the non-defaulted defendants Lim and Leonardo, over their objection at that, would certainly be unjust
not only to the petitioners, their own parents, who would in consequence be entirely defenseless, but
also to Lim and Leonardo themselves who would naturally correspondingly suffer from the eventual
judgment against their parents. Respondent court paid no heed at all to the mandate that such dropping
must be on such terms as are just" meaning to all concerned with its legal and factual effects.
Thus, it is quite plain that respondent court erred in issuing its order of dismissal of October 21, 1974 as
well as its order of December 6, 1974 denying reconsideration of such dismissal. As We make this ruling,
We are not oblivious of the circumstance that defendants Lim and Leonardo are not parties herein. But
such consideration is inconsequential. The fate of the case of petitioners is inseparably tied up with said
order of dismissal, if only because the order of ex-parte hearing of October 21, 1974 which directly
affects and prejudices said petitioners is predicated thereon. Necessarily, therefore, We have to pass on
the legality of said order, if We are to decide the case of herein petitioners properly and fairly.
The attitude of the non-defaulted defendants of no longer pursuing further their questioning of the
dismissal is from another point of view understandable. On the one hand, why should they insist on being
defendants when plaintiff herself has already release from her claims? On the other hand, as far as their
respective parents-co-defendants are concerned, they must have realized that they (their parents) could
even be benefited by such dismissal because they could question whether or not plaintiff can still
prosecute her case against them after she had secured the order of dismissal in question. And it is in
connection with this last point that the true and correct concept of default becomes relevant.
At this juncture, it may also be stated that the decision of the Court of Appeals of January 24, 1975 in G.
R. No. SP-03066 dismissing the petition for certiorari of non-defaulted defendants Lim and Leonardo
impugning the order of dismissal of October 21, 1974, has no bearing at all in this case, not only because
that dismissal was premised by the appellate court on its holding that the said petition was premature
inasmuch as the trial court had not yet resolved the motion of the defendants of October 28, 1974 praying
that said disputed order be quashed, but principally because herein petitioners were not parties in that
proceeding and cannot, therefore, be bound by its result. In particular, We deem it warranted to draw the
attention of private respondent's counsel to his allegations in paragraphs XI to XIV of his answer, which
relate to said decision of the Court of Appeals and which have the clear tendency to make it appear to
the Court that the appeals court had upheld the legality and validity of the actuations of the trial court
being questioned, when as a matter of indisputable fact, the dismissal of the petition was based solely
and exclusively on its being premature without in any manner delving into its merits. The Court must and
does admonish counsel that such manner of pleading, being deceptive and lacking in candor, has no
place in any court, much less in the Supreme Court, and if We are adopting a passive attitude in the
premises, it is due only to the fact that this is counsel's first offense. But similar conduct on his part in
the future will definitely be dealt with more severely. Parties and counsel would be well advised to avoid
such attempts to befuddle the issues as invariably then will be exposed for what they are, certainly
unethical and degrading to the dignity of the law profession. Moreover, almost always they only betray
the inherent weakness of the cause of the party resorting to them.
2
Coming now to the matter itself of default, it is quite apparent that the impugned orders must have
proceeded from inadequate apprehension of the fundamental precepts governing such procedure under
the Rules of Court. It is time indeed that the concept of this procedural device were fully understood by
the bench and bar, instead of being merely taken for granted as being that of a simple expedient of not
allowing the offending party to take part in the proceedings, so that after his adversary shall have
presented his evidence, judgment may be rendered in favor of such opponent, with hardly any chance
of said judgment being reversed or modified.
The Rules of Court contain a separate rule on the subject of default, Rule 18. But said rule is concerned
solely with default resulting from failure of the defendant or defendants to answer within the reglementary
period. Referring to the simplest form of default, that is, where there is only one defendant in the action
and he fails to answer on time, Section 1 of the rule provides that upon "proof of such failure, (the court
shall) declare the defendant in default. Thereupon the court shall proceed to receive the plaintiff's
evidence and render judgment granting him such relief as the complaint and the facts proven may
warrant." This last clause is clarified by Section 5 which says that "a judgment entered against a party in
default shall not exceed the amount or be different in kind from that prayed for."
Unequivocal, in the literal sense, as these provisions are, they do not readily convey the full import of
what they contemplate. To begin with, contrary to the immediate notion that can be drawn from their
language, these provisions are not to be understood as meaning that default or the failure of the
defendant to answer should be "interpreted as an admission by the said defendant that the plaintiff's
cause of action find support in the law or that plaintiff is entitled to the relief prayed for." (Moran, supra,
p. 535 citing Macondary & Co. v. Eustaquio, 64 Phil. 466, citing with approval Chaffin v. McFadden, 41
Ark. 42; Johnson v. Pierce, 12 Ark. 599; Mayden v. Johnson, 59 Ga. 105; People v. Rust, 292 111. 328;
Ken v. Leopold 21 111. A. 163; Chicago, etc. Electric R. Co. v. Krempel 116 111. A. 253.)
Being declared in default does not constitute a waiver of rights except that of being heard and of
presenting evidence in the trial court. According to Section 2, "except as provided in Section 9 of Rule
13, a party declared in default shall not be entitled to notice of subsequent proceedings, nor to take part
in the trial." That provision referred to reads: "No service of papers other than substantially amended
pleadings and final orders or judgments shall be necessary on a party in default unless he files a motion
to set aside the order of default, in which event he shall be entitled to notice of all further proceedings
regardless of whether the order of default is set aside or not." And pursuant to Section 2 of Rule 41, "a
party who has been declared in default may likewise appeal from the judgment rendered against him as
contrary to the evidence or to the law, even if no petition for relief to set aside the order of default has
been presented by him in accordance with Rule 38.".
In other words, a defaulted defendant is not actually thrown out of court. While in a sense it may be said
that by defaulting he leaves himself at the mercy of the court, the rules see to it that any judgment against
him must be in accordance with law. The evidence to support the plaintiff's cause is, of course, presented
in his absence, but the court is not supposed to admit that which is basically incompetent. Although the
defendant would not be in a position to object, elementary justice requires that, only legal evidence
should be considered against him. If the evidence presented should not be sufficient to justify a judgment
for the plaintiff, the complaint must be dismissed. And if an unfavorable judgment should be justifiable,
it cannot exceed in amount or be different in kind from what is prayed for in the complaint.
Incidentally, these considerations argue against the present widespread practice of trial judges, as was
done by His Honor in this case, of delegating to their clerks of court the reception of the plaintiff's
evidence when the defendant is in default. Such a Practice is wrong in principle and orientation. It has
no basis in any rule. When a defendant allows himself to be declared in default, he relies on the faith
that the court would take care that his rights are not unduly prejudiced. He has a right to presume that
the law and the rules will still be observed. The proceedings are held in his forced absence, and it is but
fair that the plaintiff should not be allowed to take advantage of the situation to win by foul or illegal
means or with inherently incompetent evidence. Thus, in such instances, there is need for more attention
from the court, which only the judge himself can provide. The clerk of court would not be in a position
much less have the authority to act in the premises in the manner demanded by the rules of fair play and
as contemplated in the law, considering his comparably limited area of discretion and his presumably
inferior preparation for the functions of a judge. Besides, the default of the defendant is no excuse for
the court to renounce the opportunity to closely observe the demeanor and conduct of the witnesses of
the plaintiff, the better to appreciate their truthfulness and credibility. We therefore declare as a matter
of judicial policy that there being no imperative reason for judges to do otherwise, the practice should be
discontinued.
Another matter of practice worthy of mention at this point is that it is preferable to leave enough
opportunity open for possible lifting of the order of default before proceeding with the reception of the
plaintiff's evidence and the rendition of the decision. "A judgment by default may amount to a positive
and considerable injustice to the defendant; and the possibility of such serious consequences
necessitates a careful and liberal examination of the grounds upon which the defendant may seek to set
it aside." (Moran, supra p. 534, citing Coombs vs. Santos, 24 Phil. 446; 449-450.) The expression,
therefore, in Section 1 of Rule 18 aforequoted which says that "thereupon the court shall proceed to
receive the plaintiff's evidence etc." is not to be taken literally. The gain in time and dispatch should the
court immediately try the case on the very day of or shortly after the declaration of default is far
outweighed by the inconvenience and complications involved in having to undo everything already done
in the event the defendant should justify his omission to answer on time.
The foregoing observations, as may be noted, refer to instances where the only defendant or all the
defendants, there being several, are declared in default. There are additional rules embodying more
considerations of justice and equity in cases where there are several defendants against whom a
common cause of action is averred and not all of them answer opportunely or are in default, particularly
in reference to the power of the court to render judgment in such situations. Thus, in addition to the
limitation of Section 5 that the judgment by default should not be more in amount nor different in kind
from the reliefs specifically sought by plaintiff in his complaint, Section 4 restricts the authority of the
court in rendering judgment in the situations just mentioned as follows:
Sec. 4. Judgment when some defendants answer, and other make difficult. When a complaint states
a common cause of action against several defendant some of whom answer, and the others fail to do
so, the court shall try the case against all upon the answer thus filed and render judgment upon the
evidence presented. The same proceeding applies when a common cause of action is pleaded in a
counterclaim, cross-claim and third-party claim.
Very aptly does Chief Justice Moran elucidate on this provision and the controlling jurisprudence
explanatory thereof this wise:
Where a complaint states a common cause of action against several defendants and some appear to
defend the case on the merits while others make default, the defense interposed by those who appear
to litigate the case inures to the benefit of those who fail to appear, and if the court finds that a good
defense has been made, all of the defendants must be absolved. In other words, the answer filed by one
or some of the defendants inures to the benefit of all the others, even those who have not seasonably
filed their answer. (Bueno v. Ortiz, L-22978, June 27, 1968, 23 SCRA 1151.) The proper mode of
proceeding where a complaint states a common cause of action against several defendants, and one of
them makes default, is simply to enter a formal default order against him, and proceed with the cause
upon the answers of the others. The defaulting defendant merely loses his standing in court, he not being
entitled to the service of notice in the cause, nor to appear in the suit in any way. He cannot adduce
evidence; nor can he be heard at the final hearing, (Lim Toco v. Go Fay, 80 Phil. 166.) although he may
appeal the judgment rendered against him on the merits. (Rule 41, sec. 2.) If the case is finally decided
in the plaintiff's favor, a final decree is then entered against all the defendants; but if the suit should be
decided against the plaintiff, the action will be dismissed as to all the defendants alike. (Velez v. Ramas,
40 Phil. 787-792; Frow v. de la Vega, 15 Wal. 552,21 L. Ed. 60.) In other words the judgment will affect
the defaulting defendants either favorably or adversely. (Castro v. Pea, 80 Phil. 488.)
Defaulting defendant may ask execution if judgment is in his favor. (Castro v. Pea, supra.) (Moran,
Rules of Court, Vol. 1, pp. 538-539.)
In Castro vs. Pea, 80 Phil. 488, one of the numerous cases cited by Moran, this Court elaborated on
the construction of the same rule when it sanctioned the execution, upon motion and for the benefit of
the defendant in default, of a judgment which was adverse to the plaintiff. The Court held:
As above stated, Emilia Matanguihan, by her counsel, also was a movant in the petition for execution
Annex 1. Did she have a right to be such, having been declared in default? In Frow vs. De la Vega, supra,
cited as authority in Velez vs. Ramas, supra, the Supreme Court of the United States adopted as ground
for its own decision the following ruling of the New York Court of Errors in Clason vs. Morris, 10 Jons.,
524:
It would be unreasonable to hold that because one defendant had made default, the plaintiff should have
a decree even against him, where the court is satisfied from the proofs offered by the other, that in fact
the plaintiff is not entitled to a decree. (21 Law, ed., 61.)
The reason is simple: justice has to be consistent. The complaint stating a common cause of action
against several defendants, the complainant's rights or lack of them in the controversy have to be
the same, and not different, as against all the defendant's although one or some make default and the
other or others appear, join issue, and enter into trial. For instance, in the case of Clason vs. Morris above
cited, the New York Court of Errors in effect held that in such a case if the plaintiff is not entitled to a
decree, he will not be entitled to it, not only as against the defendant appearing and resisting his action
but also as against the one who made default. In the case at bar, the cause of action in the plaintiff's
complaint was common against the Mayor of Manila, Emilia Matanguihan, and the other defendants in
Civil Case No. 1318 of the lower court. The Court of First Instance in its judgment found and held upon
the evidence adduced by the plaintiff and the defendant mayor that as between said plaintiff and
defendant Matanguihan the latter was the one legally entitled to occupy the stalls; and it decreed, among
other things, that said plaintiff immediately vacate them. Paraphrasing the New York Court of Errors, it
would be unreasonable to hold now that because Matanguihan had made default, the said plaintiff should
be declared, as against her, legally entitled to the occupancy of the stalls, or to remain therein, although
the Court of First Instance was so firmly satisfied, from the proofs offered by the other defendant, that
the same plaintiff was not entitled to such occupancy that it peremptorily ordered her to vacate the stalls.
If in the cases of Clason vs. Morris, supra, Frow vs. De la Vega, supra, and Velez vs. Ramas, supra the
decrees entered inured to the benefit of the defaulting defendants, there is no reason why that entered
in said case No. 1318 should not be held also to have inured to the benefit of the defaulting defendant
Matanguihan and the doctrine in said three cases plainly implies that there is nothing in the law governing
default which would prohibit the court from rendering judgment favorable to the defaulting defendant in
such cases. If it inured to her benefit, it stands to reason that she had a right to claim that benefit, for it
would not be a benefit if the supposed beneficiary were barred from claiming it; and if the benefit
necessitated the execution of the decree, she must be possessed of the right to ask for the execution
thereof as she did when she, by counsel, participated in the petition for execution Annex 1.
Section 7 of Rule 35 would seem to afford a solid support to the above considerations. It provides that
when a complaint states a common cause of action against several defendants, some of whom answer,
and the others make default, 'the court shall try the case against all upon the answer thus filed and render
judgment upon the evidence presented by the parties in court'. It is obvious that under this provision the
case is tried jointly not only against the defendants answering but also against those defaulting, and the
trial is held upon the answer filed by the former; and the judgment, if adverse, will prejudice the defaulting
defendants no less than those who answer. In other words, the defaulting defendants are held bound by
the answer filed by their co-defendants and by the judgment which the court may render against all of
them. By the same token, and by all rules of equity and fair play, if the judgment should happen to be
favorable, totally or partially, to the answering defendants, it must correspondingly benefit the defaulting
ones, for it would not be just to let the judgment produce effects as to the defaulting defendants only
when adverse to them and not when favorable.
In Bueno vs. Ortiz, 23 SCRA 1151, the Court applied the provision under discussion in the following
words:
In answer to the charge that respondent Judge had committed a grave abuse of discretion in rendering
a default judgment against the PC, respondents allege that, not having filed its answer within the
reglementary period, the PC was in default, so that it was proper for Patanao to forthwith present his
evidence and for respondent Judge to render said judgment. It should be noted, however, that in entering
the area in question and seeking to prevent Patanao from continuing his logging operations therein, the
PC was merely executing an order of the Director of Forestry and acting as his agent. Patanao's cause
of action against the other respondents in Case No. 190, namely, the Director of Forestry, the District
Forester of Agusan, the Forest Officer of Bayugan, Agusan, and the Secretary of Agriculture and Natural
Resources. Pursuant to Rule 18, Section 4, of the Rules of Court, 'when a complaint states a common
cause of action against several defendants some of whom answer and the others fail to do so, the court
shall try the case against all upon the answer thus filed (by some) and render judgment upon the
evidence presented.' In other words, the answer filed by one or some of the defendants inures to the
benefit of all the others, even those who have not seasonably filed their answer.
Indeed, since the petition in Case No. 190 sets forth a common cause of action against all of the
respondents therein, a decision in favor of one of them would necessarily favor the others. In fact, the
main issue, in said case, is whether Patanao has a timber license to undertake logging operations in the
disputed area. It is not possible to decide such issue in the negative, insofar as the Director of Forestry,
and to settle it otherwise, as regards the PC, which is merely acting as agent of the Director of Forestry,
and is, therefore, his alter ego, with respect to the disputed forest area.
Stated differently, in all instances where a common cause of action is alleged against several defendants,
some of whom answer and the others do not, the latter or those in default acquire a vested right not only
to own the defense interposed in the answer of their co- defendant or co-defendants not in default but
also to expect a result of the litigation totally common with them in kind and in amount whether favorable
or unfavorable. The substantive unity of the plaintiff's cause against all the defendants is carried through
to its adjective phase as ineluctably demanded by the homogeneity and indivisibility of justice itself.
Indeed, since the singleness of the cause of action also inevitably implies that all the defendants are
indispensable parties, the court's power to act is integral and cannot be split such that it cannot relieve
any of them and at the same time render judgment against the rest. Considering the tenor of the section
in question, it is to be assumed that when any defendant allows himself to be declared in default knowing
that his defendant has already answered, he does so trusting in the assurance implicit in the rule that
his default is in essence a mere formality that deprives him of no more than the right to take part in the
trial and that the court would deem anything done by or for the answering defendant as done by or for
him. The presumption is that otherwise he would not -have seen to that he would not be in default. Of
course, he has to suffer the consequences of whatever the answering defendant may do or fail to do,
regardless of possible adverse consequences, but if the complaint has to be dismissed in so far as the
answering defendant is concerned it becomes his inalienable right that the same be dismissed also as
to him. It does not matter that the dismissal is upon the evidence presented by the plaintiff or upon the
latter's mere desistance, for in both contingencies, the lack of sufficient legal basis must be the cause.
The integrity of the common cause of action against all the defendants and the indispensability of all of
them in the proceedings do not permit any possibility of waiver of the plaintiff's right only as to one or
some of them, without including all of them, and so, as a rule, withdrawal must be deemed to be a
confession of weakness as to all. This is not only elementary justice; it also precludes the concomitant
hazard that plaintiff might resort to the kind of procedural strategem practiced by private respondent
herein that resulted in totally depriving petitioners of every opportunity to defend themselves against her
claims which, after all, as will be seen later in this opinion, the record does not show to be invulnerable,
both in their factual and legal aspects, taking into consideration the tenor of the pleadings and the
probative value of the competent evidence which were before the trial court when it rendered its assailed
decision where all the defendants are indispensable parties, for which reason the absence of any of
them in the case would result in the court losing its competency to act validly, any compromise that the
plaintiff might wish to make with any of them must, as a matter of correct procedure, have to await until
after the rendition of the judgment, at which stage the plaintiff may then treat the matter of its execution
and the satisfaction of his claim as variably as he might please. Accordingly, in the case now before Us
together with the dismissal of the complaint against the non-defaulted defendants, the court should have
ordered also the dismissal thereof as to petitioners.
Indeed, there is more reason to apply here the principle of unity and indivisibility of the action just
discussed because all the defendants here have already joined genuine issues with plaintiff. Their default
was only at the pre-trial. And as to such absence of petitioners at the pre-trial, the same could be
attributed to the fact that they might not have considered it necessary anymore to be present, since their
respective children Lim and Leonardo, with whom they have common defenses, could take care of their
defenses as well. Anything that might have had to be done by them at such pre-trial could have been
done for them by their children, at least initially, specially because in the light of the pleadings before the
court, the prospects of a compromise must have appeared to be rather remote. Such attitude of
petitioners is neither uncommon nor totally unjustified. Under the circumstances, to declare them
immediately and irrevocably in default was not an absolute necessity. Practical considerations and
reasons of equity should have moved respondent court to be more understanding in dealing with the
situation. After all, declaring them in default as respondent court did not impair their right to a common
fate with their children.
3
Another issue to be resolved in this case is the question of whether or not herein petitioners were entitled
to notice of plaintiff's motion to drop their co-defendants Lim and Leonardo, considering that petitioners
had been previously declared in default. In this connection, the decisive consideration is that according
to the applicable rule, Section 9, Rule 13, already quoted above, (1) even after a defendant has been
declared in default, provided he "files a motion to set aside the order of default, he shall be entitled to
notice of all further proceedings regardless of whether the order of default is set aside or not" and (2) a
party in default who has not filed such a motion to set aside must still be served with all "substantially
amended or supplemented pleadings." In the instant case, it cannot be denied that petitioners had all
filed their motion for reconsideration of the order declaring them in default. Respondents' own answer to
the petition therein makes reference to the order of April 3, 1973, Annex 8 of said answer, which denied
said motion for reconsideration. On page 3 of petitioners' memorandum herein this motion is referred to
as "a motion to set aside the order of default." But as We have not been favored by the parties with a
copy of the said motion, We do not even know the excuse given for petitioners' failure to appear at the
pre-trial, and We cannot, therefore, determine whether or not the motion complied with the requirements
of Section 3 of Rule 18 which We have held to be controlling in cases of default for failure to answer on
time. (The Philippine-British Co. Inc. etc. et al. vs. The Hon. Walfrido de los Angeles etc. et al., 63 SCRA
50.)
We do not, however, have here, as earlier noted, a case of default for failure to answer but one for failure
to appear at the pre-trial. We reiterate, in the situation now before Us, issues have already been joined.
In fact, evidence had been partially offered already at the pre-trial and more of it at the actual trial which
had already begun with the first witness of the plaintiff undergoing re-cross-examination. With these facts
in mind and considering that issues had already been joined even as regards the defaulted defendants,
it would be requiring the obvious to pretend that there was still need for an oath or a verification as to the
merits of the defense of the defaulted defendants in their motion to reconsider their default. Inasmuch
as none of the parties had asked for a summary judgment there can be no question that the issues joined
were genuine, and consequently, the reason for requiring such oath or verification no longer holds.
Besides, it may also be reiterated that being the parents of the non-defaulted defendants, petitioners
must have assumed that their presence was superfluous, particularly because the cause of action
against them as well as their own defenses are common. Under these circumstances, the form of the
motion by which the default was sought to be lifted is secondary and the requirements of Section 3 of
Rule 18 need not be strictly complied with, unlike in cases of default for failure to answer. We can thus
hold as We do hold for the purposes of the revival of their right to notice under Section 9 of Rule 13, that
petitioner's motion for reconsideration was in substance legally adequate regardless of whether or not it
was under oath.
In any event, the dropping of the defendants Lim and Leonardo from plaintiff's amended complaint was
virtually a second amendment of plaintiffs complaint. And there can be no doubt that such amendment
was substantial, for with the elimination thereby of two defendants allegedly solidarily liable with their co-
defendants, herein petitioners, it had the effect of increasing proportionally what each of the remaining
defendants, the said petitioners, would have to answer for jointly and severally. Accordingly, notice to
petitioners of the plaintiff's motion of October 18, 1974 was legally indispensable under the rule above-
quoted. Consequently, respondent court had no authority to act on the motion, to dismiss, pursuant to
Section 6 of Rule 15, for according to Senator Francisco, "(t) he Rules of Court clearly provide that no
motion shall be acted upon by the Court without the proof of service of notice thereof, together with a
copy of the motion and other papers accompanying it, to all parties concerned at least three days before
the hearing thereof, stating the time and place for the hearing of the motion. (Rule 26, section 4, 5 and
6, Rules of Court (now Sec. 15, new Rules). When the motion does not comply with this requirement, it
is not a motion. It presents no question which the court could decide. And the Court acquires no
jurisdiction to consider it. (Roman Catholic Bishop of Lipa vs. Municipality of Unisan 44 Phil., 866; Manakil
vs. Revilla, 42 Phil., 81.) (Laserna vs. Javier, et al., CA-G.R. No. 7885, April 22, 1955; 21 L.J. 36, citing
Roman Catholic Bishop of Lipa vs. Municipality of Unisan 44 Phil., 866; Manakil vs. Revilla, 42 Phil., 81.)
(Francisco. The Revised Rules of Court in the Philippines, pp. 861-862.) Thus, We see again, from a
different angle, why respondent court's order of dismissal of October 21, 1974 is fatally ineffective.
4
The foregoing considerations notwithstanding, it is respondents' position that certiorari is not the proper
remedy of petitioners. It is contended that inasmuch as said petitioners have in fact made their appeal
already by filing the required notice of appeal and appeal bond and a motion for extension to file their
record on appeal, which motion was granted by respondent court, their only recourse is to prosecute that
appeal. Additionally, it is also maintained that since petitioners have expressly withdrawn their motion to
quash of January 4, 1975 impugning the order of October 28, 1974, they have lost their right to assail by
certiorari the actuations of respondent court now being questioned, respondent court not having been
given the opportunity to correct any possible error it might have committed.
We do not agree. As already shown in the foregoing discussion, the proceedings in the court below have
gone so far out of hand that prompt action is needed to restore order in the entangled situation created
by the series of plainly illegal orders it had issued. The essential purpose of certiorari is to keep the
proceedings in lower judicial courts and tribunals within legal bounds, so that due process and the rule
of law may prevail at all times and arbitrariness, whimsicality and unfairness which justice abhors may
immediately be stamped out before graver injury, juridical and otherwise, ensues. While generally these
objectives may well be attained in an ordinary appeal, it is undoubtedly the better rule to allow the special
remedy of certiorari at the option of the party adversely affected, when the irregularity committed by the
trial court is so grave and so far reaching in its consequences that the long and cumbersome procedure
of appeal will only further aggravate the situation of the aggrieved party because other untoward
actuations are likely to materialize as natural consequences of those already perpetrated. If the law were
otherwise, certiorari would have no reason at all for being.
No elaborate discussion is needed to show the urgent need for corrective measures in the case at bar.
Verily, this is one case that calls for the exercise of the Supreme Court's inherent power of supervision
over all kinds of judicial actions of lower courts. Private respondent's procedural technique designed to
disable petitioners to defend themselves against her claim which appears on the face of the record itself
to be at least highly controversial seems to have so fascinated respondent court that none would be
surprised should her pending motion for immediate execution of the impugned judgment receive similar
ready sanction as her previous motions which turned the proceedings into a one-sided affair. The stakes
here are high. Not only is the subject matter considerably substantial; there is the more important aspect
that not only the spirit and intent of the rules but even the basic rudiments of fair play have been
disregarded. For the Court to leave unrestrained the obvious tendency of the proceedings below would
be nothing short of wittingly condoning inequity and injustice resulting from erroneous construction and
unwarranted application of procedural rules.
5
The sum and total of all the foregoing disquisitions is that the decision here in question is legally
anomalous. It is predicated on two fatal malactuations of respondent court namely (1) the dismissal of
the complaint against the non-defaulted defendants Lim and Leonardo and (2) the ex-parte reception of
the evidence of the plaintiff by the clerk of court, the subsequent using of the same as basis for its
judgment and the rendition of such judgment.
For at least three reasons which We have already fully discussed above, the order of dismissal of
October 21, 1974 is unworthy of Our sanction: (1) there was no timely notice of the motion therefor to
the non-defaulted defendants, aside from there being no notice at all to herein petitioners; (2) the
common answer of the defendants, including the non-defaulted, contained a compulsory counterclaim
incapable of being determined in an independent action; and (3) the immediate effect of such dismissal
was the removal of the two non-defaulted defendants as parties, and inasmuch as they are both
indispensable parties in the case, the court consequently lost the" sine qua non of the exercise of judicial
power", per Borlasa vs. Polistico, supra. This is not to mention anymore the irregular delegation to the
clerk of court of the function of receiving plaintiff's evidence. And as regards the ex-parte reception of
plaintiff's evidence and subsequent rendition of the judgment by default based thereon, We have seen
that it was violative of the right of the petitioners, under the applicable rules and principles on default, to
a common and single fate with their non-defaulted co-defendants. And We are not yet referring, as We
shall do this anon to the numerous reversible errors in the decision itself.
It is to be noted, however, that the above-indicated two fundamental flaws in respondent court's
actuations do not call for a common corrective remedy. We cannot simply rule that all the impugned
proceedings are null and void and should be set aside, without being faced with the insurmountable
obstacle that by so doing We would be reviewing the case as against the two non-defaulted defendants
who are not before Us not being parties hereto. Upon the other hand, for Us to hold that the order of
dismissal should be allowed to stand, as contended by respondents themselves who insist that the same
is already final, not only because the period for its finality has long passed but also because allegedly,
albeit not very accurately, said 'non-defaulted defendants unsuccessfully tried to have it set aside by the
Court of Appeals whose decision on their petition is also already final, We would have to disregard
whatever evidence had been presented by the plaintiff against them and, of course, the findings of
respondent court based thereon which, as the assailed decision shows, are adverse to them. In other
words, whichever of the two apparent remedies the Court chooses, it would necessarily entail some kind
of possible juridical imperfection. Speaking of their respective practical or pragmatic effects, to annul the
dismissal would inevitably prejudice the rights of the non-defaulted defendants whom We have not heard
and who even respondents would not wish to have anything anymore to do with the case. On the other
hand, to include petitioners in the dismissal would naturally set at naught every effort private respondent
has made to establish or prove her case thru means sanctioned by respondent court. In short, We are
confronted with a legal para-dilemma. But one thing is certain this difficult situations has been brought
about by none other than private respondent who has quite cynically resorted to procedural maneuvers
without realizing that the technicalities of the adjective law, even when apparently accurate from the
literal point of view, cannot prevail over the imperatives of the substantive law and of equity that always
underlie them and which have to be inevitably considered in the construction of the pertinent procedural
rules.
All things considered, after careful and mature deliberation, the Court has arrived at the conclusion that
as between the two possible alternatives just stated, it would only be fair, equitable and proper to uphold
the position of petitioners. In other words, We rule that the order of dismissal of October 21, 1974 is in
law a dismissal of the whole case of the plaintiff, including as to petitioners herein. Consequently, all
proceedings held by respondent court subsequent thereto including and principally its decision of
December 20, 1974 are illegal and should be set aside.
This conclusion is fully justified by the following considerations of equity:
1. It is very clear to Us that the procedural maneuver resorted to by private respondent in securing the
decision in her favor was ill-conceived. It was characterized by that which every principle of law and
equity disdains taking unfair advantage of the rules of procedure in order to unduly deprive the other
party of full opportunity to defend his cause. The idea of "dropping" the non-defaulted defendants with
the end in view of completely incapacitating their co-defendants from making any defense, without
considering that all of them are indispensable parties to a common cause of action to which they have
countered with a common defense readily connotes an intent to secure a one-sided decision, even
improperly. And when, in this connection, the obvious weakness of plaintiff's evidence is taken into
account, one easily understands why such tactics had to be availed of. We cannot directly or indirectly
give Our assent to the commission of unfairness and inequity in the application of the rules of procedure,
particularly when the propriety of reliance thereon is not beyond controversy.
2. The theories of remedial law pursued by private respondents, although approved by His Honor, run
counter to such basic principles in the rules on default and such elementary rules on dismissal of actions
and notice of motions that no trial court should be unaware of or should be mistaken in applying. We are
at a loss as to why His Honor failed to see through counsel's inequitous strategy, when the provisions
(1) on the three-day rule on notice of motions, Section 4 of Rule 15, (2) against dismissal of actions on
motion of plaintiff when there is a compulsory counterclaim, Section 2, Rule 17, (3) against permitting
the absence of indispensable parties, Section 7, Rule 3, (4) on service of papers upon defendants in
default when there are substantial amendments to pleadings, Section 9, Rule 13, and (5) on the unity
and integrity of the fate of defendants in default with those not in default where the cause of action
against them and their own defenses are common, Section 4, Rule 18, are so plain and the jurisprudence
declaratory of their intent and proper construction are so readily comprehensible that any error as to their
application would be unusual in any competent trial court.
3. After all, all the malactuations of respondent court are traceable to the initiative of private respondent
and/or her counsel. She cannot, therefore, complain that she is being made to unjustifiably suffer the
consequences of what We have found to be erroneous orders of respondent court. It is only fair that she
should not be allowed to benefit from her own frustrated objective of securing a one-sided decision.
4. More importantly, We do not hesitate to hold that on the basis of its own recitals, the decision in
question cannot stand close scrutiny. What is more, the very considerations contained therein reveal
convincingly the inherent weakness of the cause of the plaintiff. To be sure, We have been giving serious
thought to the idea of merely returning this case for a resumption of trial by setting aside the order of
dismissal of October 21, 1974, with all its attendant difficulties on account of its adverse effects on parties
who have not been heard, but upon closer study of the pleadings and the decision and other
circumstances extant in the record before Us, We are now persuaded that such a course of action would
only lead to more legal complications incident to attempts on the part of the parties concerned to
desperately squeeze themselves out of a bad situation. Anyway, We feel confident that by and large,
there is enough basis here and now for Us to rule out the claim of the plaintiff.
Even a mere superficial reading of the decision would immediately reveal that it is littered on its face with
deficiencies and imperfections which would have had no reason for being were there less haste and
more circumspection in rendering the same. Recklessness in jumping to unwarranted conclusions, both
factual and legal, is at once evident in its findings relative precisely to the main bases themselves of the
reliefs granted. It is apparent therein that no effort has been made to avoid glaring inconsistencies.
Where references are made to codal provisions and jurisprudence, inaccuracy and inapplicability are at
once manifest. It hardly commends itself as a deliberate and consciencious adjudication of a litigation
which, considering the substantial value of the subject matter it involves and the unprecedented
procedure that was followed by respondent's counsel, calls for greater attention and skill than the general
run of cases would.
Inter alia, the following features of the decision make it highly improbable that if We took another course
of action, private respondent would still be able to make out any case against petitioners, not to speak
of their co-defendants who have already been exonerated by respondent herself thru her motion to
dismiss:
1. According to His Honor's own statement of plaintiff's case, "she is the widow of the late Tee Hoon Po
Chuan (Po Chuan, for short) who was then one of the partners in the commercial partnership, Glory
Commercial Co. with defendants Antonio Lim Tanhu (Lim Tanhu, for short) and Alfonso Leonardo Ng
Sua (Ng Sua, for short) as co-partners; that after the death of her husband on March 11, 1966 she is
entitled to share not only in the capital and profits of the partnership but also in the other assets, both
real and personal, acquired by the partnership with funds of the latter during its lifetime."
Relatedly, in the latter part of the decision, the findings are to the following effect: .
That the herein plaintiff Tan Put and her late husband Po Chuan married at the Philippine Independent
Church of Cebu City on December, 20, 1949; that Po Chuan died on March 11, 1966; that the plaintiff
and the late Po Chuan were childless but the former has a foster son Antonio Nuez whom she has
reared since his birth with whom she lives up to the present; that prior to the marriage of the plaintiff to
Po Chuan the latter was already managing the partnership Glory Commercial Co. then engaged in a
little business in hardware at Manalili St., Cebu City; that prior to and just after the marriage of the plaintiff
to Po Chuan she was engaged in the drugstore business; that not long after her marriage, upon the
suggestion of Po Chuan the plaintiff sold her drugstore for P125,000.00 which amount she gave to her
husband in the presence of defendant Lim Tanhu and was invested in the partnership Glory Commercial
Co. sometime in 1950; that after the investment of the above-stated amount in the partnership its
business flourished and it embarked in the import business and also engaged in the wholesale and retail
trade of cement and GI sheets and under huge profits;
xxx xxx xxx
That the late Po Chuan was the one who actively managed the business of the partnership Glory
Commercial Co. he was the one who made the final decisions and approved the appointments of new
personnel who were taken in by the partnership; that the late Po Chuan and defendants Lim Tanhu and
Ng Sua are brothers, the latter two (2) being the elder brothers of the former; that defendants Lim Tanhu
and Ng Sua are both naturalized Filipino citizens whereas the late Po Chuan until the time of his death
was a Chinese citizen; that the three (3) brothers were partners in the Glory Commercial Co. but Po
Chuan was practically the owner of the partnership having the controlling interest; that defendants Lim
Tanhu and Ng Sua were partners in name but they were mere employees of Po Chuan .... (Pp. 89-91,
Record.)
How did His Honor arrive at these conclusions? To start with, it is not clear in the decision whether or
not in making its findings of fact the court took into account the allegations in the pleadings of the parties
and whatever might have transpired at the pre-trial. All that We can gather in this respect is that
references are made therein to pre-trial exhibits and to Annex A of the answer of the defendants to
plaintiff's amended complaint. Indeed, it was incumbent upon the court to consider not only the evidence
formally offered at the trial but also the admissions, expressed or implied, in the pleadings, as well as
whatever might have been placed before it or brought to its attention during the pre-trial. In this
connection, it is to be regretted that none of the parties has thought it proper to give Us an idea of what
took place at the pre-trial of the present case and what are contained in the pre-trial order, if any was
issued pursuant to Section 4 of Rule 20.
The fundamental purpose of pre-trial, aside from affording the parties every opportunity to compromise
or settle their differences, is for the court to be apprised of the unsettled issues between the parties and
of their respective evidence relative thereto, to the end that it may take corresponding measures that
would abbreviate the trial as much as possible and the judge may be able to ascertain the facts with the
least observance of technical rules. In other words whatever is said or done by the parties or their counsel
at the pre- trial serves to put the judge on notice of their respective basic positions, in order that in
appropriate cases he may, if necessary in the interest of justice and a more accurate determination of
the facts, make inquiries about or require clarifications of matters taken up at the pre-trial, before finally
resolving any issue of fact or of law. In brief, the pre-trial constitutes part and parcel of the proceedings,
and hence, matters dealt with therein may not be disregarded in the process of decision making.
Otherwise, the real essence of compulsory pre-trial would be insignificant and worthless.
Now, applying these postulates to the findings of respondent court just quoted, it will be observed that
the court's conclusion about the supposed marriage of plaintiff to the deceased Tee Hoon Lim Po Chuan
is contrary to the weight of the evidence brought before it during the trial and the pre-trial.
Under Article 55 of the Civil Code, the declaration of the contracting parties that they take each other as
husband and wife "shall be set forth in an instrument" signed by the parties as well as by their witnesses
and the person solemnizing the marriage. Accordingly, the primary evidence of a marriage must be an
authentic copy of the marriage contract. While a marriage may also be proved by other competent
evidence, the absence of the contract must first be satisfactorily explained. Surely, the certification of the
person who allegedly solemnized a marriage is not admissible evidence of such marriage unless proof
of loss of the contract or of any other satisfactory reason for its non-production is first presented to the
court. In the case at bar, the purported certification issued by a Mons. Jose M. Recoleto, Bishop,
Philippine Independent Church, Cebu City, is not, therefore, competent evidence, there being absolutely
no showing as to unavailability of the marriage contract and, indeed, as to the authenticity of the signature
of said certifier, the jurat allegedly signed by a second assistant provincial fiscal not being authorized by
law, since it is not part of the functions of his office. Besides, inasmuch as the bishop did not testify, the
same is hearsay.
As regards the testimony of plaintiff herself on the same point and that of her witness Antonio Nuez,
there can be no question that they are both self-serving and of very little evidentiary value, it having been
disclosed at the trial that plaintiff has already assigned all her rights in this case to said Nuez, thereby
making him the real party in interest here and, therefore, naturally as biased as herself. Besides, in the
portion of the testimony of Nuez copied in Annex C of petitioner's memorandum, it appears admitted
that he was born only on March 25, 1942, which means that he was less than eight years old at the
supposed time of the alleged marriage. If for this reason alone, it is extremely doubtful if he could have
been sufficiently aware of such event as to be competent to testify about it.
Incidentally, another Annex C of the same memorandum purports to be the certificate of birth of one
Antonio T. Uy supposed to have been born on March 23, 1937 at Centro Misamis, Misamis Occidental,
the son of one Uy Bien, father, and Tan Put, mother. Significantly, respondents have not made any
adverse comment on this document. It is more likely, therefore, that the witness is really the son of
plaintiff by her husband Uy Kim Beng. But she testified she was childless. So which is which? In any
event, if on the strength of this document, Nuez is actually the legitimate son of Tan Put and not her
adopted son, he would have been but 13 years old in 1949, the year of her alleged marriage to Po
Chuan, and even then, considering such age, his testimony in regard thereto would still be suspect.
Now, as against such flimsy evidence of plaintiff, the court had before it, two documents of great weight
belying the pretended marriage. We refer to (1) Exhibit LL, the income tax return of the deceased Tee
Hoon Lim Po Chuan indicating that the name of his wife was Ang Sick Tin and (2) the quitclaim, Annex
A of the answer, wherein plaintiff Tan Put stated that she had been living with the deceased without
benefit of marriage and that she was his "common-law wife". Surely, these two documents are far more
reliable than all the evidence of the plaintiff put together.
Of course, Exhibit LL is what might be termed as pre-trial evidence. But it is evidence offered to the judge
himself, not to the clerk of court, and should have at least moved him to ask plaintiff to explain if not rebut
it before jumping to the conclusion regarding her alleged marriage to the deceased, Po Chuan. And in
regard to the quitclaim containing the admission of a common-law relationship only, it is to be observed
that His Honor found that "defendants Lim Tanhu and Ng Sua had the plaintiff execute a quitclaim on
November 29, 1967 (Annex "A", Answer) where they gave plaintiff the amount of P25,000 as her share
in the capital and profits of the business of Glory Commercial Co. which was engaged in the hardware
business", without making mention of any evidence of fraud and misrepresentation in its execution,
thereby indicating either that no evidence to prove that allegation of the plaintiff had been presented by
her or that whatever evidence was actually offered did not produce persuasion upon the court. Stated
differently, since the existence of the quitclaim has been duly established without any circumstance to
detract from its legal import, the court should have held that plaintiff was bound by her admission therein
that she was the common-law wife only of Po Chuan and what is more, that she had already renounced
for valuable consideration whatever claim she might have relative to the partnership Glory Commercial
Co.
And when it is borne in mind that in addition to all these considerations, there are mentioned and
discussed in the memorandum of petitioners (1) the certification of the Local Civil Registrar of Cebu City
and (2) a similar certification of the Apostolic Prefect of the Philippine Independent Church, Parish of
Sto. Nio, Cebu City, that their respective official records corresponding to December 1949 to December
1950 do not show any marriage between Tee Hoon Lim Po Chuan and Tan Put, neither of which
certifications have been impugned by respondent until now, it stands to reason that plaintiff's claim of
marriage is really unfounded. Withal, there is still another document, also mentioned and discussed in
the same memorandum and unimpugned by respondents, a written agreement executed in Chinese, but
purportedly translated into English by the Chinese Consul of Cebu, between Tan Put and Tee Hoon Lim
Po Chuan to the following effect:
CONSULATE OF THE REPUBLIC OF CHINA Cebu City, Philippines
TRANSLATION
This is to certify that 1, Miss Tan Ki Eng Alias Tan Put, have lived with Mr. Lim Po Chuan alias TeeHoon
since 1949 but it recently occurs that we are incompatible with each other and are not in the position to
keep living together permanently. With the mutual concurrence, we decided to terminate the existing
relationship of common law-marriage and promised not to interfere each other's affairs from now on. The
Forty Thousand Pesos (P40,000.00) has been given to me by Mr. Lim Po Chuan for my subsistence.
Witnesses:
Mr. Lim Beng Guan Mr. Huang Sing Se
Signed on the 10 day of the 7th month of the 54th year of the Republic of China (corresponding to the
year 1965).
(SGD) TAN KI ENG
Verified from the records. JORGE TABAR (Pp. 283-284, Record.)
Indeed, not only does this document prove that plaintiff's relation to the deceased was that of a common-
law wife but that they had settled their property interests with the payment to her of P40,000.
In the light of all these circumstances, We find no alternative but to hold that plaintiff Tan Put's allegation
that she is the widow of Tee Hoon Lim Po Chuan has not been satisfactorily established and that, on the
contrary, the evidence on record convincingly shows that her relation with said deceased was that of a
common-law wife and furthermore, that all her claims against the company and its surviving partners as
well as those against the estate of the deceased have already been settled and paid. We take judicial
notice of the fact that the respective counsel who assisted the parties in the quitclaim, Attys. H.
Hermosisima and Natalio Castillo, are members in good standing of the Philippine Bar, with the
particularity that the latter has been a member of the Cabinet and of the House of Representatives of
the Philippines, hence, absent any credible proof that they had allowed themselves to be parties to a
fraudulent document His Honor did right in recognizing its existence, albeit erring in not giving due legal
significance to its contents.
2. If, as We have seen, plaintiff's evidence of her alleged status as legitimate wife of Po Chuan is not
only unconvincing but has been actually overcome by the more competent and weighty evidence in favor
of the defendants, her attempt to substantiate her main cause of action that defendants Lim Tanhu and
Ng Sua have defrauded the partnership Glory Commercial Co. and converted its properties to
themselves is even more dismal. From the very evidence summarized by His Honor in the decision in
question, it is clear that not an iota of reliable proof exists of such alleged misdeeds.
Of course, the existence of the partnership has not been denied, it is actually admitted impliedly in
defendants' affirmative defense that Po Chuan's share had already been duly settled with and paid to
both the plaintiff and his legitimate family. But the evidence as to the actual participation of the defendants
Lim Tanhu and Ng Sua in the operation of the business that could have enabled them to make the
extractions of funds alleged by plaintiff is at best confusing and at certain points manifestly inconsistent.
In her amended complaint, plaintiff repeatedly alleged that as widow of Po Chuan she is entitled to
/3 share of the assets and properties of the partnership. In fact, her prayer in said complaint is, among
others, for the delivery to her of such /3 share. His Honor's statement of the case as well as his findings
and judgment are all to that same effect. But what did she actually try to prove at the ex- parte hearing?
According to the decision, plaintiff had shown that she had money of her own when she "married" Po
Chuan and "that prior to and just after the marriage of the plaintiff to Po Chuan, she was engaged in the
drugstore business; that not long after her marriage, upon the suggestion of Po Chuan, the plaintiff sold
her drugstore for P125,000 which amount she gave to her husband in the presence of Tanhu and was
invested in the partnership Glory Commercial Co. sometime in 1950; that after the investment of the
above-stated amount in the partnership, its business flourished and it embarked in the import business
and also engaged in the wholesale and retail trade of cement and GI sheets and under (sic) huge profits."
(pp. 25-26, Annex L, petition.)
To begin with, this theory of her having contributed of P125,000 to the capital of the partnership by
reason of which the business flourished and amassed all the millions referred to in the decision has not
been alleged in the complaint, and inasmuch as what was being rendered was a judgment by default,
such theory should not have been allowed to be the subject of any evidence. But inasmuch as it was the
clerk of court who received the evidence, it is understandable that he failed to observe the rule. Then,
on the other hand, if it was her capital that made the partnership flourish, why would she claim to be
entitled to only to /3 of its assets and profits? Under her theory found proven by respondent court, she
was actually the owner of everything, particularly because His Honor also found "that defendants Lim
Tanhu and Ng Sua were partners in the name but they were employees of Po Chuan that defendants
Lim Tanhu and Ng Sua had no means of livelihood at the time of their employment with the Glory
Commercial Co. under the management of the late Po Chuan except their salaries therefrom; ..." (p.
27, id.) Why then does she claim only /3 share? Is this an indication of her generosity towards
defendants or of a concocted cause of action existing only in her confused imagination engendered by
the death of her common-law husband with whom she had settled her common-law claim for
recompense of her services as common law wife for less than what she must have known would go to
his legitimate wife and children?
Actually, as may be noted from the decision itself, the trial court was confused as to the participation of
defendants Lim Tanhu and Ng Sua in Glory Commercial Co. At one point, they were deemed partners,
at another point mere employees and then elsewhere as partners-employees, a newly found concept,
to be sure, in the law on partnership. And the confusion is worse comfounded in the judgment which
allows these "partners in name" and "partners-employees" or employees who had no means of livelihood
and who must not have contributed any capital in the business, "as Po Chuan was practically the owner
of the partnership having the controlling interest", /3 each of the huge assets and profits of the
partnership. Incidentally, it may be observed at this juncture that the decision has made Po Chuan play
the inconsistent role of being "practically the owner" but at the same time getting his capital from the
P125,000 given to him by plaintiff and from which capital the business allegedly "flourished."
Anent the allegation of plaintiff that the properties shown by her exhibits to be in the names of defendants
Lim Tanhu and Ng Sua were bought by them with partnership funds, His Honor confirmed the same by
finding and holding that "it is likewise clear that real properties together with the improvements in the
names of defendants Lim Tanhu and Ng Sua were acquired with partnership funds as these defendants
were only partners-employees of deceased Po Chuan in the Glory Commercial Co. until the time of his
death on March 11, 1966." (p. 30, id.) It Is Our considered view, however, that this conclusion of His
Honor is based on nothing but pure unwarranted conjecture. Nowhere is it shown in the decision how
said defendants could have extracted money from the partnership in the fraudulent and illegal manner
pretended by plaintiff. Neither in the testimony of Nuez nor in that of plaintiff, as these are summarized
in the decision, can there be found any single act of extraction of partnership funds committed by any of
said defendants. That the partnership might have grown into a multi-million enterprise and that the
properties described in the exhibits enumerated in the decision are not in the names of Po Chuan, who
was Chinese, but of the defendants who are Filipinos, do not necessarily prove that Po Chuan had not
gotten his share of the profits of the business or that the properties in the names of the defendants were
bought with money of the partnership. In this connection, it is decisively important to consider that on the
basis of the concordant and mutually cumulative testimonies of plaintiff and Nuez, respondent court
found very explicitly that, and We reiterate:
xxx xxx xxx
That the late Po Chuan was the one who actively managed the business of the partnership Glory
Commercial Co. he was the one who made the final decisions and approved the appointments of new
Personnel who were taken in by the partnership; that the late Po Chuan and defendants Lim Tanhu and
Ng Sua are brothers, the latter to (2) being the elder brothers of the former; that defendants Lim Tanhu
and Ng Sua are both naturalized Filipino citizens whereas the late Po Chuan until the time of his death
was a Chinese citizen; that the three (3) brothers were partners in the Glory Commercial Co. but Po
Chuan was practically the owner of the partnership having the controlling interest; that defendants Lim
Tanhu and Ng Sua were partners in name but they were mere employees of Po Chuan; .... (Pp. 90-91,
Record.)
If Po Chuan was in control of the affairs and the running of the partnership, how could the defendants
have defrauded him of such huge amounts as plaintiff had made his Honor believe? Upon the other
hand, since Po Chuan was in control of the affairs of the partnership, the more logical inference is that if
defendants had obtained any portion of the funds of the partnership for themselves, it must have been
with the knowledge and consent of Po Chuan, for which reason no accounting could be demanded from
them therefor, considering that Article 1807 of the Civil Code refers only to what is taken by a partner
without the consent of the other partner or partners. Incidentally again, this theory about Po Chuan
having been actively managing the partnership up to his death is a substantial deviation from the
allegation in the amended complaint to the effect that "defendants Antonio Lim Tanhu, Alfonso Leonardo
Ng Sua, Lim Teck Chuan and Eng Chong Leonardo, through fraud and machination, took actual and
active management of the partnership and although Tee Hoon Lim Po Chuan was the manager of Glory
Commercial Co., defendants managed to use the funds of the partnership to purchase lands and
buildings etc. (Par. 4, p. 2 of amended complaint, Annex B of petition) and should not have been
permitted to be proven by the hearing officer, who naturally did not know any better.
Moreover, it is very significant that according to the very tax declarations and land titles listed in the
decision, most if not all of the properties supposed to have been acquired by the defendants Lim Tanhu
and Ng Sua with funds of the partnership appear to have been transferred to their names only in 1969
or later, that is, long after the partnership had been automatically dissolved as a result of the death of Po
Chuan. Accordingly, defendants have no obligation to account to anyone for such acquisitions in the
absence of clear proof that they had violated the trust of Po Chuan during the existence of the
partnership. (See Hanlon vs. Hansserman and. Beam, 40 Phil. 796.)
There are other particulars which should have caused His Honor to readily disbelieve plaintiffs'
pretensions. Nuez testified that "for about 18 years he was in charge of the GI sheets and sometimes
attended to the imported items of the business of Glory Commercial Co." Counting 18 years back from
1965 or 1966 would take Us to 1947 or 1948. Since according to Exhibit LL, the baptismal certificate
produced by the same witness as his birth certificate, shows he was born in March, 1942, how could he
have started managing Glory Commercial Co. in 1949 when he must have been barely six or seven
years old? It should not have escaped His Honor's attention that the photographs showing the premises
of Philippine Metal Industries after its organization "a year or two after the establishment of Cebu Can
Factory in 1957 or 1958" must have been taken after 1959. How could Nuez have been only 13 years
old then as claimed by him to have been his age in those photographs when according to his "birth
certificate", he was born in 1942? His Honor should not have overlooked that according to the same
witness, defendant Ng Sua was living in Bantayan until he was directed to return to Cebu after the fishing
business thereat floundered, whereas all that the witness knew about defendant Lim Teck Chuan's
arrival from Hongkong and the expenditure of partnership money for him were only told to him allegedly
by Po Chuan, which testimonies are veritably exculpatory as to Ng Sua and hearsay as to Lim Teck
Chuan. Neither should His Honor have failed to note that according to plaintiff herself, "Lim Tanhu was
employed by her husband although he did not go there always being a mere employee of Glory
Commercial Co." (p. 22, Annex the decision.)
The decision is rather emphatic in that Lim Tanhu and Ng Sua had no known income except their
salaries. Actually, it is not stated, however, from what evidence such conclusion was derived in so far as
Ng Sua is concerned. On the other hand, with respect to Lim Tanhu, the decision itself states that
according to Exhibit NN-Pre trial, in the supposed income tax return of Lim Tanhu for 1964, he had an
income of P4,800 as salary from Philippine Metal Industries alone and had a total assess sable net
income of P23,920.77 that year for which he paid a tax of P4,656.00. (p. 14. Annex L, id.) And per Exhibit
GG-Pretrial in the year, he had a net income of P32,000 for which be paid a tax of P3,512.40. (id.) As
early as 1962, "his fishing business in Madridejos Cebu was making money, and he reported "a net gain
from operation (in) the amount of P865.64" (id., per Exhibit VV-Pre-trial.) From what then did his Honor
gather the conclusion that all the properties registered in his name have come from funds malversed
from the partnership?
It is rather unusual that His Honor delved into financial statements and books of Glory Commercial Co.
without the aid of any accountant or without the same being explained by any witness who had prepared
them or who has knowledge of the entries therein. This must be the reason why there are apparent
inconsistencies and inaccuracies in the conclusions His Honor made out of them. In Exhibit SS-Pre-trial,
the reported total assets of the company amounted to P2,328,460.27 as of December, 1965, and yet,
Exhibit TT-Pre-trial, according to His Honor, showed that the total value of goods available as of the
same date was P11,166,327.62. On the other hand, per Exhibit XX-Pre-trial, the supposed balance sheet
of the company for 1966, "the value of inventoried merchandise, both local and imported", as found by
His Honor, was P584,034.38. Again, as of December 31, 1966, the value of the company's goods
available for sale was P5,524,050.87, per Exhibit YY and YY-Pre-trial. Then, per Exhibit II-3-Pre-trial,
the supposed Book of Account, whatever that is, of the company showed its "cash analysis" was
P12,223,182.55. We do not hesitate to make the observation that His Honor, unless he is a certified
public accountant, was hardly qualified to read such exhibits and draw any definite conclusions
therefrom, without risk of erring and committing an injustice. In any event, there is no comprehensible
explanation in the decision of the conclusion of His Honor that there were P12,223,182.55 cash money
defendants have to account for, particularly when it can be very clearly seen in Exhibits 11-4, 11-4- A,
11-5 and 11-6-Pre-trial, Glory Commercial Co. had accounts payable as of December 31, 1965 in the
amount of P4,801,321.17. (p. 15, id.) Under the circumstances, We are not prepared to permit anyone
to predicate any claim or right from respondent court's unaided exercise of accounting knowledge.
Additionally, We note that the decision has not made any finding regarding the allegation in the amended
complaint that a corporation denominated Glory Commercial Co., Inc. was organized after the death of
Po Chuan with capital from the funds of the partnership. We note also that there is absolutely no finding
made as to how the defendants Dy Ochay and Co Oyo could in any way be accountable to plaintiff, just
because they happen to be the wives of Lim Tanhu and Ng Sua, respectively. We further note that while
His Honor has ordered defendants to deliver or pay jointly and severally to the plaintiff P4,074,394.18 or
/3 of the P12,223,182.55, the supposed cash belonging to the partnership as of December 31, 1965, in
the same breath, they have also been sentenced to partition and give /3share of the properties
enumerated in the dispositive portion of the decision, which seemingly are the very properties allegedly
purchased from the funds of the partnership which would naturally include the P12,223,182.55
defendants have to account for. Besides, assuming there has not yet been any liquidation of the
partnership, contrary to the allegation of the defendants, then Glory Commercial Co. would have the
status of a partnership in liquidation and the only right plaintiff could have would be to what might result
after such liquidation to belong to the deceased partner, and before this is finished, it is impossible to
determine, what rights or interests, if any, the deceased had (Bearneza vs. Dequilla 43 Phil. 237). In
other words, no specific amounts or properties may be adjudicated to the heir or legal representative of
the deceased partner without the liquidation being first terminated.
Indeed, only time and the fear that this decision would be much more extended than it is already prevent
us from further pointing out the inexplicable deficiencies and imperfections of the decision in question.
After all, what have been discussed should be more than sufficient to support Our conclusion that not
only must said decision be set aside but also that the action of the plaintiff must be totally dismissed,
and, were it not seemingly futile and productive of other legal complications, that plaintiff is liable on
defendants' counterclaims. Resolution of the other issues raised by the parties albeit important and
perhaps pivotal has likewise become superfluous.
IN VIEW OF ALL THE FOREGOING, the petition is granted. All proceedings held in respondent court in
its Civil Case No. 12328 subsequent to the order of dismissal of October 21, 1974 are hereby annulled
and set aside, particularly the ex-parte proceedings against petitioners and the decision on December
20, 1974. Respondent court is hereby ordered to enter an order extending the effects of its order of
dismissal of the action dated October 21, 1974 to herein petitioners Antonio Lim Tanhu, Dy Ochay,
Alfonso Leonardo Ng Sua and Co Oyo. And respondent court is hereby permanently enjoined from taking
any further action in said civil case gave and except as herein indicated. Costs against private
respondent.

Tuazon and San Pedro vs Gavina Zamora and Sons May 19 1903
TUASON & SAN PEDRO, plaintiffs-appellees,
vs.
GAVINA ZAMORA & SONS, defendants-appellants.
Del Pan and Ortigas for appellants.
Palma, Gerona and Mercado for appellees.
MAPA, J.:
Don Mariano Tuason and Don Manuel Garcia San Pedro had entered into a mercantile partnership en
comandita with Luis Vives, under the firm name of "Luis Vives & Co." By the death of Luis Vives the
partnership was dissolved, and was then reorganized under the name of "Tuason & San Pedro" on the
31st of December, 1898, composed solely of the surviving partners. This partnership assumed the
business of the former partnership as wood sawyers and building contractors, the liability of the firm
being made retroactive to the 11th of July, 1897. In February, 1898, Don Mariano Tuason entered into
the contract with Don Juan Feliciano upon which this case turns, the contract being for the construction
of a house. He did not mention in the contract that it was made on behalf of the firm of Tuason & San
Pedro. In the protest, dated the 23d day of June, 1898, it is seen that Don Manuel San Pedro makes this
protest with respect to the delivery of the house, and makes it on behalf of the firm of "Tuason & San
Pedro," the manager of which, Don Mariano Tuason, says Don Manuel San Pedro had contracted for
the building. On the 25th of August, 1900, Tuason & San Pedro brought this action. Objection having
been made to the right of the plaintiff partnership to sue, the question must be determined whether a
partnership can maintain an action in its own behalf upon a contract entered into by one of the partners
in his own name, thus binding the third person who contracted with this partner.
The purpose of the complaint is the recovery of the price of the house built. The entire question is reduced
to these terms: Should this payment be made to the partnership?
The following facts had been made to appear of record before the exception was taken: (1) That the
partnership claimed to be the owner of this credit by its protest against default. (2) That it was in the
possession of the document evidentiary of the credit and others connected with it, such as the notarial
record of demand for payment made by the partner Tuason, and the record made of the offer to deliver
the keys of the house, prepared at the instance of Tuason. (3) That the attorney appearing for the
partnership held a power of attorney from the partnership, executed by Tuason as managing partner.
There can not, therefore, by any duality, any incompatibility, or repetition of action. Everything which
Tuason might have done is being done by the partnership, and after what the partnership has done
Tuason can do nothing. The action being a solidary one, therefore, the result is the same whether it has
been brought by Tuason & San Pedro or by Tuason alone. "Payment should be made to the person in
whose favor the obligation is constituted, or to some other person authorized to receive it in his name."
(Art. 1162 of the Civil Code.)
"The first of these cases," says Manresa, "the most natural and simple, refers not only to the person who
may have been the creditor at the time the obligation was created but rather to the person who is the
creditor at the time payment is due. . . . That the principle laid down by the code has this wide meaning
is demonstrated by the fact that it has no rules, as have other codes (for instance, the Argentine code)
which expressly authorized heirs, assignees, and subrogated creditors to demand payment, and the
right of these persons being unquestionable they must be regarded as included in the first part of article
1162, because, although the obligation was not created in their favor, it has subsequently resulted that
its constitutions is to their benefit." (Manresa, Commentaries on the Civil Code, vol. 8, p. 252.)
When process was served upon the defendant to answer the complaint, it could be seen that the plaintiff
was not an heir, an assignee, or a subrogated creditor, physically distinct from the person who made the
contract, but this very same person, also bringing with him into the case the responsibility of a general
partnership, which, far from declining to entertain the exceptions, set-offs, and counter claims which
might be available against the original creditor, undertakes to defend against them as the original, actual,
and sole creditor.
Hence it is that the defense of the defendant is by no means limited, nor will the effects of the payment
be frustrated. Furthermore, it is evident that although Tuason may have operated in his own name, it
certainly was not with his own private funds. Therefore it was that this contract was communicated to the
partnership which became responsible therefor. (Art. 134, Code of Commerce.)
In view of the understanding and agreement between Tuason and the partnership, shown by the facts
stated, the responsibility of the partner Tuason being included in the responsibility of Tuason & San
Pedro, the liability of the firm is not less than the personal liability of the partner, as the partnership was
a general one. And the action brought by the firm being simply the action in favor of the partner assumed
by the firm as the result of the assumption of the business and the filing of the complaint, the exception,
practically speaking, is entirely unnecessary, although, from a theoretical point of view, it might perhaps
be supported. We therefore decide that the action brought by the partnership will lie, and the payment
which may be made to the partnership upon the circumstances stated will be perfectly legal.
The legal grounds on which paragraph 8 of the conclusions of law of the appealed judgment was based,
are hereby modified to conform to the preceding opinion, and so modified we accept the findings of fact
and the conclusions of law of the court below, with the following amendment: That part of the first
conclusion of law which reads, "the owner of the property, Don Juan Feliciano, and, by reason of his
death, his heirs, now defendants, are bound to pay the entire price agreed upon with the contractor, as
the work was terminated and delivered," being amended to read as follows: "The owner, Don Juan
Feliciano, and, by his death, his heirs, now defendants, are bound to pay all the price agreed upon to
the contractor, because the house burned after the work terminated, and after the defendants had
become in default with respect to their obligation to receive it," for although it is evident, as stated in the
seventh conclusion of law, that the contractor has done everything incumbent upon him for the delivery
of the house, it is none the less true, as a matter of fact, that no such delivery took place.
We therefore affirm the judgment below, with costs in this instance to the appellant. So ordered.

M. Teague vs El Martin GR 30286 Sept 12 1929M. TEAGUE, plaintiff-appellant,

vs.H. MARTIN, J. T. MADDY and L.H. GOLUCKE, defendants-appellees.
STATEMENT
Plaintiff alleges that about December 23, 1926, he and the defendants formed a partnership for the
operation of a fish business and similar commercial transactions, which by mutual contest was called
"Malangpaya Fish Co," with a capital of P35,000, of which plaintiff paid P25,000, the defendant Martin
P5,000, P2,500, and Golucke P2,500. That as such partnership, they agreed to share in the profits and
losses of the business in proportion to the amount of capital which each contributed. That the plaintiff
was named the general manager to take charge of the business, with full power to do and perform all
acts necessary to carry out of the purposes of the partnership. That there was no agreement as to the
duration of the partnership. That plaintiff wants to dissolve it, but that the defendants refused to do so. A
statement marked Exhibit A, which purports to be a cash book, is made a part of the complaint. That the
partnership purchased and now owns a lighter called Lapu-Lapu, and a motorship called Barracuda, and
other properties. That the lighter and the motorship are in the possession of the defendants who are
making use of them, to the damage and prejudice of the plaintiff, for any damage which plaintiff may
sustain. That it is for the best interest of the parties to have a receiver appointed pending this litigation,
to take possession of the properties, and he prays that the Philippine Trust Company be appointed
receiver, and for judgment dissolving the partnership, with costs.
Each of the defendants filed a separate answer, but the same nature, in which they admit that about
December 10, 1926, the plaintiff and the defendants formed a partnership for the purpose of the
equipment of the Manila Fish Co., Inc., and the conduct of a fish business. That the terms of the
partnership were never evidenced by a truth and in fact, the partnership was formed under a written plan,
of which each member received a copy and to which all agreed. That by its terms the amount of the
capital was P45,000, of which the plaintiff agreed to contribute P35,000. That P20,000 of the capital was
to be used for the purchase of the equipment of the Manila Fish Co., Inc. and the balance placed to the
checking account o the new company.
It is then alleged that "the new owners agree to duties as follows:
Capt. Maddy will have charger of the Barracuda and the navigating of the same. Salary P300 per month.
Mr. Martin will have charge of the southern station, cold stores, commissary and procuring fish. Salary
P300 per month.
Mr. Teague will have charge of selling fish in Manila and purchasing supplies. No salary until business
is on paying basis, then the same as Maddy or Martin.
The principal office shall be in Manila, each party doing any business shall keep books showing plainly
all transactions, the books shall be available at all time for inspections of any member of the partnership.
If Mr. Martin or Mr. Maddy wishes at some future time to repurchase a larger share in the business
Teague agrees to sell part of his shares to each on the basis double the amount originally invested by
each or ten thousand to Martin and five thousand to Maddy.
This offer will expire after two years.
That no charge was ever made in the terms of said agreement of copartnership as set forth above except
that it was later agreed among the partners that the business of the partnership should be conducted
under the trade name "Malangpaya Fish Company."
That as shown by the foregoing quoted agreement the agreed capital of the copartnership was P45,000
and not P35,000 as stated in the third paragraph of plaintiff's amended complaint, and the plaintiff herein,
M. Teague, bound himself and agreed to contribute to the said copartnership the sum of P35,000 and
not the sum of P25,000 as stated in the third paragraph of his said amended complaint.
Defendant Martin specificaly denies the "plaintiff was named general manager of the partnership," and
alleged "that all the duties and powers of the said plaintiff were specifically set forth in the above quoted
written agreement and that no further or additional powers were ever given the said plaintiff." But he
admits the purchase of the motorship Barracuda, by the partnership. He denies that Exhibit A is a true
or correct statement of the cash received and paid out by or on behalf of the partnership, or that the
partnership over purchased or that it now owns the lighter Lapu-Lapu, "And/ or any other properties" as
mentioned in said ninth paragraph, except such motorship and a smoke in the house," or that the
defendants are making use of any of the properties of the partnership, to the damage and prejudice of
the plaintiff, or that they do not have any visible means to answer for any damages, and alleges that at
the time of the filing of the complaint, partnership in cold storage, of the value of P6,000, for which he
has never accounted on the books of the partnership or mentioned in the complaint, and defendant prays
that plaintiff's complaint be dismissed, and that he be ordered and required to render an accounting ,
and to pay to partnership the balance of his unpaid subscription amounting to P10,000.
In his answer the defendant Maddy claimed and asserted that there is due and owing him from the
plaintiff P1,385.53, with legal interest, and in his amended answer, the defendant Martin prays for
judgment for P615.49.
To all which the plaintiff made a general and specific denial.
Upon such issues the lower court on April 30, 1928, rendered the following judgment:
In view of the foregoing considerations, the court decrees:
That the partnership, existing among the parties in this suit, is hereby declared dissolved; that all the
existing properties of the said partnership are ordered to be sold at public auction; and that all the
proceeds and other unexpended funds of the partnership be used, first, to pay he P529.48 tax to the
Government of the Philippine Islands; second, to pay debts owing to third persons; third, to reimburse
the partners for their advances and salaries due; and lastly, to return to the partners the amounts they
contributed to the capital of the association and any other remaining such to be distributed
proportionately among them as profits:
That the plaintiff immediately render a true and proper account of all the money due to and received by
him for the partnership.
That the barge Lapu-Lapu as well as the Ford truck No. T-3019 and adding machine belong exclusively
to the plaintiff, M. Teague, but the said plaintiff must return to and reimburse the partnership the sum of
P14,032.26 taken from its funds for the purchase and equipment of the said barge Lapu-Lapu; and also
to return the sum of P1,230 and P228 used for buying the Ford truck and adding machine, respectively:
That the sum of P,1512.03 be paid to the defendant, J. T. Maddy, and the sum of P615.49 be paid to
defendant, H. Martin, for their advances and their unpaid salaries, with legal interest from October 27,
1927, until paid; that the plaintiff pay the costs of this action.
May 16, 1928, plaintiff filed a motion praying for an order "directing the court's stenographic notes taken
by them of the evidence presented in the present case, as soon as possible." This motion was denied
on May 19th, and on May 16th, the court denied the plaintiff's motion for reconsideration. To all of which
exceptions were duly taken.
June 7, 1928, plaintiff filed a petition praying, for the reasons therein stated, that the decision of the court
in the case be set aside, and that the parties be permitted to again present their testimony and to have
the case decided upon its merits. To which objections were duly made, and on June 28, 1928, the court
denied plaintiff's motion for a new trial. To which exceptions were duly taken, and on July 10, 1928, the
plaintiff filed a motion in which he prayed that the period for the appeal interposed by the plaintiff be
suspended, and that the order of June 28, 1928, be set aside, "and that another be entered ordering the
re-taking of the evidence in this case." To which objections were also filed and later overruled, from all
of which the plaintiff appealed and assigns the following errors:
The trial court erred in not having confined itself, in the determination of this case, to the question as to
whether or not it is proper to dissolve the partnership and to liquidate its assets, for all other issues raised
by appellees are incidental with the process of liquidation provided for by law.
II. The trial court erred in not resolving the primary and most important question at issue in his case,
namely, whether or not the appellant M. Teague was the manager of the unregistered partnership
Malangpaya Fish Company.
III. The trial court erred in holding that the appellant had no authority to buy the Lapu-Lapu, the Ford
truck and the adding machine without the consent of his copartners, for in accordance with article 131
of the Code of Commerce the managing partner of a partnership can make purchases for the partnership
without the knowledge and/or consent of his copartners.
IV. The trial court erred in holding that the Lapu-Lapu, the Ford truck and the adding machine purchased
by appellant, as manager of the Malangpaya Fish Company, for and with funds of the partnership, do
not form part of the assets of the partnership.
V. The trial court erred in requiring the appellant to pay to the partnership the sum of P14,032.26,
purchase price, cost of repairs and equipment of the barge Lapu-Lapu; P1,230 purchase price of the
adding machine, for these properties were purchased for and they form part of the assets of the
partnership.
VI. The trial court erred in disapproving appellant's claim for salary and expenses incurred by him for
and in connection with the partnership's business.
VII. The trial court erred in approving the claims of appellees J.T. Maddy and H. Martin and in requiring
the appellant to pay them the sum of P1,512.03 and P615.49 respectively.
VIII. The trial court erred in not taking cognizance of appellant's claim for reimbursement for advances
made by him for the partnerships, as shown in the statement attached to the complaint marked Exhibit
A, in which there is a balance in his favor and against the partnership amounting to over P16,000.
X. Lastly, considering the irregularities committed, the disappearance of the stenographic notes for a
considerable length of time, during which time changes in the testimonies of the witnesses could have
been made and the impossibility of having an accurate and complete transcript of the stenographic notes,
the trial court erred in denying appellant's petition for the retaking of the evidence in this case.

JOHNS, J.:
By their respective pleadings, all parties agreed that there was a partnership between them, which
appears at one time to have done a good business. In legal effect, plaintiff asked for its dissolution and
the appointment of a receiver pendente lite. The defendants did not object to the dissolution of the
partnership, but prayed for an accounting with the plaintiff. It was upon such issues that the evidence
was taken and the case tried. Hence, there is no merit in the first in the first assignment of error.
Complaint is made that the lower court did not specifically decide as to whether or not the plaintiff was
the manager of the unregistered partnership. But upon that question the lower court, in legal effect,
followed and approved the contention of the defendants that the duties of each partners were specified
and defined in the "plans for formation of a limited partnership," in which it is stated that Captain Maddy
would have charge of the Barracuda and its navigation, with a salary of P300 per month, and that Martin
would have charge of the southern station, cold stores, commisary and procuring fish, with a salary of
P300 per month, and that the plaintiff would have charge of selling fish in Manila and purchasing supplies,
without salary until such time as the business is placed on a paying basis, when his salary would be the
same as that of Maddy and Martin, and that the principal office of the partnership "shall keep books
showing plainly all transactions," which shall be available at all time for inspection of any of the members.
It will thus be noted that the powers and duties of Maddy Martin, and the plaintiff are specifically defined,
and that each of them was more or less the general manager in his particular part of the business. That
is to say, that Maddy's power and duties are confined and limited to the charge of the Barracuda and its
navigation, and Martin's to the southern station, cold stores, commissary and procuring fish, and that
plaintiff's powers and duties are confined and limited to "selling fish in Manila and the purchase of
supplies." In the selling of fish, plaintiff received a substantial amount of money which he deposited to
the credit of the company signed by him as manager, but it appears that was a requirement which the
bank made in the ordinary course of business, as to who was authorized to sign checks for the
partnership; otherwise, it would not cash the checks.
In the final analysis, the important question in this case is the ownership of the Lapu-Lapu, the Ford
truck, and the adding machine. The proof is conclusive that they were purchased by the plaintiff and paid
for him from and out of the money of the partnership. That at the time of their purchase, the Lapu-
Lapu was purchased in the name of the plaintiff, and that he personally had it registered in the customs
house in his own name, for which he made an affidavit that he was its owner. After the purchase, he also
had the Ford truck registered in his won name. His contention that this was done as a matter of
convenience is not tenable. The record shows that when the partnership purchased the Barracuda, it
was registered in the customs house in the name of the partnership, and that it was a very simple process
to have it so registered.
Without making a detailed analysis of the evidence, we agree with the trial court that the Lapu-Lapu, the
Ford truck, and the adding machine were purchased by the plaintiff and paid for out of the funds of the
partnership, and that by his own actions and conduct, and the taking of the title in his own name, he is
now estopped to claim or assert that they are not his property or that they are the property of the
company. Again, under his powers and duties as specified in the tentative, unsigned written agreement,
his authority was confined and limited to the "selling of fish in Manila and the purchase of supplies." It
must be conceded that, standing alone, the power to sell fish and purchase supplies does not carry with
it or imply the authority to purchase the Lapu-Lapu, or the Ford truck, or the adding machine. From which
it must follow that he had no authority to purchase the lighter Lapu-Lapu, the Ford truck, or the adding
machine, as neither of them can be construed as supplies for the partnership business. While it is true
that the tentative agreement was never personally signed by any member of the firm, the trial court found
as a fact, and that finding is sustained by the evidence, that this unsigned agreement was acted upon
and accepted by all parties as the basis of the partnership. It was upon that theory that the lower court
allowed the defendant s Maddy and Martin a salary of P300 per month and the money which each of
them paid out and advanced in the discharged of their respective duties, and denied any salary to the
plaintiff, for the simple reason that the business was never on a paying basis.
Much could be said about this division of powers, and that Maddy and Martin's duties were confined and
limited to the catching and procuring of fish, which were then shipped to the plaintiff who sold them on
the Manila market and received the proceeds of the sales. In other words, Maddy and Martin were
supplying the fish to plaintiff who sold them under an agreement that he would account for the money.
Upon the question of accounting, his testimony as to the entries which he made and how he kept the
books of the partnership is very interesting:
Q. Then this salary does not take into consideration the fact that you claim the company is very
badly in debt?
A. Well, I put the salary in there.
Q. I am asking you if that is true?
A. I do not think I will decide that, I think it will be decided by the court.
Q. I will ask you to answer the question? A. You asked me my opinion and I said that I
am entitled to it.
xxx xxx xxx
I am not on trial as a bookkeeper; if my lawyers won't object to the question I will object myself; I am not
on trial as a bookkeeper; I keep my books any way I want to, put in what I want to, and I leave out
anything I don't choose to put in,
xxx xxx xxx
Q. You have your own bookkeeping?
A. Well, I run my business to suit myself, I put in the books what I want to, and I leave out what I
want to, and I have a quarter of a million pesos to show for it,
xxx xxx xxx
Q. Did you not say that you paid yourself a salary in August because you made a profit?
A. Yes. This profit was made counting the stock on hand and equipment on hand, but as far as
cash to pay this balance, I did not have it. when I wanted a salary I just took it. I ran things to suit myself.
xxx xxx xxx
Q. In other words in going against these partners you are going to tax them for the services of
your attorney?
A. You are mistaken; I am not against them. I paid this out for filing this complaint and if the
honorable court strikes it out, all right. I think it was a just charge. When I want to sue them the Company
can pay for my suit.
Q. Would you have any objection to their asking for their attorney's fees from the company as
partners also in the business? A. Yes.
Q. You would object to your partners having their attorney's fees here paid out of the copartnership
like you have had yours paid? A. Yes, that is the way I do my business.
To say the least, this kind of evidence does not appeal to the court. This case has been bitterly contested,
and there is much feeling between the parties and even their respective attorneys. Be that as it may, we
are clearly of the opinion that the findings of the lower court upon questions of fact are well sustained by
the evidence. Plaintiff's case was tried on the theory that the partnership was the owner of the property
in question, and no claim was made for the use of the Lapu-Lapu, and it appears that P14,032.26 of the
partnership money was used in its purchase, overhauling, expenses and repairs. That in truth and in fact
the partnership had the use and benefit of the Lapu-Lapu in its business from sometime in May until the
receiver was appointed on November 11, 1927, or a period of about six months, and that the partnership
has never paid anything for its use. it is true that there is no testimony as to the value of such use, but
the cost of the Lapu-Lapu and the time of its use and the purpose for which it was used, all appear in the
record. For such reason, in the interest of justice, plaintiff should be compensated for the reasonable
value of the time which the partnership made use of the Lapu-Lapu.
All things considered, we are of the opinion that P2,000 is a reasonable, amount which the plaintiff should
receive for its use.
In all things and respects, the judgment of the lower court as to the merits is affirmed, with the
modification only that P2,000 shall be deducted from the amount of the judgment which was awarded
against the plaintiff, such deduction to be made for and on account of such use of the Lapu-Lapu by the
partnership, with costs against the appellant. So ordered.

Art 1810-1814
ROGER V. NAVARRO, Petitioner,
vs.HON. JOSE L. ESCOBIDO, Presiding Judge, RTC Branch 37, Cagayan de Oro City, and KAREN
T. GO, doing business under the name KARGO ENTERPRISES, Respondents.
This is a petition for review on certiorari1 that seeks to set aside the Court of Appeals (CA)
Decision2 dated October 16, 2001 and Resolution3 dated May 29, 2002 in CA-G.R. SP. No. 64701.
These CA rulings affirmed the July 26, 20004 and March 7, 20015 orders of the Regional Trial Court
(RTC), Misamis Oriental, Cagayan de Oro City, denying petitioner Roger V. Navarros (Navarro) motion
to dismiss.
BACKGROUND FACTS
On September 12, 1998, respondent Karen T. Go filed two complaints, docketed as Civil Case Nos. 98-
599 (first complaint)6 and 98-598 (second complaint),7 before the RTC for replevin and/or sum of money
with damages against Navarro. In these complaints, Karen Go prayed that the RTC issue writs of replevin
for the seizure of two (2) motor vehicles in Navarros possession.
The first complaint stated:
1. That plaintiff KAREN T. GO is a Filipino, of legal age, married to GLENN O. GO, a resident of Cagayan
de Oro City and doing business under the trade name KARGO ENTERPRISES, an entity duly registered
and existing under and by virtue of the laws of the Republic of the Philippines, which has its business
address at Bulua, Cagayan de Oro City; that defendant ROGER NAVARRO is a Filipino, of legal age, a
resident of 62 Dolores Street, Nazareth, Cagayan de Oro City, where he may be served with summons
and other processes of the Honorable Court; that defendant "JOHN DOE" whose real name and address
are at present unknown to plaintiff is hereby joined as party defendant as he may be the person in whose
possession and custody the personal property subject matter of this suit may be found if the same is not
in the possession of defendant ROGER NAVARRO;
2. That KARGO ENTERPRISES is in the business of, among others, buying and selling motor vehicles,
including hauling trucks and other heavy equipment;
3. That for the cause of action against defendant ROGER NAVARRO, it is hereby stated that on August
8, 1997, the said defendant leased [from] plaintiff a certain motor vehicle which is more particularly
described as follows
Make/Type FUSO WITH MOUNTED CRANE
Serial No. FK416K-51680
Motor No. 6D15-338735
Plate No. GHK-378
as evidenced by a LEASE AGREEMENT WITH OPTION TO PURCHASE entered into by and between
KARGO ENTERPRISES, then represented by its Manager, the aforementioned GLENN O. GO, and
defendant ROGER NAVARRO xxx; that in accordance with the provisions of the above LEASE
AGREEMENT WITH OPTION TO PURCHASE, defendant ROGER NAVARRO delivered unto plaintiff
six (6) post-dated checks each in the amount of SIXTY-SIX THOUSAND THREE HUNDRED THIRTY-
THREE & 33/100 PESOS (66,333.33) which were supposedly in payment of the agreed rentals; that
when the fifth and sixth checks, i.e. PHILIPPINE BANK OF COMMUNICATIONS CAGAYAN DE ORO
BRANCH CHECKS NOS. 017112 and 017113, respectively dated January 8, 1998 and February 8,
1998, were presented for payment and/or credit, the same were dishonored and/or returned by the
drawee bank for the common reason that the current deposit account against which the said checks
were issued did not have sufficient funds to cover the amounts thereof; that the total amount of the two
(2) checks, i.e. the sum of ONE HUNDRED THIRTY-TWO THOUSAND SIX HUNDRED SIXTY-SIX &
66/100 PESOS (132,666.66) therefore represents the principal liability of defendant ROGER
NAVARRO unto plaintiff on the basis of the provisions of the above LEASE AGREEMENT WITH RIGHT
TO PURCHASE; that demands, written and oral, were made of defendant ROGER NAVARRO to pay
the amount of ONE HUNDRED THIRTY-TWO THOUSAND SIX HUNDRED SIXTY-SIX & 66/100
PESOS (132,666.66), or to return the subject motor vehicle as also provided for in the LEASE
AGREEMENT WITH RIGHT TO PURCHASE, but said demands were, and still are, in vain to the great
damage and injury of herein plaintiff; xxx
4. That the aforedescribed motor vehicle has not been the subject of any tax assessment and/or fine
pursuant to law, or seized under an execution or an attachment as against herein plaintiff;
xxx
8. That plaintiff hereby respectfully applies for an order of the Honorable Court for the immediate delivery
of the above-described motor vehicle from defendants unto plaintiff pending the final determination of
this case on the merits and, for that purpose, there is attached hereto an affidavit duly executed and
bond double the value of the personal property subject matter hereof to answer for damages and costs
which defendants may suffer in the event that the order for replevin prayed for may be found out to
having not been properly issued.
The second complaint contained essentially the same allegations as the first complaint, except that the
Lease Agreement with Option to Purchase involved is dated October 1, 1997 and the motor vehicle
leased is described as follows:
Make/Type FUSO WITH MOUNTED CRANE
Serial No. FK416K-510528
Motor No. 6D14-423403
The second complaint also alleged that Navarro delivered three post-dated checks, each for the amount
of 100,000.00, to Karen Go in payment of the agreed rentals; however, the third check was dishonored
when presented for payment.8
On October 12, 19989 and October 14, 1998,10 the RTC issued writs of replevin for both cases; as a
result, the Sheriff seized the two vehicles and delivered them to the possession of Karen Go.
In his Answers, Navarro alleged as a special affirmative defense that the two complaints stated no cause
of action, since Karen Go was not a party to the Lease Agreements with Option to Purchase (collectively,
the lease agreements) the actionable documents on which the complaints were based.
On Navarros motion, both cases were duly consolidated on December 13, 1999.
In its May 8, 2000 order, the RTC dismissed the case on the ground that the complaints did not state a
cause of action.
In response to the motion for reconsideration Karen Go filed dated May 26, 2000,11 the RTC issued
another order dated July 26, 2000 setting aside the order of dismissal. Acting on the presumption that
Glenn Gos leasing business is a conjugal property, the RTC held that Karen Go had sufficient interest
in his leasing business to file the action against Navarro. However, the RTC held that Karen Go should
have included her husband, Glenn Go, in the complaint based on Section 4, Rule 3 of the Rules of Court
(Rules).12 Thus, the lower court ordered Karen Go to file a motion for the inclusion of Glenn Go as co-
plaintiff.1avvphi1
When the RTC denied Navarros motion for reconsideration on March 7, 2001, Navarro filed a petition
for certiorari with the CA, essentially contending that the RTC committed grave abuse of discretion when
it reconsidered the dismissal of the case and directed Karen Go to amend her complaints by including
her husband Glenn Go as co-plaintiff. According to Navarro, a complaint which failed to state a cause of
action could not be converted into one with a cause of action by mere amendment or supplemental
pleading.
On October 16, 2001, the CA denied Navarros petition and affirmed the RTCs order.13 The CA also
denied Navarros motion for reconsideration in its resolution of May 29, 2002,14 leading to the filing of
the present petition.
THE PETITION
Navarro alleges that even if the lease agreements were in the name of Kargo Enterprises, since it did
not have the requisite juridical personality to sue, the actual parties to the agreement are himself and
Glenn Go. Since it was Karen Go who filed the complaints and not Glenn Go, she was not a real party-
in-interest and the complaints failed to state a cause of action.
Navarro posits that the RTC erred when it ordered the amendment of the complaint to include Glenn Go
as a co-plaintiff, instead of dismissing the complaint outright because a complaint which does not state
a cause of action cannot be converted into one with a cause of action by a mere amendment or a
supplemental pleading. In effect, the lower court created a cause of action for Karen Go when there was
none at the time she filed the complaints.
Even worse, according to Navarro, the inclusion of Glenn Go as co-plaintiff drastically changed the theory
of the complaints, to his great prejudice. Navarro claims that the lower court gravely abused its discretion
when it assumed that the leased vehicles are part of the conjugal property of Glenn and Karen Go. Since
Karen Go is the registered owner of Kargo Enterprises, the vehicles subject of the complaint are her
paraphernal properties and the RTC gravely erred when it ordered the inclusion of Glenn Go as a co-
plaintiff.
Navarro likewise faults the lower court for setting the trial of the case in the same order that required
Karen Go to amend her complaints, claiming that by issuing this order, the trial court violated Rule 10 of
the Rules.
Even assuming the complaints stated a cause of action against him, Navarro maintains that the
complaints were premature because no prior demand was made on him to comply with the provisions
of the lease agreements before the complaints for replevin were filed.
Lastly, Navarro posits that since the two writs of replevin were issued based on flawed complaints, the
vehicles were illegally seized from his possession and should be returned to him immediately.
Karen Go, on the other hand, claims that it is misleading for Navarro to state that she has no real interest
in the subject of the complaint, even if the lease agreements were signed only by her husband, Glenn
Go; she is the owner of Kargo Enterprises and Glenn Go signed the lease agreements merely as the
manager of Kargo Enterprises. Moreover, Karen Go maintains that Navarros insistence that Kargo
Enterprises is Karen Gos paraphernal property is without basis. Based on the law and jurisprudence on
the matter, all property acquired during the marriage is presumed to be conjugal property. Finally, Karen
Go insists that her complaints sufficiently established a cause of action against Navarro. Thus, when the
RTC ordered her to include her husband as co-plaintiff, this was merely to comply with the rule that
spouses should sue jointly, and was not meant to cure the complaints lack of cause of action.
THE COURTS RULING
We find the petition devoid of merit.
Karen Go is the real party-in-interest
The 1997 Rules of Civil Procedure requires that every action must be prosecuted or defended in the
name of the real party-in-interest, i.e., the party who stands to be benefited or injured by the judgment in
the suit, or the party entitled to the avails of the suit.15
Interestingly, although Navarro admits that Karen Go is the registered owner of the business name Kargo
Enterprises, he still insists that Karen Go is not a real party-in-interest in the case. According to Navarro,
while the lease contracts were in Kargo Enterprises name, this was merely a trade name without a
juridical personality, so the actual parties to the lease agreements were Navarro and Glenn Go, to the
exclusion of Karen Go.
As a corollary, Navarro contends that the RTC acted with grave abuse of discretion when it ordered the
inclusion of Glenn Go as co-plaintiff, since this in effect created a cause of action for the complaints
when in truth, there was none.
We do not find Navarros arguments persuasive.
The central factor in appreciating the issues presented in this case is the business name Kargo
Enterprises. The name appears in the title of the Complaint where the plaintiff was identified as "KAREN
T. GO doing business under the name KARGO ENTERPRISES," and this identification was repeated in
the first paragraph of the Complaint. Paragraph 2 defined the business KARGO ENTERPRISES
undertakes. Paragraph 3 continued with the allegation that the defendant "leased from plaintiff a certain
motor vehicle" that was thereafter described. Significantly, the Complaint specifies and attaches as its
integral part the Lease Agreement that underlies the transaction between the plaintiff and the defendant.
Again, the name KARGO ENTERPRISES entered the picture as this Lease Agreement provides:
This agreement, made and entered into by and between:
GLENN O. GO, of legal age, married, with post office address at xxx, herein referred to as the LESSOR-
SELLER; representing KARGO ENTERPRISES as its Manager,
xxx
thus, expressly pointing to KARGO ENTERPRISES as the principal that Glenn O. Go represented. In
other words, by the express terms of this Lease Agreement, Glenn Go did sign the agreement only as
the manager of Kargo Enterprises and the latter is clearly the real party to the lease agreements.
As Navarro correctly points out, Kargo Enterprises is a sole proprietorship, which is neither a natural
person, nor a juridical person, as defined by Article 44 of the Civil Code:
Art. 44. The following are juridical persons:
(1) Te State and its political subdivisions;
(2) Other corporations, institutions and entities for public interest or purpose, created by law; their
personality begins as soon as they have been constituted according to law;
(3) Corporations, partnerships and associations for private interest or purpose to which the law grants a
juridical personality, separate and distinct from that of each shareholder, partner or member.
Thus, pursuant to Section 1, Rule 3 of the Rules,16 Kargo Enterprises cannot be a party to a civil action.
This legal reality leads to the question: who then is the proper party to file an action based on a contract
in the name of Kargo Enterprises?
We faced a similar question in Juasing Hardware v. Mendoza,17 where we said:
Finally, there is no law authorizing sole proprietorships like petitioner to bring suit in court. The law merely
recognizes the existence of a sole proprietorship as a form of business organization conducted for profit
by a single individual, and requires the proprietor or owner thereof to secure licenses and permits,
register the business name, and pay taxes to the national government. It does not vest juridical or legal
personality upon the sole proprietorship nor empower it to file or defend an action in court.
Thus, the complaint in the court below should have been filed in the name of the owner of Juasing
Hardware. The allegation in the body of the complaint would show that the suit is brought by such person
as proprietor or owner of the business conducted under the name and style Juasing Hardware. The
descriptive words "doing business as Juasing Hardware" may be added to the title of the case, as is
customarily done.18 [Emphasis supplied.]
This conclusion should be read in relation with Section 2, Rule 3 of the Rules, which states:
SEC. 2. Parties in interest. A real party in interest is the party who stands to be benefited or injured by
the judgment in the suit, or the party entitled to the avails of the suit. Unless otherwise authorized by law
or these Rules, every action must be prosecuted or defended in the name of the real party in interest.
As the registered owner of Kargo Enterprises, Karen Go is the party who will directly benefit from or be
injured by a judgment in this case. Thus, contrary to Navarros contention, Karen Go is the real party-in-
interest, and it is legally incorrect to say that her Complaint does not state a cause of action because her
name did not appear in the Lease Agreement that her husband signed in behalf of Kargo Enterprises.
Whether Glenn Go can legally sign the Lease Agreement in his capacity as a manager of Kargo
Enterprises, a sole proprietorship, is a question we do not decide, as this is a matter for the trial court to
consider in a trial on the merits.
Glenn Gos Role in the Case
We find it significant that the business name Kargo Enterprises is in the name of Karen T. Go,19 who
described herself in the Complaints to be "a Filipino, of legal age, married to GLENN O. GO, a resident
of Cagayan de Oro City, and doing business under the trade name KARGO ENTERPRISES."20 That
Glenn Go and Karen Go are married to each other is a fact never brought in issue in the case. Thus, the
business name KARGO ENTERPRISES is registered in the name of a married woman, a fact material
to the side issue of whether Kargo Enterprises and its properties are paraphernal or conjugal properties.
To restate the parties positions, Navarro alleges that Kargo Enterprises is Karen Gos paraphernal
property, emphasizing the fact that the business is registered solely in Karen Gos name. On the other
hand, Karen Go contends that while the business is registered in her name, it is in fact part of their
conjugal property.
The registration of the trade name in the name of one person a woman does not necessarily lead to
the conclusion that the trade name as a property is hers alone, particularly when the woman is married.
By law, all property acquired during the marriage, whether the acquisition appears to have been made,
contracted or registered in the name of one or both spouses, is presumed to be conjugal unless the
contrary is proved.21 Our examination of the records of the case does not show any proof that Kargo
Enterprises and the properties or contracts in its name are conjugal. If at all, only the bare allegation of
Navarro to this effect exists in the records of the case. As we emphasized in Castro v. Miat:22
Petitioners also overlook Article 160 of the New Civil Code. It provides that "all property of the marriage
is presumed to be conjugal partnership, unless it be prove[n] that it pertains exclusively to the husband
or to the wife." This article does not require proof that the property was acquired with funds of the
partnership. The presumption applies even when the manner in which the property was acquired does
not appear.23 [Emphasis supplied.]
Thus, for purposes solely of this case and of resolving the issue of whether Kargo Enterprises as a sole
proprietorship is conjugal or paraphernal property, we hold that it is conjugal property.
Article 124 of the Family Code, on the administration of the conjugal property, provides:
Art. 124. The administration and enjoyment of the conjugal partnership property shall belong to
both spouses jointly. In case of disagreement, the husbands decision shall prevail, subject to recourse
to the court by the wife for proper remedy, which must be availed of within five years from the date of the
contract implementing such decision.
xxx
This provision, by its terms, allows either Karen or Glenn Go to speak and act with authority in managing
their conjugal property, i.e., Kargo Enterprises. No need exists, therefore, for one to obtain the consent
of the other before performing an act of administration or any act that does not dispose of or encumber
their conjugal property.
Under Article 108 of the Family Code, the conjugal partnership is governed by the rules on the contract
of partnership in all that is not in conflict with what is expressly determined in this Chapter or by the
spouses in their marriage settlements. In other words, the property relations of the husband and wife
shall be governed primarily by Chapter 4 on Conjugal Partnership of Gains of the Family Code and,
suppletorily, by the spouses marriage settlement and by the rules on partnership under the Civil Code.
In the absence of any evidence of a marriage settlement between the spouses Go, we look at the Civil
Code provision on partnership for guidance.
A rule on partnership applicable to the spouses circumstances is Article 1811 of the Civil Code, which
states:
Art. 1811. A partner is a co-owner with the other partners of specific partnership property.
The incidents of this co-ownership are such that:
(1) A partner, subject to the provisions of this Title and to any agreement between the partners, has an
equal right with his partners to possess specific partnership property for partnership purposes; xxx
Under this provision, Glenn and Karen Go are effectively co-owners of Kargo Enterprises and the
properties registered under this name; hence, both have an equal right to seek possession of these
properties. Applying Article 484 of the Civil Code, which states that "in default of contracts, or special
provisions, co-ownership shall be governed by the provisions of this Title," we find further support in
Article 487 of the Civil Code that allows any of the co-owners to bring an action in ejectment with respect
to the co-owned property.
While ejectment is normally associated with actions involving real property, we find that this rule can be
applied to the circumstances of the present case, following our ruling in Carandang v. Heirs of De
Guzman.24 In this case, one spouse filed an action for the recovery of credit, a personal property
considered conjugal property, without including the other spouse in the action. In resolving the issue of
whether the other spouse was required to be included as a co-plaintiff in the action for the recovery of
the credit, we said:
Milagros de Guzman, being presumed to be a co-owner of the credits allegedly extended to the spouses
Carandang, seems to be either an indispensable or a necessary party. If she is an indispensable party,
dismissal would be proper. If she is merely a necessary party, dismissal is not warranted, whether or not
there was an order for her inclusion in the complaint pursuant to Section 9, Rule 3.
Article 108 of the Family Code provides:
Art. 108. The conjugal partnership shall be governed by the rules on the contract of partnership in all that
is not in conflict with what is expressly determined in this Chapter or by the spouses in their marriage
settlements.
This provision is practically the same as the Civil Code provision it superseded:
Art. 147. The conjugal partnership shall be governed by the rules on the contract of partnership in all that
is not in conflict with what is expressly determined in this Chapter.
In this connection, Article 1811 of the Civil Code provides that "[a] partner is a co-owner with the other
partners of specific partnership property." Taken with the presumption of the conjugal nature of the funds
used to finance the four checks used to pay for petitioners stock subscriptions, and with the presumption
that the credits themselves are part of conjugal funds, Article 1811 makes Quirino and Milagros de
Guzman co-owners of the alleged credit.
Being co-owners of the alleged credit, Quirino and Milagros de Guzman may separately bring an action
for the recovery thereof. In the fairly recent cases of Baloloy v. Hular and Adlawan v. Adlawan, we held
that, in a co-ownership, co-owners may bring actions for the recovery of co-owned property without the
necessity of joining all the other co-owners as co-plaintiffs because the suit is presumed to have been
filed for the benefit of his co-owners. In the latter case and in that of De Guia v. Court of Appeals, we
also held that Article 487 of the Civil Code, which provides that any of the co-owners may bring an action
for ejectment, covers all kinds of action for the recovery of possession.
In sum, in suits to recover properties, all co-owners are real parties in interest. However, pursuant to
Article 487 of the Civil Code and relevant jurisprudence, any one of them may bring an action, any kind
of action, for the recovery of co-owned properties. Therefore, only one of the co-owners, namely the co-
owner who filed the suit for the recovery of the co-owned property, is an indispensable party thereto. The
other co-owners are not indispensable parties. They are not even necessary parties, for a complete relief
can be accorded in the suit even without their participation, since the suit is presumed to have been filed
for the benefit of all co-owners.25 [Emphasis supplied.]
Under this ruling, either of the spouses Go may bring an action against Navarro to recover possession
of the Kargo Enterprises-leased vehicles which they co-own. This conclusion is consistent with Article
124 of the Family Code, supporting as it does the position that either spouse may act on behalf of the
conjugal partnership, so long as they do not dispose of or encumber the property in question without the
other spouses consent.
On this basis, we hold that since Glenn Go is not strictly an indispensable party in the action to recover
possession of the leased vehicles, he only needs to be impleaded as a pro-forma party to the suit, based
on Section 4, Rule 4 of the Rules, which states:
Section 4. Spouses as parties. Husband and wife shall sue or be sued jointly, except as provided by
law.
Non-joinder of indispensable parties not ground to dismiss action
Even assuming that Glenn Go is an indispensable party to the action, we have held in a number of
cases26 that the misjoinder or non-joinder of indispensable parties in a complaint is not a ground for
dismissal of action. As we stated in Macababbad v. Masirag:27
Rule 3, Section 11 of the Rules of Court provides that neither misjoinder nor nonjoinder of parties is a
ground for the dismissal of an action, thus:
Sec. 11. Misjoinder and non-joinder of parties. Neither misjoinder nor non-joinder of parties is ground for
dismissal of an action. Parties may be dropped or added by order of the court on motion of any party or
on its own initiative at any stage of the action and on such terms as are just. Any claim against a misjoined
party may be severed and proceeded with separately.
In Domingo v. Scheer, this Court held that the proper remedy when a party is left out is to implead the
indispensable party at any stage of the action. The court, either motu proprio or upon the motion of a
party, may order the inclusion of the indispensable party or give the plaintiff opportunity to amend his
complaint in order to include indispensable parties. If the plaintiff to whom the order to include the
indispensable party is directed refuses to comply with the order of the court, the complaint may be
dismissed upon motion of the defendant or upon the court's own motion. Only upon unjustified failure or
refusal to obey the order to include or to amend is the action dismissed.
In these lights, the RTC Order of July 26, 2000 requiring plaintiff Karen Go to join her husband as a party
plaintiff is fully in order.
Demand not required prior
to filing of replevin action
In arguing that prior demand is required before an action for a writ of replevin is filed, Navarro apparently
likens a replevin action to an unlawful detainer.
For a writ of replevin to issue, all that the applicant must do is to file an affidavit and bond, pursuant to
Section 2, Rule 60 of the Rules, which states:
Sec. 2. Affidavit and bond.
The applicant must show by his own affidavit or that of some other person who personally knows the
facts:
(a) That the applicant is the owner of the property claimed, particularly describing it, or is entitled to
the possession thereof;
(b) That the property is wrongfully detained by the adverse party, alleging the cause of detention
thereof according to the best of his knowledge, information, and belief;
(c) That the property has not been distrained or taken for a tax assessment or a fine pursuant to law, or
seized under a writ of execution or preliminary attachment, or otherwise placed under custodia legis, or
if so seized, that it is exempt from such seizure or custody; and
(d) The actual market value of the property.
The applicant must also give a bond, executed to the adverse party in double the value of the property
as stated in the affidavit aforementioned, for the return of the property to the adverse party if such return
be adjudged, and for the payment to the adverse party of such sum as he may recover from the applicant
in the action.
We see nothing in these provisions which requires the applicant to make a prior demand on the
possessor of the property before he can file an action for a writ of replevin. Thus, prior demand is not a
condition precedent to an action for a writ of replevin.
More importantly, Navarro is no longer in the position to claim that a prior demand is necessary, as he
has already admitted in his Answers that he had received the letters that Karen Go sent him, demanding
that he either pay his unpaid obligations or return the leased motor vehicles. Navarros position that a
demand is necessary and has not been made is therefore totally unmeritorious.
WHEREFORE, premises considered, we DENY the petition for review for lack of merit. Costs against
petitioner Roger V. Navarro

2. Catlan vs Gatchalian 105 Phil 1270 (1959)

Catalan Vs. Gatchalian

105 Phil 1270

G.R. No. L-11648 April 22, 1959

Catalan and Gatchalian are partners. They mortgaged twolots to Dr. Marave together with the
improvements thereon tosecure a credit from the latter. The partnership failed to pay theobligation. The
properties were sold to Dr. Marave at a publicauction. Catalan redeemed the property and he contends
that titleshould be cancelled and a new one must be issued in his name.

Issue:

Did Catalans redemption of the properties make him the

absolute owner of the lands?

Ruling:

No. Under Article 1807 of the NCC every partner becomes atrustee for his copartner with regard to any
benefits or profitsderived from his act as a partner. Consequently, when Catalanredeemed the properties
in question, he became a trustee andheld the same in trust for his copartner Gatchalian, subject to
hisright to demand from the latter his contribution to the amount ofredemption.

3. Lozana vs Depakabibo 1960

MAURO LOZANA, plaintiff-appellee,
vs.SERAFIN DEPAKAKIBO, defendant-
LABRADOR, J.:
This is an appeal from a judgment of the Court of First Instance of Iloilo, certified to us by the Court of
Appeals, for the reason that only questions of law are involved in said appeal.
The record discloses that on November 16, 1954 plaintiff Mauro Lozana entered into a contract with
defendant Serafin Depakakibo wherein they established a partnership capitalized at the sum of P30,000,
plaintiff furnishing 60% thereof and the defendant, 40%, for the purpose of maintaining, operating and
distributing electric light and power in the Municipality of Dumangas, Province of Iloilo, under a franchise
issued to Mrs. Piadosa Buenaflor. However, the franchise or certificate of public necessity and
convenience in favor of the said Mrs. Piadosa Buenaflor was cancelled and revoked by the Public
Service Commission on May 15, 1955. But the decision of the Public Service Commission was appealed
to Us on October 21, 1955. A temporary certificate of public convenience was issued in the name of
Olimpia D. Decolongon on December 22, 1955 (Exh. "B"). Evidently because of the cancellation of the
franchise in the name of Mrs. Piadosa Buenaflor, plaintiff herein Mauro Lozana sold a generator, Buda
(diesel), 75 hp. 30 KVA capacity, Serial No. 479, to the new grantee Olimpia D. Decolongon, by a deed
dated October 30, 1955 (Exhibit "C"). Defendant Serafin Depakakibo, on the other hand, sold one
Crossly Diesel Engine, 25 h. p., Serial No. 141758, to the spouses Felix Jimenea and Felina Harder, by
a deed dated July 10, 1956.
On November 15, 1955, plaintiff Mauro Lozana brought an action against the defendant, alleging that he
is the owner of the Generator Buda (Diesel), valued at P8,000 and 70 wooden posts with the wires
connecting the generator to the different houses supplied by electric current in the Municipality of
Dumangas, and that he is entitled to the possession thereof, but that the defendant has wrongfully
detained them as a consequence of which plaintiff suffered damages. Plaintiff prayed that said properties
be delivered back to him. Three days after the filing of the complaint, that is on November 18, 1955,
Judge Pantaleon A. Pelayo issued an order in said case authorizing the sheriff to take possession of the
generator and 70 wooden posts, upon plaintiff's filing of a bond in the amount of P16,000 in favor of the
defendant (for subsequent delivery to the plaintiff). On December 5, 1955, defendant filed an answer,
denying that the generator and the equipment mentioned in the complaint belong to the plaintiff and
alleging that the same had been contributed by the plaintiff to the partnership entered into between them
in the same manner that defendant had contributed equipments also, and therefore that he is not
unlawfully detaining them. By way of counterclaim, defendant alleged that under the partnership
agreement the parties were to contribute equipments, plaintiff contributing the generator and the
defendant, the wires for the purpose of installing the main and delivery lines; that the plaintiff sold his
contribution to the partnership, in violation of the terms of their agreement. He, therefore, prayed that the
complaint against him be dismissed; that plaintiff be adjudged guilty of violating the partnership contract
and be ordered to pay the defendant the sum of P3,000, as actual damages, P600.00 as attorney's fees
and P2,600 annually as actual damages; that the court order dissolution of the partnership, after the
accounting and liquidation of the same.
On September 27, 1956, the defendant filed a motion to declare plaintiff in default on his counterclaim,
but this was denied by the court. Hearings on the case were conducted on October 25, 1956 and
November 5, 1956, and on the latter date the judge entered a decision declaring plaintiff owner of the
equipment and entitled to the possession thereof, with costs against defendant. It is against this judgment
that the defendant has appealed.
The above judgment of the court was rendered on a stipulation of facts, which is as follows:
1. That on November 16, 1954, in the City of Iloilo, the aforementioned plaintiff, and the defendant
entered into a contract of Partnership, a copy of which is attached as Annex "A" of defendant's answer
and counterclaim, for the purpose set forth therein and under the national franchise granted to Mrs.
Piadosa Buenaflor;
2. That according to the aforementioned Partnership Contract, the plaintiff Mr. Mauro Lozana, contributed
the amount of Eighteen Thousand Pesos (P18,000.00); said contributions of both parties being the
appraised values of their respective properties brought into the partnership;
3. That the said Certificate of Public Convenience and Necessity was revoked and cancelled by order of
the Public Service Commission dated March 15, 1955, promulgated in case No. 58188, entitled, "Piadosa
Buenaflor, applicant", which order has been appealed to the Supreme Court by Mrs. Buenaflor;
4. That on October 30, 1955, the plaintiff sold properties brought into by him to the said partnership in
favor of Olimpia Decolongon in the amount of P10,000.00 as per Deed of Sale dated October 30, 1955
executed and ratified before Notary Public, Delfin Demaisip, in and for the Municipality of Dumangas,
Iloilo and entered in his Notarial Registry as Doc. No. 832; Page No. 6; Book No. XIII; and Series of
1955, a copy thereof is made as Annex "B" of defendant's answer and counterclaim;
5. That there was no liquidation of partnership and that at the time of said Sale on October 30, 1955,
defendant was the manager thereof;
6. That by virtue of the Order of this Honorable Court dated November 18, 1955, those properties sold
were taken by the Provincial Sheriff on November 20, 1955 and delivered to the plaintiff on November
25, 1955 upon the latter posting the required bond executed by himself and the Luzon Surety Co., dated
November 17, 1955 and ratified before the Notary Public, Eleuterio del Rosario in and for the province
of Iloilo known as Doc. No. 200; Page 90; Book No. VII; and Series of 1955; of said Notary Public;
7. That the said properties sold are now in the possession of Olimpia Decolongon, the purchaser, who
is presently operating an electric light plant in Dumangas, Iloilo;
8. That the defendant sold certain properties in favor of the spouses, Felix Jimenea and Felisa Harder
contributed by him to the partnership for P3,500.00 as per Deed of Sale executed and ratified before the
Notary Public Rodrigo J. Harder in and for the Province of Iloilo, known as Doc. No. 76; Page 94; Book
No. V; and Series of 1955, a certified copy of which is hereto attached marked as Annex "A", and made
an integral part hereof; (pp, 27-29 ROA).
As it appears from the above stipulation of facts that the plaintiff and the defendant entered into the
contract of partnership, plaintiff contributing the amount of P18,000, and as it is not stated therein that
there bas been a liquidation of the partnership assets at the time plaintiff sold the Buda Diesel Engine
on October 15, 1955, and since the court below had found that the plaintiff had actually contributed one
engine and 70 posts to the partnership, it necessarily follows that the Buda diesel engine contributed by
the plaintiff had become the property of the partnership. As properties of the partnership, the same could
not be disposed of by the party contributing the same without the consent or approval of the partnership
or of the other partner. (Clemente vs. Galvan, 67 Phil., 565).
The lower court declared that the contract of partnership was null and void, because by the contract of
partnership, the parties thereto have become dummies of the owner of the franchise. The reason for this
holding was the admission by defendant when being cross-examined by the court that he and the plaintiff
are dummies. We find that this admission by the defendant is an error of law, not a statement of a fact.
The Anti-Dummy law has not been violated as parties plaintiff and defendant are not aliens but Filipinos.
The Anti-Dummy law refers to aliens only (Commonwealth Act 108 as amended).
Upon examining the contract of partnership, especially the provision thereon wherein the parties agreed
to maintain, operate and distribute electric light and power under the franchise belonging to Mrs.
Buenaflor, we do not find the agreement to be illegal, or contrary to law and public policy such as to
make the contract of partnership, null and void ab initio. The agreement could have been submitted to
the Public Service Commission if the rules of the latter require them to be so presented. But the fact of
furnishing the current to the holder of the franchise alone, without the previous approval of the Public
Service Commission, does not per se make the contract of partnership null and void from the beginning
and render the partnership entered into by the parties for the purpose also void and non-existent. Under
the circumstances, therefore, the court erred in declaring that the contract was illegal from the beginning
and that parties to the partnership are not bound therefor, such that the contribution of the plaintiff to the
partnership did not pass to it as its property. It also follows that the claim of the defendant in his
counterclaim that the partnership be dissolved and its assets liquidated is the proper remedy, not for
each contributing partner to claim back what he had contributed.
For the foregoing considerations, the judgment appealed from as well as the order of the court for the
taking of the property into custody by the sheriff must be, as they hereby are set aside and the case
remanded to the court below for further proceedings in accordance with law.

4. Clemente vs Galvan 67 Phil 565

ENRIQUE CLEMENTE, plaintiff-appellee,
vs.DIONISIO GALVAN, defendant-appellee.
JOSE ECHEVARRIA, intervenor-appellant.
The intervenor Jose Echevarria having lost in the Court of First Instance of manila which rendered
judgment against him, the pertinent portion of which reads: "and with respect to the complaint of the
intervenor, the mortgage executed in his favor by plaintiff is declared null and void, and said complaint
in intervention, as well as the counterclaim filed by the defendant against the intervenor, is dismissed,
without pronouncement as to costs," he appealed to this court on the ground that, according to him, the
lower court committed the errors assigned in his brief as follows:
The court a quo erred in finding in the appealed decision that plaintiff was unable to take possession of
the machines subject of the deed of mortgage Exhibit B either before or after the execution thereof.
II. The court a quo likewise erred in deciding the present case against the intervenor-appellant, on the
ground, among others, that "plaintiff has not adduced any evidence nor has he testified to show that the
machines mortgaged by him to the intervenor have ever belonged to him, notwithstanding that said
intervenor is his close relative.".
III. The lower court also erred in declaring null and void the mortgage executed by plaintiff in favor of the
intervenor and, thereby, dismissing the complaint in intervention.
IV. The lower court lastly erred in ordering the receiver J. D. Mencarini to deliver to the defendant the
aforesaid machines upon petition of the plaintiff.
In order to have a clear idea of the question, it is proper to state the facts bearing on the case as they
appear in the decision and judgment of the lower court and in the documents which constitute all the
evidence adduced by the parties during the trial.
On June 6, 1931, plaintiff and defendant organized a civil partnership which they named "Galvan y
Compaia" to engage in the manufacture and sale of paper and other stationery. they agreed to invest
therein a capital of P100,000, but as a matter of fact they did not cover more than one-fifth thereof, each
contributing P10,000. Hardly a year after such organization, the plaintiff commenced the present case in
the above-mentioned court to ask for the dissolution of the partnership and to compel defendant to whom
the management thereof was entrusted to submit an accounting of his administration and to deliver to
him his share as such partner. In his answer defendant expressed his conformity to the dissolution of
the partnership and the liquidation of its affairs; but by way of counterclaim he asked that, having covered
a deficit incurred by the partnership amounting to P4,000 with his own money, plaintiff reimburse him of
one-half of said sum. On petition of the plaintiff a receiver and liquidator to take charge of the properties
and business for the partnership while the same was not yet definitely dissolved, was appointed, the
person chosen being Juan D. Mencarini. The latter was already discharging the duties of his office when
the court, by virtue of a petition ex parte of the plaintiff, issued the order of May 24, 1933, requiring said
receiver to deliver to him (plaintiff) certain machines which were then at Nos. 705-707 Ylaya Street,
Manila but authorizing him to charge their value of P4,500 against the portion which may eventually be
due to said plaintiff. To comply with said order, the receiver delivered to plaintiff the keys to the place
where the machines were found, which was the same place where defendant had his home; but before
he could take actual possession of said machines, upon the strong opposition of defendant, the court,
on motion of the latter, suspended the effects of its order of May 24, 1933. In the meantime the judgments
rendered in cases Nos. 42794 and 43070 entitled "Philippine Education Co., Inc. vs. Enrique Clemente"
for the recovery of a sum of money, and "Jose Echevarria vs. Enrique Clemente", also for the recovery
of a sum of money, respectively, were made executory; and in order to avoid the attachment and
subsequent sale of the machines by the sheriff for the satisfaction from the proceeds thereof of the
judgments rendered in the two cases aforecited, plaintiff agreed with the intervenor, who is his nephew,
to execute, as he in fact executed in favor of the latter, a deed of mortgage Exhibit B encumbering the
machines described in said deed in which it is stated that "they are situated on Singalong Street No.
1163", which is a place entirely different from the house Nos. 705 and 707 on Ylaya Street hereinbefore
mentioned. The one year agreed upon in the deed of mortgage for the fulfillment by the plaintiff of the
obligation he had contracted with the intervenor, having expired, the latter commenced case No. 49629
to collect his mortgage credit. The intervenor, as plaintiff in the said case, obtained judgment in his favor
because the defendant did not interpose any defense or objection, and, moreover, admitted being really
indebted to the intervenor in the amount set forth in the deed of mortgage Exhibit B. The machines which
the intervenor said were mortgaged to him were then in fact in custodia legis, as they were under the
control of the receiver and liquidator Juan D. Mencarini. It was, therefore, useless for the intervenor to
attach the same in view of the receiver's opposition; and the question having been brought to court, it
decided that nothing could be done because the receiver was not a party to the case which the intervenor
instituted to collect his aforesaid credit. (Civil case No. 49629.) The question ended thus because the
intervenor did not take any other step until he thought of joining in this case as intervenor.
1. From the foregoing facts, it is clear that plaintiff could not obtain possession of the machines in
question. The constructive possession deducible from the fact that he had the keys to the place where
the machines were found (Ylaya Street Nos. 705-707), as they had been delivered to him by the receiver,
does not help him any because the lower court suspended the effects of the other whereby the keys
were delivered to him a few days after its issuance; and thereafter revoked it entirely in the appealed
decision. Furthermore, when he attempted to take actual possession of the machines, the defendant did
not allow him to do so. Consequently, if he did not have actual possession of the machines, he could not
in any manner mortgage them, for while it is true that the oft-mentioned deed of mortgage Exhibit B was
annotated in the registry of property, it is no less true the machines to which it refers are not the same
as those in question because the latter are on Ylaya Street Nos. 705-707 and the former are on
Singalong Street No. 1163. It can not be said that Exhibit B-1, allegedly a supplementary contract
between the plaintiff and the intervenor, shows that the machines referred to in the deed of mortgage
are the same as those in dispute and which are found on Ylaya Street because said exhibit being merely
a private document, the same cannot vary or alter the terms of a public document which is Exhibit B or
the deed of mortgage.
2. The second error attributed to the lower court is baseless. The evidence of record shows that the
machines in contention originally belonged to the defendant and from him were transferred to the
partnership Galvan y Compania. This being the case, said machines belong to the partnership and not
to him, and shall belong to it until partition is effected according to the result thereof after the liquidation.
3. The last two errors attributed by the appellant to the lower court have already been disposed of by the
considerations above set forth. they are as baseless as the previous ones.
In view of all the foregoing, the judgment appealed from is affirmed, with costs against the appellant. So
ordered.

5. Leyte-Samar Sales and K. Tomassi vs S. Cea and O Castrilla 93 Phil 100

THE LEYTE-SAMAR SALES CO., and RAYMUNDO TOMASSI, petitioners,
vs.SULPICIO V. CEA, in his capacity as Judge of the Court of First Instance of Leyte and
OLEGARIO LASTRILLA, respondents.

Labaled "Certiorari and Prohibition with preliminary Injunction" this petition prays for the additional writ
of mandamusto compel the respondent judge to give due course to petitioners' appeal from his order
taxing costs. However, inasmuch as according to the answer, petitioners through their attorney withdrew
their cash appeal bond of P60 after the record on appeal bond of P60 after the record on appeal had
been rejected, the matter of mandamus may be summarily be dropped without further comment.
From the pleadings it appears that,
In civil case No. 193 of the Court of First Instance of Leyte, which is a suit for damages by the Leyte-
Samar Sales Co. (hereinafter called LESSCO) and Raymond Tomassi against the Far Eastern Lumber
& Commercial Co. (unregistered commercial partnership hereinafter called FELCO), Arnold Hall, Fred
Brown and Jean Roxas, judgment against defendants jointly and severally for the amount of P31,589.14
plus costs was rendered on October 29, 1948. The Court of Appeals confirmed the award in November
1950, minus P2,000 representing attorney's fees mistakenly included. The decision having become final,
the sheriff sold at auction on June 9, 1951 to Robert Dorfe and Pepito Asturias "all the rights, interests,
titles and participation" of the defendants in certain buildings and properties described in the certificate,
for a total price of eight thousand and one hundred pesos. But on June 4, 1951 Olegario Lastrilla filed in
the case a motion, wherein he claimed to be the owner by purchase on September 29, 1949, of all the
"shares and interests" of defendant Fred Brown in the FELCO, and requested "under the law of
preference of credits" that the sheriff be required to retain in his possession so much of the deeds of the
auction sale as may be necessary "to pay his right". Over the plaintiffs' objection the judge in his order
of June 13, 1951, granted Lastrilla's motion by requiring the sheriff to retain 17 per cent of the money
"for delivery to the assignee, administrator or receiver" of the FELCO. And on motion of Lastrilla, the
court on August 14, 1951, modified its order of delivery and merely declared that Lastrilla was entitled to
17 per cent of the properties sold, saying in part:
. . . el Juzgado ha encontrado que no se han respetado los derechos del Sr. Lastrilla en lo que se refiere
a su adquiscicion de las acciones de C. Arnold Hall (Fred Brown) en la Far Eastern Lumber & Lumber
Commercial C. porque la mismas han sido incluidas en la subasta.
Es vedad que las acciones adquiridas por el Sr. Lastilla representan el 17 por ciento del capital de la
sociedad "Far Eastern Lumber & Commercial Co., Inc., et al." pero esto no quiere decir que su vlor no
esta sujeto a las fluctuaciones del negocio donde las invirtio.
Se vendieron propiedades de la corporacion "Far Eastern Lumber & Co. Inc.," y de la venta solamente
se obtuvo la cantidad de P8,100.
"En su virtud, se declara que el 17 por ciento de las propiedades vendidas en publica subasta pretenece
al Sr. O Lastrilla y este tiene derecho a dicha porcion pero con la obligacion de pagar el 17 por ciento
de los gastos for la conservacion de dichas propriedades por parte del Sheriff; . . . . (Annex K)
It is from this declaration and the subsequent orders to enforce it1 that the petitioners seek relief by
certiorari, their position being the such orders were null and void for lack of jurisdiction. At their request
a writ of preliminary injunction was issued here.
The record is not very clear, but there are indications, and we shall assume for the moment, that Fred
Brown (like Arnold Hall and Jean Roxas) was a partner of the FELCO, was defendant in Civil Case No.
193 as such partner, and that the properties sold at auction actually belonged to the FELCO partnership
and the partners. We shall also assume that the sale made to Lastrilla on September 29, 1949, of all the
shares of Fred Brown in the FELCO was valid. (Remember that judgment in this case was entered in
the court of first instance a year before.)
The result then, is that on June 9, 1951 when the sale was effected of the properties of FELCO to Roberto
Dorfe and Pepito Asturias, Lastilla was already a partner of FELCO.
Now, does Lastrilla have any proper claim to the proceeds of the sale? If he was a creditor of the FELCO,
perhaps or maybe. But he was no. The partner of a partnership is not a creditor of such partnership for
the amount of his shares. That is too elementary to need elaboration.
Lastrilla's theory, and the lower court's seems to be: inasmuch as Lastrilla had acquired the shares of
Brown is September, 1949, i.e., before the auction sale and he was not a party to the litigation, such
shares could not have been transferred to Dorfe and Austrilla.
Granting arguendo that the auction sale and not included the interest or portion of the FELCO properties
corresponding to the shares of Lastrilla in the same partnership (17%), the resulting situation would be
at most that the purchasers Dorfe and Austrias will have to recognized dominion of Lastrillas over
17 per cent of the properties awarded to them.2 So Lastrilla acquired no right to demand any part of the
money paid by Dorfe and Austrias to he sheriff any part of the money paid by Dorfe and Austrias to the
sheriff for the benefit of FELCO and Tomassi, the plaintiffs in that case, for the reason that, as he says,
his shares (acquired from Brown) could not have been and were not auctioned off to Dorfe and Austrias.
Supposing however that Lastrillas shares have been actually (but unlawfully) sold by the sheriff (at the
instance of plaintiffs) to Dorfe and Austrias, what is his remedy? Section 15, Rule 39 furnishes the
answer.
Precisely, respondents argue, Lastrilla vindicated his claim by proper action, i.e., motion in the case. We
ruled once that "action" in this section means action as defined in section 1, Rule 2.3 Anyway his remedy
is to claim "the property", not the proceeds of the sale, which the sheriff is directed by section 14, Rule
39 to deliver unto the judgment creditors.
In other words, the owner of property wrongfully sold may not voluntarily come to court, and insist, "I
approve the sale, therefore give me the proceeds because I am the owner". The reason is that the sale
was made for the judgment creditor (who paid for the fees and notices), and not for anybody else.
On this score the respondent judge's action on Lastrilla's motion should be declared as in excess of
jurisdiction, which even amounted to want of jurisdiction, which even amounted to want of jurisdiction,
considering specially that Dorfe and Austrias, and the defendants themselves, had undoubtedly the right
to be heardbut they were not notified.4
Why was it necessary to hear them on the merits of Lastrilla's motion?
Because Dorfe and Austrillas might be unwilling to recognized the validity of Lastrilla's purchase, or, if
valid, they may want him not to forsake the partnership that might have some obligations in connection
with the partnership properties. And what is more important, if the motion is granted, when the time for
redemptioner seventeen per cent (178%) less than amount they had paid for the same properties.
The defendants Arnold Hall and Jean Roxas, eyeing Lastrilla's financial assets, might also oppose the
substitution by Lastrilla of Fred Brown, the judgment against them being joint and several. They might
entertain misgivings about Brown's slipping out of their common predicament through the disposal of his
shares.
Lastly, all the defendants would have reasonable motives to object to the delivery of 17 per cent of the
proceeds to Lustrial, because it is so much money deducted, and for which the plaintiffs might as another
levy on their other holdings or resources. Supposing of course, there was no fraudulent collusion among
them.
Now, these varied interest of necessity make Dorfe, Asturias and the defendants indispensable parties to
the motion of Lastrilla granting it was step allowable under our regulations on execution. Yet these
parties were not notified, and obviously took no part in the proceedings on the motion.
A valid judgment cannot be rendered where there is a want of necessary parties, and a court cannot
properly adjudicate matters involved in a suit when necessary and indispensable parties to the
proceedings are not before it. (49 C.J.S., 67.)
Indispensable parties are those without whom the action cannot be finally determined. In a case for
recovery of real property, the defendant alleged in his answer that he was occupying the property as a
tenant of a third person. This third person is an indispensable party, for, without him, any judgment which
the plaintiff might obtain against the tenant would have no effectiveness, for it would not be binding upon,
and cannot be executed against, the defendant's landlord, against whom the plaintiff has to file another
action if he desires to recover the property effectively. In an action for partition of property, each co-
owner is an indispensable party. (Moran, Comments, 1952 ed. Vol. I, p. 56.) (Emphasis supplied.)
Wherefore, the orders of the court recognizing Lastrilla's right and ordering payment to him of a part of
the proceeds were patently erroneous, because promulgated in excess or outside of its jurisdiction. For
this reason the respondents' argument resting on plaintiffs' failure to appeal from the orders on time,
although ordinarily decisive, carries no persuasive force in this instance.
For as the former Chief Justice Dr. Moran has summarized in his Comments, 1952 ed. Vol. II, p. 168
. . . And in those instances wherein the lower court has acted without jurisdiction over the subject-matter,
or where the order or judgment complained of is a patent nullity, courts have gone even as far as to
disregard completely the questions of petitioner's fault, the reason being, undoubtedly, that acts
performed with absolute want of jurisdiction over the subject-matter are void ab initio and cannot be
validated by consent, express or implied, of the parties. Thus, the Supreme Court granted a petition
for certiorari and set aside an order reopening a cadastral case five years after the judgment rendered
therein had become final. In another case, the Court set aside an order amending a judgment acquired
a definitive character. And still in another case, an order granting a review of a decree of registration
issued more than a year ago had been declared null void. In all these case the existence of the right to
appeal has been recitals was rendered without any trial or hearing, and the Supreme Court, in
granting certiorari, said that the judgment was by its own recitals a patent nullity, which should be set
aside though an appeal was available but was not availed of. . . .
Invoking our ruling in Melocotones vs. Court of First Instance, (57 Phil., 144), wherein we applied the
theory of laches to petitioners' 3-years delay in requesting certiorari, respondents point out that whereas
the orders complained of herein were issued in June 13, 1951 and August 14, 1951 this special civil
action was not filed until August 1952. It should be observed that the order of June 13 was superseded
by that of August 14, 1951. The last order merely declared "que el 17 por ciento de la propiedades
vendidas en publica subasta pertenece at Sr. Lastrilla y este tiene derecho a dicha porcion." This does
not necessarily mean that 17 per cent of the money had to be delivered to him. It could mean, as
hereinbefore indicated, that the purchasers of the property (Dorfe and Asturias) had to recognize
Lastrilla's ownership. It was only on April 16, 1952 (Annex N) that the court issued an order directing the
sheriff "to tun over" to Lastrilla "17 per cent of the total proceeds of the auction sale". There is the order
that actually prejudiced the petitioners herein, and they fought it until the last order of July 10,. 1952
(Annex Q). Surely a month's delay may not be regarded as laches.
In view of the foregoing, it is our opinion, and we so hold, that all orders of the respondents judge
requiring delivery of 17 per cent of the proceeds of the auction sale to respondent Olegario Lastrilla are
null and void; and the costs of this suit shall be taxed against the latter. The preliminary injunction
heretofore issued is made permanent. So ordered.
Art 1815-1817
PNB vs Lo, 50 Phil 802 1927
PHILIPPINE NATIONAL BANK, plaintiff-appellee, vs.SEVERO EUGENIO LO, ET
AL., defendants. SEVERIO EUGENIO LO, NG KHEY LING and YEP SENG, appellants.
On September 29, 1916, the appellants Severo Eugenio Lo and Ng Khey Ling, together with J. A. Say
Lian Ping, Ko Tiao Hun, On Yem Ke Lam and Co Sieng Peng formed a commercial partnership under
the name of "Tai Sing and Co.," with a capital of P40,000 contributed by said partners. In the articles of
copartnership, Exhibit A, it appears that the partnership was to last for five years from after the date of
its organization, and that its purpose was to do business in the City of Iloilo, Province of Iloilo, or in any
other part of the Philippine Islands the partners might desire, under the name of "Tai Sing & Co.," for the
purchase and sale of merchandise, goods, and native, as well as Chinese and Japanese, products, and
to carry on such business and speculations as they might consider profitable. One of the partners, J. A.
Say Lian Ping was appointed general manager of the partnership, with the appointed general manager
of the partnership, with the powers specified in said articles of copartnership.
On June 4, 1917, general manager A. Say Lian Ping executed a power of attorney (Exhibit C-1) in favor
of A. Y. Kelam, authorizing him to act in his stead as manager and administrator of "Tai Sing & Co.," on
July 26, 1918, for, and obtained a loan of P8,000 in current account from the plaintiff bank. (Exhibit C).
As security for said loan, he mortgaged certain personal property of "Tai Sing & Co., (Exhibit C.)
This credit was renew several times and on March 25, 1919, A. Y. Kelam, as attorney-in-fact of "Tai Sing
& Co., executed a chattel mortgage in favor of plaintiff bank as security for a loan of P20,000 with interest
(Exhibit D). This mortgage was again renewed on April 16, 1920 and A. Y. Kelam, as attorney-in-fact of
"Tai Sing & Co., executed another chattel mortgage for the said sum of P20,000 in favor of plaintiff bank.
(Exhibit E.) According to this mortgage contract, the P20,000 loan was to earn 9 per cent interest per
annum.
On April 20, 1920, Yap Seng, Severo Eugenio Lo, A. Y. Kelam and Ng Khey Ling, the latter represented
by M. Pineda Tayenko, executed a power of attorney in favor of Sy Tit by virtue of which Sy Tit,
representing "Tai Sing & Co., obtained a credit of P20,000 from plaintiff bank on January 7, 1921,
executing a chattel mortgage on certain personal property belonging to "Tai Sing & Co.
Defendants had been using this commercial credit in a current account with the plaintiff bank, from the
year 1918, to May 22, 1921, and the debit balance of this account, with interest to December 31, 1924,
is as follows:

This total is the sum claimed in the complaint, together with interest on the P16,518.74 debt, at 9 per
cent per annum from January 1, 1925 until fully paid, with the costs of the trial.
Defendant Eugenio Lo sets up, as a general defense, that "Tai Sing & Co. was not a general partnership,
and that the commercial credit in current account which "Tai Sing & Co. obtained from the plaintiff bank
had not been authorized by the board of directors of the company, nor was the person who subscribed
said contract authorized to make the same, under the article of copartnership. The other defendants,
Yap Sing and Ng Khey Ling, answered the complaint denying each and every one of the allegations
contained therein.
After the hearing, the court found:
(1) That defendants Eugenio Lo, Ng Khey Ling and Yap Seng Co., Sieng Peng indebted to plaintiff
Philippine National Bank in sum of P22,595.26 to July 29, 1926, with a daily interest of P4.14 on the
balance on account of the partnership "Tai Sing & Co. for the sum of P16,518.74 until September 9,
1922;
(2) Said defendants are ordered jointly and severally to pay the Philippine National Bank the sum of
P22,727.74 up to August 31, 1926, and from the date, P4.14 daily interest on the principal; and
(3) The defendants are furthermore ordered to pay the costs of the action.1awph!l.net
Defendants appealed, making the following assignments of error:
I. The trial court erred in finding that article 126 of the Code of Commerce at present in force is not
mandatory.
II. The trial court erred in finding that the partnership agreement of "Tai Sing & Co., (Exhibit A), is in
accordance with the requirements of article 125 of the Code of Commerce for the organization of a
regular partnership.
III. The trial court erred in not admitting J. A. Sai Lian Ping's death in China in November, 1917, as a
proven fact.
IV. The trial court erred in finding that the death of J. A. Say Lian Ping cannot extinguish the defendants'
obligation to the plaintiff bank, because the last debt incurred by the commercial partnership "Tai Sing &
Co., was that evidence by Exhibit F, signed by Sy Tit as attorney-in-fact of the members of "Tai Sing &
Co., by virtue of Exhibit G.
V. The trial court erred in not finding that plaintiff bank was not able to collect its credit from the goods of
"Tai Sing & Co., given as security therefor through its own fault and negligence; and that the action
brought by plaintiff is a manifest violation of article 237 of the present Code of Commerce.
VI. The trial court erred in finding that the current account of "Tai Sing & Co. with plaintiff bank shows a
debit balance of P16,518.74, which in addition to interest at 9 per cent per annum from July 29, 1926,
amount to P16,595.26, with a daily interest of P4.14 on the sum of P16,518.74.
VII. The trial court erred in ordering the defendants appellants to pay jointly and severally to the Philippine
National Bank the sum of P22,727.74 up to August 31, 1926, and interest on P16,518.74 from that date
until fully paid, with the costs of the action.
VIII. The trial court erred in denying the motion for a new trial filed by defendants-appellants.
Appellants admit, and it appears from the context of Exhibit A, that the defendant association formed by
the defendants is a general partnership, as defined in article 126 of the Code Commerce. This
partnership was registered in the mercantile register of the Province of Iloilo. The only anomaly noted in
its organization is that instead of adopting for their firm name the names of all of the partners, of several
of them, or only one of them, to be followed in the last two cases, by the words "and to be followed in
the last two cases, by the words "and company" the partners agreed upon "Tai Sing & Co." as the firm
name.
In the case of Hung-Man-Yoc, under the name of Kwong-Wo-Sing vs. Kieng-Chiong-Seng, cited by
appellants, this court held that, as the company formed by defendants had existed in fact, though not in
law due to the fact that it was not recorded in the register, and having operated and contracted debts in
favor of the plaintiff, the same must be paid by someone. This applies more strongly to the obligations
contracted by the defendants, for they formed a partnership which was registered in the mercantile
register, and carried on business contracting debts with the plaintiff bank. The anomalous adoption of
the firm name above noted does not affect the liability of the general partners to third parties under article
127 of the Code of Commerce. And the Supreme Court so held in the case of Jo Chung Cang vs. Pacific
Commercial Co., (45 Phil., 142), in which it said that the object of article 126 of the Code of Commerce
in requiring a general partnership to transact business under the name of all its members, of several of
them, or of one only, is to protect the public from imposition and fraud; and that the provision of said
article 126 is for the protection of the creditors rather than of the partners themselves. And consequently
the doctrine was enunciated that the law must be unlawful and unenforceable only as between the
partners and at the instance of the violating party, but not in the sense of depriving innocent parties of
their rights who may have dealt with the offenders in ignorance of the latter having violated the law; and
that contracts entered into by commercial associations defectively organized are valid when voluntarily
executed by the parties, and the only question is whether or not they complied with the agreement.
Therefore, the defendants cannot invoke in their defense the anomaly in the firm name which they
themselves adopted.
As to the alleged death of the manager of the company, Say Lian Ping, before the attorney-in-fact Ou
Yong Kelam executed Exhibits C, D and E, the trial court did not find this fact proven at the hearing. But
even supposing that the court had erred, such an error would not justify the reversal of the judgment, for
two reasons at least: (1) Because Ou Yong Kelam was a partner who contracted in the name of the
partnership, without any objection of the other partners; and (2) because it appears in the record that the
appellant-partners Severo Eugenio Lo, Ng Khey Ling and Yap Seng, appointed Sy Tit as manager, and
he obtained from the plaintiff bank the credit in current account, the debit balance of which is sought to
be recovered in this action.
Appellants allege that such of their property as is not included in the partnership assets cannot-be seized
for the payment of the debts contracted by the partnership until after the partnership property has been
exhausted. The court found that the partnership property described in the mortgage Exhibit F no loner
existed at the time of the filing of the herein complaint nor has its existence been proven, nor was it
offered to the plaintiff for sale. We find no just reason to reverse this conclusion of the trial court, and this
being so, it follows that article 237 of the Code of Commerce, invoked by the appellant, can in no way
have any application here.
Appellants also assign error to the action of the trial court in ordering them to pay plaintiff, jointly and
severally, the sums claimed with 9 per cent interest on P16,518.74, owing from them.
The judgment against the appellants is in accordance with article 127 of the Code of Commerce which
provides that all the members of a general partnership, be they managing partners thereof or not, shall
be personally and solidarily liable with all their property, for the results of the transactions made in the
name and for the account of the partnership, under the signature of the latter, and by a person authorized
to use it.
As to the amount of the interest suffice it to remember that the credit in current account sued on in this
case as been renewed by the parties in such a way that while it appears in the mortgage Exhibit D
executed on March 25, 1919 by the attorney-in-fact Ou Yong Kelam that the P20,000 credit would earn
8 per cent interest annually, yet from that executed on April 16, 1920, Exhibit E, it appears that the
P20,000 would earn 9 per cent interest per annum. The credit was renewed in January, 1921, and in the
deed of pledge, Exhibit F, executed by "Tai Sing & Co., represented by the attorney-in-fact Sy Tit, it
appears that this security is for the payment of the sums received by the partnership, not to exceed
P20,000 with interest and collection fees. There can be no doubt that the parties agreed upon the rate
of interest fixed in the document Exhibit E, namely 9 per cent per annum.
The judgment appealed from is in accordance with the law, and must therefore be, as it is hereby,
affirmed with costs against the appellants. So ordered.

Island Sales Inc vs United Pioneers General Const July 31 1975

ISLAND SALES, INC., plaintiff-appellee,
vs.UNITED PIONEERS GENERAL CONSTRUCTION COMPANY, ET. AL defendants. BENJAMIN C.
DACO, defendant-appellant.
This is an appeal interposed by the defendant Benjamin C. Daco from the decision of the Court of First
Instance of Manila, Branch XVI, in Civil Case No. 50682, the dispositive portion of which reads:
WHEREFORE, the Court sentences defendant United Pioneer General Construction Company to pay
plaintiff the sum of P7,119.07 with interest at the rate of 12% per annum until it is fully paid, plus attorney's
fees which the Court fixes in the sum of Eight Hundred Pesos (P800.00) and costs.
The defendants Benjamin C. Daco, Daniel A. Guizona, Noel C. Sim and Augusto Palisoc are sentenced
to pay the plaintiff in this case with the understanding that the judgment against these individual
defendants shall be enforced only if the defendant company has no more leviable properties with which
to satisfy the judgment against it. .
The individual defendants shall also pay the costs.
On April 22, 1961, the defendant company, a general partnership duly registered under the laws of the
Philippines, purchased from the plaintiff a motor vehicle on the installment basis and for this purpose
executed a promissory note for P9,440.00, payable in twelve (12) equal monthly installments of P786.63,
the first installment payable on or before May 22, 1961 and the subsequent installments on the 22nd day
of every month thereafter, until fully paid, with the condition that failure to pay any of said installments as
they fall due would render the whole unpaid balance immediately due and demandable.
Having failed to receive the installment due on July 22, 1961, the plaintiff sued the defendant company
for the unpaid balance amounting to P7,119.07. Benjamin C. Daco, Daniel A. Guizona, Noel C. Sim,
Romulo B. Lumauig, and Augusto Palisoc were included as co-defendants in their capacity as general
partners of the defendant company.
Daniel A. Guizona failed to file an answer and was consequently declared in default.1
Subsequently, on motion of the plaintiff, the complaint was dismissed insofar as the defendant Romulo
B. Lumauig is concerned.2
When the case was called for hearing, the defendants and their counsels failed to appear
notwithstanding the notices sent to them. Consequently, the trial court authorized the plaintiff to present
its evidence ex-parte3 , after which the trial court rendered the decision appealed from.
The defendants Benjamin C. Daco and Noel C. Sim moved to reconsider the decision claiming that since
there are five (5) general partners, the joint and subsidiary liability of each partner should not exceed
one-fifth (1/5 ) of the obligations of the defendant company. But the trial court denied the said motion
notwithstanding the conformity of the plaintiff to limit the liability of the defendants Daco and Sim to only
one-fifth (1/5 ) of the obligations of the defendant company.4 Hence, this appeal.
The only issue for resolution is whether or not the dismissal of the complaint to favor one of the general
partners of a partnership increases the joint and subsidiary liability of each of the remaining partners for
the obligations of the partnership.
Article 1816 of the Civil Code provides:
Art. 1816. All partners including industrial ones, shall be liable pro rata with all their property and after all
the partnership assets have been exhausted, for the contracts which may be entered into in the name
and for the account of the partnership, under its signature and by a person authorized to act for the
partnership. However, any partner may enter into a separate obligation to perform a partnership contract.
In the case of Co-Pitco vs. Yulo (8 Phil. 544) this Court held:
The partnership of Yulo and Palacios was engaged in the operation of a sugar estate in Negros. It was,
therefore, a civil partnership as distinguished from a mercantile partnership. Being a civil partnership, by
the express provisions of articles l698 and 1137 of the Civil Code, the partners are not liable each for
the whole debt of the partnership. The liability is pro rata and in this case Pedro Yulo is responsible to
plaintiff for only one-half of the debt. The fact that the other partner, Jaime Palacios, had left the country
cannot increase the liability of Pedro Yulo.
In the instant case, there were five (5) general partners when the promissory note in question was
executed for and in behalf of the partnership. Since the liability of the partners is pro rata, the liability of
the appellant Benjamin C. Daco shall be limited to only one-fifth (1/5 ) of the obligations of the defendant
company. The fact that the complaint against the defendant Romulo B. Lumauig was dismissed, upon
motion of the plaintiff, does not unmake the said Lumauig as a general partner in the defendant company.
In so moving to dismiss the complaint, the plaintiff merely condoned Lumauig's individual liability to the
plaintiff.
Art 1818
Goquilay vs Sycip 9 SCRA 663 1963
ANTONIO C. GOQUIOLAY, ET AL., plaintiffs-appellants, vs.WASHINGTON Z. SYCIP, ET
AL., defendants-appellees.
Norberto J. Quisumbing and Sycip, Salazar and Associates for defendants-appellees.
Jose C. Calayco for plaintiffs-appellants..

The matter now pending is the appellant's motion for reconsideration of our main decision, wherein we
have upheld the validity of the sale of the lands owned by the partnership Goquiolay & Tan Sin An, made
in 1949 by the widow of the managing partner, Tan Sin An (Executed in her dual capacity as
Administratrix of the husband's estate and as partner in lieu of the husband), in favor of the buyers
Washington Sycip and Betty Lee for the following consideration:

Appellant Goquiolay, in his motion for reconsideration, insist that, contrary to our holding, Kong Chai Pin,
widow of the deceased partner Tan Sin An, never became more than a limited partner, incapacitated by
law to manage the affairs of partnership; that the testimony of her witness Young and Lim belies that she
took over the administration of the partnership property; and that, in any event, the sale should be set
aside because it was executed with the intent to defraud appellant of his share in the properties sold.
Three things must be always held in mind in the discussion of this motion to reconsider, being basic and
beyond controversy:
(a) That we are dealing here with the transfer of partnership property by one partner, acting in behalf of
the firm, to a stranger. There is no question between partners inter se, and this aspect to the case was
expressly reserved in the main decision of 26 July 1960;
(b) That partnership was expressly organized: "to engage in real estate business, either by buying and
selling real estate". The Articles of co-partnership, in fact, expressly provided that:
IV. The object and purpose of the copartnership are as follows:
1. To engage in real estate business, either by buying and selling real estates; to subdivide real estates
into lots for the purpose of leasing and selling them.;
(c) That the properties sold were not part of the contributed capital (which was in cash) but land precisely
acquired to be sold, although subject to a mortgage in favor of the original owners, from whom the
partnership had acquired them.
With these points firmly in mind, let us turn to the points insisted upon by appellant.
It is first averred that there is "not one iota of evidence" that Kong Chai Pin managed and retained
possession of the partnership properties. Suffice it to point out that appellant Goquiolay himself admitted
that
... Mr. Yu Eng Lai asked me if I can just let Mrs. Kong Chai Pin continue to manage the properties (as)
she had no other means of income. Then I said, because I wanted to help Mrs. Kong Chai Pin, she could
just do it and besides I am not interested in agricultural lands. I allowed her to take care of the
properties in order to help her and because I believe in od and wanted to help her.
Q So the answer to my question is you did not take any steps?
A I did not.
Q And this conversation which you had with Mrs. Yu Eng Lai was few months after 1945?
A In the year 1945. (Emphasis supplied).
The appellant subsequently ratified this testimony in his deposition of 30 June 1956, pages 8-9, wherein
he stated:
that plantation was being occupied at that time by the widow, Mrs. Tan Sin An, and of course they are
receiving quiet a lot benefit from the plantation.
Discarding the self-serving expressions, these admissions of Goquiolay are certainly entitled to greater
weight than those of Hernando Young and Rufino Lim, having been made against the party's own
interest.
Moreover, the appellant's reference to the testimony of Hernando Young, that the witness found the
properties "abandoned and undeveloped", omits to mention that said part of the testimony started with
the question:
Now, you said that about 1942 or 1943 you returned to Davao. Did you meet Mrs. Kong Chai Pin there
in Davao at that time?
Similarly, the testimony of Rufino Lim, to the effect that the properties of the partnership were
undeveloped, and the family of the widow (Kong Chai Pin) did not receive any income from the
partnership properties, was given in answer to the question:
According to Mr. Goquiolay, during the Japanese occupation Tan Sin an and his family lived on the
plantation of the partnership and derived their subsistence from that plantation. What can you say to
that? (Dep. 19 July 1956, p. 8).
And also
What can you say as to the development of these other properties of the partnership which you
saw during the occupation? (Dep. p. 13, Emphasis supplied).
to which witness gave the following answer:
I saw the properties in Mamay still undeveloped. The third property which is in Tigato is about eleven
(11) hectares and planted with abaca seedlings planted by Mr. Sin An. When I went there with Hernando
Young we saw all the abaca destroyed. The place was occupied by the Japanese Army. They planted
camotes and vegetables to feed the Japanese Army. Of course they never paid any money to Tan Sin
An or his family. (Dep., Lim, pp. 13-14. Emphasis supplied).
Plainly, both Young and Lim's testimonies do not belie, or contradict, Goquiolay's admission that he told
Mr. Yu Eng Lai that the widow "could just do it" (i.e., continue to manage the properties). Witnesses Lim
and Young referred to the period of Japanese occupation; but Goquiolay's authority was, in fact, given
to the widow in 1945, after the occupation.
Again, the disputed sale by the widow took place in 1949. That Kong Chai Pin carried out no acts of
management during the Japanese occupation (1942-1944) does not mean that she did not do so from
1945 to 1949.
We thus find that Goquiolay did not merely rely on reports from Lim and Young; he actually manifested
his willingness that the widow should manage the partnership properties. Whether or not she complied
with this authority is a question between her and the appellant, and is not here involved. But the authority
was given, and she did have it when she made the questioned sale, because it was never revoked.
It is argued that the authority given by Goquiolay to the widow Kong Chai Pin was only to manage the
property, and that it did not include the power to alienate, citing Article 1713 of the Civil Code of 1889.
What this argument overlooks is that the widow was not a mere agent, because she had become a
partner upon her husband's death, as expressly provided by the articles of copartnership. Even more,
granting that by succession to her husband, Tan Sin An, the widow only became a limited
partner, Goquiolay's authorization to manage the partnership property was proof that he considered and
recognized her as general partner, at least since 1945. The reason is plain: Under the law (Article 148,
last paragraph, Code of Commerce), appellant could not empower the widow, if she were only a limited
partner, to administer the properties of the firm, even as a mere agent:
Limited partners may not perform any act of administration with respect to the interests of the
copartnership, not even in the capacity of agents of the managing partners. (Emphasis supplied).
By seeking authority to manage partnership property, Tan Sin An's widow showed that she desired to
be considered a general partner. By authorizing the widow to manage partnership property (which a
limited partner could not be authorized to do), Goquiolay recognized her as such partner, and is now in
estoppel to deny her position as a general partner, with authority to administer and alienate partnership
property.
Besides, as we pointed out in our main decision, the heir ordinarily (and we did not say "necessarily")
becomes a limited partner for his own protection, because he would normally prefer to avoid any liability
in excess of the value of the estate inherited so as not to jeopardize his personal assets. But this statutory
limitation of responsibility being designed to protect the heir, the latter may disregard it and instead elect
to become a collective or general partner, with all the rights and privileges of one, and answering for the
debts of the firm not only with the inheritance but also with the heir's personal fortune. This choice
pertains exclusively to the heir, and does not require the assent of the surviving partner.
It must be remember that the articles of co-partnership here involved expressly stipulated that:
In the event of the death of any of the partners at any time before the expiration of said term, the co-
partnership shall not be dissolved but will have to be continued and the deceased partner shall be
represented by his heirs or assigns in said co-partnership (Art. XII, Articles of Co-Partnership).
The Articles did not provide that the heirs of the deceased would be merely limited partners; on the
contrary, they expressly stipulated that in case of death of either partner "the co-partnership ... will have
to be continued" with the heirs or assigns. It certainly could not be continued if it were to be converted
from a general partnership into a limited partnership, since the difference between the two kinds of
associations is fundamental; and specially because the conversion into a limited association would have
the heirs of the deceased partner without a share in the management. Hence, the contractual stipulation
does actually contemplate that the heirs would become general partners rather than limited ones.
Of course, the stipulation would not bind the heirs of the deceased partner should they refuse to assume
personal and unlimited responsibility for the obligations of the firm. The heirs, in other words, can not be
compelled to become general partners against their wishes. But because they are not so compellable, it
does not legitimately follow that they may not voluntarily choose to become general partners, waiving
the protective mantle of the general laws of succession. And in the latter event, it is pointless to discuss
the legality of any conversion of a limited partner into a general one. The heir never was a limited partner,
but chose to be, and became, a general partner right at the start.
It is immaterial that the heir's name was not included in the firm name, since no conversion of status is
involved, and the articles of co-partnership expressly contemplated the admission of the partner's heirs
into the partnership.
It must never be overlooked that this case involved the rights acquired by strangers, and does not deal
with the rights existing between partners Goquiolay and the widow of Tan Sin An. The issues between
the partners inter sewere expressly reserved in our main decision. Now, in determining what kind of
partner the widow of partner Tan Sin an Had elected to become, strangers had to be guided by her
conduct and actuations and those of appellant Goquiolay. Knowing that by law a limited partner is barred
from managing the partnership business or property, third parties (like the purchasers) who found the
widow possessing and managing the firm property with the acquiescence (or at least without apparent
opposition) of the surviving partners were perfectly justified in assuming that she had become a general
partner, and, therefore, in negotiating with her as such a partner, having authority to act for, and in behalf
of the firm. This belief, be it noted, was shared even by the probate court that approved the sale by the
widow of the real property standing in the partnership name. That belief was fostered by the very inaction
of appellant Goquiolay. Note that for seven long years, from partner Tan Sin An's death in 1942 to the
sale in 1949, there was more than ample time for Goquiolay to take up the management of these
properties, or at least ascertain how its affairs stood. For seven years Goquiolay could have asserted
his alleged rights, and by suitable notice in the commercial registry could have warned strangers that
they must deal with him alone, as sole general partner. But he did nothing of the sort, because he was
not interested (supra), and he did not even take steps to pay, or settle the firm debts that were overdue
since before the outbreak of the last war. He did not even take steps, after Tan Sin An died, to cancel,
or modify, the provisions of the partnership articles that he (Goquiolay) would have no intervention in the
management of the partnership. This laches certainly contributed to confirm the view that the widow of
Tan Sin An had, or was given, authority to manage and deal with the firm's properties apart from the
presumption that a general partner dealing with partnership property has to requisite authority from his
co-partners (Litton vs. Hill and Ceron, et al., 67 Phil. 513; quoted in our main decision, p. 11).
The stipulation in the articles of partnership that any of the two managing partners may contract and sign
in the name of the partnership with the consent of the other, undoubtedly creates on obligation between
the two partners, which consists in asking the other's consent before contracting for the partnership. This
obligation of course is not imposed upon a third person who contracts with the partnership. Neither it is
necessary for the third person to ascertain if the managing partner with whom he contracts has previously
obtained the consent of the other. A third person may and has a right to presume that the partner with
whom he contracts has, in the ordinary and natural course of business, the consent of his copartner; for
otherwise he would not enter into the contract. The third person would naturally not presume that the
partner with whom he enters into the transaction is violating the articles of partnership, but on the contrary
is acting in accordance therewith. And this finds support in the legal presumption that the ordinary course
of business has been followed (No. 18, section 334, Code of Civil Procedure), and that the law has been
obeyed (No. 31, section 334). This last presumption is equally applicable to contracts which have the
force of law between the parties. (Litton vs. Hill & Ceron, et al., 67 Phil. 409, 516). (Emphasis supplied.)
It is next urged that the widow, even as a partner, had no authority to sell the real estate of the firm. This
argument is lamentably superficial because it fails to differentiate between real estate acquired and held
as stock-in-trade and real estate held merely as business site (Vivante's "taller o banco social") for the
partnership. Where the partnership business is to deal in merchandise and goods, i.e., movable property,
the sale of its real property (immovables) is not within the ordinary powers of a partner, because it is not
in line with the normal business of the firm. But where the express and avowed purpose of the partnership
is to buy and sell real estate (as in the present case), the immovables thus acquired by the firm from part
of its stock-in-trade, and the sale thereof is in pursuance of partnership purposes, hence within the
ordinary powers of the partner. This distinction is supported by the opinion of Gay de Montella1 , in the
very passage quoted in the appellant's motion for reconsideration:
La enajenacion puede entrar en las facultades del gerante, cuando es conforme a los fines sociales.
Pero esta facultad de enajenar limitada a las ventas conforme a los fines sociales, viene limitada a los
objetos de comercio o a los productos de la fabrica para explotacion de los cuales se ha constituido la
Sociedad. Ocurrira una cosa parecida cuando el objeto de la Sociedad fuese la compra y venta de
inmuebles, en cuyo caso el gerente estaria facultado para otorgar las ventas que fuere necesario.
(Montella) (Emphasis supplied).
The same rule obtains in American law.
In Rosen vs. Rosen, 212 N.Y. Supp. 405, 406, it was held: a partnership to deal in real estate may be
created and either partner has the legal right to sell the firm real estate.
In Chester vs. Dickerson, 54 N. Y. 1, 13 Am. Rep. 550:
And hence, when the partnership business is to deal in real estate, one partner has ample power, as a
general agent of the firm, to enter into an executory contract for the sale of real estate.
And in Revelsky vs. Brown, 92 Ala. 522, 9 South 182, 25 Am. St. Rep. 83:
If the several partners engaged in the business of buying and selling real estate can not bind the firm by
purchases or sales of such property made in the regular course of business, then they are incapable of
exercising the essential rights and powers of general partners and their association is not really a
partnership at all, but a several agency.
Since the sale by the widow was in conformity with the express objective of the partnership, "to engage
... in buying and selling real estate" (Art. IV, No. 1 Articles of Copartnership), it can not be maintained
that the sale was made in excess of her power as general partner.
Considerable stress is laid by appellant in the ruling of the Supreme Court of Ohio in McGrath, et al., vs.
Cowen, et al., 49 N.E., 338. But the facts of that case are vastly different from the one before us. In the
McGrath case, the Court expressly found that:
The firm was then, and for some time had been, insolvent, in the sense that its property was insufficient
to pay its debts, though it still had good credit, and was actively engaged in the prosecution of its
business. On that day, which was Saturday, the plaintiff caused to be prepared, ready for execution, the
four chattel mortgages in question, which cover all the tangible property then belonging to the
firm, including the counters, shelving, and other furnishings and fixtures necessary for, and used in
carrying on, its business, and signed the same in this form: "In witness whereof, the said Cowen &
McGrath, a firm, and Owen McGrath, surviving partner, of said firm, and Owen McCrath, individually,
have hereunto set their hands, this 20th day of May, A.D. 1893. Cowen & Mcgrath, by Owen McGrath.
Owen McGrath, Surviving partner of Cowen & McGrath. Owen McGrath." At the same time, the plaintiff
had prepared, ready for filing, the petition for the dissolution of the partnership and appointment of a
receiver which he subsequently filed, as hereinafter stated. On the day the mortgages were signed, they
were placed in the hands of the mortgagees, which was the first intimation to them that there was any
intention to make them. At the time none of the claims secured by the mortgages were due, except, it
may be, a small part of one of them, and none of the creditors to whom the mortgages were made had
requested security, or were pressing for the payment of their debts. ... The mortgages appear to be
without a sufficient condition of defiance, and contain a stipulation authorizing the mortgagees to take
immediate possession of the property, which they did as soon as the mortgages were filed through the
attorney who then represented them, as well as the plaintiff; and the stores were at once closed, and
possession delivered by them to the receiver appointed upon the filing of the petition. The avowed
purposes of the plaintiff, in the course pursued by him, was to terminate the partnership, place its
properly beyond the control of the firm, and insure the preference of the mortgagees, all of which was
known to them at the time; .... (Cas cit., p. 343, Emphasis supplied).
It is natural that form these facts the Supreme Court of Ohio should draw the conclusion that the
conveyances were made with intent to terminate the partnership, and that they were not within the
powers of McGrath as a partner. But there is no similarity between those acts and the sale by the widow
of Tan Sin An. In the McGrath case, the sale included even the fixtures used in the business; in our case,
the lands sold were those acquired to be sold. In the McGrath case, none of the creditors were pressing
for payment; in our case, the creditors had been unpaid for more than seven years, and their claims had
been approved by the probate court for payment. In the McGrath case, the partnership received nothing
beyond the discharge of its debts; in the present case, not only were its debts assumed by the buyers,
but the latter paid, in addition, P37,000.00 in cash to the widow, to the profit of the partnership. Clearly,
the McGrath ruling is not applicable.
We will now turn to the question of fraud. No direct evidence of it exists; but appellant point out, as indicia
thereof, the allegedly low price paid for the property, and the relationship between the buyers, the
creditors of the partnership, and the widow of Tan Sin An.
First, as to the price: As already noted, this property was actually sold for a total of P153,726.04, of which
P37,000.00 was in cash, and the rest in partnership debts assumed by the purchaser. These debts
(62,415.91 to Yutivo, and P54,310.13 to Sing Ye Cuan & Co.) are not questioned; they were approved
by the court, and its approval is now final. The claims were, in fact, for the balance on the original
purchase price of the land sold (sue first to La Urbana, later to the Banco Hipotecario) plus accrued
interests and taxes, redeemed by the two creditors-claimants. To show that the price was inadquate,
appellant relies on the testimony of the realtor Mata, who is 1955, six years after the sale in question,
asserted that the land was worth P312,000.00. Taking into account the continued rise of real estate
values since liberation, and the fact that the sale in question was practically a forced sale because the
partnership had no other means to pay its legitimate debts, this evidence certainly does not show such
"gross inadequacy" as to justify recission of the sale. If at the time of the sale (1949) the price of
P153,726.04 was really low, how is it that appellant was not able to raise the amount, even if the creditor's
representative, Yu Khe Thai, had already warned him four years before (1945) that the creditors wanted
their money back, as they were justly entitled to?
It is argued that the land could have been mortgaged to raise the sum needed to discharge the debts.
But the lands were already mortgaged, and had been mortgaged since 1940, first to La Urbana, and
then to the Banco Hipotecario. Was it reasonable to expect that other persons would loan money to the
partnership when it was unable even to pay the taxes on the property, and the interest on the principal
since 1940? If it had been possible to find lenders willing to take a chance on such a bad financial record,
would not Goquiolay have taken advantage of it? But the fact is clear on the record that since liberation
until 1949 Goquiolay never lifted a finger to discharge the debts of the partnership. Is he entitled now to
cry fraud after the debts were discharged with no help from him.
With regard to the relationship between the parties, suffice it to say that the Supreme Court has ruled
that relationship alone is not a badge of fraud (Oria Hnos. vs. McMicking, 21 Phil. 243; also Hermandad
del Smo. Nombre de Jesus vs. Sanchez, 40 Off. Gaz., 1685). There is no evidence that the original
buyers, Washington Sycip and Betty Lee, were without independent means to purchase the property.
That the Yutivos should be willing to extend credit to them, and not to appellant, is neither illegal nor
immoral; at the very least, these buyers did not have a record of inveterate defaults like the partnership
"Tan Sin An & Goquiolay".
Appellant seeks to create the impression that he was the victim of a conspiracy between the Yutivo firm
and their component members. But no proof is adduced. If he was such a victim, he could have easily
defeated the conspirators by raising money and paying off the firm's debts between 1945 and 1949; but
he did not; he did not even care to look for a purchaser of the partnership assets. Were it true that the
conspiracy to defraud him arose (as he claims) because of his refusal to sell the lands when in 1945 Yu
Khe Thai asked him to do so, it is certainly strange that the conspirators should wait 4 years, until 1949,
to have the sale effected by the widow of Tan Sin An, and that the sale should have been routed through
the probate court taking cognizance of Tan Sin An's estate, all of which increased the risk that the
supposed fraud should be detected.
Neither was there any anomaly in the filing of the claims of Yutivo and Sing Yee Cuan & Co., (as
subrogees of the Banco Hipotecario) in proceedings for the settlement of the estate of Tan Sin An. This
for two reasons: First, Tan Sin An and the partnership "Tan Sin An & Goquiolay" were solidary (Joint and
several)debtors (Exhibits "N", mortgage to the Banco Hipotecario), and Rule 87, section 6 is the effect
that:
Where the obligation of the decedent is joint and several with another debtor, the claim shall be
filed against the decedent as if he were the only debtor, without prejudice to the right of the estate to
recover contribution from the other debtor. (Emphasis supplied).
Secondly, the solidary obligation was guaranteed by a mortgage on the properties of the partnership and
those of Tan Sim An personally, and a mortgage is indivisible, in the sense that each and every parcel
under mortgage answers for the totality of the debt (Civ. Code of 1889, Article 1860; New Civil Code,
Art. 2089).
A final and conclusive consideration: The fraud charged not being one used to obtain a party's consent
to a contract (i.e., not being deceit or dolus in contrahendo), if there is fraud at al, it can only be a fraud
of creditors that gives rise to a rescission of the offending contract. But by express provision of law
(Article 1294, Civil Code of 1889; Article 1383, New Civil Code) "the action for rescission is subsidiary;
it can not be instituted except when the party suffering damage has no other legal means to obtain
reparation for the same". Since there is no allegation, or evidence, that Goquiolay can not obtain
reparation from the widow and heirs of Tan Sin An, the present suit to rescind the sale in question is not
maintainable, even if the fraud charged actually did exist.
PREMISES CONSIDERED, the motion for reconsideration is denied.
Bengzon, C.J., Padilla, Concepcion, Barrera and Dizon, JJ., concur.
Regala, J., took no part.

Separate Opinions
BAUTISTA ANGELO, J., dissenting:
This is an appeal from a decision of the Court of First Instance of Davao dismissing the complaint filed
by Antonio C. Goquiolay, et al., seeking to annul the sale made Z. Sycip and Betty Y. Lee on the ground
that it was executed without proper authority and under fraudulent circumstances. In a decision rendered
on July 26, 1960 we affirmed this decision although on grounds different from those on which the latter
is predicted. The case is once more before us on a motion for reconsideration filed by appellants raising
both questions of fact and of law.
On May 29, 1940, Tan Sin An and Antonio C. Goquiolay executed in Davao City a commercial
partnership for a period of ten years with a capital of P30,000.00 of which Goquiolay contributed
P18,000.00 representing 60% while Tan Sin An P12,000.00 representing 40%. The business of the
partnership was to engage in buying real estate properties for subdivision, resale and lease. The
partnership was duly registered, and among the conditions agreed upon in the partnership agreement
which are material to this case are: (1) that Tan Sin An would be the exclusive managing partner, and
(2) in the event of the death of any of the partners the partnership would continue, the deceased to be
represented by his heirs. On May 31, 1940, Goquiolay executed a general power of attorney in favor of
Tan Sin An appointing the latter manager of the partnership and conferring upon him the usual powers
of management.
On May 29, 1940, the partnership acquired three parcels of land known as Lots Nos. 526, 441 and 521
of the cadastral survey of Davao, the only assets of the partnership, with the capital orginally invested,
financing the balance of the purchase price with a mortgage in favor of "La Urbana Sociedad Mutua de
Construccion Prestamos" in the amount of P25,000.00, payable in ten years. On the same date, Tan Sin
An, in his individual capacity, acquired 46 parcels of land executing a mortgage thereon in favor of the
same company for the sum of P35,000.00. On September 25, 1940, these two mortgage obligations
were consolidated and transferred to the Banco Hipotecario de Filipinas and as a result Tan Sin An, in
his individual capacity, and the partnership bound themselves to pay jointly and severally the total
amount of P52,282.80, with 8% annual interest thereon within a period of eight years mortgaging in favor
of said entity the 3 parcels of land belonging to the partnership and the 46 parcels of land belonging
individually to Tan Sin An.
Tan Sin An died on June 26, 1942 and was survived by his widow, defendant Kong Chai Pin, and four
children, all of whom are minors of tender age. On March 18, 1944, Kong Chai Pin, was appointed
administratrix of the intestate estate of Tan Sin An. And on the same date, Sing, Yee and Cuan Co., Inc.
paid to the Banco Hipotecario the remaining unpaid balance of the mortgage obligation of the partnership
amounting to P46,116.75 in Japanese currency.
Sometimes in 1945, after the liberation of Manila, Yu Khe Thai, president and general manager of Yutivo
Sons Hardware Co. and Sing, Yee and Cuan Co., Inc., called for Goquiolay and the two had a conference
in the office of the former during which he offered to buy the interest of Goquiolay in the partnership. In
1948, Kong Chai Pin, the widow, sent her counsel, Atty. Dominador Zuo, to ask Goquiolay to execute
in her favor a power of attorney. Goquiolay refused both to sell his interest in the partnership as well as
to execute the power of attorney.
Having failed to get Goquiolay to sell his share in the partnership, Yutivo Sons Hardware Co. and Sing,
Yee and Cuan Co., Inc. filed in November, 1946 a claim each in the intestate proceedings of Tan Sin An
for the sum of P84,705.48 and P66,529.91, respectively, alleging that they represent obligations of both
Tan Sin An and the partnership. After first denying any knowledge of the claims, Kong Chai Pin, as
administratrix, admitted later without qualification the two claims in an amended answer she filed on
February 28, 1947. The admission was predicted on the ground that she and the creditors were closely
related by blood, affinity and business ties. In due course, these two claims were approved by the court.
On March 29, 1949, more than two years after the approval of the claims, Kong Chai Pin filed a petition
in the probate court to sell all the properties of the partnership as well as some of the conjugal properties
left by Tan Sin An for the purpose of paying the claims. Following approval by the court of the petition
for authority to sell, Kong Chai Pin, in her capacity as administratrix, and presuming to act as managing
partner of the partnership, executed on April 4, 1949 a deed of sale of the properties owned by Tan Sin
An and by the partnership in favor of Betty Y. Lee and Washington Z. Sycip in consideration of the
payment to Kong Chai Pin of the sum of P37,000.00, and the assumption by the buyers of the claims
filed by Yutivo & Sons Hardware Co. and Sing, Yee and Cuan Co., Inc. in whose favor the buyers
executed a mortgage on the properties purchased. Betty Y. Lee and Washington Z. Zycip subsequently
executed a deed of sale of the same properties in favor of their co-defendant Insular Development
Company, Inc. It should be noted that these transactions took place without the knowledge of Goquiolay
and it is admitted that Betty Lee and Washington Z. Sycip bought the properties on behalf of the ultimate
buyer, the Insular Development Company, Inc., with money given by the latter.
Upon learning of the sale of the partnership properties, Goquiolay filed on July 25, 1949 in the intestate
proceedings a petition to set aside the order of the court approving the sale. The court granted the
petition. While the order was pending appeal in the Supreme Court, Goquiolay filed the present case on
January 15, 1953 seeking to nullify the sale as stated in the early part of this decision. In the meantime,
the Supreme Court remanded the original case to the probate court for rehearing due to lack of necessary
parties.
The plaintiffs in their complaint challenged the authority of Kong Chai Pin to sell the partnership
properties on the ground that she had no authority to sell because even granting that she became a
partner upon the death of Tan Sin An the power of attorney granted in favor of the latter expired after his
death.
Defendants, on the other hand, defended the validity of the sale on the theory that she succeeded to all
the rights and prerogatives of Tan Sin an as managing partner.
The trial court sustained the validity of the sale on the ground that under the provisions of the articles of
partnership allowing the heirs of the deceased partner to represent him in the partnership after his death
Kong Chai Pin became a managing partner, this being the capacity held by Tan Sin an when he died.
In the decision rendered by this Court on July 26, 1960, we affirmed this decision but on different
grounds, among which the salient points are: (1) the power of attorney given by Goquiloay to Tan Sin
An as manager of the partnership expired after his death; (2) his widow Kong Chai Pin did not inherit the
management of the partnership, it being a personal right; (3) as a general rule, the heirs of a deceased
general partner come into the partnership in the capacity only of limited partners; (4) Kong Chai Pin,
however, became a general partner because she exercised certain alleged acts of management; and
(5) the sale being necessary to pay the obligations of the partnership properties without the consent of
Goquiolay under the principle of estoppel the buyers having the right to rely on her acts of management
and to believe her to be in fact the managing partner.
Considering that some of the above findings of fact and conclusions of law are without legal or factual
basis, appellants have in due course filed a motion for reconsideration which because of the importance
of the issues therein raised has been the subject of mature deliberation.
In support of said motion, appellants advanced the following arguments:
1. If the conclusion of the Court is that heirs as a general rule enter the partnership as limited partners
only, therefore Kong Chai Pin, who must necessarily have entered the partnership as a limited
partner originally, could have not chosen to be a general partner by exercising the alleged acts of
management, because under Article 148 of the Code of Commerce a limited partner cannot intervene in
the management of the partnership, even if given a power of attorney by the general partners. An Act
prohibited by law cannot given rise to any right and is void under the express provisions of the Civil Code.
2. The buyers were not strangers to Kong Chai Pin, all of them being members of the Yu (Yutivo) family,
the rest, members of the law firm which handles the Yutivo interests and handled the papers of sale.
They did not rely on the alleged acts of management they believed (this was the opinion of their
lawyers) that Kong Chai Pin succeeded her husband as a managing partner and it was on this theory
alone that they submitted the case in the lower court.
3. The alleged acts of management were denied and repudiated by the very witnesses presented by the
defendants themselves.
The arguments advanced by appellants are in our opinion well-taken and furnish sufficient to reconsider
our decision if we want to do justice to Antonio C. Goquiolay. And to justify this conclusion, it is enough
that we lay stress on the following points: (1) there is no sufficient factual basis to conclude that Kong
Chai Pin executed acts of management to give her the character of general manager of the partnership,
or to serve as basis for estoppel that may benefit the purchasers of the partnership properties; (92) the
alleged acts of management, even if proven, could not give Kong Chai Pin the character of general
manager for the same contrary to law and well-known authorities; (3) even if Kong Chai Pin acted as
general manager she had no authority to sell the partnership properties as to make it legal and valid;
and (4) Kong Chai Pin had no necessity to sell the properties to pay the obligation of the partnership and
if she did so it was merely to favor the purchasers who were close relatives to the prejudice of Goquiolay.
1. This point is pivotal for if Kong Chai Pin did not execute the acts of management imputed to her our
ruling cannot be sustained. In making our aforesaid ruling we apparently gave particular importance to
the fact that it was Goquiolay himself who tried to prove the acts of management. Appellants, however,
have emphasized the fact, and with reason, the appellees themselves are the ones who denied and
refuted the so-called acts of management imputed to Kong Chai Pin. To have a clear view of this factual
situation, it becomes necessary that we analyze the evidence of record.
Plaintiff Goquiolay, it is intimated, testified on cross-examination that he had a conversation with one
Hernando Young in Manila in the year 1945 who informed him that Kong Chai Pin "was attending to the
properties and deriving some income therefrom and she had no other means of livelihood except those
properties and some rentals derived from the properties." He went on to say by way of remark that she
could continue doing this because he wanted to help her. One point that he emphasized was that he
was "no interested in agricultural lands."
On the other hand, defendants presented Hernando Young, the same person referred to by Goquiolay,
who was a close friend of the family of Kong Chai Pin, for the purpose of denying the testimony of
Goquiolay. Young testified that in 1945 he was still in Davao, and insisted no less than six times during
his testimony that he was not in Manila in 1945, the year when he allegedly gave the information to
Goquiolay, stating that he arrived in Manila for the first time in 1947. He testified further that he had
visited the partnership properties during the period covered by the alleged information given by him to
Goquiolay and that he found them "abandoned and underdeveloped," and that Kong Chai Pin was not
deriving any income from them.
The other witness for the defendants, Rufino Lim, also testified that he had seen the partnership
properties and corroborated the testimony of Hernando Young in all respects: "the properties in Mamay
were underdeveloped, the shacks were destroyed in Tigato, and the family of Kong Chai Pin did not
receive my income from the partnership properties." He specifically rebutted the testimony of Goquiolay,
in his deposition given on June 30, 1956 that Kong Chai Pin and her family were living in the partnership
properties, and stated that the "family never actually lived in the properties of the partnership even before
the war or after the war."
It is unquestionable that Goquiolay was merely repeating an information given to him by a third person,
Hernando Young he stressed this point twice. A careful analysis of the substance of Goquiolay's
testimony will show that he merely had no objection to allowing Kong Chai Pin to continue attending to
the properties in order to give her some means of livelihood, because, according to the information given
him by Hernando Young, which he assumed to be true, Kong Chai Pin had no other means of livelihood.
But certainly he made it very clear that he did not allow her to manage the partnership when he explained
his reason for refusing to sign a general power of attorney for Kong Chai Pin which her counsel, Atty.
Zuo, brought with him to his house in 1948. He said:
... Then Mr. Yu Eng Lai told me that he brought with him Atty. Zuo and he asked me if I could execute
a general power of attorney for Mrs. Kong Chai Pin. Then I told Atty. Zuo what is the use of executing
a general power of attorney for Mrs. Kong Chai Pin when Mrs. Kong Chai Pin had already got that
plantation for agricultural purposes, I said for agricultural purposes she can use that plantation ... (T.S.N.
p. 9, Hearing on May 5, 1955).
It must be noted that in his testimony Goquiolay was categorically stating his opposition to the
management of the partnership by Kong Chai Pin and carefully made the distinction that his conformity
was for her to attend to the partnership properties in order to give her merely a means of livelihood. It
should be stated that the period covered by the testimony refers to the period of occupation when living
condition was difficult and precarious. And Atty. Zuo, it should also be stated, did not deny the statement
of Goquiolay.
It can therefore be seen that the question as to whether Kong Chai Pin exercised certain acts of
management of the partnership properties is highly controverted. The most that we can say is that the
alleged acts are doubtful more so when they are disputed by the defendants themselves who later
became the purchasers of the properties, and yet these alleged acts, if at all, only refer to management
of the properties and not to management of the partnership, which are two different things.
In resume, we may conclude that the sale of the partnership properties by Kong Chai Pin cannot be
upheld on the ground of estoppel, first, because the alleged acts of management have not been clearly
proven; second, because the record clearly shows that the defendants, or the buyers, were not misled
nor did they rely on the acts of management, but instead they acted solely on the opinion of their counsel,
Atty. Quisumbing, to the effect that she succeeded her husband in the partnership as managing partner
by operation of law; and third, because the defendants are themselves estopped to invoke a defense
which they tried to dispute and repudiate.
2. Assuming arguendo that the acts of management imputed to Kong Chai Pin are true, could such acts
give as we have concluded in our decision?
Our answer is in the negative because it is contrary to law and precedents. Garrigues, a well-known
commentator, is clearly of the opinion that mere acceptance of the inheritance does not maked the heir
of a general partner a general partner himself. He emphasized that heir must declare that he is entering
the partnership as a general partner unless the deceased partner has made it an express condition in
his will that the heir accepts the condition of entering the partnership as a prerequisite of inheritance, in
which case acceptance of the inheritance is enough.1But here Tan Sin An died intestate.
Now, could Kong Chai Pin be deemed to have declared her intention to become a general partner by
exercising acts of management? We believe not, for, in consonance with our ruling that as a general rule
the heirs of a deceased partner succeed as limited partners only by operation of law, it is obvious that
the heirs, upon entering the partnership, must make a declaration of his characters, otherwise he should
be deemed as having succeeded as limited partner by the mere acceptance of the inheritance. And here
Kong Chai Pin did not make such declaration. Being then a limited partner upon the death of Tan Sin An
by operation of law, the peremptory prohibition contained in Article 1482 of the Code of Commerce
became binding upon her and as a result she could not change her status by violating its provisions not
only under the general principle that prohibited acts cannot produce any legal effect, but also because
under the provisions of Article 1473 of the same Code she was precluded from acquiring more rights
than those pertaining to her as a limited partner. The alleged acts of management, therefore, did not give
Kong Chai Pin the character of general manager to authorized her to bind the partnership.
Assuming also arguendo that the alleged acts of management imputed to Kong Chai Pin gave her the
character of a general partner, could she sell the partnership properties without authority from the other
partners?
Our answer is also in the negative in the light of the provisions of the articles of partnership and the
pertinent provisions of the Code of Commerce and the Civil Code. Thus, Article 129 of the Code of
Commerce says:
If the management of the general partnership has not been limited by special agreement to any of the
members, all shall have the power to take part in the direction and management of the common business,
and the members present shall come to an agreement for all contracts or obligations which may concern
the association.
And the pertinent portions of the articles of partnership provides:
VII. The affairs of the co-partnership shall be managed exclusively by the managing partner or by his
authorized agent, and it is expressly stipulated that the managing partner may delegate the entire
management of the affairs of the co-partnership by irrevocable power of attorney to any person, firm or
corporation he may select, upon such terms as regards compensation as he may deem proper, and vest
in such person, firm or corporation full power and authority, as the agent of the co-partnership and in his
name, place and stead to do anything for it or on his behalf which he as such managing partner might
do or cause to be done. (Page 23, Record on Appeal).
It would thus be seen that the powers of the managing partner are not defined either under the provisions
of the Code of Commerce or in the articles of partnership, a situation which, under Article 2 of the same
Code, renders applicable herein the provisions of the Civil Code. And since, according to well-known
authorities, the relationship between a managing partner and the partnership is substantially the same
as that of the agent and his principal,4the extent of the power of Kong Chai Pin must, therefore, be
determined under the general principles governing agency. And, on this point, the law says that an
agency created in general terms includes only acts of administrations, but with regard to the power to
compromise, sell mortgage, and other acts of strict ownership, an express power of attorney is
required.5 Here Kong Chai Pin did not have such power when she sold the properties of the partnership.
Of course, there is authority to the effect that a managing partner, even without express power of attorney
may perform acts affecting ownership if the same are necessary to promote or accomplish a declared
object of the partnership, but here the transaction is not for this purpose. It was effected not to promote
any avowed object of the partnership.6 Rather, the sale was affected to pay an obligation of the
partnership by selling its real properties which Kong Chai Pin could not do without express authority. The
authorities supporting this view are overwhelming.
La enajenacion puede entrar en las facultades del gerente, cuando es conforme a los fines sociales.
Pero esta facultad de enajenar limitada a las ventas conforme a los fines sociales, viene limitada a los
objetos de comercio, o a los productos de la fabrica para explotacion de los cauale se ha constituido la
Sociedad. Ocurrira una cosa parecida cuando el objeto de la Sociedad fuese la compra y venta de
inmuebles, en cuyo caso el gerente estaria facultado para otorgar las ventas que fuere necesario. Por
el contrario el generente no tiene attribuciones para vender las instalaciones del comercio, ni la fabrica,
ni las maquinarias, vehiculos de transporte, etc. que forman parte de la explotacion social. En todos
estas casos, equalmente que sisse tratase de la venta de una marca o procedimiento mecanico o
quimico, etc., siendo actos de disposicion, seria necesario contar con la conformidad expresa de todos
los socios. (R. Gay de Montella, id., pp. 223-224; Emphasis supplied).
poderes de los Administradores no tienen ante el silencio del contrato otros limites que los sealados
por el objeto de la Sociedad y, por consiguiente, pueden llevar a cabo todas las operaciones que sirven
para aquel ejercicio, incluso cambiando repetidas veces los propios acuerdos segun el interest
convenido de la Sociedad. Pueden contratar y despedir a los empleados. tomar en arriendo almacenes
y tiendas; expedir cambiales, girarlas, avalarlas, dar en prenda o en hipoteca los bienes de la sociedad
y adquirir inmuebles destinados a su explotacion o al empleo, estable de sus capitales. Pero no podran
ejecutar los actos que esten en contradiccion con la explotacion que les fue confiada; no podran cambiar
el objeto, el domicilio, la razon social; fundir a la Sociedad en otro; ceder la accion, y por tanto, el uso
de la firma social a otro, renunciar definitivamente el ejercicio de uno de otro ramo comercio que se les
haya confiado y enajenar o pignorar el taller o el banco social, excepto que la venta o pignoracion tengan
por el objeto procurar los medios necesarios para la continuacion de la empresa social. (Cesar Vivante,
Tratado de Derecho Mercantil, pp. 124-125, Vol. II, 1a. ed.; Emphasis supplied).
The act of one partner, to bind the firm, must be necessary for the carrying one of its business. If all that
can be said of it was that it was convenient, or that it facilitated the transaction of the business of the
firm, that is not sufficient, in the absence of evidence of sanction by other partners. Nor, it, seems, will
necessity itself be sufficient if it be an extraordinary necessity. What is necessary for carrying on the
business of the firm under ordinary circumstances and in the usual way, is the test. Lindl. Partn. Sec.
126. While, within this rule, one member of a partnership may, in the usual and ordinary course of its
business, make a valid sale or pledge, by way of mortgage or otherwise, of all or part of its effects
intended for sale, to a bona fide purchaser of mortgagee, without the consent of the other members of
the firm, it is not within the scope of his implied authority to make a final disposition of al of its effects,
including those employed as the means of carrying on its business, the object and effect of which is to
immediately terminate the partnership, and place its property beyond its control. Such a disposition,
instead of being within the scope of the partnership business, or in the usual and ordinary way of carrying
it on, is necessarily subversive of the object of the partnership, and contrary to the presumed intention
of the partnership in its formation. (McGrath, et al. vs. Cowen, et al., 49 N.E., 338, 343; Emphasis
supplied).
Since Kong Chai Pin sold the partnership properties not in line with the business of the partnership but
to pay its obligation without first obtaining the consent of the other partners the sale is invalid in excess
of her authority.
4. Finally, the sale under consideration was effected in a suspicious manner as may be gleaned from
the following circumstances:
(a) The properties subject of the instant sale which consist of three parcels of land situated in the City of
Davao have an area of 200 hectares more or less, or 2,000,000 square meters. These properties were
purchased by the partnership for purposes of subdivision. According to realtor Mata, who testified in
court, these properties could command at the time he testified a value of not less than P312,000.00, and
according to Dalton Chen, manager of the firm which took over the administration, since the date of sale
no improvement was ever made thereon precisely because of this litigation. And yet, for said properties,
aside from the sum of P37,000.00 which was paid for the properties of the deceased and the partnership,
only the paltry sum of P66,529.91 was paid as a consideration therefor, of which the sum of P46,116.75
was even paid in Japanese currency.
(b) Considering the area of the properties Kong Chai Pin had no valid reason to sell them if her purpose
was only to pay the partnership obligation. She could have negotiated a loan if she wanted to pay it by
placing the properties as security, but preferred to sell them even at such low price because of her close
relationship with the purchasers and creditors who conveniently organized a partnership to exploit them,
as may be seen from the following relationship of their pedigree:
KONG CHAI PIN, the administratrix, was a grandaughter of Jose P. Yutivo, founder of the defendant
Yutivo Sons Hardware Co. YUTIVO SONS HARDWARE CO. and SING, YEE & CUAN CO., INC.,
alleged creditors, are owned by the heirs of Jose P. Yutivo (Sing, Yee & Cuan are the three children of
Jose). YU KHE THAI is a grandson of the same Jose P. Yutivo, and president of the two alleged creditors.
He is the acknowledged head of the Yu families. WASHINGTON Z. SYCIP, one of the original buyers,
is married to Ana Yu, a daughter of Yu Khe Thai. BETTY Y. LEE, the other original buyer is also a
daughter of Yu Khe Thai. The INSULAR DEVELOPMENT CO., the ultimate buyer, was organized for
the specific purpose of buying the partnership properties. Its incorporators were: Ana Yu and Betty Y.
Lee, Attys. Quisumbing and Salazar, the lawyers who studied the papers of the sale and have been
counsel for the Yutivo interests; Dalton Chen, a brother-in-law of Yu Khe Thai and an executive of Sing,
Yee & Cuan Co; Lillian Yu, daughter of Yu Eng Poh, an executive of Yutivo Sons Hardware, and Simeon
Daguiwag, a trusted employee of the Yutivos.
(c) Lastly, even since Tan Sin An died in 1942 the creditors, who were close relatives of Kong Chai Pin,
have already conceived the idea of possessing the lands for purposes of subdivision, excluding
Goquilolay from their plan, and this is evident from the following sequence of events;lawphil.net
Tan Sin An died in 1942 and intestate proceedings were opened in 1944. In 1946, the creditors of the
partnership filed their claim against the partnership in the intestate proceedings. The creditors studied
ways and means of liquidating the obligation of the partnership, leading to the formation of the defendant
Insular Development Co., composed of members of the Yutivo family and the counsel of record of the
defendants, which subsequently bought the properties of the partnership and assumed the obligation of
the latter in favor of the creditors of the partnership, Yutivo Sons Hardware and Sing, Yee & Cuan, also
of the Yutivo family. The buyers took time to study the commercial potentialities of the partnership
properties and their lawyers carefully studied the document and other papers involved in the transaction.
All these steps led finally to the sale of the three partnership properties.
UPON THE STRENGTH OF THE FOREGOING CONSIDERATIONS, I vote to grant the motion for
reconsideration.
Labrador, Paredes, and Makalintal, JJ., concur.

George Litton vs Hill and Ceron Apr 25 1939

GEORGE LITTON, Petitioner-Appellant, v. HILL & CERON, ET AL., Respondents-Appellees.

SYLLABUS
1. COMMERCIAL LAW; DISSOLUTION OF A COMMERCIAL ASSOCIATION; EFFECT UPON A THIRD
PERSON. Under article 226 of the Code of Commerce, the dissolution of a commercial association
shall not cause any prejudice to third parties until it has been recorded in the commercial registry. The
Supreme Court of Spain held that the dissolution of a partnership by the will of the partners which is not
registered in the commercial registry, does not prejudice third persons.

2. ID.; ID.; RIGHT OF THIRD PERSON TO PRESUME THAT PARTNER WITH WHOM HE
CONTRACTS HAS CONSENT OF COPARTNER. The stipulation in the articles of partnership that
any of the two managing partners may contract and sign in the name of the partnership with the consent
of the other, undoubtedly creates an obligation between the two partners, which consists in asking the
others consent before contracting for the partnership. This obligation of course is not imposed upon a
third person who contracts with the partnership. Neither is it necessary for the third person to ascertain
if the managing partner with whom he contracts has previously obtained the consent of the other. A third
person may and has a right to presume that the partner with whom he contracts has, in the ordinary and
natural course of business, the consent of his copartner; for otherwise he would not enter into the
contract. The third person would naturally not presume that the partner with whom he enters into the
transaction is violating the articles of partnership but, on the contrary, is acting in accordance therewith.
And this finds support in the legal presumption that the ordinary course of business has been followed
(No. 18, section 334, Code of Civil Procedure), and that the law has been obeyed (No. 31, section 334).
This last presumption is equally applicable to contracts which have the force of law between the parties.
Unless the contrary is shown, namely, that one of the partners did not consent to his copartner entering
into a contract with a third person, and that the latter with knowledge thereof entered into said contract,
the aforesaid presumption with all its force and legal effects should be taken into account. There is
nothing in the case at bar which destroys this presumption.

3. ID.; PROHIBITION AGAINST BROKERS TO BUY AND SELL SHARES ON THEIR OWN ACCOUNT.
The order of the Bureau of Commerce of December 7, 1933, prohibits brokers from buying and selling
shares on their own account. The second paragraph of the articles of partnership of Hill & Ceron reads
in part: "Second: That the purpose or object for which this copartnership is organized is to engage in the
business of brokerage in general, such as stock and bond brokers, real brokers, investment security
brokers, shipping brokers, and other activities pertaining to the business of brokers in general." The kind
of business in which the partnership Hill & Ceron is to engage being thus determined, none of the two
partners, under article 130 of the Code of Commerce, may legally engage in the business of brokerage
in general as stock brokers, security brokers and other activities pertaining to the business of the
partnership. C. therefore, could not have entered into the contract of sale of shares with L as a private
individual, but as a managing partner of Hill & Ceron.

4. ID.; CONTRACT WITH THIRD PERSON IN GOOD FAITH AGAINST THE WILL OF ONE OF
MANAGING PARTNERS. Under article 130 of the Code of Commerce, when, not only without the
consent but against the will of any of the managing partners, a contract is entered into with a third person
who acts in good faith, and the transaction is of the kind of business in which the partnership is engaged,
as in the present case, said contract shall not be annulled, without prejudice to the liability of the guilty
partner. The reason or purpose behind these legal provisions is no other than to protect a third person
who contracts with one of the managing partners of the partnership, thus avoiding fraud and deceit to
which he may easily fall a victim without this protection which the Code of Commerce wisely provides.

This is a petition to review on certiorari the decision of the Court of Appeals in a case originating from
the Court of First Instance of Manila wherein the herein petitioner George Litton was the plaintiff and the
respondents Hill & Ceron, Robert Hill Carlos Ceron and Visayan Surety Insurance Corporation were
defendants. The facts are as follows: On February 14, 1934, the plaintiff sold and delivered to Carlos
Ceron, who is one of the managing partners of Hill & Ceron, a certain number of mining claims, and by
virtue of said transaction, the defendant Carlos Ceron delivered to the plaintiff a document reading as
follows:jgc:
"Feb. 14, 1934
"Received from Mr. George Litton share certificates Nos. 4428, 4429 and 6699 for 5,000, 5,000 and
7,000 shares respectively total 17,000 shares of Big Wedge Mining Company, which we have sold at
P0.11 (eleven centavos) per share or P1,870.00 less 1/2 per cent brokerage.
"HILL & CERON
"By: (Sgd.) CARLOS CERON"

Ceron paid to the plaintiff the sum of P1,150 leaving an unpaid balance of P720, and unable to collect
this sum either from Hill & Ceron or from its surety Visayan Surety & Insurance Corporation, Litton filed
a complaint in the Court of First Instance of Manila against the said defendants for the recovery of the
said balance. The court, after trial, ordered Carlos Ceron personally to pay the amount claimed and
absolved the partnership Hill & Ceron, Robert Hill and the Visayan Surety & Insurance Corporation. On
appeal to the Court of Appeals, the latter affirmed the decision of the court on May 29, 1937, having
reached the conclusion that Ceron did not intend to represent and did not act for the firm Hill & Ceron in
the transaction involved in this litigation.

Accepting, as we cannot but accept, the conclusion arrived at by the Court of Appeals as to the question
of fact just mentioned, namely, that Ceron individually entered into the transaction with the plaintiff, but
in view, however, of certain undisputed facts and of certain regulations and provisions of the Code of
Commerce, we reach the conclusion that the transaction made by Ceron with the plaintiff should be
understood in law as effected by Hill & Ceron and binding upon it.

In the first place, it is an admitted fact by Robert Hill when he testified at the trial that he and Ceron,
during the partnership, bad the same power to buy and sell; that in said partnership Hill as well as Ceron
made the transaction as partners in equal parts; that on the date of the transaction, February 14, 1934,
the partnership between Hill and Ceron was in existence. After this date, or on February 19th, Hill &
Ceron sold shares of the Big Wedge; and when the transaction was entered into with Litton, it was neither
published in the newspapers nor stated in the commercial registry that the partnership Hill & Ceron had
been dissolved.

Hill testified that a few days before February 14th he had a conversation with the plaintiff in the course
of which he-advised the latter not to deliver shares for sale or on commission to Ceron because the
partnership was about to be dissolved; but what importance can be attached to said advice if the
partnership was not in fact dissolved on February 14th, the date when the transaction with Ceron took
place?

Under article 226 of the Code of Commerce, the dissolution of a commercial association shall not cause
any prejudice to third parties until it has been recorded in the commercial registry. (See also Cardell v.
Maeru, 14 Phil., 368.) The Supreme Court of Spain held that the dissolution of a partnership by the will
of the partners which is not registered in the commercial registry, does not prejudice third persons.
(Opinion of March 23,1885.)

Aside from the aforecited legal provisions, the order of the Bureau of Commerce of December 7, 1933,
prohibits brokers from buying and selling shares on their own account. Said order reads

"The stock and/or bond broker is, therefore, merely an agent or an intermediary, and as such, shall not
be allowed . . .
"(c) To buy or to sell shares of stock or bonds on his own account for purposes of speculation and/or for
manipulating the market, irrespective of whether the purchase or sale is made from or to a private
individual, broker or brokerage firm."cralaw virtua1aw library

In its decision the Court of Appeals states:jgc

"But there is stronger objection to the plaintiffs attempt to make the firm responsible to him. According
to the articles of copartnership of Hill & Ceron, filed in the Bureau of Commerce:jgc:

"Sixth. That the management of the business affairs of the copartnership shall be entrusted to both
copartners who shall jointly administered the business affairs, transactions and activities of the
copartnership, shall jointly open a current account or any other kind of account in any bank or banks,
shall jointly sign all checks for the withdrawal of funds and shall jointly or singly sign, in the latter case,
with the consent of the other partner. . ."cralaw virtua1aw library

"Under this stipulation, a written contract of the firm can only be signed by one of the partners if the other
partner consented. Without the consent of one partner, the other cannot bind the firm by a written
contract. Now, assuming for the moment that Ceron attempted to represent the firm in this contract with
the plaintiff (the plaintiff conceded that the firm name was not mentioned at that time), the latter has failed
to prove that Hill had consented to such contract."cralaw virtua1aw library

It follows from the sixth paragraph of the article of partnership of Hill & Ceron above quoted that the
management of the business of the partnership has been entrusted to both partners thereof, but we
dissent from the view of the Court of Appeals that for one of the partners to bind the partnership the
consent of the other is necessary. Third persons, like the plaintiff, are not bound in entering into a contract
with any of the two partners, to ascertain made has the consent of the partner. The public need to make
inquiries as to the agreements had between the partners. Its knowledge is enough that it is contracting
with the partnership which is represented by one of the managing partners.
"There is a general presumption that each individual partner is an authorized agent for the firm and that
he has authority to bind the firm in carrying on the partnership transactions." (Mills v. Riggle, 112 Pac.,
617.)
"The presumption is sufficient to permit third persons to hold the firm liable on transactions entered into
by one of members of the firm acting apparently in its behalf and within the scope of his authority." (Le
Roy v. Johnson, 7 U. S. [Law. ed. ], 391.)

The second paragraph of the articles of partnership of Hill & Ceron reads in part:jgc:

"Second: That the purpose or object for which this copartnership is organized is to engage in the
business of brokerage in general, such as stock and bond brokers, real brokers, investment security
brokers, shipping brokers, and other activities pertaining to the business of brokers in general."cralaw
virtua1aw library

The kind of business in which the partnership Hill & Ceron is to engage being thus determined, none of
the two partners, under article 130 of the Code of Commerce, may legally engage in the business of
broKerage in general as stock brokers, security brokers and other activities pertaining to the business of
the partnership. Ceron, therefore, could not have entered into the contract of sale of shares with Litton
as a private individual, but as a managing partner of Hill & Ceron.
The respondent argues in its brief that even admitting that one of the partners could not, in his individual
capacity, engage in a transaction similar to that in which the partnership is engaged without binding the
latter, nevertheless there is no law which prohibits a partner in the stock brokerage business for engaging
in other transactions different from those of the partnership, as it happens in the present case, because
the transaction made by Ceron is a mere personal loan, and this argument, so it is said, is corroborated
by the Court of Appeals. We do not find this alleged corroboration because the only finding of fact made
by the Court of Appeals is to the effect that the transaction made by Ceron with the plaintiff was in his
individual capacity.

The appealed decision is reversed and the defendants are ordered to pay to the plaintiff, jointly and
severally, the sum of P720, with legal interest, from the date of the filing of the complaint, minus the
commission of one-half per cent (%) from the original price of P1,870, with the costs to the respondents.
So ordered.

Avancea, C.J., Villa-Real, Imperial, Diaz, Laurel and Moran, JJ., concur.

A motion has been presented in this case by Robert Hill, one of the defendants sentenced in our decision
to pay to the plaintiff the amount claimed in his complaint. It is asked that we reconsider our decision,
the said defendant insisting that the appellant had not established that Carlos Ceron, another of the
defendants, had the consent of his copartner, the movant, to enter with the appellant into the contract
whose breach gave rise to the complaint. It is argued that, it being stipulated in the articles of partnership
that Hill and Ceron, only partners of the firm Hill & Ceron, would, as managers, have the management
of the business of the partnership, and that either may contract and sign for the partnership ,with the
consent of the other; the articles of partnership having been, so it is said, recorded in the commercial
registry, the appellant could not ignore the fact that the consent of the movant was necessary for the
validity of the contract which he had with the other partner and defendant, Ceron, and there being no
evidence that said consent had been obtained, the complaint to compel compliance with the said contract
had to be, as it must be in fact, a procedural failure.

Although this question has already been considered and settled in our decision, we nevertheless take
cognizance of the motion in order to enlarge upon our views on the matter.

The stipulation in the articles of partnership that any of the two managing partners may contract and sign
in the name of the partnership with the consent of the other, undoubtedly creates an obligation between
the two partners, which consists in asking the others consent before contracting for the partnership. This
obligation of course is not imposed upon a third person who contracts with the partnership. Neither is it
necessary for the third person to ascertain if the managing partner with whom he contracts has previously
obtained the consent of the other. A third person may and has a right to presume that the partner with
whom he contracts has, in the ordinary and natural course of business, the consent of his copartner; for
otherwise he would not enter into the contract. The third person would naturally not presume that the
partner with whom he enters into the transaction is violating the articles of partnership but, on the
contrary, is acting in accordance therewith. And this finds support in the legal presumption that the
ordinary course of business has been followed (No. 18, section 334, Code of Civil Procedure), and that
the law has been obeyed (No. 31, section 334). This last presumption is equally applicable to contracts
which have the force of law between the parties.
Wherefore, unless the contrary is shown, namely, that one of the partners did not consent to his copartner
entering into a contract with a third person, and that the latter with knowledge thereof entered into said
contract, the aforesaid presumption with all its force and legal effects should be taken into account.

There is nothing in the case at bar which destroys this presumption; the only thing appearing in the
findings of fact of the Court of Appeals is that the plaintiff "has failed to prove that Hill had consented to
such contract." According to this, it seems that the Court of Appeals is of the opinion that the two partners
should give their consent to the contract and that the plaintiff should prove it. The clause of the articles
of partnership should not be thus understood, for it means that one of the two partners should have the
consent of the other to contract for the partnership, which is different; because it is possible that one of
the partners may not see any prospect in a transaction, but he may nevertheless consent to the
realization thereof by his copartner in reliance upon his skill and ability or otherwise. And here we have
to hold once again that it is not the plaintiff who, under the articles of partnership, should obtain and
prove the consent of Hill, but the latters partner, Ceron, should he file a complaint against the partnership
for compliance with the contract; but in the present case, it is a third person, the plaintiff, who asks for it.
While the said presumption stands, the plaintiff has nothing to prove.

Passing now to another aspect of the case, had Ceron in any way stated to the appellant at the time of
the execution of the contract, or if it could be inferred by his conduct, that he had the consent of Hill, and
should it turn out later that he did not have such consent, this alone would not annul the contract judging
from the provisions of article 130 of the Code of Commerce reading as follows:jgc:

"No new obligation shall be contracted against the will of one of the managing partners, should he have
expressly stated it; but if, however, it should be contracted it shall not be annulled for this reason, and
shall have its effects without prejudice to the liability of the partner or partners who contracted it to
reimburse the firm for any loss occasioned by reason thereof." (Emphasis ours.)

Under the aforequoted provisions, when, not only without the consent but against the will of any of the
managing partners, a contract is entered into with a third person who acts in good faith, and the
transaction is of the kind of business in which the partnership is engaged, as in the present case, said
contract shall not be annulled, without prejudice to the liability of the guilty partner.

The reason or purpose behind these legal provisions is no other than to protect a third person who
contracts with one of the managing partners of the partnership, thus avoiding fraud and deceit to which
he may easily fall a victim without this protection which the Code of Commerce wisely provides.

If we are to interpret the articles of partnership in question by holding that it is the obligation of the third
person to inquire whether the managing copartner of the one with whom he contracts has given his
consent to said contract, which is practically casting upon him the obligation to get such consent, this
interpretation would, in similar cases, separate to hinder effectively the transactions, a thing not desirable
and contrary to the nature of business which requires promptness and dispatch on the basis of good
faith and honesty which are always presumed.

In view of the foregoing, and sustaining the other views expressed in the decision, the motion is denied.
So ordered.

Art 1819-1827
Villarosa and Partners vs Herminio Benito Aug 5 1999
E. B. VILLAROSA & PARTNER CO., LTD., petitioner, vs.HON. HERMINIO I. BENITO, in his capacity
as Presiding Judge, RTC, Branch 132, Makati City
and IMPERIAL DEVELOPMENT

Before this Court is a petition for certiorari and prohibition with prayer for the issuance of a temporary
restraining order and/or writ of preliminary injunction seeking to annul and set aside the Orders dated
August 5, 1998 and November 20, 1998 of the public respondent Judge Herminio I. Benito of the
Regional Trial Court of Makati City, Branch 132 and praying that the public respondent court be ordered
to desist from further proceeding with Civil Case No. 98-824.
Petitioner E.B. Villarosa & Partner Co., Ltd. is a limited partnership with principal office address at 102
Juan Luna St., Davao City and with branch offices at 2492 Bay View Drive, Tambo, Paraaque, Metro
Manila and Kolambog, Lapasan, Cagayan de Oro City. Petitioner and private respondent executed a
Deed of Sale with Development Agreement wherein the former agreed to develop certain parcels of land
located at Barrio Carmen, Cagayan de Oro belonging to the latter into a housing subdivision for the
construction of low cost housing units. They further agreed that in case of litigation regarding any dispute
arising therefrom, the venue shall be in the proper courts of Makati.
On April 3, 1998, private respondent, as plaintiff, filed a Complaint for Breach of Contract and Damages
against petitioner, as defendant, before the Regional Trial Court of Makati allegedly for failure of the
latter to comply with its contractual obligation in that, other than a few unfinished low cost houses, there
were no substantial developments therein.1
Summons, together with the complaint, were served upon the defendant, through its Branch Manager
Engr. Wendell Sabulbero at the stated address at Kolambog, Lapasan, Cagayan de Oro City2 but the
Sheriff's Return of Service3stated that the summons was duly served "upon defendant E.B. Villarosa &
Partner Co., Ltd. thru its Branch Manager Engr. WENDELL SALBULBERO on May 5, 1998 at their new
office Villa Gonzalo, Nazareth, Cagayan de Oro City, and evidenced by the signature on the face of the
original copy of the summons.1wphi1.nt
On June 9, 1998, defendant filed a Special Appearance with Motion to Dismiss4 alleging that on May 6,
1998, "summons intended for defendant" was served upon Engr. Wendell Sabulbero, an employee of
defendant at its branch office at Cagayan de Oro City. Defendant prayed for the dismissal of the
complaint on the ground of improper service of summons and for lack of jurisdiction over the person of
the defendant. Defendant contends that the trial court did not acquire jurisdiction over its person since
the summons was improperly served upon its employee in its branch office at Cagayan de Oro City who
is not one of those persons named in Section 11, Rule 14 of the 1997 Rules of Civil Procedure upon
whom service of summons may be made.
Meanwhile, on June 10, 1998, plaintiff filed a Motion to Declare Defendant in Default5 alleging that
defendant has failed to file an Answer despite its receipt allegedly on May 5, 1998 of the summons and
the complaint, as shown in the Sheriffs Return.
On June 22, 1998, plaintiff filed an Opposition to Defendant's Motion to Dismiss6 alleging that the records
show that defendant, through its branch manager, Engr. Wendell Sabulbero actually received the
summons and the complaint on May 8, 1998 as evidenced by the signature appearing on the copy of
the summons and not on May 5, 1998 as stated in the Sheriffs Return nor on May 6, 1998 as stated in
the motion to dismiss; that defendant has transferred its office from Kolambog, Lapasan, Cagayan de
Oro to its new office address at Villa Gonzalo, Nazareth, Cagayan de Oro; and that the purpose of the
rule is to bring home to the corporation notice of the filing of the action.
On August 5, 1998, the trial court issued an Order7 denying defendant's Motion to Dismiss as well as
plaintiffs Motion to Declare Defendant in Default. Defendant was given ten (10) days within which to file
a responsive pleading. The trial court stated that since the summons and copy of the complaint were in
fact received by the corporation through its branch manager Wendell Sabulbero, there was substantial
compliance with the rule on service of summons and consequently, it validly acquired jurisdiction over
the person of the defendant.
On August 19, 1998, defendant, by Special Appearance, filed a Motion for Reconsideration8 alleging that
Section 11, Rule 14 of the new Rules did not liberalize but, on the contrary, restricted the service of
summons on persons enumerated therein; and that the new provision is very specific and clear in that
the word "manager" was changed to "general manager", "secretary" to "corporate secretary", and
excluding therefrom agent and director.
On August 27, 1998, plaintiff filed an Opposition to defendant's Motion for Reconsideration9 alleging that
defendant's branch manager "did bring home" to the defendant-corporation the notice of the filing of the
action and by virtue of which a motion to dismiss was filed; and that it was one (1) month after receipt of
the summons and the complaint that defendant chose to file a motion to dismiss.
On September 4, 1998, defendant, by Special Appearance, filed a Reply10 contending that the changes
in the new rules are substantial and not just general semantics.
Defendant's Motion for Reconsideration was denied in the Order dated November 20, 1998.11
Hence, the present petition alleging that respondent court gravely abused its discretion tantamount to
lack or in excess of jurisdiction in denying petitioner's motions to dismiss and for reconsideration, despite
the fact that the trial court did not acquire jurisdiction over the person of petitioner because the summons
intended for it was improperly served. Petitioner invokes Section 11 of Rule 14 of the 1997 Rules of Civil
Procedure.
Private respondent filed its Comment to the petition citing the cases Kanlaon Construction Enterprises
Co., Inc. vs.NLRC12 wherein it was held that service upon a construction project manager is valid and
in Gesulgon vs. NLRC13which held that a corporation is bound by the service of summons upon its
assistant manager.
The only issue for resolution is whether or not the trial court acquired jurisdiction over the person of
petitioner upon service of summons on its Branch Manager.
When the complaint was filed by Petitioner on April 3, 1998, the 1997 Rules of Civil Procedure was
already in force.14
Sec. 11, Rule 14 of the 1997 Rules of Civil Procedure provides that:
When the defendant is a corporation, partnership or association organized under the laws of the
Philippines with a juridical personality, service may be made on the president, managing partner, general
manager, corporate secretary, treasurer, or in-house counsel. (emphasis supplied).
This provision revised the former Section 13, Rule 14 of the Rules of Court which provided that:
Sec. 13. Service upon private domestic corporation or partnership. If the defendant is a corporation
organized under the laws of the Philippines or a partnership duly registered, service may be made on
the president, manager, secretary, cashier, agent, or any of its directors. (emphasis supplied).
Petitioner contends that the enumeration of persons to whom summons may be served is "restricted,
limited and exclusive" following the rule on statutory construction expressio unios est exclusio
alterius and argues that if the Rules of Court Revision Committee intended to liberalize the rule on
service of summons, it could have easily done so by clear and concise language.
We agree with petitioner.
Earlier cases have uphold service of summons upon a construction project manager15; a corporation's
assistant manager16; ordinary clerk of a corporation17; private secretary of corporate executives18;
retained counsel19; officials who had charge or control of the operations of the corporation, like the
assistant general manager20; or the corporation's Chief Finance and Administrative Officer21. In these
cases, these persons were considered as "agent" within the contemplation of the old rule. 22 Notably,
under the new Rules, service of summons upon an agent of the corporation is no longer authorized.
The cases cited by private respondent are therefore not in point.
In the Kanlaon case, this Court ruled that under the NLRC Rules of Procedure, summons on the
respondent shall be served personally or by registered mail on the party himself; if the party is
represented by counsel or any other authorized representative or agent, summons shall be served on
such person. In said case, summons was served on one Engr. Estacio who managed and supervised
the construction project in Iligan City (although the principal address of the corporation is in Quezon City)
and supervised the work of the employees. It was held that as manager, he had sufficient responsibility
and discretion to realize the importance of the legal papers served on him and to relay the same to the
president or other responsible officer of petitioner such that summons for petitioner was validly served
on him as agent and authorized representative of petitioner. Also in the Gesulgon case cited by private
respondent, the summons was received by the clerk in the office of the Assistant Manager (at principal
office address) and under Section 13 of Rule 14 (old rule), summons may be made upon the clerk who
is regarded as agent within the contemplation of the rule.
The designation of persons or officers who are authorized to accept summons for a domestic corporation
or partnership is now limited and more clearly specified in Section 11, Rule 14 of the 1997 Rules of Civil
Procedure. The rule now states "general manager" instead of only "manager"; "corporate secretary"
instead of "secretary"; and "treasurer" instead of "cashier." The phrase "agent, or any of its directors" is
conspicuously deleted in the new rule.
The particular revision under Section 11 of Rule 14 was explained by retired Supreme Court Justice
Florenz Regalado, thus:23
. . . the then Sec. 13 of this Rule allowed service upon a defendant corporation to "be made on the
president, manager, secretary, cashier, agent or any of its directors." The aforesaid terms were obviously
ambiguous and susceptible of broad and sometimes illogical interpretations, especially the word "agent"
of the corporation. The Filoil case, involving the litigation lawyer of the corporation who precisely
appeared to challenge the validity of service of summons but whose very appearance for that purpose
was seized upon to validate the defective service, is an illustration of the need for this revised section
with limited scope and specific terminology. Thus the absurd result in the Filoil case necessitated the
amendment permitting service only on the in-house counsel of the corporation who is in effect an
employee of the corporation, as distinguished from an independent practitioner. (emphasis supplied).
Retired Justice Oscar Herrera, who is also a consultant of the Rules of Court Revision Committee, stated
that "(T)he rule must be strictly observed. Service must be made to one named in (the) statute . . . .24
It should be noted that even prior to the effectivity of the 1997 Rules of Civil Procedure, strict compliance
with the rules has been enjoined. In the case of Delta Motor Sales Corporation vs. Mangosing,25 the
Court held:
A strict compliance with the mode of service is necessary to confer jurisdiction of the court over a
corporation. The officer upon whom service is made must be one who is named in the statute; otherwise
the service is insufficient. . . .
The purpose is to render it reasonably certain that the corporation will receive prompt and proper notice
in an action against it or to insure that the summons be served on a representative so integrated with
the corporation that such person will know what to do with the legal papers served on him. In other
words, "to bring home to the corporation notice of the filing of the action." . . . .
The liberal construction rule cannot be invoked and utilized as a substitute for the plain legal
requirements as to the manner in which summons should be served on a domestic corporation. . . . .
(emphasis supplied).
Service of summons upon persons other than those mentioned in Section 13 of Rule 14 (old rule) has
been held as improper.26 Even under the old rule, service upon a general manager of a firm's branch
office has been held as improper as summons should have been served at the firm's principal office.
In First Integrated Bonding & Inc. Co., Inc. vs. Dizon,27 it was held that the service of summons on the
general manager of the insurance firm's Cebu branch was improper; default order could have been
obviated had the summons been served at the firm's principal office.
And in the case of Solar Team Entertainment, Inc. vs. Hon. Helen Bautista Ricafort, et al.28 the Court
succinctly clarified that, for the guidance of the Bench and Bar, "strictest" compliance with Section 11 of
Rule 13 of the 1997 Rules of Civil Procedure (on Priorities in modes of service and filing) is mandated
and the Court cannot rule otherwise, lest we allow circumvention of the innovation by the 1997 Rules in
order to obviate delay in the administration of justice.
Accordingly, we rule that the service of summons upon the branch manager of petitioner at its branch
office at Cagayan de Oro, instead of upon the general manager at its principal office at Davao City is
improper. Consequently, the trial court did not acquire jurisdiction over the person of the petitioner.
The fact that defendant filed a belated motion to dismiss did not operate to confer jurisdiction upon its
person. There is no question that the defendant's voluntary appearance in the action is equivalent to
service of summons.29Before, the rule was that a party may challenge the jurisdiction of the court over
his person by making a special appearance through a motion to dismiss and if in the same motion, the
movant raised other grounds or invoked affirmative relief which necessarily involves the exercise of the
jurisdiction of the court.30 This doctrine has been abandoned in the case of La Naval Drug Corporation
vs. Court of Appeals, et al.,31 which became the basis of the adoption of a new provision in the former
Section 23, which is now Section 20 of Rule 14 of the 1997 Rules. Section 20 now provides that "the
inclusion in a motion to dismiss of other grounds aside from lack of jurisdiction over the person of the
defendant shall not be deemed a voluntary appearance." The emplacement of this rule clearly
underscores the purpose to enforce strict enforcement of the rules on summons. Accordingly, the filing
of a motion to dismiss, whether or not belatedly filed by the defendant, his authorized agent or attorney,
precisely objecting to the jurisdiction of the court over the person of the defendant can by no means be
deemed a submission to the jurisdiction of the court. There being no proper service of summons, the
trial court cannot take cognizance of a case for lack of jurisdiction over the person of the defendant. Any
proceeding undertaken by the trial court will consequently be null and void.32
WHEREFORE, the petition is hereby GRANTED. The assailed Orders of the public respondent trial court
are ANNULLED and SET ASIDE. The public respondent Regional Trial Court of Makati, Branch 132 is
declared without jurisdiction to take cognizance of Civil Case No. 98-824, and all its orders and issuances
in connection therewith are hereby ANNULLED and SET ASIDE.1wphi1.nt

Munasque vs CA 139 SCRA 533 1985

ELMO MUASQUE, petitioner,
vs.nCOURT OF APPEALS,CELESTINO GALAN TROPICAL COMMERCIAL COMPANY and RAMON
PONS, respondents.
In this petition for certiorari, the petitioner seeks to annul and set added the decision of the Court of
Appeals affirming the existence of a partnership between petitioner and one of the respondents,
Celestino Galan and holding both of them liable to the two intervenors which extended credit to their
partnership. The petitioner wants to be excluded from the liabilities of the partnership.
Petitioner Elmo Muasque filed a complaint for payment of sum of money and damages against
respondents Celestino Galan, Tropical Commercial, Co., Inc. (Tropical) and Ramon Pons, alleging that
the petitioner entered into a contract with respondent Tropical through its Cebu Branch Manager Pons
for remodelling a portion of its building without exchanging or expecting any consideration from Galan
although the latter was casually named as partner in the contract; that by virtue of his having introduced
the petitioner to the employing company (Tropical). Galan would receive some kind of compensation in
the form of some percentages or commission; that Tropical, under the terms of the contract, agreed to
give petitioner the amount of P7,000.00 soon after the construction began and thereafter, the amount of
P6,000.00 every fifteen (15) days during the construction to make a total sum of P25,000.00; that on
January 9, 1967, Tropical and/or Pons delivered a check for P7,000.00 not to the plaintiff but to a stranger
to the contract, Galan, who succeeded in getting petitioner's indorsement on the same check persuading
the latter that the same be deposited in a joint account; that on January 26, 1967 when the second check
for P6,000.00 was due, petitioner refused to indorse said cheek presented to him by Galan but through
later manipulations, respondent Pons succeeded in changing the payee's name from Elmo Muasque
to Galan and Associates, thus enabling Galan to cash the same at the Cebu Branch of the Philippine
Commercial and Industrial Bank (PCIB) placing the petitioner in great financial difficulty in his
construction business and subjecting him to demands of creditors to pay' for construction materials, the
payment of which should have been made from the P13,000.00 received by Galan; that petitioner
undertook the construction at his own expense completing it prior to the March 16, 1967 deadline;that
because of the unauthorized disbursement by respondents Tropical and Pons of the sum of P13,000.00
to Galan petitioner demanded that said amount be paid to him by respondents under the terms of the
written contract between the petitioner and respondent company.
The respondents answered the complaint by denying some and admitting some of the material
averments and setting up counterclaims.
During the pre-trial conference, the petitioners and respondents agreed that the issues to be resolved
are:
(1) Whether or not there existed a partners between Celestino Galan and Elmo Muasque; and
(2) Whether or not there existed a justifiable cause on the part of respondent Tropical to disburse money
to respondent Galan.
The business firms Cebu Southern Hardware Company and Blue Diamond Glass Palace were allowed
to intervene, both having legal interest in the matter in litigation.
After trial, the court rendered judgment, the dispositive portion of which states:
IN VIEW WHEREOF, Judgment is hereby rendered:
(1) ordering plaintiff Muasque and defendant Galan to pay jointly and severally the intervenors Cebu
and Southern Hardware Company and Blue Diamond Glass Palace the amount of P6,229.34 and
P2,213.51, respectively;
(2) absolving the defendants Tropical Commercial Company and Ramon Pons from any liability,
No damages awarded whatsoever.
The petitioner and intervenor Cebu Southern Company and its proprietor, Tan Siu filed motions for
reconsideration.
On January 15, 197 1, the trial court issued 'another order amending its judgment to make it read as
follows:
IN VIEW WHEREOF, Judgment is hereby rendered
(1) ordering plaintiff Muasque and defendant Galan to pay jointly and severally the intervenors Cebu
Southern Hardware Company and Blue Diamond Glass Palace the amount of P6,229.34 and P2,213.51,
respectively,
(2) ordering plaintiff and defendant Galan to pay Intervenor Cebu Southern Hardware Company and Tan
Siu jointly and severally interest at 12% per annum of the sum of P6,229.34 until the amount is fully paid;
(3) ordering plaintiff andefendant Galan to pay P500.00 representing attorney's fees jointly and severally
to Intervenor Cebu Southern Hardware Company:
(4) absolving the defendants Tropical Commercial Company and Ramon Pons from any liability,
No damages awarded whatsoever.
On appeal, the Court of Appeals affirmed the judgment of the trial court with the sole modification that
the liability imposed in the dispositive part of the decision on the credit of Cebu Southern Hardware and
Blue Diamond Glass Palace was changed from "jointly and severally" to "jointly."
Not satisfied, Mr. Muasque filed this petition.
The present controversy began when petitioner Muasque in behalf of the partnership of "Galan and
Muasque" as Contractor entered into a written contract with respondent Tropical for remodelling the
respondent's Cebu branch building. A total amount of P25,000.00 was to be paid under the contract for
the entire services of the Contractor. The terms of payment were as follows: thirty percent (30%) of the
whole amount upon the signing of the contract and the balance thereof divided into three equal
installments at the lute of Six Thousand Pesos (P6,000.00) every fifteen (15) working days.
The first payment made by respondent Tropical was in the form of a check for P7,000.00 in the name of
the petitioner.Petitioner, however, indorsed the check in favor of respondent Galan to enable the latter
to deposit it in the bank and pay for the materials and labor used in the project.
Petitioner alleged that Galan spent P6,183.37 out of the P7,000.00 for his personal use so that when the
second check in the amount of P6,000.00 came and Galan asked the petitioner to indorse it again, the
petitioner refused.
The check was withheld from the petitioner. Since Galan informed the Cebu branch of Tropical that there
was a"misunderstanding" between him and petitioner, respondent Tropical changed the name of the
payee in the second check from Muasque to "Galan and Associates" which was the duly registered
name of the partnership between Galan and petitioner and under which name a permit to do construction
business was issued by the mayor of Cebu City. This enabled Galan to encash the second check.
Meanwhile, as alleged by the petitioner, the construction continued through his sole efforts. He stated
that he borrowed some P12,000.00 from his friend, Mr. Espina and although the expenses had reached
the amount of P29,000.00 because of the failure of Galan to pay what was partly due the laborers and
partly due for the materials, the construction work was finished ahead of schedule with the total
expenditure reaching P34,000.00.
The two remaining checks, each in the amount of P6,000.00,were subsequently given to the petitioner
alone with the last check being given pursuant to a court order.
As stated earlier, the petitioner filed a complaint for payment of sum of money and damages against the
respondents,seeking to recover the following: the amounts covered by the first and second checks which
fell into the hands of respondent Galan, the additional expenses that the petitioner incurred in the
construction, moral and exemplary damages, and attorney's fees.
Both the trial and appellate courts not only absolved respondents Tropical and its Cebu Manager, Pons,
from any liability but they also held the petitioner together with respondent Galan, hable to the intervenors
Cebu Southern Hardware Company and Blue Diamond Glass Palace for the credit which the intervenors
extended to the partnership of petitioner and Galan
In this petition the legal questions raised by the petitioner are as follows: (1) Whether or not the appellate
court erred in holding that a partnership existed between petitioner and respondent Galan. (2) Assuming
that there was such a partnership, whether or not the court erred in not finding Galan guilty of malversing
the P13,000.00 covered by the first and second checks and therefore, accountable to the petitioner for
the said amount; and (3) Whether or not the court committed grave abuse of discretion in holding that
the payment made by Tropical through its manager Pons to Galan was "good payment, "
Petitioner contends that the appellate court erred in holding that he and respondent Galan were partners,
the truth being that Galan was a sham and a perfidious partner who misappropriated the amount of
P13,000.00 due to the petitioner.Petitioner also contends that the appellate court committed grave abuse
of discretion in holding that the payment made by Tropical to Galan was "good" payment when the same
gave occasion for the latter to misappropriate the proceeds of such payment.
The contentions are without merit.
The records will show that the petitioner entered into a con-tract with Tropical for the renovation of the
latter's building on behalf of the partnership of "Galan and Muasque." This is readily seen in the first
paragraph of the contract where it states:
This agreement made this 20th day of December in the year 1966 by Galan and Muasque hereinafter
called the Contractor, and Tropical Commercial Co., Inc., hereinafter called the owner do hereby for and
in consideration agree on the following: ... .
There is nothing in the records to indicate that the partner-ship organized by the two men was not a
genuine one. If there was a falling out or misunderstanding between the partners, such does not convert
the partnership into a sham organization.
Likewise, when Muasque received the first payment of Tropical in the amount of P7,000.00 with a check
made out in his name, he indorsed the check in favor of Galan. Respondent Tropical therefore, had
every right to presume that the petitioner and Galan were true partners. If they were not partners as
petitioner claims, then he has only himself to blame for making the relationship appear otherwise, not
only to Tropical but to their other creditors as well. The payments made to the partnership were,
therefore, valid payments.
In the case of Singsong v. Isabela Sawmill (88 SCRA 643),we ruled:
Although it may be presumed that Margarita
G. Saldajeno had acted in good faith, the appellees also acted in good faith in extending credit to the
partnership. Where one of two innocent persons must suffer, that person who gave occasion for the
damages to be caused must bear the consequences.
No error was committed by the appellate court in holding that the payment made by Tropical to Galan
was a good payment which binds both Galan and the petitioner. Since the two were partners when the
debts were incurred, they, are also both liable to third persons who extended credit to their partnership.
In the case of George Litton v. Hill and Ceron, et al, (67 Phil. 513, 514), we ruled:
There is a general presumption that each individual partner is an authorized agent for the firm and that
he has authority to bind the firm in carrying on the partnership transactions. (Mills vs. Riggle,112 Pan,
617).
The presumption is sufficient to permit third persons to hold the firm liable on transactions entered into
by one of members of the firm acting apparently in its behalf and within the scope of his authority. (Le
Roy vs. Johnson, 7 U.S. (Law. ed.), 391.)
Petitioner also maintains that the appellate court committed grave abuse of discretion in not holding
Galan liable for the amounts which he "malversed" to the prejudice of the petitioner. He adds that
although this was not one of the issues agreed upon by the parties during the pretrial, he, nevertheless,
alleged the same in his amended complaint which was, duly admitted by the court.
When the petitioner amended his complaint, it was only for the purpose of impleading Ramon Pons in
his personal capacity. Although the petitioner made allegations as to the alleged malversations of Galan,
these were the same allegations in his original complaint. The malversation by one partner was not an
issue actually raised in the amended complaint but the alleged connivance of Pons with Galan as a
means to serve the latter's personal purposes.
The petitioner, therefore, should be bound by the delimitation of the issues during the pre-trial because
he himself agreed to the same. In Permanent Concrete Products, Inc. v. Teodoro, (26 SCRA 336), we
ruled:
xxx xxx xxx
... The appellant is bound by the delimitation of the issues contained in the trial court's order issued on
the very day the pre-trial conference was held. Such an order controls the subsequent course of the
action, unless modified before trial to prevent manifest injustice.In the case at bar, modification of the
pre-trial order was never sought at the instance of any party.
Petitioner could have asked at least for a modification of the issues if he really wanted to include the
determination of Galan's personal liability to their partnership but he chose not to do so, as he vehemently
denied the existence of the partnership. At any rate, the issue raised in this petition is the contention of
Muasque that the amounts payable to the intervenors should be shouldered exclusively by Galan. We
note that the petitioner is not solely burdened by the obligations of their illstarred partnership. The records
show that there is an existing judgment against respondent Galan, holding him liable for the total amount
of P7,000.00 in favor of Eden Hardware which extended credit to the partnership aside from the P2, 000.
00 he already paid to Universal Lumber.
We, however, take exception to the ruling of the appellate court that the trial court's ordering petitioner
and Galan to pay the credits of Blue Diamond and Cebu Southern Hardware"jointly and severally" is
plain error since the liability of partners under the law to third persons for contracts executed inconnection
with partnership business is only pro rata under Art. 1816, of the Civil Code.
While it is true that under Article 1816 of the Civil Code,"All partners, including industrial ones, shall be
liable prorate with all their property and after all the partnership assets have been exhausted, for the
contracts which may be entered into the name and fm the account cd the partnership, under its signature
and by a person authorized to act for the partner-ship. ...". this provision should be construed together
with Article 1824 which provides that: "All partners are liable solidarily with the partnership for everything
chargeable to the partnership under Articles 1822 and 1823." In short, while the liability of the partners
are merely joint in transactions entered into by the partnership, a third person who transacted with said
partnership can hold the partners solidarily liable for the whole obligation if the case of the third person
falls under Articles 1822 or 1823.
Articles 1822 and 1823 of the Civil Code provide:
Art. 1822. Where, by any wrongful act or omission of any partner acting in the ordinary course of the
business of the partner-ship or with the authority of his co-partners, loss or injury is caused to any person,
not being a partner in the partnership or any penalty is incurred, the partnership is liable therefor to the
same extent as the partner so acting or omitting to act.
Art. 1823. The partnership is bound to make good:
(1) Where one partner acting within the scope of his apparent authority receives money or property of a
third person and misapplies it; and
(2) Where the partnership in the course of its business receives money or property of a third person and
t he money or property so received is misapplied by any partner while it is in the custody of the
partnership.
The obligation is solidary, because the law protects him, who in good faith relied upon the authority of a
partner, whether such authority is real or apparent. That is why under Article 1824 of the Civil Code all
partners, whether innocent or guilty, as well as the legal entity which is the partnership, are solidarily
liable.
In the case at bar the respondent Tropical had every reason to believe that a partnership existed between
the petitioner and Galan and no fault or error can be imputed against it for making payments to "Galan
and Associates" and delivering the same to Galan because as far as it was concerned, Galan was a true
partner with real authority to transact on behalf of the partnership with which it was dealing. This is even
more true in the cases of Cebu Southern Hardware and Blue Diamond Glass Palace who supplied
materials on credit to the partnership. Thus, it is but fair that the consequences of any wrongful act
committed by any of the partners therein should be answered solidarily by all the partners and the
partnership as a whole
However. as between the partners Muasque and Galan,justice also dictates that Muasque be
reimbursed by Galan for the payments made by the former representing the liability of their partnership
to herein intervenors, as it was satisfactorily established that Galan acted in bad faith in his dealings with
Muasque as a partner.
WHEREFORE, the decision appealed from is hereby AFFIRMED with the MODIFICATION that the
liability of petitioner and respondent Galan to intervenors Blue Diamond Glass and Cebu Southern
Hardware is declared to be joint and solidary. Petitioner may recover from respondent Galan any amount
that he pays, in his capacity as a partner, to the above intervenors,

JT Investment Cor vs Sps Benjamin and Eleanor Ang Sept 8 2010

J. TIOSEJO INVESTMENT CORP., PETITIONER, VS. SPOUSES BENJAMIN AND ELEANOR ANG,
RESPONDENTS.

Filed pursuant to Rule 45 of the 1997 Rules of Civil Procedure, the petition for review at bench seeks
the reversal of the Resolutions dated 23 May 2006 and 9 August 2006 issued by the Third Division of
the Court of Appeals (CA) in CA-G.R. SP No. 93841 which, respectively, dismissed the petition for review
of petitioner J. Tiosejo Investment Corp. (JTIC) for having been filed out of time[1] and denied the motion
for reconsideration of said dismissal.[2]
The Facts

On 28 December 1995 petitioner entered into a Joint Venture Agreement (JVA) with Primetown Property
Group, Inc. (PPGI) for the development of a residential condominium project to be known as The
Meditelon the former's 9,502 square meter property along Samat St., Highway Hills, Mandaluyong
City.[3] With petitioner contributing the same property to the joint venture and PPGI undertaking to
develop the condominium, the JVA provided, among other terms and conditions, that the developed
units shall be shared by the former and the latter at a ratio of 17%-83%, respectively.[4] While both
parties were allowed, at their own individual responsibility, to pre-sell the units pertaining to them,[5] PPGI
further undertook to use all proceeds from the pre-selling of its saleable units for the completion of the
Condominium Project." [6]

On 17 June 1996, the Housing and Land Use Regulatory Board (HLURB) issued License to Sell No. 96-
06-2854 in favor of petitioner and PPGI as project owners.[7] By virtue of said license, PPGI
executedContract to Sell No. 0212 with Spouses Benjamin and Eleanor Ang on 5 February 1997, over
the 35.45-square meter condominium unit denominated as Unit A-1006, for the agreed contract price
of P52,597.88 per square meter or a total P2,077,334.25.[8] On the same date PPGI and respondents
also executed Contract to Sell No. 0214 over the 12.50 square meter parking space identified as Parking
Slot No. 0405, for the stipulated consideration of P26,400.00 square meters or a total of P313,500.00.[9]

On 21 July 1999, respondents filed against petitioner and PPGI the complaint for the rescission of the
aforesaid Contracts to Sell docketed before the HLURB as HLURB Case No. REM 072199-
10567. Contending that they were assured by petitioner and PPGI that the subject condominium unit
and parking space would be available for turn-over and occupancy in December 1998, respondents
averred, among other matters, that in view of the non-completion of the project according to said
representation, respondents instructed petitioner and PPGI to stop depositing the post-dated checks
they issued and to cancel said Contracts to Sell; and, that despite several demands, petitioner and PPGI
have failed and refused to refund the P611,519.52 they already paid under the circumstances. Together
with the refund of said amount and interests thereon at the rate of 12% per annum, respondents prayed
for the grant of their claims for moral and exemplary damages as well as attorney's fees and the costs.[10]

Specifically denying the material allegations of the foregoing complaint, PPGI filed its 7 September 1999
answer alleging that the delay in the completion of the project was attributable to the economic crisis
which affected the country at the time; that the unexpected and unforeseen inflation as well as increase
in interest rates and cost of building materials constitute force majeure and were beyond its control; that
aware of its responsibilities, it offered several alternatives to its buyers like respondents for a transfer of
their investment to its other feasible projects and for the amounts they already paid to be considered as
partial payment for the replacement unit/s; and, that the complaint was prematurely filed in view of the
on-going negotiations it is undertaking with its buyers and prospective joint venture partners. Aside from
the dismissal of the complaint, PPGI sought the readjustment of the contract price and the grant of its
counterclaims for attorney's fees and litigation expenses.[11]

Petitioner also specifically denied the material allegations of the complaint in separate answer dated 5
February 2002[12] which it amended on 20 May 2002. Calling attention to the fact that its prestation under
the JVA consisted in contributing the property on which The Meditel was to be constructed, petitioner
asseverated that, by the terms of the JVA, each party was individually responsible for the marketing and
sale of the units pertaining to its share; that not being privy to the Contracts to Sell executed by PPGI
and respondents, it did not receive any portion of the payments made by the latter; and, that without any
contributory fault and negligence on its part, PPGI breached its undertakings under the JVA by failing to
complete the condominium project. In addition to the dismissal of the complaint and the grant of its
counterclaims for exemplary damages, attorney's fees, litigation expenses and the costs, petitioner
interposed a cross-claim against PPGI for full reimbursement of any sum it may be adjudged liable to
pay respondents.[13]

Acting on the position papers and draft decisions subsequently submitted by the parties,[14] Housing and
Land Use (HLU) Arbiter Dunstan T. San Vicente went on to render the 30 July 2003 decision declaring
the subject Contracts to Sell cancelled and rescinded on account of the non-completion of the
condominium project. On the ground that the JVA created a partnership liability on their part, petitioner
and PPGI, as co-owners of the condominium project, were ordered to pay: (a) respondents' claim for
refund of the P611,519.52 they paid, with interest at the rate of 12% per annum from 5 February 1997;
(b) damages in the sum of P75,000.00; (c) attorney's fees in the sum of P30,000.00; (d) the costs; and,
(e) an administrative fine in the sum of P10,000.00 for violation of Sec. 20 in relation to Sec. 38 of
Presidential Decree No. 957. [15]nbsp; Elevated to the HLURB Board of Commissioners via the petition
for review filed by petitioner,[16] the foregoing decision was modified to grant the latter's cross-claim in
the 14 September 2004 decision rendered by said administrative body's Second Division in HLURB
Case No. REM-A-031007-0240,[17] to wit:
Wherefore, the petition for review of the respondent Corporation is dismissed. However, the decision of
the Office below dated July 30, 2003 is modified, hence, its dispositive portion shall read:
Declaring the contracts to sell, both dated February 5, 1997, as cancelled and rescinded, and ordering
the respondents to immediately pay the complainants the following:
The amount of P611,519.52, with interest at the legal rate reckoned from February 5, 1997 until fully
paid;
Damages of P75,000.00;
Attorney's fees equivalent to P30,000.00; and
The Cost of suit;
Ordering respondents to pay this Office administrative fine of P10,000.00 for violation of Section 20 in
relation to Section 38 of P.D. 957; and
Ordering respondent Primetown to reimburse the entire amount which the respondent Corporation will
be constrained to pay the complainants.
So ordered.[18]

With the denial of its motion for reconsideration of the foregoing decision,[19] petitioner filed a Notice of
Appeal dated 28 February 2005 which was docketed before the Office of the President (OP) as O.P.
Case No. 05-B-072.[20] On 3 March 2005, the OP issued an order directing petitioner to submit its appeal
memorandum within 15 days from receipt thereof.[21] Acting on the motion therefor filed, the OP also
issued another order on the same date, granting petitioner a period of 15 days from 28 February 2005
or until 15 March 2005 within which to file its appeal memorandum.[22] In view of petitioner's filing of a
second motion for extension dated 15 March 2005,[23] the OP issued the 18 March 2005 order granting
the former an additional 10 days from 15 March 2005 or until 25 March 2005 within which to file its appeal
memorandum, "provided no further extension shall be allowed."[24] Claiming to have received the
aforesaid 3 March 2005 order only on 16 March 2005, however, petitioner filed its 31 March 2005 motion
seeking yet another extension of 10 days or until 10 April 2005 within which to file its appeal
memorandum.[25]

On 7 April 2005, respondents filed their opposition to the 31 March 2005 motion for extension of
petitioner[26] which eventually filed its appeal memorandum by registered mail on 11 April 2005 in view
of the fact that 10 April 2005 fell on a Sunday.[27] On 25 October 2005, the OP rendered a decision
dismissing petitioner's appeal on the ground that the latter's appeal memorandum was filed out of time
and that the HLURB Board committed no grave abuse of discretion in rendering the appealed
decision.[28] Aggrieved by the denial of its motion for reconsideration of the foregoing decision in the 3
March 2006 order issued by the OP,[29] petitioner filed before the CA its 29 March 2006 motion for an
extension of 15 days from 31 March 2006 or until 15 April 2006 within which to file its petition for
review.[30] Accordingly, a non-extendible period of 15 days to file its petition for review was granted
petitioner in the 31 March 2006 resolution issued by the CA Third Division in CA-G.R, SP No. 93841.[31]

Maintaining that 15 April 2006 fell on a Saturday and that pressures of work prevented its counsel from
finalizing its petition for review, petitioner filed a motion on 17 April 2006, seeking for an additional time
of 10 days or until 27 April 2006 within which to file said pleading.[32] Although petitioner filed by
registered mail a motion to admit its attached petition for review on 19 April 2006,[33] the CA issued the
herein assailed 23 May 2006 resolution,[34] disposing of the former's pending motion for extension as
well as the petition itself in the following wise

We resolve to DENY the second extension motion and rule to DISMISS the petition for being filed late.

Settled is that heavy workload is by no means excusable (Land Bank of the Philippines vs. Natividad,
458 SCRA 441 [2005]). If the failure of the petitioners' counsel to cope up with heavy workload should
be considered a valid justification to sidestep the reglementary period, there would be no end to litigations
so long as counsel had not been sufficiently diligent or experienced (LTS Philippine Corporation vs.
Maliwat, 448 SCRA 254, 259-260 [2005], citing Sublay vs. National Labor Relations Commission, 324
SCRA 188 [2000]).
Moreover, lawyers should not assume that their motion for extension or postponement will be granted
the length of time they pray for (Ramos vs. Dajoyag, 378 SCRA 229 [2002]).

SO ORDERED.[35]

Petitioner's motion for reconsideration of the foregoing resolution[36] was denied for lack of merit in the
CA's second assailed 9 August 2006 resolution,[37] hence, this petition.
The Issues

Petitioner seeks the reversal of the assailed resolutions on the following grounds, to wit:
THE COURT OF APPEALS ERRED IN DISMISSING THE PETITION ON MERE TECHNICALITY;
THE COURT OF APPEALS ERRED IN REFUSING TO RESOLVE THE PETITION ON THE MERITS
THEREBY AFFIRMING THE OFFICE OF THE PRESIDENT'S DECISION (A) DISMISSING JTIC'S
APPEAL ON A MERE TECHNICALITY; (B) AFFIRMING THE HLURB BOARD'S DECISION INSOFAR
AS IT FOUND JTIC SOLIDARILY LIABLE WITH PRIMETOWN TO PAY SPOUSES ANG DAMAGES,
ATTORNEY'S FEES AND THE COST OF THE SUIT; AND (C) AFFIRMING THE HLURB BOARD'S
DECISION INSOFAR AS IT FAILED TO AWARD JITC ITS COUNTERCLAIMS AGAINST SPOUSES
ANG.[38]

The Court's Ruling

We find the petition bereft of merit.

While the dismissal of an appeal on purely technical grounds is concededly frowned upon,[39] it bears
emphasizing that the procedural requirements of the rules on appeal are not harmless and trivial
technicalities that litigants can just discard and disregard at will.[40] Neither being a natural right nor a part
of due process, the rule is settled that the right to appeal is merely a statutory privilege which may be
exercised only in the manner and in accordance with the provisions of the law.[41] The perfection of an
appeal in the manner and within the period prescribed by law is, in fact, not only mandatory but
jurisdictional.[42] Considering that they are requirements which cannot be trifled with as mere technicality
to suit the interest of a party,[43] failure to perfect an appeal in the prescribed manner has the effect of
rendering the judgment final and executory.[44]

Fealty to the foregoing principles impels us to discount the error petitioner imputes against the CA for
denying its second motion for extension of time for lack of merit and dismissing its petition for review for
having been filed out of time. Acting on the 29 March 2006 motion filed for the purpose, after all, the CA
had already granted petitioner an inextendible period of 15 days from 31 March 2006 or until 15 April
2006 within which to file its petition for review. Sec. 4, Rule 43 of the 1997 Rules of Civil
Procedure provides as follows:
Sec. 4. Period of appeal. - The appeal shall be taken within fifteen (15) days from notice of the award,
judgment, final order or resolution, or from the date of its last publication, if publication is required by law
for its effectivity, or of the denial of petitioner's motion for new trial or reconsideration duly filed in
accordance with the governing law of the court or agency a quo. Only one (1) motion for reconsideration
shall be allowed. Upon proper motion and payment of the full amount of the docket fee before the
expiration of the reglementary period, the Court of Appeals may grant an additional period of fifteen (15)
days only within which to file the petition for review. No further extension shall be granted except for the
most compelling reason and in no case to exceed fifteen (15) days." (Underscoring supplied)
The record shows that, having been granted the 15-day extension sought in its first motion, petitioner
filed a second motion for extension praying for an additional 10 days from 17 April 2006 within which to
file its petition for review, on the ground that pressures of work and the demands posed by equally
important cases prevented its counsel from finalizing the same. As correctly ruled by the CA, however,
heavy workload cannot be considered as a valid justification to sidestep the reglementary period[45]since
to do so would only serve to encourage needless delays and interminable litigations. Indeed, rules
prescribing the time for doing specific acts or for taking certain proceedings are considered absolutely
indispensable to prevent needless delays and to orderly and promptly discharge judicial
business.[46]Corollary to the principle that the allowance or denial of a motion for extension of time is
addressed to the sound discretion of the court,[47] moreover, lawyers cannot expect that their motions for
extension or postponement will be granted[48] as a matter of course.

Although technical rules of procedure are not ends in themselves, they are necessary for an effective
and expeditious administration of justice and cannot, for said reason, be discarded with the mere
expediency of claiming substantial merit.[49] This holds particularly true in the case at bench where, prior
to the filing of its petition for review before the CA, petitioner's appeal before the OP was likewise
dismissed in view of its failure to file its appeal memorandum within the extensions of time it had been
granted by said office. After being granted an initial extension of 15 days to do the same, the records
disclose that petitioner was granted by the OP a second extension of 10 days from 15 March 2005 or
until 25 March 2005 within which to file its appeal memorandum, on the condition that no further
extensions shall be allowed. Aside from not heeding said proviso, petitioner had, consequently, no more
time to extend when it filed its 31 March 2005 motion seeking yet another extension of 10 days or until
10 April 2005 within which to file its appeal memorandum.

With the foregoing procedural antecedents, the initial 15-day extension granted by the CA and the
injunction under Sec. 4, Rule 43 of the 1997 Rules of Civil Procedure against further extensions "except
for the most compelling reason", it was clearly inexcusable for petitioner to expediently plead its counsel's
heavy workload as ground for seeking an additional extension of 10 days within which to file its petition
for review. To our mind, petitioner would do well to remember that, rather than the low gate to which
parties are unreasonably required to stoop, procedural rules are designed for the orderly conduct of
proceedings and expeditious settlement of cases in the courts of law. Like all rules, they are required to
be followed[50] and utter disregard of the same cannot be expediently rationalized by harping on the policy
of liberal construction[51] which was never intended as an unfettered license to disregard the letter of the
law or, for that matter, a convenient excuse to substitute substantial compliance for regular adherence
thereto. When it comes to compliance with time rules, the Court cannot afford inexcusable delay. [52]

Even prescinding from the foregoing procedural considerations, we also find that the HLURB Arbiter and
Board correctly held petitioner liable alongside PPGI for respondents' claims and the P10,000.00
administrative fine imposed pursuant to Section 20 in relation to Section 38 of P.D. 957. By the express
terms of the JVA, it appears that petitioner not only retained ownership of the property pending
completion of the condominium project[53] but had also bound itself to answer liabilities proceeding from
contracts entered into by PPGI with third parties. Article VIII, Section 1 of the JVA distinctly provides as
follows:
"Sec. 1. Rescission and damages. Non-performance by either party of its obligations under this
Agreement shall be excused when the same is due to Force Majeure. In such cases, the defaulting
party must exercise due diligence to minimize the breach and to remedy the same at the soonest possible
time. In the event that either party defaults or breaches any of the provisions of this Agreement other
than by reason of Force Majeure, the other party shall have the right to terminate this Agreement by
giving notice to the defaulting party, without prejudice to the filing of a civil case for damages arising from
the breach of the defaulting party.

In the event that the Developer shall be rendered unable to complete the CondominiumProject, and such
failure is directly and solely attributable to the Developer, the Owner shall send written notice to the
Developer to cause the completion of the Condominium Project. If the developer fails to comply within
One Hundred Eighty (180) days from such notice or, within such time, indicates its incapacity to complete
the Project, the Owner shall have the right to take over the construction and cause the completion
thereof. If the Owner exercises its right to complete the Condominium Project under these
circumstances, this Agreement shall be automatically rescinded upon written notice to the Developer
and the latter shall hold the former free and harmless from any and all liabilities to third persons arising
from such rescission. In any case, the Owner shall respect and strictly comply with any covenant entered
into by the Developer and third parties with respect to any of its units in the Condominium Project. To
enable the owner to comply with this contingent liability, the Developer shall furnish the Owner with a
copy of its contracts with the said buyers on a month-to-month basis. Finally, in case the Owner would
be constrained to assume the obligations of the Developer to its own buyers, the Developer shall lose
its right to ask for indemnity for whatever it may have spent in the Development of the Project.

Nevertheless, with respect to the buyers of the Developer for the First Phase, the area intended for the
Second Phase shall not be bound and/or subjected to the said covenants and/or any other liability
incurred by the Developer in connection with the development of the first phase." (Underscoring supplied)

Viewed in the light of the foregoing provision of the JVA, petitioner cannot avoid liability by claiming that
it was not in any way privy to the Contracts to Sell executed by PPGI and respondents. As correctly
argued by the latter, moreover, a joint venture is considered in this jurisdiction as a form of partnership
and is, accordingly, governed by the law of partnerships.[54] Under Article 1824 of the Civil Code of the
Philippines, all partners are solidarily liable with the partnership for everything chargeable to the
partnership, including loss or injury caused to a third person or penalties incurred due to any wrongful
act or omission of any partner acting in the ordinary course of the business of the partnership or with the
authority of his co-partners.[55] Whether innocent or guilty, all the partners are solidarily liable with the
partnership itself.[56]

WHEREFORE, premises considered, the petition for review is DENIED for lack of merit.

PNB vs Severo Eugenio Lo et al Oct 5 1927

PHILIPPINE NATIONAL BANK, plaintiff-appellee, vsSEVERO EUGENIO LO, ET AL., defendants.
SEVERIO EUGENIO LO, NG KHEY LING and YEP SENG, appellants.

On September 29, 1916, the appellants Severo Eugenio Lo and Ng Khey Ling, together with J. A. Say
Lian Ping, Ko Tiao Hun, On Yem Ke Lam and Co Sieng Peng formed a commercial partnership under
the name of "Tai Sing and Co.," with a capital of P40,000 contributed by said partners. In the articles of
copartnership, Exhibit A, it appears that the partnership was to last for five years from after the date of
its organization, and that its purpose was to do business in the City of Iloilo, Province of Iloilo, or in any
other part of the Philippine Islands the partners might desire, under the name of "Tai Sing & Co.," for the
purchase and sale of merchandise, goods, and native, as well as Chinese and Japanese, products, and
to carry on such business and speculations as they might consider profitable. One of the partners, J. A.
Say Lian Ping was appointed general manager of the partnership, with the appointed general manager
of the partnership, with the powers specified in said articles of copartnership.
On June 4, 1917, general manager A. Say Lian Ping executed a power of attorney (Exhibit C-1) in favor
of A. Y. Kelam, authorizing him to act in his stead as manager and administrator of "Tai Sing & Co.," on
July 26, 1918, for, and obtained a loan of P8,000 in current account from the plaintiff bank. (Exhibit C).
As security for said loan, he mortgaged certain personal property of "Tai Sing & Co., (Exhibit C.)
This credit was renew several times and on March 25, 1919, A. Y. Kelam, as attorney-in-fact of "Tai Sing
& Co., executed a chattel mortgage in favor of plaintiff bank as security for a loan of P20,000 with interest
(Exhibit D). This mortgage was again renewed on April 16, 1920 and A. Y. Kelam, as attorney-in-fact of
"Tai Sing & Co., executed another chattel mortgage for the said sum of P20,000 in favor of plaintiff bank.
(Exhibit E.) According to this mortgage contract, the P20,000 loan was to earn 9 per cent interest per
annum.
On April 20, 1920, Yap Seng, Severo Eugenio Lo, A. Y. Kelam and Ng Khey Ling, the latter represented
by M. Pineda Tayenko, executed a power of attorney in favor of Sy Tit by virtue of which Sy Tit,
representing "Tai Sing & Co., obtained a credit of P20,000 from plaintiff bank on January 7, 1921,
executing a chattel mortgage on certain personal property belonging to "Tai Sing & Co.
Defendants had been using this commercial credit in a current account with the plaintiff bank, from the
year 1918, to May 22, 1921, and the debit balance of this account, with interest to December 31, 1924,
is as follows:

This total is the sum claimed in the complaint, together with interest on the P16,518.74 debt, at 9 per
cent per annum from January 1, 1925 until fully paid, with the costs of the trial.
Defendant Eugenio Lo sets up, as a general defense, that "Tai Sing & Co. was not a general partnership,
and that the commercial credit in current account which "Tai Sing & Co. obtained from the plaintiff bank
had not been authorized by the board of directors of the company, nor was the person who subscribed
said contract authorized to make the same, under the article of copartnership. The other defendants,
Yap Sing and Ng Khey Ling, answered the complaint denying each and every one of the allegations
contained therein.
After the hearing, the court found:
(1) That defendants Eugenio Lo, Ng Khey Ling and Yap Seng Co., Sieng Peng indebted to plaintiff
Philippine National Bank in sum of P22,595.26 to July 29, 1926, with a daily interest of P4.14 on the
balance on account of the partnership "Tai Sing & Co. for the sum of P16,518.74 until September 9,
1922;
(2) Said defendants are ordered jointly and severally to pay the Philippine National Bank the sum of
P22,727.74 up to August 31, 1926, and from the date, P4.14 daily interest on the principal; and
(3) The defendants are furthermore ordered to pay the costs of the action.1awph!l.net
Defendants appealed, making the following assignments of error:
The trial court erred in finding that article 126 of the Code of Commerce at present in force is not
mandatory.
II. The trial court erred in finding that the partnership agreement of "Tai Sing & Co., (Exhibit A), is in
accordance with the requirements of article 125 of the Code of Commerce for the organization of a
regular partnership.
III. The trial court erred in not admitting J. A. Sai Lian Ping's death in China in November, 1917, as a
proven fact.
IV. The trial court erred in finding that the death of J. A. Say Lian Ping cannot extinguish the defendants'
obligation to the plaintiff bank, because the last debt incurred by the commercial partnership "Tai Sing &
Co., was that evidence by Exhibit F, signed by Sy Tit as attorney-in-fact of the members of "Tai Sing &
Co., by virtue of Exhibit G.
V. The trial court erred in not finding that plaintiff bank was not able to collect its credit from the goods of
"Tai Sing & Co., given as security therefor through its own fault and negligence; and that the action
brought by plaintiff is a manifest violation of article 237 of the present Code of Commerce.
VI. The trial court erred in finding that the current account of "Tai Sing & Co. with plaintiff bank shows a
debit balance of P16,518.74, which in addition to interest at 9 per cent per annum from July 29, 1926,
amount to P16,595.26, with a daily interest of P4.14 on the sum of P16,518.74.
VII. The trial court erred in ordering the defendants appellants to pay jointly and severally to the Philippine
National Bank the sum of P22,727.74 up to August 31, 1926, and interest on P16,518.74 from that date
until fully paid, with the costs of the action.
VIII. The trial court erred in denying the motion for a new trial filed by defendants-appellants.
Appellants admit, and it appears from the context of Exhibit A, that the defendant association formed by
the defendants is a general partnership, as defined in article 126 of the Code Commerce. This
partnership was registered in the mercantile register of the Province of Iloilo. The only anomaly noted in
its organization is that instead of adopting for their firm name the names of all of the partners, of several
of them, or only one of them, to be followed in the last two cases, by the words "and to be followed in
the last two cases, by the words "and company" the partners agreed upon "Tai Sing & Co." as the firm
name.
In the case of Hung-Man-Yoc, under the name of Kwong-Wo-Sing vs. Kieng-Chiong-Seng, cited by
appellants, this court held that, as the company formed by defendants had existed in fact, though not in
law due to the fact that it was not recorded in the register, and having operated and contracted debts in
favor of the plaintiff, the same must be paid by someone. This applies more strongly to the obligations
contracted by the defendants, for they formed a partnership which was registered in the mercantile
register, and carried on business contracting debts with the plaintiff bank. The anomalous adoption of
the firm name above noted does not affect the liability of the general partners to third parties under article
127 of the Code of Commerce. And the Supreme Court so held in the case of Jo Chung Cang vs. Pacific
Commercial Co., (45 Phil., 142), in which it said that the object of article 126 of the Code of Commerce
in requiring a general partnership to transact business under the name of all its members, of several of
them, or of one only, is to protect the public from imposition and fraud; and that the provision of said
article 126 is for the protection of the creditors rather than of the partners themselves. And consequently
the doctrine was enunciated that the law must be unlawful and unenforceable only as between the
partners and at the instance of the violating party, but not in the sense of depriving innocent parties of
their rights who may have dealt with the offenders in ignorance of the latter having violated the law; and
that contracts entered into by commercial associations defectively organized are valid when voluntarily
executed by the parties, and the only question is whether or not they complied with the agreement.
Therefore, the defendants cannot invoke in their defense the anomaly in the firm name which they
themselves adopted.
As to the alleged death of the manager of the company, Say Lian Ping, before the attorney-in-fact Ou
Yong Kelam executed Exhibits C, D and E, the trial court did not find this fact proven at the hearing. But
even supposing that the court had erred, such an error would not justify the reversal of the judgment, for
two reasons at least: (1) Because Ou Yong Kelam was a partner who contracted in the name of the
partnership, without any objection of the other partners; and (2) because it appears in the record that the
appellant-partners Severo Eugenio Lo, Ng Khey Ling and Yap Seng, appointed Sy Tit as manager, and
he obtained from the plaintiff bank the credit in current account, the debit balance of which is sought tobe
recovered in this action.
Appellants allege that such of their property as is not included in the partnership assets cannot-be seized
for the payment of the debts contracted by the partnership until after the partnership property has been
exhausted. The court found that the partnership property described in the mortgage Exhibit F no loner
existed at the time of the filing of the herein complaint nor has its existence been proven, nor was it
offered to the plaintiff for sale. We find no just reason to reverse this conclusion of the trial court, and this
being so, it follows that article 237 of the Code of Commerce, invoked by the appellant, can in no way
have any application here.
Appellants also assign error to the action of the trial court in ordering them to pay plaintiff, jointly and
severally, the sums claimed with 9 per cent interest on P16,518.74, owing from them.
The judgment against the appellants is in accordance with article 127 of the Code of Commerce which
provides that all the members of a general partnership, be they managing partners thereof or not, shall
be personally and solidarily liable with all their property, for the results of the transactions made in the
name and for the account of the partnership, under the signature of the latter, and by a person authorized
to use it.
As to the amount of the interest suffice it to remember that the credit in current account sued on in this
case as been renewed by the parties in such a way that while it appears in the mortgage Exhibit D
executed on March 25, 1919 by the attorney-in-fact Ou Yong Kelam that the P20,000 credit would earn
8 per cent interest annually, yet from that executed on April 16, 1920, Exhibit E, it appears that the
P20,000 would earn 9 per cent interest per annum. The credit was renewed in January, 1921, and in the
deed of pledge, Exhibit F, executed by "Tai Sing & Co., represented by the attorney-in-fact Sy Tit, it
appears that this security is for the payment of the sums received by the partnership, not to exceed
P20,000 with interest and collection fees. There can be no doubt that the parties agreed upon the rate
of interest fixed in the document Exhibit E, namely 9 per cent per annum.
The judgment appealed from is in accordance with the law, and must therefore be, as it is hereby,
affirmed with costs against the appellants. So ordered.

Pioneer Insurance vs CA 1989 175 SCRA 668

PIONEER INSURANCE & SURETY CORPORATION, petitioner,
vs.THE HON. COURT OF APPEALS, BORDER MACHINERY & HEAVY EQUIPMENT, INC.,
(BORMAHECO), CONSTANCIO M. MAGLANA and JACOB S. LIM, respondents.
G.R. No. 84157 July 28, 1989
JACOB S. LIM, petitioner,
vs.COURT OF APPEALS, PIONEER INSURANCE AND SURETY CORPORATION, BORDER
MACHINERY and HEAVY EQUIPMENT CO., INC,, FRANCISCO and MODESTO CERVANTES and
CONSTANCIO MAGLANA, respondents.
The subject matter of these consolidated petitions is the decision of the Court of Appeals in CA-G.R. CV
No. 66195 which modified the decision of the then Court of First Instance of Manila in Civil Case No.
66135. The plaintiffs complaint (petitioner in G.R. No. 84197) against all defendants (respondents in
G.R. No. 84197) was dismissed but in all other respects the trial court's decision was affirmed.
The dispositive portion of the trial court's decision reads as follows:
WHEREFORE, judgment is rendered against defendant Jacob S. Lim requiring Lim to pay plaintiff the
amount of P311,056.02, with interest at the rate of 12% per annum compounded monthly; plus 15% of
the amount awarded to plaintiff as attorney's fees from July 2,1966, until full payment is made; plus
P70,000.00 moral and exemplary damages.
It is found in the records that the cross party plaintiffs incurred additional miscellaneous expenses aside
from Pl51,000.00,,making a total of P184,878.74. Defendant Jacob S. Lim is further required to pay cross
party plaintiff, Bormaheco, the Cervanteses one-half and Maglana the other half, the amount of
Pl84,878.74 with interest from the filing of the cross-complaints until the amount is fully paid; plus moral
and exemplary damages in the amount of P184,878.84 with interest from the filing of the cross-
complaints until the amount is fully paid; plus moral and exemplary damages in the amount of P50,000.00
for each of the two Cervanteses.
Furthermore, he is required to pay P20,000.00 to Bormaheco and the Cervanteses, and another
P20,000.00 to Constancio B. Maglana as attorney's fees.xxx xxx xxx
WHEREFORE, in view of all above, the complaint of plaintiff Pioneer against defendants Bormaheco,
the Cervanteses and Constancio B. Maglana, is dismissed. Instead, plaintiff is required to indemnify the
defendants Bormaheco and the Cervanteses the amount of P20,000.00 as attorney's fees and the
amount of P4,379.21, per year from 1966 with legal rate of interest up to the time it is paid.
Furthermore, the plaintiff is required to pay Constancio B. Maglana the amount of P20,000.00 as
attorney's fees and costs.
No moral or exemplary damages is awarded against plaintiff for this action was filed in good faith. The
fact that the properties of the Bormaheco and the Cervanteses were attached and that they were required
to file a counterbond in order to dissolve the attachment, is not an act of bad faith. When a man tries to
protect his rights, he should not be saddled with moral or exemplary damages. Furthermore, the rights
exercised were provided for in the Rules of Court, and it was the court that ordered it, in the exercise of
its discretion.
No damage is decided against Malayan Insurance Company, Inc., the third-party defendant, for it only
secured the attachment prayed for by the plaintiff Pioneer. If an insurance company would be liable for
damages in performing an act which is clearly within its power and which is the reason for its being, then
nobody would engage in the insurance business. No further claim or counter-claim for or against anybody
is declared by this Court. (Rollo - G.R. No. 24197, pp. 15-16
In 1965, Jacob S. Lim (petitioner in G.R. No. 84157) was engaged in the airline business as owner-
operator of Southern Air Lines (SAL) a single proprietorship.
On May 17, 1965, at Tokyo, Japan, Japan Domestic Airlines (JDA) and Lim entered into and executed
a sales contract (Exhibit A) for the sale and purchase of two (2) DC-3A Type aircrafts and one (1) set of
necessary spare parts for the total agreed price of US $109,000.00 to be paid in installments. One DC-
3 Aircraft with Registry No. PIC-718, arrived in Manila on June 7,1965 while the other aircraft, arrived in
Manila on July 18,1965.
On May 22, 1965, Pioneer Insurance and Surety Corporation (Pioneer, petitioner in G.R. No. 84197) as
surety executed and issued its Surety Bond No. 6639 (Exhibit C) in favor of JDA, in behalf of its principal,
Lim, for the balance price of the aircrafts and spare parts.
It appears that Border Machinery and Heavy Equipment Company, Inc. (Bormaheco), Francisco and
Modesto Cervantes (Cervanteses) and Constancio Maglana (respondents in both petitions) contributed
some funds used in the purchase of the above aircrafts and spare parts. The funds were supposed to
be their contributions to a new corporation proposed by Lim to expand his airline business. They
executed two (2) separate indemnity agreements (Exhibits D-1 and D-2) in favor of Pioneer, one signed
by Maglana and the other jointly signed by Lim for SAL, Bormaheco and the Cervanteses. The indemnity
agreements stipulated that the indemnitors principally agree and bind themselves jointly and severally
to indemnify and hold and save harmless Pioneer from and against any/all damages, losses, costs,
damages, taxes, penalties, charges and expenses of whatever kind and nature which Pioneer may incur
in consequence of having become surety upon the bond/note and to pay, reimburse and make good to
Pioneer, its successors and assigns, all sums and amounts of money which it or its representatives
should or may pay or cause to be paid or become liable to pay on them of whatever kind and nature.
On June 10, 1965, Lim doing business under the name and style of SAL executed in favor of Pioneer as
deed of chattel mortgage as security for the latter's suretyship in favor of the former. It was stipulated
therein that Lim transfer and convey to the surety the two aircrafts. The deed (Exhibit D) was duly
registered with the Office of the Register of Deeds of the City of Manila and with the Civil Aeronautics
Administration pursuant to the Chattel Mortgage Law and the Civil Aeronautics Law (Republic Act No.
776), respectively.
Lim defaulted on his subsequent installment payments prompting JDA to request payments from the
surety. Pioneer paid a total sum of P298,626.12.
Pioneer then filed a petition for the extrajudicial foreclosure of the said chattel mortgage before the Sheriff
of Davao City. The Cervanteses and Maglana, however, filed a third party claim alleging that they are
co-owners of the aircrafts,
On July 19, 1966, Pioneer filed an action for judicial foreclosure with an application for a writ of
preliminary attachment against Lim and respondents, the Cervanteses, Bormaheco and Maglana.
In their Answers, Maglana, Bormaheco and the Cervanteses filed cross-claims against Lim alleging that
they were not privies to the contracts signed by Lim and, by way of counterclaim, sought for damages
for being exposed to litigation and for recovery of the sums of money they advanced to Lim for the
purchase of the aircrafts in question.
After trial on the merits, a decision was rendered holding Lim liable to pay Pioneer but dismissed
Pioneer's complaint against all other defendants.
As stated earlier, the appellate court modified the trial court's decision in that the plaintiffs complaint
against all the defendants was dismissed. In all other respects the trial court's decision was affirmed.
We first resolve G.R. No. 84197.
Petitioner Pioneer Insurance and Surety Corporation avers that:
RESPONDENT COURT OF APPEALS GRIEVOUSLY ERRED WHEN IT DISMISSED THE APPEAL
OF PETITIONER ON THE SOLE GROUND THAT PETITIONER HAD ALREADY COLLECTED THE
PROCEEDS OF THE REINSURANCE ON ITS BOND IN FAVOR OF THE JDA AND THAT IT CANNOT
REPRESENT A REINSURER TO RECOVER THE AMOUNT FROM HEREIN PRIVATE
RESPONDENTS AS DEFENDANTS IN THE TRIAL COURT. (Rollo - G. R. No. 84197, p. 10)
The petitioner questions the following findings of the appellate court:
We find no merit in plaintiffs appeal. It is undisputed that plaintiff Pioneer had reinsured its risk of liability
under the surety bond in favor of JDA and subsequently collected the proceeds of such reinsurance in
the sum of P295,000.00. Defendants' alleged obligation to Pioneer amounts to P295,000.00, hence,
plaintiffs instant action for the recovery of the amount of P298,666.28 from defendants will no longer
prosper. Plaintiff Pioneer is not the real party in interest to institute the instant action as it does not stand
to be benefited or injured by the judgment.
Plaintiff Pioneer's contention that it is representing the reinsurer to recover the amount from defendants,
hence, it instituted the action is utterly devoid of merit. Plaintiff did not even present any evidence that it
is the attorney-in-fact of the reinsurance company, authorized to institute an action for and in behalf of
the latter. To qualify a person to be a real party in interest in whose name an action must be prosecuted,
he must appear to be the present real owner of the right sought to be enforced (Moran, Vol. I, Comments
on the Rules of Court, 1979 ed., p. 155). It has been held that the real party in interest is the party who
would be benefited or injured by the judgment or the party entitled to the avails of the suit (Salonga v.
Warner Barnes & Co., Ltd., 88 Phil. 125, 131). By real party in interest is meant a present substantial
interest as distinguished from a mere expectancy or a future, contingent, subordinate or consequential
interest (Garcia v. David, 67 Phil. 27; Oglleaby v. Springfield Marine Bank, 52 N.E. 2d 1600, 385 III, 414;
Flowers v. Germans, 1 NW 2d 424; Weber v. City of Cheye, 97 P. 2d 667, 669, quoting 47 C.V. 35).
Based on the foregoing premises, plaintiff Pioneer cannot be considered as the real party in interest as
it has already been paid by the reinsurer the sum of P295,000.00 the bulk of defendants' alleged
obligation to Pioneer.
In addition to the said proceeds of the reinsurance received by plaintiff Pioneer from its reinsurer, the
former was able to foreclose extra-judicially one of the subject airplanes and its spare engine, realizing
the total amount of P37,050.00 from the sale of the mortgaged chattels. Adding the sum of P37,050.00,
to the proceeds of the reinsurance amounting to P295,000.00, it is patent that plaintiff has been overpaid
in the amount of P33,383.72 considering that the total amount it had paid to JDA totals to only
P298,666.28. To allow plaintiff Pioneer to recover from defendants the amount in excess of P298,666.28
would be tantamount to unjust enrichment as it has already been paid by the reinsurance company of
the amount plaintiff has paid to JDA as surety of defendant Lim vis-a-vis defendant Lim's liability to JDA.
Well settled is the rule that no person should unjustly enrich himself at the expense of another (Article
22, New Civil Code). (Rollo-84197, pp. 24-25).
The petitioner contends that-(1) it is at a loss where respondent court based its finding that petitioner
was paid by its reinsurer in the aforesaid amount, as this matter has never been raised by any of the
parties herein both in their answers in the court below and in their respective briefs with respondent
court; (Rollo, p. 11) (2) even assuming hypothetically that it was paid by its reinsurer, still none of the
respondents had any interest in the matter since the reinsurance is strictly between the petitioner and
the re-insurer pursuant to section 91 of the Insurance Code; (3) pursuant to the indemnity agreements,
the petitioner is entitled to recover from respondents Bormaheco and Maglana; and (4) the principle of
unjust enrichment is not applicable considering that whatever amount he would recover from the co-
indemnitor will be paid to the reinsurer.
The records belie the petitioner's contention that the issue on the reinsurance money was never raised
by the parties.
A cursory reading of the trial court's lengthy decision shows that two of the issues threshed out were:
xxx xxx xxx
1. Has Pioneer a cause of action against defendants with respect to so much of its obligations to JDA as
has been paid with reinsurance money?
2. If the answer to the preceding question is in the negative, has Pioneer still any claim against
defendants, considering the amount it has realized from the sale of the mortgaged properties? (Record
on Appeal, p. 359, Annex B of G.R. No. 84157).
In resolving these issues, the trial court made the following findings:
It appearing that Pioneer reinsured its risk of liability under the surety bond it had executed in favor of
JDA, collected the proceeds of such reinsurance in the sum of P295,000, and paid with the said amount
the bulk of its alleged liability to JDA under the said surety bond, it is plain that on this score it no longer
has any right to collect to the extent of the said amount.
On the question of why it is Pioneer, instead of the reinsurance (sic), that is suing defendants for the
amount paid to it by the reinsurers, notwithstanding that the cause of action pertains to the latter, Pioneer
says: The reinsurers opted instead that the Pioneer Insurance & Surety Corporation shall pursue alone
the case.. . . . Pioneer Insurance & Surety Corporation is representing the reinsurers to recover the
amount.' In other words, insofar as the amount paid to it by the reinsurers Pioneer is suing defendants
as their attorney-in-fact.
But in the first place, there is not the slightest indication in the complaint that Pioneer is suing as attorney-
in- fact of the reinsurers for any amount. Lastly, and most important of all, Pioneer has no right to institute
and maintain in its own name an action for the benefit of the reinsurers. It is well-settled that an action
brought by an attorney-in-fact in his own name instead of that of the principal will not prosper, and this
is so even where the name of the principal is disclosed in the complaint.
Section 2 of Rule 3 of the Old Rules of Court provides that 'Every action must be prosecuted in the name
of the real party in interest.' This provision is mandatory. The real party in interest is the party who would
be benefitted or injured by the judgment or is the party entitled to the avails of the suit.
This Court has held in various cases that an attorney-in-fact is not a real party in interest, that there is
no law permitting an action to be brought by an attorney-in-fact. Arroyo v. Granada and Gentero, 18 Phil.
Rep. 484; Luchauco v. Limjuco and Gonzalo, 19 Phil. Rep. 12; Filipinos Industrial Corporation v. San
Diego G.R. No. L- 22347,1968, 23 SCRA 706, 710-714.
The total amount paid by Pioneer to JDA is P299,666.29. Since Pioneer has collected P295,000.00 from
the reinsurers, the uninsured portion of what it paid to JDA is the difference between the two amounts,
or P3,666.28. This is the amount for which Pioneer may sue defendants, assuming that the indemnity
agreement is still valid and effective. But since the amount realized from the sale of the mortgaged
chattels are P35,000.00 for one of the airplanes and P2,050.00 for a spare engine, or a total of
P37,050.00, Pioneer is still overpaid by P33,383.72. Therefore, Pioneer has no more claim against
defendants. (Record on Appeal, pp. 360-363).
The payment to the petitioner made by the reinsurers was not disputed in the appellate court.
Considering this admitted payment, the only issue that cropped up was the effect of payment made by
the reinsurers to the petitioner. Therefore, the petitioner's argument that the respondents had no interest
in the reinsurance contract as this is strictly between the petitioner as insured and the reinsuring
company pursuant to Section 91 (should be Section 98) of the Insurance Code has no basis.
In general a reinsurer, on payment of a loss acquires the same rights by subrogation as are acquired in
similar cases where the original insurer pays a loss (Universal Ins. Co. v. Old Time Molasses Co. C.C.A.
La., 46 F 2nd 925).
The rules of practice in actions on original insurance policies are in general applicable to actions or
contracts of reinsurance. (Delaware, Ins. Co. v. Pennsylvania Fire Ins. Co., 55 S.E. 330,126 GA. 380, 7
Ann. Con. 1134).
Hence the applicable law is Article 2207 of the new Civil Code, to wit:
Art. 2207. If the plaintiffs property has been insured, and he has received indemnity from the insurance
company for the injury or loss arising out of the wrong or breach of contract complained of, the insurance
company shall be subrogated to the rights of the insured against the wrongdoer or the person who has
violated the contract. If the amount paid by the insurance company does not fully cover the injury or loss,
the aggrieved party shall be entitled to recover the deficiency from the person causing the loss or injury.
Interpreting the aforesaid provision, we ruled in the case of Phil. Air Lines, Inc. v. Heald Lumber Co. (101
Phil. 1031 [1957]) which we subsequently applied in Manila Mahogany Manufacturing Corporation v.
Court of Appeals (154 SCRA 650 [1987]):
Note that if a property is insured and the owner receives the indemnity from the insurer, it is provided in
said article that the insurer is deemed subrogated to the rights of the insured against the wrongdoer and
if the amount paid by the insurer does not fully cover the loss, then the aggrieved party is the one entitled
to recover the deficiency. Evidently, under this legal provision, the real party in interest with regard to the
portion of the indemnity paid is the insurer and not the insured. (Emphasis supplied).
It is clear from the records that Pioneer sued in its own name and not as an attorney-in-fact of the
reinsurer.
Accordingly, the appellate court did not commit a reversible error in dismissing the petitioner's complaint
as against the respondents for the reason that the petitioner was not the real party in interest in the
complaint and, therefore, has no cause of action against the respondents.
Nevertheless, the petitioner argues that the appeal as regards the counter indemnitors should not have
been dismissed on the premise that the evidence on record shows that it is entitled to recover from the
counter indemnitors. It does not, however, cite any grounds except its allegation that respondent
"Maglanas defense and evidence are certainly incredible" (p. 12, Rollo) to back up its contention.
On the other hand, we find the trial court's findings on the matter replete with evidence to substantiate
its finding that the counter-indemnitors are not liable to the petitioner. The trial court stated:
Apart from the foregoing proposition, the indemnity agreement ceased to be valid and effective after the
execution of the chattel mortgage.
Testimonies of defendants Francisco Cervantes and Modesto Cervantes.
Pioneer Insurance, knowing the value of the aircrafts and the spare parts involved, agreed to issue the
bond provided that the same would be mortgaged to it, but this was not possible because the planes
were still in Japan and could not be mortgaged here in the Philippines. As soon as the aircrafts were
brought to the Philippines, they would be mortgaged to Pioneer Insurance to cover the bond, and this
indemnity agreement would be cancelled.
The following is averred under oath by Pioneer in the original complaint:
The various conflicting claims over the mortgaged properties have impaired and rendered insufficient
the security under the chattel mortgage and there is thus no other sufficient security for the claim sought
to be enforced by this action.
This is judicial admission and aside from the chattel mortgage there is no other security for the claim
sought to be enforced by this action, which necessarily means that the indemnity agreement had ceased
to have any force and effect at the time this action was instituted. Sec 2, Rule 129, Revised Rules of
Court.
Prescinding from the foregoing, Pioneer, having foreclosed the chattel mortgage on the planes and spare
parts, no longer has any further action against the defendants as indemnitors to recover any unpaid
balance of the price. The indemnity agreement was ipso jure extinguished upon the foreclosure of the
chattel mortgage. These defendants, as indemnitors, would be entitled to be subrogated to the right of
Pioneer should they make payments to the latter. Articles 2067 and 2080 of the New Civil Code of the
Philippines.
Independently of the preceding proposition Pioneer's election of the remedy of foreclosure precludes
any further action to recover any unpaid balance of the price.
SAL or Lim, having failed to pay the second to the eight and last installments to JDA and Pioneer as
surety having made of the payments to JDA, the alternative remedies open to Pioneer were as provided
in Article 1484 of the New Civil Code, known as the Recto Law
Pioneer exercised the remedy of foreclosure of the chattel mortgage both by extrajudicial foreclosure
and the instant suit. Such being the case, as provided by the aforementioned provisions, Pioneer shall
have no further action against the purchaser to recover any unpaid balance and any agreement to the
contrary is void.' Cruz, et al. v. Filipinas Investment & Finance Corp. No. L- 24772, May 27,1968, 23
SCRA 791, 795-6.
The operation of the foregoing provision cannot be escaped from through the contention that Pioneer is
not the vendor but JDA. The reason is that Pioneer is actually exercising the rights of JDA as vendor,
having subrogated it in such rights. Nor may the application of the provision be validly opposed on the
ground that these defendants and defendant Maglana are not the vendee but indemnitors. Pascual, et
al. v. Universal Motors Corporation, G.R. No. L- 27862, Nov. 20,1974, 61 SCRA 124.
The restructuring of the obligations of SAL or Lim, thru the change of their maturity dates discharged
these defendants from any liability as alleged indemnitors. The change of the maturity dates of the
obligations of Lim, or SAL extinguish the original obligations thru novations thus discharging the
indemnitors.
The principal hereof shall be paid in eight equal successive three months interval installments, the first
of which shall be due and payable 25 August 1965, the remainder of which ... shall be due and payable
on the 26th day x x x of each succeeding three months and the last of which shall be due and payable
26th May 1967.
However, at the trial of this case, Pioneer produced a memorandum executed by SAL or Lim and JDA,
modifying the maturity dates of the obligations, as follows:
The principal hereof shall be paid in eight equal successive three month interval installments the first of
which shall be due and payable 4 September 1965, the remainder of which ... shall be due and payable
on the 4th day ... of each succeeding months and the last of which shall be due and payable 4th June
1967.
Not only that, Pioneer also produced eight purported promissory notes bearing maturity dates different
from that fixed in the aforesaid memorandum; the due date of the first installment appears as October
15, 1965, and those of the rest of the installments, the 15th of each succeeding three months, that of the
last installment being July 15, 1967.
These restructuring of the obligations with regard to their maturity dates, effected twice, were done
without the knowledge, much less, would have it believed that these defendants Maglana (sic). Pioneer's
official Numeriano Carbonel would have it believed that these defendants and defendant Maglana knew
of and consented to the modification of the obligations. But if that were so, there would have been the
corresponding documents in the form of a written notice to as well as written conformity of these
defendants, and there are no such document. The consequence of this was the extinguishment of the
obligations and of the surety bond secured by the indemnity agreement which was thereby also
extinguished. Applicable by analogy are the rulings of the Supreme Court in the case of Kabankalan
Sugar Co. v. Pacheco, 55 Phil. 553, 563, and the case of Asiatic Petroleum Co. v. Hizon David, 45 Phil.
532, 538.
Art. 2079. An extension granted to the debtor by the creditor without the consent of the guarantor
extinguishes the guaranty The mere failure on the part of the creditor to demand payment after the debt
has become due does not of itself constitute any extension time referred to herein, (New Civil Code).'
Manresa, 4th ed., Vol. 12, pp. 316-317, Vol. VI, pp. 562-563, M.F. Stevenson & Co., Ltd., v. Climacom
et al. (C.A.) 36 O.G. 1571.
Pioneer's liability as surety to JDA had already prescribed when Pioneer paid the same. Consequently,
Pioneer has no more cause of action to recover from these defendants, as supposed indemnitors, what
it has paid to JDA. By virtue of an express stipulation in the surety bond, the failure of JDA to present its
claim to Pioneer within ten days from default of Lim or SAL on every installment, released Pioneer from
liability from the claim.
Therefore, Pioneer is not entitled to exact reimbursement from these defendants thru the indemnity.
Art. 1318. Payment by a solidary debtor shall not entitle him to reimbursement from his co-debtors if
such payment is made after the obligation has prescribed or became illegal.
These defendants are entitled to recover damages and attorney's fees from Pioneer and its surety by
reason of the filing of the instant case against them and the attachment and garnishment of their
properties. The instant action is clearly unfounded insofar as plaintiff drags these defendants and
defendant Maglana.' (Record on Appeal, pp. 363-369, Rollo of G.R. No. 84157).
We find no cogent reason to reverse or modify these findings.
Hence, it is our conclusion that the petition in G.R. No. 84197 is not meritorious.
We now discuss the merits of G.R. No. 84157.
Petitioner Jacob S. Lim poses the following issues:
l. What legal rules govern the relationship among co-investors whose agreement was to do business
through the corporate vehicle but who failed to incorporate the entity in which they had chosen to invest?
How are the losses to be treated in situations where their contributions to the intended 'corporation' were
invested not through the corporate form? This Petition presents these fundamental questions which we
believe were resolved erroneously by the Court of Appeals ('CA'). (Rollo, p. 6).
These questions are premised on the petitioner's theory that as a result of the failure of respondents
Bormaheco, Spouses Cervantes, Constancio Maglana and petitioner Lim to incorporate, a de
facto partnership among them was created, and that as a consequence of such relationship all must
share in the losses and/or gains of the venture in proportion to their contribution. The petitioner, therefore,
questions the appellate court's findings ordering him to reimburse certain amounts given by the
respondents to the petitioner as their contributions to the intended corporation, to wit:
However, defendant Lim should be held liable to pay his co-defendants' cross-claims in the total amount
of P184,878.74 as correctly found by the trial court, with interest from the filing of the cross-complaints
until the amount is fully paid. Defendant Lim should pay one-half of the said amount to Bormaheco and
the Cervanteses and the other one-half to defendant Maglana. It is established in the records that
defendant Lim had duly received the amount of Pl51,000.00 from defendants Bormaheco and Maglana
representing the latter's participation in the ownership of the subject airplanes and spare parts (Exhibit
58). In addition, the cross-party plaintiffs incurred additional expenses, hence, the total sum of P
184,878.74.
We first state the principles.
While it has been held that as between themselves the rights of the stockholders in a defectively
incorporated association should be governed by the supposed charter and the laws of the state relating
thereto and not by the rules governing partners (Cannon v. Brush Electric Co., 54 A. 121, 96 Md. 446,
94 Am. S.R. 584), it is ordinarily held that persons who attempt, but fail, to form a corporation and who
carry on business under the corporate name occupy the position of partners inter se (Lynch v. Perryman,
119 P. 229, 29 Okl. 615, Ann. Cas. 1913A 1065). Thus, where persons associate themselves together
under articles to purchase property to carry on a business, and their organization is so defective as to
come short of creating a corporation within the statute, they become in legal effect partners inter se, and
their rights as members of the company to the property acquired by the company will be recognized
(Smith v. Schoodoc Pond Packing Co., 84 A. 268,109 Me. 555; Whipple v. Parker, 29 Mich. 369). So,
where certain persons associated themselves as a corporation for the development of land for irrigation
purposes, and each conveyed land to the corporation, and two of them contracted to pay a third the
difference in the proportionate value of the land conveyed by him, and no stock was ever issued in the
corporation, it was treated as a trustee for the associates in an action between them for an accounting,
and its capital stock was treated as partnership assets, sold, and the proceeds distributed among them
in proportion to the value of the property contributed by each (Shorb v. Beaudry, 56 Cal. 446). However,
such a relation does not necessarily exist, for ordinarily persons cannot be made to assume the relation
of partners, as between themselves, when their purpose is that no partnership shall exist (London Assur.
Corp. v. Drennen, Minn., 6 S.Ct. 442, 116 U.S. 461, 472, 29 L.Ed. 688), and it should be implied only
when necessary to do justice between the parties; thus, one who takes no part except to subscribe for
stock in a proposed corporation which is never legally formed does not become a partner with other
subscribers who engage in business under the name of the pretended corporation, so as to be liable as
such in an action for settlement of the alleged partnership and contribution (Ward v. Brigham, 127 Mass.
24). A partnership relation between certain stockholders and other stockholders, who were also directors,
will not be implied in the absence of an agreement, so as to make the former liable to contribute for
payment of debts illegally contracted by the latter (Heald v. Owen, 44 N.W. 210, 79 Iowa 23). (Corpus
Juris Secundum, Vol. 68, p. 464). (Italics supplied).
In the instant case, it is to be noted that the petitioner was declared non-suited for his failure to appear
during the pretrial despite notification. In his answer, the petitioner denied having received any amount
from respondents Bormaheco, the Cervanteses and Maglana. The trial court and the appellate court,
however, found through Exhibit 58, that the petitioner received the amount of P151,000.00 representing
the participation of Bormaheco and Atty. Constancio B. Maglana in the ownership of the subject airplanes
and spare parts. The record shows that defendant Maglana gave P75,000.00 to petitioner Jacob Lim
thru the Cervanteses.
It is therefore clear that the petitioner never had the intention to form a corporation with the respondents
despite his representations to them. This gives credence to the cross-claims of the respondents to the
effect that they were induced and lured by the petitioner to make contributions to a proposed corporation
which was never formed because the petitioner reneged on their agreement. Maglana alleged in his
cross-claim:
... that sometime in early 1965, Jacob Lim proposed to Francisco Cervantes and Maglana to expand his
airline business. Lim was to procure two DC-3's from Japan and secure the necessary certificates of
public convenience and necessity as well as the required permits for the operation thereof. Maglana
sometime in May 1965, gave Cervantes his share of P75,000.00 for delivery to Lim which Cervantes did
and Lim acknowledged receipt thereof. Cervantes, likewise, delivered his share of the undertaking. Lim
in an undertaking sometime on or about August 9,1965, promised to incorporate his airline in accordance
with their agreement and proceeded to acquire the planes on his own account. Since then up to the filing
of this answer, Lim has refused, failed and still refuses to set up the corporation or return the money of
Maglana. (Record on Appeal, pp. 337-338).
while respondents Bormaheco and the Cervanteses alleged in their answer, counterclaim, cross-claim
and third party complaint:
Sometime in April 1965, defendant Lim lured and induced the answering defendants to purchase two
airplanes and spare parts from Japan which the latter considered as their lawful contribution and
participation in the proposed corporation to be known as SAL. Arrangements and negotiations were
undertaken by defendant Lim. Down payments were advanced by defendants Bormaheco and the
Cervanteses and Constancio Maglana (Exh. E- 1). Contrary to the agreement among the defendants,
defendant Lim in connivance with the plaintiff, signed and executed the alleged chattel mortgage and
surety bond agreement in his personal capacity as the alleged proprietor of the SAL. The answering
defendants learned for the first time of this trickery and misrepresentation of the other, Jacob Lim, when
the herein plaintiff chattel mortgage (sic) allegedly executed by defendant Lim, thereby forcing them to
file an adverse claim in the form of third party claim. Notwithstanding repeated oral demands made by
defendants Bormaheco and Cervanteses, to defendant Lim, to surrender the possession of the two
planes and their accessories and or return the amount advanced by the former amounting to an
aggregate sum of P 178,997.14 as evidenced by a statement of accounts, the latter ignored, omitted
and refused to comply with them. (Record on Appeal, pp. 341-342).
Applying therefore the principles of law earlier cited to the facts of the case, necessarily, no de facto
partnership was created among the parties which would entitle the petitioner to a reimbursement of the
supposed losses of the proposed corporation. The record shows that the petitioner was acting on his
own and not in behalf of his other would-be incorporators in transacting the sale of the airplanes and
spare parts.
WHEREFORE, the instant petitions are DISMISSED. The questioned decision of the Court of Appeals
is AFFIRMED.

Art 1828-1842
Idos vs CA 296 SCRA 194 1998
IRMA IDOS, petitioner, vs. COURT OF APPEALS
and PEOPLE OF THEPHILIPPINES, respondents.
Before this Court is the petition for review of the Decision of respondent Court of
Appeals[1] dismissing petitioners appeal in CA-G.R. CR No. 11960; and affirming her conviction as well
as the sentence imposed on her by the Regional Trial Court of Malolos, Bulacan, in Criminal Case No.
1395-M-88[2] as follows:
 WHEREFORE . . . the [c]ourt finds the accused Irma Idos guilty beyond reasonable doubt and is
hereby sentenced to suffer the penalty of imprisonment of six (6) months and to pay a fine
of P135,000.00 and to pay private complainant Eddie Alarilla the amount of the check in question
of P135,000.00 at 12% interest from the time of the filing of the [i]nformation (August 10, 1988) until said
amount has been fully paid.
Elevated from the Third Division[3] of this Court, the case was accepted for resolution en banc on the
initial impression that here, a constitutional question might be involved.[4] It was opined that petitioners
sentence, particularly six months imprisonment, might be in violation of the constitutional guarantee
against imprisonment for non-payment of a debt.[5]
A careful consideration of the issues presented in the petition as well as the comments thereon and
the findings of fact by the courts below in the light of applicable laws and precedents convinces us,
however, that the constitutional dimension need not be reached in order to resolve those issues
adequately. For, as herein discussed, the merits of the petition could be determined without delving into
aspects of the cited constitutional guarantee vis--vis provisions of the Bouncing Checks Law (Batas
Pambansa Blg. 22). There being no necessity therefor, we lay aside discussions of the constitutional
challenge to said law in deciding this petition.
The petitioner herein, Irma L. Idos, is a businesswoman engaged in leather tanning. Her accuser for
violation of B.P. 22 is her erstwhile supplier and business partner, the complainant below, Eddie Alarilla.
As narrated by the Court of Appeals, the background of this case is as follows:
The complainant Eddie Alarilla supplied chemicals and rawhide to the accused-appellant Irma L.
Idos for use in the latters business of manufacturing leather. In 1985, he joined the accused-
appellants business and formed with her a partnership under the style Tagumpay Manufacturing,
with offices in Bulacan and Cebu City.
However, the partnership was short lived. In January, 1986 the parties agreed to terminate their
partnership.Upon liquidation of the business the partnership had as of May 1986 receivables and
stocks worth P1,800,000.00. The complainants share of the assets was P900,000.00 to pay for
which the accused-appellantissued the following postdated checks, all drawn against Metrobank
Branch in Mandaue, Cebu:
CHECK NO. DATE AMOUNT
1) 103110295 8-15-86 P135,828.87
2) 103110294 P135,828.87
3) 103115490 9-30-86 P135,828.87
4) 103115491 10-30-86 P126,656.01
The complainant was able to encash the first, second, and fourth checks, but the third check (Exh.
A) which is the subject of this case, was dishonored on October 14, 1986 for insufficiency of
funds. The complainant demanded payment from the accused-appellant but the latter failed to
pay. Accordingly, on December 18, 1986, through counsel, he made a formal demand for
payment. (Exh. B) In a letter dated January 2, 1987, the accused-appellant denied liability. She
claimed that the check had been given upon demand of complainant in May 1986 only as assurance
of his share in the assets of the partnership and that it was not supposed to be deposited until the
stocks had been sold.
Complainant then filed his complaint in the Office of the Provincial Fiscal of Bulacan which on August
22, 1988 filed an information for violation of BP Blg. 22 against accused-appellant.
Complainant denied that the checks issued to him by accused-appellant were subject to the
disposition of the stocks and the collection of receivables of the business. But the accused-appellant
insisted that the complainant had known that the checks were to be funded from the proceeds of the
sale of the stocks and the collection of receivables. She claimed that the complainant himself asked
for the checks because he did not want to continue in the tannery business and had no use for
a share of the stocks. (TSN, p. 7, April 14, 1991; id., pp. 8-9, Nov. 13, 1989; id., pp. 12, 16, 20, Feb.
14, 1990; id., p. 14, June 4, 1990).
On February 15, 1992, the trial court rendered judgment finding the accused-appellant guilty of the
crime charged. The accused-appellants motion for annulment of the decision and for reconsideration
was denied by the trial court in its order dated April 12, 1991.[6]
Herein respondent court thereafter affirmed on appeal the decision of the trial court. Petitioner timely
moved for a reconsideration, but this was subsequently denied by respondent court in its
Resolution[7] dated June 11, 1993.Petitioner has now appealed to us by way of a petition
for certiorari under Rule 45 of the Rules of Court.
During the pendency of this petition, this Court by a resolution[8] dated August 30, 1993, took note
of the compromise agreement executed between the parties, regarding the civil aspect of the case, as
manifested by petitioner in a Motion to Render Judgment based on Compromise Agreement[9]filed on
August 5, 1993. After submission of the Comment[10] by the Solicitor General, and the Reply[11] by
petitioner, this case was deemed submitted for decision.
Contending that the Court of Appeals erred in its affirmance of the trial courts decision, petitioner
cites the following reasons to justify the review of her case:
1. The Honorable Court of Appeals has decided against the innocence of the accused based on mere
probabilities which, on the contrary, should have warranted her acquittal on reasonable doubt. Even
then, the conclusion of the trial court is contrary to the evidence on record, including private complainants
judicial admission that there was no consideration for the check.
2. The Honorable Court of Appeals has confused and merged into one the legal concepts of dissolution,
liquidation and termination of a partnership and, on the basis of such misconception of the law,
disregarded the fact of absence of consideration of the check and convicted the accused.
3. While this appeal was pending, the parties submitted for the approval of the Honorable Court a
compromise agreement on the civil liability. The accused humbly submits that this supervening event,
which by its terms puts to rest any doubt the Court of Appeals had entertained against the defense of
lack of consideration, should have a legal effect favorable to the accused, considering that the
dishonored check constitutes a private transaction between partners which does not involve the public
interest, and considering further that the offense is not one involving moral turpitude.
4. The Honorable Court of Appeals failed to appreciate the fact that the accused had warned private
complainant that the check was not sufficiently funded, which should have exonerated the accused
pursuant to the ruling in the recent case of Magno vs. Court of Appeals, 210 SCRA 471, which calls for
a more flexible and less rigid application of the Bouncing Checks law.[12]
For a thorough consideration of the merits of petitioners appeal, we find pertinent and decisive the
following issues:
1. Whether respondent court erred in holding that the subject check was issued by petitioner to apply on
account or for value, that is, as part of the consideration of a buy-out of said complainants interest in the
partnership, and not merely as a commitment on petitioners part to return the investment share of
complainant, along with any profit pertaining to said share, in the partnership.
2. Whether the respondent court erred in concluding that petitioner issued the subject check knowing at
the time of issue that she did not have sufficient funds in or credit with the drawee bank and without
communicating this fact of insufficiency of funds to the complainant.
Both inquiries boil down into one ultimate issue: Did the respondent court err in affirming the trial
courts judgment that she violated Batas Pambansa Blg. 22?
Considering that penal statutes are strictly construed against the state and liberally in favor of the
accused, it bears stressing that for an act to be punishable under the B.P. 22, it must come clearly within
both the spirit and the letter of the statute.[13] Otherwise, the act has to be declared outside the laws
ambit and a plea of innocence by the accused must be sustained.
The relevant provisions of B.P. 22 state that:
SECTION 1. Checks without sufficient funds. Any person who makes or draws and issues any check to
apply on account or for value, knowing at the time of issue that he does not have sufficient funds in or
credit with the drawee bank for the payment of such check in full upon its presentment, which check is
subsequently dishonored by the drawee bank for insufficiency of funds or credit or would have been
dishonored for the same reason had not the drawer, without any valid reason, ordered the bank to stop
payment, shall be punished by imprisonment of not less than thirty days but not more than one (1) year
or by a fine of not less than but not more than double the amount of the check which fine shall in no case
exceed Two hundred thousand pesos, or both such fine and imprisonment at the discretion of the court.
The same penalty shall be imposed upon any person who having sufficient funds in or credit with the
drawee bank when he makes or draws and issues a check, shall fail to keep sufficient funds or to
maintain a credit or to cover the full amount of the check if presented within a period of ninety (90) days
from the date appearing thereon, for which reason it is dishonored by the drawee bank.
Where the check is drawn by a corporation, company or entity, the person or persons who actually signed
the check in behalf of such drawer shall be liable under this Act.
SECTION 2. Evidence of knowledge of insufficient funds. The making, drawing and issuance of a check
payment of which is refused by the drawee because of insufficient funds in or credit with such bank,
when presented within ninety (90) days from the date of the check, shall be prima facie evidence of
knowledge of such insufficiency of funds or credit unless such maker or drawer pays the holder thereof
the amount due thereon, or makes arrangements for payment in full by the drawee of such check within
five (5) banking days after receiving notice that such check has not been paid by the
drawee. (Underscoring supplied)
As decided by this Court, the elements of the offense penalized under B.P. 22, are as follows: (1)
the making, drawing and issuance of any check to apply to account or for value; (2) the knowledge of
the maker, drawer or issuer that at the time of issue he does not have sufficient funds in or credit with
the drawee bank for the payment of such check in full upon its presentment; and (3) subsequent dishonor
of the check by the drawee bank for insufficiency offunds or credit or dishonor for the same reason had
not the drawer, without any valid cause, ordered the bank to stop payment.[14]
In the present case, with regard to the first issue, evidence on record would show that the subject
check was to be funded from receivables to be collected and goods to be sold by the partnership, and
only when such collection and sale were realized.[15] Thus, there is sufficient basis for the assertion that
the petitioner issued the subject check (Metrobank Check No. 103115490 dated October 30, 1986, in
the amount of P135,828.87) to evidence only complainants share or interest in the partnership, or at
best, to show her commitment that when receivables are collected and goods are sold, she would give
to private complainant the net amount due him representing his interest in the partnership. It did not
involve a debt of or any account due and payable by the petitioner.
Two facts stand out. Firstly, three of four checks were properly encashed by complainant; only one
(the third) was not. But eventually even this one was redeemed by petitioner. Secondly, even private
complainant admitted that there was no consideration whatsoever for the issuance of the check, whose
funding was dependent on future sales of goods and receipts of payment of account receivables.
Now, it could not be denied that though the parties petitioners and complainant had agreed to
dissolve the partnership, such agreement did not automatically put an end to the partnership, since they
still had to sell the goods on hand and collect the receivables from debtors. In short, they were still in the
process of winding up the affairs of the partnership, when the check in question was issued.
 Under the Civil Code, the three final stages of a partnership are (1) dissolution; (2) winding-up; and
(3) termination. These stages are distinguished, to wit:
(1) Dissolution Defined
Dissolution is the change in the relation of the partners caused by any partner ceasing to be
associated in the carrying on of the business (Art. 1828). It is that point of time the partners cease to
carry on the business together. [Citation omitted]
(2) Winding Up Defined
Winding up is the process of settling business affairs after dissolution.
(NOTE: Examples of winding up: the paying of previous obligations; the collecting of assets previously
demandable; even new business if needed to wind up, as the contracting with a demolition company for
the demolition of the garage used in a used car partnership.)
(3) Termination Defined
Termination is the point in time after all the partnership affairs have been wound up.[16] [Citation
omitted] (Underscoring supplied.)
These final stages in the life of a partnership are recognized under the Civil Code that explicitly
declares that upon dissolution, the partnership is not terminated, to wit:
Art. 1828. The dissolution of a partnership is the change in the relation of the partners caused by any
partner ceasing to be associated in the carrying on as distinguished from the winding up of the business.
Art. 1829. On dissolution the partnership is not terminated, but continues until the winding up of
partnership affairs is completed. (Underscoring supplied.)
The best evidence of the existence of the partnership, which was not yet terminated (though in the
winding up stage), were the unsold goods and uncollected receivables, which were presented to the trial
court. Since the partnership has not been terminated, the petitioner and private complainant remained
as co-partners. The check was thus issued by the petitioner to complainant, as would a partner to
another, and not as payment from a debtor to a creditor.
The more tenable view, one in favor of the accused, is that the check was issued merely to evidence
the complainants share in the partnership property, or to assure the latter that he would receive in time
his due share therein. The alternative view that the check was in consideration of a buy out is but a
theory, favorable to the complainant, but lacking support in the record; and must necessarily be
discarded.
For there is nothing on record which even slightly suggests that petitioner ever became interested
in acquiring, much less keeping, the shares of the complainant. What is very clear therefrom is that the
petitioner exerted her best efforts to sell the remaining goods and to collect the receivables of the
partnership, in order to come up with the amount necessary to satisfy the value of complainants interest
in the partnership at the dissolution thereof. To go by accepted custom of the trade, we are more inclined
to the view that the subject check was issued merely to evidence complainants interest in the
partnership. Thus, we are persuaded that the check was not intended to apply on account or for value;
rather it should be deemed as having been drawn without consideration at the time of issue.
Absent the first element of the offense penalized under B.P. 22, which is the making, drawing and
issuance of any check to apply on account or for value, petitioners issuance of the subject check was
not an act contemplated in nor made punishable by said statute.
As to the second issue, the Solicitor General contends that under the Bouncing Checks Law, the
elements of deceit and damage are not essential or required to constitute a violation thereof. In his view,
the only essential element is the knowledge on the part of the maker or drawer of the check of the
insufficiency of his/her funds at the time of the issuance of said check.
 The Bouncing Checks Law makes the mere act of issuing a bad or worthless check a special offense
punishable by law. Malice or intent in issuing the worthless check is immaterial, the offense being malum
prohibitum,[17] so goes the argument for the public respondents.
But of course this could not be an absolute proposition without descending to absurdity. For if a
check were issued by a kidnap victim to a kidnapper for ransom, it would be absurd to hold the drawer
liable under B.P. 22, if the check is dishonored and unpaid. That would go against public policy and
common sense.
Public respondents further contend that since petitioner issued the check in favor of complainant
Alarilla and when notified that it was returned for insufficiency of funds, failed to make good the check,
then petitioner is liable for violation of B.P. 22.[18] Again, this matter could not be all that simple. For while
the makers knowledge of the insufficiency of funds is legally presumed from the dishonor of his checks
for insufficiency of funds,[19] this presumption is rebuttable.
In the instant case, there is only a prima facie presumption which did not preclude the presentation
of contrary evidence.[20] In fact, such contrary evidence on two points could be gleaned from the record
concerning (1) lack of actual knowledge of insufficiency of funds; and (2) lack of adequate notice of
dishonor.
Noteworthy for the defense, knowledge of insufficiency of funds or credit in the drawee bank for the
payment of a check upon its presentment is an essential element of the offense.[21] It must be proved,
particularly where the prima facie presumption of the existence of this element has been
rebutted. The prima facie presumption arising from the fact of drawing, issuing or making a check, the
payment of which was subsequently refused for insufficiency of funds is, moreover, not sufficient proof
of guilt by the issuer.
In the case of Nieva v. Court of Appeals,[22] it was held that the subsequent dishonor of the subject
check issued by accused merely engendered the prima facie presumption that she knew of the
insufficiency of funds, but did not render the accused automatically guilty under B.P. 22.[23]
The prosecution has a duty to prove all the elements of the crime, including the acts that give rise to
the prima faciepresumption; petitioner, on the other hand, has a right to rebut the prima
facie presumption. Therefore, if such knowledge of insufficiency of funds is proven to be actually absent
or non-existent, the accused should not be held liable for the offense defined under the first paragraph
of Section 1 of B.P. 22. Although the offense charged is a malum prohibitum, the prosecution is not
thereby excused from its responsibility of proving beyond reasonable doubt all the elements of the
offense, one of which is knowledge of the insufficiency of funds.
Section 1 of B.P. 22 specifically requires that the person in making, drawing or issuing the check,
be shown that he knows at the time of issue, that he does not have sufficient funds in or credit with the
drawee bank for the payment of such check in full upon its presentment.
In the case at bar, as earlier discussed, petitioner issued the check merely to evidence the
proportionate share of complainant in the partnership assets upon its dissolution. Payment of that share
in the partnership was conditioned on the subsequent realization of profits from the unsold goods and
collection of the receivables of the firm. This condition must be satisfied or complied with before the
complainant can actually encash the check. The reason for the condition is that petitioner has no
independent means to satisfy or discharge the complainants share, other than by the future sale and
collection of the partnership assets. Thus, prior to the selling of the goods and collecting of the
receivables, the complainant could not, as of yet, demand his proportionate share in the business. This
situation would hold true until after the winding up, and subsequent termination of the partnership. For
only then, when the goods were already sold and receivables paid that cash money could be availed of
by the erstwhile partners.
 Complainant did not present any evidence that petitioner signed and issued four checks actually
knowing that funds therefor would be insufficient at the time complainant would present them to the
drawee bank. For it was uncertain at the time of issuance of the checks whether the unsold goods would
have been sold, or whether the receivables would have been collected by the time the checks would be
encashed. As it turned out, three were fully funded when presented to the bank; the remaining one was
settled only later on.
Since petitioner issued these four checks without actual knowledge of the insufficiency of funds, she
could not be held liable under B.P. 22 when one was not honored right away. For it is basic doctrine that
penal statutes such as B.P. 22 must be construed with such strictness as to carefully safeguard the
rights of the defendant x x x.[24] The element of knowledge of insufficiency of funds has to be proved by
the prosecution; absent said proof, petitioner could not be held criminally liable under that law. Moreover,
the presumption of prima facie knowledge of such insufficiency in this case was actually rebutted by
petitioners evidence.
Further, we find that the prosecution also failed to prove adequate notice of dishonor of the subject
check on petitioners part, thus precluding any finding of prima facie evidence of knowledge of
insufficiency of funds. There is no proof that notice of dishonor was actually sent by the complainant or
by the drawee bank to the petitioner. On this point, the record is bereft of evidence to the contrary.
But in fact, while the subject check initially bounced, it was later made good by petitioner. In addition,
the terms of the parties compromise agreement, entered into during the pendency of this case, effectively
invalidates the allegation of failure to pay or to make arrangement for the payment of the check in
full. Verily, said compromise agreement constitutes an arrangement for the payment in full of the subject
check.
The absence of notice of dishonor is crucial in the present case. As held by this Court in prior cases:
Because no notice of dishonor was actually sent to and received by the petitioner, the prima
facie presumption that she knew about the insufficiency of funds cannot apply. Section 2 of B.P. 22
clearly provides that this presumption arises not from the mere fact of drawing, making and issuing a
bum check; there must also be a showing that, within five banking days from receipt of the notice of
dishonor, such maker or drawer failed to pay the holder of the check the amount due thereon or to make
arrangement for its payment in full by the drawee of such check.[25] [Underscoring supplied.]
The absence of a notice of dishonor necessarily deprives an accused an opportunity to preclude a
criminal prosecution. Accordingly, procedural due process clearly enjoins that a notice of dishonor be
actually served on petitioner. Petitioner has a right to demand and the basic postulates of fairness require
that the notice of dishonor be actually sent to and received by her to afford her the opportunity to avert
prosecution under B.P. 22.[26]
Further, what militates strongly against public respondents stand is the fact that petitioner repeatedly
notified the complainant of the insufficiency of funds. Instructive is the following pronouncement of this
Court in Magno v. Court of Appeals:
Furthermore, the element of knowing at the time of issue that he does not have sufficient funds in or
credit with the drawee bank for the payment of such check in full upon its presentment, which check is
subsequently dishonored by the drawee bank for insufficiency of funds or credit or would have been
dishonored for the same reason x x x is inversely applied in this case. From the very beginning, petitioner
never hid the fact that he did not have the funds with which to put up the warranty deposit and as a
matter of fact, he openly intimated this to the vital conduit of the transaction, Joey Gomez, to whom
petitioner was introduced by Mrs. Teng. It would have been different if this predicament was not
communicated to all the parties he dealt with regarding the lease agreement the financing of which was
covered by L.S. Finance Management.[27]
 In the instant case, petitioner intimated to private complainant the possibility that funds might be
insufficient to cover the subject check, due to the fact that the partnerships goods were yet to be sold
and receivables yet to be collected.
As Magno had well observed:
For all intents and purposes, the law was devised to safeguard the interest of the banking system and
the legitimate public checking account user. It did not intend to shelter or favor nor encourage users of
the system to enrich themselves through manipulations and circumvention of the noble purpose and
objective of the law. Least should it be used also as a means of jeopardizing honest-to-goodness
transactions with some color of get-rich scheme to the prejudice of well-meaning businessmen who are
the pillars of society.
xxx
Thus, it behooves upon a court of law that in applying the punishment imposed upon the accused, the
objective of retribution of a wronged society, should be directed against the actual and potential
wrongdoers. In the instant case, there is no doubt that petitioners four (4) checks were used to
collateralize an accommodation, and not to cover the receipt of an actual account or credit for value as
this was absent, and therefore petitioner should not be punished for mere issuance of the checks in
question. Following the aforecited theory, in petitioners stead the potential wrongdoer, whose operation
could be a menace to society, should not be glorified by convicting the petitioner.[28]
Under the circumstances obtaining in this case, we find the petitioner to have issued the check in
good faith, with every intention of abiding by her commitment to return, as soon as able, the investments
of complainant in the partnership. Evidently, petitioner issued the check with benign considerations in
mind, and not for the purpose of committing fraud, deceit, or violating public policy
To recapitulate, we find the petition impressed with merit. Petitioner may not be held liable for
violation of B.P. 22 for the following reasons: (1) the subject check was not made, drawn and issued by
petitioner in exchange for value received as to qualify it as a check on account or for value; (2) there is
no sufficient basis to conclude that petitioner, at the time of issue of the check, had actual knowledge of
the insufficiency of funds; and (3) there was no notice of dishonor of said check actually served on
petitioner, thereby depriving her of the opportunity to pay or make arrangements for the payment of the
check, to avoid criminal prosecution.
Having resolved the foregoing principal issues, and finding the petition meritorious, we no longer
need to pass upon the validity and legality or necessity of the purported compromise agreement on civil
liability between the petitioner and the complainant.
WHEREFORE, the instant petition is hereby GRANTED AND THE PETITIONER ACQUITTED. The
Decision of the respondent Court of Appeals in CA-G.R. CR No. 11960 is hereby REVERSED and the
Decision ofRegional Trial Court in Criminal Case No. 1395-M-88 is hereby SET ASIDE.

Lichauco vs Lichauco Jan 31 1916

EUGENIA LICHAUCO ET AL., Plaintiffs-Appellants, v. FAUSTINO LICHAUCO, Defendant-
Appellant.

SYLLABUS
1. PARTNERSHIP; DISSOLUTION AND SETTLEMENT. A provision of articles of partnership, which
prohibits the dissolution of the partnership except by the consent and agreement of two-thirds of the
partners, denies the right of a less number of the partners to effect a dissolution of the partnership
through judicial intervention or otherwise; but it in no wise limits or restricts the rights of the individual
partners in the event that the dissolution of the partnership is effected, not by any act of theirs, but by
the express mandate of law.
2. ID.; ID. It would be absurd and unreasonable to hold that the partnership could never be dissolved
and liquidated without the consent of two-thirds of its partners notwithstanding that it had lost all its
capital, or had become bankrupt, or that the enterprise for which it had been organized had been
concluded or utterly abandoned.

3. ID.; DUTY OF MANAGER. The business association described in the opinion having been
dissolved by the termination and abandonment of the enterprise for which it was organized, the manager
(gestor) was bound to liquidate the partnership and account to all and each of his associates, and upon
his failure so to do, all or any of them had a clear legal right to institute the appropriate judicial
proceedings to secure relief.

4. ID.; ID.; ACTION BY OR AGAINST PARTNERS; PARTIES. In order to avoid a multiplicity of

actions, the defendant in such an action could require all the associates to be made parties, but the right
of an individual member of the association to recover his share in the enterprise and to assert his
individual claim for redress, wholly independent of the action or attitude of his associates, could be in no
wise affected thereby. The other associates would be proper, but not necessary parties to an action of
this kind, and when, as in the case at bar, the defendant proceeds to trial without objection on the express
ground that all the associates in the enterprise have not been made parties to the action, he cannot
thereafter be heard to raise such an objection for the purpose of challenging any judgment which may
be rendered therein.

5. ID.; UNREGISTERED COMMERCIAL PARTNERSHIPS; CODE PROVISIONS APPLICABLE TO

RELATIONS OF MEMBERS. --Under the provisions of article 1670 of the Civil Code, if it be found that
an unregistered commercial partnership is clothed with the forms of any of the commercial associations
or partnerships recognized in the Commercial Code, the provisions of that Code, in so far as they are
not in conflict with those of the Civil Code, may be relied upon in an attempt to define the legal relations
of the association and its members.

DECISION
This action was brought by two of the partners of an enterprise of which the defendant was manager
(gestor), to secure an accounting of its affairs, and the payment to the plaintiffs of their respective shares
of capital and profits.

The defendant admitted the allegations of the complaint as to the organization of the enterprise and the
participation of the plaintiffs therein, but he contended that the plaintiffs could not maintain this action
under the terms of the written contract by virtue of which the enterprise was organized. This contention
having been overruled an account of the affairs of the enterprise was submitted, and the parties having
been given an opportunity to offer evidence for and against certain disputed items of the account,
judgment was rendered for the balance shown to be due the plaintiffs, after allowing some of these
disputed items and disallowing the rest. To this judgment, both plaintiffs and defendant excepted, and
the record is now before us on their respective bills of exceptions.

In October, 1901, a notarial instrument was executed in Manila, by the terms of which a partnership was
duly organized for the purpose of carrying on a rice-cleaning business at Dagupan, and for the purchase
and sale of "palay" and rice. The articles of association, which were not recorded in the mercantile
registry, contain, among others, the following provisions:jgc:
"2. The association will be named F. Lichauco Hermanos and will be domiciled in the center of its
operations, that is, in the pueblo of Dagupan, Province of Pangasinan.

"3. The association cannot be dissolved except by the consent and agreement of two-thirds of its partners
and in the event of the death of any of the latter, the heirs of the deceased, if they be minors or otherwise
incapacitated, shall be represented in the association by their legal representatives or if two-thirds of the
surviving partners agree thereto, the participation of the deceased partner may be liquidated.

"5. The management and direction of the association shall be in charge of Don Faustino Lichauco y
Santos, who shall be domiciled in this city of Manila, with ample powers to direct and manage the
business; to carry out all manner of purchases and sales of palay, rice, chattels, machinery and
whatsoever may be necessary and proper for the business of the association; to make all contracts of
every kind related to said business, either orally, in private documents or in public instruments, as he
deems fit: to appoint subordinates and other employees such as may be necessary; and finally to perform
whatever acts and things he may deem suitable to the interest of the association; and to appear before
the courts of justice and other authorities and public offices in such matters as may concern the
association and to appoint agents for those matters to which he cannot attend personally."cralaw
virtua1aw library

The articles disclose that the capital invested in the enterprise was fixed at P100,000, of which amount
P60,000 was contributed by the defendant and his brothers in the form of machinery in a mill at Dagupan
and the good will of the milling business formerly conducted at the place, the balance of the capital being
contributed by the plaintiffs and others in cash, in the following proportions: Eugenia Lichauco, P13,000;
Catalino Arevalo, P8,000; Mariano Nable Jose, P5,000; Tomas Roux, P4,000; Julita Lichauco, P10,000.

The business thus organized was carried on until May, 1904, when it was found to be unprofitable and
discontinued by the defendant manager (gestor); and, thereafter, the machinery of the rice mill was
dismantled by his orders, and offered for sale. No accounting ever was made to his associates by the
defendant until this action was instituted in October, 1912, although it appears that in the year 1905,
Mariano Limjap, one of the participants in the venture, demanded a rendition of accounts; and that
Eugenia Lichauco, one of the plaintiffs in this action, made repeated unsuccessful demands for the return
of her share of the capital invested in the enterprises. And yet it further appears that during all that time
the defendant manager of the defunct enterprise had in his possession not less than P20,000, the cash
balance on hand, over and above all claims of indebtedness after suspending operations in 1904; and
that since that time he received or should have received substantial sums of money from the sale of the
machinery of the dismantled mill.

There is evidence in the record tending to show that the defendant informed some of his associates,
about the year 1906 or 1907, that the whole enterprise was bankrupt; and it appears that some months
prior to the institution of this action, he rendered upon demand of counsel, a so-called account showing
a balance to the credit of the enterprise of only P634.64; although at the trial, some six months
afterwards, he expressly admitted the existence of a cash balance of some P23,131.53, and the amount
by the trial judge as due by him on account of the venture was P29,549.99. The defendant explained
that the account rendered to counsel for the plaintiffs showing a balance of P634.64 was mailed by one
of his employees without his knowledge, and that it was a stupid blunder which he greatly regretted; and
it would seem that his statements as to the bankruptcy of the enterprise were not intended to be
understood as an assertion that there was no balance due the partners, but merely that the enterprise
had not paid, and that the losses of operation had exceeded the profits.

Giving the defendant the benefit of the doubt, we are inclined to accept these explanations of these
incidents, as it is hardly possible that he could have hoped to escape indefinitely the necessity of
accounting for his management of the enterprise, and thus permanently retain in his own possession the
substantial balance due to his associates. But it is to be observed that, viewed from any standpoint,
these statements, made and rendered by the defendant as to the affairs of the association, taken
together with the other evidence in the record, leave no room for doubt that from the time he concluded
the operations of the business in 1904 until the date of the institution of this action in 1912 he made no
attempt to account to his associates or to turn over to them the amount due them on a proper accounting.

The assignments of error made by counsel for the defendant, as appellant, are as follows:jgc:

"Error No. 1. The trial court erred in rendering judgment in favor of the plaintiffs and against the
defendant for any sum, without first decreeing a dissolution of the association and final liquidation of its
assets in accordance with paragraph 10 of the articles of association, and because such judgment is not
within the issues joined.

"Error No. 2. The trial court erred in charging the defendant with P5,500, the price of certain boilers
and machinery sold to one Marciano Rivera by Crisanto Lichauco, which amount never came into the
possession of the defendant.

"Error No. 3. The trial court erred in disallowing the credit of P60.36, taken by defendant for that
amount expended in an attempt to make good the sale and delivery to Marciano Rivera of the boilers
and machinery mentioned in the second assignment of error.

"Error No. 4. The court erred in charging the defendant with the P1,820, covered by stipulation of
December 10, 1913, for the reason that the defendants liability under that stipulation can only accrue
on the final dissolution and liquidation of the association.

"Error No. 5. The court erred in rendering judgment against the defendant for the costs of the
action."cralaw virtua1aw library

The assignments of error made by counsel for the plaintiffs, as appellants, are as follows:jgc:

"Error No. 1. The court erred in refusing to condemn the defendant to the payment of interest at the
legal rate of 6 per cent upon the credit balance of the joint venture from May 30, 1904, to date of
payment.

"Error No. 2. The court erred in refusing to allow interest at the legal rate of 6 per cent upon the sum
of P1,147.44 from May 30, 1904, to date of payment, said sum being the amount by which the said credit
balance of the joint venture was unduly diminished by error in the conversion of gold currency.

"Error No. 3. The court erred in refusing to allow the joint venture account the sum of P17,746, being
the value of 3,736 cavanes of rice at P4.75 per cavan, for which the defendant has wholly failed to
account.
"Error No. 4. The court erred in declining to allow the joint venture account the sum of P8,943.98 as
interest upon said last-mentioned sum at the legal rate.

"Error No. 5. The court erred in declining to allow the joint venture account the sum of P564.34, as
interest at the legal rate upon the sum of P5,500, for which the defendant has failed and refused to
account.

"Error No. 6. The court erred in declining to credit the joint venture account with the sum of P2,498.46
as the amount due said account from Mariano Nable Jose, together with interest thereon at the legal
rate, amounting to P1,259.22."cralaw virtua1aw library

We shall first examine the contentions of counsel for the defendant in support of his principal assignment
of error, as a ruling in this regard is necessary to the proper disposition of all the other assignments of
error by both plaintiffs and defendant.

Counsel for defendant says in his brief:jgc:

"It is our contention, and we believe it to be unanswerable, that the dissolution and liquidation, either in
whole or in part, of the association is absolutely prohibited by paragraph 10 of the articles of association,
except by and with the conformity and agreement of two thirds of the partners, and that as a consequence
thereof the court, without allegations or proof of compliance with that paragraph and without making the
other partners parties to the action, had no power to decree a distribution either in whole or in part of the
capital or assets of the association.

"It certainly cannot be seriously contended that part of the capital and assets of this association can be
lawfully returned to and distributed between the plaintiffs who constitute one-fifth of the total number of
partners, as required by paragraph 10 of the articles of association.

"It is elementary that no lawful liquidation and distribution of capital and assets of any company or
association can ever take place except upon dissolution thereof."cralaw virtua1aw library

These contentions of counsels for the defendant take no account of the provisions of both the Civil and
Commercial Codes for the dissolution and liquidation of the different classes of partnerships and
mercantile associations upon the occurrence of certain contingencies not within the control of the
partners. The provisions of paragraph 10 of the articles of partnership prohibiting the dissolution of the
association under review, except by the consent and agreement of two-thirds of its partners, denied the
right to a less number of the partners to effect a dissolution of the partnership through judicial intervention
or otherwise; but it in no wise limited or restricted the rights of the individual partners in the event the
dissolution of the association was effected, not by any act of theirs, but by the express mandate of
statutory law. It would be absurd and unreasonable to hold that such an association could never be
dissolved and liquidated without the consent and agreement of two-thirds of its partners, notwithstanding
that it had lost all its capital, or had become bankrupt, or that the enterprise for which it had been
organized had been concluded or utterly abandoned.

Chapter 3 of Title VIII [Book IV,] of the Civil Code prescribes the means by which partnership
(sociedades), as defined in that code, may be terminated. The first article of that chapter is as follows::
"1700. Partnership is extinguished::

"(1) When the term for which it was constituted expires.

"(2) When the thing is lost, or the business for which it was constituted ends.

"(3) By the natural death, civil interdiction, or insolvency of any of the partners, and in the case provided
for in article 1699.

"(4) By the will of any of the partners, subject to the provisions of articles 1705 and 1707.

"Partnerships, to which article 1670 refers, are excepted from the provisions of Nos. 3 and 4 of this
article, in the cases in which they should exist, according to the Code of Commerce."cralaw virtua1aw
library

"1670. Civil partnerships, on account of the objects for which they are destined, may adopt all the forms
accepted by the Code of Commerce. In this case, the provisions of the same shall be applicable, in so
far as they are not in conflict with those of the present Code."cralaw virtua1aw library

Articles 221 and 222 of the Code of Commerce are as follows:jgc:

"221. Associations of any kind whatsoever shall be completely dissolved for the following reasons:jgc:

"(1) The termination of the period fixed in the articles of association or the conclusion of the enterprise
which constitutes its purpose.

"(2) The entire loss of the capital.

"(3) The failure of the association.

"222. General and limited copartnership shall furthermore be totally dissolved for the following reasons:

"(1) The death of one of the general partners if the articles of copartnership do not contain an express
agreement that the heirs of the deceased partner are to continue in the copartnership, or an agreement
to the effect that said copartnership will continue between the surviving partners.

"(2) The insanity of a managing partner or any other cause which renders him incapable of administering
his property.

"(3) The failure of any of the general partners."cralaw virtua1aw library

It cannot be doubted that under these provisions of law the association of which the defendant was
nominated manager (gestor) was totally dissolved in the year 1904, when the rice mill for the operation
of which it was organized was dismantled, the machinery offered for sale and the whole enterprise
concluded and abandoned.
Upon the dissolution of the association in 1904 it became the duty of the defendant to liquidate its affairs
and account to his associates for their respective shares in the capital invested this not merely from
the very nature of his relation to the enterprise and of his duties to those associated with him as partners,
but also by the express mandate of the law. The association having been dissolved by the termination
and abandonment of the enterprise for which it was organized, he owed this duty to liquidate and account
to all and to each of his associates, and upon his failure to perform that duty, all or any of them had a
clear legal right to compel him to fulfill it. Each of his associates had a perfect right to demand for himself
a full, complete and satisfactory accounting, and in the event that he conceived himself aggrieved in this
regard, to institute the appropriate judicial proceedings to secure relief. Doubtless, in order to avoid a
multiplicity of actions, the defendant in such an action could require all the associates to be made parties,
but the right of an individual member of the association to recover his share in the enterprise and to
assert his individual claim for redress, wholly independent of the action or attitude of his associates,
could be in no wise affected thereby. The other associates would be proper, but not necessary, parties
to an action of this kind; and when, as in the case at bar, the defendant proceeds to trial without objection
on the express ground that all the associates in the enterprise have not been made parties to the action,
he cannot thereafter be heard to raise such an objection for the purpose of challenging any judgment
which may be rendered therein.

Although the enterprise was organized in the year 1901 for the purpose of conducting mercantile
operations, including the buying and selling of "palay" and rice, the articles of partnership or association
were not registered in the mercantile registry in accordance with the provisions of articles 17 and 119 of
the Commercial Code. It was therefore a mere unregistered commercial partnership, and the association
never became in the legal sense a juridical person, nor did it attain the dignity, rights or privileges
accorded the different classes of compaias mercantiles (mercantile partnership) discussed in Title 1 of
Book 2 of the Commercial Code. Still, under the provisions of the above-cited article 1670 of the Civil
Code, if it be found that the association is clothed with the forms of any of the commercial associations
or partnerships recognized in the Commercial Code, the provisions of that code, in so far as they are not
in conflict with those of the Civil Code, may be relied upon in an attempt to define the legal relations of
the association and its members. Though the unregistered articles of partnership gave the association a
form of organization closely assimilated to that of a regular "compaia en comandita," as prescribed in
the Commercial code, except that the name designated in the articles did not include the words "y
compaia" (and company) and the additional words "sociedad en comandita," it appears to have been
organized and conducted in substantially the manner and form prescribed for "cuentas en participacion"
(joint accounts) in articles 239-243 of that Code.

The plaintiffs alleged in their complaint and the defendant admitted in his answer that the contract was
one of a "sociedad de cuentas en participacion" (joint account partnership) of which the defendant was
gestor (manager). In his bried on appeal, however, counsel for defendant intimates that under article 241
of the Commercial Code, the adoption in the articles of partnership of a firm name deprived the parties
of the rights and priveleges secured to those interested in cuentas en participacion under th provisions
of the Commercial Code.

But whatever effect the inclusion or omission of a firm name in the articles of partnership may have had
as to third persons dealing with the partnership, we are of opinion that as between the associates
themselves, their mutual rights, duties and obligation may properly be determined upon the authority of
article 1670 of the Civil Code by the provisions of the Commercial Code touching partnerships, the forms
of which in all other respects, the partners have adopted in their articles of partnership.
The duty of the defendant to liquidate the affairs of the enterprise and to account to his associated
promptly upon the dissolution of the association in the year 1904 is expressly prescribed in the
Commercial Code, whether we regard the association, so far as it affects the mutual rights and obligation
of the partners, as clothed with the forms of a "sociedad de cuentas en participacion" (joint account
partnership), or a "sociedad en comandita."cralaw virtua1aw library

Article 243 of the Code of Commerce prescribes with reference to "cuentas en participacion" (joint
accounts) that:jgc:.

"243. The liquidation shall be effected by the manager, and after the transactions have been concluded
he shall render a proper account of its results."cralaw virtua1aw library

Articles 229 and 230 of the same Code are as follows:jgc:

"229. In general or limited copartnerships, should there be no opposition on the part of any of the
partners, the persons who managed the common funds shall continue in charge of the liquidation; but
should all the partners not agree thereto a general meeting shall be called without delay, and the decision
adopted at the same shall be enforced with regard to the appointment of liquidators from among the
members of the association or not, as well as in all that refers to the form and proceedings of the
liquidation and the management of the common funds.

"230. Under the penalty of removal the liquidators shall

"(1) Draw up and communicate to the members, within the period of twenty days, an inventory of the
common property, with a balance of the association in liquidation, according to its books.

"(2) Communicate in the same manner to the members every month the condition of the
liquidation."cralaw virtua1aw library

We conclude that an express statutory obligation imposed upon the defendant an imperative obligation
to proceed without delay to the liquidation of the association in the year 1904 and the further duty to
account to his associates for the result of that liquidation. While he appears to have gone forward with
the liquidation far enough to collect all the cash resources of the association into his own hands, he
utterly failed and neglected to account therefor to his associates or to make any attempt so to do, and
we are of opinion that the plaintiffs were clearly entitled to bring this action to compel an accounting, and
the payment of their respective shares of the capital invested, together with damages resulting from the
failure of the defendant to perform the duty expressly imposed upon him by statute. The damages arising
from the failure to account consisted of the loss of the use of the money to which they would have been
entitled upon a proper accounting, from the date at which it should have been turned over by the
defendant until it is actually paid by him, that is to say, interest on that amount at the rate of six per
centum per annum until paid.

What has been said disposes adversely of the contentions of the defendant in support of his assignments
of errors Nos. 1 and 5; and sustains the contentions of the plaintiffs in their assignments of errors Nos.
1 and 2, to the extent that interest at the rate of six per centum per annum should have been allowed
upon the credit balance of the enterprise from May 30, 1904, the date when it should have been
distributed among his associated by the defendant had he performed his statutory duty in that regard.
This balance (including the item mentioned in plaintiffs assignment of error No. 2) we fix at P23,131.53,
adopting as a basis for our finding in this regard, the findings and conclusions of the trial judge, and
disregarding the possibility that had defendant accounted promptly to his associates, interest might not
have been chargeable on some of the smaller items included in the account until some little time after
the date just mentioned.

As to the other assignments of error it must suffice to say that we have carefully examined the record
and have arrived at the following conclusions:chanrob1es virtual 1aw library

With relation to the item of account referred to in defendants assignment of error No. 2 and plaintiffs
assignment No. 5, we hold that the defendants account was properly charged by the trial judge with the
sum of P5,500, the purchase price of certain machinery sold by him and for which, under all the
circumstances, he must account, together with interest at the rate of six per centum per annum from
January 8, 1912, the date of sale to Marciano Rivera.

With relation to the items mentioned in plaintiffs assignments of errors Nos. 3 and 4, we hold that the
trial judge properly declined to charge the defendants account with the amounts mentioned therein, the
evidence of record not being sufficient to establish his liability therefor as manager or gestor of the
enterprise.

We find no merit in defendants assignment of error numbered 3.

Twenty days hereafter let judgment be entered reversing the judgment of the lower court, without special
condemnation of the costs in this instance, and directing the return of the record to the trial court, wherein
judgment will be entered in accordance herewith, and ten days thereafter let the record be remanded in
conformity therewith. So ordered.

Testate Estate of Lazaro Mota vs Serra Feb 14 1925

TESTATE ESTATE OF LAZARO MOTA, deceased, ET AL., Plaintiffs-Appellants, v. SALVADOR
SERRA, Defendant-Appellee.
Eduardo Gutierrez Repide for Appellants.
Hilado & Hilado, Fisher, DeWitt, Perkins & Brady, Araneta & Zaragoza, Antonio Sanz and Jose
Galan y Blanco for Appellee.

SYLLABUS
1. OBLIGATIONS; CONTRACTS; NOVATION; CONSENT OF CREDITOR. In order that there may
be a novation of a contract by the substitution of the debtor, the express consent of the creditor is
necessary.

2. ID.; ID.; ID.; TIME AND FORM OF CONSENT. It is not necessary that the creditor should give his
consent simultaneously with the execution of the new contract. He may do so afterwards, provided it is
given in an indubitable manner.

3. ID.; ID.; ID.; EVIDENCE. The mere fact that the creditor has dealt with the person who is alleged
to have been substituted in the place of the original debtor on matters different from the obligation
incurred does not prove that said creditor has consented to the substitution so as to liberate the original
debtor from his obligations, it not appearing that the creditor has taken part in the agreement of
substitution or that he has waived his right against debtor.

4. ID.; ID.; CONFUSION. The rights of creditor and debtor are not merged in one same person by the
fact that the things pertaining to said creditor and debtor which were the subject of the obligation were
transferred to him where said transfer did not include, among the rights and obligations transferred, the
credit that the creditor had against the debtor.

5. ID.; ID.; PARTNERSHIP; DISSOLUTION; EFFECTS OF. The dissolution of a partnership does not
extinguish its obligations already incurred, and the partnership continues until they are liquidated,
although it may not incur new obligations.

6. ID.; ID.; ID.; ID.; PERIOD. Obligations contracted by a partner with his copartners, for the fulfillment
of which a period was fixed, become pure obligations upon the immediate dissolution of the partnership
by agreement of the members, and the partner entitled to enforce them may bring an action for the
purpose after the dissolution agreed upon by the parties, without the necessity of waiting for the
expiration of the period originally fixed.

On February 1, 1919, plaintiffs and defendant entered into a contract of partnership, marked Exhibit A,
for the construction and exploitation of a railroad line from the "San Isidro" and "Palma" centrals to the
place known as "Nandong." The original capital stipulated was P150,000. It was covenanted that the
parties should pay this amount in equal parts and the plaintiffs were entrusted with the administration of
the partnership. The agreed capital of P150,000, however, did not prove sufficient, as the expenses up
to May 15, 1920, had reached the amount of P226,092.92, as per statement Exhibit B, presented by the
administrator and O. K.d by the defendant.

January 29, 1920, the defendant entered into a contract of sale with Venancio Concepcion, Phil. C.
Whitaker, and Eusebio R. de Luzuriaga, whereby he sold to the latter the estate and central known as
"Palma" with its running business, as well as all the improvements, machineries and buildings, real and
personal properties, rights, choses in action and interests, including the sugar plantation of the harvest
year of 1920 to 1921, covering all the property of the vendor. This contract was executed before a notary
public of Iloilo and is evidence by Exhibit 1 of the defendant, paragraph 5 of which reads as follows:jgc:
"5. The party of the first part hereby states that he has entered into a contract with the owners of the
San Isidro Central for the construction, operation, and exploitation of a railroad line of about 10
kilometers extending from the Palma Central and San Isidro Central to a point known as Nandong,
the expenses until the termination of which shall be for the account of the San Isidro Central, and of
which expenses, one-half shall be borne by the Palma Central with the obligation to reimburse same
five (5) years with interest at the rate of 10 per cent per annum to the said San Isidro Central. The
vendee hereby obligates himself to respect the aforesaid contract and all obligations arising
therefrom."cralaw virtua1aw library

Before the delivery to the purchasers of the hacienda thus sold, Eusebio R. de Luzuriaga renounced all
his rights under the contract of January 29, 1920, in favor of Messrs. Venancio Concepcion and Phil. C.
Whitaker. This gave rise to the fact that on July 17, 1920, Venancio Concepcion and Phil. C. Whitaker
and the herein defendant executed before Mr. Antonio Sanz, a notary public in and for the City of Manila,
another deed of absolute sale of the said "Palma" Estate for the amount of P1,695,961.90, of which the
vendor received at the time of executing the deed the amount of P945,861.90, and the balance was
payable by installments in the form and manner stipulated in the contract. The purchasers guaranteed
the unpaid balance of the purchase price by a first and special mortgage in favor of the vendor upon the
hacienda and the central with all the improvements, buildings, machineries, and appurtenances then
existing on the said hacienda.

Clause 6 of the deed of July 17, 1920, contains the following stipulations:jgc:

"6. Messrs. Phil. C. Whitaker and Venancio Concepcion hereby state that they are aware of the contract
that Mr. Salvador Serra has with the proprietors of the San Isidro Central for the operation and
exploitation of a railroad line about 10 kilometers long from the Palma and hereby and San Isidro
centrals to the place known as Nandong; and hereby obligate themselves to respect the said contract
and subrogate themselves into the rights and obligations thereunder. They also bind themselves to
comply with all the contracts heretofore entered by the vendor with the customers, copaceners on shares
and employees."cralaw virtua1aw library

Afterwards, on January 8, 1921, Venancio Concepcion and Phil. C. Whitaker bought from the plaintiffs
the one half of the railroad line pertaining to the latter executing therefor the document Exhibit 5. The
price of this sale was P237,722.15, excluding any amount which the defendant might be owing to the
plaintiffs. Of the purchase price, Venancio Concepcion and Phil. C. Whitaker paid the sum of P47,544.43
only. In the deed Exhibit 5, the plaintiffs and Concepcion and Whitaker agreed, among other things, that
the partnership "Palma" and "San Isidro," formed by the agreement of February 1, 1919, between Serra,
Lazaro Mota, now deceased, and Juan J. Vidaurrazaga for himself and in behalf of his brothers, Felix
and Dionisio Vidaurrazaga, should be dissolved upon the execution of this contract, and that the said
partnership agreement should be totally cancelled and of no force and effect whatever.

So it results that the "Hacienda Palma", with the entire railroad, the subject-matter of the contract of
partnership between plaintiffs and defendant, became the property of Whitaker and Concepcion. Phil.
C. Whitaker and Venancio Concepcion having failed to pay to the defendant a part of the purchase price,
that is, P750,000, the vendor, the herein defendant, foreclosed the mortgage upon the said hacienda,
which was adjudicated to him at the public sale held by the sheriff for the amount of P500,000, and the
defendant put in possession thereof, including what was planted at the time, together with all the
improvements made by Messrs. Phil. C. Whitaker and Venancio Concepcion.

Since the defendant Salvador Serra failed to pay one-half of the amount expended by the plaintiffs upon
the construction of the railroad line, that is, P113,046.46, as well as Phil. C. Whitaker and Venancio
Concepcion, the plaintiffs instituted the present action praying: (1) That the deed of February 1, 1919,
be declared valid and binding; (2) that after the execution of the said document the defendant improved
economically so as to be able to pay the plaintiffs the amount owed, but that he refused to pay either in
part or in whole the said amount notwithstanding the several demands made on him for the purpose;
and (3) that the defendant be sentenced to pay the plaintiffs the aforesaid um of P113,046.46, with the
stipulated interest at 10 per cent per annum beginning June 4, 1920, until full payment thereof, with the
costs of the present action.

Defendant set up three special defenses: (1) The novation of the contract by the substitution of the debtor
with the conformity of the creditors; (2) the confusion of the rights of the creditor and debtor; and (3) the
extinguishment of the contract, Exhibit A.
The court a quo in its decision had that there was a novation of the contract by the substitution of the
debtor, and therefore absolved the defendant from the complaint with costs against the plaintiffs. With
regard to the prayer that the said contract be declared valid and binding, the court held that there was
no way of reviving the contract which the parties themselves in interest has spontaneously and voluntarily
extinguished. (Exhibit 5.)

Plaintiffs had appealed form this judgment and as causes for the review, they allege that the trial court
erred: (a) In holding that Messrs. Whitaker and Concepcion, upon purchasing the "Palma" Central, were
subrogated in the place of the defendant in all his rights and obligations under the contract relating to
the railroad line existing between the "Palma" and the "San Isidro" centrals and that the plaintiffs agreed
to this subrogation; (b) in holding that the deed Exhibit A of February 1, 1919, had been extinguished in
its entirety and made null and void by the agreement Exhibit 5 dated December 16, 1920; (c) in absolving
the defendant from the complaint and in sentencing the plaintiffs to pay the costs; and (d) in not
sentencing the defendant to pay the plaintiffs the sum of P133,046.46, with legal interest at 10 per cent
per annum from June 4, 1920, until full payment, with cost against the defendant.

Taking for granted that the defendant was under obligation to pay the plaintiffs one-half of the cost of the
construction of the railroad line in question, by virtue of the contract of partnership Exhibit A, the decisive
point here to determine is whether there was a novation of the contract by the substitution of the debtor
with the consent of the creditor, as required by article 1205 of the Civil Code. If so, it is clear that the
obligation of the defendant was, in accordance with article 1156 of the same code, extinguished.

It should be noted that in order to give novation its legal effect, the law requires that the creditor should
consent to the substitution of a new debtor. This consent must be given expressly for the reason that,
since novation extinguishes the personality of the first debtor who is to be substituted by a new one, it
implies on the part of the creditor a waiver of the right that he had before the novation which waiver must
be express under the principle that renuntiatio non praesumitor, recognized by the law in declaring that
a waiver of right may not be performed unless the will to waive is indisputably shown by him who holds
the right.

The fact that Phil. C. Whitaker and Venancio Concepcion were willing to assume the defendants
obligation to the plaintiffs is of no avail, if the latter have no expressly consented to the substitution of
the first debtor. Neither can the letter, Exhibit 6, on page 87 of the record be considered as proof of the
consent of the plaintiffs to the substitution of the debtor, because that exhibit is a letter written by plaintiffs
to Phil. C. Whitaker and Venancio Concepcion for the reason that the defendant had told them (plaintiffs)
that after the sale of the Hacienda Palma" to Messrs. Phil. C. Whitaker and Venancio Concepcion, the
latter from then on would bear the cost of the repairs and maintenance of the railroad line and of the
construction of whatever addition there into might be necessary. So the plaintiffs by their letter of August
14th, submitted a statement of account to Phil. C. Whitaker and Venancio Concepcion containing the
accounts of the "San Isidro" Central, as stated June 30, 1920, saying that they had already explained
previously the reason for the increase in the expenses and since the retiring partner, Mr. Serra, had
already given his conformity with the accounts, as stated May 15, 1920, it remained only to hear the
conformity of the new purchasers for the accounts covering the period from May 15 to June 30, 1920,
and their authority for future investments, or their objection, if any, to the amounts previously expended.
Neither can the testimony of Julio Infante in connection with Exhibit 7 be taken as evidence of the consent
of the plaintiffs to the exchange of the person of the debtor for that of Messrs. Phil. C. Whitaker and
Venancio Concepcion. This witness testified, in substance, that he is acquainted with the partnership
formed by the owners of the "Hacienda Palma" and "Hacienda San Isidro" for the construction of the
railroad line; that the costs of the construction thereof was originally estimated at P150,000; that the
owner of the "Hacienda Palma" would pay one-half of this amount; that when the "Hacienda Palma" was
sold to Messrs. Phil. C. Whitaker and Venancio Concepcion, the latter agreed to pay one-half of the cost
of P150,000; that as the cost of construction exceeded P200,000, he, as an employee of Messrs. Phil.
C. Whitaker and Venancio Concepcion, could not O.K. the accounts as presented by the plaintiffs, and
suggested that they take up in writing their points of view directly with Messrs. Phil. C. Whitaker and
Venancio Concepcion. Then the plaintiffs did as suggested, and wrote the letter Exhibit 7 in which they
asked the new owners of the "Hacienda Palma" their decision upon the following three questions: 1. Will
the "Palma" Central accept the statement of accounts as presented by the "San Isidro" Central regarding
the actual cost of the railroad line "Palma-San Isidro-Nandong?" 2. Is the "Palma" Central willing to
continue as co-proprietor of the railroad line for the exploitation of the sugar-cane business of "Nandong"
and neighboring barrios, and therefore to pay 50 per cent of the expenses that may incurred in
completing the line?

It was but natural that the plaintiffs should have done this. Defendant transferred his hacienda to Messrs.
Phil. C. Whitaker and Venancio Concepcion and made it known to the plaintiffs that the owners would
hold themselves liable for the cost of constructing the said railroad line. Plaintiffs could not prevent the
defendant from selling to Phil. C. Whitaker and Venancio Concepcion his "Hacienda Palma" with the
rights that he had over the railroad in question. The defendant ceased to be a partner in the said line
and, therefore, the plaintiffs had to take the vendees as their new partners. Plaintiffs had to come to an
understanding with the owners of the "Hacienda Palma" in connection with the railroad line "Palma-San
Isidro Nandong." But in all of this, there was nothing to show the express consent, the manifest and
deliberate intention of the plaintiffs to attempt the defendant from his obligation and to transfer it to his
successors in interest, Messrs. Phil. C. Whitaker and Venancio Concepcion.

The plaintiffs were not a party to the document Exhibit 1. Neither in this document, nor in others in the
record, do we find any stipulation whereby the obligation of the defendant was novated with the consent
of the creditor, and as it has been held in the case of Martinez v. Cavives (25 Phil., 581), the oral evidence
tending to prove such a fact as this is not in law sufficient.

As has been said, in all contracts of novation consisting in the change of the debtor, the consent of the
creditor indespensable, pursuant to article 1205 of the Civil Code which reads as follows:jgc:

"Novation which consist in the substitution of a new debtor in the place of the original one may be made
without the knowledge of the latter, but not without the consent of the creditor."cralaw virtua1aw library

Mr. Manresa in his commentaries on articles 1205 and 1206 of the Civil Code (vol. 8, 1907 ed., pp. 424-
426) says as follows:jgc:
"Article 1205 clearly says in what this kind of novation must consist, because in stating that another
person must be substituted in lieu of the debtor, it means that it is not enough to extend the juridical
relation to that other person, but that it is necessary to place the latter in the same position occupied by
the original debtor.
"Consequently, the obligation contracted by a third person to answer for the debtor, as in the case of
suretyship, in the last analysis, does not work as a true novation, because the third person is not put in
the same position as the debtorthe latter in his same place and with the same obligation which is
guaranteed by the former.
"Since it is necessary that the third person should become a debtor in the same position as the debtor
whom he substitutes, this charge and the resulting novation may be respected as to the whole debt, thus
untying the debtor from his obligation, except the eventual responsibilities of which we shall speak later,
or he may continue with the character of such debtor and also allow the third person to participate in the
obligation. In the first case, there is a complete and perfect novation; in the second, there is a change
that does not free the debtor nor authorized the extinguishment of the accessory obligations of the latter.
In this last hypothesis, if there has been no agreement as to solidarity, the first and the new debtor should
be considered as obligated severally.

"The provisions of article 1205 which require the consent of the creditor as an indespensable requisite
in this kind of novation and not always that of the debtor, while not making it impossible to express the
same, imply the distinction between these forms of novation and it is based on the simple consideration
of justice that since the consequences of the substitution may be prejudicial to the creditor, but not to the
debtor, the consent of the creditor alone is necessary.

"The two forms of this novation, also impliedly recognized by article 1206 which employs the word
delagate, as applied to the debt, are the expromission and the delegation. Between these, there is a
marked difference of meaning and, sa a consequence, a logical difference of requisite and another clear
difference as to their effects, of which we shall speak later.

"In the expromission, the initiative of the change does not emanate from the debtor and may be made
even without his consent, since it consist in a third person assuming his obligation; it logically requires
the consent of this third man and of the creditor and of this last requisite lies the difference between
novation and payment, as the latter can be effected by a third person even against the will of the creditor,
whereas in the former case it cannot.

"In the delegation, the debtor offers and the creditor accepts a third person who consents to the
substitution so that the intervention and the consent of these three persons are necessary and they are
respectively known as delegante, delegatario, and delegado. It must be noted that the consent need not
be given simultaneously and that it may be given afterwards, as for example, that of the creditor
delegatario to the proposition of the debtor accepted by the delegado.

"Delegation notably differs from the mere indication made by the debtor that a third person shall pay the
debt; in this case, there is no novation and the former is not acquitted of his obligation and his relations
with the third person are regulated by the rules of agency. The French Code in article 1276 expressly
provides for this case, as well as the inverse one where the debtor points out somebody else to answer
for the payment, declaring that there is no novation in either case. The same sound criterion is impliedly
accepted by our Code."cralaw virtua1aw library

In the case of E. C. McCullough & Co. v. Veloso and Serna (46 Phil., 1), it appears that McCullough &
Co., Inc., sold to Veloso a real state worth P700,000 on account of which Veloso paid P50,000, promising
to pay the balance at the times and manner stipulated in the contract. He further bound himself to pay
10 per cent of the amount of the debt as attorneys fees in case of litigation. To secure the unpaid balance
of the purchase price he executed a first mortgage upon the property in favor of the vendor.
Subsequently, Veloso sold the property for P100,000 to Joaquin Serna who bound himself to respect
the mortgage in favor of McCullough & Co., Inc., and to assume Velosos obligation to pay the unpaid
balance of the purchase price of the property at the times agreed upon in the contract between Veloso
and McCullough & Co., Inc.

Veloso had paid on account of the price the amount of P50,000, and Serna also made several payments
aggregating the total amount of P250,000. But after this, neither Veloso nor Serna made further
payments and thus gave cause for litigation. The court in deciding the case said:jgc:

"The defendant contends that having sold the property to Serna, and the latter having assumed the
obligation to pay the plaintiff the unpaid balance of the price secured by the mortgage upon the property,
he was relieved from this obligation and it then devolved upon Serna to pay the plaintiff. This means that
as a consequence of the contract between the defendant and Serna, the contract between the defendant
and the plaintiff was novated by the substitution of Serna as new debtor. This is untenable. In order that
this novation may take place, the new law requires the consent of the creditor (art. 1205 of the Civil
Code). The plaintiff did not intervene in the contract between Veloso and Serna and did not expressly
give his consent to this substitution. Novation must be express, and cannot be presumed."cralaw
virtua1aw library

In Martinez v. Cavives (25 Phil., 581), it was held that:jgc:

". . . The consent of the new debtor is as essential to the novation as is that of the creditor.

"There is no express stipulation in any of the documents of record that the obligation of the defendant
was novated, and the parol evidence tending to show that it was novated is not in law to establish that
fact."cralaw virtua1aw library

The same doctrine was upheld in the case of Vaca v. Kosca (26 Phil., 388):jgc:
"A new debtor cannot be substituted for the original obligor in the first contract without the creditors
consent."cralaw virtua1aw library

The supreme court of Spain has constantly laid down the same doctrine with regard to novation of
contracts:jgc:

"The obligations and rights in a contract cannot be novated with regard to a third person who has not
intervened in the execution thereof." (Decision of June 28, 1860.)

"Novation by the change of debtors cannot be effected without the express approval of the creditor."
(Decisions of February 8, 1862 and June 12, 1867.)

"Novation should not be established by presumptions but by the express will of the parties." (Decisions
of February 14, 1876 and June 16, 1883.)

"In order that novation of a contract by subrogation of the debtor may take effect and thus liberate the
first debtor from the obligation, it is necessary that the subrogation be made with the consent of the
creditor." (Decision of March 2, 1897.)

"It is undeniable that obligations judicially declared, as well as those acquired by any other title, can be
novated by substituting a new debtor in place of the primitive, only when the creditor gives his consent
to the substitution." (Decision of November 15, 1899.)

"Novation can in no case be presumed in contracts, but it is necessary that it should result from the will
of the parties, or that the old and the new one be altogether incompatible." (Decision of December 31,
1904.)

"An obligation cannot be deemed novated by means of modifications which do not substantially change
the essence thereof, nor when it is not extinguished by another obligation, nor when the debtor is not
substituted." (Decision of March 14, 1908.)

"The consent of the creditor required in a novation consisting of the charge of debtors (arts. 1205, Civil
Code) must appear in an express and positive manner and must be given with the deliberate intention
of exonerating the primitive debtor of his obligations and transfer them wholly upon the new debtor."
(Decision of June 22, 1911.)

In the decision in the case of Martinez v. Cavives, supra, the following decisions of the several courts of
the United States are cited, wherein this question was decided in the same manner:jgc:

"In Latiolais, admrx. v. Citizens Bank of Louisiana (33 La. Ann., 1444), one Duclozel mortgaged property
to the defendant bank for the triple purpose of obtaining shares in the capital stock of the bank, bonds
which the bank was authorized to issue, and loans to him as stockholder. Duclozel subsequently sold
this mortgaged property to one Sproule, who, as one of the terms of the sale, assumed the liabilities of
his vendor to bank. Sproule sold part of the property to Graff and Chalfant. The debt becoming due, the
bank brought suit against the last two named and Sproule as owners. Duclozel was not made a party.
The bank discontinued these proceedings and subsequently brought suit against Latiolais, administratrix
of Duclozel, who had died.

"The court said: But the plaintiff insists that in its petition in the proceeding first brought the bank ratified
the sale made by Duclozel to Sproule, and by the latter to other parties, in treating them as owners. Be
that so, but it does not follow in the absence of either a formal and express or of an implied consent to
novate, which should be irresistibly inferred from surrounding circumstances, that it has discharged
Duclozel unconditionally, and has accepted those parties as new delegated debtors in his place. Nemo
presumitor donare.

"Novation is a contract, the object of which is: either to extinguish an existing obligation and to substitute
a new one in its place; or to discharge an old debtor and substitute a new one to him; or to substitute a
new creditor to an old creditor with regard to whom the debtor is discharged.

"It is never presumed. The intention must clearly result from the terms of the agreement or by a full
discharge of the original debt. Novation by the substitution of a new debtor can take place without the
consent of the debtor, but the delegation does not operate a novation, unless the creditor has expressly
declared that he intends to discharge with delegating debtor, and the delegating debtor was not in open
failure or insolvency at the time. The mere indication by a debtor of a person who is to pay in his place
does not operate a novation. Delegatus debitor est odiosus in lege.

"The most that could be inferred would be that the bank in the exercise of a sound discretion, proposed
to better its condition by accepting an additional debtor to be and remain bound with the original one.
"In Fidelity L. & T. Co. v. Engleby (99 Va., 168), the court said: Whether or not a debt has been novated
is a question of fact and depends entirely upon the intention of the parties to the particular transaction
claimed to be novated. In the absence of satisfactory proof to the contrary, the presumption is that the
debt has not been extinguished by taking the new evidence in the absence of an intention expressed or
implied, being treated as a conditional payment merely.

"In Hamlin v. Drummond (91 Me., 175; 39 A., 551), it was said that novation is never presumed but must
always be proven. In Netterstorn v. Gallistel (110 Ill. App., 352), it was said that the burden of establishing
a novation is on the party who asserts its existence; that novation is not easily presumed; and that it
must clearly appear before the court will recognized it."cralaw virtua1aw library

Notwithstanding the doctrines above quoted, defendants counsel calls our attention to the decision of
the supreme court of Spain of June 16, 1908, wherein it was held that the provisions of article 1205 of
the Code do not mean nor require that the consent of the creditor to the change of a debtor must be
given just at the time when the debtors agreed on the substitution, because its evident object being the
full protection of the rights of the creditor, it is sufficient if the latter manifests his consent in any form and
at any time as long as the agreement among the debtors hold good. And the defendant insists that the
acts performed by the plaintiffs after the "Hacienda Palma" was sold to Messrs. Phil. C. Whitaker and
Venancio Concepcion constitute evidence of the consent of the creditor. First of all, we should have an
idea of the facts upon which that decision was rendered by the supreme court of Spain.

A partnership known as "La Azucarera de Pravia" obtained a fire insurance policy from the company "La
Union y Fenix Espaol," by virtue of which, said company insured in consideration of an annual premium
of 3,000 pesetas, the buildings, machinery and other apparatuses pertaining to the "Pravia Factory" for
ten years and for half their value, and another value insurance from another insurance company insuring
the same property and effects for the other half of their value.

Later, "La Azucarera de Pravia," with other sugar companies, ceded all its property to another company
known as "Sociedad General Azucarera de Espana," in which in consideration of a certain amount of
stock that the said "Sociedad General Azucarera de Espana" issued to the "La Azucarera de Pravia,"
the latter was merged with the former. After the cession, "La Union y Fenix Espaol" sued the "Sociedad
General Azucarera de Espana" demanding the payment of the premium that should have been paid by
the "La Azucarera de Pravia," which payment the "Sociedad General Azucarera de Espana" refused to
make on the ground that the "La Azucarera de Pravia" was not merged with the "Sociedad General
Azucarera de Espana," but merely transferred its properties to the latter in consideration of the stock that
was issued to the "La Azucarera de Pravia." It was further contended by the "Sociedad General
Azucarera de Espana" that even if it were true that in the contract of cession it appeared that the "La
Azucarera de Pravia" was merged with the "Sociedad General Azucarera de Espana," nevertheless,
there was no such merger in law, for in truth and in fact, the "La Azucarera de Pravia" had ceded only
its property, but not its rights and obligations; that the existence of the partnership known as "La
Azucarera de Pravia" was proven by its registration in the mercantile register, which was not cancelled,
nor did it contain any statement to the effect that the "La Azucarera de Pravia" had been extinguished or
had ceased to do business even after the cession of properties to the "Sociedad General Azucarera de
Espana." Another argument advanced by the "Sociedad General" was that at the time the "Azucarera
de Pravia" ceded its properties to the "Sociedad General Azucarera de Espana," the insurance company
"La Union y Fenix Espaol" did not assent to the subrogation of the "Sociedad General Azucarera" into
the rights and obligations of the "Azucarera de Pravia," assuming that there had been such a subrogation
or substitution of a debtor by another.

The supreme court of Spain gave judgment in favor of the "La Union y Fenix Espaol" insurance
company for the following reasons:jgc

"1. While it is true that it cannot be strictly said that La Azucarera de Pravia was merged with the
Sociedad General Azucarera de Espana, the document whereby the property of the La Azucarera de
Pravia was ceded to the Sociedad General Azucarera de Espaa clearly and expressly recites that this
company upon taking charge of the immovable property of the La Azucarera de Pravia accepted in
general, with respect to the property ceded, everything belonging to the same, after making provisions
about active and passive easements, contracts for transportation and other matters."cralaw virtua1aw
library

The supreme court held that by virtue of the words hereinabove quoted, the "Sociedad General
Azucarera de Espana" took over the obligation to pay the insurance premiums of the "La Azucarera de
Pravia" inasmuch as said insurance pertained to the property that was ceded.

"2. While it is true that La Union y Fenix Espaol insurance company did not give its consent to the
contract of cession at the moment of its execution, yet the mere fact that the said insurance company
now sues the "Sociedad General Azucarera de Espana is an incontrovertible proof that the said
insurance company accepts the substitution of the new debtor."cralaw virtua1aw library

By comparing the facts of that case with the defenses of the case at bar, it will be seen that, whereas in
the former case the creditor sues the new debtor in the instant case the creditor sues the original debtor.
The supreme court of Spain in that case held that the fact that the creditor sued the new debtor was
proof incontrovertible of his assent to the substitution of the debtor. This would seem evident because
the judicial demand made on the new debtor to comply with the obligation of the first debtor is the best
proof that the creditor accepts the change of the debtor. His complaint is an authentic document where
his consent is given to the change of the debtor. We are not holding that the creditors consent must
necessarily be given in the same instrument between the first and the new debtor. The consent of the
creditor may be given subsequently, but in either case it must be expressly manifested. In the present
case, however, the creditor makes judicial demand upon the first debtor for the fulfillment of his
obligation, evidently showing by this act that he does not give his consent to the substitution of the new
debtor. We are of the opinion that the decision of the supreme court of Spain of June 16, 1908, cannot
be successfully invoked in support of defendants contention. Wherefore, we hold that in accordance
with article 1205 of the Civil Code, in the instant case, there was no novation of the contract, by the
change of the person of the debtor.

Another defense urged by the defendant is the merger of the rights of debtor and creditor, whereby under
article 1192 of the Civil Code, the obligation, the fulfillment of which is demanded in the complaint,
became extinguished. It is maintained in appellees brief that the debt of the defendant was transferred
to Phil. C. Whitaker and Venancio Concepcion by the document Exhibit 1. These in turn acquired the
credit of the plaintiffs by virtue of the debt, Exhibit 5; thus the rights of the debtor and creditor were
merged in one person. The argument would at first seem to be incontrovertible, but if we bear in mind
that the rights and titles which the plaintiffs sold to Phil. C. Whitaker and Venancio Concepcion refer only
to one-half of the railroad line in question, it will be seen that the credit which they had against the
defendant for the amount of one-half of the cost of construction of the said line was not included in the
sale contained in Exhibit 5. That the plaintiffs sold their rights and titles over one-half of the line, is evident
from the very Exhibit 5. The purchasers, Phil. C. Whitaker and Venancio Concepcion, to secure the
payment of the price, executed a mortgage in favor of the plaintiffs on the same rights and titles that they
had bought and also upon what they had purchased from Mr. Salvador Serra. In other words, Phil C.
Whitaker and Venancio Concepcion mortgaged unto the plaintiffs what they had bought from the plaintiffs
and also what they had bought from Salvador Serra. If Messrs. Phil. C. Whitaker and Venancio
Concepcion had purchased something from Mr. Salvador Serra, the herein defendant, regarding the
railroad line, it was undoubtedly the one-half thereof pertaining to Mr. Salvador Serra. This clearly shows
that the rights and titles transferred by the plaintiffs to Phil. C. Whitatker and Venancio Concepcion were
only those they had over the other half of the railroad line. Therefore, as already stated, since there was
no novation of the contract between the plaintiffs and the defendant, as regards the obligation of the
latter to pay the former one-half of the cost of the construction of the said railroad line, and since the
plaintiffs did not include in the sale, evidenced by Exhibit 5, the credit that they had against the defendant,
the allegation that the obligation of the defendant became extinguished by the merger of the rights of
creditor and debtor by the purchase of Messrs. Phil. C. Whitaker and Venancio Concepcion is wholly
untenable.

Appellants assign also as a ground of their appeal the holding of the court that by the termination of the
partnership, as shown by the document Exhibit 5, no legal rights can be derived therefrom.

By virtue of the contract Exhibit 5, the plaintiffs and Phil. C. Whitaker and Venancio Concepcion, by
common consent, decided to dissolve the partnership between the "Hacienda Palma" and "Hacienda
San Isidro," thus cancelling the contract of partnership of February 1, 1919.

Counsel for appellee in his brief and oral argument maintains that the plaintiffs cannot enforce any right
arising out of that contract of partnership, which has been annulled, such as the right to claim now a part
of the cost of the construction of the railroad line stipulated in that contract.

Defendants contention signifies that any person, who has contracted a valid obligation with a
partnership, is exempt from complying with his obligation by the mere fact of the dissolution of the
partnership. Defendants contention is untenable. The dissolution of a partnership must not be
understood in the absolute and strict sense so that at the termination of the object for which it was created
the partnership is extinguished, pending the winding up of some incidents and obligations of the
partnership, but in such case, the partnership will be reputed as existing until the juridical relations arising
out of the contract are dissolved. This doctrine has been upheld by the supreme court of Spain in its
decision of February 6, 1903, in the following case: There was a partnership formed between several
persons to purchase some lands sold by the state. The partnership paid the purchase price and
distributed among its members the lands so acquired, but after the lapse of some time, one of the
partners instituted an action in the court of Badajoz, praying that he be accepted as a partner with the
same rights and obligations as others, for the reason that he had not been allowed all that he had a right
to. The court granted the petition, which judgment was affirmed by the Audiencia de Caceres.

From that decision the defendant sued out a writ of error alleging infringement of articles 1680 and 1700
of the Civil Code, on the proposition that all contracts are reputed consummated and therefore
extinguishes, when the contracting parties fulfill all the obligations arising therefrom and that by the
payment of the money and the granting and distribution of the lands without any position, the juridical
relations between the contracting parties become extinguished and none of the parties has any right of
action under the contract. The supreme court, holding that some corrections and liquidations asked by
the actor were still pending, denied the writ, ruling that the articles cited were not infringed because a
partnership cannot be considered as extinguished until all the obligations pertaining to it are fulfilled. (11
Manresa, page 312.)

The dissolution of a firm does not relieve any of its members from liability for existing obligations,
although it does save them from new obligations to which they have not expressly or impliedly assented,
and any of them may be discharged from old obligations by novation or other form of release. It is often
said that a partnership continues, even after dissolution, for the purpose of winding up its affairs. (30
Cyc., page 659.)

Another question presented by appellees counsel in his memorandum and oral argument is that as in
the partnership articles of February 1, 1919, it was covenanted that the defendant would put up one-half
of the cost of the railroad line within five years from that date, that is, from February 1, 1919, with interest
at 10 per cent per annum, the present action is premature since, from the execution of the contract until
October 25, 1922, the date of the complaint, the five years, within which the defendant could pay his part
of the cost of the construction of the line, had not yet elapsed. Suffice it to say that the plaintiffs and the
successors in interest of the defendant, by mutual consent, dissolved the partnership on June 16, 1920,
cancelling the contract Exhibit A to all of which the defendant consented as evidence by his allegations
in his answer. If this is so, there is no reason for waiting for the expiration of the five years which the
parties themselves had seen fit to stipulate and therefore the previsions of article 1113, regarding the
fulfillment of pure obligations, must be applied in this case.

For all of the foregoing, the judgment appealed from is reversed, and we hold that the defendant Salvador
Serra is indebted to the plaintiffs, the Testate Estate of Lazaro Mota, Et Al., in the amount of P113,046.46,
and said defendant is hereby sentenced to pay the plaintiffs said amount, together with the agreed
interest at the rate of 10 per cent per annum from the date of the filling of the complaint.

Bearneza vs Dequilla GR 17024 March 24 1922

DOMINGO BEARNEZA, plaintiff-appelle,
vs.BALBINO DEQUILLA, defendant-
In the year 1903, Balbino Dequilla, the herein defendant, and Perpetua Bearneza formed a partnership
for the purpose of exploiting a fish pond situated in the barrio of Talisay, municipality of Barotac Nuevo,
Province of Iloilo, Perpetua obligating herself to contribute to the payment of the expenses of the
business, which obligation she made good, and both agreeing to divide the profits between themselves,
which they had been doing until the death of the said Perpetua in the year 1912.
The deceased left a will in one of the clauses of which she appointed Domingo Bearnez, the herein
plaintiff, as her heir to succeed to all her rights and interests in the fish pond in question.
Demand having been made upon Balbino Dequilla by Domingo Bearneza for the delivery of the part of
the fish pond belonging to his decedent, Perpetua, and delivery having been refused, Domingo Bearneza
brought this action to recover said part of the fish pond belonging to his decedent, Perpetua, and delivery
having been refused, Domingo Bearneza brought this action recover said part of the fish pond and one-
half of the profits received by the defendant from the fish pond from the year 1913 to 1919, as damages
(the amended complaint was filed on April 12, 1920), amounting, according to plaintiff, to the sum of
thirteen thousand one hundred pesos
In his answer, the defendant denies generally and specifically the allegations of the complaint, and
alleges, as special defense, that "the formation of the supposed partnership between the plaintiff and
the defendant for the exploitation of the aforesaid fish pond was not carried into effect, on account of the
plaintiff having refused to defray the expenses of reconstruction and exploitation of said fish pond." As
another special defense, the defendant alleges "that in the event that the court should hold the plaintiff
to be entitled to the undivided one-half of the fish pond, claimed in the complaint, the plaintiff's action
has prescribed, the time for bringing the same having elapsed."
Proceedings having been held as usual, the court below rendered judgment, declaring the plaintiff owner
of one-half of the fish pond, which was composed of the portions known as "Alimango" and "Dalusan,"
but without awarding him any of the damages claimed by him, the same not having been proven, in the
opinion of the court, and ordering the defendant to pay the costs.
From this judgment the defendant appeals, making various assignments of error. The plaintiff did not
appeal from that part of the judgment denying his claim for damages; hence the only question we are
called upon to decide is whether or not the plaintiff has any right to maintain an action for the recovery
of one-half of the said fish pond.
The partnership formed by Perpetua Bearneza and Balbino Dequilla, as to the existence of which the
proof contained in the record is conclusive and there is no dispute, was of a civil nature. It was a particular
partnership, as defined in article 1678 of the Civil Code, it having had for its subject-matter a specified
thing, to with, the exploitation of the aforementioned fish pond. Although, as the trial court says in its
decision, the defendant, in his letters to Perpetua or her husband, makes reference to the fish pond,
calling it "our," or "your fish pond," this reference cannot be held to include the land on which the said
fish pond was built. It has not been proven that Perpetua Bearneza participated in the ownership of said
land, and Exhibits 2 and 3 of the defendant show that he has been paying, as exclusive owner of the fish
pond, the land tax thereon, although in Exhibit X he says that the said land belongs to the State. The
conclusion, therefore, from the evidence is that the land on which the fish pond was constructed did not
constitute a part of the subject- matter of the aforesaid partnership.
Now, this partnership not having been organized in the form of a mercantile partnership, and, therefore,
the provisions of the Code of Commerce not being applicable thereto (article 1670 of the Civil Code), it
was dissolved by the death of Perpetua Bearneza, and falls under the provisions of article 1700,
subsection 3, of the same Code, and not under the exception established in the last paragraph of said
article 1700 of the Civil Code.
Neither can it be maintained that the partnership continued to exist after the death of Perpetua, inasmuch
as it does not appear that any stipulation to that effect has ever been made by her and the defendant,
pursuant to the provisions of article 1704 of the Code last cited.
The partnership having been dissolved by the death of Perpetua Bearneza, its subsequent legal status
was that of a partnership in liquidation, and the only rights inherited by her testamentary heir, the herein
plaintiff, were those resulting from the said liquidation in favor of the deceased partner, and nothing more.
Before this liquidation is made, which up to the present has not been effected, it is impossible to
determine what rights or interests, if any, the deceased had, the partnership bond having been dissolved.
There is no sufficient ground for holding that a community of property existed between the plaintiff and
the defendant, it not being known whether the deceased still had any interest in the partnership property
which could have been transmitted by will to the plaintiff. There being no community of property, article
395 of the Civil Code cited by the plaintiff in support of his contention can have no application to the case
at bar.
Neither can it be said that the partnership continued between the plaintiff and the defendant. It is true
that the latter's act in requiring the heirs of Perpetua to contribute to the payment of the expenses of
exploitation of the aforesaid fishing industry was an attempt to continue the partnership, but it is also true
that neither the said heirs collectively, nor the plaintiff individually, took any action in response to that
requirement, nor made any promise to that effect, and therefore no new contract of partnership existed.
We find that the plaintiff has not sufficiently shown his right of action.
The judgment appealed from is modified, the same being affirmed insofar as it denies the plaintiff's claim
for damages, and reversed insofar as it declares the said plaintiff owner of one-half of the fish pond,
"Alimango" and "Dalusan," here in dispute.
No special finding as to costs is made. So ordered.

Primelink Properties Devt vs Lazatin-Magat June 27 2006

PRIMELINK PROPERTIES AND DEVELOPMENT CORPORATION and RAFAELITO W.
LOPEZ, Petitioners,
vs.MA. CLARITA T. LAZATIN-MAGAT, JOSE SERAFIN T. LAZATIN, JAIME TEODORO T. LAZATIN
and JOSE MARCOS T. LAZATIN, Respondents.

Before us is a Petition for Review on Certiorari under Rule 45 of the 1997 Rules of Civil Procedure of the
Decision1of the Court of Appeals (CA) in CA-G.R. CV No. 69200 and its Resolution2 denying petitioners
motion for reconsideration thereof.
The factual and procedural antecedents are as follows: Primelink Properties and Development
Corporation (Primelink for brevity) is a domestic corporation engaged in real estate development.
Rafaelito W. Lopez is its President and Chief Executive Officer.3
Ma. Clara T. Lazatin-Magat and her brothers, Jose Serafin T. Lazatin, Jaime T. Lazatin and Jose Marcos
T. Lazatin (the Lazatins for brevity), are co-owners of two (2) adjoining parcels of land, with a combined
area of 30,000 square meters, located in Tagaytay City and covered by Transfer Certificate of Title (TCT)
No. T-108484 of the Register of Deeds of Tagaytay City.
On March 10, 1994, the Lazatins and Primelink, represented by Lopez, in his capacity as President,
entered into a Joint Venture Agreement5 (JVA) for the development of the aforementioned property into
a residential subdivision to be known as "Tagaytay Garden Villas." Under the JVA, the Lazatin siblings
obliged themselves to contribute the two parcels of land as their share in the joint venture. For its part,
Primelink undertook to contribute money, labor, personnel, machineries, equipment, contractors pool,
marketing activities, managerial expertise and other needed resources to develop the property and
construct therein the units for sale to the public. Specifically, Primelink bound itself to accomplish the
following, upon the execution of the deed:

a.) Survey the land, and prepare the projects master plans, engineering designs, structural and
architectural plans, site development plans, and such other need plans in accordance with existing laws
and the rules and regulations of appropriate government institutions, firms or agencies;

b.) Secure and pay for all the licenses, permits and clearances needed for the projects;
c.) Furnish all materials, equipment, labor and services for the development of the land in preparation
for the construction and sale of the different types of units (single-detached, duplex/twin, cluster and row
house);
d.) Guarantee completion of the land development work if not prevented by force majeure or fortuitous
event or by competent authority, or other unavoidable circumstances beyond the DEVELOPERS
control, not to exceed three years from the date of the signing of this Joint Venture Agreement, except
the installation of the electrical facilities which is solely MERALCOS responsibility;
e.) Provide necessary manpower resources, like executive and managerial officers, support personnel
and marketing staff, to handle all services related to land and housing development (administrative and
construction) and marketing (sales, advertising and promotions).6 The Lazatins and Primelink
covenanted that they shall be entitled to draw allowances/advances as follows:
1. During the first two years of the Project, the DEVELOPER and the LANDOWNER can draw allowances
or make advances not exceeding a total of twenty percent (20%) of the net revenue for that period, on
the basis of sixty percent (60%) for the DEVELOPER and forty percent (40%) for the LANDOWNERS.

The drawing allowances/advances are limited to twenty percent (20%) of the net revenue for the first two
years, in order to have sufficient reserves or funds to protect and/or guarantee the construction and
completion of the different types of units mentioned above.

2. After two years, the DEVELOPER and the LANDOWNERS shall be entitled to drawing allowances
and/or advances equivalent to sixty percent (60%) and forty percent (40%), respectively, of the total net
revenue or income of the sale of the units.7
They also agreed to share in the profits from the joint venture, thus:

1. The DEVELOPER shall be entitled to sixty percent (60%) of the net revenue or income of the Joint
Venture project, after deducting all expenses incurred in connection with the land development (such as
administrative management and construction expenses), and marketing (such as sales, advertising and
promotions), and

2. The LANDOWNERS shall be entitled to forty percent (40%) of the net revenue or income of the Joint
Venture project, after deducting all the above-mentioned expenses.8
Primelink submitted to the Lazatins its Projection of the Sales-Income-Cost of the project:

SALES-INCOME-COST PROJECTION
The parties agreed that any unsettled or unresolved misunderstanding or conflicting opinions between
the parties relative to the interpretation, scope and reach, and the enforcement/implementation of any
provision of the agreement shall be referred to Voluntary Arbitration in accordance with the Arbitration
Law.10
The Lazatins agreed to subject the title over the subject property to an escrow agreement. Conformably
with the escrow agreement, the owners duplicate of the title was deposited with the China Banking
Corporation.11 However, Primelink failed to immediately secure a Development Permit from Tagaytay
City, and applied the permit only on August 30, 1995. On October 12, 1995, the City issued a
Development Permit to Primelink.12
In a Letter13 dated April 10, 1997, the Lazatins, through counsel, demanded that Primelink comply with
its obligations under the JVA, otherwise the appropriate action would be filed against it to protect their
rights and interests. This impelled the officers of Primelink to meet with the Lazatins and enabled the
latter to review its business records/papers. In another Letter14 dated October 22, 1997, the Lazatins
informed Primelink that they had decided to rescind the JVA effective upon its receipt of the said letter.
The Lazatins demanded that Primelink cease and desist from further developing the property.
Subsequently, on January 19, 1998, the Lazatins filed, with the Regional Trial Court (RTC) of Tagaytay
City, Branch 18, a complaint for rescission accounting and damages, with prayer for temporary
restraining order and/or preliminary injunction against Primelink and Lopez. The case was docketed as
Civil Case No. TG-1776. Plaintiffs alleged, among others, that, despite the lapse of almost four (4) years
from the execution of the JVA and the delivery of the title and possession of the land to defendants, the
land development aspect of the project had not yet been completed, and the construction of the housing
units had not yet made any headway, based on the following facts, namely: (a) of the 50 housing units
programmed for Phase I, only the following types of houses appear on the site in these condition: (aa)
single detached, one completed and two units uncompleted; (bb) cluster houses, one unit nearing
completion; (cc) duplex, two units completed and two units unfinished; and (dd) row houses, two units,
completed; (b) in Phase II thereof, all that was done by the defendants was to grade the area; the units
so far constructed had been the object of numerous complaints by their owners/purchasers for poor
workmanship and the use of sub-standard materials in their construction, thus, undermining the projects
marketability. Plaintiffs also alleged that defendants had, without justifiable reason, completely
disregarded previously agreed accounting and auditing procedures, checks and balances system
installed for the mutual protection of both parties, and the scheduled regular meetings were seldom held
to the detriment and disadvantage of plaintiffs. They averred that they sent a letter through counsel,
demanding compliance of what was agreed upon under the agreement but defendants refused to heed
said demand. After a succession of letters with still no action from defendants, plaintiffs sent a letter on
October 22, 1997, a letter formally rescinding the JVA.
Plaintiffs also claimed that in a sales-income-costs projection prepared and submitted by defendants,
they (plaintiffs) stood to receive the amount of P70,218,296.00 as their net share in the joint venture
project; to date, however, after almost four (4) years and despite the undertaking in the JVA that plaintiffs
shall initially get 20% of the agreed net revenue during the first two (2) years (on the basis of the 60%-
40% sharing) and their full 40% share thereafter, defendants had yet to deliver these shares to plaintiffs
which by conservative estimates would amount to no less than P40,000,000.00.15
Plaintiffs prayed that, after due proceedings, judgment be rendered in their favor, thus:
WHEREFORE, it is respectfully prayed of this Honorable Court that a temporary restraining order be
forthwith issued enjoining the defendants to immediately stop their land development, construction and
marketing of the housing units in the aforesaid project; after due proceedings, to issue a writ of
preliminary injunction enjoining and prohibiting said land development, construction and marketing of
housing units, pending the disposition of the instant case.
After trial, a decision be rendered:
1. Rescinding the Joint Venture Agreement executed between the plaintiffs and the defendants;
2. Immediately restoring to the plaintiffs possession of the subject parcels of land;
3. Ordering the defendants to render an accounting of all income generated as well as expenses incurred
and disbursement made in connection with the project;
4. Making the Writ of Preliminary Injunction permanent;
5. Ordering the defendants, jointly and severally, to pay the plaintiffs the amount Forty Million Pesos
(P40,000,000.00) in actual and/or compensatory damages;
6. Ordering the defendants, jointly and severally, to pay the plaintiffs the amount of Two Million Pesos
(P2,000,000.00) in exemplry damages;
7. Ordering the defendants, jointly and severally, to pay the plaintiffs the amount equivalent to ten percent
(10%) of the total amount due as and for attorneys fees; and
8. To pay the costs of this suit.
Other reliefs and remedies as are just and equitable are likewise being prayed for.16
Defendants opposed plaintiffs plea for a writ of preliminary injunction on the ground that plaintiffs
complaint was premature, due to their failure to refer their complaint to a Voluntary Arbitrator pursuant
to the JVA in relation to Section 2 of Republic Act No. 876 before filing their complaint in the RTC. They
prayed for the dismissal of the complaint under Section 1(j), Rule 16 of the Rules of Court:
WHEREFORE, it is respectfully prayed that an Order be issued:
a) dismissing the Complaint on the basis of Section 1(j), Rule 16 of the aforecited Rules of Court, or, in
the alternative,
b) requiring the plaintiffs to make initiatory step for arbitration by filing the demand to arbitrate, and then
asking the parties to resolve their controversies, pursuant to the Arbitration Law, or in the alternative;
c) staying or suspending the proceedings in captioned case until the completion of the arbitration, and
d) denying the plaintiffs prayer for the issuance of a temporary restraining order or writ of preliminary
injunction.
Other reliefs and remedies just and equitable in the premises are prayed for.17
In the meantime, before the expiration of the reglementary period to answer the complaint, defendants,
invoking their counsels heavy workload, prayed for a 15-day extension18 within which to file their answer.
The additional time prayed for was granted by the RTC.19 However, instead of filing their answer,
defendants prayed for a series of 15-day extensions in eight (8) successive motions for extensions on
the same justification.20 The RTC again granted the additional time prayed for, but in granting the last
extension, it warned against further extension.21 Despite the admonition, defendants again moved for
another 15-day extension,22 which, this time, the RTC denied. No answer having been filed, plaintiffs
moved to declare the defendants in default,23 which the RTC granted in its Order24dated June 24, 1998.
On June 25, 1998, defendants filed, via registered mail, their "Answer with Counterclaim and Opposition
to the Prayer for the Issuance of a Writ of Preliminary Injunction."25 On July 8, 1998, defendants filed a
Motion to Set Aside the Order of Default.26 This was opposed by plaintiffs.27 In an Order28 dated July 14,
1998, the RTC denied defendants motion to set aside the order of default and ordered the reception of
plaintiffs evidence ex parte. Defendants filed a motion for reconsideration29 of the July 14, 1998 Order,
which the RTC denied in its Order30dated October 21, 1998.
Defendants thereafter interposed an appeal to the CA assailing the Order declaring them in default, as
well as the Order denying their motion to set aside the order of default, alleging that these were contrary
to facts of the case, the law and jurisprudence.31 On September 16, 1999, the appellate court issued a
Resolution32 dismissing the appeal on the ground that the Orders appealed from were interlocutory in
character and, therefore, not appealable. No motion for reconsideration of the Order of the dismissal
was filed by defendants.
In the meantime, plaintiffs adduced ex parte their testimonial and documentary evidence. On April 17,
2000, the RTC rendered a Decision, the dispositive part of which reads:
WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the defendants as
follows:
1. Ordering the rescission of the Joint Venture Agreement as of the date of filing of this compaint;
2. Ordering the defendants to return possession, including all improvements therein, of the real estate
property belonging to the plaintiffs which is described in, and covered by Transfer Certificate of Title No.
T-10848 of the Register of Deeds of Tagaytay City, and located in Barangay Anulin, City of Tagaytay;
3. Ordering the defendants to turn over all documents, records or papers that have been executed,
prepared and retained in connection with any contract to sell or deed of sale of all lots/units sold during
the effectivity of the joint venture agreement;
4. Ordering the defendants to pay the plaintiffs the sum of P1,041,524.26 representing their share of the
net income of the P2,603,810.64 as of September 30, 1995, as stipulated in the joint venture agreement;
5. Ordering the defendants to pay the plaintiffs attorneys fees in the amount of P104,152.40;
6. Ordering the defendants to pay the costs.
SO ORDERED.33
The trial court anchored its decision on the following findings:
x x x Evidence on record have shown patent violations by the defendants of the stipulations particularly
paragraph II covering Developers (defendant) undertakings, as well as paragraph III and paragraph V
of the JVA. These violations are not limited to those made against the plaintiffs alone as it appears that
some of the unit buyers themselves have their own separate gripes against the defendants as typified
by the letters (Exhibits "G" and "H") of Mr. Emmanuel Enciso.
xxxx
Rummaging through the evidence presented in the course of the testimony of Mrs. Maminta on August
6, 1998 (Exhibits "N," "O," "P," "Q" and "R" as well as submarkings, pp. 60 to 62, TSN August 6, 1998)
this court has observed, and is thus convinced, that a pattern of what appears to be a scheme or plot to
reduce and eventually blot out the net income generated from sales of housing units by defendants, has
been established. Exhibit "P-2" is explicit in declaring that, as of September 30, 1995, the joint venture
project earned a net income of about P2,603,810.64. This amount, however, was drastically reduced in
a subsequent financial report submitted by the defendants to P1,954,216.39. Shortly thereafter, and to
the dismay of the plaintiffs, the defendants submitted an income statement and a balance sheet (Exhibits
"R" and "R-1") indicating a net loss of P5,122,906.39 as of June 30, 1997.
Of the reported net income of P2,603,810.64 (Exhibit "P-2") the plaintiffs should have received the sum
of P1,041,524.26 representing their 40% share under paragraph II and V of the JVA. But this was not to
be so. Even before the plaintiffs could get hold of their share as indicated above, the defendants closed
the chance altogether by declaring a net loss. The court perceives this to be one calculated coup-de-
grace that would put to thin air plaintiffs hope of getting their share in the profit under the JVA.
That this matter had reached the court is no longer a cause for speculation. The way the defendants
treated the JVA and the manner by which they handled the project itself vis--vis their partners, the
plaintiffs herein, there is bound to be certain conflict as the latter repeatedly would received the losing
end of the bargain.
Under the intolerable circumstances, the plaintiffs could not have opted for some other recourse but to
file the present action to enforce their rights. x x x34
On May 15, 2000, plaintiffs filed a Motion for Execution Pending Appeal35 alleging defendants dilatory
tactics for its allowance. This was opposed by defendants.36
On May 22, 2000, the RTC resolved the motion for execution pending appeal in favor of plaintiffs.37 Upon
posting a bond of P1,000,000.00 by plaintiffs, a writ of execution pending appeal was issued on June
20, 2000.38
Defendants appealed the decision to the CA on the following assignment of errors:
I
THE TRIAL COURT ERRED IN DECIDING THE CASE WITHOUT FIRST REFERRING THE
COMPLAINT FOR VOLUNTARY ARBITRATION (RA NO. 876), CONTRARY TO THE MANDATED
VOLUNTARY ARBITRATION CLAUSE UNDER THE JOINT VENTURE AGREEMENT, AND THE
DOCTRINE IN "MINDANAO PORTLAND CEMENT CORPORATION V. MCDONOUGH
CONSTRUCTION COMPANY OF FLORIDA" (19 SCRA 814-815).
II
THE TRIAL COURT ERRED IN ISSUING A WRIT OF EXECUTION PENDING APPEAL EVEN IN THE
ABSENCE OF GOOD AND COMPELLING REASONS TO JUSTIFY SAID ISSUANCE, AND DESPITE
PRIMELINKS STRONG OPPOSITION THERETO.
III
THE TRIAL COURT ERRED IN REFUSING TO DECIDE PRIMELINKS MOTION TO QUASH THE
WRIT OF EXECUTION PENDING APPEAL AND THE MOTION FOR RECONSIDERATION,
ALTHOUGH THE COURT HAS RETAINED ITS JURISDICTION TO RULE ON ALL QUESTIONS
RELATED TO EXECUTION.
IV
THE TRIAL COURT ERRED IN RESCINDING THE JOINT VENTURE AGREEMENT ALTHOUGH
PRIMELINK HAS SUBSTANTIALLY DEVELOPED THE PROJECT AND HAS SPENT MORE OR LESS
FORTY MILLION PESOS, AND DESPITE APPELLEES FAILURE TO PRESENT SUFFICIENT
EVIDENCE JUSTIFYING THE SAID RESCISSION.
V
THE TRIAL COURT ERRED IN DECIDING THAT THE APPELLEES HAVE THE RIGHT TO TAKE
OVER THE SUBDIVISION AND TO APPROPRIATE FOR THEMSELVES ALL THE EXISTING
IMPROVEMENTS INTRODUCED THEREIN BY PRIMELINK, ALTHOUGH SAID RIGHT WAS
NEITHER ALLEGED NOR PRAYED FOR IN THE COMPLAINT, MUCH LESS PROVEN DURING THE
EX PARTE HEARING, AND EVEN WITHOUT ORDERING APPELLEES TO FIRST REIMBURSE
PRIMELINK OF THE SUBSTANTIAL DIFFERENCE BETWEEN THE MARKET VALUE OF
APPELLEES RAW, UNDEVELOPED AND UNPRODUCTIVE LAND (CONTRIBUTED TO THE
PROJECT) AND THE SUM OF MORE OR LESS FORTY MILLION PESOS WHICH PRIMELINK HAD
SPENT FOR THE HORIZONTAL AND VERTICAL DEVELOPMENT OF THE PROJECT, THEREBY
ALLOWING APPELLEES TO UNJUSTLY ENRICH THEMSELVES AT THE EXPENSE OF
PRIMELINK.39
The appeal was docketed in the CA as CA-G.R. CV No. 69200.
On August 9, 2004, the appellate court rendered a decision affirming, with modification, the appealed
decision. The fallo of the decision reads:
WHEREFORE, in view of the foregoing, the assailed decision of the Regional Trial Court of Tagaytay
City, Branch 18, promulgated on April 17, 2000 in Civil Case No. TG-1776, is hereby AFFIRMED.
Accordingly, Transfer Certificate of Title No. T-10848 held for safekeeping by Chinabank pursuant to the
Escrow Agreement is ordered released for return to the plaintiffs-appellees and conformably with the
affirmed decision, the cancellation by the Register of Deeds of Tagaytay City of whatever annotation in
TCT No. 10848 by virtue of the Joint Venture Agreement, is now proper.
SO ORDERED.40
Citing the ruling of this Court in Aurbach v. Sanitary Wares Manufacturing Corporation,41 the appellate
court ruled that, under Philippine law, a joint venture is a form of partnership and is to be governed by
the laws of partnership. The aggrieved parties filed a motion for reconsideration,42 which the CA denied
in its Resolution43 dated March 7, 2005.
Petitioners thus filed the instant Petition for Review on Certiorari, alleging that:
1) DID THE HONORABLE COURT OF APPEALS COMMIT A FATAL AND REVERSIBLE LEGAL
ERROR AND/OR GRAVE ABUSE OF DISCRETION IN ORDERING THE RETURN TO THE
RESPONDENTS OF THE PROPERTY WITH ALL IMPROVEMENTS THEREON, EVEN WITHOUT
ORDERING/REQUIRING THE RESPONDENTS TO FIRST PAY OR REIMBURSE PRIMELINK OF ALL
EXPENSES INCURRED IN DEVELOPING AND MARKETING THE PROJECT, LESS THE ORIGINAL
VALUE OF THE PROPERTY, AND THE SHARE DUE RESPONDENTS FROM THE PROFITS (IF ANY)
OF THE JOINT VENTURE PROJECT?
2) IS THE AFORESAID ORDER ILLEGAL AND CONFISCATORY, OPPRESSIVE AND
UNCONSCIONABLE, CONTRARY TO THE TENETS OF GOOD
HUMAN RELATIONS AND VIOLATIVE OF EXISTING LAWS AND JURISPRUDENCE ON JUDICIAL
NOTICE, DEFAULT, UNJUST ENRICHMENT AND RESCISSION OF CONTRACT WHICH REQUIRES
MUTUAL RESTITUTION, NOT UNILATERAL APPROPRIATION, OF PROPERTY BELONGING TO
ANOTHER?44
Petitioners maintain that the aforesaid portion of the decision which unconditionally awards to
respondents "all improvements" on the project without requiring them to pay the value thereof or to
reimburse Primelink for all expenses incurred therefore is inherently and essentially illegal and
confiscatory, oppressive and unconscionable, contrary to the tenets of good human relations, and will
allow respondents to unjustly enrich themselves at Primelinks expense. At the time respondents
contributed the two parcels of land, consisting of 30,000 square meters to the joint venture project when
the JVA was signed on March 10, 1994, the said properties were worth not more than P500.00 per
square meter, the "price tag" agreed upon the parties for the purpose of the JVA. Moreover, before
respondents rescinded the JVA sometime in October/November 1997, the property had already been
substantially developed as improvements had already been introduced thereon; petitioners had likewise
incurred administrative and marketing expenses, among others, amounting to more or
less P40,000,000.00.45
Petitioners point out that respondents did not pray in their complaint that they be declared the owners
and entitled to the possession of the improvements made by petitioner Primelink on the property; neither
did they adduce evidence to prove their entitlement to said improvements. It follows, petitioners argue,
that respondents were not entitled to the improvements although petitioner Primelink was declared in
default.
They also aver that, under Article 1384 of the New Civil Code, rescission shall be only to the extent
necessary to cover the damages caused and that, under Article 1385 of the same Code, rescission
creates the obligation to return the things which were not object of the contract, together with their fruits,
and the price with its interest; consequently, it can be effected only when respondents can return
whatever they may be obliged to return. Respondents who sought the rescission of the JVA must place
petitioner Primelink in the status quo. They insist that respondents cannot rescind and, at the same time,
retain the consideration, or part of the consideration received under the JVA. They cannot have the
benefits of rescission without assuming its burden. All parties must be restored to their original positions
as nearly as possible upon the rescission of a contract. In the event that restoration to the status quo is
impossible, rescission may be granted if the Court can balance the equities and fashion an appropriate
remedy that would be equitable to both parties and afford complete relief.
Petitioners insist that being defaulted in the court a quo would in no way defeat their claim for
reimbursement because "[w]hat matters is that the improvements exist and they cannot be
denied."46 Moreover, they point out, the ruling of this Court in Aurbach v. Sanitary Wares Manufacturing
Corporation47 cited by the CA is not in point.
On the other hand, the CA ruled that although respondents therein (plaintiffs below) did not specifically
pray for their takeover of the property and for the possession of the improvements on the parcels of land,
nevertheless, respondents were entitled to said relief as a necessary consequence of the ruling of the
trial court ordering the rescission of the JVA. The appellate court cited the ruling of this Court in the
Aurbach case and Article 1838 of the New Civil Code, to wit:
As a general rule, the relation of the parties in joint ventures is governed by their agreement. When the
agreement is silent on any particular issue, the general principles of partnership may be resorted to.48
Respondents, for their part, assert that Articles 1380 to 1389 of the New Civil Code deal with rescissible
contracts. What applies is Article 1191 of the New Civil Code, which reads:
ART. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors
should not comply with what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the obligation, with the
payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment,
if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a
period.
This is understood to be without prejudice to the rights of third persons who have acquired the thing, in
accordance with articles 1385 and 1388 and the Mortgage Law.
They insist that petitioners are not entitled to rescission for the improvements because, as found by the
RTC and the CA, it was petitioner Primelink that enriched itself at the expense of respondents.
Respondents reiterate the ruling of the CA, and argue as follows:
PRIMELINK argued that the LAZATINs in their complaint did not allege, did not prove and did not pray
that they are and should be entitled to take over the development of the project, and that the
improvements and existing structures which were introduced by PRIMELINK after spending more or less
Forty Million Pesos be awarded to them. They merely asked in the complaint that the joint venture
agreement be rescinded, and that the parcels of land they contributed to the project be returned to them.
PRIMELINKs argument lacks merit. The order of the court for PRIMELINK to return possession of the
real estate property belonging to the LAZATINs including all improvements thereon was not a judgment
that was different in kind than what was prayed for by the LAZATINs. The order to return the property
with all the improvements thereon is just a necessary consequence to the order of rescission.
As a general rule, the relation of the parties in joint ventures is governed by their agreement. When the
agreement is silent on any particular issue, the general principles of partnership may be resorted to. In
Aurbach v. Sanitary Wares Manufacturing Corporation, the Supreme Court discussed the following
points regarding joint ventures and partnership:
The legal concept of a joint venture is of common law origin. It has no precise legal definition, but it has
been generally understood to mean an organization formed for some temporary purpose. (Gates v.
Megargel, 266 Fed. 811 [1920]) It is, in fact, hardly distinguishable from the partnership, since elements
are similar community of interest in the business, sharing of profits and losses, and a mutual right of
control. (Blackner v. McDermott, 176 F.2d 498 [1949]; Carboneau v. Peterson, 95 P.2d 1043 [1939];
Buckley v. Chadwick, 45 Cal.2d 183, 288 P.2d 12, 289 P.2d 242 [1955]) The main distinction cited by
most opinions in common law jurisdictions is that the partnership contemplates a general business with
some degree of continuity, while the joint venture is formed for the execution of a single transaction, and
is thus of a temporary nature. (Tuffs v. Mann, 116 Cal.App. 170, 2 P.2d 500 [1931]; Harmon v. Martin,
395 III. 595, 71 N.E.2d 74 [1947]; Gates v. Megargel, 266 Fed. 811 [1920]) This observation is not
entirely accurate in this jurisdiction, since under the Civil Code, a partnership may be particular or
universal, and a particular partnership may have for its object a specific undertaking. (Art. 1783, Civil
Code). It would seem therefore that, under Philippine law, a joint venture is a form of partnership and
should thus be governed by the laws of partnership. The Supreme Court has, however, recognized a
distinction between these two business forms, and has held that although a corporation cannot enter
into a partnership contract, it may, however, engage in a joint venture with others. (At p. 12, Tuazon v.
Bolanos, 95 Phil. 906 [1954]; Campos and Lopez Campos Comments, Notes and Selected Cases,
Corporation Code 1981) (Emphasis Supplied)
The LAZATINs were able to establish fraud on the part of PRIMELINK which, in the words of the court a
quo, was a pattern of what appears to be a scheme or plot to reduce and eventually blot out the net
incomes generated from sales of housing units by the defendants. Under Article 1838 of the Civil Code,
where the partnership contract is rescinded on the ground of the fraud or misrepresentation of one of the
parties thereto, the party entitled to rescind is, without prejudice to any other right is entitled to a lien on,
or right of retention of, the surplus of the partnership property after satisfying the partnership liabilities to
third persons for any sum of money paid by him for the purchase of an interest in the partnership and for
any capital or advance contributed by him. In the instant case, the joint venture still has outstanding
liabilities to third parties or the buyers of the property.
It is not amiss to state that title to the land or TCT No. T-10848 which is now held by Chinabank for
safekeeping pursuant to the Escrow Agreement executed between Primelink Properties and
Development Corporation and Ma. Clara T. Lazatin-Magat should also be returned to the LAZATINs as
a necessary consequence of the order of rescission of contract. The reason for the existence of the
Escrow Agreement has ceased to exist when the joint venture agreement was rescinded.49
Respondents stress that petitioners must bear any damages or losses they may have suffered. They
likewise stress that they did not enrich themselves at the expense of petitioners.
In reply, petitioners assert that it is unjust and inequitable for respondents to retain the improvements
even if their share in the P1,041,524.26 of the net income of the property and the sale of the land were
to be deducted from the value of the improvements, plus administrative and marketing expenses in the
total amount of P40,000,000.00. Petitioners will still be entitled to an accounting from respondents.
Respondents cannot deny the existence and nature of said improvements as they are visible to the
naked eye.
The threshold issues are the following: (1) whether respondents are entitled to the possession of the
parcels of land covered by the JVA and the improvements thereon introduced by petitioners as their
contribution to the JVA; (2) whether petitioners are entitled to reimbursement for the value of the
improvements on the parcels of land.
The petition has no merit.
On the first issue, we agree with petitioners that respondents did not specifically pray in their complaint
below that possession of the improvements on the parcels of land which they contributed to the JVA be
transferred to them. Respondents made a specific prayer in their complaint that, upon the rescission of
the JVA, they be placed in possession of the parcels of land subject of the agreement, and for other
"reliefs and such other remedies as are just and equitable in the premises." However, the trial court was
not precluded from awarding possession of the improvements on the parcels of land to respondents in
its decision. Section 2(c), Rule 7 of the Rules of Court provides that a pleading shall specify the relief
sought but it may add as general prayer for such further or other relief as may be deemed just and
equitable. Even without the prayer for a specific remedy, proper relief may be granted by the court if the
facts alleged in the complaint and the evidence introduced so warrant.50 The court shall grant relief
warranted by the allegations and the proof even if no such relief is prayed for.51 The prayer in the
complaint for other reliefs equitable and just in the premises justifies the grant of a relief not otherwise
specifically prayed for.52
The trial court was not proscribed from placing respondents in possession of the parcels of land and the
improvements on the said parcels of land. It bears stressing that the parcels of land, as well as the
improvements made thereon, were contributed by the parties to the joint venture under the JVA, hence,
formed part of the assets of the joint venture.53 The trial court declared that respondents were entitled to
the possession not only of the parcels of land but also of the improvements thereon as a consequence
of its finding that petitioners breached their agreement and defrauded respondents of the net income
under the JVA.
On the second issue, we agree with the CA ruling that petitioner Primelink and respondents entered into
a joint venture as evidenced by their JVA which, under the Courts ruling in Aurbach, is a form of
partnership, and as such is to be governed by the laws on partnership.
When the RTC rescinded the JVA on complaint of respondents based on the evidence on record that
petitioners willfully and persistently committed a breach of the JVA, the court thereby dissolved/cancelled
the partnership.54With the rescission of the JVA on account of petitioners fraudulent acts, all authority of
any partner to act for the partnership is terminated except so far as may be necessary to wind up the
partnership affairs or to complete transactions begun but not yet finished.55 On dissolution, the
partnership is not terminated but continues until the winding up of partnership affairs is
completed.56 Winding up means the administration of the assets of the partnership for the purpose of
terminating the business and discharging the obligations of the partnership.
The transfer of the possession of the parcels of land and the improvements thereon to respondents was
only for a specific purpose: the winding up of partnership affairs, and the partition and distribution of the
net partnership assets as provided by law.57 After all, Article 1836 of the New Civil Code provides that
unless otherwise agreed by the parties in their JVA, respondents have the right to wind up the partnership
affairs:
Art. 1836. Unless otherwise agreed, the partners who have not wrongfully dissolved the partnership or
the legal representative of the last surviving partner, not insolvent, has the right to wind up the partnership
affairs, provided, however, that any partner, his legal representative or his assignee, upon cause shown,
may obtain winding up by the court.
It must be stressed, too, that although respondents acquired possession of the lands and the
improvements thereon, the said lands and improvements remained partnership property, subject to the
rights and obligations of the parties, inter se, of the creditors and of third parties under Articles 1837 and
1838 of the New Civil Code, and subject to the outcome of the settlement of the accounts between the
parties as provided in Article 1839 of the New Civil Code, absent any agreement of the parties in their
JVA to the contrary.58 Until the partnership accounts are determined, it cannot be ascertained how much
any of the parties is entitled to, if at all.
It was thus premature for petitioner Primelink to be demanding that it be indemnified for the value of the
improvements on the parcels of land owned by the joint venture/partnership. Notably, the JVA of the
parties does not contain any provision designating any party to wind up the affairs of the partnership.
Thus, under Article 1837 of the New Civil Code, the rights of the parties when dissolution is caused in
contravention of the partnership agreement are as follows:
(1) Each partner who has not caused dissolution wrongfully shall have:
(a) All the rights specified in the first paragraph of this article, and
(b) The right, as against each partner who has caused the dissolution wrongfully, to damages for breach
of the agreement.
(2) The partners who have not caused the dissolution wrongfully, if they all desire to continue the
business in the same name either by themselves or jointly with others, may do so, during the agreed
term for the partnership and for that purpose may possess the partnership property, provided they secure
the payment by bond approved by the court, or pay to any partner who has caused the dissolution
wrongfully, the value of his interest in the partnership at the dissolution, less any damages recoverable
under the second paragraph, No. 1(b) of this article, and in like manner indemnify him against all present
or future partnership liabilities.
(3) A partner who has caused the dissolution wrongfully shall have: (a) If the business is not continued
under the provisions of the secondparagraph, No. 2, all the rights of a partner under the first paragraph,
subject to liability for damages in the second paragraph, No. 1(b), of this article. (b) If the business is
continued under the second paragraph, No. 2, of this article, the right as against his co-partners and all
claiming through them in respect of their interests in the partnership, to have the value of his interest in
the partnership, less any damage caused to his co-partners by the dissolution, ascertained and paid to
him in cash, or the payment secured by a bond approved by the court, and to be released from all existing
liabilities of the partnership; but in ascertaining the value of the partners interest the value of the good-
will of the business shall not be considered.
And under Article 1838 of the New Civil Code, the party entitled to rescind is, without prejudice to any
other right, entitled:
(1) To a lien on, or right of retention of, the surplus of the partnership property after satisfying the
partnership liabilities to third persons for any sum of money paid by him for the purchase of an interest
in the partnership and for any capital or advances contributed by him;
(2) To stand, after all liabilities to third persons have been satisfied, in the place of the creditors of the
partnership for any payments made by him in respect of the partnership liabilities; and
(3) To be indemnified by the person guilty of the fraud or making the representation against all debts and
liabilities of the partnership.
The accounts between the parties after dissolution have to be settled as provided in Article 1839 of the
New Civil Code:
Art. 1839. In settling accounts between the partners after dissolution, the following rules shall be
observed, subject to any agreement to the contrary:
(1) The assets of the partnership are:
(a) The partnership property,
(b) The contributions of the partners necessary for the payment of all the liabilities specified in No. 2.
(2) The liabilities of the partnership shall rank in order of payment, as follows:
(a) Those owing to creditors other than partners,
(b) Those owing to partners other than for capital and profits,
(c) Those owing to partners in respect of capital,
(d) Those owing to partners in respect of profits.
(3) The assets shall be applied in the order of their declaration in No. 1 of this article to the satisfaction
of the liabilities.
(4) The partners shall contribute, as provided by article 1797, the amount necessary to satisfy the
liabilities.
(5) An assignee for the benefit of creditors or any person appointed by the court shall have the right to
enforce the contributions specified in the preceding number.
(6) Any partner or his legal representative shall have the right to enforce the contributions specified in
No. 4, to the extent of the amount which he has paid in excess of his share of the liability.
(7) The individual property of a deceased partner shall be liable for the contributions specified in No. 4.
(8) When partnership property and the individual properties of the partners are in possession of a court
for distribution, partnership creditors shall have priority on partnership property and separate creditors
on individual property, saving the rights of lien or secured creditors.
(9) Where a partner has become insolvent or his estate is insolvent, the claims against his separate
property shall rank in the following order:
(a) Those owing to separate creditors;
(b) Those owing to partnership creditors;
(c) Those owing to partners by way of contribution.
IN LIGHT OF ALL THE FOREGOING, the petition is DENIED. The assailed Decision and Resolution of
the Court of Appeals in CA-G.R. CV No. 69200 are AFFIRMED insofar as they conform to this Decision
of the Court.

Singsong vs Isabela Sawmill 88 SCRA 623

MANUEL G. SINGSONG, JOSE BELZUNCE, AGUSTIN E. TONSAY, JOSE L. ESPINOS, BACOLOD
SOUTHERN LUMBER YARD, and OPPEN, ESTEBAN, INC., plaintiffs-appellees,
vs.
ISABELA SAWMILL, MARGARITA G. SALDAJENO and her husband CECILIO SALDAJENO LEON
GARIBAY, TIMOTEO TUBUNGBANUA, and THE PROVINCIAL SHERIFF OF NEGROS
OCCIDENTAL, defendants, MARGARITA G. SALDAJENO and her husband CECILIO
SALDAJENO, defendants-
This is an appeal to the Court of Appeals from the judgment of the Court of First Instance of Negros
Occidental in Civil Cage No. 5343, entitled "Manuel G. Singson, et all vs. Isabela Sawmill, et al.,", the
dispositive portion of which reads:
IN VIEW OF THE FOREGOING CONSIDERATIONS, it is hereby held. (1) that thecontract, Appendix
"F", of the Partial Stipulation of Facts, Exh. "A", has not created a chattel mortgage lien on the
machineries and other chattels mentioned therein, all of which are property of the defendant partnership
"IsabelaSawmill", (2) that the plaintiffs, as creditors of the defendant partnership,have a preferred right
over the assets of the said partnership and over the proceeds of their sale at public auction, superior to
the right of the defendant Margarita G. Saldajeno, as creditor of the partners Leon Garibay and Timoteo
Tubungbanua; (3) that the defendant Isabela Sawmill' is indebted to the plaintiff Oppen, Esteban, Inc. in
the amount of P1,288.89, with legal interest thereon from the filing of the complaint on June 5, 1959; (4)
that the same defendant is indebted to the plaintiff Manuel G. Singsong in the total amount of P5,723.50,
with interest thereon at the rate of 1 % per month from May 6, 1959, (the date of the statements of
account, Exhs. "L" and "M"), and 25% of the total indebtedness at the time of payment, for attorneys'
fees, both interest and attorneys fees being stipulated in Exhs. "I" to "17", inclusive; (5) that the same
defendant is indebted to the plaintiff Agustin E. Tonsay in the amount of P933.73, with legal interest
thereon from the filing of the complaint on June 5, 1959; (6) that the same defendant is indebted to the
plaintiff Jose L. Espinos in the amount of P1,579.44, withlegal interest thereon from the filing of the
complaint on June 5, 1959; (7) that the same defendant is indebted to the plaintiff Bacolod Southern
Lumber Yard in the amount of Pl,048.78, with legal interest thereon from the filing of the complaint on
June 5, 1959; (8) that the same defendant is indebted to the plaintiff Jose Belzunce in the amount of
P2,052.10, with legal interest thereon from the filing of the complaint on June 5. 1959; (9) that the
defendant Margarita G. Saldajeno, having purchased at public auction the assets of the defendant
partnership over which the plaintiffs have a preferred right, and having sold said assets for P 45,000.00,
is bound to pay to each of the plaintiffs the respective amounts for which the defendant partnership is
held indebted to, them, as above indicated and she is hereby ordered to pay the said amounts, plus
attorneys fees equivalent to 25% of the judgment in favor of the plaintiff Manuel G. Singson, as stipulated
in Exhs. "I" "to I-17", inclusive, and 20% of the respective judgments in favor of the other plaintiffs,
pursuant to. Art. 2208, pars. (5) and (11), of the Civil Code of the Philippines; (10) The defendants Leon
Garibay nd Timoteo Tibungbanua are hereby ordered to pay to the plaintiffs the respective amounts
adjudged in their favor in the event that said plaintiffs cannot recover them from the defendant Margarita
G. Saldajeno and the surety on the bond that she has filed for the lifting of the injunction ordered by this
court upon the commencement of this case.
The cross-claim cf the defendant Margarita G. Saldajeno against the defendants Leon Garibay arid
Timoteo Tubungbanua is hereby discussed Margarita G. Saldajeno shall pay the costs. SO ORDERED.1
In a resolution promulgated on February 3, 1967, the Court of Appeals certified the records of this case
to the Supreme Court "considering that the resolution of this appeal involves purely questions or question
of law over which this Court has no jurisdiction ...2
On June 5. 1959, Manuel G. Singsong, Jose Belzunce, Agustin E. Tonsay, Jose L. Espinos, Bacolod
Southern Lumber Yard, and Oppen, Esteban, Inc. filed in the Court of first Instance of Negros Occidental,
Branch I, against "Isabela Sawmill", Margarita G. Saldajeno and her husband Cecilio Saldajeno, Leon
Garibay, Timoteo Tubungbanua and the Provincial Sheriff of Negros Occidental a complaint the prayer
of which reads:
WHEREFORE, the plaintiffs respectfully pray:
(1) That a writ of preliminary injunction be issued restraining the defendant ProvincialSheriff of Negros
Occidental from proceeding with the sales at public auction that he advertised in two notices issued by
him on May 18, 1959 in connection with Civil Case No. 5223 of this Honorable Court, until further orders
of this Court; and to make said injunction permanent after hearing on the merits:
(2) That after hearing, the defendant partnership be ordered; to pay to the plaintiff Manuel G. Singson
the sum of P3,723.50 plus 1% monthly interest thereon and 25% attorney's fees, and costs; to pay to
the plaintiff JoseBelzunce the sum of P2,052.10, plus 6% annual interest thereon and 25% for attorney's
fees, and costs;to pay to the plaintiff Agustin E. Tonsay the sum of P993.73 plus 6% annual interest
thereon and 25% attorney's fees, and costs; to pay to the plaintiff Bacolod Southern Lumber Yard the
sum of P1,048.78, plus 6% annual interest thereon and 25% attorney's fees, and costs; and to pay to
the plaintiff Oppen, Esteban, Inc. the sum of P1,350.89, plus 6% annual interest thereon and 25%
attorney's fees and costs:
(3) That the so-called Chattel Mortgage executed by the defendant Leon Garibay and Timoteo
Tubungbanua in favor of the defendant Margarita G. Saldajeno on May 26, 1958 be declared null and
void being in fraud of creditors of the defendant partnership and without valuable consideration insofar
as the said defendant is concerned:
(4) That the Honorable Court order the sale of public auction of the assets of the defendnat partnership
in case the latter fails to pay the judgment that the plaintiffs may recover in the action, with instructions
that the proceeds of the sale b e applied in payment of said judgment before any part of saod proceeds
is paid to the defendant Margarita G. Saldajeno;
(5) That the defendant Leon Garibay, Timoteo Tubungbanua, and Margarita G. Saldajeno be declared
jointly liable to the plaintifs for whatever deficiency may remain unpaid after the proceeds of the sale of
the assets of the defendnt partnership are supplied in payment of the judgment that said plaintiffs may
recover in this action;
(6) The plaintiffs further pray for all other remedies to which the Honorable Court will find them entitled
to, with costs to the defendants. Bacolod City, June 4, 1959.3
The action was docketed as Civil Case No. 5343 of said court. In their amended answer, the defendants
Margarita G. Saldajeno and her husband, Cecilio Saldajeno, alleged the following special and affirmative
defenses:
xxx xxx xxx
2. That the defendant Isabela Sawmill has been dissolved by virtue of an action entitled "In the matter
of: Dissolution of Isabela Sawmill as partnership, etc. Margarita G. Saldajeno et al. vs. Isabela Sawmill,
et al., Civil Case No. 4787, Court of First Instance of Negros Occidental;
3. That as a result of the said dissolution and the decision of the Court of First Instance of Negros
Occidental in the aforesaid case, the other defendants herein Messrs. Leon Garibay and Timoteo
Tubungbanua became the successors-in-interest to the said defunct partnership and have bound
themselves to answere for any and all obligations of the defunct partnership to its creditors and third
persons;
4. That to secure the performance of the obligations of the other defendants Leon Garibay and Timoteo
Tubungbanua to the answering defendant herein, the former have constituted a chattel mortgage over
the properties mentioned in the annexes to that instrument entitled "Assignment of Rights with Chattel
Mortgage" entered into on May 26, 1968 and duly registered in the Register of Deeds of Negros
Occidental on the same date:
5. That all the plaintiffs herein, with the exceptionof the plaintiff Oppen, Esteban, Inc. are creditors of
Messrs. Leon Garibay and Timoteo Tubungbanua and not of the defunct Isabela Sawmill and as such
they have no cause of action against answering defendant herein and the defendant Isabela Sawmill;
6. That all the plaintiffs herein, except for the plaintiff Oppen, Esteban,Inc. granted cash advances,
gasoline, crude oil, motor oil, grease, rice and nipa to the defendants Leon Garibay and Timoteo
Tubungbanua with the knowledge and notice that the Isabela Sawmill as a former partnership of
defendants Margarita G. Isabela Sawmill as a former partnership of defendants Margarita G. Saldajeno,
Leon Garibay and Timoteo Tubungbanua, has already been dissolved;
7. That this Honorable Court has no jurisdictionover the claims of the plaintiffs Oppen, Esteban, Inc.,
Agustin R. Tonsay, Jose L. Espinos, and the Bacolod Southern Lumber Yard, it appearing that the
amounts sought to be recovered by them in this action is less than P2,000.00 each, exclusive of interests;
8. That in so far as the claims of these alleged creditors plaintiffs are concerned, there is a misjoinder of
parties because this is not a class suit, and therefore this Honorable Court cannot take jurisdictionof the
claims for payment;
9. That the claims of plaintiffs-creditors, except Oppen, Esteban, Inc. go beyond the limit mentioned inthe
statute of frauds, Art. 1403 of the Civil Code, and are therefor unenforceable, even assuming that there
were such credits and claims;
10. That this Honorable Court has no jurisdiction in this case for it is well settled in law and in
jurisprudence that a court of first instance has no power or jurisdiction to annul judgments or decrees of
a coordinate court because other function devolves upon the proper appellate court; (Lacuna, et al. vs.
Ofilada, et al., G.R. No. L-13548, September 30, 1959; Cabigao vs. del Rosario, 44 Phil. 182; PNB vs.
Javellana, 49 O.G. No. 1, p.124), as it appears from the complaint in this case to annul the decision of
this same court, but of another branch (Branch II, Judge Querubin presiding).4
Said defendants interposed a cross-claim against the defendsants Leon Garibay and Timoteo
Tubungbanua praying "that in the event that judgment be rendered ordering defendant cross claimant to
pay to the plaintiffs the amount claimed in the latter's complaint, that the cross claimant whatever amount
is paid by the latter to the plaintiff in accordance to the said judgment. ...5
After trial, judgment was rendered in favor of the plaintiffs and against the defendants.
The defendants, Margarita G. Saldajeno and her husband Cecilio Saldajeno, appealed to the Court of
Appeals assigning the following errors:
I
THE COURT A QUO ERRED IN ASSUMING JURISDICTION OVER THE CASE.
IITHE COURT A QUO ERRED IN HOLDING THAT THE ISSUE WITH REFERENCE TO THE
WITHDRAWAL OF DEFENDANT-APPELLANT MARGARITA G.
SALDAJENO FROM THE PARTNERSHIP "SABELA SAWMILL" WAS WHETHER OR NOT SUCH
WITHDRAWAL CAUSED THE "COMPLETE DISAPPEARANCE" OR "EXTINCTION" OF SAID
PARTNERSHIP.
III
THE COURT A QUO ERRED IN OT HOLDING THAT THE WITHDRAWAL OF DEFENDANT-
APPELLANT MARGARITA G. SALDAJENO AS APARTNER THEREIN DISSOLVED THE
PARTNERSHIP "ISABELA SAWMILL" (FORMED ONJAN. 30, 1951 AMONG LEON GARIBAY,
TIMOTEO TUBUNGBANUA AND SAID MARGARITA G.SALDAJENO).
IV
THE COURT A QUO ERRED IN ISSUING THE WRIT OF PRELIMINARY INJUNCTION.
V
THE COURT A QUO ERRED IN HOLDING THAT THE CHATTEL MORTGAGE DATED MAY 26, 1958,
WHICH CONSTITUTED THE JUDGMENT IN CIVIL CASE NO. 4797 AND WHICH WAS FORECLOSED
IN CIVILCASE NO. 5223 (BOTH OF THE COURT OF FIRST INSTANCE OF NEGROS OCCIDENTAL)
WAS NULL AND VOID.
VI
THE COURT A QUO ERRED IN HOLDING THAT THE CHATTLES ACQUIRED BY DEFENDANT-
APPELLANT MARGARITA G. SALDAJENO IN THE FORECLOSURE SALE INCIVIL CASE NO. 5223
CONSTITUTED 'ALL THEASSETS OF THE DEFENDNATPARTNERSHIP.
 VII
THE COURT A QUO ERRED IN HOLDING THAT DEFENDANT-APPELLANTMARGARITA G.
SALDAJENO BECAMEPRIMARILY LIABLE TO THE PLAINTFFS-APPELLEES FOR HAVING
ACQUIRED THE MORTGAGED CHATTLES IN THE FORECLOSURE SALE CONDUCTED IN
CONNECTION WITH CIVIL CASE NO. 5223.
VIII
THE COURT A QUO ERRED IN HOLDING DEFENDANT-APPELLANT MARGARITA G. SALDAJENO
LIABLE FOR THE OBLIGATIONS OF MESSRS. LEON GARIBAY AND TIMOTEOTUBUNGBANUA,
INCURRED BY THE LATTER AS PARTNERS IN THE NEW 'ISABELA SAWMILL', AFTER THE
DISSOLUTION OF THE OLD PARTNERSHIP IN WHICH SAID MARGARITA G. SALDAJENO WAS A
PARTNER.
IX
THE COURT A QUO ERRED IN HOLDING DEFENDANT-APPELLANT MARGARITA G. SALDAJENO
LIABLE TO THE PLAINTIFFS-APPELLEES FOR ATTORNEY'S FEES.
X
THE COURT A QUO ERRED IN NOT DISMISSING THE COMPLAINT OF THE PLAINTIFFS-
APPELLEES.
XI
THE COURT A QUO ERRED IN DISMISSING THE CROSS-CLAIM OF DEFENDANT-APPELLANT
MARGARITA G. SALDAJENO AGAINST CROSS-DEFENDANTS LEON GARIBAY AND TIMOTEO
TUBUNGBANUA.6
The facts, as found by the trial court, are:
At the commencement of the hearing of the case on the merits the plaintiffs and the defendant Cecilio
and Margarita g. Saldajeno submittee a Partial Stipulation of Facts that was marked as Exh. "A". Said
stipulation reads as folows:
1. That on January 30, 1951 the defendants Leon Garibay, Margarita G. Saldejeno, and Timoteo
Tubungbanua entered into a Contract of Partnership under the firm name "Isabela Sawmill", a copy of
which is hereto attached Appendix "A".
2. That on February 3, 1956 the plaintiff Oppen, Esteban, Inc. sold a Motor Truck and two Tractors to
the partnership Isabela Sawmill for the sum of P20,500.00. In order to pay the said purcahse price, the
said partnership agreed to make arrangements with the International Harvester Company at Bacolod
City so that the latter would sell farm machinery to Oppen, Esteban, Inc. with the understanding that the
price was to be paid by the partnership. A copy of the corresponding contract of sle is attached hereto
as Appendix "B".
3. That through the method of payment stipulated in the contract marked as Appendix "B" herein, the
International Harvester Company has been paid a total of P19,211.11, leaving an unpaid balance of
P1,288.89 as shown in the statements hereto attached as Appendices "C", "C-1", and "C-2".
4. That on April 25, 1958 Civil Case No. 4797 was filed by the spouses Cecilio Saldajeno and Margarita
G. Saldajeno against the Isabela Sawmill, Leon Garibay, and Timoteo Tubungbanua, a copy of which
Complaint is attached as Appendix 'D'.
5. That on April 27, 1958 the defendants LeonGaribay, Timoteo Tubungbanua and Margarita G.
Saldajeno entered into a "Memorandum Agreement", a copy of which is hereto attached as Appendix 'E'
in Civil Case 4797 of the Court of First Instance of Negros Occidental.
6. That on May 26, 1958 the defendants Leon Garibay, Timoteo Tubungbanua and Margarita G.
Saldajeno executed a document entitled "Assignment of Rights with Chattel Mortgage", a copy of which
documents and its Annexes "A" to "A-5" forming a part of the record of the above mentioned Civil Case
No. 4797, which deed was referred to in the Decision of the Court ofFirst Instance of Negros Occidental
in Civil Case No. 4797 dated May 29, 1958, a copy of which is hereto attached as Appendix "F" and "F-
1" respectively.
7. That thereafter the defendants Leon Garibay and Timoteo Tubungbanua did not divide the assets and
properties of the "Isabela Sawmill" between them, but they continued the business of said partnership
under the same firm name "Isabela Sawmill".
8. That on May 18, 1959 the Provincial Sheriff of Negros Occidental published two (2) notices that he
would sell at public auction on June 5, 1959 at Isabela, Negros Occidental certain trucks, tractors,
machinery, officeequipment and other things that were involved in Civil Case No. 5223 of the Court of
First Instance of Negros Occidental, entitled "Margarita G. Saldajeno vs. Leon Garibay, et al." See
Appendices "G" and "G-1".
9. That on October 15, 1969 the Provincial Sheriff of Negros Occidental executed a Certificate ofSale in
favor of the defendant Margarita G. Saldajeno, as a result of the sale conducted by him on October 14
and 15, 1959 for the enforcement of the judgment rendered in Civil Case No. 5223 of the Court of First
Instance of Negros Occidental, a certified copy of which certificte of sale is hereto attached as Appendix
"H".
10. That on October 20, 1959 the defendant Margarita G. Saldajeno executed a deed of sale in favor of
the Pan Oriental Lumber Company transfering to the latter for the sum of P45,000.00 the trucks, tractors,
machinery, and other things that she had purchashed at a public auction referred to in the foregoing
paragraph, a certified true copy of which Deed of Sale is hereto attached as Appendix "I".
11. The plaintiffs and the defendants Cecilio Saldajeno and Margarita G. Saldajeno reserve the right to
present additional evidence at the hearing of this case.
Forming parts of the above copied stipulation are documents that were marked as Appendices "A", "B",
"C", "C-1", "C-2", "D", "E", "F", "F-1", "G", "G-1", "H", and "I".
The plaintiffs and the defendants Cecilio and Margarita G. Saldajeno presented additional evidence,
mostly documentary, while the cross-defendants did not present any evidence. The case hardly involves
quetions of fact at all, but only questions of law.
The fact that the defendnat 'Isabela Sawmill' is indebted to theplaintiff Oppen, Esteban, Inc. in the amount
of P1,288.89 as the unpaid balance of an obligation of P20,500.00 contracted on February 3, 10956 is
expressly admitted in paragraph 2 and 3 of the Stipulation, Exh. "A" and its Appendices "B", "C", "C-1",
and "C-2".
The plaintiff Agustin E. Tonssay proved by his own testimony and his Exhs. "B" to"G" that from October
6, 1958 to November 8, 1958 he advanced a total of P4,200.00 to the defendant 'Isabela Sawmill'. Agaist
the said advances said defendant delivered to Tonsay P3,266.27 worth of lumber, leavng an unpaid
balance of P933.73, which balance was confirmed on May 15, 1959 by the defendant Leon Garibay, as
Manager of the defendant partnership.
The plaintiff Manuel G. Singsong proved by his own testimony and by his Exhs. "J" to "L" that from May
25, 1988 to January 13, 1959 he sold on credit to the defendnat "Isabela Sawmill" rice and bran, on
account of which business transaction there remains an unpaid balance of P3,580.50. The same plaintiff
also proved that the partnership ownes him the sum of P143.00 for nipa shingles bought from him on
credit and unpaid for.
The plaintiff Jose L. Espinos proved through the testimony of his witness Cayetano Palmares and his
Exhs. "N" to "O-3" that he owns the "Guia Lumber Yard", that on October 11, 1958 said lumber yard
advanced the sum of P2,500.00 to the defendant "Isabela Sawmill", that against the said cash advance,
the defendant partnership delivered to Guia Lumber Yard P920.56 worth of lumber, leaving an
outstanding balance of P1,579.44.
The plaintiff Bacolod Southern Lumber Yard proved through the testimony of the witness Cayetano
Palmares an its Exhs. "P" to "Q-1" that on October 11, 1958 said plaintiff advanced the sum of P1,500.00
to the defendsant 'Isabela Sawmill', that against the said cash advance, the defendant partnership
delivered to the said plaintiff on November 19, 1958 P377.72 worth of lumber, and P73.54 worth of
lumber on January 27, 1959, leaving an outstanding balance of P1,048.78.
The plaintiff Jose Balzunce proved through the testimony of Leon Garibay whom he called as his witness,
and through the Exhs. "R" to "E" that from September 14, 1958 to November 27, 1958 he sold to the
defedant "Isabela Sawmill" gasoline, motor fuel, and lubricating oils, and that on account of said
transactions, the defendant partnersip ownes him an unpaid balance of P2,052.10.
Appendix "H" of the stipulation Exh. "A" shows that on October 13 and 14, 1959 the Provincial Sheriff
sold to the defendant Margrita G. Saldajeno for P38,040.00 the assets of the defendsant "Isabela
Sawmill" which the defendants Leon G. Garibay and Timoteo Tubungbanua had mortgaged to her, and
said purchase price was applied to the judgment that she has obtained against he said mortgagors in
Civil Case No. 5223 of this Court.
Appendix "I" of the same stipulation Exh. "A" shows that on October 20, 1959 the defendant Margarita
G. Saldajeno sold to the PAN ORIENTAL LUMBER COMPANY for P45,000.00 part of the said properties
that she had bought at public aucton one week before.
xxx xxx xxx7
It is contended by the appellants that the Court of First Instance of Negros Occidental had no jurisdiction
over Civil Case No. 5343 because the plaintiffs Oppen, Esteban, Inc., Agustin R. Tonsay, Jose L.
Espinos and the Bacolod Southern Lumber Yard sought to collect sums of moeny, the biggest amount
of which was less than P2,000.00 and, therefore, within the jurisdiction of the municipal court.
This contention is devoid of merit because all the plaintiffs also asked for the nullity of the assignment of
right with chattel mortgage entered into by and between Margarita G. Saldajeno and her former partners
Leon Garibay and Timoteo Tubungbanua. This cause of action is not capable of pecuniary estimation
and falls under the jurisdiction of the Court of First Instnace. Where the basic issue is something more
than the right to recover a sum of money and where the money claim is purely incidental to or a
consequence of the principal relief sought, the action is as a case where the subject of the litigation is
not capable of pecuniary estimation and is cognizable exclusively by the Court of First Instance.
The jurisdiction of all courts in the Philippines, in so far as the authority thereof depends upon the nature
of litigation, is defined in the amended Judiciary Act, pursuant to which courts of first instance shall have
exclusive original jurisdiction over any case the subject matter of which is not capable of pecuniary
estimation. An action for the annulment of a judgment and an order of a court of justice belongs to th
category.8
In determining whether an action is one the subject matter of which is not capable of pecuniary estimation
this Court has adopted the criterion of first ascertaining the nature of the principal action or remedy
sought. If it is primarily for the recovery of a sum of money, the cliam is considered capable of pecuniary
estimation, and whether jurisdiciton is in the municipal courts or in the courts of first instance would
depend on the amount of the claim. However, where the basic issue is something other than the right to
recover a sum of money, where the money claim is purely incidental to, or a consequence of, the principal
relief sought, this Court has considered such actions as cases where the subject ogf the litigation may
not be estimated in terms of money, and are cognizable exclusively by courts of first instance.
In Andres Lapitan vs. SCANDIA, Inc., et al.,9 this Court held:
Actions for specific performance of contracts have been expressly prounounced to be exclusively
cognizable by courts of first instance: De Jesus vs. Judge Garcia, L-26816, February 28,
1967; Manufacturers' Distributors, Inc. vs. Yu Siu Liong, L-21285, April 29, 1966. And no cogent reason
appears, and none is here advanced by the parties, why an actin for rescission (or resolution) should be
differently treated, a "rescission" being a counterpart, so to speak, of "specific performance'. In both
cases, the court would certainly have to undertake an investigation into facts that would justify one act
of the other. No award for damages may be had in an action for resicssion without first conducting an
inquiry into matters which would justify the setting aside of a contract, in the same manner that courts of
first instance would have to make findings of fact and law in actions not capable of pecuniary estimnation
espressly held to be so by this Court, arising from issues like those arised in Arroz v. Alojado, et al., L-
22153, March 31, 1967 (the legality or illegality of the conveyance sought for and the determination of
the validity of the money deposit made); De Ursua v. Pelayo, L-13285, April 18, 1950 (validity of a
judgment); Bunayog v. Tunas, L-12707, December 23, 1959 (validity of a mortgage); Baito v. Sarmiento,
L-13105, August 25, 1960 (the relations of the parties, the right to support created by the relation, etc.,
in actions for support); De Rivera, et al. v. Halili, L-15159, September 30, 1963 (the validity or nullity of
documents upon which claims are predicated). Issues of the same nature may be raised by a party
against whom an action for rescission has been brought, or by the plaintiff himself. It is, therefore, difficult
to see why a prayer for damages in an action for rescission should be taken as the basis for concluding
such action for resiccison should be taken as the basis for concluding such action as one cpable of
pecuniary estimation - a prayer which must be included in the main action if plaintiff is to be compensated
for what he may have suffered as a result of the breach committed by defendant, and not later on
precluded from recovering damages by the rule against splitting a cause of action and discouraging
multiplicitly of suits.
The foregoing doctrine was reiterated in The Good Development Corporation vs. Tutaan, 10 where this
Court held:
On the issue of which court has jurisdiction, the case of SENO vs. Pastolante, et al., is in point. It was
ruled therein that although the purposes of an action is to recover an amount plus interest which comes
within the original jurisidction of the Justice of the Peace Court, yet when said action involves the
foreclosure of a chattel mortgage covering personal properties valued at more than P2,000, (now
P10,000.00) the action should be instituted before the Court of First Instance.
In the instanct, case, the action is to recover the amount of P1,520.00 plus interest and costs, and
involves the foreclosure of a chattel mortgage of personal properties valued at P15,340.00, so that it is
clearly within the competence of the respondent court to try and resolve.
In the light of the foregoing recent rulings, the Court of First Instance of Negros Occidental did no err in
exercising jurisidction over Civil Case No. 5343.
The appellants also contend that the chattel mortgage may no longer be annulled because it had been
judicially approved in Civil Case No. 4797 of the Court of First Instance of Negros Occidental and said
chattel mortgage had been ordered foreclosed in Civil Case No. 5223 of the same court.
On the question of whether a court may nullify a final judgment of another court of co-equal, concurrent
and coordinate jusridiction, this Court originally ruled that:
A court has no power to interfere with the judgments or decrees of a court of concurrent or coordinate
jurisdiction having equal power to grant the relief sought by the injunction.
The various branches of the Court of First Instance of Manila are in a sense coordinate courts and cannot
be allowed to interfere with each others' judgments or decrees. 11
The foregoing doctrine was reiterated in a 1953 case 12 where this Court said:
The rule which prohibits a Judge from intertering with the actuations of the Judge of another branch of
the same court is not infringed when the Judge who modifies or annuls the order isued by the other
Judge acts in the same case and belongs to the same court (Eleazar vs. Zandueta, 48 Phil. 193. But the
rule is infringed when the Judge of a branch of the court issues a writ of preliminary injunction in a case
to enjoint the sheriff from carrying out an order by execution issued in another case by the Judge of
another branch of the same court. (Cabigao and Izquierdo vs. Del Rosario et al., 44 Phil. 182).
This ruling was maintained in 1967. In Mas vs. Dumaraog, 13 the judgment sought to be annulled was
rendered by the Court of First Instance of Iloilo and the action for annullment was filed with the Court of
First Instance of Antique, both courts belonging to the same Judicial District. This Court held that:
The power to open, modify or vacant a judgment is not only possessed by but restricted to the court in
which the judgment was rendered.
The reason of this Court was:
Pursuant to the policy of judicial stability, the judgment of a court of competent jurisdiction may not be
interfered with by any court concurrrent jurisdiction.
Again, in 1967 this Court ruled that the jurisdiction to annul a judgement of a branch of the court of First
Instance belongs solely to the very same branch which rendered the judgement. 14
Two years later, the same doctrine was laid down in the Sterling Investment case.15
In December 1971, however, this court re-examined and reversed its earlier doctrine on the matter.
In Dupla v. Court of Appeals, 16 this Tribunal, speaking through Mr. Justice Villamor declared:
... the underlying philosophy expressed in the Dumara-og case, the policy of judicial stability, to the end
that the judgment of a court of competent jurisdiction may not be interfered with by any court of
concurrent jurisdiction may not be interfered with by any court of concurrent jurisdiciton, this Court feels
that this is as good an occasion as any to re-examine the doctrine laid down ...
In an action to annul the judgment of a court, the plaintiff's cause of action springs from the alleged nullity
of the judgment based on one ground or another, particularly fraud, which fact affords the plaintiff a right
to judicial interference in his behalf. In such a suit the cause of action is entirely different from that in the
actgion which grave rise to the judgment sought to be annulled, for a direct attack against a final and
executory judgment is not a incidental to, but is the main object of the proceeding. The cause of action
in the two cases being distinct and separate from each other, there is no plausible reason why the venue
of the action to annul the judgment should necessarily follow the venue of the previous action ...
The present doctrine whicpostulate that one court or one branch of a court may not annul the judgment
of another court or branch, not only opens the door to a violation of Section 2 of Rule 4, (of the Rules of
Court) but also limit the opportunity for the application of said rule.
Our conclusion must therefore be that a court of first instance or a branch thereof has the authority and
jurisdiction to take cognizance of, and to act in, suit to annul final and executory judgment or order
rendered by another court of first instance or by another branch of the same court...
In February 1974 this Court reiterated the ruling in the Dulap case.17
In the light of the latest ruling of the Supreme Court, there is no doubt that one branch of the Court of
First Instance of Negros Occidental can take cognizance of an action to nullify a final judgment of the
other two branches of the same court.
It is true that the dissolution of a partnership is caused by any partner ceasing to be associated in the
carrying on of the business. 18 However, on dissolution, the partnershop is not terminated but continuous
until the winding up to the business. 19
The remaining partners did not terminate the business of the partnership "Isabela Sawmill". Instead of
winding up the business of the partnership, they continued the business still in the name of said
partnership. It is expressly stipulated in the memorandum-agreement that the remaining partners had
constituted themselves as the partnership entity, the "Isabela Sawmill". 20
There was no liquidation of the assets of the partnership. The remaining partners, Leon Garibay and
Timoteo Tubungbanua, continued doing the business of the partnership in the name of "Isabela Sawmill".
They used the properties of said partnership.
The properties mortgaged to Margarita G. Saldajeno by the remaining partners, Leon Garibay and
Timoteo Tubungbanua, belonged to the partnership "Isabela Sawmill." The appellant, Margarita G.
Saldajeno, was correctly held liable by the trial court because she purchased at public auction the
properties of the partnership which were mortgaged to her.
It does not appear that the withdrawal of Margarita G. Saldajeno from the partnership was published in
the newspapers. The appellees and the public in general had a right to expect that whatever, credit they
extended to Leon Garibay and Timoteo Tubungbanua doing the business in the name of the partnership
"Isabela Sawmill" could be enforced against the proeprties of said partnership. The judicial foreclosure
of the chattel mortgage executed in favor of Margarita G. Saldajeno did not relieve her from liability to
the creditors of the partnership.
The appellant, margrita G. Saldajeno, cannot complain. She is partly to blame for not insisting on the
liquidaiton of the assets of the partnership. She even agreed to let Leon Garibay and Timoteo
Tubungbanua continue doing the business of the partnership "Isabela Sawmill" by entering into the
memorandum-agreement with them.
Although it may be presumed that Margarita G. Saldajeno had action in good faith, the appellees aslo
acted in good faith in extending credit to the partnership. Where one of two innocent persons must suffer,
that person who gave occasion for the damages to be caused must bear the consequences. Had
Margarita G. Saldajeno not entered into the memorandum-agreement allowing Leon Garibay and
Timoteo Tubungbanua to continue doing the business of the aprtnership, the applees would not have
been misled into thinking that they were still dealing with the partnership "Isabela Sawmill". Under the
facts, it is of no moment that technically speaking the partnership "Isabela Sawmill" was dissolved by the
withdrawal therefrom of Margarita G. Saldajeno. The partnership was not terminated and it continued
doping business through the two remaining partners.
The contention of the appellant that the appleees cannot bring an action to annul the chattel mortgage
of the propertiesof the partnership executed by Leon Garibay and Timoteo Tubungbanua in favor of
Margarita G. Saldajeno has no merit.
As a rule, a contract cannot be assailed by one who is not a party thereto. However, when a contract
prejudices the rights of a third person, he may file an action to annul the contract.
This Court has held that a person, who is not a party obliged principally or subsidiarily under a contract,
may exercised an action for nullity of the contract if he is prejudiced in his rights with respect to one of
the contracting parties, and can show detriment which would positively result to him from the contract in
which he has no intervention. 21
The plaintiffs-appellees were prejudiced in their rights by the execution of the chattel mortgage over the
properties of the partnership "Isabela Sawmill" in favopr of Margarita G. Saldajeno by the remaining
partners, Leon Garibay and Timoteo Tubungbanua. Hence, said appelees have a right to file the action
to nullify the chattel mortgage in question.
The portion of the decision appealed from ordering the appellants to pay attorney's fees to the plaintiffs-
appellees cannot be sustained. There is no showing that the appellants displayed a wanton disregard of
the rights of the plaintiffs. Indeed, the appellants believed in good faith, albeit erroneously, that they are
not liable to pay the claims.
The defendants-appellants have a right to be reimbursed whatever amounts they shall pay the appellees
by their co-defendants Leon Garibay and Timoteo Tubungbanua. In the memorandum-agreement, Leon
Garibay and Timoteo Tubungbaun undertook to release Margarita G. Saldajeno from any obligation of
"Isabela Sawmill" to third persons. 22
WHEREFORE, the decision appealed from is hereby affirmed with the elimination of the portion ordering
appellants to pay attorney's fees and with the modification that the defendsants, Leon Garibay and
Timoteo Tubungbanua, should reimburse the defendants-appellants, Margarita G. Saldajeno and her
husband Cecilio Saldajeno, whatever they shall pay to the plaintiffs-appellees, without pronouncement
as to costs.
Lota vs Tolentino 90 Phil 829
URBANO LOTA (Substituted by SOLOMON LOTA in his capacity as Administrator of the Estate
of URBANO LOTA), plaintiff-appellant,
vs.BENIGNO TOLENTINO, defendant-appellee.
Manuel P. Calanog and Jose A. Buendia for

This is an appeal from a resolution of the Court of First Instance of Batangas of May 4, 1949, worded in
full as follows:
On April 6, 1949, counsel for plaintiff filed a motion praying that deceased defendant be substituted by
his heirs, Marta Sadiasa and Efigenia, Resurreccion and Mercedes, all surnamed Tolentino, as parties
defendant in this case. To said motion counsel for defendant interposed an opposition upon the following
grounds:
That the nature of the action for accounting and liquidation of the partnership filed by plaintiff since March
3, 1937, is purely personal in character and, upon the death of the defendant on November 22, 1939,
the claim was already extinguished. II. Assuming that the action for accounting and liquidation of the
partnership is not purely personal in character and that such claim is not yet extinguished, the case
should now be dismissed in view of the failure of the plaintiff to prosecute his action for an unreasonable
length of time. III. Assuming further that the plaintiff's claim was not yet extinguished upon the death of
the defendant on November 22, 1939, the rights, if any, sought to be enforced by the plaintiff in the
complaint have already been lost by claches.
The question before the Court therefore is whether the motion for substitution should be granted and the
case allowed to go to trial on the merits, or whether the defendant's opposition should be sustained and
the case dismissed. The following factual background appears of record:
On March 3, 1937, plaintiff filed an action against defendant to order the latter (a) to render an accounting
of his management of their partnership, and (b) to deliver the plaintiff whatever share he may have in the
assets of the partnership after the liquidation has been approved by the Court.
The partnership above-mentioned was entered into by and between plaintiff and defendant in the year
1918, whereby they agreed to engage in general business in the municipality of Alabat, province of
Batangas, both to divide the profits and losses share alike, and defendant to be manager of the
partnership. Plaintiff alleges that from 1918 until 1928 defendant had rendered an annual accounting,
but has refused to do so from 1929 to 1937, hence, plaintiff's complaint.
To plaintiff's complaint, defendant filed an answer, alleging that defendant was the industrial partner in
said partnership; that he rendered a yearly accounting and liquidation thereof from 1918 to 1932, and
that in the latter year, 1932, the partnership was dissolved and defendant delivered all its properties and
assets to the plaintiff. Hence, defendant prays for the dismissal of plaintiff's complaint.
The plaintiff died in 1938, and on September 28, 1939, he was substituted by the administrator of his
estate, Solomon Lota.
On December 8, 1939, defendant's counsel made a suggestion upon the record that defendant died on
November 26, 1939. On January 9, 1940, the Court gave plaintiff 30 days to amend the complaint by
substituting for the deceased defendant the administrator of his estate or his legal representative.
On January 28, 1941, the Court ordered the dismissal of the case for lack of prosecution. This order was
reconsidered and set aside upon a showing by plaintiff that on March 28, 1941, he had filed a petition
for the issuance of letters of administration to deceased defendant's surviving spouse, Marta Sadiasa,
for the purpose of substituting her for the deceased defendant, said petition being Special Proceedings
No. 3859 of this Court entitled "Intestate Estate of the late Benigno Tolentino, Solomon Lota, petitioner."
This special proceedings was, however, dismissed for failure of the administratrix to file a bond and to
take her oath.
It will thus be seen that from defendant's death on November 26, 1939, to the present, or almost ten
years, no administrator or legal representative had been actually substituted to take the place of said
defendant. It was only on April 6, 1949, that plaintiff made another try to substitute said deceased by
filing his motion, referred to in the first paragraph of this resolution, praying that defendant's heirs be
substituted for him as parties defendant.
The following considerations stand in the way of plaintiff's motion for substitution:
1. It being undisputed that defendant was the manager of the partnership formed by and between him
and the plaintiff, and that said defendant died on November 26, 1939, during the pendency of the present
for accounting and liquidation against defendant, the said action should have been discontinued as it
could no longer be maintained against deceased defendant. Under these circumstances, the remedy
and duty of the plaintiff are as set out in the following ruling of the Supreme Court in Po Yeng
Cheo vs. Lim Ka Yam, (44 Phil. 172, 178):
In the first place, it is well settled that when a member of a mercantile partnership dies, the duty of
liquidating its affairs devolves upon the surviving member, or members of the firm, not upon the legal
representative of the deceased partner. (Wahl vs. Donaldson Sim and Co., 5 Phil., 11; Sugo and
Shibata vs. Green, 6 Phil., 744). And the same rule must be equally applicable to a civil partnership
clothed with the form of the commercial association (ART. 1670, Civil Code; Lichauco vs. Lichauco, 33
Phil., 350).
If, as it appears of record, plaintiff died prior to defendant's death, the duty to liquidate devolved upon
the legal representative of the plaintiff because it was the latter who sought to establish a claim against
the defendant.
2. If after such liquidation, there should be found money or property due the partnership from the
deceased defendant, a claim therefor should be filed against the latter's estate in administration. Again,
this is the procedure marked out in the case just cited:
Upon the death of Lim Ka Yam it therefore become the duty of his surviving associates to take the proper
steps to settle the affairs of the firms, and any claim against him, or his estate, for a sum of money due
to the partnership by reason of any misappropriation of its funds by him or damages resulting from his
wrongful acts as a manager, should be prosecuted against his estate in administration in the manner
pointed out in sections 686 to 701, inclusive, of the Code of Civil Procedure. Moreover, when it appears,
as here, that the property pertaining to Kwong Cheong Tay, like the shares in the Ya sieng Chyip Konski
and Manila Electric Railroad and Light Company, are in the possession of the deceased partner, the
proper step for the surviving associates to take would be to make application to the court having charge
of the administration to require the administration to surrender such property. (Po Yeng Cheo vs. Lim Ka
Yam, supra.)
This procedure was not also followed in the case at bar because plaintiff, or his legal representative, did
not procure the appointment and qualification of an administrator of the estate of deceased defendant,
altho he had already filed a petition looking towards such administration. This plaintiff was under a duty
to do if he considered himself a creditor with a legitimate claim enforceable against the estate of
deceased defendant.
3. What plaintiff, or his legal representative, insisted on doing in the present case is to continue and
press his action for accounting and liquidation against the heirs of deceased defendant, a procedure
which, as above stated, runs counter to that set out in the Po Yeng Cheo vs. Lim Ka Yam case. But even
in this, plaintiff, or his legal representative, proceeded half-heartedly, because he only filed a petition for
the appointment of an administrator for the estate of deceased defendant, but did not see to it that
administrator filed a bond and qualify as such. Hence, the said petition for administration was dismissed
4. Also, conceding, without admitting, that the present action for accounting would lie against defendant,
it is this Court's opinion that such a duty to account died with the defendant, was extinguished upon his
death, and was not shifted upon his heirs. The heirs of the defendant have never been partners in the
partnership formed by and between plaintiff and defendant, and said heirs are hardly in a position and
hardly called upon to effect an accounting of said partnership.
5. Finally, it will be recalled that the partnership in question was organized in 1918 and dissolved in 1932.
The action for accounting was commenced on March 3, 1937. And the present motion for substitution
was filed on April 6, 1949, only. Trial on the merits at this late date might prove futile and fruitless if no
partnership property is found in the possession of defendant's heirs, let alone the allegation of said
defendant in his answer to the complaint back in 1937 that he had already delivered all the properties
and assets of the partnership to the plaintiff. If the principle of laches is ever to be applied, it should be
applied to this case.
Wherefore, the plaintiff's action for substitution is denied and defendant's prayer for the dismissal for this
case against the plaintiff.
The present appellant is Solomon Lota, in his capacity as administrator of the estate of Urbano Lota,
original plaintiff, who died in l938. The decisive question that arises is whether or not, after the death of
the defendant Benigno Tolentino on November 22, 1939, plaintiff's action for accounting and liquidation
of the partnership formed in l918 between Urbano Lota and Benigno Tolentino, of which the latter was
the industrial and managing partner, may be continued against the heirs of Benigno Tolentino. This
question was decided adversely to the appellant by the lower court and, in our opinion, correctly. The
applicable authority is the case of Po Yeng Cheo vs. Lim Ka Yam, 44 Phil. 172, in which the following
pronouncements were made:
In the first place, it is well settled that when a member of a mercantile partnership dies, the duty of
liquidating its affairs devolves upon the surviving member, or members, of the firm, not upon the legal
representatives of the deceased partner. (Wahl vs. Donaldson Sim and Co., 5 Phil., 11; Sugo and
Shibata vs. Green, 6 Phil., 744.) And the same rule must be equally applicable to a civil partnership
clothed with the form of a commercial association (art. 1670, Civil Code: Lichauco vs. Licahuco, 33 Phil.,
350). Upon the death of Lim Ka Yam it therefore become the duty of his surviving associates to take the
proper steps to settle the affairs of the firm, and any claim against him, or his state, for a sum of money
due to the partnership by reason of any misappropriation of its funds by him, or for damages resulting
from his wrongful acts as manager, should be prosecuted against his estate in administration in the
manner pointed out in sections 686 to 701, inclusive, of the Code of Civil Procedure. Moreover, when it
appears, as here, that the property pertaining to Kwong Cheong Tay, like the shares in the Yut Siong
Chyip Konski and Manila Electric Railroad and Light Company, are in the possession of the partner, the
proper step for the surviving associates to take would be to make application to the court having charge
of the administration to require the administrator to surrender such property.
But in the second place, as already indicated, the proceedings in this cause, considered in the character
of an action for an accounting, were futile; and the court, abandoning entirely the effort to obtain an
accounting, gave judgment against the administrator upon the supposed liability of his intestate to
respond for the plaintiffs proportionate share of the capital and assets. But of course the action was not
maintenable in this aspect after the death of the defendant; and the motion to discontinue the action
against the administrator should have been granted. (pp. 178-179.)
Another ground equally decisive against the appellant correctly advanced by the lower court in
dismissing the present action for accounting, is lack of prosecution on the part of the appellant. It may
be fittingly recalled that the action for accounting and liquidation was filed on March 3, l937. No sooner
had the defendant Benigno Tolentino died on November 22, l939, than said fact was made record by his
attorney. On January 9, 1940, the lower court gave the plaintiff (who had then died and was substituted
on September 28, 1939, by the administrator of his estate, Solomon Lota), 30 days to amend the
complaint by substituting the administrator or legal representative of the deceased defendant Benigno
Tolentino. On January 28, 1941, the lower court dismissed the case for lack of prosecution on the part
of the plaintiff, but the order of dismissal was reconsidered, upon a showing by the plaintiff that on March
28, 1941, an administration proceeding for the estate of Benigno Tolentino was instituted by the plaintiff.
On August 8, 1941 the lower court issued, at the instance of the plaintiff, letters of administration to
Tolentino's surviving spouse, Marta Sadiasa, who however failed to qualify. Accordingly, the court
dismissed the administration proceeding on January 3, 1949, for lack of interest. It was only as late as
April 6, l949, that the plaintiff filed the motion to substitute, not even the legal representative of Benigno
Tolentino but his heirs.
If the plaintiff was genuinely interested in substituting the proper party, assuming that plaintiff's action
may still be pursued after Tolentino's death, he should have taken timely measures to have the
administratrix appointed on August 8, 1941, qualify or, in case of her failure or refusal, to procure the
appointment of another administrator; because the plaintiff could have availed himself of section 6, Rule
80, of the Rules of Court, providing that "letters of administration may be granted to any qualified
applicant, though it appears that there are other competent persons having better right to the
administration, if such persons fail to appear when notified and claim the issuance of letters to
themselves." Certainly, inaction for almost eight years (after the issuance of letters of administration) on
the part of the appellant, sufficiently implies indifference to or desistance from its suit.
The theory of the appellant is that the heirs may properly be substituted for the deceased Benigno
Tolentino, because they are in possession of property allegedly belonging to the partnership in question,
and the appellant seeks the recovery thereof. Apart from the fact that said allegation seems to refer to
cause of action foreign to the claim for accounting and liquidation against Tolentino, and should have
been made in proper pleading to duly admitted by the lower court, the filing of appellant's motion for
substitution more than twelve years after the institution of the complaint came too late and already called
for the prosecution. It is immaterial that, before the appealed resolution was issued by the lower court,
the appellant attempted to have the deceased defendant had not yet been properly substituted.
The resolution herein complained of will therefore be as it is hereby affirmed, with costs against the
appellant. S

Goquilay bs Sycip 108 Phil 947

ANTONIO C. GOQUIOLAY and THE PARTNERSHIP "TAN SIN AN and ANTONIO C.
GOQUIOLAY", Plaintiffs-Appellants, v. WASHINGTON Z. SYCIP, ET AL., Defendants-
Appellees. Jose C. Colayco, Manuel O. Chan and Padilla Law Offices for Appellants.

1. PARTNERSHIP; MANAGEMENT, RIGHT OF EXCLUSIVE; PERSONAL RIGHT; TERMINATION

UPON MANAGER-PARTNERS DEATH. The right of exclusive management conferred upon Tan Sin
An, being premised upon trust and confidence, was a mere personal right that terminated upon Tans
demise.

2. ARTICLES OF CO-PARTNERSHIP; RIGHT OF HEIRS TO REPRESENT DECEASED PARTNER;

MANAGERIAL RIGHT; PROPRIETARY INTEREST. The provision in the Articles of Co-Partnership
stating that "in the event of death of any one of the partners within the 10-year term of the partnership,
the deceased partner shall be represented by his heirs", could not have referred to the managerial right
given to Tan Sin An; more appropriately, it relates to the succession in the proprietary interest of each
partner.
3. ID.; ID.; EFFECT OF HEIRS FAILURE TO REPUDIATE; HEIRS BECOME INDIVIDUAL PARTNERS;
MINORITY OF HEIRS. Consonant with the articles of co-partnership providing for the continuation of
the firm notwithstanding the death of one of the partners, the heirs of the deceased, by never repudiating
or refusing to be bound under the said provision in the articles, became individual partners with Antonio
Goquiolay upon Tans demise. Minority of the heirs is not a bar to the application of that clause in the
articles of co-partnership. Heirs liability in the partnership being limited to the value of their importance,
they become no more than limited partners, when they manifest their intent to be bound as general
partners.

4. ID.; SALE OF PARTNERSHIP PROPERTIES; CONSENT OF ALL PARTNERS UNNECESSARY;

STRANGERS DEALING WITH PARTNERSHIPS; POWER TO BIND PARTNERSHIP. As to whether
or not the consent of the other partners was necessary to perfect the sale of the partnership properties,
the Court believes that it is not. Strangers dealing with a partnership have the right to assume, in the
absence of restrictive clauses in the co- partnership agreement, that every general partner has power to
bind the partnership.

5. ID.; ID.; ESTOPPEL. By allowing defendant Kong Chai Pin to retain control of the partnership
properties from 1942 to 1949, plaintiff Goquiolay estopped himself from denying her (Kong Chai Pins)
legal representation of the partnership, with the power to bind it by proper contracts.

6. PARTNERSHIP; GENERAL PARTNER BY ESTOPPEL; WIDOW OF MANAGING PARTNER

AUTHORIZED BY OTHER PARTNER TO MANAGE PARTNERSHIP. By authorizing the widow of
the managing partner to manage partnership property (which a limited partner could not be authorized
to do), the other general partner recognized her as a general partner, and is now in estoppel to deny her
position as a general partner, with authority to administer and alienate partnership property.

7. ID.; HEIR OF PARTNER, STATUS ORDINARILY AS LIMITED PARTNER BUT MAY WAIVE IT AND
BECOME AS GENERAL PARTNER. Although the heir of a partner ordinarily becomes a limited
partner for his own protection, yet the heir may disregard it and instead elect to become a collective or
general partner, with all the rights and obligations of one. This choice pertains exclusively to the heir,
and does not require the assent of the surviving partner.

8. ID.; PRESUMPTIONS; AUTHORITY OF PARTNER TO DEAL WITH PROPERTY. A third person

has the right to presume that a general partner dealing with partnership property has the requisite
authority from his co-partners.

9. ID.; PROPERTY OF PARTNERSHIP; SALE OF IMMOVABLES, WHEN CONSIDERED WITHIN THE

ORDINARY POWERS OF A GENERAL PARTNER. Where the express and avowed purpose of the
partnership is to buy and sell real estate (as in the present case), the immovables thus acquired by the
firm form part of its stock-in-trade, and the sale thereof is in pursuance of partnership purposes, hence
within the ordinary powers of the partner.

10. ID.; SALE OF PARTNERSHIP PROPERTY; ACTION FOR RESCISSION ON GROUND OF FRAUD;
NO INADEQUACY OF PRICE; CASE AT BAR. Appellants claim that the price was inadequate, relies
on the testimony of a realtor, who in 1955, six years after the sale in the question, asserted that the land
was by then worth double the price for which it was sold. But taking into account the continued rise of
real estate values since liberation, and the fact that the sale in question was practically a forced sale
because the partnership has no other means to pay the legitimate debts, this evidence certainly does
not show such "gross inadequacy" as to justify the rescission of the sale.

11. ID.; ID.; ID.; RELATIONSHIP ALONE IN NO BADGE OF FRAUD. The Supreme court has ruled
that relationship alone is not a badge of fraud (Oria Hnos. v. McMicking, 21 Phil., 243; Hermandad de
Smo. Nombre de Jesus v. Sanchez, 40 Official Gazette 1685).

12. ID.; ID.; ID.; FRAUD OF CREDITORS DISTINGUISHED FROM FRAUD TO OBTAIN CONSENT.
Fraud used to obtain a partys consent to a contract (deceit or dolus in contrahendo) is different from
fraud of creditors that gives rise to a rescission of contract.

13. ID.; ID.; ID.; SUBSIDIARY NATURE; ALLEGATION OF NO OTHER MEANS TO OBTAIN
REPARATION, NECESSARY. The action for rescission is subsidiary; it can not be instituted except
when the party suffering damage has no other legal means to obtain reparation for the same. hence, if
there is no allegation or evidence that the plaintiff can not obtain reparation from the widow and heirs of
the deceased partner, the suit to rescind the sale in question s not maintainable, even if the fraud charged
actually did exist.

Direct appeal from the decision of the Court of First Instance of Davao (the amount involved being more
than P200,000) dismissing the plaintiffs-appellants complaint.

From the stipulation of facts of the parties and the evidence on record, it would appear that on May 29,
1940, Tan Sin An and Antonio C. Goquiolay entered into a general commercial partnership under the
partnership name "Tan Sin An and Antonio C. Goquiolay", for the purpose of dealing in real estate. The
partnership had a capital of P30,000.00, P18,000.00 of which was contributed by Goquiolay and
P12,000.00 by Tan Sin An. The agreement lodged upon Tan Sin An the sole management of the
partnership affairs, stipulating that

"III. The co-partnership shall be composed of said Tan Sin An as sole managing and partner (sic), and
Antonio C. Goquiolay as co-partner.

"VIII. The affairs of the co-partnership shall be managed exclusively by the managing and partner (sic)
or by his authorized agent, and it is expressly stipulated that the managing and partner (sic) may delegate
the entire management of the affairs of the co- partnership by irrevocable power of attorney to any
person, firm or corporation he may select upon such terms as regards compensation as he may deem
proper, and vest in such person, firm or corporation full power and authority, as the agent of the co-
partnership and in his name, place and stead to do anything for it or on his behalf which he as such
managing and partner (sic) might do or cause to be done.

"IX. The co-partner shall have no voice or participation in the management of the affairs of the co-
partnership; but he may examine its accounts once every six (6) months at any time during ordinary
business hours, and in accordance with the provisions of the Code of Commerce." (Articles of Co-
Partnership).

The lifetime of the partnership was fixed at ten (10) years and also that

"In the event of the death of any of the partners at any time before the expiration of said term, the co-
partnership shall not be dissolved but will have to be continued and the deceased partner shall be
represented by his heirs or assigns in said co-partnership" (Art. XII, Articles of Co-Partnership).

However, the partnership could be dissolved and its affairs liquidated at any time upon mutual agreement
in writing of the partners (Art. XIII, articles of Co-Partnership).

On May 31, 1940, Antonio Goquiolay executed a general power of attorney to this effect:jgc:
"That besides the powers and duties granted the said Tan Sin An by the articles of co-partnership of said
co-partnership "Tan Sin An and Antonio Goquiolay", the said Tan Sin An should act as my Manager for
said co-partnership for the full period of the term for which said co-partnership was organized or until the
whole period that the said capital of P30,000.00 of the co-partnership should last, to carry on to the best
advantage and interest of the said co-partnership, to make and execute, sign, seal and deliver for the
co-partnership, and in its name, all bills, bonds, notes, specialties, and trust receipts or other instruments
or documents in writing whatsoever kind or nature which shall be necessary to the proper conduction of
the said businesses, including the power to mortgage and pledge real and personal properties, to secure
the obligation of the co-partnership, to buy real or personal properties for cash or upon such terms as he
may deem advisable, to sell personal or real properties, such as lands and buildings of the co-partnership
in any manner he may deem advisable for the best interest of said co-partnership, to borrow money on
behalf of the co-partnership and to issue promissory notes for the repayment thereof, to deposit the
funds of the co-partnership in any local bank or elsewhere and to draw checks against funds so deposited
. . .

On May 29, 1940, the plaintiff partnership "Tan Sin An and Goquiolay" purchased the three (3) parcels
of land, known as Lots Nos. 526, 441 and 521 of the Cadastral Survey of Davao, subject-matter of the
instant litigation, assuming the payment of a mortgage obligation of P25,000.00, payable to "La Urbana
Sociedad Mutua de Construccin y Prestamos" for a period of ten (10) years, with 10% interest per
annum. Another 46 parcels were purchased by Tan Sin An in his individual capacity, and he assumed
payment of a mortgage debt thereon for P35,000.00, with interest. The down payment and the
amortization were advanced by Yutivo and Co., for the account of the purchasers.

On September 25, 1940, the two separate obligations were consolidated in an instrument executed by
the partnership and Tan Sin An, whereby the entire 49 lots were mortgaged in favor of the "Banco
Hipotecario de Filipinas" (as successor to "La Urbana") and the covenantors bound themselves to pay,
jointly and severally, the remaining balance of their unpaid accounts amounting to P52,282.80 within
eight 8 years, with 8% annual interest, payable in 96 equal monthly installments.

On June 26, 1942, Tan Sin An died, leaving as surviving heirs his widow, Kong Chai Pin, and four minor
children, namely: Tan L. Cheng, Tan L. Hua, Tan C. Chiu and Tan K. Chuan. Defendant Kong Chai Pin
was appointed administratrix of the intestate estate of her deceased husband.

In the meantime, repeated demands for payment were made by the Banco Hipotecario on the
partnership and on Tan Sin An. In March, 1944, the defendant Sing Yee and Cuan, Co., Inc., upon
request of defendant Yutivo Sons Hardware Co., paid the remaining balance of the mortgage debt, and
the mortgage was cancelled.

Then in 1946, Yutivo Sons Hardware Co. and Sing Yee and Cuan Co., Inc. filed their claims in the
intestate proceedings of Tan Sin An for P62,415.91 and P54,310.13, respectively, as alleged obligations
of the partnership "Tan Sin An and Antonio C. Goquiolay" and Tan Sin An, for advances, interests and
taxes paid in amortizing and discharging their obligations to "La Urbana" and the "Banco Hipotecario."
Disclaiming knowledge of said claims at first, Kong Chai Pin later admitted the claims in her amended
answer and they were accordingly approved by the Court.

On March 29, 1949, Kong Chai Pin filed a petition with the probate court for authority to sell all the 49
parcels of land to Washington Z, Sycip and Betty Y. Lee, for the purpose primarily of settling the aforesaid
debts of Tan Sin An and the partnership. Pursuant to a court order of April 2, 1949, the administratrix
executed on April 4, 1949, a deed of sale 1 of the 49 parcels of land to the defendants Washington Sycip
and Betty Lee in consideration of P37,000.00 and of vendees assuming payment of the claims filed by
Yutivo Sons Hardware Co. and Sing Yee and Cuan Co., Inc. Later, in July, 1949, defendants Sycip and
Betty Lee executed in favor of the Insular Development Co., Inc. a deed of transfer covering the said 49
parcels of land.

Learning about the sale to Sycip and Lee, the surviving partner Antonio Goquiolay filed, on or about July
25, 1949, a petition in the intestate proceedings seeking to set aside the order of the probate court
approving the sale in so far as his interest over the parcels of land sold was concerned. In its order of
December 29, 1949, the probate court annulled the sale executed by the administratrix with respect to
the 60% interest of Antonio Goquiolay over the properties sold. King Chai Pin appealed to the Court of
Appeals, which court later certified the case to us (93 Phil., 413; 49 Off. Gaz. [7] 2307). On June 30,
1953, we rendered decision setting aside the orders of the probate court complained of and remanding
the case for new trial, due to the non-inclusion of indispensable parties. Thereafter, new pleadings were
filed.

The second amended complaint in the case at bar prays, among other things, for the annulment of the
sale in favor of Washington Sycip and Betty Lee, and their subsequent conveyance in favor of the Insular
Development Co., Inc., in so far as the three (3) lots owned by the plaintiff partnership are concerned.
The answer averred the validity of the sale by Kong Chai Pin as successor partner, in lieu of the late Tan
Sin An. After hearing, the complaint was dismissed by the lower court in its decision dated October 30,
1956; hence, this appeal taken directly to us by the plaintiffs, as the amount involved is more than
P200,000.00. Plaintiffs-appellants assign as errors that

"I. The lower court erred in holding that Kong Chai Pin became the managing partner of the partnership
upon the death of her husband, Tan Sin An, by virtue of the articles of Partnership executed between
the Tan Sin An and Antonio Goquiolay, and the general power of attorney granted by Antonio Goquiolay.

II The lower court erred in holding that Kong Chai Pin could act alone as sole managing partner in
view of the minority of the other heirs.

III The lower court erred in holding that Kong Chai Pin was the only heir qualified to act as managing
partner.

IV The lower court erred in holding that Kong Chai Pin had authority to sell the partnership properties
by virtue of the articles of partnership and the general power of attorney granted to Tan Sin An in order
to pay the partnership indebtedness.

V The lower court erred in finding that the partnership did not pay its obligation to the Banco
Hipotecario.

VI The lower court erred in holding that the consent of Antonio Goquiolay was not necessary to
consummate the sale of the partnership properties.

VII The lower court erred in finding that Kong Chai Pin managed the business of the partnership after
the death of her husband, and that Antonio Goquiolay knew it.

VIII The lower court erred in holding that the failure of Antonio Goquiolay to oppose the management
of the partnership by Kong Chai Pin estops him now from attacking the validity of the sale of the
partnership properties.

IX The lower court erred in holding that the buyers of the partnership properties acted in good faith.

X The lower court erred in holding that the sale was not fraudulent against the partnership and Antonio
Goquiolay.

XI The lower court erred in holding that the sale was not only necessary but beneficial to the
partnership.

XII The lower court erred in dismissing the complaint and in ordering Antonio Goquiolay to pay the
costs of suit."cralaw virtua1aw library

There is merit in the contention that the lower court erred in holding that the widow, Kong Chai Pin,
succeeded her husband, Tan Sin An, in the sole management of the partnership, upon the latters death.
While, as we previously stated in our narration of facts, the Articles of Co-Partnership and the power of
attorney executed by Antonio Goquiolay conferred upon Tan Sin An the exclusive management of the
business, such power, premised as it is upon trust and confidence, was a mere personal right that
terminated upon Tans demise. The provision in the articles stating that "in the event of death of any one
of the partners within the 10-year term of the partnership, the deceased partner shall be represented by
his heirs", could not have referred to the managerial right given to Tan Sin An; more appropriately, it
related to the succession in the proprietary interest of each partner. The covenant that Antonio Goquiolay
shall have no voice or participation in the management of the partnership, being a limitation upon his
right as a general partner, must be held coextensive only with Tans right to manage the affairs, the
contrary not being clearly apparent.

Upon the other hand, consonant with the articles of co- partnership providing for the continuation of the
firm notwithstanding the death of one of the partners, the heirs of the deceased, by never repudiating or
refusing to be bound under the said provision in the articles, became individual partners with Antonio
Goquiolay upon Tans demise. The validity of like clauses in partnership agreements is expressly
sanctioned under Article 222 of the Code of Commerce. 1

Minority of the heirs is not a bar to the application of that clause in the articles of co-partnership (2
Vivante, Tratado de Derecho Mercantil, 493; Planiol, Traite Elementaire de Droit Civil, English translation
by the Louisiana State Law Institute, Vol. 2, Pt. 2, p. 177).

Appellants argue, however, that since the "new" members liability in the partnership was limited merely
to the value of the share or estate left by the deceased Tan Sin An, they became no more than limited
partners and, as such, were disqualified from the management of the business under Article 148 of the
Code of Commerce. Although ordinarily, this effect follows from the continuance of the heirs in the
partnership, 2 it was not so with respect to the widow Kong Chai Pin, who, by her affirmative actions,
manifested her intent to be bound by the partnership agreement not only as a limited but as a general
partner. Thus, she managed and retained possession of the partnership properties and was admittedly
deriving income therefrom up to and until the same were sold to Washington Sycip and Betty Lee. In
fact, by executing the deed of sale of the parcels of land in dispute in the name of the partnership, she
was acting no less than as a managing partner. Having thus preferred to act as such, she could be held
liable for the partnership debts and liabilities as a general partner, beyond what she might have derived
only from the estate of her deceased husband. By allowing her to retain control of the firms property
from 1942 to 1949, plaintiff estopped himself to deny her legal representation of the partnership, with the
power to bind it by proper contracts.

The question now arises as to whether or not the consent of the other partners was necessary to perfect
the sale of the partnership properties to Washington Sycip and Betty Lee. The answer is, we believe, in
the negative. Strangers dealing with a partnership have the right to assume, in the absence of restrictive
clauses in the co-partnership agreement, that every general partner has power to bind the partnership,
specially those partners acting with ostensible authority. And so, we held in one case:jgc:

". . . Third persons, like the plaintiff, are not bound in entering into a contract with any of the two partners,
to ascertain whether or not this partner with whom the transaction is made has the consent of the other
partner. The public need not make inquiries as to the agreements had between the partners. Its
knowledge is enough that it is contracting with the partnership which is represented by one of the
managing partners.

There is a general presumption that each individual partner is an agent for the firm and that he has
authority to bind the firm in carrying on the partnership transactions. [Mills v. Riggle, 112 Pac., 617]

The presumption is sufficient to permit third persons to hold the firm liable on transactions entered into
by one of the members of the firm acting apparently in its behalf and within the scope of his authority.
[Le Roy v. Johnson, 7 U.S. Law, Ed., 391](George Litton v. Hill & Ceron, Et Al., 67 Phil., 513-514)."cralaw
virtua1aw library

We are not unaware of the provision of Article 129 of the Code of Commerce to the effect that

"If the management of the general partnership has not been limited by special agreement to any of the
members, all shall have the power to take part in the direction and management of the common business,
and the members present shall come to an agreement for all contracts or obligations which may concern
the association." (Emphasis supplied)

but this obligation is one imposed by law on the partners among themselves, that does not necessarily
affect the validity of the acts of a partner, while acting within the scope of the ordinary course of business
of the partnership, as regards third persons without notice. The latter may rightfully assume that the
contracting partner was duly authorized to contract for and in behalf of the firm and that, furthermore, he
would not ordinarily act to the prejudice of his co- partners. The regular course of business procedure
does not require that each time a third person contracts with one of the managing partners, he should
inquire as to the latters authority to do so, or that he should first ascertain whether or not the other
partners had given their consent thereto. In fact, Article 130 of the same Code of Commerce provides
that even if a new obligation was contracted against the express will of one of the managing partners, "it
shall not be annulled for such reason, and it shall produce its effects without prejudice to the responsibility
of the member or members who contracted it, for the damages they may have caused to the common
fund."cralaw virtua1aw library

Cesar Vivante (2 Tratado de Derecho Mercantil, pp. 114-115) points out:jgc:

"367. Primera hipotesis. A falta de factos especiales, la facultad de administrar corresponde a cada
socio personalmente. No hay que esperar ciertamente concordia con tantas cabezas, y para cuando no
vayan de acuerdo, la disciplina del Cdigo no ofrece un sistema eficaz que evite los inconvenientes.
Pero, ante el silencio del contrato, debia quiza el legislador privar de la administracin a uno de los
socios en beneficio del otro? Seria una arbitrariedad. Debera quiza declarar nula la Sociedad que no
haya elegido Administrador? El remedio seria peor que el mal. Debera, tal vez, pretender que todos los
socios concurran en todo acto de la Sociedad? Pero este concurso de todos habria reducido a la
impotencia la administracin, que es asunto de todos los dias y de todas horas. Hubieran sido
disposiciones menos oportunas que lo adoptado por el Cdigo, el cual se confia al espiritu de reciproca
confianza que deberia animar la colaboracin de los socios, y en la ley inflexible de responsabilidad que
implica comunidad en los intereses de los mismos.

En esta hiptesis, cada socio puede ejercer todos los negocios comprendidos en el contrato social sin
dar de ello noticia a los otros, porque cada uno de ellos ejerce la administracin en la totalidad de sus
relaciones, salvo su responsabilidad en el caso de una administracin culpable. Si debiera dar noticia,
el beneficio de su simultania actividad, frecuentemente distribuida en lugares y en tiempos diferentes,
se echaria a perder. Se objetara el que de esta forma, el derecho de oposicin de cada uno de los socios
puede quedar frustrado. Pero se puede contestar que este derecho de oposicin concedido por la ley
como un remedio excepcional, debe subordinarse al derecho de ejercer el oficio de Administrador, que
el Cdigo concede sin limite: se presume que los socios se han concedido reciprocamente la facultad
de administrar uno para otro. Se haria precipitar esta hiptesis en la otra de una administracin colectiva
(art. 1.721, Cdigo Civil) y se acabaria con pedir el consentimiento, a lo menos tacito, de todos los socios
lo que el Cdigo excluye . . ., si se obligase al socio Administrador a dar noticia previa del negocio a
los otros, a fin de que pudieran oponerse si no consintieran."cralaw virtua1aw library

Commenting on the same subject, Gay de Montella (Cdigo de Comercio, Tomo II, 147-148) opines:jgc:
"Para obligar a las Compaias enfrente de terceros (art. 128 del Cdigo), no es bastante que los actos
y contratos hayan sido ejecutados por un socio o varios en nombre colectivo, sino que es preciso el
concurso de estos dos elementos, uno, que el socio o socios tengan reconocida la facultad de
administrar la Compaia, y otro, que el acto o contrato haya sido ejecutado en nombre de la Sociedad
y usando de su firma social. Asi es que toda obligacin contraida bajo la razon social, se presume
contraida por la Compaia. Esta presuncion es impuesta por motivos de necesidad practica. El tercero
no puede cada vez que trata con la Compaia, inquirir si realmente el negocio concierne a la Sociedad.
La presuncion es juris tantum y no juris et de jure, de modo que si el gerente suscribe bajo la razn
social una obligacin que no interesa a la Sociedad, ste podra rechazar la accin del tercero probando
que el acreedor conocia que la obligacin no tenia ninguna relacin con ella. Si tales actos y contratos
no comportasen la concurrencia de ambos elementos, serian nulos y podria decretarse la
responsabilidad civil o penal contra sus autores.
En el caso que tales actos o contratos hayan sido tacitamente aprobados por la Compaia, o
contabilizados en sus libros, si el acto o contrato ha sido convalidado sin protesta y se trata de acto o
contrato que ha producido beneficio social, tendria plena validez, aun cuando le faltase algunos o ambos
de aquellos requisitos antes sealados.

Cuando los Estatutos o la escritura social no contienen ninguna clausula relativa al nombramiento o
designacin de uno o mas de un socio para administrar la Compaia (art. 129 del Cdigo) todos tienen
por un igual el derecho de concurir a la decisin y manejo de los negocios comunes . . ."cralaw virtua1aw
library

Although the partnership under consideration is a commercial partnership and, therefore, to be governed
by the Code of Commerce, the provisions of the old Civil Code may give us some light on the right of
one partner to bind the partnership. States Art. 1695 thereof:jgc:

"Should no agreement have been made with respect to the form of management, the following rules
shall be observed:chanrob1es virtual 1aw library

1. All the partners shall be considered agents, and whatever any one of them may do individually shall
bind the partnership; but each one may oppose any act of the others before it has become legally
binding."cralaw virtua1aw library

The records fail to disclose that appellant Goquiolay made any opposition to the sale of the partnership
realty to Washington Z. Sycip and Betty Lee; on the contrary, it appears that he (Goquiolay) only
interposed his objections after the deed of conveyance was executed and approved by the probate court,
and, consequently, his opposition came too late to be effective.

Appellants assail the correctness of the amounts paid for the account of the partnership as found by the
trial court. This question, however, need not be resolved here, as in the deed of conveyance executed
by Kong Chai Pin, the purchasers Washington Sycip and Betty Lee assumed, as part consideration of
the purchase, the full claims of the two creditors, Sing Yee and Cuan Co., Inc. and Yutivo Sons Hardware
Co.

Appellants also question the validity of the sale covering the entire firm realty, on the ground that it, in
effect, threw the partnership into dissolution, which requires consent of all the partners. This view is
untenable. That the partnership was left without the real property it originally had will not work its
dissolution, since the firm was not organized to exploit these precise lots but to engage in buying and
selling real estate, and "in general real estate agency and brokerage business." Incidentally, it is to be
noted that the payment of the solidary obligation of both the partnership and the late Tan Sin An, leaves
open the question of accounting and contribution between the co-debtors, that should be ventilated
separately.

Lastly, appellants point out that the sale of the partnership properties was only a fraudulent device by
the appellees, with the connivance of Kong Chai Pin, to ease out Antonio Goquiolay from the partnership.
The "devise", according to the appellants, started way back sometime in 1945, when one Yu Khe Thai
sounded out Antonio Goquiolay on the possibility of selling his share in the partnership; and upon his
refusal to sell, was followed by the filing of the claims of Yutivo Sons Hardware Co. and Sing Yee and
Cuan Co., Inc. in the intestate estate proceedings of Tan Sin An. As creditors of Tan Sin An and the
plaintiff partnership (whose liability was alleged to be joint and several), Yutivo Sons Hardware Co. and
Sing Yee and Cuan Co., Inc. had every right to file their claims in the intestate proceedings. The denial
of the claims at first by Kong Chai Pin (for lack of sufficient knowledge) negatives any conspiracy on her
part in the alleged fraudulent scheme, even if she subsequently decided to admit their validity after
studying the claims and finding it best to admit the same. It may not be amiss to remark that the probate
court approved the questioned claims.

There is complete failure of proof, moreover, that the price for which the properties were sold was
unreasonably low, or in any way unfair, since appellants presented no evidence of the market value of
the lots as of the time of their sale to appellees Sycip and Lee. The alleged value of P31,056.58 in May
of 1955 is no proof of the market value in 1949, specially because in the interval, the new owners appear
to have converted the land into a subdivision, which they could not do without opening roads and
otherwise improving the property at their own expense. Upon the other hand, Kong Chai Pin hardly had
any choice but to execute the questioned sale, as it appears that the partnership had neither cash nor
other properties with which to pay its obligations. Anyway, we cannot consider seriously the inferences
freely indulged in by the appellants as allegedly indicating fraud in the questioned transactions, leading
to the conveyance of the lots in dispute to the appellee Insular Development Co., Inc.

Wherefore, finding no reversible error in the appealed judgment, we affirm the same, with costs against
appellant Antonio Goquiolay.

Padilla, Montemayor, Bautista Angelo, Labrador, Concepcion, Endencia, Barrera and Gutierrez
David, JJ., concur.

RESOLUTION
December 10, 1963
The matter now pending is the appellants motion for reconsideration of our main decision, wherein we
have upheld the validity of the sale of the lands owned by the partnership Goquiolay & Tan Sin An, made
in 1949 by the widow of the managing partner, Tan Sin An (executed in her dual capacity of Administratrix
of her husbands estate and as partner, in lieu of the husband), in favor of buyers Washington Sycip and
Betty Lee for the following consideration:chanrob1es virtual 1aw library

Cash paid P37,000.00

Debts assumed by purchaser:chanrob1es virtual 1aw library

To Yutivo 62,415.91

To Sing Yee Cuan & Co. 54,310.13

__________

TOTAL P153,726.04

Appellant Goquiolay, in his motion for reconsideration, insists that, contrary to our holding, Kong Chai
Pin, widow of the deceased partner Tan Sin An, never became more than a limited partner, incapacitated
by law to manage the affairs of the partnership; that the testimony of her witnesses Young and Lim belies
that she took over administration of the partnership property; and that, in any event, the sale should be
set aside because it was executed with the intent to defraud appellant of his share in the properties sold.

Three things must be always held in mind in the discussion of this motion to reconsider, being basic and
beyond controversy:chanrob1es virtual 1aw library

(a) That we are dealing here with the transfer of partnership property by one partner, acting in behalf of
the firm, to a stranger. There is no question between partners inter se, and this aspect of the case was
expressly reserved in the main decision of 26 July 1960;

(b) That the partnership was expressly organized "to engage in real estate business, either by buying
and selling real estate." The Articles of co-partnership, in fact, expressly provided that:jgc:

"IV. The object and purpose of the co-partnership are as follows:chanrob1es virtual 1aw library

1. To engage in real estate business, either by buying and selling real estates; to subdivide real estates
into lots for the purpose of leasing and selling them." ;

(c) That the properties sold were not part of the contributed capital (which was in cash) but land precisely
acquired to be sold, although subject to a mortgage in favor of the original owners, from whom the
partnership had acquired them.

With these points firmly in mind, let us turn to the points insisted upon by Appellant.

It is first averred that there is "not one iota of evidence" that Kong Chai Pin managed and retained
possession of the partnership properties. Suffice it to point out that appellant Goquiolay himself admitted
that

". . . Mr. Yu Eng Lai asked me if I can just let Mrs. Kong Chai Pin continue to manage the properties (as)
she had no other means of income. Then I said, because I wanted to help Mrs. Kong Chai Pin, she could
just do it and besides I am not interested in agricultural lands. I allowed her to take care of the properties
in order to help her and because I believe in God and I wanted to help her."cralaw virtua1aw library

Q. So the answer to my question is you did not take any steps?

A. I did not.

Q. And this conversation which you had with Mrs. Yu Eng Lai was few months after 1945?

A. In the year 1945." (Emphasis supplied)

The appellant subsequently ratified this testimony in his deposition of 30 June 1956, page 8-9, wherein
he stated:jgc:

"that plantation was being occupied at that time by the widow, Mrs. Tan Sin An, and of course they are
receiving quite a lot of benefit from that plantation."cralaw virtua1aw library
Discarding the self-serving expressions, these admissions of Goquiolay are certainly entitled to greater
weight than those of Hernando Young and Rufino Lim, having been made against the partys own
interest.

Moreover, the appellants reference to the testimony of Hernando Young, that the witness found the
properties "abandoned and undeveloped", omits to mention that said part of the testimony started with
the question:jgc:

"Now, you said that about 1942 or 1943 you returned to Davao. Did you meet Mrs. Kong Chai Pin there
in Davao at that time?

Similarly, the testimony of Rufino Lim, to the effect that the properties of the partnership were
undeveloped, and the family of the widow (Kong Chai Pin) did not receive any income from the
partnership properties, was given in answer to the question:jgc:

"According to Mr. Goquiolay, during the Japanese occupation Tan Sin An and his family lived on the
plantation of the partnership and derived their subsistence from that plantation. What can you say to
that?" (Dep. 19 July 1956, p. 8)

And also

"What can you say as to the development of these other properties of the partnership which you saw
during the occupation?" (Dep., p. 13, Emphasis supplied)

to which witness gave the following answer:chanrob1es virtual 1aw library

I saw the properties in Mamay still undeveloped. The third property which is in Tigatto is about eleven
(11) hectares and planted with abaca seedlings planted by Mr. Sin An. When I went there with Hernando
Young we saw all the abaca destroyed. The place was occupied by the Japanese Army. They planted
camotes and vegetables to feed the Japanese Army. Of course they never paid any money to Tan Sin
An or his family." (Dep., Lim, pp. 13-14. (Emphasis supplied)

Plainly, Both Young and Lims testimonies do not belie, or contradict, Goquiolays admission that he told
Mr. Yu Eng Lai that the widow "could just do it" (i. e., continue to manage the properties). Witnesses Lim
and Young referred to the period of Japanese occupation; but Goquiolays authority was, in fact, given
to the widow in 1945, after the occupation.

Again, the disputed sale by the widow took place in 1949. That Kong Chai Pin carried out no acts of
management during the Japanese occupation (1942-1944) does not mean that she did not do so from
1945 to 1949.

We thus find that Goquiolay did not merely rely on reports from Lim and Young; he actually manifested
his willingness that the widow should manage the partnership properties. Whether or not she complied
with this authority is a question between her and the appellant, and is not here involved. But the authority
was given, and she did have it when she made the questioned sale, because it was never revoked.

It is argued that the authority given by Goquiolay to the widow Kong Chai Pin was only to manage the
property, and that it did not include the power to alienate, citing Article 1713 of the Civil Code of 1889.
What this argument overlooks is that the widow was not a mere agent, because she had become a
partner upon her husbands death, as expressly provided by the articles of co-partnership. Even more,
granting that by succession to her husband, Tan Sin An, the widow only became a limited partner,
Goquiolays authorization to manage the partnership property was proof that he considered and
recognized her as general partner, at least since 1945. The reason is plain: Under the law (Article 148,
last paragraph, Code of Commerce), appellant could not empower the widow, if she were only a limited
partner, to administer the properties of the firm, even as a mere agent:jgc:

"Limited partners may not perform any act of administration with respect to the interests of the co-
partnership, not even in the capacity of agents of the managing partners." (Emphasis supplied)

By seeking authority to manage partnership property, Tan Sin Ans widow showed that she desired to
be considered a general partner. By authorizing the widow to manage partnership property (which a
limited partner could not be authorized to do), Goquiolay recognized her as such partner, and is now in
estoppel to deny her position as a general partner, with authority to administer and alienate partnership
property.

Besides, as we pointed out in our main decision, the heir ordinarily (and we did not say "necessarily")
becomes a limited partner for his own protection, because he would normally prefer to avoid any liability
in excess of the value of the estate inherited so as not to jeopardize his personal assets. But this statutory
limitation of responsibility being designed to protect the heir, the latter may disregard it and instead elect
to become a collective or general partner, with all the rights and privileges of one, and answering for the
debts of the firm not only with the inheritance but also with the heirs personal fortune. This choice
pertains exclusively to the heir, and does not require the assent of the surviving partner.

It must be remembered that the articles of co-partnership here involved expressly stipulated that:jgc:

"In the event of the death of any of the partners at any time before the expiration of said term, the co-
partnership shall not be dissolved but will have to be continued and the deceased partner shall be
represented by his heirs or assigns in said co-partnership" (Art. XII, Articles of Co-Partnership).

The Articles did not provide that the heirs of the deceased would be merely limited partner; on the
contrary, they expressly stipulated that in case of death of either partner "the co-partnership . . . will have
to be continued" with the heirs or assigns. It certainly could not be continued if it were to be converted
from a general partnership into a limited partnership, since the difference between the two kinds of
associations is fundamental; and specially because the conversion into a limited association would leave
the heirs of the deceased partner without a share in the management. Hence, the contractual stipulation
does actually contemplate that the heirs would become general partners rather than limited ones.

Of course, the stipulation would not bind the heirs of the deceased partner should they refuse to assume
personal and unlimited responsibility for the obligations of the firm. The heirs, in other words, can not be
compelled to become general partners against their wishes. But because they are not so compellable, it
does not legitimately follow that they may not voluntarily choose to become general partners, waiving
the protective mantle of the general laws of succession. And in the latter event, it is pointless to discuss
the legality of any conversion of a limited partner into a general one. The heir never was a limited partner,
but chose to be, and became, a general partner right at the start.
It is immaterial that the heirs name was not included in the firm name, since no conversion of status is
involved, and the articles of co-partnership expressly contemplated the admission of the partners heirs
into the partnership.

It must never be overlooked that this case involves the rights acquired by strangers, and does not deal
with the rights arising between partners Goquiolay and the widow of Tan Sin An. The issues between
the partners inter se were expressly reserved in our main decision. Now, in determining what kind of
partner the widow of partner Tan Sin An had elected to become, strangers had to be guided by her
conduct and actuations and those of appellant Goquiolay. Knowing that by law a limited partner is barred
from managing the partnership business or property, third parties (like the purchasers) who found the
widow possessing and managing the firm property with the acquiescence (or at least without apparent
opposition) of the surviving partners were perfectly justified in assuming that she had become a general
partner, and, therefore, in negotiating with her as such a partner, having authority to act for, and in behalf
of, the firm. This belief, be it noted, was shared even by the probate court that approved the sale by the
widow of the real property standing in the partnership name. That belief was fostered by the very inaction
of appellant Goquiolay. Note that for seven long years, from partner Tan Sin Ans death in 1942 to the
sale in 1949, there was more than ample time for Goquiolay to take up the management of these
properties, or at least ascertain how its affairs stood. For seven years Goquiolay could have asserted
his alleged rights, and by suitable notice in the commercial registry could have warned strangers that
they must deal with him alone, as sole general partner. But he did nothing of the sort, because he was
not interested (supra), and he did not even take steps to pay, or settle, the firm debts that were overdue
since before the outbreak of the last war. He did not even take steps, after Tan Sin An died, to cancel,
or modify, the provisions of the partnership articles that he (Goquiolay) would have no intervention in the
management of the partnership. This laches certainly contributed to confirm the view that the widow of
Tan Sin An had, or was given, authority to manage and deal with the firms properties, apart from the
presumption that a general partner dealing with partnership property has the requisite authority from his
co-partners (Litton v. Hill and Cern, Et Al., 67 Phil., 513; quoted in our main decision, p. 11).

"The stipulation in the articles of partnership that any of the two managing partners may contract and
sign in the name of the partnership with the consent of the other, undoubtedly creates an obligation
between the two partners, which consists in asking the others consent before contracting for the
partnership. This obligation of course is not imposed upon a third person who contracts with the
partnership. Neither is it necessary for the third person to ascertain if the managing partner with whom
he contracts has previously obtained the consent of the other. A third person may and has a right to
presume that the partner with whom he contracts has, in the ordinary and natural course of business,
the consent of his co-partner; for otherwise he would not enter into the contract. The third person would
naturally not presume that the partner with whom he enters into the transaction is violating the articles
of partnership, but on the contrary, is acting in accordance therewith. And this finds support in the legal
presumption that the ordinary course of business has been followed (No. 18, section 334, Code of Civil
Procedure), and that the law has been obeyed (No. 31, section 334). This last presumption is equally
applicable to contracts which have the force of law between the parties." (Litton v. Hill & Cern, Et Al.,
67 Phil., 509, 516) (Emphasis supplied)

It is next urged that the widow, even as a partner, had no authority to sell the real estate of the firm. This
argument is lamentably superficial because it fails to differentiate between real estate acquired and held
as stock-in-trade and real state held merely as business site (Vivantes "taller banco social") for the
partnership. Where the partnership business is to deal in merchandise and goods, i.e., movable property,
the sale of its real property (immovables) is not within the ordinary powers of a partner, because it is not
in line with the normal business of the firm. But where the express and avowed purpose of the partnership
is to buy and sell real estate (as in the present case), the immovables thus acquired by the firm form part
of its stock-in-trade, and the sale thereof is in pursuance of partnership purposes, hence within the
ordinary powers of the partner. This distinction is supported by the opinion of Gay de Montella 1 , in the
very passage quoted in the appellants motion for reconsideration:jgc:

"La enajenacin puede entrar en las facultades del gerente: cuando es conforme a los fines sociales.
Pero esta facultad de enajenar limitada a las ventas conforme a los fines sociales, viene limitada a los
objetos de comecio a los productos de la fabrica para explotacin de los cuales se ha constituido la
Sociedad. Ocurrira una cosa parecida cuando el objeto de la Sociedad fuese la compra y venta de
inmuebles, en cuyo caso el gerente estaria facultado para otorgar las ventas que fuere necesario."
(Montella) (Emphasis supplied)

The same rule obtains in American law.

In Rosen v. Rosen, 212 N. Y. Supp. 405, 406, it was held:jgc:

"a partnership to deal in real estate may be created and either partner has the legal right to sell the firm
real estate"

In Chester v. Dickerson, 54 N. Y. 1, 13 Am. Rep. 550:jgc:

"And hence, when the partnership business is to deal in real estate, one partner has ample power, as a
general agent of the firm, to enter into an executory contract for the sale of real estate."cralaw virtua1aw
library

And in Rovelsky v. Brown, 92 Ala. 522, 9 South 182, 25 Am. St., Rep. 83:jgc:

"If the several partners engaged in the business of buying and selling real estate can not bind the firm
by purchases or sales of such property made in the regular course of business, then they are incapable
of exercising the essential rights and powers of general partners and their association is not really a
partnership at all, but a several agency."cralaw virtua1aw library

Since the sale by the widow was in conformity with the express objective of the partnership, "to engage
. . . in buying and selling real estate" (Art. IV, No. 1, Articles of Copartnership), it can not be maintained
that the sale was made in excess of her powers as general partner.

Considerable stress is laid by appellant in the ruling of the Supreme Court of Ohio in McGrath, Et Al., v.
Cowen, Et Al., 49 N. E., 338. But the facts of that case are vastly different from the one before us. In the
McGrath case, the Court expressly found that:jgc:

"The firm was then, and for some time had been, insolvent, in the sense that its property was insufficient
to pay its debts, though it still had good credit, and was actively engaged in the prosecution of its
business. On that day, which was Saturday, the plaintiff caused to be prepared, ready for execution, the
four chattel mortgages in question, which cover all the tangible property then belonging to the firm,
including the counters, shelving, and other furnishings and fixtures necessary for, and used in carrying
on, its business, and signed the same in this form: "In witness whereof, the said Cowen & McGrath, a
firm, and Owen McGrath, surviving partner of said firm, and Owen McGrath, individually, have hereunto
set their hands, this 20th day of May, A. D. 1893. Cowen & McGrath, by Owen McGrath. Owen McGrath,
Surviving partner of Cowen & McGrath. Owen McGrath" At the same time, the plaintiff had prepared,
ready for filing, the petition for the dissolution of the partnership and appointment of a receiver, which he
subsequently filed, as hereinafter stated. On the day the mortgages were signed, they were placed in
the hands of the mortgagees, which was the first intimation to them that there was any intention to make
then. At that time none of the claims secured by the mortgages were due, except, it may be, a small part
of one of them, and none of the creditors to whom the mortgages were made had requested security, or
were pressing for the payment of their debts . . . The mortgages appear to be without a sufficient condition
of defeasance, and contain a stipulation authorizing the mortgagees to take immediate possession of
the property, which they did as soon as the mortgages were filed, through the attorney who then
represented them, as well as the plaintiff; and the stores were at once closed, and possession delivered
by them to the receiver appointed upon the filing of the petition. The avowed purpose of the plaintiff in
the course pursued by him, was to terminate the partnership, place its property beyond the control of the
firm, and insure the preference of the mortgages, all of which was known to them at the time; . . ." (Cas
cit., p. 343, Italics supplied)

It is natural that from these facts the Supreme Court of Ohio should draw the conclusion that
conveyances were made with intent to terminate the partnership, and that they were not within the
powers of McGrath as partner. But there is no similarity between those acts and the sale by the widow
of Tan Sin An. In the McGrath case, the sale included even the fixtures used in the business, in our case,
the lands sold were those acquired to be sold. In the McGrath case, none of the creditors were pressing
for payment; in our case, the creditors had been unpaid for more than seven years, and their claims had
been approved by the probate court for payment. In the McGrath case, the partnership received nothing
beyond the discharge of its debts; in the present case, not only were its debts assumed by the buyers,
but the latter paid, in addition, P37,000.00 in cash to the widow, to the profit of the partnership. Clearly,
the McGrath ruling is not applicable.

We will now turn to the question of fraud. No direct evidence of it exists; but appellant points out, as
indicia thereof, the allegedly low price paid for the property, and the relationship between the buyers, the
creditors of the partnership, and the widow of Tan Sin An.

First, as to the price: As already noted, this property was actually sold for a total of P153,726.04, of which
P37,000.00 was in cash, and the rest in partnership debts assumed by the purchaser. These debts
(P62,415.91 to Yutivo, and P54,310.13 to Sing Yee Cuan & Co.) are not questioned; they were approved
by the Court, and its approval is now final. The claims were, in fact, for the balance on the original
purchase price of the land sold (due first to La Urbana, later to the Banco Hipotecario) plus accrued
interests and taxes, redeemed by the two creditors-claimants. To show that the price was inadequate,
appellant relies on the testimony of the realtor Mata, who in 1955, six years after the sale in question,
asserted that the land was worth P312,000.00. Taking into account the continued rise of real estate
values since liberation, and the fact that the sale in question was practically a forced sale because the
partnership had no other means to pay its legitimate debts, this evidence certainly does not show such
"gross inadequacy" as to justify rescission of the sale. If at the time of the sale (1949) the price of
P153,726.04 was really low, how is it that appellant was not able to raise the amount, even if the creditors
representative, Yu Khe Thai, had already warned him four years before (1945) that the creditors wanted
their money back, as they were justly entitled to?

It is argued that the land could have been mortgaged to raise the sum needed to discharge the debts.
But the lands were already mortgaged, and had been mortgaged since 1940, first to La Urbana, and
then to the Banco Hipotecario. Was it reasonable to expect that other persons would loan money to the
partnership when it was unable even to pay the taxes on the property, and the interest on the principal
since 1940? If it had been possible to find lenders willing to take a chance on such a bad financial record,
would not Goquiolay have taken advantage of it? But the fact is clear on the record that since liberation
until 1949 Goquiolay never lifted a finger to discharge the debts of the partnership. Is he entitled now to
cry fraud after the debts were discharged with no help from him?

With regard to the relationship between the parties, suffice it to say that the Supreme Court has ruled
that relationship alone is not a badge of fraud (Oria Hnos. v. McMicking, 21 Phil., 243; also Hermandad
de Smo. Nombre de Jesus v. Sanchez, 40 Off. Gaz., 1685). There is no evidence that the original buyers,
Washington Sycip and Betty Lee, were without independent means to purchase the property. That the
Yutivos should be willing to extend credit to them, and not to appellant, is neither illegal nor immoral; at
the very least, these buyers did not have a record of inveterate defaults like the partnership "Tan Sin An
& Goquiolay."

Appellant seeks to create the impression that he was the victim of a conspiracy between the Yutivo firm
and their component members. But no proof is adduced. If he was such a victim, he could have easily
defeated the conspirators by raising money and paying off the firms debts between 1945 and 1949; but
he did not; he did not even care to look for a purchaser of the partnership assets. Were it true that the
conspiracy to defraud him arose (as he claims) because of his refusal to sell the lands when in 1945 Yu
Khe Thai asked him to do so, it is certainly strange that the conspirators should wait 4 years, until 1949,
to have the sale effected by the widow of Tan Sin An, and that the sale should have been routed through
the probate court taking cognizance of Tan Sin Ans estate, all of which increased the risk that the
supposed fraud should be detected.

Neither was there any anomaly in the filing of the claims of Yutivo and Sing Yee Cuan & Co., (as
subrogees of the Banco Hipotecario) in proceedings for the settlement of the estate of Tan Sin An. This
for two reasons: First, Tan Sin An and the partnership "Tan Sin An & Goquiolay" were solidary (joint and
several) debtors (Exhibit "N" mortgage to the Banco Hipotecario), and Rule 87, section 6, is to the effect
that:jgc:

"Where the obligation of the decedent is joint and several with another debtor, the claim shall be filed
against the decedent as if he were the only debtor, without prejudice to the right of the estate to recover
contribution from the other debtor." (Emphasis supplied)

Secondly, the solidary obligation was guaranteed by a mortgage on the properties of the partnership and
those of Tan Sin An personally, and a mortagage in indivisible, in the sense that each and every parcel
under mortgage answers for the totality of the debt (Civ. Code of 1889, Article 1860; New Civil Code,
Art. 2089).

A final and conclusive consideration. The fraud charged not being one used to obtain a partys consent
to a contract (i.e., not being deceit or dolus in contrahendo), if there is fraud at all, it can only be a fraud
of creditors that gives rise to a rescission of the offending contract. But by express provision of law
(Article 1294, Civil Code of 1889; Article 1383, New Civil Code), "the action for rescission is subsidiary;
it can not be instituted except when the party suffering damage has no other legal means to obtain
reparation for the same." Since there is no allegation, or evidence, that Goquiolay can not obtain
reparation from the widow and heirs of Tan Sin An, the present suit to rescind the sale in question is not
maintenable, even if the fraud charged actually did exist.

Premises considered, the motion for reconsideration is denied.

Bengzon, C.J., Padilla, Concepcion, Barrera and Dizon, JJ., concur.

Separate Opinions

BAUTISTA ANGELO, J., dissenting:chanrob1es virtual 1aw library

This is an appeal from a decision of the Court of First Instance of Davao dismissing the complaint filed
by Antonio C. Goquiolay, Et Al., seeking to annul the sale made by Kong Chai Pin of three parcels of
land to Washington Z. Sycip and Betty Y. Lee on the ground that it was executed without proper authority
and under fraudulent circumstances. In a decision rendered on July 26, 1960, we affirmed this decision
although on grounds different from those on which the latter is predicated. The case is once more before
us on a motion for reconsideration filed by appellants raising both questions of fact and of law.

On May 29, 1940, Tan Sin An and Antonio C. Goquiolay executed in Davao City a commercial
partnership for a period of ten years with a capital of P30,000.00 of which Goquiolay contributed
P18,000.00 representing 60% while Tan Sin An P12,000.00 representing 40%. The business of the
partnership was to engage in buying real estate properties for subdivision, resale and lease. The
partnership was duly registered, and among the conditions agreed upon in the partnership agreement
which are material to this case are: (1) that Tan Sin An would be the exclusive managing partner, and
(2) in the event of the death of any of the partners the partnership would continue, the deceased to be
represented by his heirs. On May 31, 1940, Goquiolay executed a general power of attorney in favor of
Tan Sin An appointing the latter manager of the partnership and conferring upon him the usual powers
of management.

On May 29, 1940, the partnership acquired three parcels of land known as Lots Nos. 526, 441 and 521
of the cadastral survey of Davao, the only assets of the partnership, with the capital originally invested,
financing the balance of the purchase price with a mortgage in favor of "La Urbana Sociedad Mutua de
Construccin Prestamos" in the amount of P25,000.00 payable in ten years. On the same date, Tan Sin
An, in his individual capacity, acquired 46 parcels of land executing a mortgage thereon in favor of the
same company for the sum of P35,000.00. On September 25, 1940, these two mortgage obligations
were consolidated and transferred to the Banco Hipotecario de Filipinas and as a result Tan Sin An, in
his individual capacity, and the partnership bound themselves to pay jointly and severally the total
amount of P52,282.80, with 8% annual interest thereon within the period of eight years mortgaging in
favor of said entity the 3 parcels of land belonging to the partnership to Tan Sin An.

Tan Sin An died on June 26, 1942 and was survived by his widow, defendant Kong Chai Pin, and four
children, all of whom are minors of tender age. On March 18, 1944, Kong Chai Pin was appointed
administratrix of the intestate estate of Tan Sin An. And on the same date, Sing, Yee and Cuan Co., Inc.
paid to the Banco Hipotecario the remaining unpaid balance of the mortgage obligation of the partnership
amounting to P46,116.75 in Japanese currency.
Sometime in 1945, after the liberation of Manila, Yu Khe Thai, president and general manager of Yutivo
Sons Hardware Co. and Sing, Yee and Cuan Co., Inc., called for Goquiolay and the two had a conference
in the office of the former during which he offered to buy the interest of Goquiolay in the partnership. In
1948, Kong Chai Pin, the widow, sent her counsel, Atty. Dominador Zuo, to ask Goquiolay to execute
in her favor a power of attorney. Goquiolay refused both to sell his interest in the partnership as well as
to execute the power of attorney.

Having failed to get Goquiolay to sell his share in the partnership, Yutivo Sons Hardware Co., and Sing,
Yee and Cuan Co., Inc. filed in November, 1946 a claim each in the intestate proceedings of Tan Sin An
for the sum of P84,705.48 and P66,529.91, respectively, alleging that they represent obligations of both
Tan Sin An and the partnership. After first denying any knowledge of the claims, Kong Chai Pin, as
administratrix, admitted later without qualification the two claims in an amended answer she file on
February 28, 1947. The admission was predicated on the ground that she and the creditors were closely
related by blood, affinity and business ties. In due course, these two claims were approved by the court.

On March 29, 1949, more than two years after the approval of the claims, Kong Chai Pin filed a petition
in the probate court to sell all the properties of the partnership as well as some of the conjugal properties
left by Tan Sin An for the purpose of paying the claims. Following approval by the court of the petition
for authority to sell, Kong Chai Pin, in her capacity as administratrix, and presuming to act as managing
partner of the partnership, executed on April 4, 1949 a deed of sale of the properties owned by Tan Sin
An and by the partnership in favor of Betty Y. Lee and Washington Z. Sycip in consideration of the
payment to Kong Chai Pin of the sum of P37,000.00, and the assumption by the buyers of the claims
filed by Yutivo Sons Hardware Co. and Sing, Yee and Cuan Co., Inc. in whose favor the buyers executed
a mortgage on the properties purchased. Betty Y. Lee and Washington Z. Sycip subsequently executed
a deed of sale of the same properties in favor of their co-defendant Insular Development Company, Inc.
It should be noted that these transactions took place without the knowledge of Goquiolay and it is
admitted that Betty Y. Lee and Washington Z. Sycip bought the properties on behalf of the ultimate
buyer, the Insular Development Company, Inc., with money given by the latter.

Upon learning of the sale of the partnership properties, Goquiolay filed on July 25, 1949 in the intestate
proceedings a petition to set aside the order of the court approving the sale. The court granted the
petition. While the order was pending appeal in the Supreme Court, Goquiolay filed the present case on
January 15, 1953 seeking to nullify the sale as stated in the early part of this decision. In the meantime,
the Supreme Court remanded the original case to the probate court for rehearing due to lack of necessary
parties.

The plaintiffs in their complaint challenged the authority of Kong Chai Pin to sell the partnership
properties on the ground that she had no authority to sell because even granting that she became a
partner upon the death of Tan Sin An the power of attorney granted in favor of the latter expired after his
death.

Defendants, on the other hand, defended the validity of the sale on the theory that she succeeded to all
the rights and prerogatives of Tan Sin An as managing partner.

The trial court sustained the validity of the sale on the ground that under the provisions of the articles of
partnership allowing the heirs of the deceased partner to represent him in the partnership after his death
Kong Chai Pin became a managing partner, this being the capacity held by Tan Sin An when he died.

In the decision rendered by this Court on July 26, 1960, we affirmed this decision but on different
grounds, among which the salient points are: (1) the power of attorney given by Goquiolay to Tan Sin
An as manager of the partnership expired after his death; (2) his widow Kong Chai Pin did not inherit the
management of the partnership, it being a personal right; (3) as a general rule, the heirs of a deceased
general partner come into the partnership in the capacity only of limited partners; (4) Kong Chai Pin,
however, became a general partner because she exercised certain alleged acts of management; and
(5) the sale being necessary to pay the obligations of the partnership, she was therefore authorized to
sell the partnership properties without the consent of Goquiolay under the principle of estoppel, the
buyers having the right to rely on her acts of management and to believe her to be in fact the managing
partner.

Considering that some of the above findings of fact and conclusions of law are without legal or factual
basis, appellants have in due course filed a motion for reconsideration which because of the importance
of the issues therein raised has been the subject of mature deliberation.

In support of said motion, appellants advanced the following arguments:chanrob1es virtual 1aw library

1. If the conclusion of the Court is that heirs as a general rule enter the partnership as limited partners
only, therefore Kong Chai Pin, who must necessarily have entered the partnership as a limited partner
originally, could have not chosen to be a general partner by exercising the alleged acts of management,
because under Article 148 of the Code of Commerce a limited partner cannot intervene in the
management of the partnership, even if given a power of attorney by the general partners. An Act
prohibited by law cannot give rise to any right and is void under the express provisions of the Civil Code.

2. The buyers were not strangers to Kong Chai Pin, all of them being members of the Yu (Yutivo) family,
the rest, members of the law firm which handles the Yutivo interests and handled the papers of sale.
They did not rely on the alleged acts of management they believed (this was the opinion of their
lawyers) that Kong Chai Pin succeeded her husband as a managing partner and it was on this theory
alone that they submitted the case in the lower court.

3. The alleged acts of management were denied and repudiated by the very witnesses presented by the
defendants themselves.

The arguments advanced by appellants are in our opinion well-taken and furnish sufficient basis to
reconsider our decision if we want to do justice to Antonio C. Goquiolay. And to justify this conclusion, it
is enough that we lay stress on the following points: (1) there is no sufficient factual basis to conclude
that Kong Chai Pin executed acts of management to give her the character of general manager of the
partnership, or to serve as basis for estoppel that may benefit the purchasers of the partnership
properties; (2) the alleged acts of management, even if proven, could not give Kong Chai Pin the
character of general manager for the same is contrary to law and well- known authorities; (3) even if
Kong Chai Pin acted as general manager she had no authority to sell the partnership properties as to
make it legal and valid; and (4) Kong Chai Pin had no necessity to sell the properties to pay the obligation
of the partnership and if she did so it was merely to favor the purchasers who were close relatives to the
prejudice of Goquiolay.
1. This point is pivotal for if Kong Chai Pin did not execute the acts of management imputed to her our
ruling cannot be sustained. In making our aforesaid ruling we apparently gave particular importance to
the fact that it was Goquiolay himself who tried to prove the acts of management. Appellants, however,
have emphasized the fact, and with reason, that the appellees themselves are the ones who denied and
refuted the so-called acts of management imputed to Kong Chai Pin. to have a clear view of this factual
situation, it becomes necessary that we analyze the evidence of record.

Plaintiff Goquiolay, it is intimated, testified on cross- examination that he had a conversion with one
Hernando Young in Manila in the year 1945 who informed him that Kong Chai Pin "was attending to the
properties and deriving some income therefrom and she had no other means of livelihood except those
properties and some rentals derived from the properties." He went on to say by way of remark that she
could continue doing this because he wanted to help her. On point that he emphasized was that he was
"not interested in agricultural lands."cralaw virtua1aw library

On the other hand, defendants presented Hernando Young, the same person referred to by Goquiolay,
who was a close friend of the family of Kong Chai Pin, for the purpose of denying the testimony of
Goquiolay. Young testified that in 1945 he was still in Davao, and insisted no less than six times during
his testimony that he was not in Manila in 1945, the year when he allegedly gave the information to
Goquiolay, stating that he arrived in Manila for the first time in 1947. He testified further that he had
visited the partnership properties during the period covered by the alleged information given by him to
Goquiolay and that he found them "abandoned and underdeveloped," and that Kong Chai Pin was not
deriving any income from them.

The other witness for the defendants, Rufino Lim, also testified that he had seen the partnership
properties and corroborated the testimony of Hernando Young in all respects: "the properties in Mamay
were underdeveloped, the shacks were destroyed in Tigato, and the family of Kong Chai Pin did not
receive any income from the partnership properties." He specifically rebutted the testimony of Goquiolay
in his deposition given on June 30, 1956 that Kong Chai Pin and her family were living in the partnership
properties and stated that the family never actually lived in the properties of the partnership even before
the war or after the war."cralaw virtua1aw library

It is unquestionable that Goquiolay was merely repeating an information given to him by a third person,
Hernando Young - he stressed this point twice. A careful analysis of the substance of Goquiolays
testimony will show that he merely had no objection to allowing Kong Chai Pin to continue attending to
the properties in order to give her some means of livelihood, because, according to the information given
him by Hernando Young, which he assumed to be true, Kong Chai Pin had no other means of livelihood.
But certainly he made it very clear that he did not allow her to manage the partnership when he explained
his reason for refusing to sign a general power of attorney for Kong Chai Pin which her counsel, Atty.
Zuo, brought with him to his house in 1948. He said:jgc:

". . . Then Mr. Yu Eng Lai told me that he brought with him Atty. Zuo and he asked me if I could execute
a general power of attorney for Mrs. Kong Chai Pin. Then I told Atty. Zuo what is the use of executing
a general power of attorney for Mrs. Kong Chai Pin when Mrs. Kong Chai Pin had already got that
plantation for agricultural purposes, I said for agricultural purposes she can use that plantation . . ."
(T.s.n., p. 9, Hearing on May 5, 1955)

It must be noted that in his testimony Goquiolay was categorically stating his opposition to the
management of the partnership by Kong Chai Pin and carefully made the distinction that his conformity
was for her to attend to the partnership properties in order to give her merely a means of livelihood. It
should be stated that the period covered by the testimony refers to the period of occupation when living
condition was difficult and precarious. And Atty. Zuo, it should also be stated, did not deny the statement
of Goquiolay.

It can therefore be seen that the question as to whether Kong Chai Pin exercised certain acts of
management of the partnership properties is highly controverted. The most that we can say is that the
alleged acts are doubtful more so when they are disputed by the defendants themselves who later
became the purchasers of the properties, and yet these alleged acts, if at all, only refer to management
of the properties and not to management of the partnership, which are two different things.

In resume, we may conclude that the sale of the partnership properties by Kong Chai Pin cannot be
upheld on the ground of estoppel, first, because the alleged acts of management have not been clearly
proven; second, because the record clearly shows that the defendants, or the buyers, were not misled
nor did they rely on the acts of management, but instead they acted solely on the opinion of their counsel,
Atty. Quisumbing, to the effect that she succeeded her husband in the partnership as managing partner
by operation of law; and third, because the defendants are themselves estopped to invoke a defense
which they tried to dispute and repudiate.

2. Assuming arguendo that the acts of management imputed to Kong Chai Pin are true, could such acts
give her the character of general manager of the partnership as we have concluded in our decision?

Our answer is in the negative because it is contrary to law and precedents. Garrigues, a well-known
commentator, is clearly of the opinion that mere acceptance of the inheritance does not make the heir
of a general partner a general partner himself. He emphasized that the heir must declare that he is
entering the partnership as a general partner unless the deceased partner has made it an express
condition in his will that the heir accepts the condition of entering the partnership as a prerequisite of
inheritance, in which case acceptance of the inheritance is enough. 1 But here Tan Sin An died intestate.

Now, could Kong Chai Pin be deemed to have declared her intention to become general partner by
exercising acts of management? We believe not, for, in consonance with our ruling that as a general rule
the heirs of a deceased partner succeed as limited partners only by operation of law, it is obvious that
the heir, upon entering the partnership, must make a declaration of his character, otherwise he should
be deemed as having succeeded as limited partner by the mere acceptance of inheritance. And here
Kong Chai Pin did not make such declaration. Being then a limited partner upon the death of Tan Sin An
by operation of law, the peremptory prohibition contained in Article 148 2 of the Code of Commerce
became binding upon her and as a result she could not change her status by violating its provisions not
only under the general principle that prohibited acts cannot produce any legal effect, but also because
under the provisions of Article 147 3 of the same Code she was precluded from acquiring more rights
than those pertaining to her as a limited partner. The alleged acts of management, therefore, did not give
Kong Chai Pin the character of general manager to authorize her to bind the partnership.

Assuming also arguendo that the alleged acts of management imputed to Kong Chai Pin gave her the
character of a general partner, could she sell the partnership properties without authority from the other
partners?
Our answer is also in the negative in the light of the provisions of the articles of partnership and the
pertinent provisions of the Code of Commerce and the Civil Code. Thus, Article 129 of the Code of
Commerce says:jgc:
"If the management of the general partnership has not been limited by special agreement to any of the
members, all shall have the power to take part in the direction and management of the common business,
and the members present shall come to an agreement for all contracts or obligations which may concern
the association."cralaw virtua1aw library

And the pertinent portions of the Articles of partnership provides:jgc:

"VII. The affairs of the co-partnership shall be managed exclusively by the managing partner or by his
authorized agent, and it is expressly stipulated that the managing partner may delegate the entire
management of the affairs of the co-partnership by irrevocable power of attorney to any person, firm or
corporation he may select, upon such terms as regards compensation as he may deem proper, and vest
in such person, firm or corporation full power and authority, as the agent of the co-partnership and in his
name, place and stead to do anything for it or on his behalf which he as such managing partner might
do or cause to be done." (Page 23, Record on Appeal)

It would thus be seen that the powers of the managing partner are not defined either under the provisions
of the Code of Commerce or in the articles of partnership, a situation which, under Article 2 of the same
Code, renders applicable herein the provisions of the Civil Code. And since, according to well-known
authorities, the relationship between a managing partner and the partnership is substantially the same
as that of the agent and his principal, 4 the extent of the power of Kong Chai Pin must, therefore, be
determined under the general principles governing agency. And, on this point, the law says that an
agency created in general terms includes only acts of administration, but with regard to the power to
compromise, sell, mortgage, and other acts of strict ownership, an express power of attorney is required.
5 Here Kong Chai Pin did not have such power when she sold the properties of the partnership.

Of course, there is authority to the effect that a managing partner, even without express power of
attorney, may perform acts affecting ownership if the same are necessary to promote or accomplish a
declared object of the partnership, but here the transaction is not for this purpose. It was effected not to
promote any avowed object of the partnership. 6 Rather, the sale was effected to pay an obligation of
the partnership by selling its real properties which Kong Chai Pin could not do without express authority.
The authorities supporting this view are overwhelming.

"La enajenacin puede entrar en las facultades del gerente, cuando es conforme a los fines sociales.
Pero esta facultad de enajenar limitada a las ventas conforme a los fines sociales, viene limitada a los
objetos de comercio, o los productos de la fabrica para explotacin de los cuales se ha constituido la
Sociedad. Ocurrira una cosa parecida cuando el objeto de la Sociedad fuese la compra y venta de
inmuebles, en cuyo caso el gerente estaria facultado para otorgar las ventas que fuere necesario. Por
el contrario, el gerente no tiene atribuciones para vender las instalaciones del comercio ni la fabrica, ni
las maquinarias, vehiculos de transporte, etc., que forman parte de la explotacin social. En todos estas
casos, igualmente que si tratase de la venta de una marca o procedimiento mecanico o quimico, etc.,
siendo actos de disposicin seria necesario contar con la conformidad expresa de todos los socios." (R.
Gay de Montella, id., pp. 223-224, Italics supplied)

"Los poderes de los Administradores no tienen ante el silencio del contrato otros limites que los
sealados por el objeto de la Sociedad y, por consiguiente, pueden llevar a cabo todas las operaciones
que sirven para aquel ejercicio, incluso cambiando repetidas veces los propios acuerdos segn el inters
convenido de la Sociedad. Pueden contratar y despedir a los empleados, tomar en arriendo almacenes
y tiendas, expedir cambiales, girarlas, avalarlas, dar en prenda o en hipoteca los bienes de la sociedad
y adquirir inmuebles destinados a su explotacin o al empleo estable de sus capitales. Pero no podran
ejecutar los actos que estan en contradiccin con la explotacin que les fue confiada no podran cambiar
el objeto, el domicilio la razn social; fundir a la Sociedad en otra; ceder la accin, y por tanto, el uso de
la firma social a otro renunciar definitivamente el ejercicio de uno de otro ramo comercio que se les haya
confiado y enajenar o pignorar el taller o el banco social excepto que la venta o piqnoracion tengan por
el objeto procurar los medios necesarios para la continuacin de la empresa social." (Cesar Vivante,
Tratado de Derecho Mercantil, pp. 124-125, Vol. II, la. ed.; Italics supplied).

"The act of one partner to bind the firm, must be necessary for the carrying on of its business. If all that
can be said of it was that it was convenient, or that it facilitated the transaction of the business of the
firm, that is not sufficient, in the absence of evidence of sanction by other partners. Nor, it seems, will
necessity itself be sufficient if it be an extraordinary necessity. What is necessary for carrying on the
business of the firm under ordinary circumstances and in the usual way, is the test. Lindl. Partn. Sec.
126. While, within this rule, one member of a partnership may, in the usual and ordinary course of its
business, make a valid sale or pledge, by way of mortgage or otherwise, of all or part of its effects
intended for sale, to a bona fide purchaser or mortgagee, without the consent of the other members of
the firm, it is not within the scope of his implied authority to make a final disposition of all of its effects,
including those employed as the means of carrying on its business, the object and effect of which is to
immediately terminate the partnership, and place its property beyond its control. Such a disposition,
instead of being within the scope of the partnership business, or in the usual and ordinary way of carrying
it on, is necessarily subversive of the object of the partnership, and contrary to the presumed intention
of the partnership in its formation." (McGrath, Et. Al. v. Cowen, Et Al., 49 N.F. 338, 343; Italics supplied)

Since Kong Chai Pin sold the partnership properties not in line with the business of the partnership but
to pay its obligation without first obtaining the consent of the other partners, the sale is invalid being in
excess of her authority.

4. Finally, the sale under consideration was effected in a suspicious manner as may be gleaned from
the following circumstances:chanrob1es virtual 1aw library

(a) The properties subject of the instant sale which consist of three parcels of land situated in the City of
Davao have an area of 200 hectares more or less, or 2,000,000 square meters. These properties were
purchased by the partnership for purposes of subdivision. According to realtor Mata, who testified in
court, these properties could command at the time he testified a value of not less than P312,000.00, and
according to Dalton Chen, manager of the firm which took over the administration, since the date of sale
no improvement was ever made thereon precisely because of this litigation. And yet, for said properties,
aside from the sum of P37,000.00 which was paid for the properties of the deceased and the partnership,
only the paltry sum of P66,529.91 was paid as a consideration therefor, of which the sum of P46,116.75
was even paid in Japanese currency.

(b) Considering the area of the properties Kong Chai Pin had no valid reason to sell them if her purpose
was only to pay the partnerships obligation. She could have negotiated a loan if she wanted to pay it by
placing the properties as security, but preferred to sell them even at such low prices because of her close
relationship with the purchasers and creditors who conveniently organized a partnership to exploit them,
as may be seen from the following relationship of their pedigree:chanrob1es virtual 1aw library

KONG CHAI PIN, the administratrix, was a granddaughter of Jose P. Yutivo, founder of the defendant
Yutivo Sons Hardware Co. YUTIVO SONS HARDWARE CO, and SIN YEE CUAN CO, INC., alleged
creditors, are owned by the heirs of Jose P. Yutivo (Sing, Yee & Cuan are the three children of Jose).
YU KHE THAI is a grandson of the same Jose P. Yutivo, and president of the two alleged creditors. He
is the acknowledged head of the Yu families. WASHINGTON Z. SYCIP, one of the original buyers, is
married to Ana Yu, a daughter of Yu Khe Thai, BETTY Y. LEE, the other original buyer is also a daughter
of Yu Khe Thai. The INSULAR DEVELOPMENT CO., the ultimate buyer, was organized for the specific
purpose of buying the partnership properties. Its incorporators were: Ana Yu and Betty V. Lee, Atty.
Quisumbing and Salazar the lawyers who studied the papers of sale and have been counsel for the
Yutivo interests; Dalton Chen a brother-in-law of Yu Khe Thai and an executive of Sing Yee & Cuan Co;
Lillian Yu, daughter of Yu Eng Poh, an executive of Yutivo Sons Hardware, and Simeon Daguiwag, a
trusted employee of the Yutivos.

(c) Lastly, even since Tan Sin An died in 1942 the creditors, who were close relatives of Kong Chai Pin,
have already conceived the idea of possessing the lands for purposes of subdivision, excluding
Goquiolay from their plan, and this is evident from the following sequence of events:chanrob1es virtual
1aw library

Tan Sin An died in 1942 and intestate proceedings were opened in 1944. In 1946, the creditors of the
partnership filed their claim against the partnership in the intestate proceedings. The creditors studied
ways and means of liquidating the obligation of the partnership, leading to the formation of the defendant
Insular Development Co., composed of members of the Yutivo family and the counsel of record of the
defendants, which subsequently bought the properties of the partnership and assumed the obligation of
the latter in favor of the creditors of the partnership, Yutivo Sons Hardware and Sing, Yee & Cuan, also
of the Yutivo family. The buyers took time to study the commercial potentialities of the partnership
properties and their lawyers carefully studied the document and other papers involved in the transaction.
All these steps led finally to the sale of the three partnership properties.

Upon the strength of the foregoing considerations, I vote to grant motion for reconsideration.

9. Goquilay vs Sycip 9 SCRA 663

Ng Cho Cio ns Ng Diong 1 SCRA 275
NG CHO CIO ET AL., plaintiffs-appellants,
vs.NG DIONG, defendant-appellant.
C. N. HODGES, ET AL., defendants-

This action was begun in the Court of First Instance of Iloilo by Ng Cho Cio Ng Sian King and Ng Due
King to recover their three-fourths (3/4) pro-indiviso share on seven (7) parcels of land situated in the
City of Iloilo which were sold by Ng Diong as manager of the commercial firm NG CHIN BENG
HERMANOS in favor of C.N. Hodges. The latter had sold four of those parcels of land to Jose C.
Tayengco and the other three parcels to Julian Go, and for that reason these two were included as party
defendants. As the original plaintiffs sold their rights, title and interest in said partnership to Ng Be Chuat
and Ng Feng Tuan, the latter two were allowed to intervene as plaintiffs. Since Jose C. Tayengco had
mortgaged three of the lands which he purchased from C. N. Hodges in favor of the Bank of the Philippine
Islands, the complaint was amended so as to include the Bank also as party defendant.
On October 16, 1956, after trial had begun, defendant Ng Diong died, whereupon his heirs were order
to substitute him parties defendants. Defendants C. N. Hodges, Ng Diong and Jose C. Tayengco
answered the complaint separately setting up certain special defenses and counterclaims. In substance,
they refuted the allegations set forth in the complaint and prayed for its dismissal.
The parties submitted a partial Stipulation of facts on many points covered by the pleadings thus
simplifying the trial of the case while at the same time they introduced additional evidence in amplification
of the fact stipulated, Thereupon, the trial court, after a thorough evaluation of the evidence, rendered
decision dismissing the complaint with costs. Plaintiffs interposed the present appeal on purely questions
of law.
The pertinent facts may be briefly stated, as follow On May 23, 1925, Ng Diong, Ng Be Chuat, Ng Feng
Tuan Ng Be Kian Ng Cho Cio, Ng Sian King and Ng Due King entered into a contract of general co-
partnership under the name NG CHIN BENG HERMANOS. The partnership was to exist for a period of
10 years from May 23, 1925 and Ng Diong was named as managing partner. On May 10, 1935, the
articles of co-partnership were amended by extending its life to 16 years more to be counted from May
23, 1925, or up to May 23, 1941.
On January 5, 1938, the partnership obtained from the National Loan and Investment Board a loan in
the amount of P30,000.00, and to guarantee its payment it executed in its favor a mortgage on Lots Nos.
236-B, 317-A, 233 and 540 of the cadastral survey of Iloilo. On the same date, the partnership also
obtained from the same entity another loan in the amount of P50,000.00 to secure which it also executed
in its favor a mortgage on Lots Nos. 386, 829 and 237 of the same cadastral survey.
Sometime in 1938, the partnership was declared insolvent upon petition of its creditors in, Special
Proceedings No. 2419 of the Court of First Instance of Iloilo wherein one Crispino Melocoton was elected
as assignee. As a consequence, on June 21, 1939, the titles to the seven parcels of land
abovementioned were issued in his name as assignee. In due time, the creditors filed their claims in said
proceeding which totalled P192,901.12.
On August 9, 1940, a majority of the creditors with claims amounting to P139,704.81, and the partners
of the firm, acting thru counsel, entered into a composition agreement whereby it was agreed that said
creditors would receive 20% of the amount of their claims in full payment thereof. Prior to this agreement,
however, defendant Julian Go had already acquired the rights of 24 of the creditors of the insolvent
whose total claims amounted to P139,323.10. Said composition agreement was approved by the
insolvency court.
On January 30, 1941, the Agricultural and Industrial Bank which had succeeded the National Loan and
Investment Board assigned its rights and interests in the loans obtained from it by the partnership in the
aggregate amount of P80,000.00 in favor of C.N. Hodges, together with the right and interest in the
mortgage executed to secure the loans. Since said loans became due and no payment was forthcoming,
Hodges asked permission from the insolvency court to file a complaint against the assignee to foreclose
he mortgage executed to secure the same in a separate proceeding, and permission having been
granted, Hodges filed a complaint for that purpose on May 13, 1941. In his complaint, Hodges prayed
that the assignee be ordered to pay him the sum of P75,622.90, with interest at 8% per annum thereon
from March 6, 1941, plus P8,000.00 attorney's fees, exclusive of costs and charges. Meanwhile, war
broke out and nothing appears to have been done in the insolvency proceedings. The court records were
destroyed. However, they were reconstituted later and given due course.
On August 15, 1945, the partners of the insolvent firm and Julian Go, who acquired most of the claims
of the creditors, filed a petition with the insolvency court praying at the insolvency proceedings be closed
or terminated cause the composition agreement the creditors had submitted relative to the settlement of
the claims had already been approved on October 10, 1940. And on October 6, 1946, the court, acting
favorably on the petition, ordered, closure of the proceedings directing the assignee to turn and reconvey
all the properties of the partnership back to the latter as required by law. In accordance with this order
of the court, the assignee executed a deed of reconveyance of the properties to the partnership on April
2, 1946 and by virtue thereof, the register of deeds cancelled the titles issued in the name of the assignee
and issued new ones in lieu thereof in the name of the partnership.
As of said date, April 2, 1946, the indebtedness of the partnership to C. N. Hodges which was the subject
of the foreclosure proceedings in a separate case was P103,883.34. In order to pay off the same and
raise necessary funds to pay the other obligations of the partnership, it was deemed proper and wise by
Ng Diong, who continued to be the manager of the partnership, to sell all its properties mortgaged to
Hodges in order that the excess may be applied to the Payment of said other obligations, and to that
effect Ng Diong executed on April 2, 1946 a deed of sale thereof in favor of Hodges for the sum of
P124,580.00. Out of this price; the sum of P103,883.34 was applied to the payment of the debt of the
partnership to Hodges and the balance was paid to the other creditors of the partnership. On the same
date, Hodges executed another contract giving the partnership the right to repurchase Lots Nos. 237,
386 and 829 in installments for the sum of P26,000.00 within three years with interest the rate of 1% Per
annum, Payable monthly.
On May 23, 1947, the partnership had not yet paid its indebtedness to Julian Go in he amount of
P24,864.62 under the composition agreement, nor did it have any money to repurchase Lots Nos. 237,
386 and 829 and so Ng Diong, in behalf of the partnership, transferred the right of the latter to repurchase
the same from Hodges to Julian Go in full payment of the partnership's indebtedness to him. And having
Julian Go exercised the option January 6, 1948, Hodges executed a deed of sale of the properties in his
favor, and pursuant thereto the register of deeds issued new titles' in his name covering said lots. On
May 29, 1948, Hodges executed another deed of sale covering Lots Nos. 317-A, 236-B, 233 and 540
for the sum of P119,067.79 in favor of Jose C. Tayengco. And on August 31, 1948, Tayengco mortgaged
said lots, together with three other lots of his, to the Bank of the Philippine Islands to secure a loan of
P126,000.00 to be used in the construction of a commercial building on said lots.
Appellants make in their brief six assignments of errors, which, reduced to bare essentials, may be boiled
down to the following points: (1) the sale made by Ng Diong in behalf of the partnership NG CHIN BENG
HERMANOS of the seven lots belonging to it in favor of C. N. Hodges on April 2, 1946 is null and void
because at that time said parcels were still in the custody of the assignee of the insolvency proceedings,
or in custodia legis, and, hence, the same is null and void; (2) said sale is also null and void "because of
the disparity, irrationality and unreasonableness between the consideration and the real value of the
properties when sold"; and (3) the lower court erred in not finding that the two deeds of mortgage
executed by he partnership in favor of the National Loan and Investment Board which were later
assigned to C. N. Hodges can no longer be enforced because the action to foreclose the same has
already prescribed.
Anent the first issue, it would be well to state the following facts by way of clarification: It should be
recalled that on August 8, 1940 the majority of the creditors of the partnership, as well as the
representatives of the latter, submitted to the court taking cognizance of the insolvency proceedings
a composition agreement whereby it was agreed that said creditors would receive 20% of the amount of
their claims in full payment thereof. This agreement was approved on October 10, 1940 which, in
contemplation of law, has the effect of putting an end to the insolvency proceedings. However, no further
step was taken thereon because of the outbreak of the war. Later, the record of the case was
reconstituted and the parties on August 15, 1945 filed a petition with the court praying for the dismissal
and closure of the proceedings in view of the approval of the aforesaid composition agreement, and
acting favorably thereon, the court on October 6, 1945, issued an order declaring the proceedings
terminated and ordering the assignee to return and reconvey the properties the partnership. The actual
reconveyance was done by a assignee on April 2, 1946.
It would, therefore, appear that for legal and practical purposes the insolvency ended on said date. Since
then partnership became, restored to its status quo. It again reacquired its personality as such with Ng
Diong as its general manager. From that date on its properties ceased to be in custodia legis. Such being
the case, it is obvious that when Ng Diong as manager of the partnership sold the seven parcels of land
to C. N. Hodges on April 2, 1946 by virtue of a deed of sale acknowledged before a notary public on April
6, 1946, the properties were already was at liberty to do what it may deem convenient and proper to
protect its interest. And acting accordingly, Ng Diong made the sale in the exercise of the power granted
to him by the partnership in its articles of co-partnership. We do not, therefore, find anything irregular in
this actuation of Ng Diong.
Since at the time of the sale the life of the partnership had already expired, the question may be fixed:
Who shall wind up it business affairs? May its manager still execute the sale of its properties to C. N.
Hodges as was done by Ng Diong? The answer to this question cannot but be in the affirmative because
Ng Diong was still the managing partner of the partnership and he had the necessary authority to
liquidate its affairs under its articles of co-partnership. And considering that war had intervened and the
affairs of the partnership were placed under receivership up to October 6, 1945, we are of the opinion
that Ng Diong could still exercise his power as liquidator when he executed the sale in question in favor
of C. N. Hodges. This is sanctioned by Article 228 of the Code of Commerce which was the law in force
at the time.1
With regard to the second issue, it is contended that the trial court should have declared the sale of the
lots made to C. N. Hodges null and void "because of the disparity, irrationality and unreasonableness
between the consideration and real value of the properties when sold." In stressing his point, counsel
contends that the lands in question, which are located in a commercial section of the City of Iloilo, were
frittered away only for a "pittance of P124,580.00" when, borrowing his words they could have been sold
like hot cakes to any resident of the city of regular financial standing upon proper approaches and
representations, because at that time those properties were fairly worth one-half of a million pesos."
This claim may be true, but the same is unsupported. Appellants have failed to introduce any evidence
to show that they could have secured better offers for the properties if given a chance to do so and that
they advance now is a mere speculation or conjecture which had no place in our judicial system. Since
every claim must be substantiated by sufficient evidence, and this appellants have failed to do, their
pretense cannot be entertained.
Neither can we give any value to the claim that the action for the foreclosure of the mortgage executed
by the partnership in favor of C. N. Hodges has already prescribed not only because the same is
immaterial but because it is an issue that appellants are raising for the first time in this appeal. Such
issue has never been raised in their pleadings, nor in the trial court. Verily, this claim has no merit.
With regard to the appeal taken by the heirs of defendant Ng Diong whose main claim is that the trial
court failed to adjudicate to the partnership the properties which were bought by Julian Go from C. N.
Hodges, suffice it to say that the same could not be done, firstly, because no such claim was made by
them in their pleadings in the trial court, and, secondly, because the evidence shows that said properties
were bought by Julian Go by virtue of the option given to him by the partnership for a valuable
consideration in full payment of the credits assigned to him by a good number of creditors of said
partnership. There is no evidence that he promised to reconvey the same to the partnership.
WHEREFORE, the decision appealed from is affirmed, with costs against appellants.

Soncuya vs De Luna 67 Phi 646

JOSUE SONCUYA, plaintiff-appellant,
vs.CARMEN DE LUNA, defendant-appellee.
Josue Soncuya in his own behalf.

On September 11, 1936, plaintiff Josue Soncuya filed with the Court of First Instance of Manila and
amended complaint against Carmen de Luna in her own name and as co-administratrix of the intestate
estate, of Librada Avelino, in which, upon the facts therein alleged, he prayed that defendant be
sentenced to pay him the sum of P700,432 as damages and costs.
To the aforesaid amended complaint defendant Carmen de Luna interposed a demurrer based on the
following grounds: (1) That the complaint does not contain facts sufficient to constitute a cause of action;
and (2) that the complaint is ambiguous, unintelligible and vague.
Trial on the demurrer having been held and the parties heard, the court found the same well-founded
and sustained it, ordering the plaintiff to amend his complaint within a period of ten days from receipt of
notice of the order.
Plaintiff having manifested that he would prefer not to amend his amended complaint, the attorney for
the defendant, Carmen de Luna, filed a motion praying that the amended complaint be dismissed with
costs against the plaintiff. Said motion was granted by The Court of First Instance of Manila which
ordered the dismissal of the aforesaid amended complaint, with costs against the plaintiff.
From this order of dismissal, the appellant took an appeal, assigning twenty alleged errors committed by
the lower court in its order referred to.
The demurrer interposed by defendant to the amended complaint filed by plaintiff having been sustained
on the grounds that the facts alleged in said complaint are not sufficient to constitute a cause of action
and that the complaint is ambiguous, unintelligible and vague, the only questions which may be raised
and considered in the present appeal are those which refer to said grounds.
In the amended complaint it is prayed that defendant Carmen de Luna be sentenced to pay plaintiff
damages in the sum of P700,432 as a result of the administration, said to be fraudulent, of he partnership,
"Centro Escolar de Seoritas", of which plaintiff, defendant and the deceased Librada Avelino were
members. For the purpose of adjudicating to plaintiff damages which he alleges to have suffered as a
partner by reason of the supposed fraudulent management of he partnership referred to, it is first
necessary that a liquidation of the business thereof be made to the end that the profits and losses may
be known and the causes of the latter and the responsibility of the defendant as well as the damages
which each partner may have suffered, may be determined. It is not alleged in the complaint that such a
liquidation has been effected nor is it prayed that it be made. Consequently, there is no reason or cause
for plaintiff to institute the action for damages which he claims from the managing partner Carmen de
Luna (Po Yeng Cheo vs. Lim Ka Yam, 44 Phil., 172).
Having reached the conclusion that the facts alleged in the complaint are not sufficient to constitute a
cause of action on the part of plaintiff as member of the partnership "Centro Escolar de Seoritas" to
collect damages from defendant as managing partner thereof, without a previous liquidation, we do not
deem it necessary to discuss the remaining question of whether or not the complaint is ambiguous,
unintelligible and vague.
In view of the foregoing considerations, we are of the opinion and so hold that for a partner to be able to
claim from another partner who manages the general copartnership, damages allegedly suffered by him
by reason of the fraudulent administration of the latter, a previous liquidation of said partnership is
necessary.
Wherefore, finding no error in the order appealed from the same is affirmed in all its parts, with costs
against the appellant. So ordered.
Po Yeng Cheo vs Lim Ka Yan 44 Phil 172
PO YENG CHEO, plaintiff-appellee, vs.LIM KA YAM, defendant-appellant.
By the amended complaint in this action, the present plaintiff, Po Yeng Cheo, alleged sole owner of a
business formerly conducted in the City of Manila under the style of Kwong Cheong, as managing partner
in said business and to recover from him its properties and assets. The defendant having died during
the pendency of the cause in the court below and the death suggested of record, his administrator, one
Lim Yock Tock, was required to appear and make defense.
In a decision dated July 1, 1921, the Honorable C. A. Imperial, presiding in the court below, found that
the plaintiff was entitled to an accounting from Lim Ka Yam, the original defendant, as manager of the
business already reffered to, and he accordingly required Lim Yock Tock, as administrator, to present a
liquidation of said business within a stated time. This order bore no substantial fruit, for the reason that
Lim Yock Tock personally knew nothing about the aforesaid business (which had ceased operation more
than ten years previously) and was apparently unable to find any books or documents that could shed
any real light on its transaction. However, he did submit to the court a paper written by Lim Ka Yam in
life purporting to give, with vague and uncertain details, a history of the formation of the Kwong Cheong
Tay and some account of its disruption and cessation from business in 1910. To this narrative was
appended a statement of assets and liabilities, purporting to show that after the business was liquidate,
it was actually debtor to Lim Ka Yam to the extent of several thousand pesos. Appreciating the
worthlessness of this so-called statement, and all parties apparently realizing that nothing more was
likely to be discovered by further insisting on an accounting, the court proceeded, on December 27,
1921, to render final judgment in favor of the plaintiff.
The decision made on this occasion takes as its basis the fact stated by the court in its earlier decision
of July 1, 1921, which may be briefly set fourth as follows:lawphil.net
The plaintiff, Po Yeng Cheo, is the sole heir of one Po Gui Yao, deceased, and as such Po Yeng Cheo
inherited the interest left by Po Gui Yao in a business conducted in Manila under the style of Kwong
Cheong Tay. This business had been in existence in Manila for many years prior to 1903, as a mercantile
partnership, with a capitalization of P160,000, engaged in the import and export trade; and after the
death of Po Gui Yao the following seven persons were interested therein as partners in the amounts set
opposite their respective names, to wit: Po Yeng Cheo, P60,000; Chua Chi Yek, P50,000; Lim Ka Yam,
P10,000; Lee Kom Chuen, P10,000; Ley Wing Kwong, P10,000; Chan Liong Chao, P10,000; Lee Ho
Yuen, P10,000. The manager of Kwong Cheong Tay, for many years prior of its complete cessation from
business in 1910, was Lim Ka Yam, the original defendant herein.
Among the properties pertaining to Kwong Cheong Tay and consisting part of its assets were ten shares
of a total par value of P10,000 in an enterprise conducted under the name of Yut Siong Chyip Konski
and certain shares to the among of P1,000 in the Manila Electric Railroad and Light Company, of Manila.
In the year 1910 (exact date unstated) Kwong Cheong Tay ceased to do business, owing principally to
the fact that the plaintiff ceased at that time to transmit merchandise from Hongkong, where he then
resided. Lim Ka Yam appears at no time to have submitted to the partners any formal liquidation of the
business, though repeated demands to that effect have been made upon him by the plaintiff.
In view of the facts above stated, the trial judge rendered judgment in favor of the plaintiff, Po Yeng
Cheo, to recover of the defendant Lim Yock Tock, as administrator of Lim Ka Yam, the sum of sixty
thousand pesos (P60,000), constituting the interest of the plaintiff in the capital of Kwong Cheong Tay,
plus the plaintiff's proportional interest in shares of the Yut Siong Chyip Konski and Manila Electric
Railroad and Light Company, estimated at P11,000, together with the costs. From this judgment the
defendant appealed.
In beginning our comment on the case, it is to be observed that this court finds itself strictly circumscribed
so far as our power of review is concerned, to the facts found by the trial judge, for the plaintiff did not
appeal from the decision of the court below in so far as it was unfavorable to him, and the defendant, as
appellant, has not caused a great part of the oral testimony to be brought up. It results, as stated, that
we must accept the facts as found by the trial judge; and our review must be limited to the error, or errors,
if any, which may be apparent upon the face of the appealed decision, in relation with the pleadings of
record.
Proceeding then to consider the appealed decision in relation with the facts therein stated and other
facts appearing in the orders and proceedings in the cause, it is quite apparent that the judgment cannot
be sustained. In the first place, it was erroneous in any event to give judgment in favor of the plaintiff to
the extent of his share of the capital of Kwong Cheong Tay. The managing partner of a mercantile
enterprise is not a debtor to the shareholders for the capital embarked by them in the business; and he
can only be made liable for the capital when, upon liquidation of the business, there are found to be
assets in his hands applicable to capital account. That the sum of one hundred and sixty thousand pesos
(P160,000) was embarked in this business many years ago reveals nothing as to the condition of the
capital account at the time the concern ceased to do business; and even supposing--as the court possibly
did--that the capital was intact in 1908, this would not prove it was intact in 1910 when the business
ceased to be a going concern; for in that precise interval of time the capital may have been diminished
or dissipated from causes in no wise chargeable to the negligence or misfeasance of the manager.
Again, so far as appears from the appealed decision, the only property pertaining to Kwong Cheong Tay
at the time this action was brought consisted of shares in the two concerns already mentioned of the
total par value of P11,000. Of course, if these shares had been sold and converted into money, the
proceeds, if not needed to pay debts, would have been distributable among the various persons in
interest, that is, among the various shareholders, in their respective proportions. But under the
circumstances revealed in this case, it was erroneous to give judgment in favor of the plaintiff for his
aliquot part of the par value of said shares. It is elementary that one partner, suing alone, cannot recover
of the managing partner the value of such partner's individual interest; and a liquidation of the business
is an essential prerequisite. It is true that in Lichauco vs. Lichauco (33 Phil., 350), this court permitted
one partner to recover of the manager the plaintiff's aliquot part of the proceeds of the business, then
long since closed; but in that case the affairs of the defunct concern had been actually liquidate by the
manager to the extent that he had apparently converted all its properties into money and had pocketed
the same--which was admitted;--and nothing remained to be done except to compel him to pay over the
money to the persons in interest. In the present case, the shares referred to--constituting the only assets
of Kwong Cheong Tay--have not been converted into ready money and doubtless still remain in the
name of Kwong Cheong Tay as owner. Under these circumstances it is impossible to sustain a judgment
in favor of the plaintiff for his aliquot part of the par value of said shares, which would be equivalent to
allowing one of several coowners to recover from another, without process of division, a part of an
undivided property.
Another condition will be noted as present in this case which in our opinion is fatal to the maintenance
of the appealed judgment. This is that, after the death of the original defendant, Lim Ka Yam, the trial
court allowed the action to proceed against Lim Yock Tock, as his administrator, and entered judgment
for a sum of money against said administrator as the accounting party,--notwithstanding the insistence
of the attorneys for the latter that the action should be discontinued in the form in which it was then being
prosecuted. The error of the trial court in so doing can be readily demonstrated from more than one point
of view.
In the first place, it is well settled that when a member of a mercantile partnership dies, the duty of
liquidating its affair devolves upon the surviving member, or members, of the firm, not upon the legal
representative of the deceased partner. (Wahl vs. Donaldson Sim & Co., 5 Phil., 11; Sugo and Shibata
vs. Green, 6 Phil., 744) And the same rule must be equally applicable to a civil partnership clothed with
the form of a commercial association (art. 1670, Civil Code; Lichauco vs. Lichauco, 33 Phil., 350) Upon
the death of Lim Ka Yam it therefore became the duty of his surviving associates to take the proper steps
to settle the affairs of the firm, and any claim against him, or his estate, for a sum of money due to the
partnership by reason of any misappropriation of its funds by him, or for damages resulting from his
wrongful acts as manager, should be prosecuted against his estate in administration in the manner
pointed out in sections 686 to 701, inclusive, of the Code of Civil Procedure. Moreover, when it appears,
as here, that the property pertaining to Kwong Cheong Tay, like the shares in the Yut Siong Chyip Konski
and the Manila Electric Railroad and Light Company, are in the possession of the deceased partner, the
proper step for the surviving associates to take would be to make application to the court having charge
to the administration to require the administrator to surrender such property.
But, in the second place, as already indicated, the proceedings in this cause, considered in the character
of an action for an accounting, were futile; and the court, abandoning entirely the effort to obtain an
accounting, gave judgment against the administrator upon the supposed liability of his intestate to
respond for the plaintiff's proportionate share of the capital and assets. But of course the action was not
maintainable in this aspect after the death of the defendant; and the motion to discontinue the action as
against the administrator should have been granted.
The judgment must be reversed, and the defendant will be absolved from the complaint; but it will be
understood that this order is without prejudice to any proceeding which may be undertaken by the proper
person or persons in interest to settle the affairs of Kwong Cheong Tay and in connection therewith to
recover from the administrator of Lim Ka Yam the shares in the two concerns mentioned above. No
special pronouncement will be made as to costs of either. So ordered.

Laguna Transpo vs SSS 197 Phil 833

LAGUNA TRANSPORTATION CO.INC., petitioner-appellant,
vs.SOCIAL SECURITY SYSTEM, respondent-appellee.
On January 24, 1958, petitioner Laguna Transportation Co., Inc. filed with the Court of First Instance of
Laguna petition praying that an order be issued by the court declaring that it is not bound to register as
a member of respondent Social Security System and, therefore, not obliged to pay to the latter the
contributions required under the Social Security Act.1 To this petition, respondent filed its answer on
February 11, 1958 praying for its dismissal due to petitioner's failure to exhaust administrative remedies,
and for a declaration that petitioner is covered by said Act, since the latter's business has been in
operation for at least 2 years prior to September 1, 1957.
On February 11, 1958, respondent filed a motion for preliminary hearing on its defense that petitioner
failed to exhaust administrative remedies. When the case was called for preliminary hearing, it was
postponed by agreement of the parties. Subsequently, it was set for trial. On the date of the trial, the
parties agreed to present, in lieu of any other evidence, a stipulation of facts, which they did on May 27,
1958, as follows:
1. That petitioner is a domestic corporation duly organized and existing under the laws of the Philippines,
with principal place of business at Bian, Laguna;
2. That respondent is an agency created under Republic Act No. 1161, as amended by Republic Act No.
1792, with the principal place of business at the new GSIS Bldg., corner Arroceros and Concepcion
Streets, Manila, where it may be served with summons;
3. That respondent has served notice upon the petitioner requiring it to register as member of the System
and to remit the premiums due from all the employees of the petitioner and the contribution of the latter
to the System beginning the month of September, 1957;
4. That sometime in 1949, the Bian Transportation Co., a corporation duly registered with the Securities
and Exchange Commission, sold part of the lines and equipment it operates to Gonzalo Mercado,
Artemio Mercado, Florentino Mata and Dominador Vera Cruz;
5. That after the sale, the said vendees formed an unregistered partnership under the name of Laguna
Transportation Company which continued to operate the lines and equipment bought from the Bian
Transportation Company, in addition to new lines which it was able to secure from the Public Service
Commission;
6. That the original partners forming the Laguna Transportation Company, with the addition of two new
members, organized a corporation known as the Laguna Transportation Company, Inc., which was
registered with the Securities and Exchange Commission on June 20, 1956, and which corporation is
the plaintiff now in this case;
7. That the incorporators of the LagunaTransportation Company, Inc., and their corresponding shares
are as follows:
8. That the corporation continued the same transportation business of the unregistered partnership;
9. That the plaintiff filed on August 30, 1957 an Employee's Data Record . . . and a supplemental
Information Sheet . . .;
10. That prior to November 11, 1957, plaintiff requested for exemption from coverage by the System on
the ground that it started operation only on June 20, 1956, when it was registered with the Securities and
Exchange Commission but on November 11, 1957, the Social Security System notified plaintiff that it
was covered;
11. On November 14, 1957, plaintiff through counsel sent a letter to the Social Security System
contesting the claim of the System that plaintiff was covered, . . .12. On November 27, 1957, Carlos
Sanchez, Manager of the Production Department of the respondent System for and in behalf of the
Acting Administrator, informed plaintiff that plaintiff's business has been in actual operation for at least
two years, . . .
On the basis of the foregoing stipulation of facts, the court, on August 15, 1958, rendered a decision the
dispositive part of which reads:
Wherefore, the Court is of the opinion and so declares that the petitioner was an employer engaged in
business as common carrier which had been in operation for at least two years prior to the enactment of
Republic Act No. 1161, as amended by Republic Act 1792 and by virtue thereof, it was subject to
compulsory coverage under said law. . . .
From this decision, petitioner appealed directly to us, raising purely questions of law.
Petitioner claims that the lower court erred in holding that it is an employer engaged in business as a
common carrier which had been in operation for at least 2 years prior to the enactment of the Social
Security Act and, therefore, subject to compulsory coverage thereunder.
Section 9 of the Social Security Act, in part, provides:
SEC. 9 Compulsory Coverage. Coverage in the System shall be compulsory upon all employees
between the ages of sixteen and sixty years, inclusive, if they have been for at least six months in the
service of an employer who is a member of the System. Provided, That the Commission may not compel
any employer to become a member of the System unless he shall have been in operation for at least
two years . . . . (Italics supplied.).
It is not disputed that the Laguna Transportation Company, an unregistered partnership composed of
Gonzalo Mercado, Artemio Mercado, Florentina Mata, and Dominador Vera Cruz, commenced the
operation of its business as a common carrier on April 1, 1949. These 4 original partners, with 2 others
(Maura Mendoza and Sabina Borja) later converted the partnership into a corporate entity, by registering
its articles of incorporation with the Securities and Exchange Commission on June 20, 1956. The firm
name "Laguna Transportation Company" was not altered, except with the addition of the word "Inc." to
indicate that petitioner was duly incorporated under existing laws. The corporation continued the same
transportation business of the unregistered partnership, using the same lines and equipment. There was,
in effect, only a change in the form of the organization of the entity engaged in the business of
transportation of passengers. Hence, said entity as an employer engaged in business, was already in
operation for at least 3 years prior to the enactment of the Social Security Act on June 18, 1954 and for
at least two years prior to the passage of the amendatory act on June 21, 1957. Petitioner argues that,
since it was registered as a corporation with the Securities and Exchange Commission only on June 20,
1956, it must be considered to have been in operation only on said date. While it is true that a corporation
once formed is conferred a juridical personality separate and district from the persons composing it, it is
but a legal fiction introduced for purposes of convenience and to subserve the ends of justice. The
concept cannot be extended to a point beyond its reasons and policy, and when invoked in support of
an end subversive of this policy, will be disregarded by the courts. (13 Am. Jur. 160.)
If any general rule can be laid down, in the present state of authority, it is that a corporation will be looked
upon as a legal entity as a general rule, and until sufficient reason to the contrary appears; but, when
the motion of legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend
crime, the law will regard the corporation as an association of persons. (1 Fletcher Cyclopedia
Corporations [Perm. Ed.] 135-136; U.S. Milwaukee Refrigeration Transit Co., 142 Fed. 247, cited in
Koppel Philippines, Inc. vs. Yatco, 43 Off. Gaz., 4604.)
To adopt petitioner's argument would defeat, rather than promote, the ends for which the Social Security
Act was enacted. An employer could easily circumvent the statute by simply changing his form of
organization every other year, and then claim exemption from contribution to the System as required, on
the theory that, as a new entity, it has not been in operation for a period of at least 2 years. the door to
fraudulent circumvention of the statute would, thereby, be opened.
Moreover, petitioner admitted that as an employer engaged in the business of a common carrier, its
operation commenced on April 1, 1949 while it was a partnership and continued by the corporation upon
its formation on June 20, 1956. Unlike in the conveyance made by the Bian Transportation Company
to the partners Gonzalo Mercado, Artemio Mercado, Florentino Mata, and Dominador Vera Cruz, no
mention whatsoever is made either in the pleadings or in the stipulation of facts that the lines and
equipment of the unregistered partnership had been sold and transferred to the corporation, petitioner
herein. This omission, to our mind, clearly indicates that there was, in fact, no transfer of interest, but a
mere change in the form of the organization of the employer engaged in the transportation business, i.e.,
from an unregistered partnership to that of a corporation. As a rule, courts will look to the substance and
not to the form.(Colonial Trust Co. vs. Montolo Eric Works, 172 Fed. 310; Metropolitan Holding Co. vs.
Snyder, 79 F. 2d 263, 103 A.L.R. 612; Arnold vs. Willits, et al., 44 Phil., 634; 1 Fletcher Cyclopedia
Corporations [Perm. Ed.] 139-140.)
Finally, the weight of authority supports the view that where a corporation was formed by, and consisted
of members of a partnership whose business and property was conveyed and transferred to the
corporation for the purpose of continuing its business, in payment for which corporate capital stock was
issued, such corporation is presumed to have assumed partnership debts, and is prima facie liable
therefor. (Stowell vs. Garden City News Corps., 57 P. 2d 12; Chicago Smelting & Refining Corp. vs.
Sullivan, 246 IU, App. 538; Ball vs. Bross., 83 June 19, N.Y. Supp. 692.) The reason for the rule is that
the members of the partnership may be said to have simply put on a new coat, or taken on a corporate
cloak, and the corporation is a mere continuation of the partnership. (8 Fletcher Cyclopedia Corporations
[Perm. Ed.] 402-411.)
Wherefore, finding no error in the judgment of the court a quo, the same is hereby affirmed, with costs
against petitioner-appellant. So ordered.
Sison vs McQuaid 94 Phil 201
CONVETS, INC., plaintiff-appellant,
vs.NATIONAL DEVELOPMENT COMPANY, ET AL., defendants-apeellees.
This is an appeal from an order of dismissal.
On September 13, 1955, the Confederation of Filipino Veterans (hereinafter referred to as the
CONVETS), a domestic corporation, filed a complaint in the Court of First Instance of Manila against the
National Development Company (hereinafter called the NDC), the Land Settlement and Development
Corporation (hereinafter called the LASEDECO), and the Board of Liquidators created by Republic Act
No. 1160 for the recovery of the sum of P36,000 as agent's commission on the sale of certain
commodities.
For cause of action, the complaint, as later amended, alleges that on July 7, 1949 a committee of the
NDC in a memorandum submitted to the latter's general manager (attached to the complaint as annex
A) recommended that plaintiff be allowed a 10% straight commission on sales of items from the
Caledonia Pile (a mass of surplus goods which the NDC had in the compound in Manila) where plaintiff
had a direct hand in the sale; that in line with said recommendation, the NDC , as Per resolution of its
Board of Directors on July 13, 1949, accepted CONVETS' firm offer "to act as the exclusive sales agent
for the sale of all items whether inventoried or uninventoried, classified or not, segregated or otherwise,
of the Caledonia Pile" under the terms and conditions embodied in the minutes of the Board's meeting,
an excerpt of which was attached to the complaint as annex B; that on September 28, 1942. plaintiff
informed the NDC Board that it had found buyer, the firm of Joseph Behr & Sons, Inc., of 1100 Seminary
St., Rockford, Illinois, U.S.A., which had sent authorized representative to Manila to deal with the NDC;
that on November 25, 1949, through the direct intervention of plaintiff in its capacity as sole agent of the
defendant NDC, a contract of sale of about 4,000 tons of spare parts in the Caledonia Pile at P90 per
ton between the NDC and Joseph Behr & Sons, Inc., was approved the NDC's Board of Director in its
resolution of that date attached to the complaint as annex C, the deeds pertaining thereto being also
attached to the complaint as annexes D and E; that in confirmation of previous commitments, promises
and past business dealing been plaintiff and the NDC, a written against agreement entered into between
them on February 8, 1950, with retroactive effect from July 13, 1949 copy of the agreement being
attached to the complaint as annex F; that the aforementioned sale of spare parts to Joseph Behr &
Sons, Inc., has already been executed with the latter paying the NDC the sum of $45 or P90 for every
long ton of said spare parts taken from the Caledonia Pile by establishing, as stipulated in the contract,
"an irrevocable Letter of Credit in the total amount of $150,000" in a Manila bank; that upon the
promulgation of Executive Order No. 355 on October 23, 1950, the management and disposition of the
Caledonia Pile were transferred from the NDC to the LASEDECO and that upon the latter being dissolved
by Republic Act No. 1160 its assets were turned over to the Board of Liquidators created by said Act,
plaintiff being, for that reason, uncertain from which one of the defendants it is entitled to get relief; and
that notwithstanding repeated demands, the defendants have failed and refused to pay plaintiff its
commission on the sale mentioned.
Instead of answering the complaint, the defendants filed a motion to dismiss on the grounds that the
complaint did not state a cause of action and that plaintiff's action, if it had any, had already prescribed.
Upholding both grounds, the lower court granted the motion to dismiss. Hence, this appeal.
We find the appeal meritorious.
In holding that plaintiff's complaint did not state a cause of action against the defendant NDC, the lower
court took into account the documents attached to the complaint as annexes A to F, and inferred
therefrom that the sale in question was neither initiated nor consummated by plaintiff but was a direct
transaction between the management of the NDC and Joseph Behr & Sons, Inc., and that said sale was
not according to the conditions set forth in the aforementioned annexes in that it was not a "lot sale," at
"formula price," and "to the general public." But it is elementary that lack of cause of action as ground for
dismissal must appear on the face of the complaint and that to determine the sufficiency of the cause of
action, only the facts alleged in the complaint, and no other, should be considered. (Moran's Rules of
Court, Vol. 1, 1957 ed., p. 140.) In the present case, the complaint, as amended, alleges in effect that
plaintiff was appointed by the defendant NDC its exclusive agent to sell "all items . . . of the Caledonia
Pile" on a 10% straight commission; that some time thereafter, plaintiff informed the said defendant that
it had found a buyer in the United States with authorized representatives in Manila to deal with said
defendant, the buyer being the firm of Joseph Behr & Sons, Inc. of 1100 Seminary S-t., Rockford, Illinois;
that "thru the direct intervention of the plaintiff, acting in its capacity as (such) sole agent", a contract of
sale of certain items from the Caledonia Pile at a specified price, was finally approved by said defendant's
Board of Directors and thereafter the sale was executed with the buyer paying the seller the stipulated
price by means of an irrevocable letter of credit; and that notwithstanding the consummation of the sale,
the defendants have filed and refused to pay the stipulated commission notwithstanding repeated
demands. These allegations, the truth of which is hypothetically admitted by defendants' motion to
dismiss, do constitute a cause of action for the recovery of the stipulated commission; and while the
annexes to the complaint do also mention certain terms under which the sales of merchandise from the
Caledonia Pile should be made, there is really nothing in said annexes that contradicts or nullifies the
ultimate facts alleged in the complaint or proves by itself alone the terms prescribed were not complied
with to the satisfaction of the principal. Any such non-compliance is a matter of defense, which should
be alleged in the answer and proved at the trial. As was said by this Court in the case of World Wide
Insurance & Surety Co., Inc. vs. Manuel, et al. (98 Phil., 46, 51 Off. Gaz., 6214).
. . . To determine whether a complaint states a cause of action one must accept its allegations as true.
One may not go beyond and outside the complaint for data or facts, especially contrary to the allegations
of the complaint, to determine whether there is cause of action. Of course, there are cases where there
may be a conflict or contradiction between the allegations of a complaint and a document or exhibit
attached to and made part of it. In that case, instead of dismissing the complaint, defendant should be
made to answer the same so as to establish an issue and then the parties will be given an opportunity,
the plaintiff to reconcile any apparent conflict between the allegations in his complaint and a document
attached to support the same, and the defendant an equal opportunity to refute the allegations of the
complaint and to show that the conflict between its allegation and the document attached to it is real,
material and decisive.
The court below also ruled that the complaint states no cause of action against the defendants
LASEDECO and Board of Liquidators on the theory that the articles sold to Joseph Behr & Sons, Inc.,
no longer formed part of the Caledonia Pile when its management and disposition were transferred from
the NDC to the LASEDECO and that consequently they were also not among the assets of the
LASEDECO that were turned over to the Board of Liquidators. The ruling is erroneous, for it is apparent
that these two defendants have been made parties to the action for having succeeded to the
management of the Caledonia Pile and to the obligations incurred in connection with its disposal.
Finally, the lower court also erred in declaring that plaintiff's cause of action had already prescribed when
the complaint was filed on September 13, 1955. Plaintiff's claim is founded upon a written contract of
agency, which allows it a 10% commission on sales negotiated by it, the commission to be payable within
the first five days of the month succeeding the sale. As the sale was consummated in December, 1949,
plaintiff's right of action for the recovery of the commission accrued on January 5, 1950. From that date,
plaintiff had ten years to bring his action in court since the action is based upon a written contract (art.
1144, new Civil Code). It is thus clear that when the complaint was filed in 1955, plaintiff's right of action
had not yet prescribed. In any event, this Court has already held that where it is not clear from the
allegations of the complaint just when plaintiff's cause of action accrued, and consequently it cannot be
determined with certainty whether that action has already prescribed or not, the defense of prescription
cannot be sustained on a mere motion to dismiss based on what appears on the face of the complaint.
(Sison vs. McQuaid, 94 Phil., 201, 50 Off. Gaz., 96.)
In view of the foregoing, the order complained of is set aside and the cases remanded to the court below
for further proceedings. No costs.

Dela Rosa vs Ortega Go-Cotay 48 Phil 605

ILDEFONSO DE LA ROSA, administrator of the intestate estate of the deceased Go-Lio, plaintiff-
appellant,
vs.ENRIQUE ORTEGA GO-COTAY, defendant-appellant.
During the Spanish regime the Chinamen Go-Lio and Vicente Go-Sengco formed a society for the
purchase and sale of articles of commerce, and for this purpose they opened a store in the town of San
Isidro, Nueva Ecija. Later Go-Lio went to China. Vicenyte Go-Sengco died and his son Enrique Ortega
Go-Cotay took charge of the businesses. Go-Lio died in China in October, 1916, leaving a widow and
three children, one of whom came to the Philippines and filed a petition for the appointment of Ildefonso
de la Rosa as administrator of the intestate estate of his deceased father, which petition was granted by
the Court of First Instance of Nueva Ecija. Ildefonso de la Rosa, in his capacity as administrator of the
intestate estate of the deceased Go-Lio, requested Enrique Go-Cotay to wind up the business and to
deliver to him the portion corresponding to the deceased Go-Lio. Enrique Ortega Go-Cotay denied the
petition, alleging that the business was his exclusively. In view of this denial, Ildefonso de la Rosa, as
administratorm, on July 2, 1918, filed with the Court of First Instance of Nueva Ecija a complaint against
Enrique Ortega Co-Cotay in which he prayed that the defendant be sentenced to deliver to the plaintiff
one-half of all the property of the partnership formed by Go-lIo and Vicente Go-Sengco, with costs
against the defendant, and that the said plaintiff be appointed receiver for the property of the said
partnership.
Defendant, in answering the complaint, denied each and every allegation thereof, and as a special
defense alleged that more than ten years had elapsed before the filing of the complaint, and prayed that
he be absolved therefrom, with costs against the plaintiff.
On August 3, 1918, the Court of First Instance of Nueva Ecija appointed Justo Cabo-Chan, Francisco T.
Tantengco and Go-Tiao, as commissioners to make an inventory, liquidate and determine the one-half
belonging to the plaintiff of all the property of the store in question.
On August 9, 1918, in order to prevent Justo Cabo-Chan from assuming the office of receiver, pursuant
to the order of the court dated August 3, 1918, the defendant filed a bond in the sum of P10,000.
Under the date of November 15, 1920, the said commissioners submitted to the court their report,
showing the net profits of the business between the period from 1913 to 1917, which amounted to the
total sum of P25,038.70 and consisted of the following items:
Profits for the year 1913........................ P2,979.00
Profits for the year 1914........................ 3,046.94
Profits for the year 1915........................ 4,103.07
Profits for the year 1916........................ 4,735.00
Profits for the year 1917........................ 10,174.69
Total........................................................... 25.038.70
In view of the appeal taken by defendant the parties on December 7, 1921, entered into an agreement
whereby they agreed to suspend the liquidation ordered by the court until the appeal to the Supreme
Court was decided, and whereby the defenadnt was authorized to continue in the possession of the
property in litigation, upon the giving of a bond in the amount of P25,000, and cancelling the former bond
for P10,000.
This court in deciding case R. G. No. 18919, on October 5, 1922, 1 held that the appeal was premature
and ordered that the record be remanded to the court of origin with instruction to enter a final order in
accordance with the liquidation made by the commissioners.
The record having been remanded and two of the commissioners having filed their resignations, the
copurt below appointed again Justo Cabo-Chan suggested by the defendant and Cua POco suggested
by the plaintiff, as commissioners, who submitted two reports, one prepared by commissioners
Tantengco and Cua Poco, and the other by commissioners Justo Cabo-Chan. The former stated in their
report that they had examined the books for the years 1919 to 1922, for the reason, they said, that they
appeared "to have been prepared by some person in a careful way at a certain time." The later
commissioner examined all books and stated in his report that the business had suffered a net loss
amounting to the sum of P89,099.22.
After trial and the parties having introduced all their evidence, the lower court, by order of December 13,
1924, disapproved the report of the commissioners Tantengco and Cua Poco, but approved, with slight
modifications, the report of commissioner Cabo-Chan, holding that the result of the liquidation showed
liabilities to the amiount of P89,690.45 in view of which plaintiff had nothing to recover from defendant,
as there was no profit to divide.
From this decision the plaintiff has appealed in due time and form making the following assignment of
errors: (1) The lower court erred in holding that the books were authentic, and in not holding that they
were false books exhibited by the defendant about alleged operations in the years 1918 et seq. which
show enormous debts and imaginary losses of the business; (2) the lower court erred in giving full credit
to the testimony of commissioner Justo Cabo-Chan; (3) the lower court erred in holding that the
partnership had incurred debts and suffered losses, as shown in the report of Justo Cabo-Cahn from
1918 on; (4) the lower court erred in not holding that the share of the plaintiff, as his capital and profits
until the end of 1917, is equivalent to the sum of twenty-seven thousand seven hundred fifty-five pesos
and forty-seven centavos (P27,755.47). Philippine currency, plus an annual quota of at least two
thousand five hundred three pesos and eighty-seven centavos (P2,503.87), Philippime currency, as his
portion of the profits since the beginning of 1918 until the delivery to the palintiff of his share in the
partnership; (5) the court below erred in not ordering the prosecuting attorney to commence an
investigation as to the falsified books of accounts that the defendant had exhibited for proper criminal
proceeding.
From the evidence it appears that the partnership capital was P4,779.39, and the net profits until the
year 1915 amounted to P5,551.40. Because some books of account had been destroyed by white ants
(anay), the liquidation of the business of the partnership for the period from 1906 to 1912 could not be
made. But knowing the net profit for the period between 1904 and 1905, which is P5,551.40, and findng
the average of the profits for each of these years, which is P2,775.70; and knowing the net profit for the
year 1913, which is P2,979, we can find the average between the net profit for 1905, namely, P2,979.
Said average is the sum of P2,877.35, which may be considered as the average of the net annual profits
for the period between 1906 an 1912, which in seven years make a total of P20,141.45. The assets of
the partnership, as well as the value of its property, could not be determined when making the liquidation
because there was no inventory and for this reason it was not possible to determine the capital of the
partnership. The plaintiff, however, seems to be agreeable to considering the initial partnership capital
as the capital at the time of the winding up of the business.
August 3, 1918, defendant assumed complete responsibility for the business by objecting to the
appointment of a receiver as prayed for by plaintiff, and giving a bond therefor. Until that date his acts
were those of a managing partner, binding against the partnership; but thereafter his acts were those of
a receiver whose authority is contained in section 175 of the Code of Civil Procedure.
A receiver has no right to carry on and conduct a business unless he is authorized or directed by the
court to do some, and such authority is not derived from an order of appointment to take and preserve
the property (34 Cyc., 283; 23 R. C. L., 73). It does not appear that the defendant as a receiver was
authorized by the court to continue the business of the partnership in liquidation. This being so, he is
personally liable for the losses that the business amy have sustained. (34 Cyc., 296.) The partnership
must not, therefore, be liable for the acts of the defendant in connection with the management of the
business until August 3, 1918, the date when he ceased to be a member and manager in order to become
receiver.
As to the first semester of 1918, during which time the defendant had seen managing the business of
the partnership as a member and manager, taking into account that the profits had been on the increase,
said profits having reached the amount of P10,174.69 in the year 1917, it would not be an exaggeration
to estimate that the profits for 1918 would have been at least the same as the profits of 1917; so that for
the first half of 1918, the profit would be P5,087.34.
In conclusion we have the following profits of the business of this partnership now in liquidation, to wit:
Capital of partnership........................... P4,779.39
Profits until 1905.................................. 5,551.40
Profits 1906-1912................................ 20,141.45
Profits 1913-1917................................ 25,038.70
Profits first semester 1918............... 5,087.34
Total....................................................... 60,598.28
One-half of this total, that is, P30,299.14 pertains to the plaintiff as administrator of the intestate estate
of Go-Lio.
In view of the foregoing, we are of the opinion that the case must be, as is hereby, decided by the
reversing the judgment appealed from, and sentencing the defendant to pay the plaintiff the sum of
P30,299.14 with legal interest at the rate of 6 per cent per annum from July 1, 1918, until fully paid, with
costs. So ordered.

Magdusa vs Albaran 5 SCRA 511

GREGORIO MAGDUSA, ET AL., petitioners,
vs.GERUNDIO ALBARAN, ET AL., respondents.
Appeal from a decision of the Court of Appeals (G.R. No. 24248-R) reversing a judgment of the Court of
First Instance of Bohol and ordering appellant Gregorio Magdusa to pay to appellees, by way of refund
of their shares as partners, the following amounts: Gerundio Albaran, P8,979.10; Pascual Albaran,
P5,394.78; Zosimo Albaran, P1,979.28; and Telesforo Bebero, P3,020.27; plus legal interests from the
filing of the complaint, and costs.
The Court of Appeals found that appellant and appellees, together with various other persons, had
verbally formed a partnership de facto, for the sale of general merchandise in Surigao, Surigao, to which
appellant contributed P2,000 as capital, and the others contributed their labor, under the condition that
out of the net profits of the business 25% would be added to the original capital, and the remaining 75%
would be divided among the members in proportion to the length of service of each. Sometime in 1953
and 1954, the appellees expressed their desire to withdraw from the partnership, and appellant
thereupon made a computation to determine the value of the partners' shares to that date. The results
of the computation were embodied in the document Exhibit "C", drawn in the handwriting of appellant.
Appellees thereafter made demands upon appellant for payment, but appellant having refused, they filed
the initial complaint in the court below. Appellant defended by denying any partnership with appellees,
whom he claimed to be mere employees of his.
The Court of First Instance of Bohol refused to give credence to Exhibit "C", and dismissed the complaint
on the ground that the other were indispensable parties but hid not been impleaded. Upon appeal, the
Court of Appeals reversed, with the result noted at the start of this opinion.
Gregorio Magdusa then petitioned for a review of the decision, and we gave it due course.1wph1.t
The main argument of appellant is that the appellees' action can not be entertained, because in the
distribution of all or part of a partnership's assets, all the partners have no interest and are indispensable
parties without whose intervention no decree of distribution can be validly entered. This argument was
considered and answered by the Court of Appeals in the following words:
We now come to the last issue involved. While finding that some amounts are due the plaintiffs, the lower
court withheld an award in their favor, reasoning that a judgment ordering the defendant to pay might
affect the rights of other partners who were not made parties in this case. The reason cited by the lower
court does not constitute a legal impediment to a judgment for the plaintiffs in this case. This is not an
action for a dissolution of a partnership and winding up of its affairs or liquidation of its assets in which
the interest of other partners who are not brought into the case may be affected. The action of the
plaintiffs is one for the recovery of a sum of money with Gregorio Magdusa as the principal defendant.
The partnership, with Gregorio Magdusa as managing partner, was brought into the case as an
alternative defendant only. Plaintiffs' action was based on the allegation, substantiated in evidence, that
Gregorio Magdusa, having taken delivery of their shares, failed and refused and still fails and refuses to
pay them their claims. The liability, therefore, is personal to Gregorio Magdusa, and the judgment should
be against his sole interest, not against the partnership's although the judgment creditors may satisfy
the judgment against the interest of Gregorio Magdusa in the partnership subject to the condition
imposed by Article 1814 of the Civil Code.
We do not find the preceding reasoning tenable. A partner's share can not be returned without first
dissolving and liquidating the partnership (Po Yeng Cheo vs. Lim Ka Yam, 44 Phil. 177), for the return is
dependent on the discharge of the creditors, whose claims enjoy preference over those of the partners;
and it is self-evident that all members of the partnership are interested in his assets and business, and
are entitled to be heard in the matter of the firm's liquidation and the distribution of its property. The
liquidation Exhibit "C" is not signed by the other members of the partnership besides appellees and
appellant; it does not appear that they have approved, authorized, or ratified the same, and, therefore, it
is not binding upon them. At the very least, they are entitled to be heard upon its correctness.
In addition, unless a proper accounting and liquidation of the partnership affairs is first had, the capital
shares of the appellees, as retiring partners, can not be repaid, for the firm's outside creditors have
preference over the assets of the enterprise (Civ. Code, Art. 1839), and the firm's property can not be
diminished to their prejudice. Finally, the appellant can not be held liable in his personal capacity for the
payment of partners' shares for he does not hold them except as manager of, or trustee for, the
partnership. It is the latter that must refund their shares to the retiring partners. Since not all the members
of the partnership have been impleaded, no judgment for refund can be rendered, and the action should
have been dismissed.
IN VIEW OF THE FOREGOING, the decision of the Court of Appeals is reversed and the action ordered
dismissed, without prejudice to a proper proceeding for the dissolution and liquidation of the common
enterprise. Costs against appellees.

Lim Tanhu vs Remolete 66 SCRA 425

ANTONIO LIM TANHU, DY OCHAY, ALFONSO LEONARDO NG SUA and CO OYO, petitioners,
vs.
HON. JOSE R. RAMOLETE as Presiding Judge, Branch III, CFI, Cebu and TAN PUT, respondents.
Petition for (1) certiorari to annul and set aside certain actuations of respondent Court of First Instance
of Cebu Branch III in its Civil Case No. 12328, an action for accounting of properties and money totalling
allegedly about P15 million pesos filed with a common cause of action against six defendants, in which
after declaring four of the said defendants herein petitioners, in default and while the trial as against the
two defendants not declared in default was in progress, said court granted plaintiff's motion to dismiss
the case in so far as the non-defaulted defendants were concerned and thereafter proceeded to hear
ex-parte the rest of the plaintiffs evidence and subsequently rendered judgment by default against the
defaulted defendants, with the particularities that notice of the motion to dismiss was not duly served on
any of the defendants, who had alleged a compulsory counterclaim against plaintiff in their joint answer,
and the judgment so rendered granted reliefs not prayed for in the complaint, and (2) prohibition to enjoin
further proceedings relative to the motion for immediate execution of the said judgment.
Originally, this litigation was a complaint filed on February 9, 1971 by respondent Tan Put only against
the spouses-petitioners Antonio Lim Tanhu and Dy Ochay. Subsequently, in an amended complaint
dated September 26, 1972, their son Lim Teck Chuan and the other spouses-petitioners Alfonso
Leonardo Ng Sua and Co Oyo and their son Eng Chong Leonardo were included as defendants. In said
amended complaint, respondent Tan alleged that she "is the widow of Tee Hoon Lim Po Chuan, who
was a partner in the commercial partnership, Glory Commercial Company ... with Antonio Lim Tanhu
and Alfonso Ng Sua that "defendant Antonio Lim Tanhu, Alfonso Leonardo Ng Sua, Lim Teck Chuan,
and Eng Chong Leonardo, through fraud and machination, took actual and active management of the
partnership and although Tee Hoon Lim Po Chuan was the manager of Glory Commercial Company,
defendants managed to use the funds of the partnership to purchase lands and building's in the cities of
Cebu, Lapulapu, Mandaue, and the municipalities of Talisay and Minglanilla, some of which were hidden,
but the description of those already discovered were as follows: (list of properties) ...;" and that:
13. (A)fter the death of Tee Hoon Lim Po Chuan, the defendants, without liquidation continued the
business of Glory Commercial Company by purportedly organizing a corporation known as the Glory
Commercial Company, Incorporated, with paid up capital in the sum of P125,000.00, which money and
other assets of the said Glory Commercial Company, Incorporated are actually the assets of the defunct
Glory Commercial Company partnership, of which the plaintiff has a share equivalent to one third (/3 )
thereof;
14. (P)laintiff, on several occasions after the death of her husband, has asked defendants of the above-
mentioned properties and for the liquidation of the business of the defunct partnership, including
investments on real estate in Hong Kong, but defendants kept on promising to liquidate said properties
and just told plaintiff to
15. (S)ometime in the month of November, 1967, defendants, Antonio Lim Tanhu, by means of fraud
deceit and misrepresentations did then and there, induce and convince the plaintiff to execute a quitclaim
of all her rights and interests, in the assets of the partnership of Glory Commercial Company, which is
null and void, executed through fraud and without any legal effect. The original of said quitclaim is in the
possession of the adverse party defendant Antonio Lim Tanhu.
16. (A)s a matter of fact, after the execution of said quitclaim, defendant Antonio Lim Tanhu offered to
pay the plaintiff the amount P65,000.00 within a period of one (1) month, for which plaintiff was made to
sign a receipt for the amount of P65,000.00 although no such amount was given and plaintiff was not
even given a copy of said document;
17. (T)hereafter, in the year 1968-69, the defendants who had earlier promised to liquidate the aforesaid
properties and assets in favor among others of plaintiff and until the middle of the year 1970 when the
plaintiff formally demanded from the defendants the accounting of real and personal properties of the
Glory Commercial Company, defendants refused and stated that they would not give the share of the
plaintiff. (Pp. 36-37, Record.)
She prayed as follows:
WHEREFORE, it is most respectfully prayed that judgment be rendered:
a) Ordering the defendants to render an accounting of the real and personal properties of the Glory
Commercial Company including those registered in the names of the defendants and other persons,
which properties are located in the Philippines and in Hong Kong;
b) Ordering the defendants to deliver to the plaintiff after accounting, one third (/3 ) of the total value of
all the properties which is approximately P5,000,000.00 representing the just share of the plaintiff;
c) Ordering the defendants to pay the attorney of the plaintiff the sum of Two Hundred Fifty Thousand
Pesos (P250,000.00) by way of attorney's fees and damages in the sum of One Million Pesos
(P1,000,000.00).
This Honorable Court is prayed for other remedies and reliefs consistent with law and equity and order
the defendants to pay the costs. (Page 38, Record.)
The admission of said amended complaint was opposed by defendants upon the ground that there were
material modifications of the causes of action previously alleged, but respondent judge nevertheless
allowed the amendment reasoning that:
The present action is for accounting of real and personal properties as well as for the recovery of the
same with damages.
An objective consideration of pars. 13 and 15 of the amended complaint pointed out by the defendants
to sustain their opposition will show that the allegations of facts therein are merely to amplify material
averments constituting the cause of action in the original complaint. It likewise include necessary and
indispensable defendants without whom no final determination can be had in the action and in order that
complete relief is to be accorded as between those already parties.
Considering that the amendments sought to be introduced do not change the main causes of action in
the original complaint and the reliefs demanded and to allow amendments is the rule, and to refuse them
the exception and in order that the real question between the parties may be properly and justly threshed
out in a single proceeding to avoid multiplicity of actions. (Page 40, Record.)
In a single answer with counterclaim, over the signature of their common counsel, defendants denied
specifically not only the allegation that respondent Tan is the widow of Tee Hoon because, according to
them, his legitimate wife was Ang Siok Tin still living and with whom he had four (4) legitimate children,
a twin born in 1942, and two others born in 1949 and 1965, all presently residing in Hongkong, but also
all the allegations of fraud and conversion quoted above, the truth being, according to them, that proper
liquidation had been regularly made of the business of the partnership and Tee Hoon used to receive
his just share until his death, as a result of which the partnership was dissolved and what corresponded
to him were all given to his wife and children. To quote the pertinent portions of said answer:
AND BY WAY OF SPECIAL AND AFFIRMATIVE DEFENSES,
defendants hereby incorporate all facts averred and alleged in the answer, and further most respectfully
declare:
1. That in the event that plaintiff is filing the present complaint as an heir of Tee Hoon Lim Po Chuan,
then, she has no legal capacity to sue as such, considering that the legitimate wife, namely: Ang Siok
Tin, together with their children are still alive. Under Sec. 1, (d), Rule 16 of the Revised Rules of Court,
lack of legal capacity to sue is one of the grounds for a motion to dismiss and so defendants prays that
a preliminary hearing be conducted as provided for in Sec. 5, of the same rule;
2. That in the alternative case or event that plaintiff is filing the present case under Art. 144 of the Civil
Code, then, her claim or demand has been paid, waived abandoned or otherwise extinguished as
evidenced by the 'quitclaim' Annex 'A' hereof, the ground cited is another ground for a motion to dismiss
(Sec. 1, (h), Rule 16) and hence defendants pray that a preliminary hearing be made in connection
therewith pursuant to Section 5 of the aforementioned rule;
3. That Tee Hoon Lim Po Chuan was legally married to Ang Siok Tin and were blessed with the following
children, to wit: Ching Siong Lim and Ching Hing Lim (twins) born on February 16, 1942; Lim Shing Ping
born on March 3, 1949 and Lim Eng Lu born on June 25, 1965 and presently residing in Hongkong;
4. That even before the death of Tee Hoon Lim Po Chuan, the plaintiff was no longer his common law
wife and even though she was not entitled to anything left by Tee Hoon Lim Po Chuan, yet, out of the
kindness and generosity on the part of the defendants, particularly Antonio Lain Tanhu, who, was
inspiring to be monk and in fact he is now a monk, plaintiff was given a substantial amount evidenced by
the 'quitclaim' (Annex 'A');
5. That the defendants have acquired properties out of their own personal fund and certainly not from
the funds belonging to the partnership, just as Tee Hoon Lim Po Chuan had acquired properties out of
his personal fund and which are now in the possession of the widow and neither the defendants nor the
partnership have anything to do about said properties;
6. That it would have been impossible to buy properties from funds belonging to the partnership without
the other partners knowing about it considering that the amount taken allegedly is quite big and with
such big amount withdrawn the partnership would have been insolvent;
7. That plaintiff and Tee Hoon Lim Po Chuan were not blessed with children who would have been
lawfully entitled to succeed to the properties left by the latter together with the widow and legitimate
children;
8. That despite the fact that plaintiff knew that she was no longer entitled to anything of the shares of the
late Tee Hoon Lim Po Chuan, yet, this suit was filed against the defendant who have to interpose the
following C O U N T E R C L A I M

A. That the defendants hereby reproduced, by way of reference, all the allegations and foregoing
averments as part of this counterclaim; .
B. That plaintiff knew and was aware she was merely the common-law wife of Tee Hoon Lim Po Chuan
and that the lawful and legal is still living, together with the legitimate children, and yet she deliberately
suppressed this fact, thus showing her bad faith and is therefore liable for exemplary damages in an
amount which the Honorable Court may determine in the exercise of its sound judicial discretion. In the
event that plaintiff is married to Tee Hoon Lim Po Chuan, then, her marriage is bigamous and should
suffer the consequences thereof;
C. That plaintiff was aware and had knowledge about the 'quitclaim', even though she was not entitled
to it, and yet she falsely claimed that defendants refused even to see her and for filing this unfounded,
baseless, futile and puerile complaint, defendants suffered mental anguish and torture conservatively
estimated to be not less than P3,000.00;
D. That in order to defend their rights in court, defendants were constrained to engage the services of
the undersigned counsel, obligating themselves to pay P500,000.00 as attorney's fees;
E. That by way of litigation expenses during the time that this case will be before this Honorable Court
and until the same will be finally terminated and adjudicated, defendants will have to spend at least
P5,000.00. (Pp. 44-47. Record.)
After unsuccessfully trying to show that this counterclaim is merely permissive and should be dismissed
for non-payment of the corresponding filing fee, and after being overruled by the court, in due time,
plaintiff answered the same, denying its material allegations.
On February 3, 1973, however, the date set for the pre-trial, both of the two defendants-spouses the Lim
Tanhus and Ng Suas, did not appear, for which reason, upon motion of plaintiff dated February 16, 1973,
in an order of March 12, 1973, they were all "declared in DEFAULT as of February 3, 1973 when they
failed to appear at the pre-trial." They sought to hive this order lifted thru a motion for reconsideration,
but the effort failed when the court denied it. Thereafter, the trial started, but at the stage thereof where
the first witness of the plaintiff by the name of Antonio Nuez who testified that he is her adopted son,
was up for re-cross-examination, said plaintiff unexpectedly filed on October 19, 1974 the following
simple and unreasoned
MOTION TO DROP DEFENDANTS LIM TECK
CHUAN AND ENG CHONG LEONARDO
COMES now plaintiff, through her undersigned counsel, unto the Honorable Court most respectfully
moves to drop from the complaint the defendants Lim Teck Chuan and Eng Chong Leonardo and to
consider the case dismissed insofar as said defendants Lim Teck Chuan and Eng Chong Leonardo are
concerned.
WHEREFORE, it is most respectfully prayed of the Honorable Court to drop from the complaint the
defendants Lim Teck Chuan and Eng Chong Leonardo and to dismiss the case against them without
pronouncement as to costs. (Page 50, Record.
which she set for hearing on December 21, 1974. According to petitioners, none of the defendants
declared in default were notified of said motion, in violation of Section 9 of Rule 13, since they had asked
for the lifting of the order of default, albeit unsuccessfully, and as regards the defendants not declared in
default, the setting of the hearing of said motion on October 21, 1974 infringed the three-day requirement
of Section 4 of Rule 15, inasmuch as Atty. Adelino Sitoy of Lim Teck Chuan was served with a copy of
the motion personally only on October 19, 1974, while Atty. Benjamin Alcudia of Eng Chong Leonardo
was served by registered mail sent only on the same date.
Evidently without even verifying the notices of service, just as simply as plaintiff had couched her motion,
and also without any legal grounds stated, respondent court granted the prayer of the above motion
thus:ORDER
Acting on the motion of theplaintiff praying for the dismissal of the complaint as against defendants Lim
Teck Chuan and Eng Chong Leonardo.
The same is hereby GRANTED. The complaint as against defendant Lim Teck Chuan and Eng Chong
Leonardo is hereby ordered DISMISSED without pronouncement as to costs.
Simultaneously, the following order was also issued:
Considering that defendants Antonio Lim Tanhu and his spouse Dy Ochay as well as defendants Alfonso
Ng Sua and his spouse Co Oyo have been declared in default for failure to appear during the pre-trial
and as to the other defendants the complaint had already been ordered dismissed as against them.
Let the hearing of the plaintiff's evidence ex-parte be set on November 20, 1974, at 8:30 A.M. before the
Branch Clerk of Court who is deputized for the purpose, to swear in witnesses and to submit her report
within ten (10) days thereafter. Notify the plaintiff.
SO ORDERED.
Cebu City, Philippines, October 21, 1974. (Page 52, Record.)
But, in connection with this last order, the scheduled ex-parte reception of evidence did not take place
on November 20, 1974, for on October 28, 1974, upon verbal motion of plaintiff, the court issued the
following self-explanatory order: .
Acting favorably on the motion of the plaintiff dated October 18, 1974, the Court deputized
the Branch Clerk of Court to receive the evidence of the plaintiff ex-parte to be made on
November 20, 1974. However, on October 28, 1974, the plaintiff, together with her
witnesses, appeared in court and asked, thru counsel, that she be allowed to present her
evidence.
 Considering the time and expenses incurred by the plaintiff in bringing her witnesses to
the court, the Branch Clerk of Court is hereby authorized to receive immediately the
evidence of the plaintiff ex-parte.
SO ORDERED.
Cebu City, Philippines, October 28, 1974. (Page 53. Record.)
Upon learning of these orders on October 23, 1973, the defendant Lim Teck Cheng, thru counsel, Atty.
Sitoy, filed a motion for reconsideration thereof, and on November 1, 1974, defendant Eng Chong
Leonardo, thru counsel Atty. Alcudia, filed also his own motion for reconsideration and clarification of the
same orders. These motions were denied in an order dated December 6, 1974 but received by the
movants only on December 23, 1974. Meanwhile, respondent court rendered the impugned decision on
December 20, 1974. It does not appear when the parties were served copies of this decision.
Subsequently, on January 6, 1975, all the defendants, thru counsel, filed a motion to quash the order of
October 28, 1974. Without waiting however for the resolution thereof, on January 13, 1974, Lim Teck
Chuan and Eng Chong Leonardo went to the Court of Appeals with a petition for certiorari seeking the
annulment of the above-mentioned orders of October 21, 1974 and October 28, 1974 and decision of
December 20, 1974. By resolution of January 24, 1975, the Court of Appeals dismissed said petition,
holding that its filing was premature, considering that the motion to quash the order of October 28, 1974
was still unresolved by the trial court. This holding was reiterated in the subsequent resolution of
February 5, 1975 denying the motion for reconsideration of the previous dismissal.
On the other hand, on January 20, 1975, the other defendants, petitioners herein, filed their notice of
appeal, appeal bond and motion for extension to file their record on appeal, which was granted, the
extension to expire after fifteen (15) days from January 26 and 27, 1975, for defendants Lim Tanhu and
Ng Suas, respectively. But on February 7, 1975, before the perfection of their appeal, petitioners filed
the present petition with this Court. And with the evident intent to make their procedural position clear,
counsel for defendants, Atty. Manuel Zosa, filed with respondent court a manifestation dated February
14, 1975 stating that "when the non-defaulted defendants Eng Chong Leonardo and Lim Teck Chuan
filed their petition in the Court of Appeals, they in effect abandoned their motion to quash the order of
October 28, 1974," and that similarly "when Antonio Lim Tanhu, Dy Ochay, Alfonso Leonardo Ng Sua
and Co Oyo, filed their petition for certiorari and prohibition ... in the Supreme Court, they likewise
abandoned their motion to quash." This manifestation was acted upon by respondent court together with
plaintiffs motion for execution pending appeal in its order of the same date February 14, 1975 this wise:
ORDER
When these incidents, the motion to quash the order of October 28, 1974 and the motion
for execution pending appeal were called for hearing today, counsel for the defendants-
movants submitted their manifestation inviting the attention of this Court that by their filing
for certiorari and prohibition with preliminary injunction in the Court of Appeals which was
dismissed and later the defaulted defendants filed with the Supreme Court certiorari with
prohibition they in effect abandoned their motion to quash.
IN VIEW HEREOF, the motion to quash is ordered ABANDONED. The resolution of the
motion for execution pending appeal shall be resolved after the petition for certiorari and
prohibition shall have been resolved by the Supreme Court.
SO ORDERED.
Cebu City, Philippines, February 14, 1975. (Page 216, Record.)
Upon these premises, it is the position of petitioners that respondent court acted illegally, in violation of
the rules or with grave abuse of discretion in acting on respondent's motion to dismiss of October 18,
1974 without previously ascertaining whether or not due notice thereof had been served on the adverse
parties, as, in fact, no such notice was timely served on the non-defaulted defendants Lim Teck Chuan
and Eng Chong Leonardo and no notice at all was ever sent to the other defendants, herein petitioners,
and more so, in actually ordering the dismissal of the case by its order of October 21, 1974 and at the
same time setting the case for further hearing as against the defaulted defendants, herein petitioners,
actually hearing the same ex-parte and thereafter rendering the decision of December 20, 1974 granting
respondent Tan even reliefs not prayed for in the complaint. According to the petitioners, to begin with,
there was compulsory counterclaim in the common answer of the defendants the nature of which is such
that it cannot be decided in an independent action and as to which the attention of respondent court was
duly called in the motions for reconsideration. Besides, and more importantly, under Section 4 of Rule
18, respondent court had no authority to divide the case before it by dismissing the same as against the
non-defaulted defendants and thereafter proceeding to hear it ex-parte and subsequently rendering
judgment against the defaulted defendants, considering that in their view, under the said provision of the
rules, when a common cause of action is alleged against several defendants, the default of any of them
is a mere formality by which those defaulted are not allowed to take part in the proceedings, but
otherwise, all the defendants, defaulted and not defaulted, are supposed to have but a common fate,
win or lose. In other words, petitioners posit that in such a situation, there can only be one common
judgment for or against all the defendant, the non-defaulted and the defaulted. Thus, petitioners contend
that the order of dismissal of October 21, 1974 should be considered also as the final judgment insofar
as they are concerned, or, in the alternative, it should be set aside together with all the proceedings and
decision held and rendered subsequent thereto, and that the trial be resumed as of said date, with the
defendants Lim Teck Chuan and Eng Chong Leonardo being allowed to defend the case for all the
defendants.
On the other hand, private respondent maintains the contrary view that inasmuch as petitioners had
been properly declared in default, they have no personality nor interest to question the dismissal of the
case as against their non-defaulted co-defendants and should suffer the consequences of their own
default. Respondent further contends, and this is the only position discussed in the memorandum
submitted by her counsel, that since petitioners have already made or at least started to make their
appeal, as they are in fact entitled to appeal, this special civil action has no reason for being. Additionally,
she invokes the point of prematurity upheld by the Court of Appeals in regard to the above-mentioned
petition therein of the non-defaulted defendants Lim Teck Chuan and Eng Chong Leonardo. Finally, she
argues that in any event, the errors attributed to respondent court are errors of judgment and may be
reviewed only in an appeal.
After careful scrutiny of all the above-related proceedings, in the court below and mature deliberation,
the Court has arrived at the conclusion that petitioners should be granted relief, if only to stress
emphatically once more that the rules of procedure may not be misused and abused as instruments for
the denial of substantial justice. A review of the record of this case immediately discloses that here is
another demonstrative instance of how some members of the bar, availing of their proficiency in invoking
the letter of the rules without regard to their real spirit and intent, succeed in inducing courts to act
contrary to the dictates of justice and equity, and, in some instances, to wittingly or unwittingly abet unfair
advantage by ironically camouflaging their actuations as earnest efforts to satisfy the public clamor for
speedy disposition of litigations, forgetting all the while that the plain injunction of Section 2 of Rule 1 is
that the "rules shall be liberally construed in order to promote their object and to assist the parties in
obtaining not only 'speedy' but more imperatively, "just ... and inexpensive determination of every action
and proceeding." We cannot simply pass over the impression that the procedural maneuvers and tactics
revealed in the records of the case at bar were deliberately planned with the calculated end in view of
depriving petitioners and their co-defendants below of every opportunity to properly defend themselves
against a claim of more than substantial character, considering the millions of pesos worth of properties
involved as found by respondent judge himself in the impugned decision, a claim that appears, in the
light of the allegations of the answer and the documents already brought to the attention of the court at
the pre-trial, to be rather dubious. What is most regrettable is that apparently, all of these alarming
circumstances have escaped respondent judge who did not seem to have hesitated in acting favorably
on the motions of the plaintiff conducive to the deplorable objective just mentioned, and which motions,
at the very least, appeared to be 'of highly controversial' merit, considering that their obvious tendency
and immediate result would be to convert the proceedings into a one-sided affair, a situation that should
be readily condemnable and intolerable to any court of justice.
Indeed, a seeming disposition on the part of respondent court to lean more on the contentions of private
respondent may be discerned from the manner it resolved the attempts of defendants Dy Ochay and
Antonio Lim Tanhu to have the earlier order of default against them lifted. Notwithstanding that Dy
Ochay's motion of October 8, 1971, co-signed by her with their counsel, Atty. Jovencio Enjambre (Annex
2 of respondent answer herein) was over the jurat of the notary public before whom she took her oath,
in the order of November 2, 1971, (Annex 3 id.) it was held that "the oath appearing at the bottom of the
motion is not the one contemplated by the abovequoted pertinent provision (See. 3, Rule 18) of the rules.
It is not even a verification. (See. 6, Rule 7.) What the rule requires as interpreted by the Supreme Court
is that the motion must have to be accompanied by an affidavit of merits that the defendant has a
meritorious defense, thereby ignoring the very simple legal point that the ruling of the Supreme Court
in Ong Peng vs. Custodio, 1 SCRA 781, relied upon by His Honor, under which a separate affidavit of
merit is required refers obviously to instances where the motion is not over oath of the party concerned,
considering that what the cited provision literally requires is no more than a "motion under oath." Stated
otherwise, when a motion to lift an order of default contains the reasons for the failure to answer as well
as the facts constituting the prospective defense of the defendant and it is sworn to by said defendant,
neither a formal verification nor a separate affidavit of merit is necessary.
What is worse, the same order further held that the motion to lift the order of default "is an admission
that there was a valid service of summons" and that said motion could not amount to a challenge against
the jurisdiction of the court over the person of the defendant. Such a rationalization is patently specious
and reveals an evident failure to grasp the import of the legal concepts involved. A motion to lift an order
of default on the ground that service of summons has not been made in accordance with the rules is in
order and is in essence verily an attack against the jurisdiction of the court over the person of the
defendant, no less than if it were worded in a manner specifically embodying such a direct challenge.
And then, in the order of February 14, 1972 (Annex 6, id.) lifting at last the order of default as against
defendant Lim Tanhu, His Honor posited that said defendant "has a defense (quitclaim) which renders
the claim of the plaintiff contentious." We have read defendants' motion for reconsideration of November
25, 1971 (Annex 5, id.), but We cannot find in it any reference to a "quitclaim". Rather, the allegation of
a quitclaim is in the amended complaint (Pars. 15-16, Annex B of the petition herein) in which plaintiff
maintains that her signature thereto was secured through fraud and deceit. In truth, the motion for
reconsideration just mentioned, Annex 5, merely reiterated the allegation in Dy Ochay's earlier motion
of October 8, 1971, Annex 2, to set aside the order of default, that plaintiff Tan could be but the common
law wife only of Tee Hoon, since his legitimate wife was still alive, which allegation, His Honor held in
the order of November 2, 1971, Annex 3, to be "not good and meritorious defense". To top it all, whereas,
as already stated, the order of February 19, 1972, Annex 6, lifted the default against Lim Tanhu because
of the additional consideration that "he has a defense (quitclaim) which renders the claim of the plaintiff
contentious," the default of Dy Ochay was maintained notwithstanding that exactly the same
"contentions" defense as that of her husband was invoked by her.
Such tenuous, if not altogether erroneous reasonings and manifest inconsistency in the legal postures
in the orders in question can hardly convince Us that the matters here in issue were accorded due and
proper consideration by respondent court. In fact, under the circumstances herein obtaining, it seems
appropriate to stress that, having in view the rather substantial value of the subject matter involved
together with the obviously contentious character of plaintiff's claim, which is discernible even on the
face of the complaint itself, utmost care should have been taken to avoid the slightest suspicion of
improper motivations on the part of anyone concerned. Upon the considerations hereunder to follow, the
Court expresses its grave concern that much has to be done to dispel the impression that herein
petitioners and their co-defendants are being railroaded out of their rights and properties without due
process of law, on the strength of procedural technicalities adroitly planned by counsel and seemingly
unnoticed and undetected by respondent court, whose orders, gauged by their tenor and the citations of
supposedly pertinent provisions and jurisprudence made therein, cannot be said to have proceeded from
utter lack of juridical knowledgeability and competence.
1
The first thing that has struck the Court upon reviewing the record is the seeming alacrity with which the
motion to dismiss the case against non-defaulted defendants Lim Teck Chuan and Eng Chong Leonardo
was disposed of, which definitely ought not to have been the case. The trial was proceeding with the
testimony of the first witness of plaintiff and he was still under re-cross-examination. Undoubtedly, the
motion to dismiss at that stage and in the light of the declaration of default against the rest of the
defendants was a well calculated surprise move, obviously designed to secure utmost advantage of the
situation, regardless of its apparent unfairness. To say that it must have been entirely unexpected by all
the defendants, defaulted and non-defaulted , is merely to rightly assume that the parties in a judicial
proceeding can never be the victims of any procedural waylaying as long as lawyers and judges are
imbued with the requisite sense of equity and justice.
But the situation here was aggravated by the indisputable fact that the adverse parties who were entitled
to be notified of such unanticipated dismissal motion did not get due notice thereof. Certainly, the non-
defaulted defendants had the right to the three-day prior notice required by Section 4 of Rule 15. How
could they have had such indispensable notice when the motion was set for hearing on Monday, October
21, 1974, whereas the counsel for Lim Teck Chuan, Atty. Sitoy was personally served with the notice
only on Saturday, October 19, 1974 and the counsel for Eng Chong Leonardo, Atty. Alcudia, was notified
by registered mail which was posted only that same Saturday, October 19, 1974? According to Chief
Justice Moran, "three days at least must intervene between the date of service of notice and the date
set for the hearing, otherwise the court may not validly act on the motion." (Comments on the Rules of
Court by Moran, Vol. 1, 1970 ed. p. 474.) Such is the correct construction of Section 4 of Rule 15. And
in the instant case, there can be no question that the notices to the non-defaulted defendants were short
of the requirement of said provision.
We can understand the over-anxiety of counsel for plaintiff, but what is incomprehensible is the seeming
inattention of respondent judge to the explicit mandate of the pertinent rule, not to speak of the
imperatives of fairness, considering he should have realized the far-reaching implications, specially from
the point of view he subsequently adopted, albeit erroneously, of his favorably acting on it. Actually, he
was aware of said consequences, for simultaneously with his order of dismissal, he immediately set the
case for the ex-parte hearing of the evidence against the defaulted defendants, which, incidentally, from
the tenor of his order which We have quoted above, appears to have been done by him motu propio As
a matter of fact, plaintiff's motion also quoted above did not pray for it.
Withal, respondent court's twin actions of October 21, 1974 further ignores or is inconsistent with a
number of known juridical principles concerning defaults, which We will here take occasion to reiterate
and further elucidate on, if only to avoid a repetition of the unfortunate errors committed in this case.
Perhaps some of these principles have not been amply projected and elaborated before, and such
paucity of elucidation could be the reason why respondent judge must have acted as he did. Still, the
Court cannot but express its vehement condemnation of any judicial actuation that unduly deprives any
party of the right to be heard without clear and specific warrant under the terms of existing rules or
binding jurisprudence. Extreme care must be the instant reaction of every judge when confronted with a
situation involving risks that the proceedings may not be fair and square to all the parties concerned.
Indeed, a keen sense of fairness, equity and justice that constantly looks for consistency between the
letter of the adjective rules and these basic principles must be possessed by every judge, If substance
is to prevail, as it must, over form in our courts. Literal observance of the rules, when it is conducive to
unfair and undue advantage on the part of any litigant before it, is unworthy of any court of justice and
equity. Withal, only those rules and procedure informed, with and founded on public policy deserve
obedience in accord with their unequivocal language or words..
Before proceeding to the discussion of the default aspects of this case, however, it should not be amiss
to advert first to the patent incorrectness, apparent on the face of the record, of the aforementioned order
of dismissal of October 21, 1974 of the case below as regards non-defaulted defendants Lim and
Leonardo. While it is true that said defendants are not petitioners herein, the Court deems it necessary
for a full view of the outrageous procedural strategy conceived by respondent's counsel and sanctioned
by respondent court to also make reference to the very evident fact that in ordering said dismissal
respondent court disregarded completely the existence of defendant's counterclaim which it had itself
earlier held if indirectly, to be compulsory in nature when it refused to dismiss the same on the ground
alleged by respondent Tan that he docketing fees for the filing thereof had not been paid by defendants.
Indeed, that said counterclaim is compulsory needs no extended elaboration. As may be noted in the
allegations hereof aforequoted, it arose out of or is necessarily connected with the occurrence that is the
subject matter of the plaintiff's claim, (Section 4, Rule 9) namely, plaintiff's allegedly being the widow of
the deceased Tee Hoon entitled, as such, to demand accounting of and to receive the share of her
alleged late husband as partner of defendants Antonio Lim Tanhu and Alfonso Leonardo Ng Sua in Glory
Commercial Company, the truth of which allegations all the defendants have denied. Defendants
maintain in their counterclaim that plaintiff knew of the falsity of said allegations even before she filed
her complaint, for she had in fact admitted her common-law relationship with said deceased in a
document she had jointly executed with him by way of agreement to terminate their illegitimate
relationship, for which she received P40,000 from the deceased, and with respect to her pretended share
in the capital and profits in the partnership, it is also defendants' posture that she had already quitclaimed,
with the assistance of able counsel, whatever rights if any she had thereto in November, 1967, for the
sum of P25,000 duly receipted by her, which quitclaim was, however, executed, according to respondent
herself in her amended complaint, through fraud. And having filed her complaint knowing, according to
defendants, as she ought to have known, that the material allegations thereof are false and baseless,
she has caused them to suffer damages. Undoubtedly, with such allegations, defendants' counterclaim
is compulsory, not only because the same evidence to sustain it will also refute the cause or causes of
action alleged in plaintiff's complaint, (Moran, supra p. 352) but also because from its very nature, it is
obvious that the same cannot "remain pending for independent adjudication by the court." (Section 2,
Rule 17.)
The provision of the rules just cited specifically enjoins that "(i)f a counterclaim has been pleaded by a
defendant prior to the service upon him of the plaintiff's motion to dismiss, the action shall not be
dismissed against the defendant's objection unless the counterclaim can remain pending for independent
adjudication by the court." Defendants Lim and Leonardo had no opportunity to object to the motion to
dismiss before the order granting the same was issued, for the simple reason that they were not
opportunity notified of the motion therefor, but the record shows clearly that at least defendant Lim
immediately brought the matter of their compulsory counterclaim to the attention of the trial court in his
motion for reconsideration of October 23, 1974, even as the counsel for the other defendant, Leonardo,
predicated his motion on other grounds. In its order of December 6, 1974, however, respondent court
not only upheld the plaintiffs supposed absolute right to choose her adversaries but also held that the
counterclaim is not compulsory, thereby virtually making unexplained and inexplicable 180-degree
turnabout in that respect.
There is another equally fundamental consideration why the motion to dismiss should not have been
granted. As the plaintiff's complaint has been framed, all the six defendants are charged with having
actually taken part in a conspiracy to misappropriate, conceal and convert to their own benefit the profits,
properties and all other assets of the partnership Glory Commercial Company, to the extent that they
have allegedly organized a corporation, Glory Commercial Company, Inc. with what they had illegally
gotten from the partnership. Upon such allegations, no judgment finding the existence of the alleged
conspiracy or holding the capital of the corporation to be the money of the partnership is legally possible
without the presence of all the defendants. The non-defaulted defendants are alleged to be stockholders
of the corporation and any decision depriving the same of all its assets cannot but prejudice the interests
of said defendants. Accordingly, upon these premises, and even prescinding from the other reasons to
be discussed anon it is clear that all the six defendants below, defaulted and non-defaulted, are
indispensable parties. Respondents could do no less than grant that they are so on page 23 of their
answer. Such being the case, the questioned order of dismissal is exactly the opposite of what ought to
have been done. Whenever it appears to the court in the course of a proceeding that an indispensable
party has not been joined, it is the duty of the court to stop the trial and to order the inclusion of such
party. (The Revised Rules of Court, Annotated & Commented by Senator Vicente J. Francisco, Vol. 1,
p. 271, 1973 ed. See also Cortez vs. Avila, 101 Phil. 705.) Such an order is unavoidable, for the "general
rule with reference to the making of parties in a civil action requires the joinder of all necessary parties
wherever possible, and the joinder of all indispensable parties under any and all conditions, the presence
of those latter being a sine qua non of the exercise of judicial power." (Borlasa vs. Polistico, 47 Phil. 345,
at p. 347.) It is precisely " when an indispensable party is not before the court (that) the action should be
dismissed." (People v. Rodriguez, 106 Phil. 325, at p. 327.) The absence of an indispensable party
renders all subsequent actuations of the court null and void, for want of authority to act, not only as to
the absent parties but even as to those present. In short, what respondent court did here was exactly
the reverse of what the law ordains it eliminated those who by law should precisely be joined.
As may he noted from the order of respondent court quoted earlier, which resolved the motions for
reconsideration of the dismissal order filed by the non-defaulted defendants, His Honor rationalized his
position thus:
It is the rule that it is the absolute prerogative of the plaintiff to choose, the theory upon
which he predicates his right of action, or the parties he desires to sue, without dictation
or imposition by the court or the adverse party. If he makes a mistake in the choice of his
right of action, or in that of the parties against whom he seeks to enforce it, that is his own
concern as he alone suffers therefrom. The plaintiff cannot be compelled to choose his
defendants, He may not, at his own expense, be forced to implead anyone who, under the
adverse party's theory, is to answer for defendant's liability. Neither may the Court compel
him to furnish the means by which defendant may avoid or mitigate their liability. (Vao
vs. Alo, 95 Phil. 495-496.)
This being the rule this court cannot compel the plaintiff to continue prosecuting her cause
of action against the defendants-movants if in the course of the trial she believes she can
enforce it against the remaining defendants subject only to the limitation provided in
Section 2, Rule 17 of the Rules of Court. ... (Pages 6263, Record.)
Noticeably, His Honor has employed the same equivocal terminology as in plaintiff's motion of October
18, 1974 by referring to the action he had taken as being "dismissal of the complaint against them or
their being dropped therefrom", without perceiving that the reason for the evidently intentional ambiguity
is transparent. The apparent idea is to rely on the theory that under Section 11 of Rule 3, parties may be
dropped by the court upon motion of any party at any stage of the action, hence "it is the absolute right
prerogative of the plaintiff to choosethe parties he desires to sue, without dictation or imposition by the
court or the adverse party." In other words, the ambivalent pose is suggested that plaintiff's motion of
October 18, 1974 was not predicated on Section 2 of Rule 17 but more on Section 11 of Rule 3. But the
truth is that nothing can be more incorrect. To start with, the latter rule does not comprehend whimsical
and irrational dropping or adding of parties in a complaint. What it really contemplates is erroneous or
mistaken non-joinder and misjoinder of parties. No one is free to join anybody in a complaint in court
only to drop him unceremoniously later at the pleasure of the plaintiff. The rule presupposes that the
original inclusion had been made in the honest conviction that it was proper and the subsequent dropping
is requested because it has turned out that such inclusion was a mistake. And this is the reason why the
rule ordains that the dropping be "on such terms as are just" just to all the other parties. In the case
at bar, there is nothing in the record to legally justify the dropping of the non-defaulted defendants, Lim
and Leonardo. The motion of October 18, 1974 cites none. From all appearances, plaintiff just decided
to ask for it, without any relevant explanation at all. Usually, the court in granting such a motion inquires
for the reasons and in the appropriate instances directs the granting of some form of compensation for
the trouble undergone by the defendant in answering the complaint, preparing for or proceeding partially
to trial, hiring counsel and making corresponding expenses in the premises. Nothing of these, appears
in the order in question. Most importantly, His Honor ought to have considered that the outright dropping
of the non-defaulted defendants Lim and Leonardo, over their objection at that, would certainly be unjust
not only to the petitioners, their own parents, who would in consequence be entirely defenseless, but
also to Lim and Leonardo themselves who would naturally correspondingly suffer from the eventual
judgment against their parents. Respondent court paid no heed at all to the mandate that such dropping
must be on such terms as are just" meaning to all concerned with its legal and factual effects.
Thus, it is quite plain that respondent court erred in issuing its order of dismissal of October 21, 1974 as
well as its order of December 6, 1974 denying reconsideration of such dismissal. As We make this ruling,
We are not oblivious of the circumstance that defendants Lim and Leonardo are not parties herein. But
such consideration is inconsequential. The fate of the case of petitioners is inseparably tied up with said
order of dismissal, if only because the order of ex-parte hearing of October 21, 1974 which directly
affects and prejudices said petitioners is predicated thereon. Necessarily, therefore, We have to pass on
the legality of said order, if We are to decide the case of herein petitioners properly and fairly.
The attitude of the non-defaulted defendants of no longer pursuing further their questioning of the
dismissal is from another point of view understandable. On the one hand, why should they insist on being
defendants when plaintiff herself has already release from her claims? On the other hand, as far as their
respective parents-co-defendants are concerned, they must have realized that they (their parents) could
even be benefited by such dismissal because they could question whether or not plaintiff can still
prosecute her case against them after she had secured the order of dismissal in question. And it is in
connection with this last point that the true and correct concept of default becomes relevant.
At this juncture, it may also be stated that the decision of the Court of Appeals of January 24, 1975 in G.
R. No. SP-03066 dismissing the petition for certiorari of non-defaulted defendants Lim and Leonardo
impugning the order of dismissal of October 21, 1974, has no bearing at all in this case, not only because
that dismissal was premised by the appellate court on its holding that the said petition was premature
inasmuch as the trial court had not yet resolved the motion of the defendants of October 28, 1974 praying
that said disputed order be quashed, but principally because herein petitioners were not parties in that
proceeding and cannot, therefore, be bound by its result. In particular, We deem it warranted to draw the
attention of private respondent's counsel to his allegations in paragraphs XI to XIV of his answer, which
relate to said decision of the Court of Appeals and which have the clear tendency to make it appear to
the Court that the appeals court had upheld the legality and validity of the actuations of the trial court
being questioned, when as a matter of indisputable fact, the dismissal of the petition was based solely
and exclusively on its being premature without in any manner delving into its merits. The Court must and
does admonish counsel that such manner of pleading, being deceptive and lacking in candor, has no
place in any court, much less in the Supreme Court, and if We are adopting a passive attitude in the
premises, it is due only to the fact that this is counsel's first offense. But similar conduct on his part in
the future will definitely be dealt with more severely. Parties and counsel would be well advised to avoid
such attempts to befuddle the issues as invariably then will be exposed for what they are, certainly
unethical and degrading to the dignity of the law profession. Moreover, almost always they only betray
the inherent weakness of the cause of the party resorting to them.
2
Coming now to the matter itself of default, it is quite apparent that the impugned orders must have
proceeded from inadequate apprehension of the fundamental precepts governing such procedure under
the Rules of Court. It is time indeed that the concept of this procedural device were fully understood by
the bench and bar, instead of being merely taken for granted as being that of a simple expedient of not
allowing the offending party to take part in the proceedings, so that after his adversary shall have
presented his evidence, judgment may be rendered in favor of such opponent, with hardly any chance
of said judgment being reversed or modified.
The Rules of Court contain a separate rule on the subject of default, Rule 18. But said rule is concerned
solely with default resulting from failure of the defendant or defendants to answer within the reglementary
period. Referring to the simplest form of default, that is, where there is only one defendant in the action
and he fails to answer on time, Section 1 of the rule provides that upon "proof of such failure, (the court
shall) declare the defendant in default. Thereupon the court shall proceed to receive the plaintiff's
evidence and render judgment granting him such relief as the complaint and the facts proven may
warrant." This last clause is clarified by Section 5 which says that "a judgment entered against a party in
default shall not exceed the amount or be different in kind from that prayed for."
Unequivocal, in the literal sense, as these provisions are, they do not readily convey the full import of
what they contemplate. To begin with, contrary to the immediate notion that can be drawn from their
language, these provisions are not to be understood as meaning that default or the failure of the
defendant to answer should be "interpreted as an admission by the said defendant that the plaintiff's
cause of action find support in the law or that plaintiff is entitled to the relief prayed for." (Moran, supra,
p. 535 citing Macondary & Co. v. Eustaquio, 64 Phil. 466, citing with approval Chaffin v. McFadden, 41
Ark. 42; Johnson v. Pierce, 12 Ark. 599; Mayden v. Johnson, 59 Ga. 105; People v. Rust, 292 111. 328;
Ken v. Leopold 21 111. A. 163; Chicago, etc. Electric R. Co. v. Krempel 116 111. A. 253.)
Being declared in default does not constitute a waiver of rights except that of being heard and of
presenting evidence in the trial court. According to Section 2, "except as provided in Section 9 of Rule
13, a party declared in default shall not be entitled to notice of subsequent proceedings, nor to take part
in the trial." That provision referred to reads: "No service of papers other than substantially amended
pleadings and final orders or judgments shall be necessary on a party in default unless he files a motion
to set aside the order of default, in which event he shall be entitled to notice of all further proceedings
regardless of whether the order of default is set aside or not." And pursuant to Section 2 of Rule 41, "a
party who has been declared in default may likewise appeal from the judgment rendered against him as
contrary to the evidence or to the law, even if no petition for relief to set aside the order of default has
been presented by him in accordance with Rule 38.".
In other words, a defaulted defendant is not actually thrown out of court. While in a sense it may be said
that by defaulting he leaves himself at the mercy of the court, the rules see to it that any judgment against
him must be in accordance with law. The evidence to support the plaintiff's cause is, of course, presented
in his absence, but the court is not supposed to admit that which is basically incompetent. Although the
defendant would not be in a position to object, elementary justice requires that, only legal evidence
should be considered against him. If the evidence presented should not be sufficient to justify a judgment
for the plaintiff, the complaint must be dismissed. And if an unfavorable judgment should be justifiable,
it cannot exceed in amount or be different in kind from what is prayed for in the complaint.
Incidentally, these considerations argue against the present widespread practice of trial judges, as was
done by His Honor in this case, of delegating to their clerks of court the reception of the plaintiff's
evidence when the defendant is in default. Such a Practice is wrong in principle and orientation. It has
no basis in any rule. When a defendant allows himself to be declared in default, he relies on the faith
that the court would take care that his rights are not unduly prejudiced. He has a right to presume that
the law and the rules will still be observed. The proceedings are held in his forced absence, and it is but
fair that the plaintiff should not be allowed to take advantage of the situation to win by foul or illegal
means or with inherently incompetent evidence. Thus, in such instances, there is need for more attention
from the court, which only the judge himself can provide. The clerk of court would not be in a position
much less have the authority to act in the premises in the manner demanded by the rules of fair play and
as contemplated in the law, considering his comparably limited area of discretion and his presumably
inferior preparation for the functions of a judge. Besides, the default of the defendant is no excuse for
the court to renounce the opportunity to closely observe the demeanor and conduct of the witnesses of
the plaintiff, the better to appreciate their truthfulness and credibility. We therefore declare as a matter
of judicial policy that there being no imperative reason for judges to do otherwise, the practice should be
discontinued.
Another matter of practice worthy of mention at this point is that it is preferable to leave enough
opportunity open for possible lifting of the order of default before proceeding with the reception of the
plaintiff's evidence and the rendition of the decision. "A judgment by default may amount to a positive
and considerable injustice to the defendant; and the possibility of such serious consequences
necessitates a careful and liberal examination of the grounds upon which the defendant may seek to set
it aside." (Moran, supra p. 534, citing Coombs vs. Santos, 24 Phil. 446; 449-450.) The expression,
therefore, in Section 1 of Rule 18 aforequoted which says that "thereupon the court shall proceed to
receive the plaintiff's evidence etc." is not to be taken literally. The gain in time and dispatch should the
court immediately try the case on the very day of or shortly after the declaration of default is far
outweighed by the inconvenience and complications involved in having to undo everything already done
in the event the defendant should justify his omission to answer on time.
The foregoing observations, as may be noted, refer to instances where the only defendant or all the
defendants, there being several, are declared in default. There are additional rules embodying more
considerations of justice and equity in cases where there are several defendants against whom a
common cause of action is averred and not all of them answer opportunely or are in default, particularly
in reference to the power of the court to render judgment in such situations. Thus, in addition to the
limitation of Section 5 that the judgment by default should not be more in amount nor different in kind
from the reliefs specifically sought by plaintiff in his complaint, Section 4 restricts the authority of the
court in rendering judgment in the situations just mentioned as follows:
Sec. 4. Judgment when some defendants answer, and other make difficult. When a
complaint states a common cause of action against several defendant some of whom
answer, and the others fail to do so, the court shall try the case against all upon the answer
thus filed and render judgment upon the evidence presented. The same proceeding
applies when a common cause of action is pleaded in a counterclaim, cross-claim and
third-party claim.
Very aptly does Chief Justice Moran elucidate on this provision and the controlling jurisprudence
explanatory thereof this wise:
Where a complaint states a common cause of action against several defendants and some
appear to defend the case on the merits while others make default, the defense interposed
by those who appear to litigate the case inures to the benefit of those who fail to appear,
and if the court finds that a good defense has been made, all of the defendants must be
absolved. In other words, the answer filed by one or some of the defendants inures to the
benefit of all the others, even those who have not seasonably filed their answer. (Bueno
v. Ortiz, L-22978, June 27, 1968, 23 SCRA 1151.) The proper mode of proceeding where
a complaint states a common cause of action against several defendants, and one of them
makes default, is simply to enter a formal default order against him, and proceed with the
cause upon the answers of the others. The defaulting defendant merely loses his standing
in court, he not being entitled to the service of notice in the cause, nor to appear in the suit
in any way. He cannot adduce evidence; nor can he be heard at the final hearing, (Lim
Toco v. Go Fay, 80 Phil. 166.) although he may appeal the judgment rendered against
him on the merits. (Rule 41, sec. 2.) If the case is finally decided in the plaintiff's favor, a
final decree is then entered against all the defendants; but if the suit should be decided
against the plaintiff, the action will be dismissed as to all the defendants alike. (Velez v.
Ramas, 40 Phil. 787-792; Frow v. de la Vega, 15 Wal. 552,21 L. Ed. 60.) In other words
the judgment will affect the defaulting defendants either favorably or adversely. (Castro v.
Pea, 80 Phil. 488.)
Defaulting defendant may ask execution if judgment is in his favor. (Castro v.
Pea, supra.) (Moran, Rules of Court, Vol. 1, pp. 538-539.)
In Castro vs. Pea, 80 Phil. 488, one of the numerous cases cited by Moran, this Court
elaborated on the construction of the same rule when it sanctioned the execution, upon
motion and for the benefit of the defendant in default, of a judgment which was adverse to
the plaintiff. The Court held:
As above stated, Emilia Matanguihan, by her counsel, also was a movant in the petition
for execution Annex 1. Did she have a right to be such, having been declared in default?
In Frow vs. De la Vega, supra, cited as authority in Velez vs. Ramas, supra, the Supreme
Court of the United States adopted as ground for its own decision the following ruling of
the New York Court of Errors in Clason vs. Morris, 10 Jons., 524:
It would be unreasonable to hold that because one defendant had made default, the
plaintiff should have a decree even against him, where the court is satisfied from the proofs
offered by the other, that in fact the plaintiff is not entitled to a decree. (21 Law, ed., 61.)
The reason is simple: justice has to be consistent. The complaint stating a common cause
of action against several defendants, the complainant's rights or lack of them in the
controversy have to be the same, and not different, as against all the defendant's although
one or some make default and the other or others appear, join issue, and enter into trial.
For instance, in the case of Clason vs. Morris above cited, the New York Court of Errors
in effect held that in such a case if the plaintiff is not entitled to a decree, he will not be
entitled to it, not only as against the defendant appearing and resisting his action but also
as against the one who made default. In the case at bar, the cause of action in the plaintiff's
complaint was common against the Mayor of Manila, Emilia Matanguihan, and the other
defendants in Civil Case No. 1318 of the lower court. The Court of First Instance in its
judgment found and held upon the evidence adduced by the plaintiff and the defendant
mayor that as between said plaintiff and defendant Matanguihan the latter was the one
 legally entitled to occupy the stalls; and it decreed, among other things, that said plaintiff
immediately vacate them. Paraphrasing the New York Court of Errors, it would be
unreasonable to hold now that because Matanguihan had made default, the said plaintiff
should be declared, as against her, legally entitled to the occupancy of the stalls, or to
remain therein, although the Court of First Instance was so firmly satisfied, from the proofs
offered by the other defendant, that the same plaintiff was not entitled to such occupancy
that it peremptorily ordered her to vacate the stalls. If in the cases of Clason vs. Morris,
supra, Frow vs. De la Vega, supra, and Velez vs. Ramas, supra the decrees entered
inured to the benefit of the defaulting defendants, there is no reason why that entered in
said case No. 1318 should not be held also to have inured to the benefit of the defaulting
defendant Matanguihan and the doctrine in said three cases plainly implies that there is
nothing in the law governing default which would prohibit the court from rendering
judgment favorable to the defaulting defendant in such cases. If it inured to her benefit, it
stands to reason that she had a right to claim that benefit, for it would not be a benefit if
the supposed beneficiary were barred from claiming it; and if the benefit necessitated the
execution of the decree, she must be possessed of the right to ask for the execution
thereof as she did when she, by counsel, participated in the petition for execution Annex
1.
Section 7 of Rule 35 would seem to afford a solid support to the above considerations. It
provides that when a complaint states a common cause of action against several
defendants, some of whom answer, and the others make default, 'the court shall try the
case against all upon the answer thus filed and render judgment upon the evidence
presented by the parties in court'. It is obvious that under this provision the case is tried
jointly not only against the defendants answering but also against those defaulting, and
the trial is held upon the answer filed by the former; and the judgment, if adverse, will
prejudice the defaulting defendants no less than those who answer. In other words, the
defaulting defendants are held bound by the answer filed by their co-defendants and by
the judgment which the court may render against all of them. By the same token, and by
all rules of equity and fair play, if the judgment should happen to be favorable, totally or
partially, to the answering defendants, it must correspondingly benefit the defaulting ones,
for it would not be just to let the judgment produce effects as to the defaulting defendants
only when adverse to them and not when favorable.
In Bueno vs. Ortiz, 23 SCRA 1151, the Court applied the provision under discussion in the following
words:
In answer to the charge that respondent Judge had committed a grave abuse of discretion
in rendering a default judgment against the PC, respondents allege that, not having filed
its answer within the reglementary period, the PC was in default, so that it was proper for
Patanao to forthwith present his evidence and for respondent Judge to render said
judgment. It should be noted, however, that in entering the area in question and seeking
to prevent Patanao from continuing his logging operations therein, the PC was merely
executing an order of the Director of Forestry and acting as his agent. Patanao's cause of
action against the other respondents in Case No. 190, namely, the Director of Forestry,
the District Forester of Agusan, the Forest Officer of Bayugan, Agusan, and the Secretary
of Agriculture and Natural Resources. Pursuant to Rule 18, Section 4, of the Rules of
Court, 'when a complaint states a common cause of action against several defendants
some of whom answer and the others fail to do so, the court shall try the case against all
upon the answer thus filed (by some) and render judgment upon the evidence presented.'
 In other words, the answer filed by one or some of the defendants inures to the benefit of
all the others, even those who have not seasonably filed their answer.
Indeed, since the petition in Case No. 190 sets forth a common cause of action against all
of the respondents therein, a decision in favor of one of them would necessarily favor the
others. In fact, the main issue, in said case, is whether Patanao has a timber license to
undertake logging operations in the disputed area. It is not possible to decide such issue
in the negative, insofar as the Director of Forestry, and to settle it otherwise, as regards
the PC, which is merely acting as agent of the Director of Forestry, and is, therefore, his
alter ego, with respect to the disputed forest area.
Stated differently, in all instances where a common cause of action is alleged against several defendants,
some of whom answer and the others do not, the latter or those in default acquire a vested right not only
to own the defense interposed in the answer of their co- defendant or co-defendants not in default but
also to expect a result of the litigation totally common with them in kind and in amount whether favorable
or unfavorable. The substantive unity of the plaintiff's cause against all the defendants is carried through
to its adjective phase as ineluctably demanded by the homogeneity and indivisibility of justice itself.
Indeed, since the singleness of the cause of action also inevitably implies that all the defendants are
indispensable parties, the court's power to act is integral and cannot be split such that it cannot relieve
any of them and at the same time render judgment against the rest. Considering the tenor of the section
in question, it is to be assumed that when any defendant allows himself to be declared in default knowing
that his defendant has already answered, he does so trusting in the assurance implicit in the rule that
his default is in essence a mere formality that deprives him of no more than the right to take part in the
trial and that the court would deem anything done by or for the answering defendant as done by or for
him. The presumption is that otherwise he would not -have seen to that he would not be in default. Of
course, he has to suffer the consequences of whatever the answering defendant may do or fail to do,
regardless of possible adverse consequences, but if the complaint has to be dismissed in so far as the
answering defendant is concerned it becomes his inalienable right that the same be dismissed also as
to him. It does not matter that the dismissal is upon the evidence presented by the plaintiff or upon the
latter's mere desistance, for in both contingencies, the lack of sufficient legal basis must be the cause.
The integrity of the common cause of action against all the defendants and the indispensability of all of
them in the proceedings do not permit any possibility of waiver of the plaintiff's right only as to one or
some of them, without including all of them, and so, as a rule, withdrawal must be deemed to be a
confession of weakness as to all. This is not only elementary justice; it also precludes the concomitant
hazard that plaintiff might resort to the kind of procedural strategem practiced by private respondent
herein that resulted in totally depriving petitioners of every opportunity to defend themselves against her
claims which, after all, as will be seen later in this opinion, the record does not show to be invulnerable,
both in their factual and legal aspects, taking into consideration the tenor of the pleadings and the
probative value of the competent evidence which were before the trial court when it rendered its assailed
decision where all the defendants are indispensable parties, for which reason the absence of any of
them in the case would result in the court losing its competency to act validly, any compromise that the
plaintiff might wish to make with any of them must, as a matter of correct procedure, have to await until
after the rendition of the judgment, at which stage the plaintiff may then treat the matter of its execution
and the satisfaction of his claim as variably as he might please. Accordingly, in the case now before Us
together with the dismissal of the complaint against the non-defaulted defendants, the court should have
ordered also the dismissal thereof as to petitioners.
Indeed, there is more reason to apply here the principle of unity and indivisibility of the action just
discussed because all the defendants here have already joined genuine issues with plaintiff. Their default
was only at the pre-trial. And as to such absence of petitioners at the pre-trial, the same could be
attributed to the fact that they might not have considered it necessary anymore to be present, since their
respective children Lim and Leonardo, with whom they have common defenses, could take care of their
defenses as well. Anything that might have had to be done by them at such pre-trial could have been
done for them by their children, at least initially, specially because in the light of the pleadings before the
court, the prospects of a compromise must have appeared to be rather remote. Such attitude of
petitioners is neither uncommon nor totally unjustified. Under the circumstances, to declare them
immediately and irrevocably in default was not an absolute necessity. Practical considerations and
reasons of equity should have moved respondent court to be more understanding in dealing with the
situation. After all, declaring them in default as respondent court did not impair their right to a common
fate with their children.
3
Another issue to be resolved in this case is the question of whether or not herein petitioners were entitled
to notice of plaintiff's motion to drop their co-defendants Lim and Leonardo, considering that petitioners
had been previously declared in default. In this connection, the decisive consideration is that according
to the applicable rule, Section 9, Rule 13, already quoted above, (1) even after a defendant has been
declared in default, provided he "files a motion to set aside the order of default, he shall be entitled to
notice of all further proceedings regardless of whether the order of default is set aside or not" and (2) a
party in default who has not filed such a motion to set aside must still be served with all "substantially
amended or supplemented pleadings." In the instant case, it cannot be denied that petitioners had all
filed their motion for reconsideration of the order declaring them in default. Respondents' own answer to
the petition therein makes reference to the order of April 3, 1973, Annex 8 of said answer, which denied
said motion for reconsideration. On page 3 of petitioners' memorandum herein this motion is referred to
as "a motion to set aside the order of default." But as We have not been favored by the parties with a
copy of the said motion, We do not even know the excuse given for petitioners' failure to appear at the
pre-trial, and We cannot, therefore, determine whether or not the motion complied with the requirements
of Section 3 of Rule 18 which We have held to be controlling in cases of default for failure to answer on
time. (The Philippine-British Co. Inc. etc. et al. vs. The Hon. Walfrido de los Angeles etc. et al., 63 SCRA
50.)
We do not, however, have here, as earlier noted, a case of default for failure to answer but one for failure
to appear at the pre-trial. We reiterate, in the situation now before Us, issues have already been joined.
In fact, evidence had been partially offered already at the pre-trial and more of it at the actual trial which
had already begun with the first witness of the plaintiff undergoing re-cross-examination. With these facts
in mind and considering that issues had already been joined even as regards the defaulted defendants,
it would be requiring the obvious to pretend that there was still need for an oath or a verification as to the
merits of the defense of the defaulted defendants in their motion to reconsider their default. Inasmuch
as none of the parties had asked for a summary judgment there can be no question that the issues joined
were genuine, and consequently, the reason for requiring such oath or verification no longer holds.
Besides, it may also be reiterated that being the parents of the non-defaulted defendants, petitioners
must have assumed that their presence was superfluous, particularly because the cause of action
against them as well as their own defenses are common. Under these circumstances, the form of the
motion by which the default was sought to be lifted is secondary and the requirements of Section 3 of
Rule 18 need not be strictly complied with, unlike in cases of default for failure to answer. We can thus
hold as We do hold for the purposes of the revival of their right to notice under Section 9 of Rule 13, that
petitioner's motion for reconsideration was in substance legally adequate regardless of whether or not it
was under oath.
In any event, the dropping of the defendants Lim and Leonardo from plaintiff's amended complaint was
virtually a second amendment of plaintiffs complaint. And there can be no doubt that such amendment
was substantial, for with the elimination thereby of two defendants allegedly solidarily liable with their co-
defendants, herein petitioners, it had the effect of increasing proportionally what each of the remaining
defendants, the said petitioners, would have to answer for jointly and severally. Accordingly, notice to
petitioners of the plaintiff's motion of October 18, 1974 was legally indispensable under the rule above-
quoted. Consequently, respondent court had no authority to act on the motion, to dismiss, pursuant to
Section 6 of Rule 15, for according to Senator Francisco, "(t) he Rules of Court clearly provide that no
motion shall be acted upon by the Court without the proof of service of notice thereof, together with a
copy of the motion and other papers accompanying it, to all parties concerned at least three days before
the hearing thereof, stating the time and place for the hearing of the motion. (Rule 26, section 4, 5 and
6, Rules of Court (now Sec. 15, new Rules). When the motion does not comply with this requirement, it
is not a motion. It presents no question which the court could decide. And the Court acquires no
jurisdiction to consider it. (Roman Catholic Bishop of Lipa vs. Municipality of Unisan 44 Phil., 866; Manakil
vs. Revilla, 42 Phil., 81.) (Laserna vs. Javier, et al., CA-G.R. No. 7885, April 22, 1955; 21 L.J. 36, citing
Roman Catholic Bishop of Lipa vs. Municipality of Unisan 44 Phil., 866; Manakil vs. Revilla, 42 Phil., 81.)
(Francisco. The Revised Rules of Court in the Philippines, pp. 861-862.) Thus, We see again, from a
different angle, why respondent court's order of dismissal of October 21, 1974 is fatally ineffective.
4
The foregoing considerations notwithstanding, it is respondents' position that certiorari is not the proper
remedy of petitioners. It is contended that inasmuch as said petitioners have in fact made their appeal
already by filing the required notice of appeal and appeal bond and a motion for extension to file their
record on appeal, which motion was granted by respondent court, their only recourse is to prosecute that
appeal. Additionally, it is also maintained that since petitioners have expressly withdrawn their motion to
quash of January 4, 1975 impugning the order of October 28, 1974, they have lost their right to assail by
certiorari the actuations of respondent court now being questioned, respondent court not having been
given the opportunity to correct any possible error it might have committed.
We do not agree. As already shown in the foregoing discussion, the proceedings in the court below have
gone so far out of hand that prompt action is needed to restore order in the entangled situation created
by the series of plainly illegal orders it had issued. The essential purpose of certiorari is to keep the
proceedings in lower judicial courts and tribunals within legal bounds, so that due process and the rule
of law may prevail at all times and arbitrariness, whimsicality and unfairness which justice abhors may
immediately be stamped out before graver injury, juridical and otherwise, ensues. While generally these
objectives may well be attained in an ordinary appeal, it is undoubtedly the better rule to allow the special
remedy of certiorari at the option of the party adversely affected, when the irregularity committed by the
trial court is so grave and so far reaching in its consequences that the long and cumbersome procedure
of appeal will only further aggravate the situation of the aggrieved party because other untoward
actuations are likely to materialize as natural consequences of those already perpetrated. If the law were
otherwise, certiorari would have no reason at all for being.
No elaborate discussion is needed to show the urgent need for corrective measures in the case at bar.
Verily, this is one case that calls for the exercise of the Supreme Court's inherent power of supervision
over all kinds of judicial actions of lower courts. Private respondent's procedural technique designed to
disable petitioners to defend themselves against her claim which appears on the face of the record itself
to be at least highly controversial seems to have so fascinated respondent court that none would be
surprised should her pending motion for immediate execution of the impugned judgment receive similar
ready sanction as her previous motions which turned the proceedings into a one-sided affair. The stakes
here are high. Not only is the subject matter considerably substantial; there is the more important aspect
that not only the spirit and intent of the rules but even the basic rudiments of fair play have been
disregarded. For the Court to leave unrestrained the obvious tendency of the proceedings below would
be nothing short of wittingly condoning inequity and injustice resulting from erroneous construction and
unwarranted application of procedural rules.
5
The sum and total of all the foregoing disquisitions is that the decision here in question is legally
anomalous. It is predicated on two fatal malactuations of respondent court namely (1) the dismissal of
the complaint against the non-defaulted defendants Lim and Leonardo and (2) the ex-parte reception of
the evidence of the plaintiff by the clerk of court, the subsequent using of the same as basis for its
judgment and the rendition of such judgment.
For at least three reasons which We have already fully discussed above, the order of dismissal of
October 21, 1974 is unworthy of Our sanction: (1) there was no timely notice of the motion therefor to
the non-defaulted defendants, aside from there being no notice at all to herein petitioners; (2) the
common answer of the defendants, including the non-defaulted, contained a compulsory counterclaim
incapable of being determined in an independent action; and (3) the immediate effect of such dismissal
was the removal of the two non-defaulted defendants as parties, and inasmuch as they are both
indispensable parties in the case, the court consequently lost the" sine qua non of the exercise of judicial
power", per Borlasa vs. Polistico, supra. This is not to mention anymore the irregular delegation to the
clerk of court of the function of receiving plaintiff's evidence. And as regards the ex-parte reception of
plaintiff's evidence and subsequent rendition of the judgment by default based thereon, We have seen
that it was violative of the right of the petitioners, under the applicable rules and principles on default, to
a common and single fate with their non-defaulted co-defendants. And We are not yet referring, as We
shall do this anon to the numerous reversible errors in the decision itself.
It is to be noted, however, that the above-indicated two fundamental flaws in respondent court's
actuations do not call for a common corrective remedy. We cannot simply rule that all the impugned
proceedings are null and void and should be set aside, without being faced with the insurmountable
obstacle that by so doing We would be reviewing the case as against the two non-defaulted defendants
who are not before Us not being parties hereto. Upon the other hand, for Us to hold that the order of
dismissal should be allowed to stand, as contended by respondents themselves who insist that the same
is already final, not only because the period for its finality has long passed but also because allegedly,
albeit not very accurately, said 'non-defaulted defendants unsuccessfully tried to have it set aside by the
Court of Appeals whose decision on their petition is also already final, We would have to disregard
whatever evidence had been presented by the plaintiff against them and, of course, the findings of
respondent court based thereon which, as the assailed decision shows, are adverse to them. In other
words, whichever of the two apparent remedies the Court chooses, it would necessarily entail some kind
of possible juridical imperfection. Speaking of their respective practical or pragmatic effects, to annul the
dismissal would inevitably prejudice the rights of the non-defaulted defendants whom We have not heard
and who even respondents would not wish to have anything anymore to do with the case. On the other
hand, to include petitioners in the dismissal would naturally set at naught every effort private respondent
has made to establish or prove her case thru means sanctioned by respondent court. In short, We are
confronted with a legal para-dilemma. But one thing is certain this difficult situations has been brought
about by none other than private respondent who has quite cynically resorted to procedural maneuvers
without realizing that the technicalities of the adjective law, even when apparently accurate from the
literal point of view, cannot prevail over the imperatives of the substantive law and of equity that always
underlie them and which have to be inevitably considered in the construction of the pertinent procedural
rules.
All things considered, after careful and mature deliberation, the Court has arrived at the conclusion that
as between the two possible alternatives just stated, it would only be fair, equitable and proper to uphold
the position of petitioners. In other words, We rule that the order of dismissal of October 21, 1974 is in
law a dismissal of the whole case of the plaintiff, including as to petitioners herein. Consequently, all
proceedings held by respondent court subsequent thereto including and principally its decision of
December 20, 1974 are illegal and should be set aside.
This conclusion is fully justified by the following considerations of equity:
1. It is very clear to Us that the procedural maneuver resorted to by private respondent in securing the
decision in her favor was ill-conceived. It was characterized by that which every principle of law and
equity disdains taking unfair advantage of the rules of procedure in order to unduly deprive the other
party of full opportunity to defend his cause. The idea of "dropping" the non-defaulted defendants with
the end in view of completely incapacitating their co-defendants from making any defense, without
considering that all of them are indispensable parties to a common cause of action to which they have
countered with a common defense readily connotes an intent to secure a one-sided decision, even
improperly. And when, in this connection, the obvious weakness of plaintiff's evidence is taken into
account, one easily understands why such tactics had to be availed of. We cannot directly or indirectly
give Our assent to the commission of unfairness and inequity in the application of the rules of procedure,
particularly when the propriety of reliance thereon is not beyond controversy.
2. The theories of remedial law pursued by private respondents, although approved by His Honor, run
counter to such basic principles in the rules on default and such elementary rules on dismissal of actions
and notice of motions that no trial court should be unaware of or should be mistaken in applying. We are
at a loss as to why His Honor failed to see through counsel's inequitous strategy, when the provisions
(1) on the three-day rule on notice of motions, Section 4 of Rule 15, (2) against dismissal of actions on
motion of plaintiff when there is a compulsory counterclaim, Section 2, Rule 17, (3) against permitting
the absence of indispensable parties, Section 7, Rule 3, (4) on service of papers upon defendants in
default when there are substantial amendments to pleadings, Section 9, Rule 13, and (5) on the unity
and integrity of the fate of defendants in default with those not in default where the cause of action
against them and their own defenses are common, Section 4, Rule 18, are so plain and the jurisprudence
declaratory of their intent and proper construction are so readily comprehensible that any error as to their
application would be unusual in any competent trial court.
3. After all, all the malactuations of respondent court are traceable to the initiative of private respondent
and/or her counsel. She cannot, therefore, complain that she is being made to unjustifiably suffer the
consequences of what We have found to be erroneous orders of respondent court. It is only fair that she
should not be allowed to benefit from her own frustrated objective of securing a one-sided decision.
4. More importantly, We do not hesitate to hold that on the basis of its own recitals, the decision in
question cannot stand close scrutiny. What is more, the very considerations contained therein reveal
convincingly the inherent weakness of the cause of the plaintiff. To be sure, We have been giving serious
thought to the idea of merely returning this case for a resumption of trial by setting aside the order of
dismissal of October 21, 1974, with all its attendant difficulties on account of its adverse effects on parties
who have not been heard, but upon closer study of the pleadings and the decision and other
circumstances extant in the record before Us, We are now persuaded that such a course of action would
only lead to more legal complications incident to attempts on the part of the parties concerned to
desperately squeeze themselves out of a bad situation. Anyway, We feel confident that by and large,
there is enough basis here and now for Us to rule out the claim of the plaintiff.
Even a mere superficial reading of the decision would immediately reveal that it is littered on its face with
deficiencies and imperfections which would have had no reason for being were there less haste and
more circumspection in rendering the same. Recklessness in jumping to unwarranted conclusions, both
factual and legal, is at once evident in its findings relative precisely to the main bases themselves of the
reliefs granted. It is apparent therein that no effort has been made to avoid glaring inconsistencies.
Where references are made to codal provisions and jurisprudence, inaccuracy and inapplicability are at
once manifest. It hardly commends itself as a deliberate and consciencious adjudication of a litigation
which, considering the substantial value of the subject matter it involves and the unprecedented
procedure that was followed by respondent's counsel, calls for greater attention and skill than the general
run of cases would.
Inter alia, the following features of the decision make it highly improbable that if We took another course
of action, private respondent would still be able to make out any case against petitioners, not to speak
of their co-defendants who have already been exonerated by respondent herself thru her motion to
dismiss:
1. According to His Honor's own statement of plaintiff's case, "she is the widow of the late Tee Hoon Po
Chuan (Po Chuan, for short) who was then one of the partners in the commercial partnership, Glory
Commercial Co. with defendants Antonio Lim Tanhu (Lim Tanhu, for short) and Alfonso Leonardo Ng
Sua (Ng Sua, for short) as co-partners; that after the death of her husband on March 11, 1966 she is
entitled to share not only in the capital and profits of the partnership but also in the other assets, both
real and personal, acquired by the partnership with funds of the latter during its lifetime."
Relatedly, in the latter part of the decision, the findings are to the following effect: .
That the herein plaintiff Tan Put and her late husband Po Chuan married at the Philippine
Independent Church of Cebu City on December, 20, 1949; that Po Chuan died on March
11, 1966; that the plaintiff and the late Po Chuan were childless but the former has a foster
son Antonio Nuez whom she has reared since his birth with whom she lives up to the
present; that prior to the marriage of the plaintiff to Po Chuan the latter was already
managing the partnership Glory Commercial Co. then engaged in a little business in
hardware at Manalili St., Cebu City; that prior to and just after the marriage of the plaintiff
to Po Chuan she was engaged in the drugstore business; that not long after her marriage,
upon the suggestion of Po Chuan the plaintiff sold her drugstore for P125,000.00 which
amount she gave to her husband in the presence of defendant Lim Tanhu and was
invested in the partnership Glory Commercial Co. sometime in 1950; that after the
investment of the above-stated amount in the partnership its business flourished and it
embarked in the import business and also engaged in the wholesale and retail trade of
cement and GI sheets and under huge profits;
xxx xxx xxx
That the late Po Chuan was the one who actively managed the business of the partnership
Glory Commercial Co. he was the one who made the final decisions and approved the
appointments of new personnel who were taken in by the partnership; that the late Po
Chuan and defendants Lim Tanhu and Ng Sua are brothers, the latter two (2) being the
elder brothers of the former; that defendants Lim Tanhu and Ng Sua are both naturalized
Filipino citizens whereas the late Po Chuan until the time of his death was a Chinese
citizen; that the three (3) brothers were partners in the Glory Commercial Co. but Po
Chuan was practically the owner of the partnership having the controlling interest; that
defendants Lim Tanhu and Ng Sua were partners in name but they were mere employees
of Po Chuan .... (Pp. 89-91, Record.)
How did His Honor arrive at these conclusions? To start with, it is not clear in the decision whether or
not in making its findings of fact the court took into account the allegations in the pleadings of the parties
and whatever might have transpired at the pre-trial. All that We can gather in this respect is that
references are made therein to pre-trial exhibits and to Annex A of the answer of the defendants to
plaintiff's amended complaint. Indeed, it was incumbent upon the court to consider not only the evidence
formally offered at the trial but also the admissions, expressed or implied, in the pleadings, as well as
whatever might have been placed before it or brought to its attention during the pre-trial. In this
connection, it is to be regretted that none of the parties has thought it proper to give Us an idea of what
took place at the pre-trial of the present case and what are contained in the pre-trial order, if any was
issued pursuant to Section 4 of Rule 20.
The fundamental purpose of pre-trial, aside from affording the parties every opportunity to compromise
or settle their differences, is for the court to be apprised of the unsettled issues between the parties and
of their respective evidence relative thereto, to the end that it may take corresponding measures that
would abbreviate the trial as much as possible and the judge may be able to ascertain the facts with the
least observance of technical rules. In other words whatever is said or done by the parties or their counsel
at the pre- trial serves to put the judge on notice of their respective basic positions, in order that in
appropriate cases he may, if necessary in the interest of justice and a more accurate determination of
the facts, make inquiries about or require clarifications of matters taken up at the pre-trial, before finally
resolving any issue of fact or of law. In brief, the pre-trial constitutes part and parcel of the proceedings,
and hence, matters dealt with therein may not be disregarded in the process of decision making.
Otherwise, the real essence of compulsory pre-trial would be insignificant and worthless.
Now, applying these postulates to the findings of respondent court just quoted, it will be observed that
the court's conclusion about the supposed marriage of plaintiff to the deceased Tee Hoon Lim Po Chuan
is contrary to the weight of the evidence brought before it during the trial and the pre-trial.
Under Article 55 of the Civil Code, the declaration of the contracting parties that they take each other as
husband and wife "shall be set forth in an instrument" signed by the parties as well as by their witnesses
and the person solemnizing the marriage. Accordingly, the primary evidence of a marriage must be an
authentic copy of the marriage contract. While a marriage may also be proved by other competent
evidence, the absence of the contract must first be satisfactorily explained. Surely, the certification of the
person who allegedly solemnized a marriage is not admissible evidence of such marriage unless proof
of loss of the contract or of any other satisfactory reason for its non-production is first presented to the
court. In the case at bar, the purported certification issued by a Mons. Jose M. Recoleto, Bishop,
Philippine Independent Church, Cebu City, is not, therefore, competent evidence, there being absolutely
no showing as to unavailability of the marriage contract and, indeed, as to the authenticity of the signature
of said certifier, the jurat allegedly signed by a second assistant provincial fiscal not being authorized by
law, since it is not part of the functions of his office. Besides, inasmuch as the bishop did not testify, the
same is hearsay.
As regards the testimony of plaintiff herself on the same point and that of her witness Antonio Nuez,
there can be no question that they are both self-serving and of very little evidentiary value, it having been
disclosed at the trial that plaintiff has already assigned all her rights in this case to said Nuez, thereby
making him the real party in interest here and, therefore, naturally as biased as herself. Besides, in the
portion of the testimony of Nuez copied in Annex C of petitioner's memorandum, it appears admitted
that he was born only on March 25, 1942, which means that he was less than eight years old at the
supposed time of the alleged marriage. If for this reason alone, it is extremely doubtful if he could have
been sufficiently aware of such event as to be competent to testify about it.
Incidentally, another Annex C of the same memorandum purports to be the certificate of birth of one
Antonio T. Uy supposed to have been born on March 23, 1937 at Centro Misamis, Misamis Occidental,
the son of one Uy Bien, father, and Tan Put, mother. Significantly, respondents have not made any
adverse comment on this document. It is more likely, therefore, that the witness is really the son of
plaintiff by her husband Uy Kim Beng. But she testified she was childless. So which is which? In any
event, if on the strength of this document, Nuez is actually the legitimate son of Tan Put and not her
adopted son, he would have been but 13 years old in 1949, the year of her alleged marriage to Po
Chuan, and even then, considering such age, his testimony in regard thereto would still be suspect.
Now, as against such flimsy evidence of plaintiff, the court had before it, two documents of great weight
belying the pretended marriage. We refer to (1) Exhibit LL, the income tax return of the deceased Tee
Hoon Lim Po Chuan indicating that the name of his wife was Ang Sick Tin and (2) the quitclaim, Annex
A of the answer, wherein plaintiff Tan Put stated that she had been living with the deceased without
benefit of marriage and that she was his "common-law wife". Surely, these two documents are far more
reliable than all the evidence of the plaintiff put together.
Of course, Exhibit LL is what might be termed as pre-trial evidence. But it is evidence offered to the judge
himself, not to the clerk of court, and should have at least moved him to ask plaintiff to explain if not rebut
it before jumping to the conclusion regarding her alleged marriage to the deceased, Po Chuan. And in
regard to the quitclaim containing the admission of a common-law relationship only, it is to be observed
that His Honor found that "defendants Lim Tanhu and Ng Sua had the plaintiff execute a quitclaim on
November 29, 1967 (Annex "A", Answer) where they gave plaintiff the amount of P25,000 as her share
in the capital and profits of the business of Glory Commercial Co. which was engaged in the hardware
business", without making mention of any evidence of fraud and misrepresentation in its execution,
thereby indicating either that no evidence to prove that allegation of the plaintiff had been presented by
her or that whatever evidence was actually offered did not produce persuasion upon the court. Stated
differently, since the existence of the quitclaim has been duly established without any circumstance to
detract from its legal import, the court should have held that plaintiff was bound by her admission therein
that she was the common-law wife only of Po Chuan and what is more, that she had already renounced
for valuable consideration whatever claim she might have relative to the partnership Glory Commercial
Co.
And when it is borne in mind that in addition to all these considerations, there are mentioned and
discussed in the memorandum of petitioners (1) the certification of the Local Civil Registrar of Cebu City
and (2) a similar certification of the Apostolic Prefect of the Philippine Independent Church, Parish of
Sto. Nio, Cebu City, that their respective official records corresponding to December 1949 to December
1950 do not show any marriage between Tee Hoon Lim Po Chuan and Tan Put, neither of which
certifications have been impugned by respondent until now, it stands to reason that plaintiff's claim of
marriage is really unfounded. Withal, there is still another document, also mentioned and discussed in
the same memorandum and unimpugned by respondents, a written agreement executed in Chinese, but
purportedly translated into English by the Chinese Consul of Cebu, between Tan Put and Tee Hoon Lim
Po Chuan to the following effect:
CONSULATE OF THE REPUBLIC OF CHINA Cebu City, Philippines
TRANSLATION
This is to certify that 1, Miss Tan Ki Eng Alias Tan Put, have lived with Mr. Lim Po Chuan
alias TeeHoon since 1949 but it recently occurs that we are incompatible with each other
and are not in the position to keep living together permanently. With the mutual
concurrence, we decided to terminate the existing relationship of common law-marriage
and promised not to interfere each other's affairs from now on. The Forty Thousand Pesos
(P40,000.00) has been given to me by Mr. Lim Po Chuan for my subsistence.
Witnesses:
Mr. Lim Beng Guan Mr. Huang Sing Se
Signed on the 10 day of the 7th month of the 54th year of the Republic of China
(corresponding to the year 1965).
(SGD) TAN KI ENG
Verified from the records. JORGE TABAR (Pp. 283-284, Record.)
Indeed, not only does this document prove that plaintiff's relation to the deceased was that of a common-
law wife but that they had settled their property interests with the payment to her of P40,000.
In the light of all these circumstances, We find no alternative but to hold that plaintiff Tan Put's allegation
that she is the widow of Tee Hoon Lim Po Chuan has not been satisfactorily established and that, on the
contrary, the evidence on record convincingly shows that her relation with said deceased was that of a
common-law wife and furthermore, that all her claims against the company and its surviving partners as
well as those against the estate of the deceased have already been settled and paid. We take judicial
notice of the fact that the respective counsel who assisted the parties in the quitclaim, Attys. H.
Hermosisima and Natalio Castillo, are members in good standing of the Philippine Bar, with the
particularity that the latter has been a member of the Cabinet and of the House of Representatives of
the Philippines, hence, absent any credible proof that they had allowed themselves to be parties to a
fraudulent document His Honor did right in recognizing its existence, albeit erring in not giving due legal
significance to its contents.
2. If, as We have seen, plaintiff's evidence of her alleged status as legitimate wife of Po Chuan is not
only unconvincing but has been actually overcome by the more competent and weighty evidence in favor
of the defendants, her attempt to substantiate her main cause of action that defendants Lim Tanhu and
Ng Sua have defrauded the partnership Glory Commercial Co. and converted its properties to
themselves is even more dismal. From the very evidence summarized by His Honor in the decision in
question, it is clear that not an iota of reliable proof exists of such alleged misdeeds.
Of course, the existence of the partnership has not been denied, it is actually admitted impliedly in
defendants' affirmative defense that Po Chuan's share had already been duly settled with and paid to
both the plaintiff and his legitimate family. But the evidence as to the actual participation of the defendants
Lim Tanhu and Ng Sua in the operation of the business that could have enabled them to make the
extractions of funds alleged by plaintiff is at best confusing and at certain points manifestly inconsistent.
In her amended complaint, plaintiff repeatedly alleged that as widow of Po Chuan she is entitled to
/3 share of the assets and properties of the partnership. In fact, her prayer in said complaint is, among
others, for the delivery to her of such /3 share. His Honor's statement of the case as well as his findings
and judgment are all to that same effect. But what did she actually try to prove at the ex- parte hearing?
According to the decision, plaintiff had shown that she had money of her own when she "married" Po
Chuan and "that prior to and just after the marriage of the plaintiff to Po Chuan, she was engaged in the
drugstore business; that not long after her marriage, upon the suggestion of Po Chuan, the plaintiff sold
her drugstore for P125,000 which amount she gave to her husband in the presence of Tanhu and was
invested in the partnership Glory Commercial Co. sometime in 1950; that after the investment of the
above-stated amount in the partnership, its business flourished and it embarked in the import business
and also engaged in the wholesale and retail trade of cement and GI sheets and under (sic) huge profits."
(pp. 25-26, Annex L, petition.)
To begin with, this theory of her having contributed of P125,000 to the capital of the partnership by
reason of which the business flourished and amassed all the millions referred to in the decision has not
been alleged in the complaint, and inasmuch as what was being rendered was a judgment by default,
such theory should not have been allowed to be the subject of any evidence. But inasmuch as it was the
clerk of court who received the evidence, it is understandable that he failed to observe the rule. Then,
on the other hand, if it was her capital that made the partnership flourish, why would she claim to be
entitled to only to /3 of its assets and profits? Under her theory found proven by respondent court, she
was actually the owner of everything, particularly because His Honor also found "that defendants Lim
Tanhu and Ng Sua were partners in the name but they were employees of Po Chuan that defendants
Lim Tanhu and Ng Sua had no means of livelihood at the time of their employment with the Glory
Commercial Co. under the management of the late Po Chuan except their salaries therefrom; ..." (p.
27, id.) Why then does she claim only /3 share? Is this an indication of her generosity towards
defendants or of a concocted cause of action existing only in her confused imagination engendered by
the death of her common-law husband with whom she had settled her common-law claim for
recompense of her services as common law wife for less than what she must have known would go to
his legitimate wife and children?
Actually, as may be noted from the decision itself, the trial court was confused as to the participation of
defendants Lim Tanhu and Ng Sua in Glory Commercial Co. At one point, they were deemed partners,
at another point mere employees and then elsewhere as partners-employees, a newly found concept,
to be sure, in the law on partnership. And the confusion is worse comfounded in the judgment which
allows these "partners in name" and "partners-employees" or employees who had no means of livelihood
and who must not have contributed any capital in the business, "as Po Chuan was practically the owner
of the partnership having the controlling interest", /3 each of the huge assets and profits of the
partnership. Incidentally, it may be observed at this juncture that the decision has made Po Chuan play
the inconsistent role of being "practically the owner" but at the same time getting his capital from the
P125,000 given to him by plaintiff and from which capital the business allegedly "flourished."
Anent the allegation of plaintiff that the properties shown by her exhibits to be in the names of defendants
Lim Tanhu and Ng Sua were bought by them with partnership funds, His Honor confirmed the same by
finding and holding that "it is likewise clear that real properties together with the improvements in the
names of defendants Lim Tanhu and Ng Sua were acquired with partnership funds as these defendants
were only partners-employees of deceased Po Chuan in the Glory Commercial Co. until the time of his
death on March 11, 1966." (p. 30, id.) It Is Our considered view, however, that this conclusion of His
Honor is based on nothing but pure unwarranted conjecture. Nowhere is it shown in the decision how
said defendants could have extracted money from the partnership in the fraudulent and illegal manner
pretended by plaintiff. Neither in the testimony of Nuez nor in that of plaintiff, as these are summarized
in the decision, can there be found any single act of extraction of partnership funds committed by any of
said defendants. That the partnership might have grown into a multi-million enterprise and that the
properties described in the exhibits enumerated in the decision are not in the names of Po Chuan, who
was Chinese, but of the defendants who are Filipinos, do not necessarily prove that Po Chuan had not
gotten his share of the profits of the business or that the properties in the names of the defendants were
bought with money of the partnership. In this connection, it is decisively important to consider that on the
basis of the concordant and mutually cumulative testimonies of plaintiff and Nuez, respondent court
found very explicitly that, and We reiterate:
xxx xxx xxx
That the late Po Chuan was the one who actively managed the business of the partnership
Glory Commercial Co. he was the one who made the final decisions and approved the
appointments of new Personnel who were taken in by the partnership; that the late Po
Chuan and defendants Lim Tanhu and Ng Sua are brothers, the latter to (2) being the
elder brothers of the former; that defendants Lim Tanhu and Ng Sua are both naturalized
Filipino citizens whereas the late Po Chuan until the time of his death was a Chinese
citizen; that the three (3) brothers were partners in the Glory Commercial Co. but Po
Chuan was practically the owner of the partnership having the controlling interest; that
defendants Lim Tanhu and Ng Sua were partners in name but they were mere employees
of Po Chuan; .... (Pp. 90-91, Record.)
If Po Chuan was in control of the affairs and the running of the partnership, how could the defendants
have defrauded him of such huge amounts as plaintiff had made his Honor believe? Upon the other
hand, since Po Chuan was in control of the affairs of the partnership, the more logical inference is that if
defendants had obtained any portion of the funds of the partnership for themselves, it must have been
with the knowledge and consent of Po Chuan, for which reason no accounting could be demanded from
them therefor, considering that Article 1807 of the Civil Code refers only to what is taken by a partner
without the consent of the other partner or partners. Incidentally again, this theory about Po Chuan
having been actively managing the partnership up to his death is a substantial deviation from the
allegation in the amended complaint to the effect that "defendants Antonio Lim Tanhu, Alfonso Leonardo
Ng Sua, Lim Teck Chuan and Eng Chong Leonardo, through fraud and machination, took actual and
active management of the partnership and although Tee Hoon Lim Po Chuan was the manager of Glory
Commercial Co., defendants managed to use the funds of the partnership to purchase lands and
buildings etc. (Par. 4, p. 2 of amended complaint, Annex B of petition) and should not have been
permitted to be proven by the hearing officer, who naturally did not know any better.
Moreover, it is very significant that according to the very tax declarations and land titles listed in the
decision, most if not all of the properties supposed to have been acquired by the defendants Lim Tanhu
and Ng Sua with funds of the partnership appear to have been transferred to their names only in 1969
or later, that is, long after the partnership had been automatically dissolved as a result of the death of Po
Chuan. Accordingly, defendants have no obligation to account to anyone for such acquisitions in the
absence of clear proof that they had violated the trust of Po Chuan during the existence of the
partnership. (See Hanlon vs. Hansserman and. Beam, 40 Phil. 796.)
There are other particulars which should have caused His Honor to readily disbelieve plaintiffs'
pretensions. Nuez testified that "for about 18 years he was in charge of the GI sheets and sometimes
attended to the imported items of the business of Glory Commercial Co." Counting 18 years back from
1965 or 1966 would take Us to 1947 or 1948. Since according to Exhibit LL, the baptismal certificate
produced by the same witness as his birth certificate, shows he was born in March, 1942, how could he
have started managing Glory Commercial Co. in 1949 when he must have been barely six or seven
years old? It should not have escaped His Honor's attention that the photographs showing the premises
of Philippine Metal Industries after its organization "a year or two after the establishment of Cebu Can
Factory in 1957 or 1958" must have been taken after 1959. How could Nuez have been only 13 years
old then as claimed by him to have been his age in those photographs when according to his "birth
certificate", he was born in 1942? His Honor should not have overlooked that according to the same
witness, defendant Ng Sua was living in Bantayan until he was directed to return to Cebu after the fishing
business thereat floundered, whereas all that the witness knew about defendant Lim Teck Chuan's
arrival from Hongkong and the expenditure of partnership money for him were only told to him allegedly
by Po Chuan, which testimonies are veritably exculpatory as to Ng Sua and hearsay as to Lim Teck
Chuan. Neither should His Honor have failed to note that according to plaintiff herself, "Lim Tanhu was
employed by her husband although he did not go there always being a mere employee of Glory
Commercial Co." (p. 22, Annex the decision.)
The decision is rather emphatic in that Lim Tanhu and Ng Sua had no known income except their
salaries. Actually, it is not stated, however, from what evidence such conclusion was derived in so far as
Ng Sua is concerned. On the other hand, with respect to Lim Tanhu, the decision itself states that
according to Exhibit NN-Pre trial, in the supposed income tax return of Lim Tanhu for 1964, he had an
income of P4,800 as salary from Philippine Metal Industries alone and had a total assess sable net
income of P23,920.77 that year for which he paid a tax of P4,656.00. (p. 14. Annex L, id.) And per Exhibit
GG-Pretrial in the year, he had a net income of P32,000 for which be paid a tax of P3,512.40. (id.) As
early as 1962, "his fishing business in Madridejos Cebu was making money, and he reported "a net gain
from operation (in) the amount of P865.64" (id., per Exhibit VV-Pre-trial.) From what then did his Honor
gather the conclusion that all the properties registered in his name have come from funds malversed
from the partnership?
It is rather unusual that His Honor delved into financial statements and books of Glory Commercial Co.
without the aid of any accountant or without the same being explained by any witness who had prepared
them or who has knowledge of the entries therein. This must be the reason why there are apparent
inconsistencies and inaccuracies in the conclusions His Honor made out of them. In Exhibit SS-Pre-trial,
the reported total assets of the company amounted to P2,328,460.27 as of December, 1965, and yet,
Exhibit TT-Pre-trial, according to His Honor, showed that the total value of goods available as of the
same date was P11,166,327.62. On the other hand, per Exhibit XX-Pre-trial, the supposed balance sheet
of the company for 1966, "the value of inventoried merchandise, both local and imported", as found by
His Honor, was P584,034.38. Again, as of December 31, 1966, the value of the company's goods
available for sale was P5,524,050.87, per Exhibit YY and YY-Pre-trial. Then, per Exhibit II-3-Pre-trial,
the supposed Book of Account, whatever that is, of the company showed its "cash analysis" was
P12,223,182.55. We do not hesitate to make the observation that His Honor, unless he is a certified
public accountant, was hardly qualified to read such exhibits and draw any definite conclusions
therefrom, without risk of erring and committing an injustice. In any event, there is no comprehensible
explanation in the decision of the conclusion of His Honor that there were P12,223,182.55 cash money
defendants have to account for, particularly when it can be very clearly seen in Exhibits 11-4, 11-4- A,
11-5 and 11-6-Pre-trial, Glory Commercial Co. had accounts payable as of December 31, 1965 in the
amount of P4,801,321.17. (p. 15, id.) Under the circumstances, We are not prepared to permit anyone
to predicate any claim or right from respondent court's unaided exercise of accounting knowledge.
Additionally, We note that the decision has not made any finding regarding the allegation in the amended
complaint that a corporation denominated Glory Commercial Co., Inc. was organized after the death of
Po Chuan with capital from the funds of the partnership. We note also that there is absolutely no finding
made as to how the defendants Dy Ochay and Co Oyo could in any way be accountable to plaintiff, just
because they happen to be the wives of Lim Tanhu and Ng Sua, respectively. We further note that while
His Honor has ordered defendants to deliver or pay jointly and severally to the plaintiff P4,074,394.18 or
/3 of the P12,223,182.55, the supposed cash belonging to the partnership as of December 31, 1965, in
the same breath, they have also been sentenced to partition and give /3share of the properties
enumerated in the dispositive portion of the decision, which seemingly are the very properties allegedly
purchased from the funds of the partnership which would naturally include the P12,223,182.55
defendants have to account for. Besides, assuming there has not yet been any liquidation of the
partnership, contrary to the allegation of the defendants, then Glory Commercial Co. would have the
status of a partnership in liquidation and the only right plaintiff could have would be to what might result
after such liquidation to belong to the deceased partner, and before this is finished, it is impossible to
determine, what rights or interests, if any, the deceased had (Bearneza vs. Dequilla 43 Phil. 237). In
other words, no specific amounts or properties may be adjudicated to the heir or legal representative of
the deceased partner without the liquidation being first terminated.
Indeed, only time and the fear that this decision would be much more extended than it is already prevent
us from further pointing out the inexplicable deficiencies and imperfections of the decision in question.
After all, what have been discussed should be more than sufficient to support Our conclusion that not
only must said decision be set aside but also that the action of the plaintiff must be totally dismissed,
and, were it not seemingly futile and productive of other legal complications, that plaintiff is liable on
defendants' counterclaims. Resolution of the other issues raised by the parties albeit important and
perhaps pivotal has likewise become superfluous.
IN VIEW OF ALL THE FOREGOING, the petition is granted. All proceedings held in respondent court in
its Civil Case No. 12328 subsequent to the order of dismissal of October 21, 1974 are hereby annulled
and set aside, particularly the ex-parte proceedings against petitioners and the decision on December
20, 1974. Respondent court is hereby ordered to enter an order extending the effects of its order of
dismissal of the action dated October 21, 1974 to herein petitioners Antonio Lim Tanhu, Dy Ochay,
Alfonso Leonardo Ng Sua and Co Oyo. And respondent court is hereby permanently enjoined from taking
any further action in said civil case gave and except as herein indicated. Costs against private
respondent.

Bonnevie vs Hernandez 95 Phil 175

CRISTOBAL BONNEVIE, ET AL., plaintiffs-appellants,
vs.
JAIME HERNANDEZ, defendant-appellee.
Ojeda and Vilgera for appellants.
Cea and Zurbano for appellee.
REYES, J.:
This is an action for the recovery of the sum of P115,312.50, with interests, as plaintiffs' alleged share in
the profits of a partnership.
It appears that prior to January, 1947, plaintiffs with other associates formed a syndicate or secret
partnership for the purpose of acquiring the plants, franchises and other properties of the Manila Electric
Co. hereinafter called the Meralco in the provinces of Camarines Sur, Albay, and Sorsogon, with
the idea of continuing that company's business in that region. No formal articles were drawn for it was
the purpose of the members to incorporate once the deal had been consummated. But in the meantime
they elected Pedro Serranzana and David Serrano general manager and secretary-treasurer,
respectively, of the partnership.
Negotiation for the purchase was commenced, but as it made no headway, defendant was taken in as a
member of the partnership so that he could push the deal through, and to that end he was given the
necessary power of attorney. Using partnership funds, defendant was able to buy the Meralco properties
for P122,000, paying P40,000 upon the signing of the deed of sale and agreeing to pay the balance in
two equal installments, that is, P41,000 on or before July 31, 1947, and another P41,000 on or before
January 31, 1948, with interest at 6 per cent per annum and with a penalty clause which reads:
(6) That in case the VENDEE fails to make the payment or payments of the balance due or any
part thereof as herein provided, this contract shall, at the option of the VENDOR, be annuled and,
in such an event, all payments made by the VENDEE to the VENDOR by virtue of this contract
shall be forfeited and retained by the VENDOR in full satisfaction as the liquidated damages
sustained by said VENDOR; and the said VENDOR shall have the right to forthwith reenter and
take possession of the premises, properties and rights which are the subject-matter of this
contract.
Although defendant was the one named vendee in the deed of sale, there is no question that the
transaction was in penalty made for the partnership so that the latter assumed control of the business
the day following the sale.
About the latter half of the following month the members of the partnership proceeded with the formation
of the proposed corporation, apportioning among themselves its shares of stock in proportion to their
respective contributions to the capital of the partnership and their individual efforts in bringing about the
acquisition of the Meralco properties. But before the incorporation papers could be perfected, several
partners, not satisfied with the way matters were being run and fearful that the venture might prove a
failure because the business was not going well and there was a possibility of their being assessed more
than their original investments when the time came to meet the two installments of the unpaid purchase
price due the Meralco, expressed their desire to withdraw from the partnership and get back the money
they had invested therein. In accordance with this wish, one of them, Judge Jaime Reyes, in a meeting
held on April 10, 1947, to consider various matters connected with the business, presented a resolution
to the effect that those partners who did not want to remain in the association should be allowed to
withdraw and get back their contributions. The resolution was approved, with the herein plaintiffs voting
affirmatively, and on that same day plaintiffs and Judge Reyes withdrew from the partnership, and, as
admitted by both parties, the partnership was then dissolved. In accordance with the terms of the
resolution, the withdrawing partners were, on the following day, reimbursed their respective contributions
to the partnership fund.
Following the dissolution of the partnership, the members who preferred to remain in the business went
ahead with the formation of the corporation, taking in new associates as stockholders. And defendant,
on his part, in fulfillment of his trust, made a formal assignment of the Meralco properties to the treasurer
of the corporation, giving them a book value of P365,000, in return for which the corporation issued, to
the various subscribers to its capital stock, shares of stock of the total face value of P225,000 and
assumed the obligation of paying what was still due the Meralco on the purchase price. The new
corporation was named "Bicol Electric Company."
Though business was losing during the first year, that is, in 1947, the corporation, thanks to a loan
obtained from the RFC later prospered and made money. Then trouble began for one of its big
stockholders, the defendant herein.
Two years from their withdrawal from the partnership, when the corporate business was already in a
prosperous condition, plaintiffs brought the present suit against Jaime Hernandez, claiming a share in
the profit the latter is supposed to have made from the assignment of the Meralco properties to the
corporation, estimated by plaintiffs to be P225,000 and their share of it to be P115,312.50.
Defendant's answer denies that he has made any profit out of the assignment in question and alleges
that in any event plaintiffs, after their withdrawal from the partnership, ceased to have any further interest
in the subsequent transactions of the remaining members.
After trial the lower court found that the partnership had not realized any profit out of the assignment of
the Meralco properties to the corporation and that, even supposing that profit had really been made,
defendant would not be the one to answer to plaintiffs for their share thereof, because he did not receive
the consideration for the assignment, which according to the court, consisted of the subscriptions of
various persons to the capital stock of the corporation. The court therefore dismissed the complaint with
costs against the plaintiffs. From this decision plaintiffs appealed. The case comes within our jurisdiction
because of the amount involved.
We find no merit in the appeal.
In the first place, the profit alleged to have been realized from the assignment of the Meralco properties
to the new corporation, the Bicol Electric Company, is more apparent than real. It is true that the value
set for those properties in the deed of assignment was P365,000 when the acquisition price was only
P122,000. But one should not jump to the conclusion that a profit, consisting of the difference between
the two sums was really made out of the transaction, for the assignment was not made for cash but in
payment for subscriptions to shares of stock in the assignee, and while those shares had a total face
value of P225,000, this is not necessarily their real worth. Needless to say, the real value of the shares
of stock of a corporation depends upon the value of its assets over and above its liabilities. It does not
appear that the Bicol Electric Company had any assets other than those acquired from the Meralco, and
according to the evidence the company, aside from owing the Meralco, P82,000 was, in the language of
the court below, actually "in the red."
In the second place, assuming that the assignment actually brought profit to the partnership, it is hard to
see how defendant could be made to answer for plaintiffs' alleged share thereof. As stated in the decision
below, defendant did not receive the consideration for the assignment for, as already stated, the
assignment was made in payment for subscriptions of various persons to the capital stock of the new
corporation. Plaintiffs, in order to give color of legality to their claim against defendant, maintain that the
latter should be held liable for damages caused to them, consisting of the loss of their share of the profits,
due to defendant's failure properly to perform his duty as a liquidator of the dissolved partnership, this
on the theory that as managing partner of the partnership, it was defendant's duty to liquidate its affairs
upon its dissolutions. But it does not appear that plaintiffs have ever asked for a liquidation, and as will
presently be explained no liquidation was called for because when plaintiffs withdrew from the
partnership the understanding was that after they had been reimbursed their investment, they were no
longer to have any further interest in the partnership or its assets and liabilities. Moreover, the stipulation
of facts made at the hearing does not bear out the claim that defendant was the managing partner of the
partnership, for if there appears that the partnership had its general manager in the person of Pedro
Serranzana, who upon the formation of the new corporation also became its vice-president and general
manager.
As a general rule, when a partner retires from the firm, he is entitled to the payment of what may be due
him after a liquidation. But certainly no liquidation is necessary where there is already a settlement or an
agreement as to what the retiring partner shall receive. In the instant case, it appears that a settlement
was agreed upon on the very day the partnership was dissolved. For when plaintiffs and Judge Jaime
Reyes withdrew from the partnership on that day they did so as agreed to by all the partners, subject to
the only condition that they were to be repaid their contributions or investments within three days from
said date. And this condition was fulfilled when on the following day they were reimbursed the respective
amounts due them pursuant to the agreement.
There is evidence that the partnership was at that time operating its business at a loss and that the
partnership did not have necessary funds to meet its obligation to Meralco for the balance of the purchase
price. And in that connection it should be recalled that nonpayment of that obligation would result in the
partnership losing its entire investment because of the penalty clause in the deed of sale. Because of
these circumstances there is every reason to believe that plaintiffs together with Judge Jaime Reyes,
withdrew from the partnership for fear that they might lose their entire investment should they choose to
remain in the partnership which then faced the danger of losing its entire assets. As testified to by Judge
Reyes, one of the withdrawing partners, it was clearly understood that upon their withdrawal and return
to them of their investment they would have nothing more to do with the association. It must, therefore,
have been the intention or understanding of the parties that the withdrawing partners were relinquishing
all their rights and interest in the partnership upon the return to them of their investment. That Judge
Reyes did not join the plaintiffs in this action is a clear indication that such was really the understanding.
Judge Reyes has testified that when he was invited to join in the present claim he refused because he
did not want to be a "sin verguenza." And, indeed, if the agreement was that the withdrawing partners
were still to have participation in the subsequent transactions of the partnership so that they would have
a share not only in the profits but also in the losses, it is not likely that their investment would have been
returned to them.
It is, therefore, our conclusion that the acceptance by the withdrawing partners, including the plaintiffs,
of their investment in the instant case was understood and intended by all the parties as a final settlement
of whatever rights or claim the withdrawing partners might have in the dissolved partnership. Such being
the case they are now precluded from claiming any share in the alleged profits, should there be any, at
the time of the dissolution.
In view of the foregoing, we find plaintiffs' claim against defendant to be without legal basis so that the
judgment of dismissal rendered by the court below should be, as it is hereby, affirmed, with costs against
the appellants.

Ornum vs Lasala 74 Phil 241 1943

JOSE ORNUM and EMERENCIANA ORNUM, petitioners,
vs.
MARIANO, LASALA, et al., respondent.
Marcelino Lontok for petitioners.
Duran, Lim and Bausa and Augusto Francisco for respondents.
PARAS, J.:
The following facts are practically admitted in the pleadings and briefs of the parties: The respondents
(plaintiffs below) are natives of Taal, Batangas, and resided therein or in Manila. The petitioners
(defendants below) are also natives of Taal, but resided in the barrio of Tan-agan, municipality of Tablas,
Province of Romblon. In 1908 Pedro Lasala, father of the respondents, and Emerenciano Ornum formed
a partnership, whereby the former, as capitalist, delivered the sum of P1,000 to the latter who, as
industrial partner, was to conduct a business at his place of residence in Romblon. In 1912, when the
assets of the partnership consisted of outstanding accounts and old stock of merchandise, Emerenciano
Ornum, following the wishes of his wife, asked for the dissolution of the Lasala, Emerenciano Ornum
looked for some one who could take his place and he suggested the names of the petitioners who
accordingly became the new partners. Upon joining the business, the petitioners, contributed P505.54
as their capital, with the result that in the new partnership Pedro Lasala had a capital of P1,000,
appraised value of the assets of the former partnership, plus the said P505.54 invested by the petitioners
who, as industrial partners, were to run the business in Romblon. After the death of Pedro Lasala, his
children (the respondents) succeeded to all his rights and interest in the partnership. The partners never
knew each other personally. No formal partnership agreement was ever executed. The petitioners, as
managing partners, were received one-half of the net gains, and the other half was to be divided between
them and the Lasala group in proportion to the capital put in by each group. During the course divided,
but the partners were given the election, as evidenced by the statements of accounts referred to in the
decision of the Court of Appeals, to invest their respective shares in such profits as additional capital.
The petitioners accordingly let a greater part of their profits as additional investment in the partnership.
After twenty years the business had grown to such an extent that is total value, including profits,
amounted to P44,618.67. Statements of accounts were periodically prepared by the petitioners and sent
to the respondents who invariably did not make any objection thereto. Before the last statement of
accounts was made, the respondents had received P5,387.29 by way of profits. The last and final
statement of accounts, dated May 27, 1932, and prepared by the petitioners after the respondents had
announced their desire to dissolve the partnership, read as follows:
Ganancia total desde el ultimo balance hasta la P575.45
fecha
Participacion del capital de los hermanos Lasala en P55.39
la ganancia
Participacion del capital de Jose Ornum en el 125.79
ganancia
Participacion de Jose Ornum como socio industrial 143.96
Participacion del capital de Emerenciana Ornum en 106.54
la ganancia
Participacion de Emerenciana Ornum como socia 143.86
industrial
Siendo este el balance final lo siguiente es la cantidad que debe corresponder a cada socio:
Capital de los hermanos Lasala
segun el ultimo balance P4,393.08
Ganancia de este capital 55.39 P4,448.47
 Pero se debe deducir la cantidad
tomada por los hermanos Lasala 1,730.00
Cantidad nota que debe
corresponder a los hermanos
Lasala P2,718.47
Capital de Jose Ornum segun el
ultimo balance P9,975.13
Ganancia de este capital 125.79
Participacion de Jose Ornum como
socio industrial 143.86 P10,244.65
Pero se debe deducir la cantidad
tomada por Jose Ornum 1,650.00
Cantidad neta que debe
corresponder a Jose Ornum P8,594.65
Capital de Emerenciana Ornum
segun el ultimo balance P8,448.00
Ganancia de este capital 106.54
Participacion de Emerenciana
Ornum como socia industrial 143.86 P8,698.40
Pero se debe deducir la cantidad
tomada por Emerenciana Ornum 1,850.00
Cantidad neta que debe
corresponder a Emerenciana
Ornum P6,848.40
After the receipt of the foregoing statement of accounts, Father Mariano Lasala, spokesman for the
respondents, wrote the following letter to the petitioners on July 19, 1932:
Ya te manifestamos francamente aqui, como consocio, y te autorizamos tambien para que lo
repitas a tu hermana Mering, viuda, que el motivo porque recogemos el capital y utilidades de
nuestra sociedad en todo nuestro negocio que esta al cuidado vosotros dos, es que tenemos un
grande compromiso que casi no podemos evitarlo. Por esto volvemos a rogarles que por
cualquier medio antes de terminar este mes de julio, 1932, nosotros esperamos vuestra
consideracion. Gracias.
En cuanto hayamos recibido esto, entonces firmaremos el balance que habeis hecho alli, cuya
copia has dejado aqui.
Recuerdos a todos alli y mandar.
Pursuant to the request contained in this letter, the petitioners remitted and paid to the respondents the
total amount corresponding to them under the above-quoted statement of accounts which, however, was
not signed by the latter. Thereafter the complaint in this case was filed by the respondents, praying for
an accounting and final liquidation of the assets of the partnership. The Court of First Instance of Manila
held that the last and final statement of accounts prepared by the petitioners was tacitly approved and
accepted by the respondents who, by virtue of the above-quoted letter of Father Mariano Lasala, lost
their right to a further accounting from the moment they received and accepted their shares as itemized
in said statement. This judgment was reversed by the Court of Appeals principally on the ground that as
the final statement of accounts remains unsigned by the respondents, the same stands disapproved.
The decision appealed by the petitioners thus said:
To support a plea of a stated account so as to conclude the parties in relation to all dealings
between them, the accounting must be shown to have been final. (1 Cyc. 366.) All the first nine
statements which the defendants sent the plaintiffs were partial settlements, while the last,
although intended to be final, has not been signed.
We hold that the last and final statement of accounts hereinabove quoted, had been approved by the
respondents. This approval resulted, by virtue of the letter of Father Mariano Lasala of July 19, 1932,
quoted in part in the appealed decision from the failure of the respondents to object to the statement and
from their promise to sign the same as soon as they received their shares as shown in said statement.
After such shares had been paid by the petitioners and accepted by the respondents without any
reservation, the approval of the statement of accounts was virtually confirmed and its signing thereby
became a mere formality to be complied with by the respondents exclusively. Their refusal to sign, after
receiving their shares, amounted to a waiver to that formality in favor of the petitioners who has already
performed their obligation.
This approval precludes any right on the part of the respondents to a further liquidation, unless the latter
can show that there was fraud, deceit, error or mistake in said approval. (Pastor, vs. Nicasio, 6 Phil.,
152; Aldecoa & Co., vs.Warner, Barnes & Co., 16 Phil., 423; Gonsalez vs. Harty, 32 Phil. 328.) The Court
of Appeals did not make any findings that there was fraud, and on the matter of error or mistake it merely
said:
The question, then is, have mistakes, been committed in the statements sent appellants? Not
only do plaintiffs so allege, and not only does not evidence so tend to prove, but the charge is
seconded by the defendants themselves when in their counterclaims they said:
"(a) Que recientemente se ha hecho una acabada revision de las cuentas y libros del negocio, y,
se ha descubierto que los demandados cometieron un error al hacer las entregas de las varias
cantidades en efectivo a los demandantes, entregando en total mayor cantidades a la que tenian
derecho estos por su participacion y ganancias en dicho negocio;
"(b) Que el exceso entregado a los demandantes, asciende a la suma de quinientos setenta y
cinco pesos con doce centimos (P575.12), y que los demandados reclaman ahora de aquellos
su devolucion o pago en la presente contrademanda;"
In our opinion, the pronouncement that the evidence tends to prove that there were mistakes in the
petitioners' statements of accounts, without specifying the mistakes, merely intimates as suspicion and
is not such a positive and unmistakable finding of fact (Cf. Concepcion vs. People, G.R. No. 48169,
promulgated December 28, 1942) as to justify a revision, especially because the Court of Appeals has
relied on the bare allegations of the parties, Even admitting that, as alleged by the petitioners in their
counterclaim, they overpaid the respondents in the sum of P575.12, this error is essentially fatal to the
latter's theory what the statement of accounts shows, and is therefore not the kind of error that calls for
another accounting which will serve the purpose of the respondent's suit. Moreover, as the petitioners
did not appeal from the decision of the Court abandoned such allegation in the Court of Appeals.
If the liquidation is ordered in the absence of any particular error, found as a fact, simply because no
damage will be suffered by the petitioners in case the latter's final statement of the accounts proves to
be correct, we shall be assuming a fundamentally inconsistent position. If there is not mistake, the only
reason for a new accounting disappears. The petitioners may not be prejudiced in the sense that they
will be required to pay anything to the respondents, but they will have to go to the trouble of itemizing
accounts covering a period of twenty years mostly from memory, its appearing that no regular books of
accounts were kept. Stated more emphatically, they will be told to do what seems to be hardly possible.
When it is borne in mind that this case has been pending for nearly nine years and that, if another
accounting is ordered, a costly action or proceeding may arise which may not be disposed of within a
similar period, it is not improbable that the intended relief may in fact be the respondents' funeral.
We are reversing the appealed decision on the legal ground that the petitioners' final statement of
accounts had been approved by the respondents and no justifiable reason (fraud, deceit, error or
mistake) has been positively and unmistakably found by the Court of Appeals so as to warrant the
liquidations sought by the respondents. In justice to the petitioners, however, we may add that,
considering that they ran the business of the partnership for about twenty years at a place far from the
residence of the respondents and without the latter's intervention; that the partners did not even know
each other personally; that no formal partnership agreement was entered into which bound the
petitioners under specific conditions; that the petitioners could have easily and freely alleged that the
business became partial, or even a total, loss for any plausible reason which they could have concocted,
it appearing that the partnership engaged in such uncertain ventures as agriculture, cattle raising and
operation of rice mill, and the petitioners did not keep any regular books of accounts; that the petitioners
were still frank enough to disclose that the original capital of P1,505.54 amounted, as of the date of the
dissolution of the partnership, to P44,618.67; and that the respondents had received a total of P8,105.76
out of their capital of P1,000, without any effort on their part, we are reluctant even to make the conjecture
that the petitioners had ever intended to, or actually did, take undue advantage of the absence and
confidence of the respondents. Indeed, we feel justified in stating that the petitioners have here given a
remarkable demonstration of the legendary honesty, good faith and industry with which the natives of
Taal pursue business arrangements similar to the partnership in question, and we would hate, in the
absence of any sufficient reason, to let such a beautiful legend have a distateful ending.
The appealed decision is hereby reversed and the petitioners (defendants below) absolved from the
complaints of the respondents (plaintiffs below), with costs against the latter.
Yulo, C.J., and Hontiveros, J., concur.

Separate Opinions
OZAETA J., concurring:
Let us record here the mental processes by which I arrived at my vote for the reversal of the judgment
of the Court of Appeals.
After the respondents had announced their desire to withdraw from the "partnership," the petitioners
rendered a final statement of account dated May 27, 1932, which is set forth in the opinion written by Mr.
Justice Paras and which was accepted as correct by the respondents, who them asked from the payment
to them in cash of their participation in the capital and profits of the business as shown by said statement.
It must be borne in mind that the assets reflected in said statement of account did not consist of cash
but of merchandise, credits, land, large cattle, and a rice mill. To gratify the respondent wish the
petitioners raised money and paid respondents' total participation. After their interest and participation in
the business had thus been liquidated, the respondents, apparently believing that they might be entitled
to more money than they had accepted and received, sought to have the books and records examined
by a representative of theirs. The petitioners regarded such conduct of the respondents not only as a
violation of their agreement to consider the "partnership" dissolved upon the payment of respondents'
participation therein but as an unwarranted reflections upon their honesty and good faith. Hence they
refused to allow the examination or proposed reliquidation.
On November 20, 1933, the complaint in this case was filed by the respondents, praying for an
accounting and final liquidation of the assets of the "partnership." The trial lasted off and on from
September 26, 1934, to March 23, 1937, involving a transcript of 815 pages of oral testimony. The Court
of First Instance of Manila rendered its decision on December 29, 1937, in which it found that there was
no proof whatever to the effect that the defendants acted in bad faith in the preparation of the periodical
statements of account by not including merchandise or money to defraud the plaintiffs. Judge Rovira
analyzed the main aspect of the case as follows:
Pasado ahora a considerar la cuestion de las cuentas, los demandantes sostienen que los
demandados deben rendir nueva cuenta porque, segun ellos, estos, como socios industriales y
capitalistas, no podian incluir su participacion como capital, pues por este procedimiento los
demandantes fueron absorbidos y los demandados obtuvieron mayor participacion en las
ganancias.
Resulta de las pruebas que los demandados, al hacer cada balance, separaban la ganancia del
capital, asi como la ganancia que correspondia a los socios industriales, y despues la
participacion proporcional que corresponde al capital y la que los correspondia como socios
industriales, aumentando asi su capital en la sociedad. Esto mismo hacian en relacion con las
gananciales del capital de Pedro Lasala.
El primer balance sometido por los demandados a los demandantes, despues de la muerte de
Pedro Lasala esta fechado el 28 de diciembre de 1913, los demandantes no protestaron contra
este balance; al contrario, recibieron su participacion de P103, y no existe prueba alguna que
desvirtue la anotacion que aparece a pagina 4 del Exhibit S, de que Jose Ornum entrego esta
cantidad a los demandantes.
En los aos subsiguientes, o sea en los aos de 1914, 1915, 1917, 1919, 1920, 1922, 1924 y
1929 y ultimamente el ao de 1932, los demandados han estado sometiendo los balances del
negocio.
Contra ninguno de los balances presentados por los demandados se ha presentado protesta
alguna; al contrario, en 1929, cuando los demandantes deseaban separarse del negoci, Dionisia
Lasala escribio la carta Exhibit 1, en donde, entre otras, se hizo constar que el capital 'esta en
buenas manos, produce ganancias y ademas estoy contenta de los balances que me habeis
estado enviando.
Por otra parte, el mismo Mariano Lasala, en carta de fecha 19 de julio de 1932, Exhibit 2, dijo
que 'en cuanto hayamos recibido todo (refiriendose indudablemente al capital y ganancia)
entonces firmaremos el balance que habeis hecho alli, cuya copia has dejado aqui.'
Si los demandantes no estaban conformes con el procedimiento adoptado por los demandados,
por que no protestaron desde el principio? Cuando los demandados les enviaban los balances,
era la oportunidad para ellos de expresar sus quejas o sus agravios, pero se callaron; expresaron
su conformidad, y ahora vienen a pedir otra nueva liquidacion.
Es mas; segun las pruebas despues del balance del ao de 1932, los demandantes han enviado
cartas y telegramas pidiendo su participacion de acuerdo con dicho balance. Cayetano
Montenegro, por ordenes del demandado Jose Ornum, entrego a los demandantes las
respectivas cantidades que les correspondia, sin ninguna protesta. Segun el Exhibit 3, de fecha
20 de octubre de 1932. Dionisia Lasala recibio de Jose Ornum P1,600, de los cuales P1,000
habian sido recibidos por dicha Dionisia Lasala en 2 de junio del mismo ao. Tambien Rafaela
Lasala, por el Exhibit 6, recibio de Jose Ornum, por conducto de Cipriano Montenegro, la cantidad
de P368.47, y, segun la nota que aparece al pie de dicho Exhibit 6, el resto de la deuda de P400
fue recibido por Mariano Lasala segun los Exhibits 12, 13 y 14. Todo lo cual demuestra que los
demandantes estaban conformes con los balances presentados, incluyendo el ultimo balance
del ao de 1932.
El Juzgado es de opinio de que no procede ordenar a los demandados que presenten una nueva
liquidacion. Ademas, segun las pruebas los demandados no llevaban otros libros fuera de los
Exhibits S y T. Es verdad que la ley require que los demandados lleven algunos libros, y el
 contador de los demandantes declaro que, por la falta de dichos libros, no ha podido verificar un
balance mas corecto, pues solo tuvo por base de la liquidacion presentada los libros presentados
como exhibits S y T. Las deficiencias notadas y las conclusiones de dicho contador no pueden,
en manera alguna, cambiar el aspecto de la cuestion.
No existe prueba alguna de que los demandados llevaban otros libros. Lo unico que se probo es
que segun la ley, los demandados debian haber llevado otros libros, pero no se ha probado que
estos en alguna ocasion hayan existido y que dichos demandados, para defraudar a los
demandantes, no han querido presentar dichos libros. Tampoco existe prueba alguna de que, en
la preparacion de los balances que obran en los Exhibits S y T, los demandados procedieron de
mala fe, no incluyendo mercaderias o dinero para defraudar a los demandantes. Bajo estas
circunstancias, no podemos dar al Exhibit U de los demandantes, que se relaciona con los
Exhibits S y T, el valor que pretenden los demandantes por cuanto resultan incompletos los datos
sobre los cuales descansa dicho report.
Es principio generalmente reconocido que la ley no puede amparar al que duerme, y siendo esto
asi, no acertamos a comprender por que desde el ao de 1913, en que se presento el primer
balance, despues de la muerte de Pedro Lasala y los sucesivos balances hasta 1929 y,
ultimamente, el correspondiente al ao de 1932, solamente el 20 de noviembre de 1933 se inicia
la presente accion para exigir una rendicion de cuentas a los demandados, en esta causa. Con
una contalibidad tan deficiente, de una parte, de otra, con balances anteriores ya aceptados, y,
finalmente, con el recibo de cantidades resultantes del ultimo balance de 1932 de parte de los
demandados, no vemos camino legal y expedito para sostener la accion de los demandantes en
el presente asunto, y somos, por tanto, de opinion de que los demandados, despues de
presentada su liquidacion de 1932 y entregados a los demandantes sus saldos, segun queda
dicho, no pueden ahora ser obligados a una rendicion de cuentas.
Por todas las consideraciones expuestas, dclaramos que no procede ordenar que los
demandados rindan nuevas cuentas y, en su consecuencia, se absuelve a los demandados de
la demanda, sin especial pronunciamiento en cuanto a las costas.
The Court of Appeals reversed that judgment and ordered the defendants "to render an accounting of
all the assets of the partnership and of all its profits and losses from the time of its organization to the
date of plaintiffs' withdrawal."
This is an unfortunate and unnecessary lawsuit, engendered by suspicion and misunderstanding on the
part of the respondents and abetted by pride and amor propio on the part of their opponents. It is
unfortunate from two viewpoints sentimental and material: (1) Friendship that for twenty years united
the parties for the sake of business and of their common birthplace has become but a program memory
to them, it having been dethroned from their hearts and replaced by ill will and lacerated sentiments. (2)
The fruit of more than twenty years of toil that should entitle the petitioners to enjoy competence and
comfort in their declining years is being squandered by them in their defense of this protracted litigation.
This lawsuit is unnecessary because once the smoke of passion and misunderstanding has vanished,
the parties would or should see that there is no real cause for quarrel between them.
The judgment of the trial court which would, once and for all, put an end to this unnecessary lawsuit,
achieves practical justice; that of the Court of Appeals which would prolong it, pursues theoretical justice.
Our own verdict is not difficult to make. Let us pour oil on troubled waters.
First. The suspicions entertained by the respondents against the good faith of their erstwhile friends, the
petitioners, finds expression in the allegation of paragraph 8 of their complaint:
8. That the said defendants, in order to defraud and deprive the plaintiffs of their just share in the
business have caused properties, which rightfully belong to the business of which they were and
are the managers, to be inscribed in their own joint names or in their individual names, by virtue
 of which said defendants now appears to be the sole and exclusive owners of said properties and
their fruits.
Such suspicion is unjustified. There is nothing irregular or improper in the act of the petitioners of putting
the properties and the business in their own names. The association of the parties was not a general
copartnership under articles 125-144 of the Code of Commerce but one of joint accounts governed by
articles 239-243 of the same Code. The respondents acquired an interest in the transactions of the
petitioners by contributing thereto merchandise and accounts receivable valued at P1,000 (Article 239.)
No formality was observed in the formation of the association. (Article 240.) No commercial name,
common to all the participants was adopted, and the petitioners transacted and managed the business
in their own individual names and under their individual liability. (Article 241.) The respondents had no
reason to expect the petitioners to put the business and properties in the name of the "partnership"
because they knew that from the beginning no firm name had been adopted for it. The respondents were
silent partners.
Second. An apparent misunderstanding on the part of the respondents is reflected in the allegation of
paragraph 10 of their complaint:
10. That the defendants have fraudulently withdrawn from the funds of the said partnership large
amounts of money, which they applied for their personal use and benefit to which withdrawals
they were not legally entitled, thereby impairing seriously the capital of the partnership and
hampering its orderly and efficient administration.
Such unkind words uttered against long-trusted business associates can only be attributed to a serious
misunderstanding in view of the fact that neither the trial court nor the Court of Appeals found any indicia
of bad faith on the part of the petitioners. The aspersion was wholly unwarranted.
Third. The respondents have apparently been misled by the public accountant they employed, who
advanced a different method of computing the participations of the parties in the profits. As noted by the
trial court in its decision and as urged by the respondents in their brief, they claim that the petitioners,
"as industrial and capitalist partners, could not include their participation in the profits as capital because
by such procedure the plaintiffs [respondents] were absorbed and the defendants [petitioners] obtained
greater participation in the profits. Following the hint of their "expert" accountant, the respondent contend
in their brief that the original profit-sharing agreement of 50 per cent to the industrial partner and the
balance to be distributed among the partners in proportion to their capital, namely 66.67 per cent to the
respondents for their capital of P1,000 and 33.33 per cent to the petitioners for their capital of P500,
should be maintained notwithstanding the increase of the capital of the petitioners through the
accumulation of unwithdrawn profits. This contention does not impress us as being either fair or sound.
Throughout the twenty years of have by common consent followed the same method of distributing the
profits in party was permitted to put in as much capital as he wanted and to share in the profits
accordingly. Up to the time the respondents received the last centavo of their participation in the capital
and profits of the business, they had tacitly and repeatedly approved, the same procedure of dividing the
profits. They must have found it to be fair, as indeed it was, for why should not one's share of the profits
increase in proportions to one's capital? It is true that the original capital of respondents and petitioners
were P1,000 and P505.54 respectively, or, roughly, a proportion of two to one be maintained after the
capital of the petitioners has increased through the accumulation of unwithdrawn profits? In any event,
as the trial court held, the respondents are now estopped from insisting on a fixed and invariable two-to-
one division of the profits regardless of the amount of the capital of each of the parties in a given year.
Fourth. If, as we have seen, there is no reasons for a new division of the profits as contended by the
respondents, it seems to us that no useful purpose would be attained by remanding the case to the trial
court with an order to the petitioners to render a new account. As we have noted, respondents' allegation
of fraud and bad faith on the part of the petitioners in the preparation of the statements of account
submitted by them to the respondents and tacitly approved by the latter, was not found proven by the
Court of Appeals. All that the Court of Appeals intimated was that the plaintiffs alleged that mistakes had
been committed and that the evidence so tended to prove. But the mistake pointed out by the
respondents consisted principally in the mode or procedure of dividing the profits and in petitioners'
having caused the properties "to be inscribed in their own joint names or in their individual names"; and
as we have seen, such alleged mistakes are unfounded.
During the trial of this case, which off and on lasted nearly three years, the petitioners and their
witnesses, who had to come from the Province of Romblon to Manila, presented the only books they
kept to the business (Exhibits S and T). which respondents' expert accountants audited and found to be
incorrect as to the mode of dividing the profits. Of course, the auditor of the respondents also demanded
vouchers, ledgers, and other books. But the business having been run for twenty years without
employing a bookkeeper, it seems too late now to do so after the "partnership" has been dissolved.
In the absence of any finding of fraud or prejudicial error committed by the petitioners in the rendition of
their accounts, which were tacitly, approved by their respondents, who asked for and received their
participation in accordance with the liquidation, we think it would only occasion unnecessary trouble and
expense to both parties to require further accounting and remand the case to the trial court for further
proceedings. Nine years of litigation in three instances should be enough to afford the parties in this case
their day in court. It would be scandalous to prolong it under the circumstances. After all, it's only a
tempest in a teapot.

MORAN, J., dissenting:

The decision of the majority, ultimately analyzed, suggests the query: May this Court, in an appeal by
certiorari from a judgment of the Court of Appeals, make its own finding of fact in disregard of the findings
of the latter Court of Appeals, make its own findings of fact in disregard to the findings of the latter Court
and reverse the appealed judgment accordingly? The rule is settled that this Court cannot, and that, on
the contrary, in every such appeal "everything necessary to uphold the jurisdiction" of the Court of
Appeals "and the correctness of its proceedings and decision will be presumed, in the absence of a clear
showing to the contrary". (4 C.J., 1082.)
The essential facts of the case, as found by the Court of Appeals, are as follows: Petitioners and
respondents were members of a commercial partnership, the former being the managers of the business
and the latter having "no hand whatsoever in the conduct of it." From December 23, 1913 to May 27,
1932, petitioners had made ten balance statements and sent copies thereof to respondents together
with the latter's shares in the profits. No question arose between the parties as to the correctness of the
balance statements until the tenth statement was made, respondents had made known to petitioners
their desire to withdraw from the partnership and had requested for the remittance of their capital and
profits. On July 9, 1932, after the tenth statement was received by them, respondent reiterated their
desire for withdrawal, adding that "en cuanto hayamos recibido todo, entonces firmaremos el balance
que habeis hecho alli, cuya copia has dejado aqui." The amount which purported to be their entire capital
and profits was received by respondents but they refused to sign the statement of final liquidation
because they had an agreement with petition to the effect that before they sign it, "they would send some
one to Tablas to examine the partnership books, but that afterwards the defendants (petitioners here)
declined to allow plaintiffs' (respondents here) representative to see said books." And the evidence tends
to prove, so the Court of Appeals concluded, that there were mistakes in petitioners statements of
account sent to respondents, as corroborated by petitioners themselves in their counterclaims.
Upon these facts, the majority reversed the decision of the Court of Appeals and sustained the petitioners
plea of concluded accounting upon the following grounds.
1. That as respondents have promised to sign the final statement of accounts upon their receipt of their
entire capital and profits, their acceptance without reservation of said capital and profits, constitutes
virtual approval of the final liquidation and their signing the same becomes a mere formality to be
subsequently complied with and which was waived by their refusal to do so;
2. That while re-examination of accounts is authorized upon proof of fraud or gross error, in the instant
case, the Court's finding as to mistake is not positive and its pronouncement that "the evidence tends to
prove that there was mistake in the statement of accounts is not a definite conclusion sufficient to justify
a further accounting";
3. That as this case has been pending for nearly nine years, "if another accounting is ordered, a costly
action or proceedings may arise which may not be disposed of within a similar period," and that
accordingly "it is not improbable that the intended relief may prove to be the respondents' funeral"; and
4. That, in a nutshell, the circumstances of the case attest remarkably to the honesty of petitioners in
their dealings with respondents.
I propose to take up these grounds seriatim.
"An account stated" has been defined as "an agreement that the balance and all items of an
account representing the previous monetary transaction of the parties thereto are correct,
together with the promise to pay such balance." (1 C. J.S., p. 693.) In the present case, was there
such an agreement? Respondents, it is true, had promised to sign the balance statement upon
receiving their capital and share in the profits, but they actually had never signed such statement
and a promise to sign is not equivalent to signing. The fact that respondents have never signed
the statement only indicates that they could not agree with petitioners thereon. And if there is no
agreement there is no account stated. Indeed, it has been held that "in stating as account, as in
making any other agreement, the minds of the parties must meet." (1 C.J., pp. 684-685.) Here,
there has been no meeting of minds as to the true balance.
Besides, respondents' promise to sign the statement of final liquidation upon receipts of their entire
capital and profits was not absolute. It was subject to the agreement with petitioners that before
respondents "sign the final settlement they would send some one to Tablas to examine the partnership
books." This is a fact supported by proof expressly mentioned by the Court of Appeals which the majority
has utterly ignored and if considered would have been decidedly fatal to the conclusion it has reached.
As respondents "to whom the accounts were rendered had no knowledge of all the circumstances
relating to the business and had to rely upon the good faith of their partners" (words of the Court of
Appeals), the examination of the partnership books becomes to them a matter of capital important which,
for purposes of final liquidation, cannot lightly be dismissed. When petitioners declined to allow
respondents' representative to see said books in violation of the agreement, respondents must be
deemed legally exempted from their promise and are, therefore, entirely justified in refusing to sign the
final settlement.
Even if it be conceded that the final settlement had been acquiesced in by the respondent, a reopening
of accounts, as the majority itself admits, is authorized upon a showing of fraud or mistake. The rule is
that "an account stated being only prima facie evidence of its correctness, does not work an estoppel
and is subject to impeachment for fraud or mistake; and if fraud or mistake exists it is immaterial that the
parties agreed that the account shall not be opened for error after a fixed period, that it was signed by
the party charged, or that evidence of indebtedness, receipt in full, or releases were given." (1 C.J.S.,
pp. 728-729.) In the instant case, does there exist evidence of such mistake? The Court of Appeals,
putting up the same question, categorically stated:
The question then is, have mistakes been committed in the statements sent appellants? Not only
do plaintiffs so allege, and not only does the evidence so tend to prove, but the charged is
seconded by the defendant themselves when in their counterclaims they said:
 (a) Que recientemente se ha hecho una acabada revision de las cuentas y libros del negocio, y,
se ha descubierto que los demandados cometieron un error al hacer las entregas de las varias
cantidades en efectivo a los demandantes, entregando en total mayores cantidades a la que
tenian derecho estos por su participacion y ganancias en dicho negocio.
But the majority averred that this does not constitute a positive findings of mistake and that "the
pronouncement of the Court of Appeals that the evidence tends to prove that there was a mistake in the
statement of accounts is not a definite conclusion in a sense sufficient to justify a further accounting." As
a general rule when the grant or refusal of a legal relief sought in this Court depends upon the existence
of findings of fact by the Court of Appeals, the test for the grant or refusal of such relief is not whether its
finding is positive or not, but whether such findings actually exists and is sufficient for the purpose. The
reason is, in the language of the majority itself, "we are not here authorized to review the evidence and
determine the existence" of any matter of fact. In the closely analogue case of Zubiri vs. Quijano, G.R.
No. 48696. November 28, 1942, this Court held:
Under the second assignment, the petitioners alleged that the Court of Appeals erred in not
finding that she had paid to the respondent usurious interest amounting (as found by the Court of
the First Instance of Mindoro) to P950. The pronouncements of the Court of Appeals to wit, "pero
rechazamos la pretension de la demandada, aceptada por el Tribunal a quo, de que el
demandante percibio intereses usurarios" and "con respecto a la alegacion sobre usura, la misma
nos parece insostenible", being conclusions, of fact, must be accepted for the purposes of the
present appeal, since we cannot make contrary findings without reexamining the evidence, and
we are not authorized to do this.
In the instant case, the Court of Appeals made a general conclusion of fact as to the existence of mistake
and, on the authority of the case cited, this general conclusion must be deemed sufficient. When the
Court of Appeals went further and fortified its general conclusion of fact by a specific instance of such
mistake, are we to reject the finding as less sufficient because more specific?
But it is said that the Court of Appeals merely stated that the evidence so tend to prove" the existence
of mistake. The use, however, of the verb "tend" in no way imports ex necessitate rei indefiniteness or
ambiguity of the evidence upon which the Court of Appeals rested its conclusion of mistake. Doubtless,
the verb was used advisedly because, the action being merely to compel accounting, the Court cannot
and is not actually passing finally upon the correctness of the accounts. Its pronouncement as to mistake
cannot accordingly be couched with finality, much as the majority wishes it to be, but should merely be
worded as to indicate that a ground exists for the accounting prayed for.
And as to the specific mistake found by the Court of Appeals to have been admitted in petitioners'
counterclaim, the majority argues that such mistake consists in overpayment of respondents of what is
due to them, and therefore, the error was not to their prejudice. This argument entirely misses the point.
Whether the mistake be favorable or unfavorable to respondents, the fact remains that a mistake exists
and this is sufficient to authorize a reopening even of a concluded account. Indeed, if the mistake be one
prejudicial to the interest of the party who made the statement, it is all the worse. When a person makes
a mistake against himself when he is presumed to have taken special care for the protection of his
interest, he may in all probability be presumed to have made more mistakes against others whose
interests he is less concerned with, if at all.
But assuming that the Court's finding as to mistake is insufficient, is the majority justified in closing the
case upon that ground? To foreclose accounting, under the circumstances, is to make, in effect, a
contrary finding that there is no mistake and to presume that petitioners' accountings is correct. This is
both unauthorized and faulty. Unauthorized, because when the finding of the Court of Appeals is here
deemed insufficient, the remedy is not for this Court to make contrary findings but to supply the deficiency
by remanding the case to the Court of Appeals for further findings, as we did in Ofiana vs. People (40
Off. Gaz., 2293), and Bautista vs. Victoriano G.R. No. 46879, April 3, 1940. Faulty, because when the
majority presumes that petitioners accounting is correct, it takes for granted precisely the basic issue of
the case. And the presumption becomes the more faulty when we considered that it militates against
positive findings of mistake by the Court of Appeals. The existence of such findings, whether or not they
are insufficient, constitutes a solemn warning against reliance upon a mere presumption, specially if
there exists a contrary presumption to the effect that everything necessary to uphold the correctness of
the decision appealed from shall be deemed present in the record, in the absence of a clear showing to
the contrary. And here, there is absolutely no showing that the supposedly insufficient findings are
erroneous.
The majority expresses the fear that, as this case has been pending for nearly, nine years, if another
accounting is ordered a costly action or proceedings may arise which may not be disposed of within a
similar period. I cannot understand how this Court would haphazardly close a case only upon bare fear
or delay. What the law abhors is unnecessary delay in the administration of justice. Delays necessary
for the ascertainment of truth are welcomed. Hurried justice is certainly not to be less deplored than
delayed justice. Dispatch in the disposal of cases is, indeed, in every system of law, a beautiful ideal to
be devoutly wished for; but, like every other ideal, its beauty or utility ends with its abuse. We owe it to
the paramount interests of justice that in every litigation we are called upon to decide, we should strive
thoroughly and judiciously to ascertain the truth and not to hurriedly pull down the curtain on the case
until we are reasonably certain that all efforts to the end have been exhausted.
The majority adds that if the accounting prayed for the permitted, it is not improbable that the intended
relief may prove to be the respondents' funeral. I take this statement to mean that the majority hazards
the conjecture that if a new accounting is ordered, respondents will probably come out to be less entitled
that what they have received. I do not think this Court should, in propriety, hazard any guess on the
probable outcome of any suit specially where the guess is made on the basis of factual evidence about
which it cannot speak with authority. And, neither is the guess good, for if we remand the case to the
Court of Appeals for more specific findings, the likelihood is that more specific mistakes will be shown
as to render it inevitable for this Court to order a new accounting. This probability is founded not on mere
conjecture but on the presumption of law above mentioned that the conclusions of fact of the Court of
Appeals are in accordance with the evidence. Furthermore, respondents in asking for an accounting are
of course ready and willing to abide by any result, whether it be favorable or unfavorable to them. There
being just grounds therefor, it should not be denied by this Court because such accounting may be
disastrous to respondents.
The majority concluded its decision thus:
Considering that they (petitioners) ran the business of the partnership for about twenty years at
a place far from the residence of the respondents and without the latter's intervention; that the
partners did not even know each other personally; that no formal partnership agreement was
entered into which bound the petitioners under specific conditions; that the petitioners could have
easily and freely alleged that the business became a partial, or even a total, loss for any plausible
reason which they could have concocted, it appearing that the partnership engaged in such
uncertain ventures as agriculture, cattle raising, and the operation of rice mill, and the petitioners
did not keep any regular books of accounts; that the petitioners were still frank enough to disclose
that the original capital of P1,505.54 amounted, as of the date of the dissolution of the partnership
to P44,618.67; and that the respondents had received a total of P3,105.76 out of their capital of
P1,000, without any effort on their part, we are reluctant even to make the conjecture that the
petitioners had ever intended to, or actually did, take undue advantage of the absence and
confidence of the respondents. Indeed, we feel justified in stating that the petitioners have here
given a remarkable demonstration of the legendary honesty, good faith and industry with which
 the natives of Taal pursue business arrangements similar to the partnership in question, and we
would hate in the absence of any sufficient reason to let such a beautiful legend have a distateful
ending.
Too much, I fear, has here been assumed by the majority. They assumed that the figures cited are
correct when they are in question; they assumed that petitioners have not taken advantage of the
confidence of the respondents when this yet remains to be seen; they assumed that petitioners'
accounting is correct when this is precisely the question between the parties; and, finally, they held that
because petitioners did not keep any regular books of account, they should not be compelled to an
accounting because they may not be able to do so, which is in effect offering a premium for negligence.
This mode of ratiocination is, to my regret, without authority and without parallel. True petitioners ran the
business of the partnership without intervention whatever on the part of respondents who relied entirely
on the good faith of the former. This indicates that the relation between the parties is manifestly fiduciary
and it has been held that "when a a fiduciary relationship exists between the parties stating an account
in will be more readily reopened than when the parties had been dealing with each other at arm's length."
(1 C.J.S. p. 729.)
I wish I could share with the majority in the abundance of their admirations for what they called the
"legendary honesty, good faith and industry with which the natives of Taal pursue business arrangements
similar to the partnership in question to let "such a beautiful legend have a distasteful ending." But I fell
loath to pose a set of men as paragons of virtue and otherwise reflect, without cause or reason, upon
the integrity of the rest of their kind. I fell even more loath to rest the judgment of this Court upon a mere
legend, no matter how beautiful that legend may be, and would prefer to adjudicate every case upon
what the evidence and the law alone may direct. Facts, not fancy, are still the chosen tools with which
the courts perform their solemn function of dispensing justice of litigants.
After this dissent had been written, Brother Justice Ozaeta gave out his concurring opinion predicated
fundamentally upon facts not appearing in the findings of the Court of Appeals. We have held time and
again that in appeals by certiorari from the Court of Appeals and in cases like the present one, only
questions of law may be considered, question of fact requiring examination of evidence being without
our jurisdiction. (Rule 46, sec. 2; Guico vs. Mayuga, 63 Phil., 328; Mateo vs. Collector of Customs, 63
Phil., 470; Mamuyac vs. Abena, 38 Off. Gaz., 34, Meneses vs.Com. of the Philippines, 40 Off, Gaz., 7th
Sup. 41; Diaz vs. People, 40 Off. Gaz. 3d Sup. 22.) I abstain, therefore, from dealing on matters that are
forbidden to us by our own Rules. Doubtless, the concurring opinion is impelled by the commendable
desire to do "practical," not "theoretical," justice. Regrettably, however, we cannot fulfill this end at the
risk of transcending the limits of this Court's jurisdictions. Beyond that jurisdiction all our pronouncements
have no judicial value for they may be regarded as made out of court and do not constitute due process
of law. And, what is worse is that the concurring opinion takes the decision of the Court of First Instance
wholly or in part as a basis for reversing the decision of the Court of Appeals. This mode of procedure is
unprecedented and amazing. The law considers the Court of Appeals as superior to a Court of First
Instance specially on matters of fact, and yet the reverse is implied in the concurring opinion.

Benjamin Yu vs NLRC June 30 1993

BENJAMIN YU, petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION and JADE MOUNTAIN PRODUCTS COMPANY
LIMITED, WILLY CO, RHODORA D. BENDAL, LEA BENDAL, CHIU SHIAN JENG and CHEN HO-
FU, respondents.
Jose C. Guico for petitioner.
Wilfredo Cortez for private respondents.
FELICIANO, J.:
Petitioner Benjamin Yu was formerly the Assistant General Manager of the marble quarrying and export
business operated by a registered partnership with the firm name of "Jade Mountain Products Company
Limited" ("Jade Mountain"). The partnership was originally organized on 28 June 1984 with Lea Bendal
and Rhodora Bendal as general partners and Chin Shian Jeng, Chen Ho-Fu and Yu Chang, all citizens
of the Republic of China (Taiwan), as limited partners. The partnership business consisted of exploiting
a marble deposit found on land owned by the Sps. Ricardo and Guillerma Cruz, situated in Bulacan
Province, under a Memorandum Agreement dated 26 June 1984 with the Cruz spouses. 1 The
partnership had its main office in Makati, Metropolitan Manila.
Benjamin Yu was hired by virtue of a Partnership Resolution dated 14 March 1985, as Assistant General
Manager with a monthly salary of P4,000.00. According to petitioner Yu, however, he actually received
only half of his stipulated monthly salary, since he had accepted the promise of the partners that the
balance would be paid when the firm shall have secured additional operating funds from abroad.
Benjamin Yu actually managed the operations and finances of the business; he had overall supervision
of the workers at the marble quarry in Bulacan and took charge of the preparation of papers relating to
the exportation of the firm's products.
Sometime in 1988, without the knowledge of Benjamin Yu, the general partners Lea Bendal and Rhodora
Bendal sold and transferred their interests in the partnership to private respondent Willy Co and to one
Emmanuel Zapanta. Mr. Yu Chang, a limited partner, also sold and transferred his interest in the
partnership to Willy Co. Between Mr. Emmanuel Zapanta and himself, private respondent Willy Co
acquired the great bulk of the partnership interest. The partnership now constituted solely by Willy Co
and Emmanuel Zapanta continued to use the old firm name of Jade Mountain, though they moved the
firm's main office from Makati to Mandaluyong, Metropolitan Manila. A Supplement to the Memorandum
Agreement relating to the operation of the marble quarry was entered into with the Cruz spouses in
February of 1988.2 The actual operations of the business enterprise continued as before. All the
employees of the partnership continued working in the business, all, save petitioner Benjamin Yu as it
turned out.
On 16 November 1987, having learned of the transfer of the firm's main office from Makati to
Mandaluyong, petitioner Benjamin Yu reported to the Mandaluyong office for work and there met private
respondent Willy Co for the first time. Petitioner was informed by Willy Co that the latter had bought the
business from the original partners and that it was for him to decide whether or not he was responsible
for the obligations of the old partnership, including petitioner's unpaid salaries. Petitioner was in fact not
allowed to work anymore in the Jade Mountain business enterprise. His unpaid salaries remained
unpaid.3
On 21 December 1988. Benjamin Yu filed a complaint for illegal dismissal and recovery of unpaid
salaries accruing from November 1984 to October 1988, moral and exemplary damages and attorney's
fees, against Jade Mountain, Mr. Willy Co and the other private respondents. The partnership and Willy
Co denied petitioner's charges, contending in the main that Benjamin Yu was never hired as an employee
by the present or new partnership.4
In due time, Labor Arbiter Nieves Vivar-De Castro rendered a decision holding that petitioner had been
illegally dismissed. The Labor Arbiter decreed his reinstatement and awarded him his claim for unpaid
salaries, backwages and attorney's fees.5
On appeal, the National Labor Relations Commission ("NLRC") reversed the decision of the Labor
Arbiter and dismissed petitioner's complaint in a Resolution dated 29 November 1990. The NLRC held
that a new partnership consisting of Mr. Willy Co and Mr. Emmanuel Zapanta had bought the Jade
Mountain business, that the new partnership had not retained petitioner Yu in his original position as
Assistant General Manager, and that there was no law requiring the new partnership to absorb the
employees of the old partnership. Benjamin Yu, therefore, had not been illegally dismissed by the new
partnership which had simply declined to retain him in his former managerial position or any other
position. Finally, the NLRC held that Benjamin Yu's claim for unpaid wages should be asserted against
the original members of the preceding partnership, but these though impleaded had, apparently, not
been served with summons in the proceedings before the Labor Arbiter.6
Petitioner Benjamin Yu is now before the Court on a Petition for Certiorari, asking us to set aside and
annul the Resolution of the NLRC as a product of grave abuse of discretion amounting to lack or excess
of jurisdiction.
The basic contention of petitioner is that the NLRC has overlooked the principle that a partnership has a
juridical personality separate and distinct from that of each of its members. Such independent legal
personality subsists, petitioner claims, notwithstanding changes in the identities of the partners.
Consequently, the employment contract between Benjamin Yu and the partnership Jade Mountain could
not have been affected by changes in the latter's membership.7
Two (2) main issues are thus posed for our consideration in the case at bar: (1) whether the partnership
which had hired petitioner Yu as Assistant General Manager had been extinguished and replaced by a
new partnerships composed of Willy Co and Emmanuel Zapanta; and (2) if indeed a new partnership
had come into existence, whether petitioner Yu could nonetheless assert his rights under his employment
contract as against the new partnership.
In respect of the first issue, we agree with the result reached by the NLRC, that is, that the legal effect
of the changes in the membership of the partnership was the dissolution of the old partnership which
had hired petitioner in 1984 and the emergence of a new firm composed of Willy Co and Emmanuel
Zapanta in 1987.
The applicable law in this connection of which the NLRC seemed quite unaware is found in the
Civil Code provisions relating to partnerships. Article 1828 of the Civil Code provides as follows:
Art. 1828. The dissolution of a partnership is the change in the relation of the
partners caused by any partner ceasing to be associated in the carrying on as
distinguished from the winding up of the business. (Emphasis supplied)
Article 1830 of the same Code must also be noted:
Art. 1830. Dissolution is caused:
(1) without violation of the agreement between the partners;
xxx xxx xxx
(b) by the express will of any partner, who must act in good
faith, when no definite term or particular undertaking is
specified;
xxx xxx xxx
(2) in contravention of the agreement between the partners,
where the circumstances do not permit a dissolution under
any other provision of this article, by the express will of any
partner at any time;
xxx xxx xxx
(Emphasis supplied)
In the case at bar, just about all of the partners had sold their partnership interests (amounting to 82%
of the total partnership interest) to Mr. Willy Co and Emmanuel Zapanta. The record does not show what
happened to the remaining 18% of the original partnership interest. The acquisition of 82% of the
partnership interest by new partners, coupled with the retirement or withdrawal of the partners who had
originally owned such 82% interest, was enough to constitute a new partnership.
The occurrence of events which precipitate the legal consequence of dissolution of a partnership do not,
however, automatically result in the termination of the legal personality of the old partnership. Article
1829 of the Civil Code states that:
[o]n dissolution the partnership is not terminated, but continues until the winding up of
partnership affairs is completed.
In the ordinary course of events, the legal personality of the expiring partnership persists for the limited
purpose of winding up and closing of the affairs of the partnership. In the case at bar, it is important to
underscore the fact that the business of the old partnership was simply continued by the new
partners, without the old partnership undergoing the procedures relating to dissolution and winding up
of its business affairs. In other words, the new partnership simply took over the business enterprise
owned by the preceeding partnership, and continued using the old name of Jade Mountain Products
Company Limited, without winding up the business affairs of the old partnership, paying off its debts,
liquidating and distributing its net assets, and then re-assembling the said assets or most of them and
opening a new business enterprise. There were, no doubt, powerful tax considerations which underlay
such an informal approach to business on the part of the retiring and the incoming partners. It is not,
however, necessary to inquire into such matters.
What is important for present purposes is that, under the above described situation, not only the retiring
partners (Rhodora Bendal, et al.) but also the new partnership itself which continued the business of the
old, dissolved, one, are liable for the debts of the preceding partnership. In Singson, et al. v. Isabela Saw
Mill, et al,8 the Court held that under facts very similar to those in the case at bar, a withdrawing partner
remains liable to a third party creditor of the old partnership.9 The liability of the new partnership, upon
the other hand, in the set of circumstances obtaining in the case at bar, is established in Article 1840 of
the Civil Code which reads as follows:
Art. 1840. In the following cases creditors of the dissolved partnership are also creditors
of the person or partnership continuing the business:
(1) When any new partner is admitted into an existing partnership, or when any partner
retires and assigns (or the representative of the deceased partner assigns) his rights in
partnership property to two or more of the partners, or to one or more of the partners and
one or more third persons, if the business is continued without liquidation of the
partnership affairs;
(2) When all but one partner retire and assign (or the representative of a deceased partner
assigns) their rights in partnership property to the remaining partner, who continues the
business without liquidation of partnership affairs, either alone or with others;
(3) When any Partner retires or dies and the business of the dissolved partnership is
continued as set forth in Nos. 1 and 2 of this Article, with the consent of the retired partners
or the representative of the deceased partner, but without any assignment of his right in
partnership property;
(4) When all the partners or their representatives assign their rights in partnership property
to one or more third persons who promise to pay the debts and who continue the business
of the dissolved partnership;
(5) When any partner wrongfully causes a dissolution and remaining partners continue the
business under the provisions of article 1837, second paragraph, No. 2, either alone or
with others, and without liquidation of the partnership affairs;
(6) When a partner is expelled and the remaining partners continue the business either
alone or with others without liquidation of the partnership affairs;
 The liability of a third person becoming a partner in the partnership continuing the
business, under this article, to the creditors of the dissolved partnership shall be satisfied
out of the partnership property only, unless there is a stipulation to the contrary.
When the business of a partnership after dissolution is continued under any conditions set
forth in this article the creditors of the retiring or deceased partner or the representative of
the deceased partner, have a prior right to any claim of the retired partner or the
representative of the deceased partner against the person or partnership continuing the
business on account of the retired or deceased partner's interest in the dissolved
partnership or on account of any consideration promised for such interest or for his right
in partnership property.
Nothing in this article shall be held to modify any right of creditors to set assignment on
the ground of fraud.
xxx xxx xxx
(Emphasis supplied)
Under Article 1840 above, creditors of the old Jade Mountain are also creditors of the new Jade Mountain
which continued the business of the old one without liquidation of the partnership affairs. Indeed, a
creditor of the old Jade Mountain, like petitioner Benjamin Yu in respect of his claim for unpaid wages,
is entitled to priority vis-a-vis any claim of any retired or previous partner insofar as such retired partner's
interest in the dissolved partnership is concerned. It is not necessary for the Court to determine under
which one or mare of the above six (6) paragraphs, the case at bar would fall, if only because the facts
on record are not detailed with sufficient precision to permit such determination. It is, however, clear to
the Court that under Article 1840 above, Benjamin Yu is entitled to enforce his claim for unpaid salaries,
as well as other claims relating to his employment with the previous partnership, against the new Jade
Mountain.
It is at the same time also evident to the Court that the new partnership was entitled to appoint and hire
a new general or assistant general manager to run the affairs of the business enterprise take over. An
assistant general manager belongs to the most senior ranks of management and a new partnership is
entitled to appoint a top manager of its own choice and confidence. The non-retention of Benjamin Yu
as Assistant General Manager did not therefore constitute unlawful termination, or termination without
just or authorized cause. We think that the precise authorized cause for termination in the case at bar
was redundancy. 10 The new partnership had its own new General Manager, apparently Mr. Willy Co,
the principal new owner himself, who personally ran the business of Jade Mountain. Benjamin Yu's old
position as Assistant General Manager thus became superfluous or redundant. 11It follows that petitioner
Benjamin Yu is entitled to separation pay at the rate of one month's pay for each year of service that he
had rendered to the old partnership, a fraction of at least six (6) months being considered as a whole
year.
While the new Jade Mountain was entitled to decline to retain petitioner Benjamin Yu in its employ, we
consider that Benjamin Yu was very shabbily treated by the new partnership. The old partnership
certainly benefitted from the services of Benjamin Yu who, as noted, previously ran the whole marble
quarrying, processing and exporting enterprise. His work constituted value-added to the business itself
and therefore, the new partnership similarly benefitted from the labors of Benjamin Yu. It is worthy of
note that the new partnership did not try to suggest that there was any cause consisting of some
blameworthy act or omission on the part of Mr. Yu which compelled the new partnership to terminate his
services. Nonetheless, the new Jade Mountain did not notify him of the change in ownership of the
business, the relocation of the main office of Jade Mountain from Makati to Mandaluyong and the
assumption by Mr. Willy Co of control of operations. The treatment (including the refusal to honor his
claim for unpaid wages) accorded to Assistant General Manager Benjamin Yu was so summary and
cavalier as to amount to arbitrary, bad faith treatment, for which the new Jade Mountain may legitimately
be required to respond by paying moral damages. This Court, exercising its discretion and in view of all
the circumstances of this case, believes that an indemnity for moral damages in the amount of
P20,000.00 is proper and reasonable.
In addition, we consider that petitioner Benjamin Yu is entitled to interest at the legal rate of six percent
(6%) per annum on the amount of unpaid wages, and of his separation pay, computed from the date of
promulgation of the award of the Labor Arbiter. Finally, because the new Jade Mountain compelled
Benjamin Yu to resort to litigation to protect his rights in the premises, he is entitled to attorney's fees in
the amount of ten percent (10%) of the total amount due from private respondent Jade Mountain.
WHEREFORE, for all the foregoing, the Petition for Certiorari is GRANTED DUE COURSE, the
Comment filed by private respondents is treated as their Answer to the Petition for Certiorari, and the
Decision of the NLRC dated 29 November 1990 is hereby NULLIFIED and SET ASIDE. A new Decision
is hereby ENTERED requiring private respondent Jade Mountain Products Company Limited to pay to
petitioner Benjamin Yu the following amounts:
(a) for unpaid wages which, as found by the Labor Arbiter, shall be computed at the rate of P2,000.00
per month multiplied by thirty-six (36) months (November 1984 to December 1987) in the total amount
of P72,000.00;
(b) separation pay computed at the rate of P4,000.00 monthly pay multiplied by three (3) years of service
or a total of P12,000.00;
(c) indemnity for moral damages in the amount of P20,000.00;
(d) six percent (6%) per annum legal interest computed on items (a) and (b)above, commencing on 26
December 1989 and until fully paid; and
(e) ten percent (10%) attorney's fees on the total amount due from private respondent Jade Mountain.
Costs against private respondents.

1843-1867 Ltd Partnership