1.

G.R. No. 127347 November 25, 1999

ALFREDO N. AGUILA, JR., petitioner,
vs.
HONORABLE COURT OF APPEALS and FELICIDAD S. VDA. DE
ABROGAR, respondents.

MENDOZA, J.:
This is a petition for review on certiorari of the decision 1 of the Court of Appeals,
dated November 29, 1990, which reversed the decision of the Regional Trial Court,
Branch 273, Marikina, Metro Manila, dated April 11, 1995. The trial court dismissed
the petition for declaration of nullity of a deed of sale filed by private respondent
Felicidad S. Vda. de Abrogar against petitioner Alfredo N. Aguila, Jr.
The facts are as follows:
Petitioner is the manager of A.C. Aguila & Sons, Co., a partnership engaged in lending
activities. Private respondent and her late husband, Ruben M. Abrogar, were the
registered owners of a house and lot, covered by Transfer Certificate of Title No.
195101, in Marikina, Metro Manila. On April 18, 1991, private respondent, with the
consent of her late husband, and A.C. Aguila & Sons, Co., represented by petitioner,
entered into a Memorandum of Agreement, which provided:
(1) That the SECOND PARTY [A.C. Aguila & Sons, Co.] shall buy the
above-described property from the FIRST PARTY [Felicidad S. Vda. de
Abrogar], and pursuant to this agreement, a Deed of Absolute Sale
shall be executed by the FIRST PARTY conveying the property to the
SECOND PARTY for and in consideration of the sum of Two Hundred
Thousand Pesos (P200,000.00), Philippine Currency;
(2) The FIRST PARTY is hereby given by the SECOND PARTY the option
to repurchase the said property within a period of ninety (90) days
from the execution of this memorandum of agreement effective April
18, 1991, for the amount of TWO HUNDRED THIRTY THOUSAND PESOS
(P230,000.00);
(3) In the event that the FIRST PARTY fail to exercise her option to
repurchase the said property within a period of ninety (90) days, the
FIRST PARTY is obliged to deliver peacefully the possession of the
property to the SECOND PARTY within fifteen (15) days after the
expiration of the said 90 day grace period;
(4) During the said grace period, the FIRST PARTY obliges herself not to
file any lis pendens or whatever claims on the property nor shall be
cause the annotation of say claim at the back of the title to the said
property;

(5) With the execution of the deed of absolute sale, the FIRST PARTY
warrants her ownership of the property and shall defend the rights of
the SECOND PARTY against any party whom may have any interests
over the property;
(6) All expenses for documentation and other incidental expenses shall
be for the account of the FIRST PARTY;
(7) Should the FIRST PARTY fail to deliver peaceful possession of the
property to the SECOND PARTY after the expiration of the 15-day grace
period given in paragraph 3 above, the FIRST PARTY shall pay an
amount equivalent to Five Percent of the principal amount of TWO
HUNDRED PESOS (P200.00) or P10,000.00 per month of delay as and
for rentals and liquidated damages;
(8) Should the FIRST PARTY fail to exercise her option to repurchase the
property within ninety (90) days period above-mentioned, this
memorandum of agreement shall be deemed cancelled and the Deed
of Absolute Sale, executed by the parties shall be the final contract
considered as entered between the parties and the SECOND PARTY
shall proceed to transfer ownership of the property above described to
its name free from lines and encumbrances. 2
On the same day, April 18, 1991, the parties likewise executed a deed of absolute
sale, 3 dated June 11, 1991, wherein private respondent, with the consent of her late
husband, sold the subject property to A.C. Aguila & Sons, Co., represented by
petitioner, for P200,000,00. In a special power of attorney dated the same day, April
18, 1991, private respondent authorized petitioner to cause the cancellation of TCT
No. 195101 and the issuance of a new certificate of title in the name of A.C. Aguila
and Sons, Co., in the event she failed to redeem the subject property as provided in
the Memorandum of Agreement. 4
Private respondent failed to redeem the property within the 90-day period as
provided in the Memorandum of Agreement. Hence, pursuant to the special power of
attorney mentioned above, petitioner caused the cancellation of TCT No. 195101 and
the issuance of a new certificate of title in the name of A.C. Aguila and Sons, Co. 5
Private respondent then received a letter dated August 10, 1991 from Atty. Lamberto
C. Nanquil, counsel for A.C. Aguila & Sons, Co., demanding that she vacate the
premises within 15 days after receipt of the letter and surrender its possession
peacefully to A.C. Aguila & Sons, Co. Otherwise, the latter would bring the
appropriate action in court. 6
Upon the refusal of private respondent to vacate the subject premises, A.C. Aguila &
Sons, Co. filed an ejectment case against her in the Metropolitan Trial Court, Branch
76, Marikina, Metro Manila. In a decision, dated April 3, 1992, the Metropolitan Trial
Court ruled in favor of A.C. Aguila & Sons, Co. on the ground that private respondent
did not redeem the subject property before the expiration of the 90-day period
provided in the Memorandum of Agreement. Private respondent appealed first to the
Regional Trial Court, Branch 163, Pasig, Metro Manila, then to the Court of Appeals,
and later to this Court, but she lost in all the cases.
Private respondent then filed a petition for declaration of nullity of a deed of sale with
the Regional Trial Court, Branch 273, Marikina, Metro Manila on December 4, 1993.

She alleged that the signature of her husband on the deed of sale was a forgery
because he was already dead when the deed was supposed to have been executed
on June 11, 1991.
It appears, however, that private respondent had filed a criminal complaint for
falsification against petitioner with the Office of the Prosecutor of Quezon City which
was dismissed in a resolution, dated February 14, 1994.
On April 11, 1995, Branch 273 of RTC-Marikina rendered its decision:
Plaintiff's claim therefore that the Deed of Absolute Sale is a forgery
because they could not personally appear before Notary Public
Lamberto C. Nanquil on June 11, 1991 because her husband, Ruben
Abrogar, died on May 8, 1991 or one month and 2 days before the
execution of the Deed of Absolute Sale, while the plaintiff was still in
the Quezon City Medical Center recuperating from wounds which she
suffered at the same vehicular accident on May 8, 1991, cannot be
sustained. The Court is convinced that the three required documents,
to wit: the Memorandum of Agreement, the Special Power of Attorney,
and the Deed of Absolute Sale were all signed by the parties on the
same date on April 18, 1991. It is a common and accepted business
practice of those engaged in money lending to prepare an undated
absolute deed of sale in loans of money secured by real estate for
various reasons, foremost of which is the evasion of taxes and
surcharges. The plaintiff never questioned receiving the sum of
P200,000.00 representing her loan from the defendant. Common sense
dictates that an established lending and realty firm like the Aguila &
Sons, Co. would not part with P200,000.00 to the Abrogar spouses, who
are virtual strangers to it, without the simultaneous accomplishment
and signing of all the required documents, more particularly the Deed
of Absolute Sale, to protect its interest.
xxx xxx xxx
WHEREFORE, foregoing premises considered, the case in caption is
hereby ORDERED DISMISSED, with costs against the plaintiff.
On appeal, the Court of Appeals reversed. It held:
The facts and evidence show that the transaction between plaintiffappellant and defendant-appellee is indubitably an equitable
mortgage. Article 1602 of the New Civil Code finds strong application in
the case at bar in the light of the following circumstances.
First: The purchase price for the alleged sale with right to repurchase is
unusually inadequate. The property is a two hundred forty (240) sq. m.
lot. On said lot, the residential house of plaintiff-appellant stands. The
property is inside a subdivision/village. The property is situated in
Marikina which is already part of Metro Manila. The alleged sale took
place in 1991 when the value of the land had considerably increased.
For this property, defendant-appellee pays only a measly P200,000.00
or P833.33 per square meter for both the land and for the house.

Second: The disputed Memorandum of Agreement specifically provides

that plaintiff-appellant is obliged to deliver peacefully the possession of
the property to the SECOND PARTY within fifteen (15) days after the
expiration of the said ninety (90) day grace period. Otherwise stated,
plaintiff-appellant is to retain physical possession of the thing allegedly
sold.
In fact, plaintiff-appellant retained possession of the property "sold" as
if they were still the absolute owners. There was no provision for
maintenance or expenses, much less for payment of rent.
Third: The apparent vendor, plaintiff-appellant herein, continued to pay
taxes on the property "sold". It is well-known that payment of taxes
accompanied by actual possession of the land covered by the tax
declaration, constitute evidence of great weight that a person under
whose name the real taxes were declared has a claim of right over the
land.
It is well-settled that the presence of even one of the circumstances in
Article 1602 of the New Civil Code is sufficient to declare a contract of
sale with right to repurchase an equitable mortgage.
Considering that plaintiff-appellant, as vendor, was paid a price which
is unusually inadequate, has retained possession of the subject
property and has continued paying the realty taxes over the subject
property, (circumstances mentioned in par. (1) (2) and (5) of Article
1602 of the New Civil Code), it must be conclusively presumed that the
transaction the parties actually entered into is an equitable mortgage,
not a sale with right to repurchase. The factors cited are in support to
the finding that the Deed of Sale/Memorandum of Agreement with right
to repurchase is in actuality an equitable mortgage.
Moreover, it is undisputed that the deed of sale with right of
repurchase was executed by reason of the loan extended by
defendant-appellee to plaintiff-appellant. The amount of loan being the
same with the amount of the purchase price.
xxx xxx xxx
Since the real intention of the party is to secure the payment of debt,
now deemed to be repurchase price: the transaction shall then be
considered to be an equitable mortgage.
Being a mortgage, the transaction entered into by the parties is in the
nature of a pactum commissorium which is clearly prohibited by Article
2088 of the New Civil Code. Article 2088 of the New Civil Code reads:
Art. 2088. The creditor cannot appropriate the things
given by way of pledge or mortgage, or dispose of them.
Any stipulation to the contrary is null and void.
The aforequoted provision furnishes the two elements for pactum
commissorium to exist: (1) that there should be a pledge or mortgage

wherein a property is pledged or mortgaged by way of security for the

payment of principal obligation; and (2) that there should be a
stipulation for an automatic appropriation by the creditor of the thing
pledged and mortgaged in the event of non-payment of the principal
obligation within the stipulated period.
In this case, defendant-appellee in reality extended a P200,000.00 loan
to plaintiff-appellant secured by a mortgage on the property of plaintiffappellant. The loan was payable within ninety (90) days, the period
within which plaintiff-appellant can repurchase the property. Plaintiffappellant will pay P230,000.00 and not P200,000.00, the P30,000.00
excess is the interest for the loan extended. Failure of plaintiff-appellee
to pay the P230,000.00 within the ninety (90) days period, the property
shall automatically belong to defendant-appellee by virtue of the deed
of sale executed.
Clearly, the agreement entered into by the parties is in the nature
of pactum commissorium. Therefore, the deed of sale should be
declared void as we hereby so declare to be invalid, for being violative
of law.
xxx xxx xxx
WHEREFORE, foregoing considered, the appealed decision is hereby
REVERSED and SET ASIDE. The questioned Deed of Sale and the
cancellation of the TCT No. 195101 issued in favor of plaintiff-appellant
and the issuance of TCT No. 267073 issued in favor of defendantappellee pursuant to the questioned Deed of Sale is hereby declared
VOID and is hereby ANNULLED. Transfer Certificate of Title No. 195101
of the Registry of Marikina is hereby ordered REINSTATED. The loan in
the amount of P230,000.00 shall be paid within ninety (90) days from
the finality of this decision. In case of failure to pay the amount of
P230,000.00 from the period therein stated, the property shall be sold
at public auction to satisfy the mortgage debt and costs and if there is
an excess, the same is to be given to the owner.
Petitioner now contends that: (1) he is not the real party in interest but A.C. Aguila &
Co., against which this case should have been brought; (2) the judgment in the
ejectment case is a bar to the filing of the complaint for declaration of nullity of a
deed of sale in this case; and (3) the contract between A.C. Aguila & Sons, Co. and
private respondent is a pacto de retro sale and not an equitable mortgage as held by
the appellate court.
The petition is meritorious.
Rule 3, 2 of the Rules of Court of 1964, under which the complaint in this case was
filed, provided that "every action must be prosecuted and defended in the name of
the real party in interest." A real party in interest is one who would be benefited or
injured by the judgment, or who is entitled to the avails of the suit. 7 This ruling is
now embodied in Rule 3, 2 of the 1997 Revised Rules of Civil Procedure. Any
decision rendered against a person who is not a real party in interest in the case
cannot be executed. 8 Hence, a complaint filed against such a person should be
dismissed for failure to state a cause of action. 9

Under Art. 1768 of the Civil Code, a partnership "has a juridical personality separate
and distinct from that of each of the partners." The partners cannot be held liable for
the obligations of the partnership unless it is shown that the legal fiction of a different
juridical personality is being used for fraudulent, unfair, or illegal purposes. 10 In this
case, private respondent has not shown that A.C. Aguila & Sons, Co., as a separate
juridical entity, is being used for fraudulent, unfair, or illegal purposes. Moreover, the
title to the subject property is in the name of A.C. Aguila & Sons, Co. and the
Memorandum of Agreement was executed between private respondent, with the
consent of her late husband, and A.C. Aguila & Sons, Co., represented by petitioner.
Hence, it is the partnership, not its officers or agents, which should be impleaded in
any litigation involving property registered in its name. A violation of this rule will
result in the dismissal of the complaint. 11 We cannot understand why both the
Regional Trial Court and the Court of Appeals sidestepped this issue when it was
squarely raised before them by petitioner.
Our conclusion that petitioner is not the real party in interest against whom this
action should be prosecuted makes it unnecessary to discuss the other issues raised
by him in this appeal.
WHEREFORE, the decision of the Court of Appeals is hereby REVERSED and the
complaint against petitioner is DISMISSED.
SO ORDERED.
Bellosillo, Quisumbing, Buena and De Leon, Jr., JJ., concur.

2.
G.R. No. 144214

July 14, 2003

LUZVIMINDA J. VILLAREAL, DIOGENES VILLAREAL and CARMELITO

JOSE, petitioners,
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.
Puno, Corona and Carpio-Morales, JJ ., concur.
Sandoval-Gutierrez, J ., on official leave.

3.
G.R. No. 142612. July 29, 2005
OSCAR ANGELES and EMERITA ANGELES, Petitioners,
vs.
THE HON. SECRETARY OF JUSTICE and FELINO MERCADO, Respondents.
DECISION
CARPIO, J.:
The Case
This is a petition for certiorari1 to annul the letter-resolution2 dated 1 February 2000
of the Secretary of Justice in Resolution No. 155.3 The Secretary of Justice affirmed
the resolution4 in I.S. No. 96-939 dated 28 February 1997 rendered by the Provincial
Prosecution Office of the Department of Justice in Santa Cruz, Laguna ("Provincial
Prosecution Office"). The Provincial Prosecution Office resolved to dismiss the
complaint for estafa filed by petitioners Oscar and Emerita Angeles ("Angeles
spouses") against respondent Felino Mercado ("Mercado").
Antecedent Facts
On 19 November 1996, the Angeles spouses filed a criminal complaint for estafa
under Article 315 of the Revised Penal Code against Mercado before the Provincial
Prosecution Office. Mercado is the brother-in-law of the Angeles spouses, being
married to Emerita Angeles sister Laura.
In their affidavits, the Angeles spouses claimed that in November 1992, Mercado
convinced them to enter into a contract of antichresis,5 colloquially known
as sanglaang-perde, covering eight parcels of land ("subject land") planted with fruitbearing lanzones trees located in Nagcarlan, Laguna and owned by Juana Suazo. The
contract of antichresis was to last for five years with P210,000 as consideration. As
the Angeles spouses stay in Manila during weekdays and go to Laguna only on
weekends, the parties agreed that Mercado would administer the lands and complete
the necessary paperwork.6
After three years, the Angeles spouses asked for an accounting from Mercado.
Mercado explained that the subject land earned P46,210 in 1993, which he used to
buy more lanzones trees. Mercado also reported that the trees bore no fruit in 1994.
Mercado gave no accounting for 1995. The Angeles spouses claim that only after this
demand for an accounting did they discover that Mercado had put the contract
of sanglaang-perde over the subject land under Mercado and his spouses

names.7 The relevant portions of the contract of sanglaang-perde, signed by Juana

Suazo alone, read:
xxx
Na alang-alang sa halagang DALAWANG DAAN AT SAMPUNG LIBONG PISO (P210,000),
salaping gastahin, na aking tinanggap sa mag[-]asawa nila G. AT GNG. FELINO
MERCADO, mga nasa hustong gulang, Filipino, tumitira at may pahatirang sulat sa
Bgy. Maravilla, bayan ng Nagcarlan, lalawigan ng Laguna, ay aking ipinagbili, iniliwat
at isinalin sa naulit na halaga, sa nabanggit na mag[-] asawa nila G. AT GNG. FELINO
MERCADO[,] sa kanila ay magmamana, kahalili at ibang dapat pagliwatan ng kanilang
karapatan, ang lahat na ibubunga ng lahat na puno ng lanzones, hindi kasama ang
ibang halaman na napapalooban nito, ng nabanggit na WALONG (8) Lagay na Lupang
Cocal-Lanzonal, sa takdang LIMA (5) NA [sic] TAON, magpapasimula sa taong 1993,
at magtatapos sa taong 1997, kayat pagkatapos ng lansonesan sa taong 1997, ang
pamomosision at pakikinabang sa lahat na puno ng lanzones sa nabanggit na
WALONG (8) Lagay na Lupang Cocal-Lanzonal ay manunumbalik sa akin, sa akin ay
magmamana, kahalili at ibang dapat pagliwatan ng aking karapatan na ako ay
walang ibabalik na ano pa mang halaga, sa mag[-] asawa nila G. AT GNG. FELINO
MERCADO.
Na ako at ang mag[-]asawa nila G. AT GNG. FELINO MERCADO ay nagkasundo na ako
ay bibigyan nila ng LIMA (5) na [sic] kaing na lanzones taon-taon sa loob ng LIMA (5)
na [sic] taon ng aming kasunduang ito.
Na ako at ang mag[-]asawa nila G. AT GNG. FELINO MERCADO ay nagkasundo na
silang mag[-]asawa nila G. AT GNG. FELINO MERCADO ang magpapaalis ng dapo sa
puno ng lansones taon-taon [sic] sa loob ng LIMA (5) [sic] taonng [sic] aming
kasunduang ito.8
In his counter-affidavit, Mercado denied the Angeles spouses allegations. Mercado
claimed that there exists an industrial partnership, colloquially known as sosyo
industrial, between him and his spouse as industrial partners and the Angeles
spouses as the financiers. This industrial partnership had existed since 1991, before
the contract of antichresis over the subject land. As the years passed, Mercado used
his and his spouses earnings as part of the capital in the business transactions which
he entered into in behalf of the Angeles spouses. It was their practice to enter into
business transactions with other people under the name of Mercado because the
Angeles spouses did not want to be identified as the financiers.
Mercado attached bank receipts showing deposits in behalf of Emerita Angeles and
contracts under his name for the Angeles spouses. Mercado also attached the
minutes of the barangay conciliation proceedings held on 7 September 1996. During
the barangay conciliation proceedings, Oscar Angeles stated that there was a
writtensosyo industrial agreement: capital would come from the Angeles spouses
while the profit would be divided evenly between Mercado and the Angeles spouses. 9
The Ruling of the Provincial Prosecution Office
On 3 January 1997, the Provincial Prosecution Office issued a resolution
recommending the filing of criminal information for estafa against Mercado. This
resolution, however, was issued without Mercados counter-affidavit.

Meanwhile, Mercado filed his counter-affidavit on 2 January 1997. On receiving the 3

January 1997 resolution, Mercado moved for its reconsideration. Hence, on 26
February 1997, the Provincial Prosecution Office issued an amended resolution
dismissing the Angeles spouses complaint for estafa against Mercado.
The Provincial Prosecution Office stated thus:
The subject of the complaint hinges on a partnership gone sour. The partnership was
initially unsaddled [with] problems. Management became the source of
misunderstanding including the accounting of profits, which led to further
misunderstanding until it was revealed that the contract with the orchard owner was
only with the name of the respondent, without the names of the complainants.
The accusation of "estafa" here lacks enough credible evidentiary support to sustain
a prima facie finding.
Premises considered, it is respectfully recommended that the complaint for estafa be
dismissed.
RESPECTFULLY SUBMITTED.10
The Angeles spouses filed a motion for reconsideration, which the Provincial
Prosecution Office denied in a resolution dated 4 August 1997.
The Ruling of the Secretary of Justice
On appeal to the Secretary of Justice, the Angeles spouses emphasized that the
document evidencing the contract of sanglaang-perde with Juana Suazo was
executed in the name of the Mercado spouses, instead of the Angeles spouses. The
Angeles spouses allege that this document alone proves Mercados misappropriation
of theirP210,000.
The Secretary of Justice found otherwise. Thus:
Reviewing the records of the case, we are of the opinion that the indictment of
[Mercado] for the crime of estafa cannot be sustained. [The Angeles spouses] failed
to show sufficient proof that [Mercado] deliberately deceived them in the "sanglaang
perde" transaction. The document alone, which was in the name of [Mercado and his
spouse], failed to convince us that there was deceit or false representation on the
part of [Mercado] that induced the [Angeles spouses] to part with their money.
[Mercado] satisfactorily explained that the [Angeles spouses] do not want to be
revealed as the financiers. Indeed, it is difficult to believe that the [Angeles spouses]
would readily part with their money without holding on to some document to
evidence the receipt of money, or at least to inspect the document involved in the
said transaction. Under the circumstances, we are inclined to believe that [the
Angeles spouses] knew from the very start that the questioned document was not
really in their names.
In addition, we are convinced that a partnership truly existed between the [Angeles
spouses] and [Mercado]. The formation of a partnership was clear from the fact that
they contributed money to a common fund and divided the profits among
themselves. Records would show that [Mercado] was able to make deposits for the
account of the [Angeles spouses]. These deposits represented their share in the

profits of their business venture. Although the [Angeles spouses] deny the existence
of a partnership, they, however, never disputed that the deposits made by [Mercado]
were indeed for their account.
The transcript of notes on the dialogue between the [Angeles spouses] and [Mercado]
during the hearing of their barangay conciliation case reveals that the [Angeles
spouses] acknowledged their joint business ventures with [Mercado] although they
assailed the manner by which [Mercado] conducted the business and handled and
distributed the funds. The veracity of this transcript was not raised in issued [sic] by
[the Angeles spouses]. Although the legal formalities for the formation of a
partnership were not adhered to, the partnership relationship of the [Angeles
spouses] and [Mercado] is evident in this case. Consequently, there is no estafa
where money is delivered by a partner to his co-partner on the latters representation
that the amount shall be applied to the business of their partnership. In case of
misapplication or conversion of the money received, the co-partners liability is civil
in nature (People v. Clarin, 7 Phil. 504)
WHEREFORE, the appeal is hereby DISMISSED.11
Hence, this petition.
Issues
The Angeles spouses ask us to consider the following issues:
1. Whether the Secretary of Justice committed grave abuse of discretion amounting
to lack of jurisdiction in dismissing the appeal of the Angeles spouses;
2. Whether a partnership existed between the Angeles spouses and Mercado even
without any documentary proof to sustain its existence;
3. Assuming that there was a partnership, whether there was misappropriation by
Mercado of the proceeds of the lanzones after the Angeles spouses demanded an
accounting from him of the income at the office of the barangay authorities on 7
September 1996, and Mercado failed to do so and also failed to deliver the proceeds
to the Angeles spouses;
4. Whether the Secretary of Justice should order the filing of the information for
estafa against Mercado.12
The Ruling of the Court
The petition has no merit.
Whether the Secretary of Justice Committed
Grave Abuse of Discretion
An act of a court or tribunal may constitute grave abuse of discretion when the same
is performed in a capricious or whimsical exercise of judgment amounting to lack of
jurisdiction. The abuse of discretion must be so patent and gross as to amount to an
evasion of positive duty, or to a virtual refusal to perform a duty enjoined by law, as

where the power is exercised in an arbitrary and despotic manner because of passion
or personal hostility.13
The Angeles spouses fail to convince us that the Secretary of Justice committed grave
abuse of discretion when he dismissed their appeal. Moreover, the Angeles spouses
committed an error in procedure when they failed to file a motion for reconsideration
of the Secretary of Justices resolution. A previous motion for reconsideration before
the filing of a petition for certiorari is necessary unless: (1) the issue raised is one
purely of law; (2) public interest is involved; (3) there is urgency; (4) a question of
jurisdiction is squarely raised before and decided by the lower court; and (5) the
order is a patent nullity.14 The Angeles spouses failed to show that their case falls
under any of the exceptions. In fact, this present petition for certiorari is dismissible
for this reason alone.
Whether a Partnership Existed
Between Mercado and the Angeles Spouses
The Angeles spouses allege that they had no partnership with Mercado. The Angeles
spouses rely on Articles 1771 to 1773 of the Civil Code, which state that:
Art. 1771. A partnership may be constituted in any form, except where immovable
property or real rights are contributed thereto, in which case a public instrument shall
be necessary.
Art. 1772. Every contract of partnership having a capital of three thousand pesos or
more, in money or property, shall appear in a public instrument, which must be
recorded in the Office of the Securities and Exchange Commission.
Failure to comply with the requirements of the preceding paragraph shall not affect
the liability of the partnership and the members thereof to third persons.
Art. 1773. A contract of partnership is void, whenever immovable property is
contributed thereto, if an inventory of said property is not made, signed by the
parties, and attached to the public instrument.
The Angeles spouses position that there is no partnership because of the lack of a
public instrument indicating the same and a lack of registration with the Securities
and Exchange Commission ("SEC") holds no water. First, the Angeles spouses
contributed money to the partnership and not immovable property. Second, mere
failure to register the contract of partnership with the SEC does not invalidate a
contract that has the essential requisites of a partnership. The purpose of registration
of the contract of partnership is to give notice to third parties. Failure to register the
contract of partnership does not affect the liability of the partnership and of the
partners to third persons. Neither does such failure to register affect the partnerships
juridical personality. A partnership may exist even if the partners do not use the
words "partner" or "partnership."
Indeed, the Angeles spouses admit to facts that prove the existence of a partnership:
a contract showing a sosyo industrial or industrial partnership, contribution of money
and industry to a common fund, and division of profits between the Angeles spouses
and Mercado.

Whether there was

Misappropriation by Mercado
The Secretary of Justice adequately explained the alleged misappropriation by
Mercado: "The document alone, which was in the name of [Mercado and his spouse],
failed to convince us that there was deceit or false representation on the part of
[Mercado] that induced the [Angeles spouses] to part with their money. [Mercado]
satisfactorily explained that the [Angeles spouses] do not want to be revealed as the
financiers."15
Even Branch 26 of the Regional Trial Court of Santa Cruz, Laguna which decided the
civil case for damages, injunction and restraining order filed by the Angeles spouses
against Mercado and Leo Cerayban, stated:
xxx [I]t was the practice to have all the contracts of antichresis of their partnership
secured in [Mercados] name as [the Angeles spouses] are apprehensive that, if they
come out into the open as financiers of said contracts, they might be kidnapped by
the New Peoples Army or their business deals be questioned by the Bureau of
Internal Revenue or worse, their assets and unexplained income be sequestered, as
xxx Oscar Angeles was then working with the government.16
Furthermore, accounting of the proceeds is not a proper subject for the present case.
For these reasons, we hold that the Secretary of Justice did not abuse his discretion in
dismissing the appeal of the Angeles spouses.
WHEREFORE, we AFFIRM the decision of the Secretary of Justice. The present
petition for certiorari is DISMISSED.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Quisumbing, Ynares-Santiago, and Azcuna, JJ., concur.

4.
G.R. No. 109248 July 3, 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. MISA,respondents.

VITUG, J.:
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
partnership 4 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 the right, 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.
SO ORDERED.
Feliciano, Romero, Melo and Francisco, JJ., concur.
5.
G.R. No. 114398 October 24, 1997
CARMEN LIWANAG, petitioner,
vs.
THE HON. COURT OF APPEALS and THE PEOPLE OF THE PHILIPPINES,
represented by the Solicitor General, respondents.

ROMERO, J.:
Petitioner was charged with the crime of estafa before the Regional Trial Court (RTC),
Branch 93, Quezon City, in an information which reads as follows.
That on or between the month of May 19, 1988 and August, 1988 in
Quezon City, Philippines and within the jurisdiction of this Honorable
Court, the said accused, with intent of gain, with unfaithfulness, and
abuse of confidence, did then and there, willfully, unlawfully and
feloniously defraud one ISIDORA ROSALES, in the following manner, to
wit: on the date and in the place aforementioned, said

accusedreceived in trust from the offended party cash money

amounting to P536,650.00, Philippine Currency, with the express
obligation involving the duty to act as complainant's agent in
purchasing local cigarettes (Philip Morris and Marlboro cigarettes), to
resell them to several stores, to give her commission corresponding to
40% of the profits; and to return the aforesaid amount of offended
party, but said accused, far from complying her aforesaid obligation,
and once in possession thereof, misapplied, misappropriated and
converted the same to her personal use and benefit, despite repeated
demands made upon her, accused failed and refused and still fails and
refuses to deliver and/or return the same to the damage and prejudice
of the said ISIDORA ROSALES, in the aforementioned amount and in
such other amount as may be awarded under the provision of the Civil
Code.
CONTRARY TO LAW.
The antecedent facts are as follows:
Petitioner Carmen Liwanag (Liwanag) and a certain Thelma Tabligan went to the
house of complainant Isidora Rosales (Rosales) and asked her to join them in the
business of buying and selling cigarettes. Convinced of the feasibility of the venture,
Rosales readily agreed. Under their agreement, Rosales would give the money
needed to buy the cigarettes while Liwanag and Tabligan would act as her agents,
with a corresponding 40% commission to her if the goods are sold; otherwise the
money would be returned to Rosales. Consequently, Rosales gave several cash
advances to Liwanag and Tabligan amounting to P633,650.00.
During the first two months, Liwanag and Tabligan made periodic visits to Rosales to
report on the progress of the transactions. The visits, however, suddenly stopped,
and all efforts by Rosales to obtain information regarding their business proved futile.
Alarmed by this development and believing that the amounts she advanced were
being misappropriated, Rosales filed a case of estafa against Liwanag.
After trial on the merits, the trial court rendered a decision dated January 9, 1991,
finding Liwanag guilty as charged. The dispositive portion of the decision reads thus:
WHEREFORE, the Court holds, that the prosecution has established the
guilt of the accused, beyond reasonable doubt, and therefore, imposes
upon the accused, Carmen Liwanag, an Indeterminate Penalty of SIX
(6) YEARS, EIGHT (8) MONTHS AND TWENTY ONE (21) DAYS
OF PRISION CORRECCIONAL TO FOURTEEN (14) YEARS AND EIGHT (8)
MONTHS OF PRISION MAYOR AS MAXIMUM, AND TO PAY THE COSTS.
The accused is likewise ordered to reimburse the private complainant
the sum of P526,650.00, without subsidiary imprisonment, in case of
insolvency.
SO ORDERED.
Said decision was affirmed with modification by the Court of Appeals in a decision
dated November 29, 1993, the decretal portion of which reads:

WHEREFORE, in view of the foregoing, the judgment appealed from is

hereby affirmed with the correction of the nomenclature of the penalty
which should be: SIX (6) YEARS, EIGHT (8) MONTHS and TWENTY ONE
(21) DAYS of prision mayor, as minimum, to FOURTEEN (14) YEARS and
EIGHT (8) MONTHS of reclusion temporal, as maximum. In all other
respects, the decision is AFFIRMED.
SO ORDERED.
Her motion for reconsideration having been denied in the resolution of March 16,
1994, Liwanag filed the instant petition, submitting the following assignment of
errors:
1. RESPONDENT APPELLATE COURT GRAVELY ERRED IN THE AFFIRMING
THE CONVICTION OF THE ACCUSED-PETITIONER FOR THE CRIME OF
ESTAFA, WHEN CLEARLY THE CONTRACT THAT EXIST (sic) BETWEEN
THE ACCUSED-PETITIONER AND COMPLAINANT IS EITHER THAT OF A
SIMPLE LOAN OR THAT OF A PARTNERSHIP OR JOINT VENTURE HENCE
THE NON RETURN OF THE MONEY OF THE COMPLAINANT IS PURELY
CIVIL IN NATURE AND NOT CRIMINAL.
2. RESPONDENT APPELLATE COURT GRAVELY ERRED IN NOT
ACQUITTING THE ACCUSED-PETITIONER ON GROUNDS OF REASONABLE
DOUBT BY APPLYING THE "EQUIPOISE RULE".
Liwanag advances the theory that the intention of the parties was to enter into a
contract of partnership, wherein Rosales would contribute the funds while she would
buy and sell the cigarettes, and later divide the profits between
them. 1 She also argues that the transaction can also be interpreted as a simple loan,
with Rosales lending to her the amount stated on an installment basis. 2
The Court of Appeals correctly rejected these pretenses.
While factual findings of the Court of Appeals are conclusive on the parties and not
reviewable by the Supreme Court, and carry more weight when these affirm the
factual findings of the trial court, 3 we deem it more expedient to resolve the instant
petition on its merits.
Estafa is a crime committed by a person who defrauds another causing him to suffer
damages, by means of unfaithfulness or abuse of confidence, or of false pretenses of
fraudulent acts. 4
From the foregoing, the elements of estafa are present, as follows: (1) that the
accused defrauded another by abuse of confidence or deceit; and (2) that damage or
prejudice capable of pecuniary estimation is caused to the offended party or third
party, 5 and it is essential that there be a fiduciary relation between them either in
the form of a trust, commission or administration. 6
The receipt signed by Liwanag states thus:
May 19, 1988 Quezon City

Received from Mrs. Isidora P. Rosales the sum of FIVE HUNDRED

TWENTY SIX THOUSAND AND SIX HUNDRED FIFTY PESOS
(P526,650.00) Philippine Currency, to purchase cigarrets (sic) (Philip &
Marlboro) to be sold to customers. In the event the said cigarrets (sic)
are not sold, the proceeds of the sale or the said products (shall) be
returned to said Mrs. Isidora P. Rosales the said amount of P526,650.00
or the said items on or before August 30, 1988.

(SGD & Thumbedmarked) (sic)

CARMEN LIWANAG
26 H. Kaliraya St.
Quezon City
Signed in the presence of:
(Sgd) Illegible (Sgd) Doming Z. Baligad
The language of the receipt could not be any clearer. It indicates that the money
delivered to Liwanag was for a specific purpose, that is, for the purchase of
cigarettes, and in the event the cigarettes cannot be sold, the money must be
returned to Rosales.
Thus, even assuming that a contract of partnership was indeed entered into by and
between the parties, we have ruled that when money or property have been received
by a partner for a specific purpose (such as that obtaining
in the instant case) and he later misappropriated it, such partner is guilty of estafa. 7
Neither can the transaction be considered a loan, since in a contract of loan once the
money is received by the debtor, ownership over the same is transferred. 8 Being the
owner, the borrower can dispose of it for whatever purpose he may deem proper.
In the instant petition, however, it is evident that Liwanag could not dispose of the
money as she pleased because it was only delivered to her for a single purpose,
namely, for the purchase of cigarettes, and if this was not possible then to return the
money to Rosales. Since in this case there was no transfer of ownership of the money
delivered, Liwanag is liable for conversion under Art. 315, par. l(b) of the Revised
Penal Code.
WHEREFORE, in view of the foregoing, the appealed decision of the Court of Appeals
dated November 29, 1993, is AFFIRMED. Costs against petitioner.
SO ORDERED.
Melo, Francisco and Panganiban, JJ., concur.
Narvasa, C.J., is on leave.

6.
G.R. No. L-59956 October 31, 1984
ISABELO MORAN, JR., petitioner,
vs.
THE HON. COURT OF APPEALS and MARIANO E. PECSON, respondents.

GUTIERREZ, JR., J.:+.wph!1

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: t.hqw
PREMISES CONSIDERED, the decision appealed from is hereby SET
ASIDE, and a new one is hereby rendered, ordering defendantappellant 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:
I
THE 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.
II
THE 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.
III
THE 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.
IV
ASSUMING 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.
V
THE 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: t.hqw
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: t.
hqw
(a) P 7,000 the amount of the PNB
check given by Pecson to Moran
representing Pecson's investment in
Moran's other project (the publication and
printing of the 'Voice of the Veterans');
(b) P10,000 to cover the return of
Pecson's contribution in the project of the
Posters;
(c) P3,000 representing Pecson's
commission for three months (April, May,
June, 1971).
Of said P20,000 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, inCarolina 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.t.hqw
(T.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 onehalf (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. . .
Court t.hqw
Mark it 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.
SO ORDERED.1wph1.t
Teehankee (Chairman), Melencio-Herrera, Plana and Relova, JJ., concur.
De la Fuente J., took no part.

7. Walang full case akong makita sa net.

CATALAN vs. GATCHALIAN
105 Phil 1270, G.R. No. L-11648, April 22, 1959
FACTS:
Catalan and Gatchalian are partners. They mortgaged two lots to Dr. Maravetogether
with the improvements thereon to secure a credit from the latter. Thepartnership
failed to pay the obligation. The properties were sold to Dr. Marave at apublic
auction. Catalan redeemed the property and he contends that title should
becancelled and a new one must be issued in his name.
ISSUE:
Did Catalans redemp
tion of the properties make him the absolute owner of thelands?
HELD:
No. Under Article 1807 of the NCC every partner becomes a trustee for hiscopartner
with regard to any benefits or profits derived from his act as a partner.Consequently,
when Catalan redeemed the properties in question, he became a trusteeand held the
same in trust for his copartner Gatchalian, subject to his right to demandfrom the
latter his contribution to the amount of redemption.

8.
G.R. No. L-22493 July 31, 1975
ISLAND SALES, INC., plaintiff-appellee,
vs.
UNITED PIONEERS GENERAL CONSTRUCTION COMPANY, ET. AL defendants.
BENJAMIN C. DACO,defendant-appellant.
Grey, Buenaventura and Santiago for plaintiff-appellee.
Anacleto D. Badoy, Jr. for defendant-appellant.

CONCEPCION JR., J.:

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-parte 3 , 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. 4Hence, 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.
WHEREFORE, the appealed decision as thus clarified is hereby AFFIRMED, without
pronouncement as to costs.
SO ORDERED.
Makalintal, C.J., Fernando (Chairman), Barredo and Aquino, JJ., concur.

9.
G.R. No. L-39780 November 11, 1985
ELMO MUASQUE, petitioner,
vs.
COURT OF APPEALS,CELESTINO GALAN TROPICAL COMMERCIAL COMPANY
and RAMON PONS,respondents.
John T. Borromeo for petitioner.
Juan D. Astete for respondent C. Galan.
Paul Gornes for respondent R. Pons.
Viu Montecillo for respondent Tropical.
Paterno P. Natinga for Intervenor Blue Diamond Glass Palace.

GUTTIERREZ, JR., J.:

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 and defendant 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,
SO ORDERED.
Teehankee (Chairman), Melencio-Herrera, De la Fuente and Patajo, JJ., concur.
Plana, J., took no part.
Relova, J., is on leave.

10.
G.R. No. L-11840

July 26, 1960

ANTONIO C. GOQUIOLAY and THE PARTNERSHIP "TAN SIN AN and ANTONIO

C. GOQUIOLAY, plaintiffs-appellants,
vs.
WASHINGTON Z. SYCIP, ET AL., defendants-appellees.
Jose C. Colayco, Manuel O. Chan and Padilla Law Offices for appellants.
Sycip, Quisumbing, Salazar and Associates for appellees.
REYES, J. B. L., J.:
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 CoPartnership).
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 copartnership (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 copartnership 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 Royvs. 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:
367. Primera hipotesis. A falta de pactos 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 Codigo no ofrece un sistema eficaz que evite los
inconvenientes. Pero, ante el silencio del contrato, debia quiza el legislador
privar de la administracion 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 administracion, que es
asunto d todos los dias y de todas horas. Hubieran sido disposiciones menos
oportunas que lo adoptado por el Codigo, el cual se confia al espiritu de
reciproca confianza que deberia animar la colaboracion de los socios, y en la
ley inflexible de responsabilidad que implica comunidad en los intereses de
los mismos.
En esta hipotesis, 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 administracion en la totalidad de sus relaciones, salvo su

responsabilidad en el caso de una administracion 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 oposicion de cada uno de los socios puede quedar
frustrado. Pero se puede contestar que este derecho de oposicion concedido
por la ley como un remedio excepcional, debe subordinarse al derecho de
ejercer el oficio de Administrador, que el Codigo concede sin limite: "se
presume que los socios se han concedido reciprocamente la facultad de
administrar uno para otro." Se haria precipitar esta hipotesis en la otra de una
administracion colectiva (art. 1,721, Codigo Civil) y se acabaria con pedir el
consentimiento, a lo menos tacito, de todos los socios lo que el Codigo
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.
Commenting on the same subject, Gay de Montella (Codigo de Comercio, Tomo II,
147-148) opines:
Para obligar a las Compaias enfrente de terceros (art. 128 del Codigo), 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 se que toda obligacion contraida
bajo la razon social, se presume contraida por la Compaia. Esta presunion 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 razon social una obligacion que no interesa a la
Sociedad, este podra rechazar la accion del tercero probando que el acreedor
conocia que la obligacion no tenia ninguna relacion con ella. Si tales actos y
contratos no comportasen la concurrencia de ambos elementos, seria 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 designacion de uno o mas de un socio para
administrar la Compaia (art. 129 del Codigo) todos tienen por un igual el
derecho de concurir a la decision y manejo de los negocios comunes. . . .
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

December 10, 1963

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 (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:

Cash paid

P37,000.0
0

Debts assumed by purchase:

To Yutivo

62,415.9
1

To Sing Yee Cuan & Co.

54,310.1
3

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:
(a) That we are dealing here with the transfer of partnership property by one partner,
acting in behalf of the firm, to astranger. 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 sellingreal 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 itand 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 Youngwe 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 stockin-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 porel 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.
Labrador, Paredes, and Makalintal, JJ., concur.

11.
Tiosejo Investment v. Ang
PEREZ, J.:

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 Meditel on the formers 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 executed Contract 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 ofP26,400.00
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
attorneys 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 attorneys 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, attorneys 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) attorneys 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]

Elevated to the HLURB Board of Commissioners via the petition for review

filed by petitioner,[16] the foregoing decision was modified to grant the latters crossclaim in the 14 September 2004 decision rendered by said administrative bodys
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:
1. 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:
a.

The amount of P611,519.52, with interest

at the legal rate reckoned from February 5,
1997 until fully paid;
b.
Damages of P75,000.00;
c.
Attorneys fees equivalent to P30,000.00;
and
d.
The Cost of suit;
2. 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
3. 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 petitioners 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 petitioners
appeal on the ground that the latters 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 formers 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]

Petitioners motion for reconsideration of the foregoing resolution [36] was

denied for lack of merit in the CAs 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:

I. THE COURT OF APPEALS ERRED IN DISMISSING THE PETITION

ON MERE TECHNICALITY;
II. THE COURT OF APPEALS ERRED IN REFUSING TO RESOLVE
THE PETITION ON THE MERITS THEREBY AFFIRMING THE
OFFICE OF THE PRESIDENTS DECISION (A) DISMISSING
JTICS APPEAL ON A MERE TECHNICALITY; (B) AFFIRMING
THE HLURB BOARDS DECISION INSOFAR AS IT FOUND
JTIC SOLIDARILY LIABLE WITH PRIMETOWN TO PAY
SPOUSES ANG DAMAGES, ATTORNEYS FEES AND THE
COST OF THE SUIT; AND (C) AFFIRMING THE HLURB
BOARDS DECISION INSOFAR AS IT FAILED TO AWARD JITC
ITS COUNTERCLAIMS AGAINST SPOUSES ANG.[38]

The Courts 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 petitioners 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, petitioners 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
Procedureagainst further extensions except for the most compelling reason, it was
clearly inexcusable for petitioner to expediently plead its counsels 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 Condominium Project, 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 copartners.[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.

SO ORDERED.