COMMISSIONER OF INTERNAL REVENUE, petitioner, vs.
BURROUGHS LIMITED Branch profit remittance
AND THE COURT OF TAX
APPEALS, respondents.
Petition for certiorari to review and set aside the Decision dated June 27, 1983 of
respondent Court of Tax Appeals in its C.T.A. Case No. 3204, entitled "Burroughs
Limited vs. Commissioner of Internal Revenue" which ordered petitioner
Commissioner of Internal Revenue to grant in favor of private respondent
Burroughs Limited, tax credit in the sum of P172,058.90, representing erroneously
overpaid branch profit remittance tax.
Burroughs Limited is a foreign corporation authorized to engage in trade or
business in the Philippines through a branch office located at De la Rosa corner
Esteban Streets, Legaspi Village, Makati, Metro Manila.
Sometime in March 1979, said branch office applied with the Central Bank for
authority to remit to its parent company abroad, branch profit amounting to
P7,647,058.00. Thus, on March 14, 1979, it paid the 15% branch profit remittance
tax, pursuant to Sec. 24 (b) (2) (ii) and remitted to its head office the amount of
P6,499,999.30 computed as follows:
Amount applied for remittance................................ P7,647,058.00
Deduct: 15% branch profit
remittance tax ..............................................1,147,058.70
Net amount actually remitted.................................. P6,499,999.30
Claiming that the 15% profit remittance tax should have been computed on the
basis of the amount actually remitted (P6,499,999.30) and not on the amount
before profit remittance tax (P7,647,058.00), private respondent filed on
December 24, 1980, a written claim for the refund or tax credit of the amount of
P172,058.90 representing alleged overpaid branch profit remittance tax, computed
as follows:
Profits actually remitted .........................................P6,499,999.30
Remittance tax rate .......................................................15%
Branch profit remittance tax-
due thereon ......................................................P 974,999.89
tax paid .............................................................Pl,147,058.70
Less: Branch profit remittance
tax as above computed................................................. 974,999.89
Total amount refundable........................................... P172,058.81
On February 24, 1981, private respondent filed with respondent court, a petition
for review, docketed as C.T.A. Case No. 3204 for the recovery of the above-
mentioned amount of P172,058.81.
On June 27, 1983, respondent court rendered its Decision, the dispositive portion
of which reads
ACCORDINGLY, respondent Commission of Internal Revenue is hereby ordered to
grant a tax credit in favor of petitioner Burroughs Limited the amount of P
172,058.90. Without pronouncement as to costs.
SO ORDERED.
Unable to obtain a reconsideration from the aforesaid decision, petitioner filed the
instant petition before this Court with the prayers as herein earlier stated upon the
sole issue of whether the tax base upon which the 15% branch profit remittance
tax shall be imposed under the provisions of section 24(b) of the Tax Code, as
amended, is the amount applied for remittance on the profit actually remitted
after deducting the 15% profit remittance tax. Stated differently is private
respondent Burroughs Limited legally entitled to a refund of the aforementioned
amount of P172,058.90.
We rule in the affirmative. The pertinent provision of the National Revenue Code is
Sec. 24 (b) (2) (ii) which states:
Sec. 24. Rates of tax on corporations....
(b) Tax on foreign corporations. ...
(2) (ii) Tax on branch profits remittances. Any profit remitted abroad by a branch to
its head office shall be subject to a tax of fifteen per cent (15 %) ...
In a Bureau of Internal Revenue ruling dated January 21, 1980 by then Acting
Commissioner of Internal Revenue Hon. Efren I. Plana the aforequoted provision
had been interpreted to mean that "the tax base upon which the 15% branch profit
remittance tax ... shall be imposed...(is) the profit actually remitted abroad and not
on the total branch profits out of which the remittance is to be made. " The said
ruling is hereinbelow quoted as follows:
In reply to your letter of November 3, 1978, relative to your query as to the tax
base upon which the 15% branch profits remittance tax provided for under Section
24 (b) (2) of the 1977 Tax Code shall be imposed, please be advised that the 15%
branch profit tax shall be imposed on the branch profits actually remitted abroad
and not on the total branch profits out of which the remittance is to be made.
Please be guided accordingly.
Applying, therefore, the aforequoted ruling, the claim of private respondent that it
made an overpayment in the amount of P172,058.90 which is the difference
between the remittance tax actually paid of Pl,147,058.70 and the remittance tax
that should have been paid of P974,999,89, computed as follows
Profits actually remitted......................................... P6,499,999.30
Remittance tax rate.............................................................. 15%
Remittance tax due................................................... P974,999.89
is well-taken. As correctly held by respondent Court in its assailed decision-
Respondent concedes at least that in his ruling dated January 21, 1980 he held that
under Section 24 (b) (2) of the Tax Code the 15% branch profit remittance tax shall
be imposed on the profit actually remitted abroad and not on the total branch
profit out of which the remittance is to be made. Based on such ruling petitioner
should have paid only the amount of P974,999.89 in remittance tax computed by
taking the 15% of the profits of P6,499,999.89 in remittance tax actually remitted
to its head office in the United States, instead of Pl,147,058.70, on its net profits of
P7,647,058.00. Undoubtedly, petitioner has overpaid its branch profit remittance
tax in the amount of P172,058.90.
Petitioner contends that respondent is no longer entitled to a refund because
Memorandum Circular No. 8-82 dated March 17, 1982 had revoked and/or
repealed the BIR ruling of January 21, 1980. The said memorandum circular
states
Considering that the 15% branch profit remittance tax is imposed and collected at
source, necessarily the tax base should be the amount actually applied for by the
branch with the Central Bank of the Philippines as profit to be remitted abroad.
Petitioner's aforesaid contention is without merit. What is applicable in the case at
bar is still the Revenue Ruling of January 21, 1980 because private respondent
Burroughs Limited paid the branch profit remittance tax in question on March 14,
1979. Memorandum Circular No. 8-82 dated March 17, 1982 cannot be given
retroactive effect in the light of Section 327 of the National Internal Revenue Code
which provides-
Sec. 327. Non-retroactivity of rulings. Any revocation, modification, or reversal of
any of the rules and regulations promulgated in accordance with the preceding
section or any of the rulings or circulars promulgated by the Commissioner shag
not be given retroactive application if the revocation, modification, or reversal will
be prejudicial to the taxpayer except in the following cases (a) where the taxpayer
deliberately misstates or omits material facts from his return or in any document
required of him by the Bureau of Internal Revenue; (b) where the facts
subsequently gathered by the Bureau of Internal Revenue are materially different
from the facts on which the ruling is based, or (c) where the taxpayer acted in bad
faith. (ABS-CBN Broadcasting Corp. v. CTA, 108 SCRA 151-152)
The prejudice that would result to private respondent Burroughs Limited by a
retroactive application of Memorandum Circular No. 8-82 is beyond question for it
would be deprived of the substantial amount of P172,058.90. And, insofar as the
enumerated exceptions are concerned, admittedly, Burroughs Limited does not fall
under any of them.
WHEREFORE, the assailed decision of respondent Court of Tax Appeals is hereby
AFFIRMED. No pronouncement as to costs.
SO ORDERED.
CHARLES F. WOODHOUSE, plaintiff-appellant, vs.FORTUNATO F. HALILI,
defendant-appellant.
On November 29, 1947, the plaintiff entered on a written agreement, Exhibit A,
with the defendant, the most important provisions of which are (1) that they shall
organize a partnership for the bottling and distribution of Mision soft drinks,
plaintiff to act as industrial partner or manager, and the defendant as a capitalist,
furnishing the capital necessary therefor; (2) that the defendant was to decide
matters of general policy regarding the business, while the plaintiff was to attend
to the operation and development of the bottling plant; (3) that the plaintiff was to
secure the Mission Soft Drinks franchise for and in behalf of the proposed
partnership; and (4) that the plaintiff was to receive 30 per cent of the net profits
of the business. The above agreement was arrived at after various conferences and
consultations by and between them, with the assistance of their respective
attorneys. Prior to entering into this agreement, plaintiff had informed the Mission
Dry Corporation of Los Angeles, California, U.S.A., manufacturers of the bases and
ingridients of the beverages bearing its name, that he had interested a prominent
financier (defendant herein) in the business, who was willing to invest half a million
dollars in the bottling and distribution of the said beverages, and requested, in
order that he may close the deal with him, that the right to bottle and distribute be
granted him for a limited time under the condition that it will finally be transferred
to the corporation (Exhibit H). Pursuant for this request, plaintiff was given "a
thirty-days" option on exclusive bottling and distribution rights for the Philippines"
(Exhibit J). Formal negotiations between plaintiff and defendant began at a meeting
on November 27, 1947, at the Manila Hotel, with their lawyers attending. Before
this meeting plaintiff's lawyer had prepared the draft of the agreement, Exhibit II or
OO, but this was not satisfactory because a partnership, instead of a corporation,
was desired. Defendant's lawyer prepared after the meeting his own draft, Exhibit
HH. This last draft appears to be the main basis of the agreement, Exhibit A.
The contract was finally signed by plaintiff on December 3, 1947. Plaintiff did not
like to go to the United States without the agreement being not first signed. On
that day plaintiff and defendant went to the United States, and on December 10,
1947, a franchise agreement (Exhibit V) was entered into the Mission Dry
Corporation and Fortunato F. Halili and/or Charles F. Woodhouse, granted
defendant the exclusive right, license, and authority to produce, bottle, distribute,
and sell Mision beverages in the Philippines. The plaintiff and the defendant
thereafter returned to the Philippines. Plaintiff reported for duty in January, 1948,
but operations were not begun until the first week of February, 1948. In January
plaintiff was given as advance, on account of profits, the sum of P2,000, besides the
use of a car; in February, 1948, also P2,000, and in March only P1,000. The car was
withdrawn from plaintiff on March 9, 1948.
When the bottling plant was already on operation, plaintiff demanded of
defendant that the partnership papers be executed. At first defendant executed
himself, saying there was no hurry. Then he promised to do so after the sales of the
product had been increased to P50,000. As nothing definite was forthcoming, after
this condition was attained, and as defendant refused to give further allowances to
plaintiff, the latter caused his attorneys to take up the matter with the defendant
with a view to a possible settlement. as none could be arrived at, the present
action was instituted.
In his complaint plaintiff asks for the execution of the contract of partnership, an
accounting of the profits, and a share thereof of 30 per cent, as well as damages in
the amount of P200,000. In his answer defendant alleges by way of defense (1) that
defendant's consent to the agreement, Exhibit A, was secured by the
representation of plaintiff that he was the owner, or was about to become owner
of an exclusive bottling franchise, which representation was false, and plaintiff did
not secure the franchise, but was given to defendant himself; (2) that defendant
did not fail to carry out his undertakings, but that it was plaintiff who failed; (3) that
plaintiff agreed to contribute the exclusive franchise to the partnership, but
plaintiff failed to do so. He also presented a counter-claim for P200,000 as
damages. On these issues the parties went to trial, and thereafter the Court of First
Instance rendered judgment ordering defendant to render an accounting of the
profits of the bottling and distribution business, subject of the action, and to pay
plaintiff 15 percent thereof. it held that the execution of the contract of
partnership could not be enforced upon the parties, but it also held that the
defense of fraud was not proved. Against this judgment both parties have
appealed.
The most important question of fact to be determined is whether defendant had
falsely represented that he had an exclusive franchise to bottle Mission beverages,
and whether this false representation or fraud, if it existed, annuls the agreement
to form the partnership. The trial court found that it is improbable that defendant
was never shown the letter, Exhibit J, granting plaintiff had; that the drafts of the
contract prior to the final one can not be considered for the purpose of
determining the issue, as they are presumed to have been already integrated into
the final agreement; that fraud is never presumed and must be proved; that the
parties were represented by attorneys, and that if any party thereto got the worse
part of the bargain, this fact alone would not invalidate the agreement. On this
appeal the defendant, as appellant, insists that plaintiff did represent to the
defendant that he had an exclusive franchise, when as a matter of fact, at the time
of its execution, he no longer had it as the same had expired, and that, therefore,
the consent of the defendant to the contract was vitiated by fraud and it is,
consequently, null and void.
Our study of the record and a consideration of all the surrounding circumstances
lead us to believe that defendant's contention is not without merit. Plaintiff's
attorney, Mr. Laurea, testified that Woodhouse presented himself as being the
exclusive grantee of a franchise, thus:
A. I don't recall any discussion about that matter. I took along with me the file of
the office with regards to this matter. I notice from the first draft of the document
which I prepared which calls for the organization of a corporation, that the
manager, that is, Mr. Woodhouse, is represented as being the exclusive grantee of
a franchise from the Mission Dry Corporation. . . . (t.s.n., p.518)
As a matter of fact, the first draft that Mr. Laurea prepared, which was made
before the Manila Hotel conference on November 27th, expressly states that
plaintiff had the exclusive franchise. Thus, the first paragraph states:
Whereas, the manager is the exclusive grantee of a franchise from the Mission Dry
Corporation San Francisco, California, for the bottling of Mission products and their
sale to the public throughout the Philippines; . . . .
3. The manager, upon the organization of the said corporation, shall forthwith
transfer to the said corporation his exclusive right to bottle Mission products and to
sell them throughout the Philippines. . . . .
(Exhibit II; emphasis ours)
The trial court did not consider this draft on the principle of integration of jural
acts. We find that the principle invoked is inapplicable, since the purpose of
considering the prior draft is not to vary, alter, or modify the agreement, but to
discover the intent of the parties thereto and the circumstances surrounding the
execution of the contract. The issue of fact is: Did plaintiff represent to defendant
that he had an exclusive franchise? Certainly, his acts or statements prior to the
agreement are essential and relevant to the determination of said issue. The act or
statement of the plaintiff was not sought to be introduced to change or alter the
terms of the agreement, but to prove how he induced the defendant to enter into
it to prove the representations or inducements, or fraud, with which or by which
he secured the other party's consent thereto. These are expressly excluded from
the parol evidence rule. (Bough and Bough vs. Cantiveros and Hanopol, 40 Phil.,
209; port Banga Lumber Co. vs. Export & Import Lumber Co., 26 Phil., 602; III
Moran 221,1952 rev. ed.) Fraud and false representation are an incident to the
creation of a jural act, not to its integration, and are not governed by the rules on
integration. Were parties prohibited from proving said representations or
inducements, on the ground that the agreement had already been entered into, it
would be impossible to prove misrepresentation or fraud. Furthermore, the parol
evidence rule expressly allows the evidence to be introduced when the validity of
an instrument is put in issue by the pleadings (section 22, par. (a), Rule 123, Rules
of Court),as in this case.
That plaintiff did make the representation can also be easily gleaned from his own
letters and his own testimony. In his letter to Mission Dry Corporation, Exhibit H, he
said:.
. . . He told me to come back to him when I was able to speak with authority so that
we could come to terms as far as he and I were concerned. That is the reason why
the cable was sent. Without this authority, I am in a poor bargaining position. . .
I would propose that you grant me the exclusive bottling and distributing rights for
a limited period of time, during which I may consummate my plants. . . .
By virtue of this letter the option on exclusive bottling was given to the plaintiff on
October 14, 1947. (See Exhibit J.) If this option for an exclusive franchise was
intended by plaintiff as an instrument with which to bargain with defendant and
close the deal with him, he must have used his said option for the above-indicated
purpose, especially as it appears that he was able to secure, through its use, what
he wanted.
Plaintiff's own version of the preliminary conversation he had with defendant is to
the effect that when plaintiff called on the latter, the latter answered, "Well, come
back to me when you have the authority to operate. I am definitely interested in
the bottling business." (t. s. n., pp. 60-61.) When after the elections of 1949
plaintiff went to see the defendant (and at that time he had already the option), he
must have exultantly told defendant that he had the authority already. It is
improbable and incredible for him to have disclosed the fact that he had only an
option to the exclusive franchise, which was to last thirty days only, and still more
improbable for him to have disclosed that, at the time of the signing of the formal
agreement, his option had already expired. Had he done so, he would have
destroyed all his bargaining power and authority, and in all probability lost the deal
itself.
The trial court reasoned, and the plaintiff on this appeal argues, that plaintiff only
undertook in the agreement "to secure the Mission Dry franchise for and in behalf
of the proposed partnership." The existence of this provision in the final agreement
does not militate against plaintiff having represented that he had the exclusive
franchise; it rather strengthens belief that he did actually make the representation.
How could plaintiff assure defendant that he would get the franchise for the latter
if he had not actually obtained it for himself? Defendant would not have gone into
the business unless the franchise was raised in his name, or at least in the name of
the partnership. Plaintiff assured defendant he could get the franchise. Thus, in the
draft prepared by defendant's attorney, Exhibit HH, the above provision is inserted,
with the difference that instead of securing the franchise for the defendant,
plaintiff was to secure it for the partnership. To show that the insertion of the
above provision does not eliminate the probability of plaintiff representing himself
as the exclusive grantee of the franchise, the final agreement contains in its third
paragraph the following:
. . . and the manager is ready and willing to allow the capitalists to use the exclusive
franchise . . .

and in paragraph 11 it also expressly states:
1. In the event of the dissolution or termination of the partnership, . . . the
franchise from Mission Dry Corporation shall be reassigned to the manager.
These statements confirm the conclusion that defendant believed, or was made to
believe, that plaintiff was the grantee of an exclusive franchise. Thus it is that it was
also agreed upon that the franchise was to be transferred to the name of the
partnership, and that, upon its dissolution or termination, the same shall be
reassigned to the plaintiff.
Again, the immediate reaction of defendant, when in California he learned that
plaintiff did not have the exclusive franchise, was to reduce, as he himself testified,
plaintiff's participation in the net profits to one half of that agreed upon. He could
not have had such a feeling had not plaintiff actually made him believe that he
(plaintiff) was the exclusive grantee of the franchise.
The learned trial judge reasons in his decision that the assistance of counsel in the
making of the contract made fraud improbable. Not necessarily, because the
alleged representation took place before the conferences were had, in other
words, plaintiff had already represented to defendant, and the latter had already
believed in, the existence of plaintiff's exclusive franchise before the formal
negotiations, and they were assisted by their lawyers only when said formal
negotiations actually took place. Furthermore, plaintiff's attorney testified that
plaintiff had said that he had the exclusive franchise; and defendant's lawyer
testified that plaintiff explained to him, upon being asked for the franchise, that he
had left the papers evidencing it.(t.s.n., p. 266.)
We conclude from all the foregoing that plaintiff did actually represent to
defendant that he was the holder of the exclusive franchise. The defendant was
made to believe, and he actually believed, that plaintiff had the exclusive franchise.
Defendant would not perhaps have gone to California and incurred expenses for
the trip, unless he believed that plaintiff did have that exclusive privilege, and that
the latter would be able to get the same from the Mission Dry Corporation itself.
Plaintiff knew what defendant believed about his (plaintiff's) exclusive franchise, as
he induced him to that belief, and he may not be allowed to deny that defendant
was induced by that belief. (IX Wigmore, sec. 2423; Sec. 65, Rule 123, Rules of
Court.)
We now come to the legal aspect of the false representation. Does it amount to a
fraud that would vitiate the contract? It must be noted that fraud is manifested in
illimitable number of degrees or gradations, from the innocent praises of a
salesman about the excellence of his wares to those malicious machinations and
representations that the law punishes as a crime. In consequence, article 1270 of
the Spanish Civil Code distinguishes two kinds of (civil) fraud, the causal fraud,
which may be a ground for the annulment of a contract, and the incidental deceit,
which only renders the party who employs it liable for damages. This Court had
held that in order that fraud may vitiate consent, it must be the causal (dolo
causante), not merely the incidental (dolo causante), inducement to the making of
the contract. (Article 1270, Spanish Civil Code; Hill vs. Veloso, 31 Phil. 160.) The
record abounds with circumstances indicative that the fact that the principal
consideration, the main cause that induced defendant to enter into the partnership
agreement with plaintiff, was the ability of plaintiff to get the exclusive franchise to
bottle and distribute for the defendant or for the partnership. The original draft
prepared by defendant's counsel was to the effect that plaintiff obligated himself
to secure a franchise for the defendant. Correction appears in this same original
draft, but the change is made not as to the said obligation but as to the grantee. In
the corrected draft the word "capitalist"(grantee) is changed to "partnership." The
contract in its final form retains the substituted term "partnership." The defendant
was, therefore, led to the belief that plaintiff had the exclusive franchise, but that
the same was to be secured for or transferred to the partnership. The plaintiff no
longer had the exclusive franchise, or the option thereto, at the time the contract
was perfected. But while he had already lost his option thereto (when the contract
was entered into), the principal obligation that he assumed or undertook was to
secure said franchise for the partnership, as the bottler and distributor for the
Mission Dry Corporation. We declare, therefore, that if he was guilty of a false
representation, this was not the causal consideration, or the principal inducement,
that led plaintiff to enter into the partnership agreement.
But, on the other hand, this supposed ownership of an exclusive franchise was
actually the consideration or price plaintiff gave in exchange for the share of 30
percent granted him in the net profits of the partnership business. Defendant
agreed to give plaintiff 30 per cent share in the net profits because he was
transferring his exclusive franchise to the partnership. Thus, in the draft prepared
by plaintiff's lawyer, Exhibit II, the following provision exists:

3. That the MANAGER, upon the organization of the said corporation, shall
forthwith transfer to the said corporation his exclusive right to bottle Mission
products and to sell them throughout the Philippines. As a consideration for such
transfer, the CAPITALIST shall transfer to the Manager fully paid non assessable
shares of the said corporation . . . twenty-five per centum of the capital stock of the
said corporation. (Par. 3, Exhibit II; emphasis ours.)
Plaintiff had never been a bottler or a chemist; he never had experience in the
production or distribution of beverages. As a matter of fact, when the bottling
plant being built, all that he suggested was about the toilet facilities for the
laborers.
We conclude from the above that while the representation that plaintiff had the
exclusive franchise did not vitiate defendant's consent to the contract, it was used
by plaintiff to get from defendant a share of 30 per cent of the net profits; in other
words, by pretending that he had the exclusive franchise and promising to transfer
it to defendant, he obtained the consent of the latter to give him (plaintiff) a big
slice in the net profits. This is the dolo incidente defined in article 1270 of the
Spanish Civil Code, because it was used to get the other party's consent to a big
share in the profits, an incidental matter in the agreement.
El dolo incidental no es el que puede producirse en el cumplimiento del contrato
sino que significa aqui, el que concurriendoen el consentimiento, o precediendolo,
no influyo para arrancar porsi solo el consentimiento ni en la totalidad de la
obligacion, sinoen algun extremo o accidente de esta, dando lugar tan solo a una
accion para reclamar indemnizacion de perjuicios. (8 Manresa 602.)
Having arrived at the conclusion that the agreement may not be declared null and
void, the question that next comes before us is, May the agreement be carried out
or executed? We find no merit in the claim of plaintiff that the partnership was
already a fait accompli from the time of the operation of the plant, as it is evident
from the very language of the agreement that the parties intended that the
execution of the agreement to form a partnership was to be carried out at a later
date. They expressly agreed that they shall form a partnership. (Par. No. 1, Exhibit
A.) As a matter of fact, from the time that the franchise from the Mission Dry
Corporation was obtained in California, plaintiff himself had been demanding that
defendant comply with the agreement. And plaintiff's present action seeks the
enforcement of this agreement. Plaintiff's claim, therefore, is both inconsistent
with their intention and incompatible with his own conduct and suit.
As the trial court correctly concluded, the defendant may not be compelled against
his will to carry out the agreement nor execute the partnership papers. Under the
Spanish Civil Code, the defendant has an obligation to do, not to give. The law
recognizes the individual's freedom or liberty to do an act he has promised to do,
or not to do it, as he pleases. It falls within what Spanish commentators call a very
personal act (acto personalismo), of which courts may not compel compliance, as it
is considered an act of violence to do so.
Efectos de las obligaciones consistentes en hechos personalismo.Tratamos de la
ejecucion de las obligaciones de hacer en el solocaso de su incumplimiento por
parte del deudor, ya sean los hechos personalisimos, ya se hallen en la facultad de
un tercero; porque el complimiento espontaneo de las mismas esta regido por los
preceptos relativos al pago, y en nada les afectan las disposiciones del art. 1.098.
Esto supuesto, la primera dificultad del asunto consiste en resolver si el deudor
puede ser precisado a realizar el hecho y porque medios.
Se tiene por corriente entre los autores, y se traslada generalmente sin observacion
el principio romano nemo potest precise cogi ad factum. Nadie puede ser obligado
violentamente a haceruna cosa. Los que perciben la posibilidad de la destruccion
deeste principio, aaden que, aun cuando se pudiera obligar al deudor, no deberia
hacerse, porque esto constituiria una violencia, y noes la violenciamodo propio de
cumplir las obligaciones (Bigot, Rolland, etc.). El maestro Antonio Gomez opinaba lo
mismo cuandodecia que obligar por la violencia seria infrigir la libertad eimponer
una especie de esclavitud.
xxx xxx xxx
En efecto; las obligaciones contractuales no se acomodan biencon el empleo de la
fuerza fisica, no ya precisamente porque seconstituya de este modo una especie de
esclavitud, segun el dichode Antonio Gomez, sino porque se supone que el
acreedor tuvo encuenta el caracter personalisimo del hecho ofrecido, y calculo
sobre laposibilidad de que por alguna razon no se realizase. Repugna,ademas, a la
conciencia social el empleo de la fuerza publica, mediante coaccion sobre las
personas, en las relaciones puramente particulares; porque la evolucion de las
ideas ha ido poniendo masde relieve cada dia el respeto a la personalidad humana,
y nose admite bien la violencia sobre el individuo la cual tiene caracter
visiblemente penal, sino por motivos que interesen a la colectividad de ciudadanos.
Es, pues, posible y licita esta violencia cuando setrata de las obligaciones que
hemos llamado ex lege, que afectanal orden social y a la entidad de Estado, y
aparecen impuestas sinconsideracion a las conveniencias particulares, y sin que por
estemotivo puedan tampoco ser modificadas; pero no debe serlo cuandola
obligacion reviste un interes puramente particular, como sucedeen las
contractuales, y cuando, por consecuencia, paraceria salirseel Estado de su esfera
propia, entrado a dirimir, con apoyo dela fuerza colectiva, las diferencias
producidas entre los ciudadanos. (19 Scaevola 428, 431-432.)
The last question for us to decide is that of damages,damages that plaintiff is
entitled to receive because of defendant's refusal to form the partnership, and
damages that defendant is also entitled to collect because of the falsity of plaintiff's
representation. (Article 1101, Spanish Civil Code.) Under article 1106 of the Spanish
Civil Code the measure of damages is the actual loss suffered and the profits
reasonably expected to be received, embraced in the terms dao emergente and
lucro cesante. Plaintiff is entitled under the terms of the agreement to 30 per cent
of the net profits of the business. Against this amount of damages, we must set off
the damage defendant suffered by plaintiff's misrepresentation that he had
obtained a very high percentage of share in the profits. We can do no better than
follow the appraisal that the parties themselves had adopted.
When defendant learned in Los Angeles that plaintiff did not have the exclusive
franchise which he pretended he had and which he had agreed to transfer to the
partnership, his spontaneous reaction was to reduce plaintiff's share form 30 per
cent to 15 per cent only, to which reduction defendant appears to have readily
given his assent. It was under this understanding, which amounts to a virtual
modification of the contract, that the bottling plant was established and plaintiff
worked as Manager for the first three months. If the contract may not be
considered modified as to plaintiff's share in the profits, by the decision of
defendant to reduce the same to one-half and the assent thereto of plaintiff, then
we may consider the said amount as a fair estimate of the damages plaintiff is
entitled to under the principle enunciated in the case of Varadero de Manila vs.
Insular Lumber Co., 46 Phil. 176. Defendant's decision to reduce plaintiff's share
and plaintiff's consent thereto amount to an admission on the part of each of the
reasonableness of this amount as plaintiff's share. This same amount was fixed by
the trial court. The agreement contains the stipulation that upon the termination of
the partnership, defendant was to convey the franchise back to plaintiff (Par. 11,
Exhibit A). The judgment of the trial court does not fix the period within which
these damages shall be paid to plaintiff. In view of paragraph 11 of Exhibit A, we
declare that plaintiff's share of 15 per cent of the net profits shall continue to be
paid while defendant uses the franchise from the Mission Dry Corporation.
With the modification above indicated, the judgment appealed from is hereby
affirmed. Without costs.
EVANGELISTA & CO., DOMINGO C. EVANGELISTA, JR., CONCHITA B. NAVARRO
and LEONARDA ATIENZA ABAD SABTOS, petitioners, vs. ESTRELLA ABAD SANTOS,
respondent.
On October 9, 1954 a co-partnership was formed under the name of "Evangelista &
Co." On June 7, 1955 the Articles of Co-partnership was amended as to include
herein respondent, Estrella Abad Santos, as industrial partner, with herein
petitioners Domingo C. Evangelista, Jr., Leonardo Atienza Abad Santos and
Conchita P. Navarro, the original capitalist partners, remaining in that capacity,
with a contribution of P17,500 each. The amended Articles provided, inter alia, that
"the contribution of Estrella Abad Santos consists of her industry being an
industrial partner", and that the profits and losses "shall be divided and distributed
among the partners ... in the proportion of 70% for the first three partners,
Domingo C. Evangelista, Jr., Conchita P. Navarro and Leonardo Atienza Abad Santos
to be divided among them equally; and 30% for the fourth partner Estrella Abad
Santos."
On December 17, 1963 herein respondent filed suit against the three other
partners in the Court of First Instance of Manila, alleging that the partnership,
which was also made a party-defendant, had been paying dividends to the partners
except to her; and that notwithstanding her demands the defendants had refused
and continued to refuse and let her examine the partnership books or to give her
information regarding the partnership affairs to pay her any share in the dividends
declared by the partnership. She therefore prayed that the defendants be ordered
to render accounting to her of the partnership business and to pay her
corresponding share in the partnership profits after such accounting, plus
attorney's fees and costs.
The defendants, in their answer, denied ever having declared dividends or
distributed profits of the partnership; denied likewise that the plaintiff ever
demanded that she be allowed to examine the partnership books; and byway of
affirmative defense alleged that the amended Articles of Co-partnership did not
express the true agreement of the parties, which was that the plaintiff was not an
industrial partner; that she did not in fact contribute industry to the partnership;
and that her share of 30% was to be based on the profits which might be realized
by the partnership only until full payment of the loan which it had obtained in
December, 1955 from the Rehabilitation Finance Corporation in the sum of
P30,000, for which the plaintiff had signed a promisory note as co-maker and
mortgaged her property as security.
The parties are in agreement that the main issue in this case is "whether the
plaintiff-appellee (respondent here) is an industrial partner as claimed by her or
merely a profit sharer entitled to 30% of the net profits that may be realized by the
partnership from June 7, 1955 until the mortgage loan from the Rehabilitation
Finance Corporation shall be fully paid, as claimed by appellants (herein
petitioners)." On that issue the Court of First Instance found for the plaintiff and
rendered judgement "declaring her an industrial partner of Evangelista & Co.;
ordering the defendants to render an accounting of the business operations of the
(said) partnership ... from June 7, 1955; to pay the plaintiff such amounts as may be
due as her share in the partnership profits and/or dividends after such an
accounting has been properly made; to pay plaintiff attorney's fees in the sum of
P2,000.00 and the costs of this suit."
The defendants appealed to the Court of Appeals, which thereafter affirmed
judgments of the court a quo.
In the petition before Us the petitioners have assigned the following errors:
I. The Court of Appeals erred in the finding that the respondent is an
industrial partner of Evangelista & Co., notwithstanding the admitted fact that
since 1954 and until after promulgation of the decision of the appellate court the
said respondent was one of the judges of the City Court of Manila, and despite its
findings that respondent had been paid for services allegedly contributed by her to
the partnership. In this connection the Court of Appeals erred:
(A) In finding that the "amended Articles of Co-partnership," Exhibit "A" is
conclusive evidence that respondent was in fact made an industrial partner of
Evangelista & Co.
(B) In not finding that a portion of respondent's testimony quoted in the
decision proves that said respondent did not bind herself to contribute her
industry, and she could not, and in fact did not, because she was one of the judges
of the City Court of Manila since 1954.
(C) In finding that respondent did not in fact contribute her industry, despite
the appellate court's own finding that she has been paid for the services allegedly
rendered by her, as well as for the loans of money made by her to the partnership.
II. The lower court erred in not finding that in any event the respondent was
lawfully excluded from, and deprived of, her alleged share, interests and
participation, as an alleged industrial partner, in the partnership Evangelista & Co.,
and its profits or net income.
III. The Court of Appeals erred in affirming in toto the decision of the trial
court whereby respondent was declared an industrial partner of the petitioner, and
petitioners were ordered to render an accounting of the business operation of the
partnership from June 7, 1955, and to pay the respondent her alleged share in the
net profits of the partnership plus the sum of P2,000.00 as attorney's fees and the
costs of the suit, instead of dismissing respondent's complaint, with costs, against
the respondent.
It is quite obvious that the questions raised in the first assigned errors refer to the
facts as found by the Court of Appeals. The evidence presented by the parties as
the trial in support of their respective positions on the issue of whether or not the
respondent was an industrial partner was thoroughly analyzed by the Court of
Appeals on its decision, to the extent of reproducing verbatim therein the lengthy
testimony of the witnesses.
It is not the function of the Supreme Court to analyze or weigh such evidence all
over again, its jurisdiction being limited to reviewing errors of law that might have
been commited by the lower court. It should be observed, in this regard, that the
Court of Appeals did not hold that the Articles of Co-partnership, identified in the
record as Exhibit "A", was conclusive evidence that the respondent was an
industrial partner of the said company, but considered it together with other
factors, consisting of both testimonial and documentary evidences, in arriving at
the factual conclusion expressed in the decision.
The findings of the Court of Appeals on the various points raised in the first
assignment of error are hereunder reproduced if only to demonstrate that the
same were made after a through analysis of then evidence, and hence are beyond
this Court's power of review.
The aforequoted findings of the lower Court are assailed under Appellants' first
assigned error, wherein it is pointed out that "Appellee's documentary evidence
does not conclusively prove that appellee was in fact admitted by appellants as
industrial partner of Evangelista & Co." and that "The grounds relied upon by the
lower Court are untenable" (Pages 21 and 26, Appellant's Brief).
The first point refers to Exhibit A, B, C, K, K-1, J, N and S, appellants' complaint
being that "In finding that the appellee is an industrial partner of appellant
Evangelista & Co., herein referred to as the partnership the lower court relied
mainly on the appellee's documentary evidence, entirely disregarding facts and
circumstances established by appellants" evidence which contradict the said
finding' (Page 21, Appellants' Brief). The lower court could not have done otherwise
but rely on the exhibits just mentioned, first, because appellants have admitted
their genuineness and due execution, hence they were admitted without objection
by the lower court when appellee rested her case and, secondly the said exhibits
indubitably show the appellee is an industrial partner of appellant company.
Appellants are virtually estopped from attempting to detract from the probative
force of the said exhibits because they all bear the imprint of their knowledge and
consent, and there is no credible showing that they ever protested against or
opposed their contents prior of the filing of their answer to appellee's complaint.
As a matter of fact, all the appellant Evangelista, Jr., would have us believe as
against the cumulative force of appellee's aforesaid documentary evidence is
the appellee's Exhibit "A", as confirmed and corroborated by the other exhibits
already mentioned, does not express the true intent and agreement of the parties
thereto, the real understanding between them being the appellee would be merely
a profit sharer entitled to 30% of the net profits that may be realized between the
partners from June 7, 1955, until the mortgage loan of P30,000.00 to be obtained
from the RFC shall have been fully paid. This version, however, is discredited not
only by the aforesaid documentary evidence brought forward by the appellee, but
also by the fact that from June 7, 1955 up to the filing of their answer to the
complaint on February 8, 1964 or a period of over eight (8) years appellants
did nothing to correct the alleged false agreement of the parties contained in
Exhibit "A". It is thus reasonable to suppose that, had appellee not filed the present
action, appellants would not have advanced this obvious afterthought that Exhibit
"A" does not express the true intent and agreement of the parties thereto.
At pages 32-33 of appellants' brief, they also make much of the argument that
'there is an overriding fact which proves that the parties to the Amended Articles of
Partnership, Exhibit "A", did not contemplate to make the appellee Estrella Abad
Santos, an industrial partner of Evangelista & Co. It is an admitted fact that since
before the execution of the amended articles of partnership, Exhibit "A", the
appellee Estrella Abad Santos has been, and up to the present time still is, one of
the judges of the City Court of Manila, devoting all her time to the performance of
the duties of her public office. This fact proves beyond peradventure that it was
never contemplated between the parties, for she could not lawfully contribute her
full time and industry which is the obligation of an industrial partner pursuant to
Art. 1789 of the Civil Code.
The Court of Appeals then proceeded to consider appellee's testimony on this
point, quoting it in the decision, and then concluded as follows:
One cannot read appellee's testimony just quoted without gaining the very definite
impression that, even as she was and still is a Judge of the City Court of Manila, she
has rendered services for appellants without which they would not have had the
wherewithal to operate the business for which appellant company was organized.
Article 1767 of the New Civil Code which provides that "By contract of partnership
two or more persons bind themselves, to contribute money, property, or industry
to a common fund, with the intention of dividing the profits among themselves,
'does not specify the kind of industry that a partner may thus contribute, hence the
said services may legitimately be considered as appellee's contribution to the
common fund. Another article of the same Code relied upon appellants reads:
'ART. 1789. An industrial partner cannot engage in business for himself, unless the
partnership expressly permits him to do so; and if he should do so, the capitalist
partners may either exclude him from the firm or avail themselves of the benefits 'ART. 1899. Any partner shall have the right to a formal account as to partnership
which he may have obtained in violation of this provision, with a right to damages affairs:
in either case.'

(1) If he is wrongfully excluded from the partnership business or possession

It is not disputed that the provision against the industrial partner engaging in of its property by his co-partners;
business for himself seeks to prevent any conflict of interest between the industrial
partner and the partnership, and to insure faithful compliance by said partner with
this prestation. There is no pretense, however, even on the part of the appellee is
engaged in any business antagonistic to that of appellant company, since being a (2) If the right exists under the terms of any agreement;
Judge of one of the branches of the City Court of Manila can hardly be
characterized as a business. That appellee has faithfully complied with her
prestation with respect to appellants is clearly shown by the fact that it was only
(3) As provided by article 1807;
after filing of the complaint in this case and the answer thereto appellants
exercised their right of exclusion under the codal art just mentioned by alleging in
their Supplemental Answer dated June 29, 1964 or after around nine (9) years
from June 7, 1955 subsequent to the filing of defendants' answer to the (4) Whenever other circumstance render it just and reasonable.
complaint, defendants reached an agreement whereby the herein plaintiff been
excluded from, and deprived of, her alleged share, interests or participation, as an
alleged industrial partner, in the defendant partnership and/or in its net profits or
income, on the ground plaintiff has never contributed her industry to the We find no reason in this case to depart from the rule which limits this Court's
partnership, instead she has been and still is a judge of the City Court (formerly appellate jurisdiction to reviewing only errors of law, accepting as conclusive the
Municipal Court) of the City of Manila, devoting her time to performance of her factual findings of the lower court upon its own assessment of the evidence.
duties as such judge and enjoying the privilege and emoluments appertaining to
the said office, aside from teaching in law school in Manila, without the express
consent of the herein defendants' (Record On Appeal, pp. 24-25). Having always
knows as a appellee as a City judge even before she joined appellant company on The judgment appealed from is affirmed, with costs.
June 7, 1955 as an industrial partner, why did it take appellants many yearn before
excluding her from said company as aforequoted allegations? And how can they
reconcile such exclusive with their main theory that appellee has never been such a
partner because "The real agreement evidenced by Exhibit "A" was to grant the
appellee a share of 30% of the net profits which the appellant partnership may
realize from June 7, 1955, until the mortgage of P30,000.00 obtained from the
Rehabilitation Finance Corporal shall have been fully paid." (Appellants Brief, p. 38).

ESCOLASTICO DUTERTE Y ROSALES, plaintiff-appellant, vs.FLORENTINO RALLOS,

What has gone before persuades us to hold with the lower Court that appellee is defendant-appellee.
an industrial partner of appellant company, with the right to demand for a formal
accounting and to receive her share in the net profit that may result from such an
accounting, which right appellants take exception under their second assigned
The plaintiff-appellant claimed that he, the defendant, and one Castro were
error. Our said holding is based on the following article of the New Civil Code:
partners in the management of a cockpit. The defendant denied this. The court
found that no such partnership existed and ordered judgment for the defendant. Receipts of the cockpit of this city during the entire month of July
The plaintiff moved for a new trial, which was denied. To this order and the
judgment he excepted and has brought here the evidence on which the court
below based its finding. We have examined the evidence and are of the opinion
that said finding, so far as the existence of the copartnership to September 1, 1901, $520.622
is concerned, is plainly and manifestly against the evidence.

We reach this conclusion chiefly from the documents written by the defendant and
sent to the plaintiff. It is not contradicted that the plaintiff demanded by letter of Expenses
the defendant a settlement of their accounts. These demands the defendant
answered with the following letter:

MY DEAR BOY: I am working at these accounts. Perhaps I will have them ready Cuotas
tomorrow morning. But I have no money, unless Mr. Spitz comes on one of these
boats, when we will have funds.
$300.00
Yours, FLORENTINO RALLOS.

April 13, 1902.

Rent, 6 days
On May 7 the defendant wrote another letter to the plaintiff which is in part as
follows:

CEBU, May 7, 1902.

60.00
Seor Don Escolastico Duterte.

Present to Biloy
DEAR BOY: In your letter which I received this afternoon, you designate me as a
little less than embezzler. I have in my possession the money of no one but myself.
If I have not called you an embezzler or something worse on account of all that you 20.00
have done and are doing with me, reflect whether you have reason to write me in
the manner you do. I have done you a favor in admitting you into the cockpit
partnership, as the only manner in which I might collect what you owe me. I think
you have made a mistake, and I will frankly refresh your memory. You are indebted 380.000
to me clearly one thousand pesos, advanced for your former market contract.

140.622
In the preceding year, the defendant sent to the plaintiff statements of the
business for the months of June, July, and August. They are in legal effect the same. ========
The one for July is as follows:

One-third
 with them. As a private individual, he had no duty to perform, except when he had
to preside at the cockpit. I am not aware that they, or either of them, rendered
46.873 other services. I did not tell them the reason why I gave them a share. I paid them
for my pleasure, as friends, Duterte had no legal interest.

Ticoy owes for seats

Seor Duterte had not authority to employ any person in the cockpit; this function
was exercised solely by Seor Isabelo Alburo, since I gave Seor Duterte a portion
only as a friend.
31.200

Castro, the other supposed partner, and a witness for the defendant, denied that
15.673 he was such a partner, but his testimony is in part as follows:

30.000 I do not remember what the profit was, but, as I have said, Seor Rallos sent me
$20 or $30. I did not keep any account. I did not receive money monthly, but on
Mondays Seor Rallos would send me some money. Seor Rallos began to send me
money from 20 to 30 pesos, and this money was what obtained on the preceding
Ticoy's net share
Sunday in the cockpit. I think Seor Rallos sent it to me as a present for the reason
that he could not be present at the cockpit. I am not a servant or employee of the
cockpit. I have not any conversation with Seor Rallos with reference to I am not a
45.673 servant or employee of the cockpit. I have not the business. When Seor Rallos
sent me that money he sent me no letter. He sent it to me by a messenger. I think
that Seor Rallos sent me that money because I went to the cockpit and helped the
president on account of the former. Seor Rallos asked me to go to the cockpit.
Ticoy stands for the plaintiff. Yes, I have had a conversation with Seor Rallos. In this conversation Seor Rallos
said nothing to me about money. Seor Rallos asked me to go to the cockpit to aid
the president. It is not true, as I went to the cockpit only to do him a favor.

That the plaintiff rendered services in the management of the cockpit, and that the
defendant paid him money on account of the cockpit, is undisputed.
The defendant, after denying that the plaintiff was his partner, testified, among
other things, as follows:
We have, then, the testimony of the plaintiff that he made a verbal contract of
partnership with the defendant for this business, uncontradicted evidence that he
performed services in connection with it; that the defendant paid him the money
on account thereof and sent him accounts for three months showing his interest to
be one-third of the profits in addition to the $5 each day, and wrote him a letter in
which he said that he admitted the plaintiff into the partnership in order to collect
what the plaintiff owed him on another transaction.

The profits were divided. A portion was given to two friends, Seores Duterte and
Castro, but not as partners. A portion was given to Seor Duterte solely because he
was a friend who aided and encouraged the cockpit. I did not have an agreement The reason which the defendant gives for paying the plaintiff money is not credible.

We see no way of explaining the accounts submitted by the defendant to plaintiff
on any theory other than that there was a partnership between them up to
September 1, 1901, at least. The letter of the defendant, in which he says that he
admitted the plaintiff into the partnership, can be explained on no other theory.
That there was an agreement to share the profits is clearly proved by the accounts
submitted. The plaintiff testified that the profits and losses were to be shared
equally. But even omitting this testimony, the case is covered by article 1689 of the
Civil Code, which provides that, in the absence of agreement as to the losses, they
shall be shared as the gains are.
Article 1668 of the Civil Code is not applicable to the case. No real estate was
contributed by any member. The partnership did not become the owner of the
cockpit. It is undisputed that this was owned by the defendant and that the
partnership paid him ten dollars a day for the use of it.
Neither can the judgment be sustained on the ground stated by the court in its
decision and relied upon by counsel for the appellee here, namely, that Castro
should have been joined as a party to the suit. One of the grounds for demurrer
mentioned in section 91 of the Code of Civil Procedure is "that there is a defect or
misjoinder of parties plaintiff or defendants." No demurrer was interposed on this
or in any other ground, and by the terms of section 93 of the same Code, by
omitting to demur on this ground the defendant waived the objection which he
now makes.
The finding of fact by the court below, that there was no partnership, at least to
September 1, 1901, was plainly and manifestly against the evidence, and for that
reason a new trial of this case must be had. In this new trial, if the evidence is the
same as upon the first trial, the plaintiff will be entitled to an accounting, at least to
September 1, 1901, and for such further term as the proof upon the new trial
shows, in the opinion of the court below, that the partnership existed; that
accounting can be had in this suit and a final judgment rendered for the plaintiff if
any balance appears in his favor. No second or other suit will be necessary.
The judgment of the court below is reversed and the case remanded for a new trial,
with the costs of this instance against the appellee, and after the expiration of
twenty days, reckoned from the date of this decision, judgment shall be rendered
accordingly, and the case is returned to the court below for compliance therewith.
ELIGIO ESTANISLAO, JR., petitioner, vs.THE HONORABLE COURT OF APPEALS,
REMEDIOS ESTANISLAO, EMILIO and LEOCADIO SANTIAGO, respondents.
By this petition for certiorari the Court is asked to determine if a partnership exists
between members of the same family arising from their joint ownership of certain
properties.
Petitioner and private respondents are brothers and sisters who are co-owners of
certain lots at the corner of Annapolis and Aurora Blvd., QuezonCity which were
then being leased to the Shell Company of the Philippines Limited (SHELL). They
agreed to open and operate a gas station thereat to be known as Estanislao Shell
Service Station with an initial investment of P 15,000.00 to be taken from the
advance rentals due to them from SHELL for the occupancy of the said lots owned
in common by them. A joint affidavit was executed by them on April 11, 1966
which was prepared byAtty. Democrito Angeles 1 They agreed to help their
brother, petitioner herein, by allowing him to operate and manage the gasoline
service station of the family. They negotiated with SHELL. For practical purposes
and in order not to run counter to the company's policy of appointing only one
dealer, it was agreed that petitioner would apply for the dealership. Respondent
Remedios helped in managing the bussiness with petitioner from May 3, 1966 up
to February 16, 1967.
On May 26, 1966, the parties herein entered into an Additional Cash Pledge
Agreement with SHELL wherein it was reiterated that the P 15,000.00 advance
rental shall be deposited with SHELL to cover advances of fuel to petitioner as
dealer with a proviso that said agreement "cancels and supersedes the Joint
Affidavit dated 11 April 1966 executed by the co-owners." 2
For sometime, the petitioner submitted financial statements regarding the
operation of the business to private respondents, but therafter petitioner failed to
render subsequent accounting. Hence through Atty. Angeles, a demand was made
on petitioner to render an accounting of the profits.
The financial report of December 31, 1968 shows that the business was able to The dispositive part thereof reads as follows:
make a profit of P 87,293.79 and that by the year ending 1969, a profit of P
150,000.00 was realized. 3

Thus, on August 25, 1970 private respondents filed a complaint in the Court of First
Instance of Rizal against petitioner praying among others that the latter be
ordered:
WHEREFORE, the Decision of this Court dated October 14, 1975 is hereby
reconsidered and a new judgment is hereby rendered in favor of the plaintiffs and
as against the defendant:

1. to execute a public document embodying all the provisions of the
partnership agreement entered into between plaintiffs and defendant as provided
in Article 1771 of the New Civil Code;
(1) Ordering the defendant to execute a public instrument embodying all the
provisions of the partnership agreement entered into between plaintiffs and
defendant as provided for in Article 1771, Civil Code of the Philippines;

(2) Ordering the defendant to render a formal accounting of the business

operation from April 1969 up to the time this order is issued, the same to be
2. to render a formal accounting of the business operation covering the subject to examination and audit by the plaintiff,
period from May 6, 1966 up to December 21, 1968 and from January 1, 1969 up to
the time the order is issued and that the same be subject to proper audit;

3. to pay the plaintiffs their lawful shares and participation in the net profits
of the business in an amount of no less than P l50,000.00 with interest at the rate
of 1% per month from date of demand until full payment thereof for the entire
duration of the business; and
(3) Ordering the defendant to pay plaintiffs their lawful shares and
participation in the net profits of the business in the amount of P 150,000.00, with
interest thereon at the rate of One (1%) Per Cent per month from date of demand
until full payment thereof;

(4) Ordering the defendant to pay the plaintiffs the sum of P 5,000.00 by way
of attorney's fees of plaintiffs' counsel; as well as the costs of suit. (pp. 161-162.
4. to pay the plaintiffs the amount of P 10,000.00 as attorney's fees and Record on Appeal).
costs of the suit (pp. 13-14 Record on Appeal.)

Petitioner then interposed an appeal to the Court of Appeals enumerating seven

After trial on the merits, on October 15, 1975, Hon. Lino Anover who was then the (7) errors allegedly committed by the trial court. In due course, a decision was
temporary presiding judge of Branch IV of the trial court, rendered judgment rendered by the Court of Appeals on November 28,1978 affirming in toto the
dismissing the complaint and counterclaim and ordering private respondents to decision of the lower court with costs against petitioner. *
pay petitioner P 3,000.00 attorney's fee and costs. Private respondent filed a
motion for reconsideration of the decision. On December 10, 1975, Hon. Ricardo
Tensuan who was the newly appointed presiding judge of the same branch, set
aside the aforesaid derision and rendered another decision in favor of said
respondents.
A motion for reconsideration of said decision filed by petitioner was denied on
January 30, 1979. Not satisfied therewith, the petitioner now comes to this court
by way of this petition for certiorari alleging that the respondent court erred:
1. In interpreting the legal import of the Joint Affidavit (Exh. 'A') vis-a-vis the
Additional Cash Pledge Agreement (Exhs. "B-2","6", and "L"); and
2. In declaring that a partnership was established by and among the
petitioner and the private respondents as regards the ownership and or operation
of the gasoline service station business.
Petitioner relies heavily on the provisions of the Joint Affidavit of April 11, 1966
(Exhibit A) and the Additional Cash Pledge Agreement of May 20, 1966 (Exhibit 6)
which are herein reproduced-
(a) The joint Affidavit of April 11, 1966, Exhibit A reads:
(1) That we are the Lessors of two parcels of land fully describe in Transfer
Certificates of Title Nos. 45071 and 71244 of the Register of Deeds of Quezon City,
in favor of the LESSEE - SHELL COMPANY OF THE PHILIPPINES LIMITED a
corporation duly licensed to do business in the Philippines;
(2) That we have requested the said SHELL COMPANY OF THE PHILIPPINE
LIMITED advanced rentals in the total amount of FIFTEEN THOUSAND PESOS (P
l5,000.00) Philippine Currency, so that we can use the said amount to augment our
capital investment in the operation of that gasoline station constructed ,by the said
company on our two lots aforesaid by virtue of an outstanding Lease Agreement
we have entered into with the said company;
(3) That the and SHELL COMPANY OF THE PHILIPPINE LIMITED out of its
benevolence and desire to help us in aumenting our capital investment in the
operation of the said gasoline station, has agreed to give us the said amount of P
15,000.00, which amount will partake the nature of ADVANCED RENTALS;
(4) That we have freely and voluntarily agreed that upon receipt of the said
amount of FIFTEEN THOUSAND PESOS (P l6,000.00) from he SHELL COMPANY OF
THE PHILIPPINES LIMITED, the said sum as ADVANCED RENTALS to us be applied as
monthly rentals for the sai two lots under our Lease Agreement starting on the
25th of May, 1966 until such time that the said of P 15,000.00 be applicable, which
time to our estimate and one-half months from May 25, 1966 or until the 10th of
October, 1966 more or less;
(5) That we have likewise agreed among ourselves that the SHELL COMPANY
OF THE PHILIPPINES LIMITED execute an instrument for us to sign embodying our
conformity that the said amount that it will generously grant us as requested be
applied as ADVANCED RENTALS; and
(6) FURTHER AFFIANTS SAYETH NOT.,
(b) The Additional Cash Pledge Agreement of May 20,1966, Exhibit 6, is as
follows:
WHEREAS, under the lease Agreement dated 13th November, 1963 (identified as
doc. Nos. 491 & 1407, Page Nos. 99 & 66, Book Nos. V & III, Series of 1963 in the
Notarial Registers of Notaries Public Rosauro Marquez, and R.D. Liwanag,
respectively) executed in favour of SHELL by the herein CO-OWNERS and another
Lease Agreement dated 19th March 1964 . . . also executed in favour of SHELL by
CO-OWNERS Remedios and MARIA ESTANISLAO for the lease of adjoining portions
of two parcels of land at Aurora Blvd./ Annapolis, Quezon City, the CO OWNERS
RECEIVE a total monthly rental of PESOS THREE THOUSAND THREE HUNDRED
EIGHTY TWO AND 29/100 (P 3,382.29), Philippine Currency;
WHEREAS, CO-OWNER Eligio Estanislao Jr. is the Dealer of the Shell Station
constructed on the leased land, and as Dealer under the Cash Pledge Agreement
dated llth May 1966, he deposited to SHELL in cash the amount of PESOS TEN
THOUSAND (P 10,000), Philippine Currency, to secure his purchase on credit of
Shell petroleum products; . . .
WHEREAS, said DEALER, in his desire, to be granted an increased the limit up to P
25,000, has secured the conformity of his CO-OWNERS to waive and assign to
SHELL the total monthly rentals due to all of them to accumulate the equivalent
amount of P 15,000, commencing 24th May 1966, this P 15,000 shall be treated as
additional cash deposit to SHELL under the same terms and conditions of the
aforementioned Cash Pledge Agreement dated llth May 1966.
NOW, THEREFORE, for and in consideration of the foregoing premises,and the
mutual covenants among the CO-OWNERS herein and SHELL, said parties have
agreed and hereby agree as follows:
l. The CO-OWNERS dohere by waive in favor of DEALER the monthly rentals
due to all CO-OWNERS, collectively, under the above describe two Lease
Agreements, one dated 13th November 1963 and the other dated 19th March
1964 to enable DEALER to increase his existing cash deposit to SHELL, from P
10,000 to P 25,000, for such purpose, the SHELL CO-OWNERS and DEALER hereby
irrevocably assign to SHELL the monthly rental of P 3,382.29 payable to them
respectively as they fall due, monthly, commencing 24th May 1966, until such time
that the monthly rentals accumulated, shall be equal to P l5,000.
2. The above stated monthly rentals accumulated shall be treated as
additional cash deposit by DEALER to SHELL, thereby in increasing his credit limit
from P 10,000 to P 25,000. This agreement, therefore, cancels and supersedes the
Joint affidavit dated 11 April 1966 executed by the CO-OWNERS.
3. Effective upon the signing of this agreement, SHELL agrees to allow
DEALER to purchase from SHELL petroleum products, on credit, up to the amount
of P 25,000.
4. This increase in the credit shall also be subject to the same terms and
conditions of the above-mentioned Cash Pledge Agreement dated llth May 1966.
(Exhs. "B-2," "L," and "6"; emphasis supplied)
In the aforesaid Joint Affidavit of April 11, 1966 (Exhibit A), it is clearly stipulated by
the parties that the P 15,000.00 advance rental due to them from SHELL shall
augment their "capital investment" in the operation of the gasoline station, which
advance rentals shall be credited as rentals from May 25, 1966 up to four and one-
half months or until 10 October 1966, more or less covering said P 15,000.00.
In the subsequent document entitled "Additional Cash Pledge Agreement" above
reproduced (Exhibit 6), the private respondents and petitioners assigned to SHELL
the monthly rentals due them commencing the 24th of May 1966 until such time
that the monthly rentals accumulated equal P 15,000.00 which private respondents
agree to be a cash deposit of petitioner in favor of SHELL to increase his credit limit
as dealer. As above-stated it provided therein that "This agreement, therefore,
cancels and supersedes the Joint Affidavit dated 11 April 1966 executed by the CO-
OWNERS."
Petitioner contends that because of the said stipulation cancelling and superseding
that previous Joint Affidavit, whatever partnership agreement there was in said
previous agreement had thereby been abrogated. We find no merit in this
argument. Said cancelling provision was necessary for the Joint Affidavit speaks of
P 15,000.00 advance rentals starting May 25, 1966 while the latter agreement also
refers to advance rentals of the same amount starting May 24, 1966. There is,
therefore, a duplication of reference to the P 15,000.00 hence the need to provide
in the subsequent document that it "cancels and supersedes" the previous one.
True it is that in the latter document, it is silent as to the statement in the Joint
Affidavit that the P 15,000.00 represents the "capital investment" of the parties in
the gasoline station business and it speaks of petitioner as the sole dealer, but this
is as it should be for in the latter document SHELL was a signatory and it would be
against its policy if in the agreement it should be stated that the business is a
partnership with private respondents and not a sole proprietorship of petitioner.
Moreover other evidence in the record shows that there was in fact such
partnership agreement between the parties. This is attested by the testimonies of
private respondent Remedies Estanislao and Atty. Angeles. Petitioner submitted to
private respondents periodic accounting of the business. 4 Petitioner gave a
written authority to private respondent Remedies Estanislao, his sister, to examine
and audit the books of their "common business' aming negosyo). 5 Respondent
Remedios assisted in the running of the business. There is no doubt that the parties
hereto formed a partnership when they bound themselves to contribute money to
a common fund with the intention of dividing the profits among themselves. 6 The
sole dealership by the petitioner and the issuance of all government permits and
licenses in the name of petitioner was in compliance with the afore-stated policy of
SHELL and the understanding of the parties of having only one dealer of the SHELL
products.
Further, the findings of facts of the respondent court are conclusive in this
proceeding, and its conclusion based on the said facts are in accordancewith the
applicable law.
WHEREFORE, the judgment appealed from is AFFIRMED in toto with costs against
petitioner. This decision is immediately executory and no motion for extension of
time to file a motion for reconsideration shag beentertained.
SO ORDERED.
ISABELO MORAN, JR., petitioner, vs.THE HON. COURT OF APPEALS and MARIANO
E. PECSON, respondents.
This is a petition for review on certiorari of the decision of the respondent Court of
Appeals which ordered petitioner Isabelo Moran, Jr. to pay damages to respondent
Mariano E, Pecson.
As found by the respondent Court of Appeals, the undisputed facts indicate that:
t.hqw to give his full contribution of P15,000.00. Thus, each party is entitled to rescind
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
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 I
costs of the suit.

THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN HOLDING PETITIONER

For insufficiency of evidence, the counterclaim is hereby dismissed. ISABELO C. MORAN, JR. LIABLE TO RESPONDENT MARIANO E. PECSON IN THE SUM
OF P47,500 AS THE SUPPOSED EXPECTED PROFITS DUE HIM.

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 II
the decision reads: t.hqw

THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN HOLDING PETITIONER

PREMISES CONSIDERED, the decision appealed from is hereby SET ASIDE, and a ISABELO C. MORAN, JR. LIABLE TO RESPONDENT MARIANO E. PECSON IN THE SUM
new one is hereby rendered, ordering defendant-appellant Isabelo C. Moran, Jr. to OF P8,000, AS SUPPOSED COMMISSION IN THE PARTNERSHIP ARISING OUT OF
pay plaintiff- appellant Mariano E. Pecson: PECSON'S INVESTMENT.

(a) Forty-seven thousand five hundred (P47,500) (the amount that could have III
accrued to Pecson under their agreement);

THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN HOLDING PETITIONER

(b) Eight thousand (P8,000), (the commission for eight months); 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.

(c) Seven thousand (P7,000) (as a return of Pecson's investment for the Veteran's
Project); IV

(d) Legal interest on (a), (b) and (c) from the date the complaint was filed (up to the ASSUMING WITHOUT ADMITTING THAT PETITIONER IS AT ALL LIABLE FOR ANY
time payment is made) AMOUNT, THE HONORABLE COURT OF APPEALS DID NOT EVEN OFFSET PAYMENTS
ADMITTEDLY RECEIVED BY PECSON FROM MORAN.

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 V
it committed the following errors:
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 one and that the UP construction company derived some profits from its
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
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, in Carolina Industries Inc. v. CMS Stock Brokerage, Inc., et al., (97 SCRA 734),
we held that this Court retains the power to review and rectify the findings of fact
of the Court of Appeals when (1) the conclusion is a finding grounded entirely on
speculation, surmises and conjectures; (2) when the inference made is manifestly
mistaken absurd and impossible; (3) where there is grave abuse of discretion; (4)
when the judgment is based on a misapprehension of facts; and (5) when the court,
in making its findings, went beyond the issues of the case and the same are
contrary to the admissions of both the appellant and the appellee.
In this case, there is misapprehension of facts. The evidence of the private
respondent himself shows that his investment in the "Voice of Veterans" project
amounted to only P3,000.00. The remaining P4,000.00 was the amount of profit
that the private respondent expected to receive.
The records show the following exhibits- t.hqw M-Promissory note for P7,000 dated March 30, 1971. This is also defendant's
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.
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 Q And what does the amount of P14,000.00 indicated in the promissory
note, Exhibit 2, represent?

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 A It represents the P6,000.00 cash which I gave to Mr. Moran, as evidenced by the
Exhibits E, L, M, and N above. 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.

Explaining the above-quoted exhibits, respondent Pecson testified that:

t.hqw
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?

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.

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?

Q What is this promissory note, in connection with your transaction with

the defendant? 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.

A This promissory note is for the printing of the "Voice of the Veterans".
Q As a consequence of the return by Mr. Moran of one-half (1/2) of the P6,000.00
capital you gave to him, what happened to the promised profit of P8,000.00?

Q What is this "Voice of the Veterans", Mr. Pecson?

A It was reduced to one-half (1/2) which is P4,000.00.

A It is a book.t.hqw

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?
(T.S.N., p. 19, Nov. 29, 1972)

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. .
.
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
Court t.hqw profit that was promised to me by Mr. Moran.

Mark it as Exhibit M. Q And what happened to the balance of P3,000.00 under the promissory note,
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 A The balance of P3,000.00 and the rest of the profit was applied as part of the
the Veterans"? consideration of the promissory note of P20,000.00.

A Yes, sir. (T.S.N., pp. 20-22, Nov. 29, 1972). (T.S.N., pp. 23-24, 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.
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.

Q Was there a receipt issued by you covering this payment of P4,000.00 in favor of As already mentioned, there are risks in any business venture and the failure of the
Mr. Moran? 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
A Yes, sir.
the grant of the counterclaim.

(T.S.N., p. 23, Nov. 29, 1972).

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; Member's shares............................
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. 97,263.70

SO ORDERED

Credits paid................................

ADRIANO ARBES, ET AL., plaintiffs-appellees, vs.VICENTE POLISTICO, ET AL.,

defendants-appellants.
6,196.55
This is an action to bring about liquidation of the funds and property of the
association called "Turnuhan Polistico & Co." The plaintiffs were members or
shareholders, and the defendants were designated as president-treasurer,
Interest received...........................
directors and secretary of said association.

4,569.45
It is well to remember that this case is now brought before the consideration of this
court for the second time. The first one was when the same plaintiffs appeared
from the order of the court below sustaining the defendant's demurrer, and
requiring the former to amend their complaint within a period, so as to include all Miscellaneous...............................
the members of "Turnuhan Polistico & Co.," either as plaintiffs or as a defendants.
This court held then that in an action against the officers of a voluntary association
to wind up its affairs and enforce an accounting for money and property in their
possessions, it is not necessary that all members of the association be made parties 1,891.00
to the action. (Borlasa vs. Polistico, 47 Phil., 345.) The case having been remanded
to the court of origin, both parties amend, respectively, their complaint and their
answer, and by agreement of the parties, the court appointed Amadeo R. Quintos,
of the Insular Auditor's Office, commissioner to examine all the books, documents, P109,620.70
and accounts of "Turnuhan Polistico & Co.," and to receive whatever evidence the
parties might desire to present.

Expenses:

The commissioner rendered his report, which is attached to the record, with the
following resume:
Premiums to members.......................

Income:
68,146.25
 The defendants objected to the commissioner's report, but the trial court, having
examined the reasons for the objection, found the same sufficiently explained in
Loans on real-estate....................... the report and the evidence, and accepting it, rendered judgment, holding that the
association "Turnuhan Polistico & Co." is unlawful, and sentencing the defendants
jointly and severally to return the amount of P24,607.80, as well as the documents
showing the uncollected credits of the association, to the plaintiffs in this case, and
9,827.00 to the rest of the members of the said association represented by said plaintiffs,
with costs against the defendants.

Loans on promissory notes..............

The defendants assigned several errors as grounds for their appeal, but we believe
they can all be reduced to two points, to wit: (1) That not all persons having an
interest in this association are included as plaintiffs or defendants; (2) that the
4,258.55
objection to the commissioner's report should have been admitted by the court
below.

Salaries....................................
As to the first point, the decision on the case of Borlasa vs. Polistico, supra, must be
followed.
1,095.00

With regard to the second point, despite the praiseworthy efforts of the attorney
Miscellaneous............................... of the defendants, we are of opinion that, the trial court having examined all the
evidence touching the grounds for the objection and having found that they had
been explained away in the commissioner's report, the conclusion reached by the
court below, accepting and adopting the findings of fact contained in said report,
1,686.10 and especially those referring to the disposition of the association's money, should
not be disturbed.

85,012.90
In Tan Dianseng Tan Siu Pic vs. Echauz Tan Siuco (5 Phil., 516), it was held that the
findings of facts made by a referee appointed under the provisions of section 135
of the Code of Civil Procedure stand upon the same basis, when approved by the
Cash on hand........................................ Court, as findings made by the judge himself. And in Kriedt vs. E. C. McCullogh &
Co.(37 Phil., 474), the court held: "Under section 140 of the Code of Civil Procedure
it is made the duty of the court to render judgment in accordance with the report
of the referee unless the court shall unless for cause shown set aside the report or
24,607.80 recommit it to the referee. This provision places upon the litigant parties of the
duty of discovering and exhibiting to the court any error that may be contained
therein." The appellants stated the grounds for their objection. The trial examined
the evidence and the commissioner's report, and accepted the findings of fact
made in the report. We find no convincing arguments on the appellant's brief to
justify a reversal of the trial court's conclusion admitting the commissioner's
findings.
There is no question that "Turnuhan Polistico & Co." is an unlawful partnership
(U.S. vs. Baguio, 39 Phil., 962), but the appellants allege that because it is so, some
charitable institution to whom the partnership funds may be ordered to be turned
over, should be included, as a party defendant. The appellants refer to article 1666
of the Civil Code, which provides:
A partnership must have a lawful object, and must be established for the common
benefit of the partners.
When the dissolution of an unlawful partnership is decreed, the profits shall be
given to charitable institutions of the domicile of the partnership, or, in default of
such, to those of the province.
Appellant's contention on this point is untenable. According to said article, no
charitable institution is a necessary party in the present case of determination of
the rights of the parties. The action which may arise from said article, in the case of
unlawful partnership, is that for the recovery of the amounts paid by the member
from those in charge of the administration of said partnership, and it is not
necessary for the said parties to base their action to the existence of the
partnership, but on the fact that of having contributed some money to the
partnership capital. And hence, the charitable institution of the domicile of the
partnership, and in the default thereof, those of the province are not necessary
parties in this case. The article cited above permits no action for the purpose of
obtaining the earnings made by the unlawful partnership, during its existence as
result of the business in which it was engaged, because for the purpose, as
Manresa remarks, the partner will have to base his action upon the partnership
contract, which is to annul and without legal existence by reason of its unlawful
object; and it is self evident that what does not exist cannot be a cause of action.
Hence, paragraph 2 of the same article provides that when the dissolution of the
unlawful partnership is decreed, the profits cannot inure to the benefit of the
partners, but must be given to some charitable institution.
We deem in pertinent to quote Manresa's commentaries on article 1666 at length,
as a clear explanation of the scope and spirit of the provision of the Civil Code
which we are concerned. Commenting on said article Manresa, among other things
says:
When the subscriptions of the members have been paid to the management of the
partnership, and employed by the latter in transactions consistent with the
purposes of the partnership may the former demand the return of the
reimbursement thereof from the manager or administrator withholding them?
Apropos of this, it is asserted: If the partnership has no valid existence, if it is
considered juridically non-existent, the contract entered into can have no legal
effect; and in that case, how can it give rise to an action in favor of the partners to
judicially demand from the manager or the administrator of the partnership capital,
each one's contribution?
The authors discuss this point at great length, but Ricci decides the matter quite
clearly, dispelling all doubts thereon. He holds that the partner who limits himself
to demanding only the amount contributed by him need not resort to the
partnership contract on which to base his action. And he adds in explanation that
the partner makes his contribution, which passes to the managing partner for the
purpose of carrying on the business or industry which is the object of the
partnership; or in other words, to breathe the breath of life into a partnership
contract with an objection forbidden by law. And as said contrast does not exist in
the eyes of the law, the purpose from which the contribution was made has not
come into existence, and the administrator of the partnership holding said
contribution retains what belongs to others, without any consideration; for which
reason he is not bound to return it and he who has paid in his share is entitled to
recover it.
But this is not the case with regard to profits earned in the course of the
partnership, because they do not constitute or represent the partner's contribution
but are the result of the industry, business or speculation which is the object of the
partnership, and therefor, in order to demand the proportional part of the said
profits, the partner would have to base his action on the contract which is null and
void, since this partition or distribution of the profits is one of the juridical effects
thereof. Wherefore considering this contract as non-existent, by reason of its illicit
object, it cannot give rise to the necessary action, which must be the basis of the
judicial complaint. Furthermore, it would be immoral and unjust for the law to
permit a profit from an industry prohibited by it.
Hence the distinction made in the second paragraph of this article of this Code,
providing that the profits obtained by unlawful means shall not enrich the partners,
but shall upon the dissolution of the partnership, be given to the charitable
institutions of the domicile of the partnership, or, in default of such, to those of the
province.
This is a new rule, unprecedented by our law, introduced to supply an obvious
deficiency of the former law, which did not describe the purpose to which those
profits denied the partners were to be applied, nor state what to be done with
them.
The profits are so applied, and not the contributions, because this would be an
excessive and unjust sanction for, as we have seen, there is no reason, in such a
case, for depriving the partner of the portion of the capital that he contributed, the
circumstances of the two cases being entirely different.
Our Code does not state whether, upon the dissolution of the unlawful partnership,
the amounts contributed are to be returned by the partners, because it only deals
with the disposition of the profits; but the fact that said contributions are not
included in the disposal prescribed profits, shows that in consequences of said
exclusion, the general law must be followed, and hence the partners should
reimburse the amount of their respective contributions. Any other solution is
immoral, and the law will not consent to the latter remaining in the possession of
the manager or administrator who has refused to return them, by denying to the
partners the action to demand them. (Manresa, Commentaries on the Spanish Civil
Code, vol. XI, pp. 262-264)
The judgment appealed from, being in accordance with law, should be, as it is
hereby, affirmed with costs against the appellants; provided, however, the
defendants shall pay the legal interest on the sum of P24,607.80 from the date of
the decision of the court, and provided, further, that the defendants shall deposit
this sum of money and other documents evidencing uncollected credits in the
office of the clerk of the trial court, in order that said court may distribute them
among the members of said association, upon being duly identified in the manner
that it may deem proper. So ordered.
EUFEMIA EVANGELISTA, MANUELA EVANGELISTA, and FRANCISCA EVANGELISTA,
petitioners, vs.THE COLLECTOR OF INTERNAL REVENUE and THE COURT OF TAX
APPEALS, respondents.
This is a petition filed by Eufemia Evangelista, Manuela Evangelista and Francisca
Evangelista, for review of a decision of the Court of Tax Appeals, the dispositive
part of which reads:
FOR ALL THE FOREGOING, we hold that the petitioners are liable for the income
tax, real estate dealer's tax and the residence tax for the years 1945 to 1949,
inclusive, in accordance with the respondent's assessment for the same in the total
amount of P6,878.34, which is hereby affirmed and the petition for review filed by
petitioner is hereby dismissed with costs against petitioners.
It appears from the stipulation submitted by the parties:
1. That the petitioners borrowed from their father the sum of P59,1400.00
which amount together with their personal monies was used by them for the
purpose of buying real properties,.
2. That on February 2, 1943, they bought from Mrs. Josefina Florentino a lot
with an area of 3,713.40 sq. m. including improvements thereon from the sum of
P100,000.00; this property has an assessed value of P57,517.00 as of 1948;
3. That on April 3, 1944 they purchased from Mrs. Josefa Oppus 21 parcels
of land with an aggregate area of 3,718.40 sq. m. including improvements thereon
for P130,000.00; this property has an assessed value of P82,255.00 as of 1948;
4. That on April 28, 1944 they purchased from the Insular Investments Inc., dealer's fixed tax and corporation residence tax for the years 1945-1949,
a lot of 4,353 sq. m. including improvements thereon for P108,825.00. This computed, according to assessment made by said officer, as follows:
property has an assessed value of P4,983.00 as of 1948;

INCOME TAXES
5. That on April 28, 1944 they bought form Mrs. Valentina Afable a lot of
8,371 sq. m. including improvements thereon for P237,234.34. This property has an
assessed value of P59,140.00 as of 1948;
1945

6. That in a document dated August 16, 1945, they appointed their brother
Simeon Evangelista to 'manage their properties with full power to lease; to collect 14.84
and receive rents; to issue receipts therefor; in default of such payment, to bring
suits against the defaulting tenants; to sign all letters, contracts, etc., for and in
their behalf, and to endorse and deposit all notes and checks for them;
1946

7. That after having bought the above-mentioned real properties the

petitioners had the same rented or leases to various tenants; 1,144.71

8. That from the month of March, 1945 up to an including December, 1945, 1947
the total amount collected as rents on their real properties was P9,599.00 while
the expenses amounted to P3,650.00 thereby leaving them a net rental income of
P5,948.33;
10.34

9. That on 1946, they realized a gross rental income of in the sum of

1948
P24,786.30, out of which amount was deducted in the sum of P16,288.27 for
expenses thereby leaving them a net rental income of P7,498.13;

1,912.30
10. That in 1948, they realized a gross rental income of P17,453.00 out of the
which amount was deducted the sum of P4,837.65 as expenses, thereby leaving
them a net rental income of P12,615.35. 1949

It further appears that on September 24, 1954 respondent Collector of Internal 1,575.90
Revenue demanded the payment of income tax on corporations, real estate
Total including surcharge and compromise P527.00

P6,157.09 RESIDENCE TAXES OF CORPORATION

REAL ESTATE DEALER'S FIXED TAX 1945

1946 P38.75

P37.50 1946

1947 38.75

150.00 1947

1948 38.75

150.00 1948

1949 38.75

150.00 1949

Total including penalty 38.75


Total including surcharge
P193.75
TOTAL TAXES DUE
P6,878.34.
Said letter of demand and corresponding assessments were delivered to
petitioners on December 3, 1954, whereupon they instituted the present case in
the Court of Tax Appeals, with a prayer that "the decision of the respondent
contained in his letter of demand dated September 24, 1954" be reversed, and that
they be absolved from the payment of the taxes in question, with costs against the
respondent.
After appropriate proceedings, the Court of Tax Appeals the above-mentioned
decision for the respondent, and a petition for reconsideration and new trial having
been subsequently denied, the case is now before Us for review at the instance of
the petitioners.
The issue in this case whether petitioners are subject to the tax on corporations
provided for in section 24 of Commonwealth Act. No. 466, otherwise known as the
National Internal Revenue Code, as well as to the residence tax for corporations
and the real estate dealers fixed tax. With respect to the tax on corporations, the
issue hinges on the meaning of the terms "corporation" and "partnership," as used
in section 24 and 84 of said Code, the pertinent parts of which read:
SEC. 24. Rate of tax on corporations.There shall be levied, assessed, collected,
and paid annually upon the total net income received in the preceding taxable year
from all sources by every corporation organized in, or existing under the laws of the
Philippines, no matter how created or organized but not including duly registered
general co-partnerships (compaias colectivas), a tax upon such income equal to
the sum of the following: . . .
SEC. 84 (b). The term 'corporation' includes partnerships, no matter how created or
organized, joint-stock companies, joint accounts (cuentas en participacion),
associations or insurance companies, but does not include duly registered general
copartnerships. (compaias colectivas).
Article 1767 of the Civil Code of the Philippines provides:
By the contract of partnership two or more persons bind themselves to contribute
money, properly, or industry to a common fund, with the intention of dividing the
profits among themselves.
Pursuant to the article, the essential elements of a partnership are two, namely: (a)
an agreement to contribute money, property or industry to a common fund; and
(b) intent to divide the profits among the contracting parties. The first element is
undoubtedly present in the case at bar, for, admittedly, petitioners have agreed to,
and did, contribute money and property to a common fund. Hence, the issue
narrows down to their intent in acting as they did. Upon consideration of all the
facts and circumstances surrounding the case, we are fully satisfied that their
purpose was to engage in real estate transactions for monetary gain and then
divide the same among themselves, because:
1. Said common fund was not something they found already in existence. It
was not property inherited by them pro indiviso. They created it purposely. What is
more they jointly borrowed a substantial portion thereof in order to establish said
common fund.
2. They invested the same, not merely not merely in one transaction, but in
a series of transactions. On February 2, 1943, they bought a lot for P100,000.00. On
April 3, 1944, they purchased 21 lots for P18,000.00. This was soon followed on
April 23, 1944, by the acquisition of another real estate for P108,825.00. Five (5)
days later (April 28, 1944), they got a fourth lot for P237,234.14. The number of
lots (24) acquired and transactions undertaken, as well as the brief interregnum
between each, particularly the last three purchases, is strongly indicative of a
pattern or common design that was not limited to the conservation and
preservation of the aforementioned common fund or even of the property
acquired by the petitioners in February, 1943. In other words, one cannot but
perceive a character of habitually peculiar to business transactions engaged in the
purpose of gain.
3. The aforesaid lots were not devoted to residential purposes, or to other
personal uses, of petitioners herein. The properties were leased separately to
several persons, who, from 1945 to 1948 inclusive, paid the total sum of
P70,068.30 by way of rentals. Seemingly, the lots are still being so let, for
petitioners do not even suggest that there has been any change in the utilization
thereof.
4. Since August, 1945, the properties have been under the management of
one person, namely Simeon Evangelista, with full power to lease, to collect rents,
to issue receipts, to bring suits, to sign letters and contracts, and to indorse and
deposit notes and checks. Thus, the affairs relative to said properties have been
handled as if the same belonged to a corporation or business and enterprise
operated for profit.
5. The foregoing conditions have existed for more than ten (10) years, or, to
be exact, over fifteen (15) years, since the first property was acquired, and over
twelve (12) years, since Simeon Evangelista became the manager.
6. Petitioners have not testified or introduced any evidence, either on their
purpose in creating the set up already adverted to, or on the causes for its
continued existence. They did not even try to offer an explanation therefor.
Although, taken singly, they might not suffice to establish the intent necessary to
constitute a partnership, the collective effect of these circumstances is such as to
leave no room for doubt on the existence of said intent in petitioners herein. Only
one or two of the aforementioned circumstances were present in the cases cited
by petitioners herein, and, hence, those cases are not in point.
Petitioners insist, however, that they are mere co-owners, not copartners, for, in
consequence of the acts performed by them, a legal entity, with a personality
independent of that of its members, did not come into existence, and some of the
characteristics of partnerships are lacking in the case at bar. This pretense was
correctly rejected by the Court of Tax Appeals.
To begin with, the tax in question is one imposed upon "corporations", which,
strictly speaking, are distinct and different from "partnerships". When our Internal
Revenue Code includes "partnerships" among the entities subject to the tax on
"corporations", said Code must allude, therefore, to organizations which are not
necessarily "partnerships", in the technical sense of the term. Thus, for instance,
section 24 of said Code exempts from the aforementioned tax "duly registered
general partnerships which constitute precisely one of the most typical forms of
partnerships in this jurisdiction. Likewise, as defined in section 84(b) of said Code,
"the term corporation includes partnerships, no matter how created or organized."
This qualifying expression clearly indicates that a joint venture need not be
undertaken in any of the standard forms, or in conformity with the usual
requirements of the law on partnerships, in order that one could be deemed
constituted for purposes of the tax on corporations. Again, pursuant to said section
84(b), the term "corporation" includes, among other, joint accounts, (cuentas en
participation)" and "associations," none of which has a legal personality of its own,
independent of that of its members. Accordingly, the lawmaker could not have
regarded that personality as a condition essential to the existence of the
partnerships therein referred to. In fact, as above stated, "duly registered general
copartnerships" which are possessed of the aforementioned personality have
been expressly excluded by law (sections 24 and 84 [b] from the connotation of the
term "corporation" It may not be amiss to add that petitioners' allegation to the
effect that their liability in connection with the leasing of the lots above referred to,
under the management of one person even if true, on which we express no
opinion tends to increase the similarity between the nature of their venture and
that corporations, and is, therefore, an additional argument in favor of the
imposition of said tax on corporations.
Under the Internal Revenue Laws of the United States, "corporations" are taxed
differently from "partnerships". By specific provisions of said laws, such
"corporations" include "associations, joint-stock companies and insurance
companies." However, the term "association" is not used in the aforementioned
laws.

. . . in any narrow or technical sense. It includes any organization, created for the
transaction of designed affairs, or the attainment of some object, which like a
corporation, continues notwithstanding that its members or participants change,
and the affairs of which, like corporate affairs, are conducted by a single individual,
a committee, a board, or some other group, acting in a representative capacity. It is
immaterial whether such organization is created by an agreement, a declaration of
trust, a statute, or otherwise. It includes a voluntary association, a joint-stock
corporation or company, a 'business' trusts a 'Massachusetts' trust, a 'common law'
trust, and 'investment' trust (whether of the fixed or the management type), an
interinsuarance exchange operating through an attorney in fact, a partnership
association, and any other type of organization (by whatever name known) which is
not, within the meaning of the Code, a trust or an estate, or a partnership. (7A
Mertens Law of Federal Income Taxation, p. 788; emphasis supplied.).
Similarly, the American Law.
. . . provides its own concept of a partnership, under the term 'partnership 'it
includes not only a partnership as known at common law but, as well, a syndicate,
group, pool, joint venture or other unincorporated organizations which carries on
any business financial operation, or venture, and which is not, within the meaning
of the Code, a trust, estate, or a corporation. . . (7A Merten's Law of Federal
Income taxation, p. 789; emphasis supplied.)
The term 'partnership' includes a syndicate, group, pool, joint venture or other
unincorporated organization, through or by means of which any business, financial
operation, or venture is carried on, . . .. ( 8 Merten's Law of Federal Income
Taxation, p. 562 Note 63; emphasis supplied.) .
For purposes of the tax on corporations, our National Internal Revenue Code,
includes these partnerships with the exception only of duly registered general
copartnerships within the purview of the term "corporation." It is, therefore,
clear to our mind that petitioners herein constitute a partnership, insofar as said
Code is concerned and are subject to the income tax for corporations.
As regards the residence of tax for corporations, section 2 of Commonwealth Act
No. 465 provides in part:
Entities liable to residence tax.-Every corporation, no matter how created or
organized, whether domestic or resident foreign, engaged in or doing business in
the Philippines shall pay an annual residence tax of five pesos and an annual
additional tax which in no case, shall exceed one thousand pesos, in accordance
with the following schedule: . . .
The term 'corporation' as used in this Act includes joint-stock company,
partnership, joint account (cuentas en participacion), association or insurance
company, no matter how created or organized. (emphasis supplied.)
Considering that the pertinent part of this provision is analogous to that of section
24 and 84 (b) of our National Internal Revenue Code (commonwealth Act No. 466),
and that the latter was approved on June 15, 1939, the day immediately after the
approval of said Commonwealth Act No. 465 (June 14, 1939), it is apparent that the
terms "corporation" and "partnership" are used in both statutes with substantially
the same meaning. Consequently, petitioners are subject, also, to the residence tax
for corporations.
Lastly, the records show that petitioners have habitually engaged in leasing the
properties above mentioned for a period of over twelve years, and that the yearly
gross rentals of said properties from June 1945 to 1948 ranged from P9,599 to
P17,453. Thus, they are subject to the tax provided in section 193 (q) of our
National Internal Revenue Code, for "real estate dealers," inasmuch as, pursuant to
section 194 (s) thereof:
'Real estate dealer' includes any person engaged in the business of buying, selling,
exchanging, leasing, or renting property or his own account as principal and holding
himself out as a full or part time dealer in real estate or as an owner of rental
property or properties rented or offered to rent for an aggregate amount of three
thousand pesos or more a year. . . (emphasis supplied.)
Wherefore, the appealed decision of the Court of Tax appeals is hereby affirmed
with costs against the petitioners herein. It is so ordered.
Bengzon, Paras, C.J., Padilla, Reyes, A., Reyes, J.B.L., Endencia and Felix, JJ., concur.
BAUTISTA ANGELO, J., concurring:
I agree with the opinion that petitioners have actually contributed money to a
common fund with express purpose of engaging in real estate business for profit.
The series of transactions which they had undertaken attest to this. This appears in
the following portion of the decision:
2. They invested the same, not merely in one transaction, but in a series of
transactions. On February 2, 1943, they bought a lot for P100,000. On April 3, 1944,
they purchase 21 lots for P18,000. This was soon followed on April 23, 1944, by the
acquisition of another real state for P108,825. Five (5) days later (April 28, 1944),
they got a fourth lot for P237,234.14. The number of lots (24) acquired and
transactions undertaken, as well as the brief interregnum between each,
particularly the last three purchases, is strongly indicative of a pattern or common
design that was not limited to the conservation and preservation of the
aforementioned common fund or even of the property acquired by the petitioner
in February, 1943, In other words, we cannot but perceive a character of habitually
peculiar to business transactions engaged in for purposes of gain.
I wish however to make to make the following observation:
Article 1769 of the new Civil Code lays down the rule for determining when a
transaction should be deemed a partnership or a co-ownership. Said article
paragraphs 2 and 3, provides:
(2) Co-ownership or co-possession does not of itself establish a partnership,
whether such co-owners or co-possessors do or do not share any profits made by
the use of the property;
(3) The sharing of gross returns does not of itself establish partnership,
whether or not the person sharing them have a joint or common right or interest in
any property from which the returns are derived;
From the above it appears that the fact that those who agree to form a co-
ownership shared or do not share any profits made by the use of property held in
common does not convert their venture into a partnership. Or the sharing of the
gross returns does not of itself establish a partnership whether or not the persons
sharing therein have a joint or common right or interest in the property. This only
means that, aside from the circumstance of profit, the presence of other elements
constituting partnership is necessary, such as the clear intent to form a partnership,
the existence of a judicial personality different from that of the individual partners,
and the freedom to transfer or assign any interest in the property by one with the
consent of the others (Padilla, Civil Code of the Philippines Annotated, Vol. I, 1953
ed., pp. 635- 636).
It is evident that an isolated transaction whereby two or more persons contribute
funds to buy certain real estate for profit in the absence of other circumstances
showing a contrary intention cannot be considered a partnership.
Persons who contribute property or funds for a common enterprise and agree to
share the gross returns of that enterprise in proportion to their contribution, but
who severally retain the title to their respective contribution, are not thereby
rendered partners. They have no common stock or capital, and no community of
interest as principal proprietors in the business itself which the proceeds derived.
(Elements of the law of Partnership by Floyd R. Mechem, 2n Ed., section 83, p. 74.)
A joint venture purchase of land, by two, does not constitute a copartnership in
respect thereto; nor does not agreement to share the profits and loses on the sale
of land create a partnership; the parties are only tenants in common. (Clark vs.
Sideway, 142 U.S. 682, 12 S Ct. 327, 35 L. Ed., 1157.)

Where plaintiff, his brother, and another agreed to become owners of a single tract
of reality, holding as tenants in common, and to divide the profits of disposing of it,
the brother and the other not being entitled to share in plaintiff's commissions, no
partnership existed as between the parties, whatever relation may have been as to
third parties. (Magee vs. Magee, 123 N. E. 6763, 233 Mass. 341.)
In order to constitute a partnership inter sese there must be: (a) An intent to form
the same; (b) generally a participating in both profits and losses; (c) and such a
community of interest, as far as third persons are concerned as enables each party
to make contract, manage the business, and dispose of the whole property.
(Municipal Paving Co. vs Herring, 150 P. 1067, 50 Ill. 470.)
The common ownership of property does not itself create a partnership between
the owners, though they may use it for purpose of making gains; and they may,
without becoming partners, agree among themselves as to the management and
use of such property and the application of the proceeds therefrom. (Spurlock vs.
Wilson, 142 S. W. 363, 160 No. App. 14.)
This is impliedly recognized in the following portion of the decision: "Although,
taken singly, they might not suffice to establish the intent necessary to constitute a
partnership, the collective effect of these circumstances (referring to the series of
transactions) such as to leave no room for doubt on the existence of said intent in
petitioners herein."
JOHN FORTIS, plaintiff-appellee, vs.GUTIERREZ HERMANOS, defendants-
appellants.
Plaintiff, an employee of defendants during the years 1900, 1901, and 1902,
brought this action to recover a balance due him as salary for the year 1902. He
alleged that he was entitled, as salary, to 5 per cent of the net profits of the
business of the defendants for said year. The complaint also contained a cause of
action for the sum of 600 pesos, money expended by plaintiff for the defendants
during the year 1903. The court below, in its judgment, found that the contract had
been made as claimed by the plaintiff; that 5 per cent of the net profits of the
business for the year 1902 amounted to 26,378.68 pesos, Mexican currency; that
the plaintiff had received on account of such salary 12,811.75 pesos, Mexican
currency, and ordered judgment against the defendants for the sum 13,566.93
pesos, Mexican currency, with interest thereon from December 31, 1904. The court
also ordered judgment against the defendants for the 600 pesos mentioned in the
complaint, and intereat thereon. The total judgment rendered against the
defendants in favor of the plaintiff, reduced to Philippine currency, amounted to
P13,025.40. The defendants moved for a new trial, which was denied, and they
have brought the case here by bill of exceptions.
(1) The evidence is sufifcient to support the finding of the court below to the
effect that the plaintiff worked for the defendants during the year 1902 under a
contract by which he was to receive as compensation 5 per cent of the net profits
of the business. The contract was made on the part of the defendants by Miguel
Alonzo Gutierrez. By the provisions of the articles of partnership he was made one
of the managers of the company, with full power to transact all of the business
thereof. As such manager he had authority to make a contract of employment with
the plaintiff.
(2) Before answering in the court below, the defendants presented a motion
that the complaint be made more definite and certain. This motion was denied. To
the order denying it the defendants excepted, and they have assigned as error such
ruling of the court below. There is nothing in the record to show that the
defendants were in any way prejudiced by this ruling of the court below. If it were
error it was error without prejudice, and not ground for reversal. (Sec. 503, Code of
Civil Procedure.)
(3) It is claimed by the appellants that the contract alleged in the complaint
made the plaintiff a copartner of the defendants in the business which they were
carrying on. This contention can not bo sustained. It was a mere contract of
employnent. The plaintiff had no voice nor vote in the management of the affairs
of the company. The fact that the compensation received by him was to be
determined with reference to the profits made by the defendants in their business
did not in any sense make by a partner therein. The articles of partnership between
the defendants provided that the profits should be divided among the partners
named in a certain proportion. The contract made between the plaintiff and the
then manager of the defendant partnership did not in any way vary or modify this
provision of the articles of partnership. The profits of the business could not be
determined until all of the expenses had been paid. A part of the expenses to be
paid for the year 1902 was the salary of the plaintiff. That salary had to be
deducted before the net profits of the business, which were to be divided among
the partners, could be ascertained. It was undoubtedly necessary in order to
determine what the salary of the plaintiff was, to determine what the profits of the
business were, after paying all of the expenses except his, but that determination
was not the final determination of the net profits of the business. It was made for
the purpose of fixing the basis upon which his compensation should be
determined.
(4) It was no necessary that the contract between the plaintiff and the
defendants should be made in writing. (Thunga Chui vs. Que Bentec,1 1 Off. Gaz.,
818, October 8, 1903.)
(5) It appearred that Miguel Alonzo Gutierrez, with whom the plaintiff had
made the contract, had died prior to the trial of the action, and the defendants
claim that by reasons of the provisions of section 383, paragraph 7, of the Code of
Civil Procedure, plaintiff could not be a witness at the trial. That paragraph provides
that parties to an action against an executor or aministrator upon a claim or
demand against the estate of a deceased person can not testify as to any matter of
fact occurring before the death of such deceased person. This action was not
brought against the administrator of Miguel Alonzo, nor was it brought upon a
claim against his estate. It was brought against a partnership which was in
existence at the time of the trial of the action, and which was juridical person. The
fact that Miguel Alonzo had been a partner in this company, and that his interest
therein might be affected by the result of this suit, is not sufficient to bring the case
within the provisions of the section above cited.
(6) The plaintiff was allowed to testify against the objection and exception of
the defendants, that he had been paid as salary for the year 1900 a part of the
profits of the business. This evidence was competent for the purpose of
corroborating the testimony of the plaintiff as to the existence of the contract set
out in the complaint.
(7) The plaintiff was allowed to testify as to the contents of a certain letter
written by Miguel Glutierrez, one of the partners in the defendant company, to
Miguel Alonzo Gutierrez, another partner, which letter was read to plaintiff by
Miguel Alonzo. It is not necessary to inquire whether the court committed an error
in admitting this evidence. The case already made by the plaintiff was in itself
sufficient to prove the contract without reference to this letter. The error, if any
there were, was not prejudicial, and is not ground for revesal. (Sec. 503, Code of
Civil Procedure.)
(8) For the purpose of proving what the profits of the defendants were for
the year 1902, the plaintiff presented in evidence the ledger of defendants, which
contained an entry made on the 31st of December, 1902, as follows:
Perdidas y Ganancias ...................................... a Varios Ps. 527,573.66 Utilidades
liquidas obtenidas durante el ano y que abonamos conforme a la proporcion que
hemos establecido segun el convenio de sociedad.
The defendant presented as a witness on, the subject of profits Miguel Gutierrez,
one of the defendants, who testiffied, among other things, that there were no
profits during the year 1902, but, on the contrary, that the company suffered
considerable loss during that year. We do not think the evidence of this witnees
sufficiently definite and certain to overcome the positive evidence furnished by the
books of the defendants themselves.
(9) In reference to the cause of action relating to the 600 pesos, it appears
that the plaintiff left the employ of the defendants on the 19th of Macrh, 1903;
that at their request he went to Hongkong, and was there for about two months
looking after the business of the defendants in the matter of the repair of a certain
steamship. The appellants in their brief say that the plaintiff is entitled to no
compensation for his services thus rendered, because by the provisions of article
1711 of the Civil Code, in the absence of an agreement to the contrary, the
contract of agency is supposed to be gratuitous. That article i not applicable to this
case, because the amount of 600 pesos not claimed as compensation for services
but as a reimbursment for money expended by the plaintiff in the business of the
defendants. The article of the code that is applicable is article 1728.
The judgment of the court below is affirmed, with the costs, of this instance against
the appellants. After the expiration of twenty days from the date of this decision let
final judgment be entered herein, and ten days thereafter let the case be
remanded to the lower court for execution. So ordered.

VICENTE W. PASTOR, plaintiff-appellant, vs.MANUEL GASPAR, ET AL., defendants-
appellees.
There was no motion for a new trial in this case.
From the facts admitted by the pleadings and those found by the court, it appears
that in November, 1900, there existed in Manila a partnership composed of
Macario Nicasio and the defendant Gaspar under the name "Nicasio and Gaspar." It
owned the steam launch Luisa, and its only business was the relating to this launch.
Desiring to increase this business, on the 24th day of November, 1900, a contract
was made between the firm of Nicasio and Gaspar on the one side, and on the
other side the plaintiff, the defendants Eguia, Iboleon, and Monserrat, and one
Hermoso. This contract recites that Nicasio and Gaspar, by writing of the same
date, have enlarged the business of their partnership; have bought six lorchas,
which are named, and that, needing money with which to pay for the lorchas and
the necessary repairs thereon, the parties of the second part have furnished them
28,000 pesos as loan, the amount furnished by each being named. The firm of
Nicasio and Gaspar then acknowledges the receipt of these amounts. The fifth
clause of the contract is as follows:
Fifth. The partnership of Nicasio and Gaspar undertakes to return to the said Eguia,
Monserrat, Iboleon, Pastor, and Hermoso the said total sum of 28,000 pesos within
the period of ten years from the date of the instrument, and to guarantee the
fulfillment of said payment they pledge to said parties the said lorchas Pepay, Lola,
Consuelo, India, Niceta, and Castellana, in the sums respectively which said parties
have furnished for the purchase and repair of said vessels, as before stated, ceding
and assigning to said parties, in like proportions the profits and gains which may be
realized from the exploitation of said vessels; the said vessels to be the property of
said Eguia, Monserrat, Iboleon, Pastor, and Hermoso, and of the parties of the first
part, proportionate with the sums which the said parties have invested in said
vessels; the management of said vessels during the time in which said debt remains
unpaid to remain with the partnership of Nicasio and Gaspar, with the
understanding that whatever may be the result of the business of said vessels,
neither the said partnership nor the parties of the first part shall become
responsible for the payment of said debt, except in so far as the said vessels shall
respond therefor, and in no event shall they respond therefor with any other
property; injuries to and all losses of said lorchas to be shared by all the parties
hereto, as well as crews' expenses and other outlays necessary for the preservation
of said vessels, in the proportion which corresponds to each party hereto according
to his investment; the parties of the first part binding themselves not to encumber
or pledge said vessels while said debt remains unsatisfied to the parties of the
second part.
It was provided in the seventh clause that the launch Luisa was not included in this
contract.
It is alleged in the complaint, and not denied by the answer, that the contract thus
entered into on November 24, 1900, was in July, 1901, dissolved and terminated,
and the lorchas sold by mutual consent.
The cause of action set forth in the complaint is that there was actually a
partnership between the parties to the contract of November 24, and that the
consent of the agent of the plaintiff to its dissolution and the sale of the lorchas
was obtained by fraud of the defendants. The prayer of the complaint is that the
dissolution of the partnership and the sale of the lorchas be declared null, and that
the plaintiff be restored to his rights therein, and if this can not be done that he
recover of the defendants damages in the sum of 42,500 pesos.
1. The plaintiff, who was defeated in the court below and who has appealed, claims
that the contract of November 24, 1900, created a partnership between the parties
to it.
While all the court are of the opinion that the judgment should be affirmed, we are
not agreed as to the proper construction to be put upon this document. The
opinion of the writer is that held by the court below, viz, that upon the face of the
contract the plaintiff was a creditor and not a partner. The contract is not clearly
drawn, but the following seem to indicate that the transaction was rather a loan
than a contract of partnership: (1) In the beginning it is twice stated positively that
Nicasio and Gaspar are the only partners and the only persons interested in the
partnership of Nicasio and Gaspar. These statements the plaintiff assented to when
he signed the document. (2) In the second paragraph, and again in the fourth, it is
stated, also, distinctly and positively, that the money has been furnished as a loan.
(3) In the fifth paragraph, hereinbefore quoted, Nicasio and Gaspar bind
themselves to repay the amount, something that they would not be bound to do
were the contract one of partnership. (4) In the same paragraph Nicasio and
Gaspar create in favor of the plaintiff and his associates a right of pledge over the
lorchas, a thing inconsistent with the idea of partnership. this paragraph should not
be construed as transferring the ownership of the lorchas themselves to the second
parties. Although the words "las cuales" would grammatically refer to the
preceding word "embarcaciones," yet such a construction would be inconsistent
with what has been before stated in the same paragraph as to the pledge. (5) By
the same paragraph Nicasio and Gaspar are to be considered consignees only as
long as they do not pay the debt. This indicates that they had a right to pay it. (6)
By the last clause of this paragraph they bind themselves not to alienate the
lorchas until they had paid the debt, indicating clearly that by paying the debt they
could do so, a thing consistent with the idea of a partnership. (7) By the seventh
paragraph of this contract it is stated that the launch Luisa is not included in the
contract.
The claim of the plaintiff that by this document he became a partner in the firm of
Nicasio and Gaspar can not in any event be sustained. That firm was engaged in
business with the launch Luisa. With this the plaintiff and his associates had
nothing to do.
It appears, also, from this contract that when Nicasio and Gaspar enlarged their
business they could devote themselves not only to the launch Luisa and the six
lorchas in question but also to other craft. With such other business the plaintiff
would have nothing to do. The most that he can claim is not that he was a partner
in the firm of Nicasio and Gaspar, but that he and his associates, in connection with
that firm, had formed another partnership to manage these lorchas. The fact that
the plaintiff was to share in the profits and losses of the business and that Nicasio
and Gaspar should answer for the payment of the debt only with the lorchas, and
not with their own property, indicates that the plaintiff was a partner. But these
provisions are not conclusive. This is a suit between the parties to the contract. The
rights of third persons are not concerned. Whether the plaintiff would be a partner
as to such third persons is not to be determined. As between themselves the
parties could make any contract that pleased them, provided that it was not illegal
(art. 1255, Civil Code). They could, in making this contract, if they chose, take some
provision from the law of partnership and others from the law of loans. Loans with
a right to receive a part of the profits in lieu of interest are not uncommon. As
between the parties, such contract is not one of partnership.
The question on this branch of the case is whether the contract on its face creates
a partnership or not. The court finds that the plaintiff believed that he could not be
a partner because he was a Spanish subject. There can therefore be no doubt as to
his intention in signing this contract. He did not believe that on its face it made him
a partner. If he had so believed, he would not have signed it. If he was willing to
sign a contract which on its face made him a partner, he and his associates would
have joined with Nicasio and Gaspar in the amended articles of partnership which
they signed on this very day, and this second document would have been entirely
unnecessary. The inference from these facts is so strong that it can not be
overcome by the fact that in subsequent dealings the parties called themselves
partners. The plaintiff undoubtedly wished to secure, as far as he could, the rights
of a partner without making himself one.
The contract, in the opinion of the writer, was that Nicasio and Gaspar should take
the money of the other parties to the contract, manage the business as they saw
fit, pay the investors their share of the profits as long as the business continued,
and not to sell the lorchas until they had been so repaid. Anything more than this
would have made the investors partners according to the instrument itself, the one
thing which they were seeking to avoid. It may be added that, in a similar contract
which the plaintiff made with Nicasio in April, 1900, he in 1902 considered himself
a creditor and made a demand on Nicasio for the payment of the debt.
It is claimed by the plaintiff that even if the transaction was a loan, it could not be
terminated without his consent until the expiration of the period of ten years.
Article 1127 of the Civil Code does not say that the period allowed for the
performance of an obligation is for the benefit of the creditor as well as the debtor.
It says that it shall be so presumed unless the contrary appears. In this case the
contrary does appear in two clauses hereinbefore cited under (5) and (6). Upon
paying the loan at the end of ten years, they would have had the undoubted right
to mortgage or sell the lorchas, and then by the mere act of payment would have
ceased to be consignees thereof. No declaration of that kind in the contract was at
all necessary. These rights would result as a matter of law. The insertion of these
clauses can only be explained on the theory that the period was for the benefit of
the debtors alone, and that they would be at liberty at any time, even before the
expiration of ten years, to sell the property, provided they repaid the loan.
2. It is further claimed by the plaintiff that, even if the contract itself did not make
them partners, there was a verbal agreement that they should be partners. The
court refused to allow him to answer certain questions relating to this matter. His
exception is stated as follows in the bill of exceptions: "The plaintiff in his first
testimony attempted to set forth the verbal agreements by virtue of which he was
in reality a partner in the firm of Nicasio and Gaspar. The court ruled this evidence
out for the reason that the name of the plaintiff does not appear in the articles of
partnership of Nicasio and Gaspar. The plaintiff excepted to the ruling."
There are several reasons why the court was correct in its ruling.
(1) Although the offer was to show that he was a partner in the firm of
Nicasio and Gaspar something not claimed in the complaint it is probable that
the purpose was to show a contract of partnership between Nicasio and Gaspar on
the one hand and the plaintiff and his associates on the other. The statements at
the trial indicates this. The bill of exceptions does not show what verbal
agreements the plaintiff, would have testified to if he had been allowed to do so.
But in his brief in this court he says:
(b) That the firm was organized verbally on said date for a period of ten
years; (c) that the rights and obligations of the partners were set forth in document
No. 945 of the said date, although it may be stated in said document that the
contract in reference was a contract of pledge.
If, as thus appears, all the rights and obligations which were verbally agreed to
were afterwards embodied in a written instrument which was offered in evidence,
the plaintiff has not been prejudiced by not being allowed to testify that these
agreements were first made verbally. All of them having been included in the
written document, he could testify to nothing more. If all the agreements as to the
rights and obligations of the parties were embodied in the written contract, the
additional verbal agreement that they should be partners would be but their
opinion as to the nature of the said written contract and would add nothing to it.
(2) The parties made a verbal agreement which they afterwards reduced to
writing. Section 285 of the Code of Civil Procedure prohibits any parol evidence as
to other terms not contained in the writing. Under this section, even if there had
been agreements other than those contained in the instrument and inconsistent
therewith, the plaintiff could not testify to them. The plaintiff claims that this
section does not prohibit evidence as to the surrounding circumstances. This is
true, and the plaintiff was the trial allowed to testify that he brought the lorchas
himself in Iloilo; that he was paid $500 for so doing; that $20,000 was borrowed
from the Banco Espaol -- Filipino for the purpose of paying for them; and as to
other details. There was no intrinsic ambiguity in the contract which required
explanation. When a written contract is vague and indefinite, it can be explained by
showing what the surrounding circumstances were (sec. 289), but not by showing
by parol what the prior agreement in fact was.
3. The court refused to receive in evidence a letter written by Hermoso to the
plaintiff, and the latter excepted. there was no error in this ruling. The plaintiff
could not prove the facts stated in this letter in this way. He should have called
Hermoso or other persons as witnesses to do so, and given the defendants the
right to cross-examine them. (Sec. 381, Code of Civil Procedure.)
4. The following exception appears in the record:
During the examination of Lino Eguia, he was asked by the plaintiff to state, either
by means of the document or the answer to the complaint, who was intrusted with
the purchase of the lorchas. The court ruled out the question and the plaintiff
excepted.
This ruling was correct for two reasons: (1) The documents themselves showed the
facts. (2) The plaintiff had already testified without objection that he brought the
lorchas in Iloilo by direction of Nicasio and Gaspar. The refusal to allow this witness
to testify, on a matter as to which there was no dispute, could not have prejudiced
the plaintiff.
5. Nicasio was asked if the capital in Nicasio and Gaspar which stood in his name
was all his own. This question was ruled out and the plaintiff excepted. If the
question referred to the original contract of partnership, and the plaintiff desired
to show that he had contributed money thereto, he could not have been
prejudiced by the ruling because the witness had already testified that it was
contributed in fact by the plaintiff. This fact also appeared during the trial from the
document No. 325 of April 26, 1900, between the witness and the plaintiff. If he
wished to show that a part of the capital standing in the name of Nicasio, in the
amended articles of partnership, was furnished by the plaintiff and others, he was
not prejudiced by the ruling, for this all appeared from the contract of November
24, 1900, so many times referred to. If he desired to show that Nicasio had
borrowed a part of his capital from some person not connected with this suit, the
question was immaterial and was properly excluded. In such a case it would be no
concern of the plaintiff whose money this was.
6. The following exception appears in the record:
During the examination of the witness Joaquin Salvador, he was asked on cross-
examination by plaintiff to state if he, as attorney in fact of the partner Hermoso in
the meetings of the partners preliminary to the sale of the lorchas, would have
consented to the dissolution of the partnership had he known that the partnership
would be immediately reorganized with the same lorchas and the same partners
with the exception of Nicasio, Hermoso, and Pastor. The court ruled the question
out and the plaintiff excepted.
This ruling was correct. What Salvador would have done was of no importance. The
plaintiff's agent was allowed to testify that he would not have given the plaintiff's
consent if he had known that the defendants intended to continue the business.
7. The assignment of error as to the bills of Warner, Barnes and Co. is not sustained
by the bill of exceptions. It is stated therein (fol. 25) that these documents were
admitted.
8. The question as to whether the power of attorney given by the plaintiff to
Nicasio was sufficient to authorize the latter to consent for the plaintiff to the
cancellation of the contract was not raised by any exception at the trial and is not
the subject of any assignment of error in this court.
9. The claim of the plaintiff, as has been said before, was (1) that he was a partner,
and (2) that the cancellation of the agreement of partnership had been procured by
fraud. The judge made a finding upon the first claim, but not upon the second;
although the finding that he made was sufficient to determine the case before him,
yet he should have found upon all the issues presented by the pleadings. But this
omission does not require a reversal of the judgment. If the court below was right
in the construction of the document, it of course does not, for the decision would
then contain facts sufficient to justify the judgment. But even if it were not, the
same thing would result. It is a fact clearly admitted by the pleadings, and
therefore not required to be stated in the decision, that this contract of November
24, 1900, was canceled and the arrangement, whatever it was, dissolved. To this
dissolution the plaintiff through his agent consented. This is alleged in the
complaint, although it is there stated that such consent was obtained by fraud. The
facts admitted in the pleadings and stated in the decision showing, therefore, that
the plaintiff had surrendered his rights, and there being no finding that such
surrender was obtained by fraud, the defendants are, on such admissions and
findings, entitled to judgment. We reach this conclusion the more willingly because
a majority of the court is of the opinion that the evidence in the case was not
sufficient to show any fraud on the part of the defendants.lawphil.net
The judgment is affirmed, with the costs of this instance against the appellant.
Judgment will be entered accordingly twenty days after the filing of this decision.
Arellano, C.J., Torres, Mapa, and McDonough, JJ., concur.
Separate Opinions
COOPER, J., concurring:
The cause of action set forth in the complaint is that there was a partnership
between the plaintiff and the defendants, which was, in July, 1901, dissolved and
terminated between the parties thereto, the plaintiff acting through his agent in
said dissolution; that the consent of the agent to the dissolution was obtained by
the fraud of the defendant, and the prayer of the complaint is that this dissolution
of the partnership and the sale of the lorchas be declared null and that the plaintiff
be restored to this rights therein; and he prays in the alternative that, if this can
not be done, the recover of the defendants damages in the sum of 42,500 pesos.
The issues thus made were determined against the plaintiff by the judgment of the
Court of First Instance. It is asked that we review the evidence taken in the court
below and retry the questions of fact involved in the decision of the case that is,
whether the dissolution was obtained by the fraud of the defendants.
It is expressly provided by section 497, Code of Civil Procedure, that in hearings
upon bills of exceptions the Supreme Court shall not review the evidence taken in
the court below, nor retry the questions of fact except in certain cases, one of
which is: "If the excepting party filed a motion in the Court of First Instance for a
new trial, upon the grounds that the findings of fact were plainly and manifestly
against the weight of evidence, and the judge overruled said motion and due
exception was taken to his overruling same the Supreme Court may review the
evidence and make such finding upon the facts and render such final judgment as
justice and equity require." There was no motion of this character, for a new trial in
the Court of First Instance, nor upon the other grounds mentioned in section 497;
consequently we can not review the evidence contained in the bill of exceptions.
Upon this ground I concur in the decision.
I am of the opinion that the fifth clause of the agreement entered into on the 24th
day of November, 1900, set forth in the majority opinion, is sufficient to show that
a partnership existed between Nicasio and Gaspar, Eugia, Monserrat, Iboleon,
Pastor, and Hermoso.
A partnership is defined in article 1665 of the Civil Code as "a contract by which
two or more persons bind themselves to place money, property, or industry in
common with the intention of dividing the profits among themselves.lawphil.net
The fact that the plaintiff was to share in the profits and loses of the business
indicates that the plaintiff was a partner in the business. It was expressly provided
in this clause of the contract that the parties thereto should be entitled "in like
proportion to the profits and gains which may be realized from the exploitation of
said vessels" and that "the injuries to and all losses of said lorchas to be shared by
all the parties hereto, as well ad the crew's expense and other outlays necessary
for the preservation of said vessels, in the proportion which corresponds to each
party, according to his investment."
The fact that the lorchas were to remain the property of Nicasio and Gaspar, and
that these lorchas were pledged for the return of the 28,000 pesos denominated as
a loan, would not have the effect of changing the nature of the agreement.
The stipulations contained in the contract were such as might be lawfully made
between the parties themselves, though they may not have been binding with
respect to third persons.
ALFREDO N. AGUILA, JR, petitioner, vs. HONORABLE COURT OF APPEALS and
FELICIDAD S. VDA. DE ABROGAR, respondents.
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:
Plaintiffs 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.
....
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 plaintiff-appellant 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.
....
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 plaintiff-appellant. The loan
was payable within ninety (90) days, the period within which plaintiff-appellant can
repurchase the property. Plaintiff-appellant 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.
....
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 defendant-appellee 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.
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs.WILLIAM J. SUTER and
THE COURT OF TAX APPEALS, respondents.
A limited partnership, named "William J. Suter 'Morcoin' Co., Ltd.," was formed on
30 September 1947 by herein respondent William J. Suter as the general partner,
and Julia Spirig and Gustav Carlson, as the limited partners. The partners
contributed, respectively, P20,000.00, P18,000.00 and P2,000.00 to the
partnership. On 1 October 1947, the limited partnership was registered with the
Securities and Exchange Commission. The firm engaged, among other activities, in
the importation, marketing, distribution and operation of automatic phonographs,
radios, television sets and amusement machines, their parts and accessories. It had
an office and held itself out as a limited partnership, handling and carrying
merchandise, using invoices, bills and letterheads bearing its trade-name,
maintaining its own books of accounts and bank accounts, and had a quota
allocation with the Central Bank.
In 1948, however, general partner Suter and limited partner Spirig got married and,
thereafter, on 18 December 1948, limited partner Carlson sold his share in the
partnership to Suter and his wife. The sale was duly recorded with the Securities
and Exchange Commission on 20 December 1948.
The limited partnership had been filing its income tax returns as a corporation,
without objection by the herein petitioner, Commissioner of Internal Revenue, until
in 1959 when the latter, in an assessment, consolidated the income of the firm and
the individual incomes of the partners-spouses Suter and Spirig resulting in a
determination of a deficiency income tax against respondent Suter in the amount
of P2,678.06 for 1954 and P4,567.00 for 1955.
Respondent Suter protested the assessment, and requested its cancellation and
withdrawal, as not in accordance with law, but his request was denied. Unable to
secure a reconsideration, he appealed to the Court of Tax Appeals, which court,
after trial, rendered a decision, on 11 November 1965, reversing that of the
Commissioner of Internal Revenue.
The present case is a petition for review, filed by the Commissioner of Internal
Revenue, of the tax court's aforesaid decision. It raises these issues:
(a) Whether or not the corporate personality of the William J. Suter "Morcoin" Co.,
Ltd. should be disregarded for income tax purposes, considering that respondent
William J. Suter and his wife, Julia Spirig Suter actually formed a single taxable unit;
and
(b) Whether or not the partnership was dissolved after the marriage of the
partners, respondent William J. Suter and Julia Spirig Suter and the subsequent sale
to them by the remaining partner, Gustav Carlson, of his participation of P2,000.00
in the partnership for a nominal amount of P1.00.
The theory of the petitioner, Commissioner of Internal Revenue, is that the
marriage of Suter and Spirig and their subsequent acquisition of the interests of
remaining partner Carlson in the partnership dissolved the limited partnership, and
if they did not, the fiction of juridical personality of the partnership should be
disregarded for income tax purposes because the spouses have exclusive
ownership and control of the business; consequently the income tax return of
respondent Suter for the years in question should have included his and his wife's
individual incomes and that of the limited partnership, in accordance with Section
45 (d) of the National Internal Revenue Code, which provides as follows:
(d) Husband and wife. In the case of married persons, whether citizens,
residents or non-residents, only one consolidated return for the taxable year shall
be filed by either spouse to cover the income of both spouses; ....
In refutation of the foregoing, respondent Suter maintains, as the Court of Tax
Appeals held, that his marriage with limited partner Spirig and their acquisition of
Carlson's interests in the partnership in 1948 is not a ground for dissolution of the
partnership, either in the Code of Commerce or in the New Civil Code, and that
since its juridical personality had not been affected and since, as a limited
partnership, as contra distinguished from a duly registered general partnership, it is
taxable on its income similarly with corporations, Suter was not bound to include in
his individual return the income of the limited partnership.
We find the Commissioner's appeal unmeritorious.
The thesis that the limited partnership, William J. Suter "Morcoin" Co., Ltd., has
been dissolved by operation of law because of the marriage of the only general
partner, William J. Suter to the originally limited partner, Julia Spirig one year after
the partnership was organized is rested by the appellant upon the opinion of now
Senator Tolentino in Commentaries and Jurisprudence on Commercial Laws of the
Philippines, Vol. 1, 4th Ed., page 58, that reads as follows:
A husband and a wife may not enter into a contract of general copartnership,
because under the Civil Code, which applies in the absence of express provision in
the Code of Commerce, persons prohibited from making donations to each other
are prohibited from entering into universal partnerships. (2 Echaverri 196) It
follows that the marriage of partners necessarily brings about the dissolution of a
pre-existing partnership. (1 Guy de Montella 58)
The petitioner-appellant has evidently failed to observe the fact that William J.
Suter "Morcoin" Co., Ltd. was not a universal partnership, but a particular one. As
appears from Articles 1674 and 1675 of the Spanish Civil Code, of 1889 (which was
the law in force when the subject firm was organized in 1947), a universal
partnership requires either that the object of the association be all the present
property of the partners, as contributed by them to the common fund, or else "all
that the partners may acquire by their industry or work during the existence of the
partnership". William J. Suter "Morcoin" Co., Ltd. was not such a universal
partnership, since the contributions of the partners were fixed sums of money,
P20,000.00 by William Suter and P18,000.00 by Julia Spirig and neither one of them
was an industrial partner. It follows that William J. Suter "Morcoin" Co., Ltd. was
not a partnership that spouses were forbidden to enter by Article 1677 of the Civil
Code of 1889.
The former Chief Justice of the Spanish Supreme Court, D. Jose Casan, in his
Derecho Civil, 7th Edition, 1952, Volume 4, page 546, footnote 1, says with regard
to the prohibition contained in the aforesaid Article 1677:
Los conyuges, segun esto, no pueden celebrar entre si el contrato de sociedad
universal, pero o podran constituir sociedad particular? Aunque el punto ha sido
muy debatido, nos inclinamos a la tesis permisiva de los contratos de sociedad
particular entre esposos, ya que ningun precepto de nuestro Codigo los prohibe, y
hay que estar a la norma general segun la que toda persona es capaz para
contratar mientras no sea declarado incapaz por la ley. La jurisprudencia de la
Direccion de los Registros fue favorable a esta misma tesis en su resolution de 3 de
febrero de 1936, mas parece cambiar de rumbo en la de 9 de marzo de 1943.
Nor could the subsequent marriage of the partners operate to dissolve it, such
marriage not being one of the causes provided for that purpose either by the
Spanish Civil Code or the Code of Commerce.
The appellant's view, that by the marriage of both partners the company became a
single proprietorship, is equally erroneous. The capital contributions of partners
William J. Suter and Julia Spirig were separately owned and contributed by them
before their marriage; and after they were joined in wedlock, such contributions
remained their respective separate property under the Spanish Civil Code (Article
1396):
The following shall be the exclusive property of each spouse:
(a) That which is brought to the marriage as his or her own; ....
Thus, the individual interest of each consort in William J. Suter "Morcoin" Co., Ltd.
did not become common property of both after their marriage in 1948.
It being a basic tenet of the Spanish and Philippine law that the partnership has a
juridical personality of its own, distinct and separate from that of its partners
(unlike American and English law that does not recognize such separate juridical
personality), the bypassing of the existence of the limited partnership as a taxpayer
can only be done by ignoring or disregarding clear statutory mandates and basic
principles of our law. The limited partnership's separate individuality makes it
impossible to equate its income with that of the component members. True,
section 24 of the Internal Revenue Code merges registered general co-partnerships
(compaias colectivas) with the personality of the individual partners for income
tax purposes. But this rule is exceptional in its disregard of a cardinal tenet of our
partnership laws, and can not be extended by mere implication to limited
partnerships.
The rulings cited by the petitioner (Collector of Internal Revenue vs. University of
the Visayas, L-13554, Resolution of 30 October 1964, and Koppel [Phil.], Inc. vs.
Yatco, 77 Phil. 504) as authority for disregarding the fiction of legal personality of
the corporations involved therein are not applicable to the present case. In the
cited cases, the corporations were already subject to tax when the fiction of their
corporate personality was pierced; in the present case, to do so would exempt the
limited partnership from income taxation but would throw the tax burden upon the
partners-spouses in their individual capacities. The corporations, in the cases cited,
merely served as business conduits or alter egos of the stockholders, a factor that
justified a disregard of their corporate personalities for tax purposes. This is not
true in the present case. Here, the limited partnership is not a mere business
conduit of the partner-spouses; it was organized for legitimate business purposes;
it conducted its own dealings with its customers prior to appellee's marriage, and
had been filing its own income tax returns as such independent entity. The change
in its membership, brought about by the marriage of the partners and their
subsequent acquisition of all interest therein, is no ground for withdrawing the
partnership from the coverage of Section 24 of the tax code, requiring it to pay
income tax. As far as the records show, the partners did not enter into matrimony
and thereafter buy the interests of the remaining partner with the premeditated
scheme or design to use the partnership as a business conduit to dodge the tax
laws. Regularity, not otherwise, is presumed.
As the limited partnership under consideration is taxable on its income, to require
that income to be included in the individual tax return of respondent Suter is to
overstretch the letter and intent of the law. In fact, it would even conflict with
what it specifically provides in its Section 24: for the appellant Commissioner's
stand results in equal treatment, tax wise, of a general copartnership (compaia
colectiva) and a limited partnership, when the code plainly differentiates the two.
Thus, the code taxes the latter on its income, but not the former, because it is in
the case of compaias colectivas that the members, and not the firm, are taxable in
their individual capacities for any dividend or share of the profit derived from the
duly registered general partnership (Section 26, N.I.R.C.; Araas, Anno. & Juris. on
the N.I.R.C., As Amended, Vol. 1, pp. 88-89).lawphi1.nt
But it is argued that the income of the limited partnership is actually or
constructively the income of the spouses and forms part of the conjugal
partnership of gains. This is not wholly correct. As pointed out in Agapito vs. Molo
50 Phil. 779, and People's Bank vs. Register of Deeds of Manila, 60 Phil. 167, the
fruits of the wife's parapherna become conjugal only when no longer needed to
defray the expenses for the administration and preservation of the paraphernal
capital of the wife. Then again, the appellant's argument erroneously confines itself
to the question of the legal personality of the limited partnership, which is not
essential to the income taxability of the partnership since the law taxes the income
of even joint accounts that have no personality of their own. 1 Appellant is,
likewise, mistaken in that it assumes that the conjugal partnership of gains is a
taxable unit, which it is not. What is taxable is the "income of both spouses"
(Section 45 [d] in their individual capacities. Though the amount of income (income
of the conjugal partnership vis-a-vis the joint income of husband and wife) may be
the same for a given taxable year, their consequences would be different, as their
contributions in the business partnership are not the same.
The difference in tax rates between the income of the limited partnership being
consolidated with, and when split from the income of the spouses, is not a
justification for requiring consolidation; the revenue code, as it presently stands,
does not authorize it, and even bars it by requiring the limited partnership to pay
tax on its own income.
FOR THE FOREGOING REASONS, the decision under review is hereby affirmed. No
costs.
IN THE MATTER OF THE PETITION FOR AUTHORITY TO CONTINUE USE OF THE
FIRM NAME "OZAETA, ROMULO, DE LEON, MABANTA & REYES." RICARDO J.
ROMULO, BENJAMIN M. DE LEON, ROMAN MABANTA, JR., JOSE MA, REYES,
JESUS S. J. SAYOC, EDUARDO DE LOS ANGELES, and JOSE F. BUENAVENTURA,
petitioners.
Two separate Petitions were filed before this Court 1) by the surviving partners of
Atty. Alexander Sycip, who died on May 5, 1975, and 2) by the surviving partners of
Atty. Herminio Ozaeta, who died on February 14, 1976, praying that they be
allowed to continue using, in the names of their firms, the names of partners who
had passed away. In the Court's Resolution of September 2, 1976, both Petitions
were ordered consolidated.
Petitioners base their petitions on the following arguments:
1. Under the law, a partnership is not prohibited from continuing its
business under a firm name which includes the name of a deceased partner; in fact,
Article 1840 of the Civil Code explicitly sanctions the practice when it provides in
the last paragraph that: t.hqw
The use by the person or partnership continuing the business of the partnership
name, or the name of a deceased partner as part thereof, shall not of itself make
the individual property of the deceased partner liable for any debts contracted by
such person or partnership. 1
2. In regulating other professions, such as accountancy and engineering, the
legislature has authorized the adoption of firm names without any restriction as to
the use, in such firm name, of the name of a deceased partner; 2 the legislative
authorization given to those engaged in the practice of accountancy a profession
requiring the same degree of trust and confidence in respect of clients as that
implicit in the relationship of attorney and client to acquire and use a trade
name, strongly indicates that there is no fundamental policy that is offended by the
continued use by a firm of professionals of a firm name which includes the name of
a deceased partner, at least where such firm name has acquired the characteristics
of a "trade name." 3
3. The Canons of Professional Ethics are not transgressed by the continued
use of the name of a deceased partner in the firm name of a law partnership
because Canon 33 of the Canons of Professional Ethics adopted by the American
Bar Association declares that: t.hqw
... The continued use of the name of a deceased or former partner when
permissible by local custom, is not unethical but care should be taken that no
imposition or deception is practiced through this use. ... 4
4. There is no possibility of imposition or deception because the deaths of
their respective deceased partners were well-publicized in all newspapers of
general circulation for several days; the stationeries now being used by them carry
new letterheads indicating the years when their respective deceased partners were
connected with the firm; petitioners will notify all leading national and
international law directories of the fact of their respective deceased partners'
deaths. 5
5. No local custom prohibits the continued use of a deceased partner's
name in a professional firm's name; 6 there is no custom or usage in the
Philippines, or at least in the Greater Manila Area, which recognizes that the name
of a law firm necessarily Identifies the individual members of the firm. 7
6. The continued use of a deceased partner's name in the firm name of law
partnerships has been consistently allowed by U.S. Courts and is an accepted
practice in the legal profession of most countries in the world. 8
The question involved in these Petitions first came under consideration by this
Court in 1953 when a law firm in Cebu (the Deen case) continued its practice of
including in its firm name that of a deceased partner, C.D. Johnston. The matter
was resolved with this Court advising the firm to desist from including in their firm
designation the name of C. D. Johnston, who has long been dead."
The same issue was raised before this Court in 1958 as an incident in G. R. No. L-
11964, entitled Register of Deeds of Manila vs. China Banking Corporation. The law
firm of Perkins & Ponce Enrile moved to intervene as amicus curiae. Before acting
thereon, the Court, in a Resolution of April 15, 1957, stated that it "would like to be
informed why the name of Perkins is still being used although Atty. E. A. Perkins is
already dead." In a Manifestation dated May 21, 1957, the law firm of Perkins and
Ponce Enrile, raising substantially the same arguments as those now being raised
by petitioners, prayed that the continued use of the firm name "Perkins & Ponce
Enrile" be held proper.
On June 16, 1958, this Court resolved: t.hqw Code prohibits a third person from including his name in the firm name under pain
After carefully considering the reasons given by Attorneys Alfonso Ponce Enrile and
Associates for their continued use of the name of the deceased E. G. Perkins, the
Court found no reason to depart from the policy it adopted in June 1953 when it
required Attorneys Alfred P. Deen and Eddy A. Deen of Cebu City to desist from
including in their firm designation, the name of C. D. Johnston, deceased. The Court
believes that, in view of the personal and confidential nature of the relations
between attorney and client, and the high standards demanded in the canons of
professional ethics, no practice should be allowed which even in a remote degree
could give rise to the possibility of deception. Said attorneys are accordingly
advised to drop the name "PERKINS" from their firm name.
Petitioners herein now seek a re-examination of the policy thus far enunciated by
the Court.
The Court finds no sufficient reason to depart from the rulings thus laid down.
A. Inasmuch as "Sycip, Salazar, Feliciano, Hernandez and Castillo" and
"Ozaeta, Romulo, De Leon, Mabanta and Reyes" are partnerships, the use in their
partnership names of the names of deceased partners will run counter to Article
1815 of the Civil Code which provides: t.hqw
Art. 1815. Every partnership shall operate under a firm name, which may
or may not include the name of one or more of the partners.
Those who, not being members of the partnership, include their names in the firm
name, shall be subject to the liability, of a partner.
It is clearly tacit in the above provision that names in a firm name of a partnership
must either be those of living partners and. in the case of non-partners, should be
living persons who can be subjected to liability. In fact, Article 1825 of the Civil
of assuming the liability of a partner. The heirs of a deceased partner in a law firm
cannot be held liable as the old members to the creditors of a firm particularly
where they are non-lawyers. Thus, Canon 34 of the Canons of Professional Ethics
"prohibits an agreement for the payment to the widow and heirs of a deceased
lawyer of a percentage, either gross or net, of the fees received from the future
business of the deceased lawyer's clients, both because the recipients of such
division are not lawyers and because such payments will not represent service or
responsibility on the part of the recipient. " Accordingly, neither the widow nor the
heirs can be held liable for transactions entered into after the death of their
lawyer-predecessor. There being no benefits accruing, there ran be no
corresponding liability.
Prescinding the law, there could be practical objections to allowing the use by law
firms of the names of deceased partners. The public relations value of the use of an
old firm name can tend to create undue advantages and disadvantages in the
practice of the profession. An able lawyer without connections will have to make a
name for himself starting from scratch. Another able lawyer, who can join an old
firm, can initially ride on that old firm's reputation established by deceased
partners.
B. In regards to the last paragraph of Article 1840 of the Civil Code cited by
petitioners, supra, the first factor to consider is that it is within Chapter 3 of Title IX
of the Code entitled "Dissolution and Winding Up." The Article primarily deals with
the exemption from liability in cases of a dissolved partnership, of the individual
property of the deceased partner for debts contracted by the person or partnership
which continues the business using the partnership name or the name of the
deceased partner as part thereof. What the law contemplates therein is a hold-
over situation preparatory to formal reorganization.
Secondly, Article 1840 treats more of a commercial partnership with a good will to
protect rather than of a professional partnership, with no saleable good will but
whose reputation depends on the personal qualifications of its individual members.
Thus, it has been held that a saleable goodwill can exist only in a commercial
partnership and cannot arise in a professional partnership consisting of lawyers.
9t.hqw
As a general rule, upon the dissolution of a commercial partnership the succeeding
partners or parties have the right to carry on the business under the old name, in
the absence of a stipulation forbidding it, (s)ince the name of a commercial
partnership is a partnership asset inseparable from the good will of the firm. ... (60
Am Jur 2d, s 204, p. 115) (Emphasis supplied)
On the other hand, t.hqw
... a professional partnership the reputation of which depends or; the individual
skill of the members, such as partnerships of attorneys or physicians, has no good
win to be distributed as a firm asset on its dissolution, however intrinsically
valuable such skill and reputation may be, especially where there is no provision in
the partnership agreement relating to good will as an asset. ... (ibid, s 203, p. 115)
(Emphasis supplied)
C. A partnership for the practice of law cannot be likened to partnerships
formed by other professionals or for business. For one thing, the law on
accountancy specifically allows the use of a trade name in connection with the
practice of accountancy. 10 t.hqw
A partnership for the practice of law is not a legal entity. It is a mere relationship or
association for a particular purpose. ... It is not a partnership formed for the
purpose of carrying on trade or business or of holding property." 11 Thus, it has
been stated that "the use of a nom de plume, assumed or trade name in law
practice is improper. 12
The usual reason given for different standards of conduct being applicable to the
practice of law from those pertaining to business is that the law is a profession.
Dean Pound, in his recently published contribution to the Survey of the Legal
Profession, (The Lawyer from Antiquity to Modern Times, p. 5) defines a profession
as "a group of men pursuing a learned art as a common calling in the spirit of public
service, no less a public service because it may incidentally be a means of
livelihood."
xxx xxx xxx
Primary characteristics which distinguish the legal profession from business are:
1. A duty of public service, of which the emolument is a byproduct, and in
which one may attain the highest eminence without making much money.
2. A relation as an "officer of court" to the administration of justice
involving thorough sincerity, integrity, and reliability.
3. A relation to clients in the highest degree fiduciary.
4. A relation to colleagues at the bar characterized by candor, fairness, and
unwillingness to resort to current business methods of advertising and
encroachment on their practice, or dealing directly with their clients. 13
"The right to practice law is not a natural or constitutional right but is in the nature
of a privilege or franchise. 14 It is limited to persons of good moral character with
special qualifications duly ascertained and certified. 15 The right does not only
presuppose in its possessor integrity, legal standing and attainment, but also the
exercise of a special privilege, highly personal and partaking of the nature of a
public trust." 16
D. Petitioners cited Canon 33 of the Canons of Professional Ethics of the
American Bar Association" in support of their petitions.
It is true that Canon 33 does not consider as unethical the continued use of the
name of a deceased or former partner in the firm name of a law partnership when
such a practice is permissible by local custom but the Canon warns that care should
be taken that no imposition or deception is practiced through this use.
It must be conceded that in the Philippines, no local custom permits or allows the
continued use of a deceased or former partner's name in the firm names of law
partnerships. Firm names, under our custom, Identify the more active and/or more
senior members or partners of the law firm. A glimpse at the history of the firms of
petitioners and of other law firms in this country would show how their firm names
have evolved and changed from time to time as the composition of the partnership
changed. t.hqw
The continued use of a firm name after the death of one or more of the partners
designated by it is proper only where sustained by local custom and not where by
custom this purports to Identify the active members. ...
There would seem to be a question, under the working of the Canon, as to the
propriety of adding the name of a new partner and at the same time retaining that
of a deceased partner who was never a partner with the new one. (H.S. Drinker, op.
cit., supra, at pp. 207208) (Emphasis supplied).
The possibility of deception upon the public, real or consequential, where the
name of a deceased partner continues to be used cannot be ruled out. A person in
search of legal counsel might be guided by the familiar ring of a distinguished name
appearing in a firm title.
E. Petitioners argue that U.S. Courts have consistently allowed the
continued use of a deceased partner's name in the firm name of law partnerships.
But that is so because it is sanctioned by custom.
In the case of Mendelsohn v. Equitable Life Assurance Society (33 N.Y.S. 2d 733)
which petitioners Salazar, et al. quoted in their memorandum, the New York
Supreme Court sustained the use of the firm name Alexander & Green even if none
of the present ten partners of the firm bears either name because the practice was
sanctioned by custom and did not offend any statutory provision or legislative
policy and was adopted by agreement of the parties. The Court stated therein:
t.hqw
The practice sought to be proscribed has the sanction of custom and offends no
statutory provision or legislative policy. Canon 33 of the Canons of Professional
Ethics of both the American Bar Association and the New York State Bar
Association provides in part as follows: "The continued use of the name of a
deceased or former partner, when permissible by local custom is not unethical, but
care should be taken that no imposition or deception is practiced through this use."
There is no question as to local custom. Many firms in the city use the names of
deceased members with the approval of other attorneys, bar associations and the
courts. The Appellate Division of the First Department has considered the matter
and reached The conclusion that such practice should not be prohibited. (Emphasis
supplied)
xxx xxx xxx
Neither the Partnership Law nor the Penal Law prohibits the practice in question.
The use of the firm name herein is also sustainable by reason of agreement
between the partners. 18
Not so in this jurisdiction where there is no local custom that sanctions the
practice. Custom has been defined as a rule of conduct formed by repetition of
acts, uniformly observed (practiced) as a social rule, legally binding and obligatory.
19 Courts take no judicial notice of custom. A custom must be proved as a fact,
according to the rules of evidence. 20 A local custom as a source of right cannot be
considered by a court of justice unless such custom is properly established by
competent evidence like any other fact. 21 We find such proof of the existence of a
local custom, and of the elements requisite to constitute the same, wanting herein.
Merely because something is done as a matter of practice does not mean that
Courts can rely on the same for purposes of adjudication as a juridical custom.
Juridical custom must be differentiated from social custom. The former can
supplement statutory law or be applied in the absence of such statute. Not so with
the latter.
Moreover, judicial decisions applying or interpreting the laws form part of the legal
system. 22 When the Supreme Court in the Deen and Perkins cases issued its
Resolutions directing lawyers to desist from including the names of deceased
partners in their firm designation, it laid down a legal rule against which no custom
or practice to the contrary, even if proven, can prevail. This is not to speak of our
civil law which clearly ordains that a partnership is dissolved by the death of any
partner. 23 Custom which are contrary to law, public order or public policy shall not
be countenanced. 24
The practice of law is intimately and peculiarly related to the administration of
justice and should not be considered like an ordinary "money-making trade."
t.hqw
... It is of the essence of a profession that it is practiced in a spirit of public service.
A trade ... aims primarily at personal gain; a profession at the exercise of powers
beneficial to mankind. If, as in the era of wide free opportunity, we think of free
competitive self assertion as the highest good, lawyer and grocer and farmer may
seem to be freely competing with their fellows in their calling in order each to
acquire as much of the world's good as he may within the allowed him by law. But
the member of a profession does not regard himself as in competition with his
professional brethren. He is not bartering his services as is the artisan nor
exchanging the products of his skill and learning as the farmer sells wheat or corn.
There should be no such thing as a lawyers' or physicians' strike. The best service of
the professional man is often rendered for no equivalent or for a trifling equivalent
and it is his pride to do what he does in a way worthy of his profession even if done
with no expectation of reward, This spirit of public service in which the profession
of law is and ought to be exercised is a prerequisite of sound administration of
justice according to law. The other two elements of a profession, namely,
organization and pursuit of a learned art have their justification in that they secure
and maintain that spirit. 25
In fine, petitioners' desire to preserve the Identity of their firms in the eyes of the
public must bow to legal and ethical impediment.
ACCORDINGLY, the petitions filed herein are denied and petitioners advised to drop
the names "SYCIP" and "OZAETA" from their respective firm names. Those names
may, however, be included in the listing of individuals who have been partners in
their firms indicating the years during which they served as such.
SO ORDERED.
Teehankee, Concepcion, Jr., Santos, Fernandez, Guerrero and De Castro, JJ., concur
Fernando, C.J. and Abad Santos, J., took no part
Separate Opinions
FERNANDO, C.J., concurring:
The petitions are denied, as there are only four votes for granting them, seven of
the Justices being of the contrary view, as explained in the plurality opinion of
Justice Ameurfina Melencio-Herrera. It is out of delicadeza that the undersigned
did not participate in the disposition of these petitions, as the law office of Sycip,
Salazar, Feliciano, Hernandez and Castillo started with the partnership of
Quisumbing, Sycip, and Quisumbing, the senior partner, the late Ramon
Quisumbing, being the father-in-law of the undersigned, and the most junior
partner then, Norberto J. Quisumbing, being his brother- in-law. For the record, the
undersigned wishes to invite the attention of all concerned, and not only of
petitioners, to the last sentence of the opinion of Justice Ameurfina Melencio-
Herrera: 'Those names [Sycip and Ozaeta] may, however, be included in the listing
of individuals wtes
AQUINO, J., dissenting:
I dissent. The fourteen members of the law firm, Sycip, Salazar, Feliciano,
Hernandez & Castillo, in their petition of June 10, 1975, prayed for authority to
continue the use of that firm name, notwithstanding the death of Attorney
Alexander Sycip on May 5, 1975 (May he rest in peace). He was the founder of the
firm which was originally known as the Sycip Law Office.
On the other hand, the seven surviving partners of the law firm, Ozaeta, Romulo,
De Leon, Mabanta & Reyes, in their petition of August 13, 1976, prayed that they
be allowed to continue using the said firm name notwithstanding the death of two
partners, former Justice Roman Ozaeta and his son, Herminio, on May 1, 1972 and
February 14, 1976, respectively.
They alleged that the said law firm was a continuation of the Ozaeta Law Office
which was established in 1957 by Justice Ozaeta and his son and that, as to the said
law firm, the name Ozaeta has acquired an institutional and secondary
connotation.
Article 1840 of the Civil Code, which speaks of the use by the partnership of the
name of a deceased partner as part of the partnership name, is cited to justify the
petitions. Also invoked is the canon that the continued use by a law firm of the
name of a deceased partner, "when permissible by local custom, is not unethical"
as long as "no imposition or deception is practised through this use" (Canon 33 of
the Canons of Legal Ethics).
I am of the opinion that the petition may be granted with the condition that it be
indicated in the letterheads of the two firms (as the case may be) that Alexander
Sycip, former Justice Ozaeta and Herminio Ozaeta are dead or the period when
they served as partners should be stated therein.
Obviously, the purpose of the two firms in continuing the use of the names of their
deceased founders is to retain the clients who had customarily sought the legal
services of Attorneys Sycip and Ozaeta and to benefit from the goodwill attached
to the names of those respected and esteemed law practitioners. That is a
legitimate motivation.
The retention of their names is not illegal per se. That practice was followed before
the war by the law firm of James Ross. Notwithstanding the death of Judge Ross
the founder of the law firm of Ross, Lawrence, Selph and Carrascoso, his name was
retained in the firm name with an indication of the year when he died. No one
complained that the retention of the name of Judge Ross in the firm name was
illegal or unethical.
# Separate Opinions
FERNANDO, C.J., concurring:
The petitions are denied, as there are only four votes for granting them, seven of
the Justices being of the contrary view, as explained in the plurality opinion of
Justice Ameurfina Melencio-Herrera. It is out of delicadeza that the undersigned
did not participate in the disposition of these petitions, as the law office of Sycip,
Salazar, Feliciano, Hernandez and Castillo started with the partnership of
Quisumbing, Sycip, and Quisumbing, the senior partner, the late Ramon
Quisumbing, being the father-in-law of the undersigned, and the most junior
partner then, Norberto J. Quisumbing, being his brother- in-law. For the record, the
undersigned wishes to invite the attention of all concerned, and not only of
petitioners, to the last sentence of the opinion of Justice Ameurfina Melencio-
Herrera: 'Those names [Sycip and Ozaeta] may, however, be included in the listing
of individuals wtes
AQUINO, J., dissenting:
I dissent. The fourteen members of the law firm, Sycip, Salazar, Feliciano,
Hernandez & Castillo, in their petition of June 10, 1975, prayed for authority to
continue the use of that firm name, notwithstanding the death of Attorney
Alexander Sycip on May 5, 1975 (May he rest in peace). He was the founder of the
firm which was originally known as the Sycip Law Office.
On the other hand, the seven surviving partners of the law firm, Ozaeta, Romulo,
De Leon, Mabanta & Reyes, in their petition of August 13, 1976, prayed that they
be allowed to continue using the said firm name notwithstanding the death of two
partners, former Justice Roman Ozaeta and his son, Herminio, on May 1, 1972 and
February 14, 1976, respectively.
They alleged that the said law firm was a continuation of the Ozaeta Law Office
which was established in 1957 by Justice Ozaeta and his son and that, as to the said
law firm, the name Ozaeta has acquired an institutional and secondary
connotation.
Article 1840 of the Civil Code, which speaks of the use by the partnership of the
name of a deceased partner as part of the partnership name, is cited to justify the
petitions. Also invoked is the canon that the continued use by a law firm of the
name of a deceased partner, "when permissible by local custom, is not unethical"
as long as "no imposition or deception is practised through this use" (Canon 33 of
the Canons of Legal Ethics).
I am of the opinion that the petition may be granted with the condition that it be
indicated in the letterheads of the two firms (as the case may be) that Alexander
Sycip, former Justice Ozaeta and Herminio Ozaeta are dead or the period when
they served as partners should be stated therein.
Obviously, the purpose of the two firms in continuing the use of the names of their
deceased founders is to retain the clients who had customarily sought the legal
services of Attorneys Sycip and Ozaeta and to benefit from the goodwill attached
to the names of those respected and esteemed law practitioners. That is a
legitimate motivation.
The retention of their names is not illegal per se. That practice was followed before
the war by the law firm of James Ross. Notwithstanding the death of Judge Ross
the founder of the law firm of Ross, Lawrence, Selph and Carrascoso, his name was
retained in the firm name with an indication of the year when he died. No one
complained that the retention of the name of Judge Ross in the firm name was
illegal or unethical.
GREGORIO F. ORTEGA, TOMAS O. DEL CASTILLO, JR., and BENJAMIN T. BACORRO,
petitioners,
vs.
HON. COURT OF APPEALS, SECURITIES AND EXCHANGE COMMISSION and
JOAQUIN L. MISA, respondents.
The instant petition seeks a review of the decision rendered by the Court of
Appeals, dated 26 February 1993, in CA-G.R. SP No. 24638 and No. 24648 affirming
in toto that of the Securities and Exchange Commission ("SEC") in SEC AC 254.
The antecedents of the controversy, summarized by respondent Commission and
quoted at length by the appellate court in its decision, are hereunder restated.
The law firm of ROSS, LAWRENCE, SELPH and CARRASCOSO was duly registered in
the Mercantile Registry on 4 January 1937 and reconstituted with the Securities
and Exchange Commission on 4 August 1948. The SEC records show that there
were several subsequent amendments to the articles of partnership on 18
September 1958, to change the firm [name] to ROSS, SELPH and CARRASCOSO; on
6 July 1965 . . . to ROSS, SELPH, SALCEDO, DEL ROSARIO, BITO & MISA; on 18 April
1972 to SALCEDO, DEL ROSARIO, BITO, MISA & LOZADA; on 4 December 1972 to
SALCEDO, DEL ROSARIO, BITO, MISA & LOZADA; on 11 March 1977 to DEL
ROSARIO, BITO, MISA & LOZADA; on 7 June 1977 to BITO, MISA & LOZADA; on 19
December 1980, [Joaquin L. Misa] appellees Jesus B. Bito and Mariano M. Lozada
associated themselves together, as senior partners with respondents-appellees
Gregorio F. Ortega, Tomas O. del Castillo, Jr., and Benjamin Bacorro, as junior
partners.
On February 17, 1988, petitioner-appellant wrote the respondents-appellees a
letter stating:
I am withdrawing and retiring from the firm of Bito, Misa and Lozada, effective at
the end of this month.
"I trust that the accountants will be instructed to make the proper liquidation of my
participation in the firm."
On the same day, petitioner-appellant wrote respondents-appellees another letter
stating:
"Further to my letter to you today, I would like to have a meeting with all of you
with regard to the mechanics of liquidation, and more particularly, my interest in
the two floors of this building. I would like to have this resolved soon because it has
to do with my own plans."
On 19 February 1988, petitioner-appellant wrote respondents-appellees another
letter stating:
"The partnership has ceased to be mutually satisfactory because of the working
conditions of our employees including the assistant attorneys. All my efforts to
ameliorate the below subsistence level of the pay scale of our employees have
been thwarted by the other partners. Not only have they refused to give
meaningful increases to the employees, even attorneys, are dressed down publicly
in a loud voice in a manner that deprived them of their self-respect. The result of
such policies is the formation of the union, including the assistant attorneys."
On 30 June 1988, petitioner filed with this Commission's Securities Investigation
and Clearing Department (SICD) a petition for dissolution and liquidation of
partnership, docketed as SEC Case No. 3384 praying that the Commission:
"1. Decree the formal dissolution and order the immediate liquidation of
(the partnership of) Bito, Misa & Lozada;
"2. Order the respondents to deliver or pay for petitioner's share in the
partnership assets plus the profits, rent or interest attributable to the use of his
right in the assets of the dissolved partnership;
"3. Enjoin respondents from using the firm name of Bito, Misa & Lozada in
any of their correspondence, checks and pleadings and to pay petitioners damages
for the use thereof despite the dissolution of the partnership in the amount of at
least P50,000.00;
"4. Order respondents jointly and severally to pay petitioner attorney's fees
and expense of litigation in such amounts as maybe proven during the trial and
which the Commission may deem just and equitable under the premises but in no
case less than ten (10%) per cent of the value of the shares of petitioner or
P100,000.00;
"5. Order the respondents to pay petitioner moral damages with the amount
of P500,000.00 and exemplary damages in the amount of P200,000.00.
"Petitioner likewise prayed for such other and further reliefs that the Commission
may deem just and equitable under the premises."
On 13 July 1988, respondents-appellees filed their opposition to the petition.
On 13 July 1988, petitioner filed his Reply to the Opposition.
On 31 March 1989, the hearing officer rendered a decision ruling that:
"[P]etitioner's withdrawal from the law firm Bito, Misa & Lozada did not dissolve
the said law partnership. Accordingly, the petitioner and respondents are hereby
enjoined to abide by the provisions of the Agreement relative to the matter
governing the liquidation of the shares of any retiring or withdrawing partner in the
partnership interest." 1
On appeal, the SEC en banc reversed the decision of the Hearing Officer and held
that the withdrawal of Attorney Joaquin L. Misa had dissolved the partnership of
"Bito, Misa & Lozada." The Commission ruled that, being a partnership at will, the
law firm could be dissolved by any partner at anytime, such as by his withdrawal
therefrom, regardless of good faith or bad faith, since no partner can be forced to
continue in the partnership against his will. In its decision, dated 17 January 1990,
the SEC held:
WHEREFORE, premises considered the appealed order of 31 March 1989 is hereby
REVERSED insofar as it concludes that the partnership of Bito, Misa & Lozada has
not been dissolved. The case is hereby REMANDED to the Hearing Officer for
determination of the respective rights and obligations of the parties. 2
The parties sought a reconsideration of the above decision. Attorney Misa, in
addition, asked for an appointment of a receiver to take over the assets of the
dissolved partnership and to take charge of the winding up of its affairs. On 4 April
1991, respondent SEC issued an order denying reconsideration, as well as rejecting
the petition for receivership, and reiterating the remand of the case to the Hearing
Officer.
The parties filed with the appellate court separate appeals (docketed CA-G.R. SP
No. 24638 and CA-G.R. SP No. 24648).
During the pendency of the case with the Court of Appeals, Attorney Jesus Bito and
Attorney Mariano Lozada both died on, respectively, 05 September 1991 and 21
December 1991. The death of the two partners, as well as the admission of new
partners, in the law firm prompted Attorney Misa to renew his application for
receivership (in CA G.R. SP No. 24648). He expressed concern over the need to
preserve and care for the partnership assets. The other partners opposed the
prayer.
The Court of Appeals, finding no reversible error on the part of respondent
Commission, AFFIRMED in toto the SEC decision and order appealed from. In fine,
the appellate court held, per its decision of 26 February 1993, (a) that Atty. Misa's
withdrawal from the partnership had changed the relation of the parties and
inevitably caused the dissolution of the partnership; (b) that such withdrawal was
not in bad faith; (c) that the liquidation should be to the extent of Attorney Misa's
interest or participation in the partnership which could be computed and paid in
the manner stipulated in the partnership agreement; (d) that the case should be
remanded to the SEC Hearing Officer for the corresponding determination of the
value of Attorney Misa's share in the partnership assets; and (e) that the
appointment of a receiver was unnecessary as no sufficient proof had been shown
to indicate that the partnership assets were in any such danger of being lost,
removed or materially impaired.

In this petition for review under Rule 45 of the Rules of Court, petitioners confine
themselves to the following issues:
1. Whether or not the Court of Appeals has erred in holding that the
partnership of Bito, Misa & Lozada (now Bito, Lozada, Ortega & Castillo) is a
partnership at will;
2. Whether or not the Court of Appeals has erred in holding that the
withdrawal of private respondent dissolved the partnership regardless of his good
or bad faith; and
3. Whether or not the Court of Appeals has erred in holding that private
respondent's demand for the dissolution of the partnership so that he can get a
physical partition of partnership was not made in bad faith;
to which matters we shall, accordingly, likewise limit ourselves.
A partnership that does not fix its term is a partnership at will. That the law firm
"Bito, Misa & Lozada," and now "Bito, Lozada, Ortega and Castillo," is indeed such a
partnership need not be unduly belabored. We quote, with approval, like did the
appellate court, the findings and disquisition of respondent SEC on this matter; viz:
The partnership agreement (amended articles of 19 August 1948) does not provide
for a specified period or undertaking. The "DURATION" clause simply states:
"5. DURATION. The partnership shall continue so long as mutually
satisfactory and upon the death or legal incapacity of one of the partners, shall be
continued by the surviving partners."
The hearing officer however opined that the partnership is one for a specific
undertaking and hence not a partnership at will, citing paragraph 2 of the Amended
Articles of Partnership (19 August 1948):
"2. Purpose. The purpose for which the partnership is formed, is to act as
legal adviser and representative of any individual, firm and corporation engaged in
commercial, industrial or other lawful businesses and occupations; to counsel and
advise such persons and entities with respect to their legal and other affairs; and to
appear for and represent their principals and client in all courts of justice and
government departments and offices in the Philippines, and elsewhere when
legally authorized to do so."
The "purpose" of the partnership is not the specific undertaking referred to in the
law. Otherwise, all partnerships, which necessarily must have a purpose, would all
be considered as partnerships for a definite undertaking. There would therefore be
no need to provide for articles on partnership at will as none would so exist.
Apparently what the law contemplates, is a specific undertaking or "project" which
has a definite or definable period of completion. 3
The birth and life of a partnership at will is predicated on the mutual desire and
consent of the partners. The right to choose with whom a person wishes to
associate himself is the very foundation and essence of that partnership. Its
continued existence is, in turn, dependent on the constancy of that mutual resolve,
along with each partner's capability to give it, and the absence of a cause for
dissolution provided by the law itself. Verily, any one of the partners may, at his
sole pleasure, dictate a dissolution of the partnership at will. He must, however, act
in good faith, not that the attendance of bad faith can prevent the dissolution of
the 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.
"Art. 1837. When dissolution is caused in any way, except in contravention of the
partnership agreement, each partner, as against his co-partners and all persons
claiming through them in respect of their interests in the partnership, unless
otherwise agreed, may have the partnership property applied to discharge its
liabilities, and the surplus applied to pay in cash the net amount owning to the
respective partners. But if dissolution is caused by expulsion of a partner, bona fide
under the partnership agreement and if the expelled partner is discharged from all
partnership liabilities, either by payment or agreement under the second
paragraph of article 1835, he shall receive in cash only the net amount due him
from the partnership."
SPOUSES RAMON ESTANISLAO, JR. and DINA TEOTICO ESTANISLAO, petitioners,
vs. COURT OF APPEALS, HI-YIELD REALTY, INC., HUMBERTO BASCO, and
NORBERTO VASQUEZ, respondents.
This is a petition for review of the decision,[1] dated March 20, 2000, of the Court
of Appeals, affirming the decision of the Regional Trial Court, Branch 128, Caloocan
City, which dismissed petitioners complaint for annulment of private respondent
Hi-Yield Realty, Inc.s title and instead ordered petitioners to pay damages and
attorneys fees to private respondents, and the appeals courts resolution,[2] dated
June 20, 2000, denying petitioners motion for reconsideration.
 Ownership, dated June 10, 1993 (Exh. I), was notarized by Atty. Basco and filed
with the Registry of Deeds on June 14, 1993. On June 15, 1993, private respondent
The antecedent facts are as follows: Norberto Vasquez, Acting Registrar of Deeds, ordered the annotation of the
Affidavit of Consolidation of Ownership, the cancellation of TCT No. 120717 (Exh.
A), and the issuance of TCT No. 265782 (Exh. J) in the name of Hi-Yield Realty, Inc.

In 1985, spouses Ramon Estanislao, Jr. and Dina Teotico Estanislao, petitioners
herein, mortgaged to respondent Hi-Yield Realty, Inc. a parcel of land, registered in
their name under TCT No. 120717, together with the buildings and improvements On August 13, 1993, petitioner spouses brought suit against private respondents in
thereon. The mortgage was constituted to secure a loan of P200,000.00. For the Regional Trial Court of Caloocan City, seeking the annulment of the Affidavit of
petitioners failure to comply with some of its conditions, the mortgage was extra- Consolidation of Ownership, the cancellation of TCT No. 265782, and the payment
judicially foreclosed and the property was sold on December 9, 1988 for of damages and attorneys fees.
P445,000.00 to Hi-Yield Realty, Inc. as the highest bidder. The Certificate of Sale
issued to the highest bidder was registered with the Registry of Deeds of Caloocan
City on June 9, 1992.
On December 7, 1995, the Regional Trial Court, Branch 128, Caloocan City,
dismissed petitioners suit and ordered them to pay damages to private
respondents. The dispositive portion of its decision reads:
On June 4, 1993, petitioner Ramon Estanislao, Jr. offered to redeem the property
by tendering to Atty. Humberto Basco, the notary public who conducted the sale, a
PCIB managers check in the amount of P445,000.00 (Exh. E). The amount covered
the auction price alone as petitioner Estanislao allegedly did not know the amount WHEREFORE, in view of the foregoing premises, this Court decides in favor of
of interest and other charges/assessments. In his letter of June 4, 1993 enclosing defendants and ordering plaintiff-spouses Ramon Estanislao, Jr. and Dina Teotico
the managers check, petitioner Estanislao requested that a purchasers statement Estanislao the following:
of interest and other charges be furnished to him.

1. To pay defendant Norberto Vasquez P50,000.00 as moral damages and

However, on June 15, 1993, Atty. Basco returned the PCIB check to petitioner P20,000.00 as attorneys fees;
Estanislao on the ground that its amount did not include the interests, charges, and
penalties. In his letter (Exh. G; Exh. 24), Atty. Basco stated that no certificate of
redemption could be issued unless the amount was fully paid and settled.
2. To pay defendant Hi-Yield Realty, Inc. P20,000.00 as attorneys fees; and

Without waiting for purchasers statement of interest and other charges which he
had requested, petitioner Estanislao again tendered to private respondents on June 3. To pay defendant Humberto B. Basco P20,000.00 as attorneys fees.
21, 1993 the PCIB check for P445,000.00 and another PCIB managers check (Exh. H)
for P81,521.27 to cover the interest. The checks were, however, rejected by private
respondents for being inadequate.
Cost against the plaintiff.

On July 14, 1993, petitioner Estanislao found from the records of the Registry of
SO ORDERED.[3]
Deeds of Caloocan City that their property had been transferred in the name of
private respondent Hi-Yield Realty, Inc. The Affidavit of Consolidation of

Petitioners appealed to the Court of Appeals which rendered a decision on March
20, 2000 affirming in toto the decision of the trial court. On June 20, 2000, it denied
petitioners motion for reconsideration. Hence, this petition for review on certiorari.
Petitioners contend that the respondent Court of Appeals erred:
41.1. when it made findings and conclusions in its Decision not within the issues
raised before the trial court, and not supported by the evidence on record;
41.2. when it erroneously included as part of the redemption price the other
charges (taxes and assessments) although the petitioner was not aware thereof,
and no notice of taxes and assessment was filed with the Registry of Deeds;
41.3. when it had evidently and utterly disregarded the doctrines laid down by this
Honorable Court in the cases of Rosario vs. Tayug Rural Bank, Inc., 22 SCRA 1220,
and Castillo vs. Nagtalon, 4 SCRA 48, as regards liberal interpretation of redemption
rules, without even discussing, even in passing, why those cases decided by this
Honorable court are not applicable in the case at bar;
41.4. when it also absolutely disregarded the doctrine laid down by this Honorable
Court in the case of Rosales vs. Yboa, 120 SCRA 869, that interests of 1% monthly
on the redemption price shall commence to run only from the date of registration
of the certificate of sale, also without discussing, even in passing, why the said case
is not applicable in the case at bar;
41.5. when it misapplied the case of Conejero, et al. vs. Court of Appeals, et al., 16
SCRA 775, apropos the necessity of consigning the redemption price, in the case at
bar;
41.6. when it ruled that the appellants failed to present any evidence whatsoever
in support of the allegation of fraudulent collusion and unholy alliance among the
defendants-appellees with respect to the registration of the Affidavit of
Consolidation of Ownership and the issuance of the new TCT in favor of Hi-Yield
Realty;
41.7. when it awarded moral damages and attorneys fees in favor of the
respondents contrary to the prevailing jurisprudence; and
41.8. when it failed to grant the relief prayed for by the petitioners including
damages and attorneys fees.[4]
We find the petition to be without merit.
First. Section 6 of Act No. 3135 provides:
In all cases in which an extrajudicial sale is made under the special power
hereinbefore referred to, the debtor, his successors in interest or any judicial
creditor or judgment creditor of said debtor, or any person having a lien on the
property subsequent to the mortgage or deed of trust under which the property is
sold, may redeem the same at any time within the term of one year from and after
the date of the sale; and such redemption shall be governed by the provisions of
sections four hundred and sixty-four to four hundred and sixty-six, inclusive, of the
Code of Civil Procedure, in so far as these are not inconsistent with the provisions
of this Act.[5]
The references to 464-466 of the Code of Civil Procedure must be understood to be
to 29-31 of Rule 39 of the 1964 Rules of Court, which was the applicable law at the
time material to this case. It will be noted that while Act No. 3135, 6 speaks of the
right of a debtor to redeem property sold at auction sale in extrajudicial foreclosure
of mortgage within the term of one year from and after the date of the sale, which
means within a period of 365 days, Rule 39, 30 of the 1964 Rules of Court spoke of
the right of a judgment debtor to redeem property sold at auction within twelve
(12) months after the sale, which means within 360 days on the basis of 30 days in
a month. This is because Art. 13 of the Civil Code provides that When the laws
speak of years, months, days or nights, it shall be understood that years are of
three hundred sixty-five days each; months, of thirty days; days, of twenty-four
hours; and nights, from sunset to sunrise. The discrepancy was corrected in Rule
39, 28 of the 1997 Rules of Court, effective July 1, 1997, which changed the period
from twelve (12) months to one (1) year.
Although the prevailing law at the time of the auction sale in this case was the 1964
Rules of Court, the question is actually merely of academic interest in this case,
because even if the period of redemption is 365 days, the tender of the full
redemption price made by petitioners on June 21, 1993 was 12 days late counted
from the expiration of the redemption period on June 9, 1993.
The right of redemption should be exercised within the period prescribed by law.
As explained by this Court in Basbas v. Entena:[6]
. . . . [T]he right of legal redemption must be exercised within specified time limits;
and the statutory periods would be rendered meaningless and of easy evasion
unless the redemptioner is required to make an actual tender in good faith of what
he believed to be the reasonable price of the land sought to be redeemed. The
existence of the right of redemption operates to depress the market value of the
land until the period expires, and to render that period indefinite by permitting the
tenant to file a suit for redemption, with either party unable to foresee when final
judgment will terminate the action, would render nugatory the period of two years
fixed by the statute for making the redemption and virtually paralyze any efforts of
the landowner to realize the value of his land. No buyer can be expected to acquire
it without any certainty as to the amount for which it may be redeemed, so that he
can recover at least his investment in case of redemption. In the meantime, the
landowners needs and obligations cannot be met. It is doubtful if any such result
was intended by the statute, absent clear wording to that effect.
Moreover, the tender of payment must be for the full amount of the purchase
price. Otherwise, to allow payment by installments would be to allow the indefinite
extension of the redemption period.[7] Consequently, the payment tendered by
petitioners on June 4, 1993, while made within the period of redemption (365
days), was ineffective since the amount offered did not include the interest but was
limited to the purchase price.
Indeed, Rule 39, 30 of the 1964 Rules of Court (now Rule 39, 28 of the 1997 Rules
of Civil Procedure) provided:
The judgment debtor, or redemptioner, may redeem the property from the
purchaser, at any time within twelve (12) months after the sale, on paying the
purchaser the amount of his purchase, with one per centum per month interest
thereon in addition, up to the time of redemption, together with the amount of
any assessment or taxes which the purchaser may have paid thereon after
purchase, and interest on such last-named amount at the same rate . . . .
Written notice of any redemption must be given to the officer who made the sale
and a duplicate filed with the registrar of deeds of the province, and if any
assessments or taxes are paid by the redemptioner or if he has or acquires any lien
other than that upon which the redemption was made, notice thereof must in like
manner be given to the officer and filed with the registrar of deeds; if such notice
be not filed, the property may be redeemed without paying such assessments,
taxes, or liens.
In Bodiongan v. Court of Appeals,[8] it was held:
In order to effect a redemption, the judgment debtor must pay the purchaser the
redemption price composed of the following: (1) the price which the purchaser
paid for the property; (2) interest of 1% per month on the purchase price; (3) the
amount of any assessments or taxes which the purchaser may have paid on the
property after the purchase; and (4) interest of 1% per month on such assessments
and taxes. . . .
The appellate court erred in ruling that the interest due from the mortgage was
P240,300.00, at one percent monthly interest of the auction price of P445,000.00,
computed from the date of sale on June 9, 1988 [December 9, 1988]. The interest
on the auction price should be computed not from the date of the sale, as the
appeals court appears to have done, but from the registration thereof. Since the
period of redemption begins only from the date of the registration of the certificate
of sale in the Registry of Deeds, the computation of the interest on the purchase
price should also be made to commence from that date.[9] Hence, the interest due
on the auction price for 12 months, i.e., from June 9, 1992 to June 9, 1993, is only
P53,400.00 (P445,000.00 x 1% x 12 months) and the amount of P81,521.27, which
petitioners tendered on June 21, 1993, was in excess of the accrued interest due.
Nevertheless, as the tender of payment of the interest and the purchase price of
P445,000.00 was late, such tender did not effect a valid redemption.
There are additional amounts to be made in order to effect a valid redemption
required by law, but, as respondent Hi-Yield Realty, Inc. failed to comply with
certain requirements, petitioners failure to pay these additional amounts may be
considered excused. As provided in Rule 39, 30 of the 1964 Rules of Court, the
redemptioner must also pay the assessment or taxes paid by the purchaser.
However, the latter must give notice to the officer who conducted the sale of the
assessments or taxes paid by him and file the same with the Registry of Deeds. In
fact, the Certificate of Sale, (Exh. C; Exh. 3) issued to Hi-Yield Realty, Inc. in this case
clearly stated:
It is hereby required of said highest bidder that a statement of any amount of
assessment or taxes, which may have been paid on account of this purchase, and
such other liens chargeable to a redemptioner, WITH PROOFS THEREOF, all in
accordance with Sec. 30, Rule 39 of the New Rules of Court [now 28 of Rule 39 of
the 1997 Rules of Civil Procedure], should be submitted to this Office, for purposes
of computing the actual amount payable by MORTGAGORS/REDEMPTIONERS, in
case of redemption.[10]
If no such notice is given, the property may be redeemed without paying such
assessments or taxes.
Petitioners were not furnished by respondent Hi-Yield Realty, Inc. such statement
of account.[11] Neither was such statement filed with the Registry of Deeds.
Respondent Hi-Yield Realty, Inc. claimed that a statement of account (Exh. 8-C and
Exh. 8-D) was furnished the office of Atty. Basco, the notary public who had
conducted the sale, as received by Elizabeth Roque, an employee therein.[12]
However, Atty. Basco denied having received the statement.[13] Petitioners were
therefore justified in not paying any assessments or taxes which respondent Hi-
Yield Realty, Inc. may have paid.
Second. Petitioners accuse private respondents of fraudulent collusion and unholy
alliance in the registration of the Affidavit of Consolidation of Ownership and the
issuance of the new TCT to Hi-Yield Realty, Inc. We find this allegation to be
without basis. As already stated, the period of redemption expired on June 9, 1993
without petitioners being able to pay the purchase price plus the interest required
by Rule 39, 30 of the 1964 Rules of Court. Hence, the consolidation of ownership in
the purchaser was justified.
Moreover, the records show that Atty. Vasquez, who was at the time Acting
Registrar of Deeds of Caloocan City, approved the registration of the Affidavit of
Consolidation of Ownership filed by the purchaser Hi-Yield Realty, Inc. on June 14,
1993 upon payment by the latter of the registration fee.[14] This was five days
after the expiration of redemption period on June 9, 1993.[15] Atty. Vasquez
denied knowing any of the persons connected with Hi-Yield Realty, Inc. or Atty.
Basco and that he only met them for the first time during the pre-trial.[16] For his
part, Atty. Manuel Soriano, Jr., who is the president and chairman of the board of
Hi-Yield Realty, Inc., testified that he does not personally know Atty. Vasquez, and
that he never went to the Registry of Deeds since a company employee usually
took care of the registration process.[17]
On the other hand, we find no basis for the award of moral damages to private
respondents. The law presumes good faith, and any person who seeks an award of
damages due to acts of another has the burden of proving that the latter acted in
bad faith or with ill motive.[18] It is not enough that one says he suffered mental
anguish, serious anxiety, social humiliation, wounded feelings, and the like as a
result of the actuations of the other party.[19] Proof of moral suffering must be
introduced, otherwise the award for moral damages is not proper.[20] In this case,
the evidence presented by private respondents is insufficient to overcome the
presumption of good faith.
Nor can the award of attorneys fees be sustained in the light of the policy that no
premium should be placed on the right to litigate.[21] No penalty should be
imposed on those who exercise such right in good faith, even though
erroneously.[22] The fact that private respondents incurred expenses to protect
their rights does not necessarily imply that the action which they were opposing
was instituted in bad faith. The award of attorneys fees must be deleted where the
award of moral and exemplary damages are eliminated.[23]
WHEREFORE, the decision of the Court of Appeals is AFFIRMED with the
MODIFICATION that the award of moral damages and attorneys fees to private
respondents is deleted.
SO ORDERED.
INVOLUNTARY INSOLVENCY OF CAMPOS RUEDA & CO., S. en C., appellee,
vs.PACIFIC COMMERCIAL CO., ASIATIC PETROLEUM CO., and INTERNATIONAL
BANKING CORPORATION, petitioners-appellants.
The record of this proceeding having been transmitted to this court by virtue of an
appeal taken herein, a motion was presented by the appellants praying this court
that this case be considered purely a moot question now, for the reason that
subsequent to the decision appealed from, the partnership Campos Rueda & Co.,
voluntarily filed an application for a judicial decree adjudging itself insolvent, which
is just what the herein petitioners and appellants tried to obtain from the lower
court in this proceeding.
The motion now before us must be, and is hereby, denied even under the facts
stated by the appellants in their motion aforesaid. The question raised in this case
is not purely moot one; the fact that a man was insolvent on a certain day does not
justify an inference that he was some time prior thereto.
Proof that a man was insolvent on a certain day does not justify an inference that
he was on a day some time prior thereto. Many contingencies, such as unwise
investments, losing contracts, misfortune, or accident, might happen to reduce a
person from a state of solvency within a short space of time. (Kimball vs. Dresser,
98 Me., 519; 57 Atl. Rep., 767.)
A decree of insolvency begins to operate on the date it is issued. It is one thing to
adjudge Campos Rueda & Co. insolvent in December, 1921, as prayed for in this
case, and another to declare it insolvent in July, 1922, as stated in the motion.
Turning to the merits of this appeal, we find that this limited partnership was, and
is, indebted to the appellants in various sums amounting to not less than P1,000,
payable in the Philippines, which were not paid more than thirty days prior to the
date of the filing by the petitioners of the application for involuntary insolvency
now before us. These facts were sufficient established by the evidence.
The trial court denied the petition on the ground that it was not proven, nor
alleged, that the members of the aforesaid firm were insolvent at the time the
application was filed; and that was said partners are personally and solidarily liable
for the consequence of the transactions of the partnership, it cannot be adjudged
insolvent so long as the partners are not alleged and proven to be insolvent. From
this judgment the petitioners appeal to this court, on the ground that this finding of
the lower court is erroneous.
The fundamental question that presents itself for decision is whether or not a
limited partnership, such as the appellee, which has failed to pay its obligation with
three creditors for more than thirty days, may be held to have committed an act of
insolvency, and thereby be adjudged insolvent against its will.
Unlike the common law, the Philippine statutes consider a limited partnership as a
juridical entity for all intents and purposes, which personality is recognized in all its
acts and contracts (art. 116, Code of Commerce). This being so and the juridical
personality of a limited partnership being different from that of its members, it
must, on general principle, answer for, and suffer, the consequence of its acts as
such an entity capable of being the subject of rights and obligations. If, as in the
instant case, the limited partnership of Campos Rueda & Co. Failed to pay its
obligations with three creditors for a period of more than thirty days, which failure
constitutes, under our Insolvency Law, one of the acts of bankruptcy upon which an
adjudication of involuntary insolvency can be predicated, this partnership must
suffer the consequences of such a failure, and must be adjudged insolvent. We are
not unmindful of the fact that some courts of the United States have held that a
partnership may not be adjudged insolvent in an involuntary insolvency proceeding
unless all of its members are insolvent, while others have maintained a contrary
view. But it must be borne in mind that under the American common law,
partnerships have no juridical personality independent from that of its members;
and if now they have such personality for the purpose of the insolvency law, it is
only by virtue of general law enacted by the Congress of the United States on July
1, 1898, section 5, paragraph (h), of which reads thus:

In the event of one or more but not all of the members of a partnership being
adjudged bankrupt, the partnership property shall not be administered in
bankruptcy, unless by consent of the partner or partners not adjudged bankrupt;
but such partner or partners not adjudged bankrupt shall settle the partnership
business as expeditiously as its nature will permit, and account for the interest of
the partner or partners adjudged bankrupt.
The general consideration that these partnership had no juridical personality and
the limitations prescribed in subsection (h) above set forth gave rise to the conflict
noted in American decisions, as stated in the case of In re Samuels (215 Fed., 845),
which mentions the two apparently conflicting doctrines, citing one from In re
Bertenshaw (157 Fed., 363), and the other from Francis vs. McNeal (186 Fed., 481).
But there being in our insolvency law no such provision as that contained in section
5 of said Act of Congress of July 1, 1898, nor any rule similar thereto, and the
juridical personality of limited partnership being recognized by our statutes from
their formation in all their acts and contracts the decision of American courts on
this point can have no application in this jurisdiction, nor we see any reason why
these partnerships cannot be adjudged bankrupt irrespective of the solvency or
insolvency of their members, provided the partnership has, as such, committed
some of the acts of insolvency provided in our law. Under this view it is
unnecessary to discuss the other points raised by the parties, although in the
particular case under consideration it can be added that the liability of the limited
partners for the obligations and losses of the partnership is limited to the amounts
paid or promised to be paid into the common fund except when a limited partner
should have included his name or consented to its inclusion in the firm name (arts.
147 and 148, Code of Commerce).
Therefore, it having been proven that the partnership Campos Rueda & Co. failed
for more than thirty days to pay its obligations to the petitioners the Pacific
Commercial Co. the Asiatic Petroleum Co. and the International Banking
Corporation, the case comes under paragraph 11 of section 20 of Act No. 1956, and
consequently the petitioners have the right to a judicial decree declaring the
involuntary insolvency of said partnership.
Wherefore, the judgment appealed from is reversed, and it is adjudged that the
limited partnership Campos Rueda & Co. is and was on December 28, 1921,
insolvent and liable for having failed for more than thirty days to meet its
obligations with the three petitioners herein, and it is ordered that this proceeding
be remanded to the Court of First Instance of Manila with instruction to said court
to issue the proper decrees under section 24 of Act No. 1956, and proceed
therewith until its final disposition.
It is so ordered without special finding as to costs.
VARGAS and COMPANY, plaintiff-appellee, vs.CHAN HANG CHIU, ET AL.,
defendants-appellants.
This is an action brought to set aside a judgment of the justice's court of Manila on
the ground that the plaintiff here, the defendant in the action in which the
judgment was secured, was not served with summons and that, therefore, the
justice's court acquired no jurisdiction to render the judgment was that the same is
null and void. Judgment was entered in favor of plaintiff declaring the judgment in
controversy void and setting it aside. This appeal is from that judgment.
It appears from the record that the plaintiff is a merchantile association duly
organized under the laws of the Philippine Islands and presumably registered as
required by law. On the 19th day of August, 1911, an action was begun by Chan
Hang Chiu against the plaintiff in this case to recover a sum of money. The
summons and complaint were placed in the hands of the sheriff, who certified that
on the 19th day of August, 1911, he served the same on Vargas & Co. by delivering
to and leaving with one Jose Macapinlac personally true copies thereof, he being
the managing agent of said Vargas & Co. at the time of such service. On July 2.
1912, the justice's court rendered judgment against Vargas & Co. for the sum of
372.28. Thereafter execution was duly issued and the property of Vargas & Co.
levied on for the payment thereof. Thereupon Vargas & Co. paid the amount of the
judgment and costs under protest, with notice that it would sue to recover the
amount paid. The execution was returned satisfied and there the matter rested
until the present action was brought.
The contention of plaintiff is, and that contention is supported by the decision of
the court below, that Vargas & Co. being a partnership, it is necessary, in bringing
an action against it, to serve the summons on all of the partners, delivering to each
one of them personally a copy thereof; and that the summons in this case having
been served on the managing agent of the company only, the service was of no
effect as against the company and the members thereof and the judgment entered
by virtue of such a service was void.
From what has been said it is apparent that the plaintiff in this action is acting
contrary to its own contention by bringing the action in the name of the company
be served with process, then the action should be brought in the individual names
of the partners and not in the name of the company itself.
Article 35 of the Civil Code provides:

Plaintiff also contends, and this contention is likewise supported by the court
below, that, even admitting that service on the managing agent of the plaintiff is The following are judicial persons:
sufficient service, as a matter of fact no service was really made on the managing
agent of the company but, rather, on an employee or salesman of the company,
who had no powers of management or supervision and who was not competent to
receive service on behalf of the company within the provisions of section 396 of 1. The corporation, associations, and institutions of public interest recognized by
the Code of Civil Procedure. law.

We are of the opinion that neither of these contentions can be sustained. As to the 2. The associations of private interest, be they civil, commercial, or industrial, to
first, we may say that it has been the universal practice in the Philippine Islands which the law grants proper personality, independent of that of each member
since American occupation, and was the practice prior to that time, to treat thereof.
companies of the class to which the plaintiff belongs as legal or juridicial entities
and to permit them to sue and be sued in the name of the company, the summons
being served solely on the managing agent or other official of the company
Article 38 provides: "Judicial persons may acquire and possess property of all kinds,
specified by the section of the Code of Civil Procedure referred to. This very action
as well as contract obligations and institute civil or criminal actions in accordance
is an illustration of the practice in vogue in the Philippine Islands. The plaintiff
with the laws and rules of their establishment."
brings this action in the company name and not in the name of the members of the
firm. Actions against companies of the class to which plaintiff belongs are brought,
according to the uninterrupted practice, against such companies in their company
names and not against the individual partners constituting the firm. In the States, in Article 116 of the Code of Commerce provides in part: "After a commercial
which the individual members of the firm must be separately served with process, association has been established, it shall have legal representation in all its acts and
the rule also prevails that they must be parties to the action, either plaintiffs or contracts."
defendant, and that the action cannot be brought in the name of or against the
company itself. This follows naturally for the reason that, if it is necessary to serve
the partners individually, they are entitled to be heard individually in the action and
they must, therefore, be made parties thereto so that they can be heard. It would These provisions have been the foundation of the practice followed without
be idle to serve process on individual members of a partnership if the litigation interruption for many years that association of the class to which plaintiff belongs
were to be conducted in the name of the partnership itself and by the duly have an independent and separate legal entity sufficient to permit them to sue and
constituted officials of the partnership exclusively. be sued in the company name and to be served with process through the chief
officer or managing agent thereof or any other official of the company specified by
law.
As to the second contention, we may say that the presumption is that a judgment
rendered by a justice's court is a valid and enforceable judgment where the record
discloses that all of the steps necessary to confer jurisdiction on the court have
been taken. In the case before us it affirmatively appears that the service of
process was made on the person the sheriff certified was the managing agent of
the defendant company. The sheriff's certificate serves as prima facie evidence of
the existence of the facts stated therein. The record, therefore, discloses, so far as
the fact of service is concerned, that it was duly made on the managing agent of
the company as required by section 396, paragraph 1, of the Code of Civil
Procedure. In attacking the judgement on the ground that service was not made on
the managing agent of the company, it is incumbent on the plaintiff to overcome
the presumption arising from the sheriff's certificate before the attack will succeed.
Endeavoring to overcome the presumption referred to, plaintiff offered as a
witness one Tomas O. Segovia, an employee of the plaintiff company. He testified
that he was a bookkeeper and that as such he was well acquainted with the
business of the company and that the person Macapinlac referred to in the sheriff's
certificate as managing agent of the plaintiff company was an agent for the sale of
plows, of which the plaintiff company was a manufacturer; and that he had no
other relations with the company than that stated. During the course of the
examination this question was put to and answer elicited from this witness:
How do you know that they were not summoned, or that they did not know of this
case brought before the justice of the peace of the city of Manila?
I being the bookkeeper and the general attorney-in-fact to Vargas & Co., in Iloilo,
ought to know whether they have been notified or summoned, but I only knew
about it when the sheriff appeared in our office to make the levy.
This is the only witness who testified in the case. It does not appear when he
became the bookkeeper of the company, or that he was in such a position that he
could know or did know personally the acts of the company and its relations to
Macapinlac. He does not testify of his own knowledge to the essential facts
necessary to controvert the statements contained it the sheriff's certificate of
service. His testimony is rather negative than positive, it being at all times possible,
in spite of his evidence, indeed, in strict accord therewith, that Vargas & Co., of
which the witness was neither official nor manager, could have appointed a
managing agent for the company or could have removed him without the personal
knowledge of the witness. The witness had no personal knowledge of the relation
between the company and Macapinlac. He never saw the contract existing
between them. He did not hear the agreement between them nor did he know of
his own knowledge what the relations between the company and Macapinlac were.
His testimony besides being negative in character has in it many of the elements of
hearsay and is not at all satisfactory. It would have been very easy to present one
of the members of the company, or all of them, who engaged Macapinlac, who
know the relations between him and the company, to testify as to what those
relations were and to deny, if that were the fact, that Macapinlac was such an
agent or official of the company as is within the purview of section 396 above
referred to. The facts stated in the certificate of the sheriff will not be considered
as overcome and rebutted except on clear evidence showing the contrary. The
evidence of the bookkeeper, who is the only witness for the company, is not
satisfactory in any sense and is quite insufficient to overcome the presumption
established by the sheriff's certificate.
In view of these considerations it is not necessary to consider the question
presented by the payment by the plaintiff company of the judgment.
The judgment appealed from is reversed and the complaint dismissed on the
merits, without costs in this instance. So ordered.
NGO TIAN TEK and NGO HAY, petitioner, vs.PHILIPPINE EDUCATION CO., INC.,
respondent.
The plaintiff, Philippine Education Co., Inc., instituted in the Court of First Instance
of Manila an action against the defendants, Vicente Tan alias Chan Sy and the
partnership of Ngo Tian Tek and Ngo Hay, for the recovery of some P16,070.14,
unpaid cost of merchandise purchased by Lee Guan Box Factory from the plaintiff
and five other corporate entities which, though not parties to the action, had
previously assigned their credits to the plaintiff, together with attorney's fees,
interest and costs. /by agreement of the parties, the case was heard before a
referee, Attorney Francisco Dalupan, who in due time submitted his report holding
the defendants jointly and severally liable to the plaintiff for the sum of P16,070.14
plus attorney's fees and interest at the rates specified in the report. On March 6,
1939, the Court of First Instance of Manila rendered judgment was affirmed by the
Court of Appeals in its decision of January 31, 1941, now the subject of our review
at the instance of the partnership Ngo Tian Tek and Ngo Hay, petitioner herein.

"It appears that," quoting from the decision of the Court of Appeals whose findings
of fact are conclusive, "as far back as the year 1925, the Modern Box Factory was
established at 603 Magdalena Street, Manila. It was at first owned by Ngo Hay,
who three years later was joined by Ngo Tian Tek as a junior partner. The modern
Box Factory dealt in pare and similar merchandise and purchased goods from the
plaintiff and its assignors in the names of the Modern Box Factory, Ngo Hay and
Co., Go Hay Box Factory, or Go Hay. Then about the year 1930, the Lee Guan Box
Factory was established a few meters from the Modern Box Factory, under the
management of Vicente Tan. When that concern, through Vicente Tan, sought
credit with the plaintiff and its assignors, Ngo Hay, in conversations and interviews
with their officers and employees, represented that he was the principal owner of
such factory, that the Lee Guan Box Factory and the Modern Box Factory belonged
to the same owner, and that the Lee Guan Box Factory was a subsidiary of the
Modern Box Factory. There is evidence that many goods purchased in the name of
the Lee Guan Box Factory were delivered to the Modern Box Factory by the
employees of the plaintiff and its assignors upon the express direction of Vicente
Tan. There is also evidence that the collectors of the sellers were requested by
Vicente Tan to collect and did collect from the Modern Box Factory the bills
against the Lee Guan Box Factory. In the fact the record shows many checks signed
by Ngo Hay or Ngo Tian Tek in payment of accounts of the Lee Guan Box Factory.
Furthermore, and this seems to be conclusive-Ngo Hay, testifying for the
defense, admitted that 'he' was the owner of the Lee Guan Box Factory in and
before the year 1934, but that in January, 1935, 'he' sold it, by the contract of sale
Exhibit 7, to Vicente Tan, who had been his manager of the business. Tan declared
also that before January, 1935, the Lee Guan Box Factory pertained to Ngo Hay and
Ngo Tian Tek. The contract Exhibit 7 was found by the referee, to be untrue and
simulated, for various convincing reasons that need no repetition here. And the
quoted statements serve effectively to confirm the evidence for the plaintiff that it
was Ngo Hay's representations of ownership of, and responsibility for, Lee Guan
Box Factory that induced them to open credit for that concern. It must be stated
that in this connection to answer appellant's fitting observation that the
plaintiff and the assignors have considered Ngo Hay, the Modern Box Factory and
Ngo Hay and Co. as one and the same, through the acts of the partners themselves,
and that the proof as to Ngo Hay's statements regarding the ownership of Lee
Guan Box Factory must be taken in that view. Ngo Hay was wont to say 'he' owned
the Modern Box Factory, meaning that he was the principal owner, his other
partner being Ngo Tian Tek. Now, it needs no demonstration for appellant does
not deny it that the obligations of the Lee Guan Box Factory must rest upon its
known owner. And that owner in Ngo Tian Tek and Ngo Hay."
We must overrule petitioner's contention that the Court of Appeals erred in
holding that Lee Guan Box Factory was a subsidiary of the Modern Box Factory and
in disregarding the fact that the contracts evidencing the debts in question were
signed by Vicente Tan alias Chan Sy, without any indication that tended to involve
the Modern Box Factory or the petitioner. In the first place, we are concluded by
the finding of the Court of Appeals regarding the ownership by the petitioner of
Lee Guan Box Factory. Secondly, the circumstances that Vicente Tan alias Chan Sy
acted in his own name cannot save the petitioner, in view of said ownership, and
because contracts entered into by a factor of a commercial establishment known to
belong to a well known enterprise or association, shall be understood as made for
the account of the owner of such enterprise or association, even when the factor
has not so stated at the time of executing the same, provided that such contracts
involve objects comprised in the line and business of the establishment. (Article
286, Code of Commerce.) The fact that Vicente Tan did not have any recorded
power of attorney executed by the petitioner will not operate to prejudice third
persons, like the respondent Philippine Education Co., Inc., and its assignors. (3
Echavarri, 133.)
Another defense set up by the petitioner is that prior to the transactions which
gave rise to this suit, Vicente Tan had purchased Lee Guan Box Factory from Ngo
Hay under the contract, Exhibit 7; and the petitioner assails, under the second
assignment of error, the conclusion of the Court of Appeals that said contract is
simulated. This contention is purely factual and must also be overruled.
The petitioner questions the right of the respondent Philippine Education Co., Inc.,
to sue for the credits assigned by the five entities with which Lee Guan Box Factory
originally contracted, it being argued that the assignment, intended only for
purposes of collection, did not make said respondent the real party in interest. The
petitioner has cited 5 Corpus Juris, section 144, page 958, which points out that
"under statutes authorizing only a bona fide assignee of choses in action to sue
thereon in his own name, an assignee for collection merely is not entitled to sue in
his own name."
The finding of the Court of Appeals that there is nothing "simulated in the
assignment," precludes us from ruling that respondent company is not a bona fide
assignee. Even assuming, however, that said assignment was only for collection, we
are not prepared to say that, under section 114 of the Code of Civil Procedure, in
force at the time this action was instituted, ours is not one of those jurisdictions
following the rule that "when a choose, capable of legal assignment, is assigned
absolutely to one, but the assignment is made for purpose of collection, the legal
title thereto vests in the assignee, and it is no concern of the debtor that the
equitable title is in another, and payment to the assignee discharges the debtor." (5 Moran, C.J., Pablo, Perfecto, Hilado, Briones, Hontiveros, and Tuason, JJ., concur.
C. J., section 144, p. 958.) No substantial right of the petitioner could indeed be
prejudiced by such assignment, because section 114 of the Code of Civil Procedure
reserves to it "'any set-off or other defense existing at the time of or before notice
of the assignment.'"

Separate Opinions

Petitioner's allegation that "fraud in the inception of the debt is personal to the
contracting parties and does not follow assignment," and that the contracts
assigned to the respondent company "are immoral and against public policy and FERIA, J., concurring and dissenting:
therefore void," constitute defenses on the merits, but do not affect the efficacy of
the assignment. It is obvious that, apart from the fact that the petitioner can not
invoke fraud of its authorship to evade liability, the appealed decision is founded
I concur in the majority except that portion thereof which deals with the question
on an obligation arising, not from fraud, but from the very contracts under which
whether an assignee for collection merely is entitled to sue in his own name, which
merchandise had been purchased by Lee Guan Box Factory.
need not be discussed, in view of the finding of the Court of Appeals that there is
nothing "simulated in the assignment" which according to the very opinion of the
majority "precludes us from ruling that the respondent company is not a bona fide
The fourth and fifth assignments of error relate to the refusal of the Court of assignee;" because such being the conclusion of fact of the Court of Appeals, this
Appeals to hold that the writ of attachment is issued at the commencement of this Supreme Court can not modify or reverse that conclusion and find that respondent
action by the Court of First Instance is illegal, and to award in favor of the Philippine Education Co. was not a bona fide assignee, and the assignment was not
petitioner damages for such wrongful attachment. For us to sustain petitioner's absolute, but made merely for collection in order that said respondent may sue in
contention will amount to an unauthorized reversal of the following conclusion of its own name.
fact of the Court of Appeals: "The stereotyped manner in which defendants
obtained goods on credit from the six companies, Vicente Tan's sudden
disappearance, the execution of the fake sale Exhibit 7 to throw the whole
But I dissent from the majority opinion when it further says:
responsibility upon the absent or otherwise insolvent Tan, defendant's mercurial
and unbelievable theories as to the ownership of the Modern Box Factory and Lee
Guan Box Factory obviously adopted in a vain effort to meet or explain away the
evidentiary force of plaintiff's documentary evidence are much too significant to Even assuming, however, that said assignment was only for collection, we are not
permit a declaration that the attachment was not justified." prepared to say that, under section 114 of the Code of Civil Procedure, in force at
the time this action was instituted, ours is not one of those jurisdictions following
the rule that "when a choose, capable of legal assignment, is assigned absolutely to
one, but the assignment is made for purpose of collection, the legal title thereto
Regarding the suggestion in petitioner's memorandum that this case should be
vests in the assignee, and it is no concern of the debtor that the equitable title is in
dismissed because of the death of Ngo Hay, it is sufficient to state that the
another, and payment to the assignee discharges the debtor." (5 C. J., section 114,
petitioner Ngo Tian Tek and Ngo Hay is sued as a partnership possessing a
p. 958.) No substantial right of the petitioner could indeed be prejudiced by such
personality distinct from any of the partners.
assignment, because section 114 of the Code of Civil Procedure reserves to it "any
set-off or other defense exiting at the time of or before notice of the assignment."

The appealed decision is affirmed, with costs against the petitioner. So ordered.
The reason for my dissenting is that, after quoting the finding of the Court of
Appeals and stating that said conclusion precludes this Court "from ruling that the
respondent company is not a bona fide assignee," the majority should have
stopped then and there. But having preferred to adduce an additional ratio
decidendi, and assume that the assignment was for collection only and not an
absolute and bona fide one, in order to meet the latter's argument, because the
Court of Appeals' conclusion is that the assignment was not simulated, that is,
absolute and bona fide, the majority should have quoted and discussed the second
and third sentences of paragraph 144, page 958, of the Corpus Juris, quoted and
relied on by the petitioner, which refers to an assignment that is not absolutely and
bona fide made. However the majority opinion did not do so, and quotes and bases
its conclusion to the contrary on the first sentence of said paragraph, not relied on
by the petitioner, and which deals with absolute and bona fide assignment, and to
the provision of section 114 of the Code of Civil Procedure on set-off and defenses
which defendant may set up to an action instituted by a bona fide assignee.
To clearly show the error, we transcribe below section 144, page 958, of Corpus
Juris quoted and underlined by the petitioner in his brief:
144. G. Assignments for Collection. When a chose, capable of legal assignment,
is assigned absolutely to one, but the assignment is made for purpose of collection,
the legal title thereto vests in the assignee, and it is no concern of the debtor that
the equitable title is in another, and payment to the assignee discharges the
debtor. Under the statutes of most jurisdictions, the assignee may prosecute an
action thereon in his own name as the real party in interest or as a trustee of an
express trust; but, under statutes authorizing only a bona fide assignee of choses in
action to sue thereon in his own name, an assignee for collection merely is not
entitled to sue in his own name. An assignment merely for collection does not
transfer the beneficial ownership to the assignee.
It is not only convenient but necessary to point this error in the present concurring
and dissenting opinion, for the conclusion set forth in the above quoted portion of
the majority decision is misleading; because it apparently lays down the ruling that
an assignee not bona fide to whom a credit was assigned, not absolutely, but for
collection merely may sue in his own name (a debatable question which has not yet
been passed upon squarely by this Court [ Annotation; 64 L. R. A., 585]), but the
premise on which the majority's conclusion or ruling is predicated in said portion of
the Corpus Juris quoted in the opinion, which is a wrong premise laid down, not by
the petitioner, but by the writer himself of the majority opinion.
ANG PUE & COMPANY, ET AL., plaintiffs-appellants, vs.SECRETARY OF
COMMERCE AND INDUSTRY, defendant-appellee.
Action for declaratory relief filed in the Court of First Instance of Iloilo by Ang Pue &
Company, Ang Pue and Tan Siong against the Secretary of Commerce and Industry
to secure judgment "declaring that plaintiffs could extend for five years the term of
the partnership pursuant to the provisions of plaintiffs' Amendment to the Article
of Co-partnership."
The answer filed by the defendant alleged, in substance, that the extension for
another five years of the term of the plaintiffs' partnership would be in violation of
the provisions of Republic Act No. 1180.
It appears that on May 1, 1953, Ang Pue and Tan Siong, both Chinese citizens,
organized the partnership Ang Pue & Company for a term of five years from May 1,
1953, extendible by their mutual consent. The purpose of the partnership was "to
maintain the business of general merchandising, buying and selling at wholesale
and retail, particularly of lumber, hardware and other construction materials for
commerce, either native or foreign." The corresponding articles of partnership
(Exhibit B) were registered in the Office of the Securities & Exchange Commission
on June 16, 1953.
On June 19, 1954 Republic Act No. 1180 was enacted to regulate the retail
business. It provided, among other things, that, after its enactment, a partnership
not wholly formed by Filipinos could continue to engage in the retail business until
the expiration of its term.
On April 15, 1958 prior to the expiration of the five-year term of the partnership
Ang Pue & Company, but after the enactment of the Republic Act 1180, the
partners already mentioned amended the original articles of part ownership
(Exhibit B) so as to extend the term of life of the partnership to another five years.
When the amended articles were presented for registration in the Office of the
Securities & Exchange Commission on April 16, 1958, registration was refused upon
the ground that the extension was in violation of the aforesaid Act.
From the decision of the lower court dismissing the action, with costs, the plaintiffs
interposed this appeal.
The question before us is too clear to require an extended discussion. To organize a
corporation or a partnership that could claim a juridical personality of its own and
transact business as such, is not a matter of absolute right but a privilege which
may be enjoyed only under such terms as the State may deem necessary to
impose. That the State, through Congress, and in the manner provided by law, had
the right to enact Republic Act No. 1180 and to provide therein that only Filipinos
and concerns wholly owned by Filipinos may engage in the retail business can not
be seriously disputed. That this provision was clearly intended to apply to
partnership already existing at the time of the enactment of the law is clearly
showing by its provision giving them the right to continue engaging in their retail
business until the expiration of their term or life.
To argue that because the original articles of partnership provided that the
partners could extend the term of the partnership, the provisions of Republic Act
1180 cannot be adversely affect appellants herein, is to erroneously assume that
the aforesaid provision constitute a property right of which the partners can not be
deprived without due process or without their consent. The agreement contain
therein must be deemed subject to the law existing at the time when the partners
came to agree regarding the extension. In the present case, as already stated,
when the partners amended the articles of partnership, the provisions of Republic
Act 1180 were already in force, and there can be not the slightest doubt that the
right claimed by appellants to extend the original term of their partnership to
another five years would be in violation of the clear intent and purpose of the law
aforesaid.
WHEREFORE, the judgment appealed from is affirmed, with costs.
MARIANO P. PASCUAL and RENATO P. DRAGON, petitioners, vs.THE
COMMISSIONER OF INTERNAL REVENUE and COURT OF TAX APPEALS,
respondents.
The distinction between co-ownership and an unregistered partnership or joint
venture for income tax purposes is the issue in this petition.
On June 22, 1965, petitioners bought two (2) parcels of land from Santiago
Bernardino, et al. and on May 28, 1966, they bought another three (3) parcels of
land from Juan Roque. The first two parcels of land were sold by petitioners in 1968
toMarenir Development Corporation, while the three parcels of land were sold by
petitioners to Erlinda Reyes and Maria Samson on March 19,1970. Petitioners
realized a net profit in the sale made in 1968 in the amount of P165,224.70, while
they realized a net profit of P60,000.00 in the sale made in 1970. The
corresponding capital gains taxes were paid by petitioners in 1973 and 1974 by
availing of the tax amnesties granted in the said years.
However, in a letter dated March 31, 1979 of then Acting BIR Commissioner Efren I.
Plana, petitioners were assessed and required to pay a total amount of
P107,101.70 as alleged deficiency corporate income taxes for the years 1968 and
1970.
Petitioners protested the said assessment in a letter of June 26, 1979 asserting that
they had availed of tax amnesties way back in 1974.
In a reply of August 22, 1979, respondent Commissioner informed petitioners that
in the years 1968 and 1970, petitioners as co-owners in the real estate transactions
formed an unregistered partnership or joint venture taxable as a corporation under
Section 20(b) and its income was subject to the taxes prescribed under Section 24,
both of the National Internal Revenue Code 1 that the unregistered partnership
was subject to corporate income tax as distinguished from profits derived from the
partnership by them which is subject to individual income tax; and that the
availment of tax amnesty under P.D. No. 23, as amended, by petitioners relieved
petitioners of their individual income tax liabilities but did not relieve them from
the tax liability of the unregistered partnership. Hence, the petitioners were
required to pay the deficiency income tax assessed.
Petitioners filed a petition for review with the respondent Court of Tax Appeals
docketed as CTA Case No. 3045. In due course, the respondent court by a majority
decision of March 30, 1987, 2 affirmed the decision and action taken by
respondent commissioner with costs against petitioners.
It ruled that on the basis of the principle enunciated in Evangelista 3 an
unregistered partnership was in fact formed by petitioners which like a corporation
was subject to corporate income tax distinct from that imposed on the partners.
In a separate dissenting opinion, Associate Judge Constante Roaquin stated that
considering the circumstances of this case, although there might in fact be a co-
ownership between the petitioners, there was no adequate basis for the
conclusion that they thereby formed an unregistered partnership which made
"hem liable for corporate income tax under the Tax Code.
Hence, this petition wherein petitioners invoke as basis thereof the following
alleged errors of the respondent court:
A. IN HOLDING AS PRESUMPTIVELY CORRECT THE DETERMINATION OF THE
RESPONDENT COMMISSIONER, TO THE EFFECT THAT PETITIONERS FORMED AN
UNREGISTERED PARTNERSHIP SUBJECT TO CORPORATE INCOME TAX, AND THAT
THE BURDEN OF OFFERING EVIDENCE IN OPPOSITION THERETO RESTS UPON THE
PETITIONERS.
B. IN MAKING A FINDING, SOLELY ON THE BASIS OF ISOLATED SALE
TRANSACTIONS, THAT AN UNREGISTERED PARTNERSHIP EXISTED THUS IGNORING
THE REQUIREMENTS LAID DOWN BY LAW THAT WOULD WARRANT THE
PRESUMPTION/CONCLUSION THAT A PARTNERSHIP EXISTS.
C. IN FINDING THAT THE INSTANT CASE IS SIMILAR TO THE EVANGELISTA
CASE AND THEREFORE SHOULD BE DECIDED ALONGSIDE THE EVANGELISTA CASE.
D. IN RULING THAT THE TAX AMNESTY DID NOT RELIEVE THE PETITIONERS
FROM PAYMENT OF OTHER TAXES FOR THE PERIOD COVERED BY SUCH AMNESTY.
(pp. 12-13, Rollo.)
The petition is meritorious.
The basis of the subject decision of the respondent court is the ruling of this Court
in Evangelista. 4
In the said case, petitioners borrowed a sum of money from their father which
together with their own personal funds they used in buying several real properties.
They appointed their brother to manage their properties with full power to lease,
collect, rent, issue receipts, etc. They had the real properties rented or leased to
various tenants for several years and they gained net profits from the rental
income. Thus, the Collector of Internal Revenue demanded the payment of income
tax on a corporation, among others, from them.
In resolving the issue, this Court held as follows:
The issue in this case is whether petitioners are subject to the tax on corporations
provided for in section 24 of Commonwealth Act No. 466, otherwise known as the
National Internal Revenue Code, as well as to the residence tax for corporations
and the real estate dealers' fixed tax. With respect to the tax on corporations, the
issue hinges on the meaning of the terms corporation and partnership as used in
sections 24 and 84 of said Code, the pertinent parts of which read:
Sec. 24. Rate of the tax on corporations.There shall be levied, assessed, collected,
and paid annually upon the total net income received in the preceding taxable year
from all sources by every corporation organized in, or existing under the laws of the
Philippines, no matter how created or organized but not including duly registered
general co-partnerships (companies collectives), a tax upon such income equal to
the sum of the following: ...
Sec. 84(b). The term "corporation" includes partnerships, no matter how created or
organized, joint-stock companies, joint accounts (cuentas en participation),
associations or insurance companies, but does not include duly registered general
co-partnerships (companies colectivas).
Article 1767 of the Civil Code of the Philippines provides:
By the contract of partnership two or more persons bind themselves to contribute
money, property, or industry to a common fund, with the intention of dividing the
profits among themselves.
Pursuant to this article, the essential elements of a partnership are two, namely: (a)
an agreement to contribute money, property or industry to a common fund; and
(b) intent to divide the profits among the contracting parties. The first element is
undoubtedly present in the case at bar, for, admittedly, petitioners have agreed to,
and did, contribute money and property to a common fund. Hence, the issue
narrows down to their intent in acting as they did. Upon consideration of all the
facts and circumstances surrounding the case, we are fully satisfied that their
purpose was to engage in real estate transactions for monetary gain and then
divide the same among themselves, because:
1. Said common fund was not something they found already in existence. It
was not a property inherited by them pro indiviso. They created it purposely. What
is more they jointly borrowed a substantial portion thereof in order to establish
said common fund.
2. They invested the same, not merely in one transaction, but in a series of
transactions. On February 2, 1943, they bought a lot for P100,000.00. On April 3,
1944, they purchased 21 lots for P18,000.00. This was soon followed, on April 23,
1944, by the acquisition of another real estate for P108,825.00. Five (5) days later
(April 28, 1944), they got a fourth lot for P237,234.14. The number of lots (24)
acquired and transcations undertaken, as well as the brief interregnum between
each, particularly the last three purchases, is strongly indicative of a pattern or
common design that was not limited to the conservation and preservation of the
aforementioned common fund or even of the property acquired by petitioners in
February, 1943. In other words, one cannot but perceive a character of habituality
peculiar to business transactions engaged in for purposes of gain.
3. The aforesaid lots were not devoted to residential purposes or to other
personal uses, of petitioners herein. The properties were leased separately to
several persons, who, from 1945 to 1948 inclusive, paid the total sum of
P70,068.30 by way of rentals. Seemingly, the lots are still being so let, for
petitioners do not even suggest that there has been any change in the utilization
thereof.
4. Since August, 1945, the properties have been under the management of
one person, namely, Simeon Evangelists, with full power to lease, to collect rents,
to issue receipts, to bring suits, to sign letters and contracts, and to indorse and
deposit notes and checks. Thus, the affairs relative to said properties have been
handled as if the same belonged to a corporation or business enterprise operated
for profit.
5. The foregoing conditions have existed for more than ten (10) years, or, to
be exact, over fifteen (15) years, since the first property was acquired, and over
twelve (12) years, since Simeon Evangelists became the manager.
6. Petitioners have not testified or introduced any evidence, either on their
purpose in creating the set up already adverted to, or on the causes for its
continued existence. They did not even try to offer an explanation therefor.
Although, taken singly, they might not suffice to establish the intent necessary to
constitute a partnership, the collective effect of these circumstances is such as to
leave no room for doubt on the existence of said intent in petitioners herein. Only
one or two of the aforementioned circumstances were present in the cases cited
by petitioners herein, and, hence, those cases are not in point. 5
In the present case, there is no evidence that petitioners entered into an
agreement to contribute money, property or industry to a common fund, and that
they intended to divide the profits among themselves. Respondent commissioner
and/ or his representative just assumed these conditions to be present on the basis
of the fact that petitioners purchased certain parcels of land and became co-
owners thereof.
In Evangelists, there was a series of transactions where petitioners purchased
twenty-four (24) lots showing that the purpose was not limited to the conservation
or preservation of the common fund or even the properties acquired by them. The
character of habituality peculiar to business transactions engaged in for the
purpose of gain was present.
In the instant case, petitioners bought two (2) parcels of land in 1965. They did not
sell the same nor make any improvements thereon. In 1966, they bought another
three (3) parcels of land from one seller. It was only 1968 when they sold the two
(2) parcels of land after which they did not make any additional or new purchase.
The remaining three (3) parcels were sold by them in 1970. The transactions were
isolated. The character of habituality peculiar to business transactions for the
purpose of gain was not present.
In Evangelista, the properties were leased out to tenants for several years. The
business was under the management of one of the partners. Such condition existed
for over fifteen (15) years. None of the circumstances are present in the case at
bar. The co-ownership started only in 1965 and ended in 1970.
Thus, in the concurring opinion of Mr. Justice Angelo Bautista in Evangelista he
said:
I wish however to make the following observation Article 1769 of the new Civil
Code lays down the rule for determining when a transaction should be deemed a
partnership or a co-ownership. Said article paragraphs 2 and 3, provides;
(2) Co-ownership or co-possession does not itself establish a partnership,
whether such co-owners or co-possessors do or do not share any profits made by
the use of the property;
(3) The sharing of gross returns does not of itself establish a partnership,
whether or not the persons sharing them have a joint or common right or interest
in any property from which the returns are derived;
From the above it appears that the fact that those who agree to form a co-
ownership share or do not share any profits made by the use of the property held
in common does not convert their venture into a partnership. Or the sharing of the
gross returns does not of itself establish a partnership whether or not the persons
sharing therein have a joint or common right or interest in the property. This only
means that, aside from the circumstance of profit, the presence of other elements
constituting partnership is necessary, such as the clear intent to form a partnership,
the existence of a juridical personality different from that of the individual
partners, and the freedom to transfer or assign any interest in the property by one
with the consent of the others (Padilla, Civil Code of the Philippines Annotated, Vol.
I, 1953 ed., pp. 635-636)
It is evident that an isolated transaction whereby two or more persons contribute
funds to buy certain real estate for profit in the absence of other circumstances
showing a contrary intention cannot be considered a partnership.
Persons who contribute property or funds for a common enterprise and agree to
share the gross returns of that enterprise in proportion to their contribution, but
who severally retain the title to their respective contribution, are not thereby
rendered partners. They have no common stock or capital, and no community of
interest as principal proprietors in the business itself which the proceeds derived.
(Elements of the Law of Partnership by Flord D. Mechem 2nd Ed., section 83, p. 74.)
A joint purchase of land, by two, does not constitute a co-partnership in respect
thereto; nor does an agreement to share the profits and losses on the sale of land
create a partnership; the parties are only tenants in common. (Clark vs. Sideway,
142 U.S. 682,12 Ct. 327, 35 L. Ed., 1157.)
Where plaintiff, his brother, and another agreed to become owners of a single tract
of realty, holding as tenants in common, and to divide the profits of disposing of it,
the brother and the other not being entitled to share in plaintiffs commission, no
partnership existed as between the three parties, whatever their relation may have
been as to third parties. (Magee vs. Magee 123 N.E. 673, 233 Mass. 341.)
In order to constitute a partnership inter sese there must be: (a) An intent to form
the same; (b) generally participating in both profits and losses; (c) and such a
community of interest, as far as third persons are concerned as enables each party
to make contract, manage the business, and dispose of the whole property.-
Municipal Paving Co. vs. Herring 150 P. 1067, 50 III 470.)
The common ownership of property does not itself create a partnership between
the owners, though they may use it for the purpose of making gains; and they may,
without becoming partners, agree among themselves as to the management, and
use of such property and the application of the proceeds therefrom. (Spurlock vs.
Wilson, 142 S.W. 363,160 No. App. 14.) 6
The sharing of returns does not in itself establish a partnership whether or not the
persons sharing therein have a joint or common right or interest in the property.
There must be a clear intent to form a partnership, the existence of a juridical
personality different from the individual partners, and the freedom of each party to
transfer or assign the whole property.
In the present case, there is clear evidence of co-ownership between the
petitioners. There is no adequate basis to support the proposition that they
thereby formed an unregistered partnership. The two isolated transactions
whereby they purchased properties and sold the same a few years thereafter did
not thereby make them partners. They shared in the gross profits as co- owners
and paid their capital gains taxes on their net profits and availed of the tax amnesty
thereby. Under the circumstances, they cannot be considered to have formed an
unregistered partnership which is thereby liable for corporate income tax, as the
respondent commissioner proposes.
And even assuming for the sake of argument that such unregistered partnership
appears to have been formed, since there is no such existing unregistered
partnership with a distinct personality nor with assets that can be held liable for
said deficiency corporate income tax, then petitioners can be held individually
liable as partners for this unpaid obligation of the partnership p. 7 However, as
petitioners have availed of the benefits of tax amnesty as individual taxpayers in
these transactions, they are thereby relieved of any further tax liability arising
therefrom.
WHEREFROM, the petition is hereby GRANTED and the decision of the respondent
Court of Tax Appeals of March 30, 1987 is hereby REVERSED and SET ASIDE and
another decision is hereby rendered relieving petitioners of the corporate income
tax liability in this case, without pronouncement as to costs.
SO ORDERED.
LORENZO T. OA and HEIRS OF JULIA BUALES, namely: RODOLFO B. OA,
MARIANO B. OA, LUZ B. OA, VIRGINIA B. OA and LORENZO B. OA, JR.,
petitioners,vs.THE COMMISSIONER OF INTERNAL REVENUE, respondent.
Petition for review of the decision of the Court of Tax Appeals in CTA Case No. 617,
similarly entitled as above, holding that petitioners have constituted an
unregistered partnership and are, therefore, subject to the payment of the
deficiency corporate income taxes assessed against them by respondent
Commissioner of Internal Revenue for the years 1955 and 1956 in the total sum of
P21,891.00, plus 5% surcharge and 1% monthly interest from December 15, 1958,
subject to the provisions of Section 51 (e) (2) of the Internal Revenue Code, as
amended by Section 8 of Republic Act No. 2343 and the costs of the suit, 1 as well
as the resolution of said court denying petitioners' motion for reconsideration of
said decision.
The facts are stated in the decision of the Tax Court as follows:
Julia Buales died on March 23, 1944, leaving as heirs her surviving spouse,
Lorenzo T. Oa and her five children. In 1948, Civil Case No. 4519 was instituted in
the Court of First Instance of Manila for the settlement of her estate. Later, Lorenzo
T. Oa the surviving spouse was appointed administrator of the estate of said
deceased (Exhibit 3, pp. 34-41, BIR rec.). On April 14, 1949, the administrator
submitted the project of partition, which was approved by the Court on May 16,
1949 (See Exhibit K). Because three of the heirs, namely Luz, Virginia and Lorenzo,
Jr., all surnamed Oa, were still minors when the project of partition was approved, Land
Lorenzo T. Oa, their father and administrator of the estate, filed a petition in Civil
Case No. 9637 of the Court of First Instance of Manila for appointment as guardian
of said minors. On November 14, 1949, the Court appointed him guardian of the
persons and property of the aforenamed minors (See p. 3, BIR rec.). Building

The project of partition (Exhibit K; see also pp. 77-70, BIR rec.) shows that the heirs
have undivided one-half (1/2) interest in ten parcels of land with a total assessed
value of P87,860.00, six houses with a total assessed value of P17,590.00 and an
undetermined amount to be collected from the War Damage Commission. Later,
they received from said Commission the amount of P50,000.00, more or less. This Account
amount was not divided among them but was used in the rehabilitation of
properties owned by them in common (t.s.n., p. 46). Of the ten parcels of land
aforementioned, two were acquired after the death of the decedent with money
Account
borrowed from the Philippine Trust Company in the amount of P72,173.00 (t.s.n.,
p. 24; Exhibit 3, pp. 31-34 BIR rec.).

Account
The project of partition also shows that the estate shares equally with Lorenzo T.
Oa, the administrator thereof, in the obligation of P94,973.00, consisting of loans
contracted by the latter with the approval of the Court (see p. 3 of Exhibit K; or see 1949
p. 74, BIR rec.).

Although the project of partition was approved by the Court on May 16, 1949, no
attempt was made to divide the properties therein listed. Instead, the properties
remained under the management of Lorenzo T. Oa who used said properties in
business by leasing or selling them and investing the income derived therefrom and P87,860.00
the proceeds from the sales thereof in real properties and securities. As a result,
petitioners' properties and investments gradually increased from P105,450.00 in
1949 to P480,005.20 in 1956 as can be gleaned from the following year-end
balances: P17,590.00

Year 1950

Investment P24,657.65
128,566.72 84,925.68

96,076.26 161,463.83

1951 1954

51,301.31 63,623.37

120,349.28 99,001.20

110,605.11 167,962.04

1952 1955

67,927.52 100,786.00

87,065.28 120,249.78

152,674.39 169,262.52

1953 1956

61,258.27 175,028.68
135,714.68

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

169,262.52

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

(See Exhibits 3 & K t.s.n., pp. 22, 25-26, 40, 50, 102-104) 25% surcharge .............................................. 2,010.50

Compromise for non-filing .......................... 50.00

From said investments and properties petitioners derived such incomes as profits Total ............................................................... P10,102.50
from installment sales of subdivided lots, profits from sales of stocks, dividends,
rentals and interests (see p. 3 of Exhibit 3; p. 32, BIR rec.; t.s.n., pp. 37-38). The said
incomes are recorded in the books of account kept by Lorenzo T. Oa where the
corresponding shares of the petitioners in the net income for the year are also 1956
known. Every year, petitioners returned for income tax purposes their shares in the
net income derived from said properties and securities and/or from transactions
involving them (Exhibit 3, supra; t.s.n., pp. 25-26). However, petitioners did not
actually receive their shares in the yearly income. (t.s.n., pp. 25-26, 40, 98, 100). Net income as per investigation ................ P69,245.23
The income was always left in the hands of Lorenzo T. Oa who, as heretofore
pointed out, invested them in real properties and securities. (See Exhibit 3, t.s.n.,
pp. 50, 102-104).
Income tax due thereon ............................... 13,849.00

25% surcharge .............................................. 3,462.25

On the basis of the foregoing facts, respondent (Commissioner of Internal Revenue)
Compromise for non-filing .......................... 50.00
decided that petitioners formed an unregistered partnership and therefore, subject
to the corporate income tax, pursuant to Section 24, in relation to Section 84(b), of Total ............................................................... P17,361.25
the Tax Code. Accordingly, he assessed against the petitioners the amounts of
P8,092.00 and P13,899.00 as corporate income taxes for 1955 and 1956,
respectively. (See Exhibit 5, amended by Exhibit 17, pp. 50 and 86, BIR rec.).
Petitioners protested against the assessment and asked for reconsideration of the (See Exhibit 13, page 50, BIR records)
ruling of respondent that they have formed an unregistered partnership. Finding no
merit in petitioners' request, respondent denied it (See Exhibit 17, p. 86, BIR rec.).
(See pp. 1-4, Memorandum for Respondent, June 12, 1961).
Upon further consideration of the case, the 25% surcharge was eliminated in line
with the ruling of the Supreme Court in Collector v. Batangas Transportation Co.,
G.R. No. L-9692, Jan. 6, 1958, so that the questioned assessment refers solely to
The original assessment was as follows: the income tax proper for the years 1955 and 1956 and the "Compromise for non-
filing," the latter item obviously referring to the compromise in lieu of the criminal
liability for failure of petitioners to file the corporate income tax returns for said
years. (See Exh. 17, page 86, BIR records). (Pp. 1-3, Annex C to Petition)
1955
Petitioners have assigned the following as alleged errors of the Tax Court:
I.
THE COURT OF TAX APPEALS ERRED IN HOLDING THAT THE PETITIONERS FORMED
AN UNREGISTERED PARTNERSHIP;
II.
THE COURT OF TAX APPEALS ERRED IN NOT HOLDING THAT THE PETITIONERS
WERE CO-OWNERS OF THE PROPERTIES INHERITED AND (THE) PROFITS DERIVED
FROM TRANSACTIONS THEREFROM (sic);
III.
THE COURT OF TAX APPEALS ERRED IN HOLDING THAT PETITIONERS WERE LIABLE
FOR CORPORATE INCOME TAXES FOR 1955 AND 1956 AS AN UNREGISTERED
PARTNERSHIP;
IV.
ON THE ASSUMPTION THAT THE PETITIONERS CONSTITUTED AN UNREGISTERED
PARTNERSHIP, THE COURT OF TAX APPEALS ERRED IN NOT HOLDING THAT THE
PETITIONERS WERE AN UNREGISTERED PARTNERSHIP TO THE EXTENT ONLY THAT
THEY INVESTED THE PROFITS FROM THE PROPERTIES OWNED IN COMMON AND
THE LOANS RECEIVED USING THE INHERITED PROPERTIES AS COLLATERALS;
V.
ON THE ASSUMPTION THAT THERE WAS AN UNREGISTERED PARTNERSHIP, THE
COURT OF TAX APPEALS ERRED IN NOT DEDUCTING THE VARIOUS AMOUNTS PAID
BY THE PETITIONERS AS INDIVIDUAL INCOME TAX ON THEIR RESPECTIVE SHARES
OF THE PROFITS ACCRUING FROM THE PROPERTIES OWNED IN COMMON, FROM
THE DEFICIENCY TAX OF THE UNREGISTERED PARTNERSHIP.
In other words, petitioners pose for our resolution the following questions: (1)
Under the facts found by the Court of Tax Appeals, should petitioners be
considered as co-owners of the properties inherited by them from the deceased
Julia Buales and the profits derived from transactions involving the same, or, must
they be deemed to have formed an unregistered partnership subject to tax under
Sections 24 and 84(b) of the National Internal Revenue Code? (2) Assuming they
have formed an unregistered partnership, should this not be only in the sense that
they invested as a common fund the profits earned by the properties owned by
them in common and the loans granted to them upon the security of the said
properties, with the result that as far as their respective shares in the inheritance
are concerned, the total income thereof should be considered as that of co-owners
and not of the unregistered partnership? And (3) assuming again that they are
taxable as an unregistered partnership, should not the various amounts already
paid by them for the same years 1955 and 1956 as individual income taxes on their
respective shares of the profits accruing from the properties they owned in
common be deducted from the deficiency corporate taxes, herein involved,
assessed against such unregistered partnership by the respondent Commissioner?
Pondering on these questions, the first thing that has struck the Court is that
whereas petitioners' predecessor in interest died way back on March 23, 1944 and
the project of partition of her estate was judicially approved as early as May 16,
1949, and presumably petitioners have been holding their respective shares in their
inheritance since those dates admittedly under the administration or management
of the head of the family, the widower and father Lorenzo T. Oa, the assessment
in question refers to the later years 1955 and 1956. We believe this point to be
important because, apparently, at the start, or in the years 1944 to 1954, the
respondent Commissioner of Internal Revenue did treat petitioners as co-owners,
not liable to corporate tax, and it was only from 1955 that he considered them as
having formed an unregistered partnership. At least, there is nothing in the record
indicating that an earlier assessment had already been made. Such being the case,
and We see no reason how it could be otherwise, it is easily understandable why
petitioners' position that they are co-owners and not unregistered co-partners, for
the purposes of the impugned assessment, cannot be upheld. Truth to tell,
petitioners should find comfort in the fact that they were not similarly assessed
earlier by the Bureau of Internal Revenue.
The Tax Court found that instead of actually distributing the estate of the deceased
among themselves pursuant to the project of partition approved in 1949, "the
properties remained under the management of Lorenzo T. Oa who used said
properties in business by leasing or selling them and investing the income derived
therefrom and the proceed from the sales thereof in real properties and
securities," as a result of which said properties and investments steadily increased
yearly from P87,860.00 in "land account" and P17,590.00 in "building account" in
1949 to P175,028.68 in "investment account," P135.714.68 in "land account" and
P169,262.52 in "building account" in 1956. And all these became possible because,
admittedly, petitioners never actually received any share of the income or profits
from Lorenzo T. Oa and instead, they allowed him to continue using said shares as
part of the common fund for their ventures, even as they paid the corresponding
income taxes on the basis of their respective shares of the profits of their common
business as reported by the said Lorenzo T. Oa.
It is thus incontrovertible that petitioners did not, contrary to their contention,
merely limit themselves to holding the properties inherited by them. Indeed, it is
admitted that during the material years herein involved, some of the said
properties were sold at considerable profit, and that with said profit, petitioners
engaged, thru Lorenzo T. Oa, in the purchase and sale of corporate securities. It is
likewise admitted that all the profits from these ventures were divided among
petitioners proportionately in accordance with their respective shares in the
inheritance. In these circumstances, it is Our considered view that from the
moment petitioners allowed not only the incomes from their respective shares of
the inheritance but even the inherited properties themselves to be used by
Lorenzo T. Oa as a common fund in undertaking several transactions or in
business, with the intention of deriving profit to be shared by them proportionally,
such act was tantamonut to actually contributing such incomes to a common fund
and, in effect, they thereby formed an unregistered partnership within the purview
of the above-mentioned provisions of the Tax Code.
It is but logical that in cases of inheritance, there should be a period when the heirs
can be considered as co-owners rather than unregistered co-partners within the
contemplation of our corporate tax laws aforementioned. Before the partition and
distribution of the estate of the deceased, all the income thereof does belong
commonly to all the heirs, obviously, without them becoming thereby unregistered
co-partners, but it does not necessarily follow that such status as co-owners
continues until the inheritance is actually and physically distributed among the
heirs, for it is easily conceivable that after knowing their respective shares in the
partition, they might decide to continue holding said shares under the common
management of the administrator or executor or of anyone chosen by them and
engage in business on that basis. Withal, if this were to be allowed, it would be the
easiest thing for heirs in any inheritance to circumvent and render meaningless
Sections 24 and 84(b) of the National Internal Revenue Code.
It is true that in Evangelista vs. Collector, 102 Phil. 140, it was stated, among the
reasons for holding the appellants therein to be unregistered co-partners for tax
purposes, that their common fund "was not something they found already in
existence" and that "it was not a property inherited by them pro indiviso," but it is
certainly far fetched to argue therefrom, as petitioners are doing here, that ergo, in
all instances where an inheritance is not actually divided, there can be no
unregistered co-partnership. As already indicated, for tax purposes, the co-
ownership of inherited properties is automatically converted into an unregistered
partnership the moment the said common properties and/or the incomes derived
therefrom are used as a common fund with intent to produce profits for the heirs
in proportion to their respective shares in the inheritance as determined in a
project partition either duly executed in an extrajudicial settlement or approved by
the court in the corresponding testate or intestate proceeding. The reason for this
is simple. From the moment of such partition, the heirs are entitled already to their
respective definite shares of the estate and the incomes thereof, for each of them
to manage and dispose of as exclusively his own without the intervention of the
other heirs, and, accordingly he becomes liable individually for all taxes in
connection therewith. If after such partition, he allows his share to be held in
common with his co-heirs under a single management to be used with the intent of
making profit thereby in proportion to his share, there can be no doubt that, even
if no document or instrument were executed for the purpose, for tax purposes, at
least, an unregistered partnership is formed. This is exactly what happened to
petitioners in this case.
In this connection, petitioners' reliance on Article 1769, paragraph (3), of the Civil
Code, providing that: "The sharing of gross returns does not of itself establish a
partnership, whether or not the persons sharing them have a joint or common right
or interest in any property from which the returns are derived," and, for that
matter, on any other provision of said code on partnerships is unavailing. In
Evangelista, supra, this Court clearly differentiated the concept of partnerships
under the Civil Code from that of unregistered partnerships which are considered
as "corporations" under Sections 24 and 84(b) of the National Internal Revenue
Code. Mr. Justice Roberto Concepcion, now Chief Justice, elucidated on this point
thus:
To begin with, the tax in question is one imposed upon "corporations", which,
strictly speaking, are distinct and different from "partnerships". When our Internal
Revenue Code includes "partnerships" among the entities subject to the tax on
"corporations", said Code must allude, therefore, to organizations which are not
necessarily "partnerships", in the technical sense of the term. Thus, for instance,
section 24 of said Code exempts from the aforementioned tax "duly registered
general partnerships," which constitute precisely one of the most typical forms of
partnerships in this jurisdiction. Likewise, as defined in section 84(b) of said Code,
"the term corporation includes partnerships, no matter how created or organized."
This qualifying expression clearly indicates that a joint venture need not be
undertaken in any of the standard forms, or in confirmity with the usual
requirements of the law on partnerships, in order that one could be deemed
constituted for purposes of the tax on corporation. Again, pursuant to said section
84(b),the term "corporation" includes, among others, "joint accounts,(cuentas en
participacion)" and "associations", none of which has a legal personality of its own,
independent of that of its members. Accordingly, the lawmaker could not have
regarded that personality as a condition essential to the existence of the
partnerships therein referred to. In fact, as above stated, "duly registered general
co-partnerships" which are possessed of the aforementioned personality
have been expressly excluded by law (sections 24 and 84[b]) from the connotation
of the term "corporation." ....
xxx xxx xxx
Similarly, the American Law
... provides its own concept of a partnership. Under the term "partnership" it
includes not only a partnership as known in common law but, as well, a syndicate,
group, pool, joint venture, or other unincorporated organization which carries on
any business, financial operation, or venture, and which is not, within the meaning
of the Code, a trust, estate, or a corporation. ... . (7A Merten's Law of Federal
Income Taxation, p. 789; emphasis ours.)
The term "partnership" includes a syndicate, group, pool, joint venture or other
unincorporated organization, through or by means of which any business, financial
operation, or venture is carried on. ... . (8 Merten's Law of Federal Income Taxation,
p. 562 Note 63; emphasis ours.)
For purposes of the tax on corporations, our National Internal Revenue Code
includes these partnerships with the exception only of duly registered general
copartnerships within the purview of the term "corporation." It is, therefore,
clear to our mind that petitioners herein constitute a partnership, insofar as said
Code is concerned, and are subject to the income tax for corporations.
We reiterated this view, thru Mr. Justice Fernando, in Reyes vs. Commissioner of
Internal Revenue, G. R. Nos. L-24020-21, July 29, 1968, 24 SCRA 198, wherein the
Court ruled against a theory of co-ownership pursued by appellants therein.
As regards the second question raised by petitioners about the segregation, for the
purposes of the corporate taxes in question, of their inherited properties from
those acquired by them subsequently, We consider as justified the following
ratiocination of the Tax Court in denying their motion for reconsideration:
In connection with the second ground, it is alleged that, if there was an
unregistered partnership, the holding should be limited to the business engaged in
apart from the properties inherited by petitioners. In other words, the taxable
income of the partnership should be limited to the income derived from the
acquisition and sale of real properties and corporate securities and should not
include the income derived from the inherited properties. It is admitted that the
inherited properties and the income derived therefrom were used in the business
of buying and selling other real properties and corporate securities. Accordingly,
the partnership income must include not only the income derived from the
purchase and sale of other properties but also the income of the inherited
properties.
Besides, as already observed earlier, the income derived from inherited properties
may be considered as individual income of the respective heirs only so long as the
inheritance or estate is not distributed or, at least, partitioned, but the moment
their respective known shares are used as part of the common assets of the heirs
to be used in making profits, it is but proper that the income of such shares should
be considered as the part of the taxable income of an unregistered partnership.
This, We hold, is the clear intent of the law.
Likewise, the third question of petitioners appears to have been adequately
resolved by the Tax Court in the aforementioned resolution denying petitioners'
motion for reconsideration of the decision of said court. Pertinently, the court
ruled this wise:
In support of the third ground, counsel for petitioners alleges:
Even if we were to yield to the decision of this Honorable Court that the herein
petitioners have formed an unregistered partnership and, therefore, have to be
taxed as such, it might be recalled that the petitioners in their individual income tax
returns reported their shares of the profits of the unregistered partnership. We
think it only fair and equitable that the various amounts paid by the individual
petitioners as income tax on their respective shares of the unregistered partnership
should be deducted from the deficiency income tax found by this Honorable Court
against the unregistered partnership. (page 7, Memorandum for the Petitioner in
Support of Their Motion for Reconsideration, Oct. 28, 1961.)
In other words, it is the position of petitioners that the taxable income of the
partnership must be reduced by the amounts of income tax paid by each petitioner
on his share of partnership profits. This is not correct; rather, it should be the other
way around. The partnership profits distributable to the partners (petitioners
herein) should be reduced by the amounts of income tax assessed against the
partnership. Consequently, each of the petitioners in his individual capacity
overpaid his income tax for the years in question, but the income tax due from the
partnership has been correctly assessed. Since the individual income tax liabilities
of petitioners are not in issue in this proceeding, it is not proper for the Court to
pass upon the same.
Petitioners insist that it was error for the Tax Court to so rule that whatever excess
they might have paid as individual income tax cannot be credited as part payment
of the taxes herein in question. It is argued that to sanction the view of the Tax
Court is to oblige petitioners to pay double income tax on the same income, and,
worse, considering the time that has lapsed since they paid their individual income
taxes, they may already be barred by prescription from recovering their
overpayments in a separate action. We do not agree. As We see it, the case of
petitioners as regards the point under discussion is simply that of a taxpayer who
has paid the wrong tax, assuming that the failure to pay the corporate taxes in
question was not deliberate. Of course, such taxpayer has the right to be
reimbursed what he has erroneously paid, but the law is very clear that the claim
and action for such reimbursement are subject to the bar of prescription. And since
the period for the recovery of the excess income taxes in the case of herein
petitioners has already lapsed, it would not seem right to virtually disregard
prescription merely upon the ground that the reason for the delay is precisely
because the taxpayers failed to make the proper return and payment of the
corporate taxes legally due from them. In principle, it is but proper not to allow any
relaxation of the tax laws in favor of persons who are not exactly above suspicion in
their conduct vis-a-vis their tax obligation to the State.
IN VIEW OF ALL THE FOREGOING, the judgment of the Court of Tax Appeals
appealed from is affirm with costs against petitioners.
JOSE GATCHALIAN, ET AL., plaintiffs-appellants, vs.THE COLLECTOR OF INTERNAL
REVENUE, defendant-appellee.
The plaintiff brought this action to recover from the defendant Collector of Internal
Revenue the sum of P1,863.44, with legal interest thereon, which they paid under
protest by way of income tax. They appealed from the decision rendered in the
case on October 23, 1936 by the Court of First Instance of the City of Manila, which
dismissed the action with the costs against them.
The case was submitted for decision upon the following stipulation of facts:
Come now the parties to the above-mentioned case, through their respective
undersigned attorneys, and hereby agree to respectfully submit to this Honorable
Court the case upon the following statement of facts:
1. That plaintiff are all residents of the municipality of Pulilan, Bulacan, and that 13. Maria Santiago ...................................................................................................
defendant is the Collector of Internal Revenue of the Philippines; .17

14. Buenaventura Guzman ......................................................................................

.13
2. That prior to December 15, 1934 plaintiffs, in order to enable them to purchase
one sweepstakes ticket valued at two pesos (P2), subscribed and paid therefor the 15. Mariano Santos .................................................................................................
amounts as follows: .14

Total ........................................................................................................

1. Jose Gatchalian .................................................................................................... 2.00

P0.18
3. That immediately thereafter but prior to December 15, 1934, plaintiffs
2. Gregoria Cristobal ............................................................................................... purchased, in the ordinary course of business, from one of the duly authorized
.18 agents of the National Charity Sweepstakes Office one ticket bearing No. 178637
for the sum of two pesos (P2) and that the said ticket was registered in the name of
3. Saturnina Silva .................................................................................................... Jose Gatchalian and Company;
.08

4. Guillermo Tapia ...................................................................................................

.13 4. That as a result of the drawing of the sweepstakes on December 15, 1934, the
above-mentioned ticket bearing No. 178637 won one of the third prizes in the
5. Jesus Legaspi ...................................................................................................... amount of P50,000 and that the corresponding check covering the above-
.15 mentioned prize of P50,000 was drawn by the National Charity Sweepstakes Office
in favor of Jose Gatchalian & Company against the Philippine National Bank, which
6. Jose Silva ............................................................................................................. check was cashed during the latter part of December, 1934 by Jose Gatchalian &
.07 Company;

7. Tomasa Mercado ................................................................................................

.08
5. That on December 29, 1934, Jose Gatchalian was required by income tax
8. Julio Gatchalian ................................................................................................... examiner Alfredo David to file the corresponding income tax return covering the
.13 prize won by Jose Gatchalian & Company and that on December 29, 1934, the said
return was signed by Jose Gatchalian, a copy of which return is enclosed as Exhibit
9. Emiliana Santiago ................................................................................................ A and made a part hereof;
.13

10. Maria C. Legaspi ...............................................................................................

.16 6. That on January 8, 1935, the defendant made an assessment against Jose
Gatchalian & Company requesting the payment of the sum of P1,499.94 to the
11. Francisco Cabral ............................................................................................... deputy provincial treasurer of Pulilan, Bulacan, giving to said Jose Gatchalian &
.13 Company until January 20, 1935 within which to pay the said amount of P1,499.94,
a copy of which letter marked Exhibit B is enclosed and made a part hereof;
12. Gonzalo Javier ....................................................................................................
.14
7. That on January 20, 1935, the plaintiffs, through their attorney, sent to
defendant a reply, a copy of which marked Exhibit C is attached and made a part
hereof, requesting exemption from payment of the income tax to which reply there
were enclosed fifteen (15) separate individual income tax returns filed separately
by each one of the plaintiffs, copies of which returns are attached and marked
Exhibit D-1 to D-15, respectively, in order of their names listed in the caption of this
case and made parts hereof; a statement of sale signed by Jose Gatchalian showing
the amount put up by each of the plaintiffs to cover up the attached and marked as
Exhibit E and made a part hereof; and a copy of the affidavit signed by Jose
Gatchalian dated December 29, 1934 is attached and marked Exhibit F and made
part thereof;
8. That the defendant in his letter dated January 28, 1935, a copy of which marked
Exhibit G is enclosed, denied plaintiffs' request of January 20, 1935, for exemption
from the payment of tax and reiterated his demand for the payment of the sum of
P1,499.94 as income tax and gave plaintiffs until February 10, 1935 within which to
pay the said tax;
9. That in view of the failure of the plaintiffs to pay the amount of tax demanded by
the defendant, notwithstanding subsequent demand made by defendant upon the
plaintiffs through their attorney on March 23, 1935, a copy of which marked Exhibit
H is enclosed, defendant on May 13, 1935 issued a warrant of distraint and levy
against the property of the plaintiffs, a copy of which warrant marked Exhibit I is
enclosed and made a part hereof;
10. That to avoid embarrassment arising from the embargo of the property of the
plaintiffs, the said plaintiffs on June 15, 1935, through Gregoria Cristobal, Maria C.
Legaspi and Jesus Legaspi, paid under protest the sum of P601.51 as part of the tax
and penalties to the municipal treasurer of Pulilan, Bulacan, as evidenced by official
receipt No. 7454879 which is attached and marked Exhibit J and made a part
hereof, and requested defendant that plaintiffs be allowed to pay under protest
the balance of the tax and penalties by monthly installments;
11. That plaintiff's request to pay the balance of the tax and penalties was granted
by defendant subject to the condition that plaintiffs file the usual bond secured by
two solvent persons to guarantee prompt payment of each installments as it
becomes due;
12. That on July 16, 1935, plaintiff filed a bond, a copy of which marked Exhibit K is
enclosed and made a part hereof, to guarantee the payment of the balance of the
alleged tax liability by monthly installments at the rate of P118.70 a month, the first
payment under protest to be effected on or before July 31, 1935;
13. That on July 16, 1935 the said plaintiffs formally protested against the payment
of the sum of P602.51, a copy of which protest is attached and marked Exhibit L,
but that defendant in his letter dated August 1, 1935 overruled the protest and
denied the request for refund of the plaintiffs;
14. That, in view of the failure of the plaintiffs to pay the monthly installments in
accordance with the terms and conditions of bond filed by them, the defendant in
his letter dated July 23, 1935, copy of which is attached and marked Exhibit M,
ordered the municipal treasurer of Pulilan, Bulacan to execute within five days the
warrant of distraint and levy issued against the plaintiffs on May 13, 1935;
15. That in order to avoid annoyance and embarrassment arising from the levy of
their property, the plaintiffs on August 28, 1936, through Jose Gatchalian,
Guillermo Tapia, Maria Santiago and Emiliano Santiago, paid under protest to the
municipal treasurer of Pulilan, Bulacan the sum of P1,260.93 representing the
unpaid balance of the income tax and penalties demanded by defendant as
evidenced by income tax receipt No. 35811 which is attached and marked Exhibit N
and made a part hereof; and that on September 3, 1936, the plaintiffs formally
protested to the defendant against the payment of said amount and requested the
refund thereof, copy of which is attached and marked Exhibit O and made part
hereof; but that on September 4, 1936, the defendant overruled the protest and
denied the refund thereof; copy of which is attached and marked Exhibit P and
made a part hereof; and
16. That plaintiffs demanded upon defendant the refund of the total sum of one
thousand eight hundred and sixty three pesos and forty-four centavos (P1,863.44)
paid under protest by them but that defendant refused and still refuses to refund
the said amount notwithstanding the plaintiffs' demands.
17. The parties hereto reserve the right to present other and additional evidence if 14. Gregoria Cristobal ....................................... .18 - Do -
necessary.
15. Jose Gatchalian ............................................ .18 - Do -

Exhibit E referred to in the stipulation is of the following tenor:

2.00 Total cost of said

ticket; and that, therefore, the persons named above are entitled to the parts of
To whom it may concern: whatever prize that might be won by said ticket.

I, Jose Gatchalian, a resident of Pulilan, Bulacan, married, of age, hereby certify, Pulilan, Bulacan, P.I.
that on the 11th day of August, 1934, I sold parts of my shares on ticket No. 178637
to the persons and for the amount indicated below and the part of may share
remaining is also shown to wit:
(Sgd.) JOSE GATCHALIAN

Purchaser Amount Address

And a summary of Exhibits D-1 to D-15 is inserted in the bill of exceptions as
1. Mariano Santos ........................................... P0.14 Pulilan, Bulacan. follows:

2. Buenaventura Guzman ............................... .13 - Do -

3. Maria Santiago ............................................ .17 - Do - RECAPITULATIONS OF 15 INDIVIDUAL INCOME TAX RETURNS FOR 1934 ALL DATED
JANUARY 19, 1935 SUBMITTED TO THE COLLECTOR OF INTERNAL REVENUE.
4. Gonzalo Javier .............................................. .14 - Do -

5. Francisco Cabral .......................................... .13 - Do -

Name Exhibit
6. Maria C. Legaspi .......................................... .16 - Do -
No. Purchase
7. Emiliana Santiago ......................................... .13 - Do -
Price Price
8. Julio Gatchalian ............................................ .13 - Do -
Won Expenses Net
9. Jose Silva ...................................................... .07 - Do -
prize
10. Tomasa Mercado ....................................... .08 - Do -
1. Jose Gatchalian .......................................... D-1 P0.18 P4,425 P
11. Jesus Legaspi ............................................. .15 - Do - 480 3,945

12. Guillermo Tapia ........................................... .13 - Do - 2. Gregoria Cristobal ...................................... D-2 .18 4,575
2,000 2,575
13. Saturnina Silva ............................................ .08 - Do -
3. Saturnina Silva ............................................. D-3 .08 1,875 360 The legal questions raised in plaintiffs-appellants' five assigned errors may properly
1,515 be reduced to the two following: (1) Whether the plaintiffs formed a partnership,
or merely a community of property without a personality of its own; in the first
4. Guillermo Tapia .......................................... D-4 .13 3,325 360 case it is admitted that the partnership thus formed is liable for the payment of
2,965 income tax, whereas if there was merely a community of property, they are exempt
from such payment; and (2) whether they should pay the tax collectively or
5. Jesus Legaspi by Maria Cristobal ......... D-5 .15 3,825 720 whether the latter should be prorated among them and paid individually.
3,105

6. Jose Silva .................................................... D-6 .08 1,875 360

1,515 The Collector of Internal Revenue collected the tax under section 10 of Act No.
2833, as last amended by section 2 of Act No. 3761, reading as follows:
7. Tomasa Mercado ....................................... D-7 .07 1,875 360
1,515

8. Julio Gatchalian by Beatriz Guzman ....... D-8 .13 3,150 240 SEC. 10. (a) There shall be levied, assessed, collected, and paid annually upon the
2,910 total net income received in the preceding calendar year from all sources by every
corporation, joint-stock company, partnership, joint account (cuenta en
9. Emiliana Santiago ...................................... D-9 .13 3,325 360 participacion), association or insurance company, organized in the Philippine
2,965 Islands, no matter how created or organized, but not including duly registered
general copartnership (compaias colectivas), a tax of three per centum upon such
10. Maria C. Legaspi ...................................... D-10 .16 4,100 960 income; and a like tax shall be levied, assessed, collected, and paid annually upon
3,140 the total net income received in the preceding calendar year from all sources
within the Philippine Islands by every corporation, joint-stock company,
11. Francisco Cabral ...................................... D-11 .13 3,325 360 partnership, joint account (cuenta en participacion), association, or insurance
2,965 company organized, authorized, or existing under the laws of any foreign country,
including interest on bonds, notes, or other interest-bearing obligations of
12. Gonzalo Javier .......................................... D-12 .14 3,325 360
residents, corporate or otherwise: Provided, however, That nothing in this section
2,965
shall be construed as permitting the taxation of the income derived from dividends
or net profits on which the normal tax has been paid.
13. Maria Santiago .......................................... D-13 .17 4,350 360
3,990

14. Buenaventura Guzman ........................... D-14 .13 3,325 360

The gain derived or loss sustained from the sale or other disposition by a
2,965
corporation, joint-stock company, partnership, joint account (cuenta en
participacion), association, or insurance company, or property, real, personal, or
15. Mariano Santos ........................................ D-15 .14 3,325 360
mixed, shall be ascertained in accordance with subsections (c) and (d) of section
2,965
two of Act Numbered Two thousand eight hundred and thirty-three, as amended
by Act Numbered Twenty-nine hundred and twenty-six.

2.00

50,000 The foregoing tax rate shall apply to the net income received by every taxable
corporation, joint-stock company, partnership, joint account (cuenta en
participacion), association, or insurance company in the calendar year nineteen
hundred and twenty and in each year thereafter.
There is no doubt that if the plaintiffs merely formed a community of property the
latter is exempt from the payment of income tax under the law. But according to
the stipulation facts the plaintiffs organized a partnership of a civil nature because
each of them put up money to buy a sweepstakes ticket for the sole purpose of
dividing equally the prize which they may win, as they did in fact in the amount of
P50,000 (article 1665, Civil Code). The partnership was not only formed, but upon
the organization thereof and the winning of the prize, Jose Gatchalian personally
appeared in the office of the Philippines Charity Sweepstakes, in his capacity as co-
partner, as such collection the prize, the office issued the check for P50,000 in favor
of Jose Gatchalian and company, and the said partner, in the same capacity,
collected the said check. All these circumstances repel the idea that the plaintiffs
organized and formed a community of property only.
Having organized and constituted a partnership of a civil nature, the said entity is
the one bound to pay the income tax which the defendant collected under the
aforesaid section 10 (a) of Act No. 2833, as amended by section 2 of Act No. 3761.
There is no merit in plaintiff's contention that the tax should be prorated among
them and paid individually, resulting in their exemption from the tax.
In view of the foregoing, the appealed decision is affirmed, with the costs of this
instance to the plaintiffs appellants. So ordered.
NOBIO SARDANE, petitioner, vs.THE COURT OF APPEALS and ROMEO J. ACOJEDO,
respondents.
The extensive discussion and exhaustive disquisition in the decision 1 of the
respondent Court 2 should have written finis to this case without further recourse
to Us. The assignment of errors and arguments raised in the respondent Court by
herein private respondent, as the petitioner therein, having been correctly and
justifiedly sustained by said court without any reversible error in its conclusions,
the present petition must fail.
The assailed decision details the facts and proceedings which spawned the present
controversy as follows:
Petitioner brought an action in the City Court of Dipolog for collection of a sum of
P5,217.25 based on promissory notes executed by the herein private respondent
Nobio Sardane in favor of the herein petitioner. Petitioner bases his right to collect
on Exhibits B, C, D, E, F, and G executed on different dates and signed by private
respondent Nobio Sardane. Exhibit B is a printed promissory note involving
Pl,117.25 and dated May 13, 1972. Exhibit C is likewise a printed promissory note
and denotes on its face that the sum loaned was Pl,400.00. Exhibit D is also a
printed promissory note dated May 31, 1977 involving an amount of P100.00.
Exhibit E is what is commonly known to the layman as 'vale' which reads: 'Good for:
two hundred pesos (Sgd) Nobio Sardane'. Exhibit F is stated in the following tenor:
'Received from Mr. Romeo Acojedo the sum Pesos: Two Thousand Two Hundred
(P2,200.00) ONLY, to be paid on or before December 25, 1975. (Sgd) Nobio
Sardane.' Exhibit G and H are both vales' involving the same amount of one
hundred pesos, and dated August 25, 1972 and September 12, 1972 respectively.
It has been established in the trial court that on many occasions, the petitioner
demanded the payment of the total amount of P5,217.25. The failure of the private
respondent to pay the said amount prompted the petitioner to seek the services of
lawyer who made a letter (Exhibit 1) formally demanding the return of the sum
loaned. Because of the failure of the private respondent to heed the demands
extrajudicially made by the petitioner, the latter was constrained to bring an action
for collection of sum of money.
During the scheduled day for trial, private respondent failed to appear and to file
an answer. On motion by the petitioner, the City Court of Dipolog issued an order
dated May 18, 1976 declaring the private respondent in default and allowed the
petitioner to present his evidence ex-parte. Based on petitioner's evidence, the City
Court of Dipolog rendered judgment by default in favor of the petitioner.
Private respondent filed a motion to lift the order of default which was granted by
the City Court in an order dated May 24, 1976, taking into consideration that the
answer was filed within two hours after the hearing of the evidence presented ex-
parte by the petitioner.
After the trial on the merits, the City Court of Dipolog rendered its decision on
September 14, 1976, the dispositive portion of which reads:
IN VIEW OF THE FOREGOING, judgment is hereby rendered in favor of the plaintiff
and against the defendant as follows:
(a) Ordering the defendant to pay unto the plaintiff the sum of Five
Thousand Two Hundred Seventeen Pesos and Twenty-five centavos (P5,217.25)
plus legal interest to commence from April 23, 1976 when this case was filed in
court; and
(b) Ordering the defendant to pay the plaintiff the sum of P200.00 as
attorney's fee and to pay the cost of this proceeding. 3
Therein defendant Sardane appealed to the Court of First Instance of Zamboanga
del Norte which reversed the decision of the lower court by dismissing the
complaint and ordered the plaintiff-appellee Acojedo to pay said defendant-
appellant P500.00 each for actual damages, moral damages, exemplary damages
and attorney's fees, as well as the costs of suit. Plaintiff-appellee then sought the
review of said decision by petition to the respondent Court.
The assignment of errors in said petition for review can be capsulized into two
decisive issues, firstly, whether the oral testimony for the therein private
respondent Sardane that a partnership existed between him and therein petitioner
Acojedo are admissible to vary the meaning of the abovementioned promissory
notes; and, secondly, whether because of the failure of therein petitioner to cross-
examine therein private respondent on his sur-rebuttal testimony, there was a
waiver of the presumption accorded in favor of said petitioner by Section 8, Rule 8
of the Rules of Court.
On the first issue, the then Court of First Instance held that "the pleadings of the
parties herein put in issue the imperfection or ambiguity of the documents in
question", hence "the appellant can avail of the parol evidence rule to prove his
side of the case, that is, the said amount taken by him from appellee is or was not
his personal debt to appellee, but expenses of the partnership between him and
appellee."
Consequently, said trial court concluded that the promissory notes involved were
merely receipts for the contributions to said partnership and, therefore, upheld the
claim that there was ambiguity in the promissory notes, hence parol evidence was
allowable to vary or contradict the terms of the represented loan contract.
The parol evidence rule in Rule 130 provides:
Sec. 7. Evidence of written agreements.When the terms of an agreement have
been reduced to writing, it is to be considered as containing all such terms, and,
therefore, there can be, between the parties and their successors in interest, no
evidence of the terms of the agreement other than the contents of the writing
except in the following cases:
(a) Where a mistake or imperfection of the writing or its failure to express
the the true intent and agreement of the parties, or the validity of the agreement is
put in issue by the pleadings;
(b) When there is an intrinsic ambiguity in the writing.
As correctly pointed out by the respondent Court the exceptions to the rule do not
apply in this case as there is no ambiguity in the writings in question, thus:
In the case at bar, Exhibits B, C, and D are printed promissory notes containing a
promise to pay a sum certain in money, payable on demand and the promise to
bear the costs of litigation in the event of the private respondent's failure to pay
the amount loaned when demanded extrajudicially. Likewise, the vales denote that
the private respondent is obliged to return the sum loaned to him by the
petitioner. On their face, nothing appears to be vague or ambigous, for the terms
of the promissory notes clearly show that it was incumbent upon the private
respondent to pay the amount involved in the promissory notes if and when the
petitioner demands the same. It was clearly the intent of the parties to enter into a
contract of loan for how could an educated man like the private respondent be
deceived to sign a promissory note yet intending to make such a writing to be mere
receipts of the petitioner's supposed contribution to the alleged partnership
existing between the parties?
It has been established in the trial court that, the private respondent has been
engaged in business for quite a long period of time--as owner of the Sardane
Trucking Service, entering into contracts with the government for the construction
of wharfs and seawall; and a member of the City Council of Dapitan (TSN, July 20,
1976, pp. 57-58).<re||an1w> It indeed puzzles us how the private respondent
could have been misled into signing a document containing terms which he did not
mean them to be. ...
xxx xxx xxx
The private respondent admitted during the cross-examination made by
petitioner's counsel that he was the one who was responsible for the printing of
Exhibits B, C, and D (TSN, July 28, 1976, p. 64). How could he purportedly rely on
such a flimsy pretext that the promissory notes were receipts of the petitioner's
contribution? 4
The Court of Appeals held, and We agree, that even if evidence aliunde other than
the promissory notes may be admitted to alter the meaning conveyed thereby, still
the evidence is insufficient to prove that a partnership existed between the private
parties hereto.
As manager of the basnig Sarcado naturally some degree of control over the
operations and maintenance thereof had to be exercised by herein petitioner. The
fact that he had received 50% of the net profits does not conclusively establish that
he was a partner of the private respondent herein. Article 1769(4) of the Civil Code
is explicit that while the receipt by a person of a share of the profits of a business is
prima facie evidence that he is a partner in the business, no such inference shall be
drawn if such profits were received in payment as wages of an employee.
Furthermore, herein petitioner had no voice in the management of the affairs of
the basnig. Under similar facts, this Court in the early case of Fortis vs. Gutierrez
Hermanos, 5 in denying the claim of the plaintiff therein that he was a partner in
the business of the defendant, declared:
This contention cannot be sustained. It was a mere contract of employment. The
plaintiff had no voice nor vote in the management of the affairs of the company.
The fact that the compensation received by him was to be determined with
reference to the profits made by the defendant in their business did not in any
sense make him a partner therein. ...
The same rule was reiterated in Bastida vs. Menzi & Co., Inc., et al. 6 which
involved the same factual and legal milieu.
There are other considerations noted by respondent Court which negate herein
petitioner's pretension that he was a partner and not a mere employee indebted to
the present private respondent. Thus, in an action for damages filed by herein
private respondent against the North Zamboanga Timber Co., Inc. arising from the
operations of the business, herein petitioner did not ask to be joined as a party
plaintiff. Also, although he contends that herein private respondent is the treasurer
of the alleged partnership, yet it is the latter who is demanding an accounting. The
advertence of the Court of First Instance to the fact that the casco bears the name
of herein petitioner disregards the finding of the respondent Court that it was just
a concession since it was he who obtained the engine used in the Sardaco from the
Department of Local Government and Community Development. Further, the use
by the parties of the pronoun "our" in referring to "our basnig, our catch", "our
deposit", or "our boseros" was merely indicative of the camaraderie and not
evidentiary of a partnership, between them.
The foregoing factual findings, which belie the further claim that the aforesaid
promissory notes do not express the true intent and agreement of the parties, are
binding on Us since there is no showing that they fall within the exceptions to the
rule limiting the scope of appellate review herein to questions of law.
On the second issue, the pertinent rule on actionable documents in Rule 8, for
ready reference, reads:

Sec. 8. How to contest genuineness of such documents.When an action or
defense is founded upon a written instrument, copied in or attached to the
corresponding pleading as provided in the preceding section, the genuineness and
due execution of the instrument shall be deemed admitted unless the adverse
party, under oath, specifically denies them, and sets forth what he claims to be the
facts; but this provision does not apply when the adverse party does not appear to
be a party to the instrument or when compliance with an order for the inspection
of the original instrument is refused.
The record shows that herein petitioner did not deny under oath in his answer the
authenticity and due execution of the promissory notes which had been duly
pleaded and attached to the complaint, thereby admitting their genuineness and
due execution. Even in the trial court, he did not at all question the fact that he
signed said promissory notes and that the same were genuine. Instead, he
presented parol evidence to vary the import of the promissory notes by alleging
that they were mere receipts of his contribution to the alleged partnership.
His arguments on this score reflect a misapprehension of the rule on parol
evidence as distinguished from the rule on actionable documents. As the
respondent Court correctly explained to herein petitioner, what he presented in
the trial Court was testimonial evidence that the promissory notes were receipts of
his supposed contributions to the alleged partnership which testimony, in the light
of Section 7, Rule 130, could not be admitted to vary or alter the explicit meaning
conveyed by said promissory notes. On the other hand, the presumed genuineness
and due execution of said promissory notes were not affected, pursuant to the
provisions of Section 8, Rule 8, since such aspects were not at all questioned but,
on the contrary, were admitted by herein petitioner.
Petitioner's invocation of the doctrines in Yu Chuck, et al. vs. Kong Li Po, 7 which
was reiterated in Central Surety & Insurance Co. vs. C. N. Hodges, et al. 8 does not
sustain his thesis that the herein private respondent had "waived the mantle of
protection given him by Rule 8, Sec. 8". It is true that such implied admission of
genuineness and due execution may be waived by a party but only if he acts in a
manner indicative of either an express or tacit waiver thereof. Petitioner, however,
either overlooked or ignored the fact that, as held in Yu Chuck, and the same is true
in other cases of Identical factual settings, such a finding of waiver is proper where
a case has been tried in complete disregard of the rule and the plaintiff having
pleaded a document by copy, presents oral evidence to prove the due execution of
the document and no objections are made to the defendant's evidence in
refutation. This situation does not obtain in the present case hence said doctrine is
obviously inapplicable.
Neither did the failure of herein private respondent to cross-examine herein
petitioner on the latter's sur-rebuttal testimony constitute a waiver of the
aforesaid implied admission. As found by the respondent Court, said sur-rebuttal
testimony consisted solely of the denial of the testimony of herein private
respondent and no new or additional matter was introduced in that sur-rebuttal
testimony to exonerate herein petitioner from his obligations under the aforesaid
promissory notes.
On the foregoing premises and considerations, the respondent Court correctly
reversed and set aside the appealed decision of the Court of First Instance of
Zamboanga del Norte and affirmed in full the decision of the City Court of Dipolog
City in Civil Case No. A-1838, dated September 14, 1976.
Belatedly, in his motion for reconsideration of said decision of the respondent
Court, herein petitioner, as the private respondent therein, raised a third
unresolved issue that the petition for review therein should have been dismissed
for lack of jurisdiction since the lower Court's decision did not affirm in full the
judgment of the City Court of Dipolog, and which he claimed was a sine qua non for
such a petition under the law then in force. He raises the same point in his present
appeal and We will waive the procedural technicalities in order to put this issue at
rest.
Parenthetically, in that same motion for reconsideration he had sought affirmative
relief from the respondent Court praying that it sustain the decision of the trial
Court, thereby invoking and submitting to its jurisdiction which he would now
assail. Furthermore, the objection that he raises is actually not one of jurisdiction
but of procedure. 9
At any rate, it will be noted that petitioner anchors his said objection on the
provisions of Section 29, Republic Act 296 as amended by Republic Act 5433
effective September 9, 1968. Subsequently, the procedure for appeal to the Court
of Appeals from decisions of the then courts of first instance in the exercise of their
appellate jurisdiction over cases originating from the municipal courts was
provided for by Republic Act 6031, amending Section 45 of the Judiciary Act
effective August 4, 1969. The requirement for affirmance in full of the inferior
court's decision was not adopted or reproduced in Republic Act 6031. Also, since
Republic Act 6031 failed to provide for the procedure or mode of appeal in the
cases therein contemplated, the Court of Appeals en banc provided thereof in its
Resolution of August 12, 1971, by requiring a petition for review but which also did
not require for its availability that the judgment of the court of first instance had
affirmed in full that of the lower court. Said mode of appeal and the procedural
requirements thereof governed the appeal taken in this case from the aforesaid
Court of First Instance to the Court of Appeals in 1977. 10 Herein petitioner's plaint
on this issue is, therefore, devoid of merit.
WHEREFORE, the judgment of the respondent Court of Appeals is AFFIRMED, with
costs against herein petitioner.
SO ORDERED.
INOCENCIA DELUAO and FELIPE DELUAO plaintiffs-appellees, vs.NICANOR
CASTEEL and JUAN DEPRA, defendants, NICANOR CASTEEL, defendant-appellant.
This is an appeal from the order of May 2, 1956, the decision of May 4, 1956 and
the order of May 21, 1956, all of the Court of First Instance of Davao, in civil case
629. The basic action is for specific performance, and damages resulting from an
alleged breach of contract.
In 1940 Nicanor Casteel filed a fishpond application for a big tract of swampy land
in the then Sitio of Malalag (now the Municipality of Malalag), Municipality of
Padada, Davao. No action was taken thereon by the authorities concerned. During
the Japanese occupation, he filed another fishpond application for the same area,
but because of the conditions then prevailing, it was not acted upon either. On
December 12, 1945 he filed a third fishpond application for the same area, which,
after a survey, was found to contain 178.76 hectares. Upon investigation
conducted by a representative of the Bureau of Forestry, it was discovered that the
area applied for was still needed for firewood production. Hence on May 13, 1946
this third application was disapproved.
Despite the said rejection, Casteel did not lose interest. He filed a motion for
reconsideration. While this motion was pending resolution, he was advised by the
district forester of Davao City that no further action would be taken on his motion,
unless he filed a new application for the area concerned. So he filed on May 27,
1947 his fishpond application 1717.
Meanwhile, several applications were submitted by other persons for portions of
the area covered by Casteel's application.
On May 20, 1946 Leoncio Aradillos filed his fishpond application 1202 covering 10
hectares of land found inside the area applied for by Casteel; he was later granted
fishpond permit F-289-C covering 9.3 hectares certified as available for fishpond
purposes by the Bureau of Forestry.
Victor D. Carpio filed on August 8, 1946 his fishpond application 762 over a portion
of the land applied for by Casteel. Alejandro Cacam's fishpond application 1276,
filed on December 26, 1946, was given due course on December 9, 1947 with the
issuance to him of fishpond permit F-539-C to develop 30 hectares of land
comprising a portion of the area applied for by Casteel, upon certification of the
Bureau of Forestry that the area was likewise available for fishpond purposes. On
November 17, 1948 Felipe Deluao filed his own fishpond application for the area
covered by Casteel's application.
Because of the threat poised upon his position by the above applicants who
entered upon and spread themselves within the area, Casteel realized the urgent
necessity of expanding his occupation thereof by constructing dikes and cultivating
marketable fishes, in order to prevent old and new squatters from usurping the
land. But lacking financial resources at that time, he sought financial aid from his
uncle Felipe Deluao who then extended loans totalling more or less P27,000 with
which to finance the needed improvements on the fishpond. Hence, a wide
productive fishpond was built.
Moreover, upon learning that portions of the area applied for by him were already
occupied by rival applicants, Casteel immediately filed the corresponding protests.
Consequently, two administrative cases ensued involving the area in question, to
wit: DANR Case 353, entitled "Fp. Ap. No. 661 (now Fp. A. No. 1717), Nicanor
Casteel, applicant-appellant versus Fp. A. No. 763, Victorio D. Carpio, applicant-
appellant"; and DANR Case 353-B, entitled "Fp. A. No. 661 (now Fp. A. No. 1717),
Nicanor Casteel, applicant-protestant versus Fp. Permit No. 289-C, Leoncio
Aradillos, Fp. Permit No. 539-C, Alejandro Cacam, Permittees-Respondents."
However, despite the finding made in the investigation of the above administrative
cases that Casteel had already introduced improvements on portions of the area
applied for by him in the form of dikes, fishpond gates, clearings, etc., the Director
of Fisheries nevertheless rejected Casteel's application on October 25, 1949,
required him to remove all the improvements which he had introduced on the
land, and ordered that the land be leased through public auction. Failing to secure
a favorable resolution of his motion for reconsideration of the Director's order,
Casteel appealed to the Secretary of Agriculture and Natural Resources.
In the interregnum, some more incidents occurred. To avoid repetition, they will be
taken up in our discussion of the appellant's third assignment of error.
On November 25, 1949 Inocencia Deluao (wife of Felipe Deluao) as party of the
first part, and Nicanor Casteel as party of the second part, executed a contract
denominated a "contract of service" the salient provisions of which are as
follows:
That the Party of the First Part in consideration of the mutual covenants and
agreements made herein to the Party of the Second Part, hereby enter into a
contract of service, whereby the Party of the First Part hires and employs the Party
of the Second Part on the following terms and conditions, to wit:
That the Party of the First Part will finance as she has hereby financed the sum of
TWENTY SEVEN THOUSAND PESOS (P27,000.00), Philippine Currency, to the Party
of the Second Part who renders only his services for the construction and
improvements of a fishpond at Barrio Malalag, Municipality of Padada, Province of
Davao, Philippines;
That the Party of the Second Part will be the Manager and sole buyer of all the
produce of the fish that will be produced from said fishpond;
That the Party of the First Part will be the administrator of the same she having
financed the construction and improvement of said fishpond;
That this contract was the result of a verbal agreement entered into between the
Parties sometime in the month of November, 1947, with all the above-mentioned
conditions enumerated; ...
On the same date the above contract was entered into, Inocencia Deluao executed
a special power of attorney in favor of Jesus Donesa, extending to the latter the
authority "To represent me in the administration of the fishpond at Malalag,
Municipality of Padada, Province of Davao, Philippines, which has been applied for
fishpond permit by Nicanor Casteel, but rejected by the Bureau of Fisheries, and to
supervise, demand, receive, and collect the value of the fish that is being
periodically realized from it...."
On November 29, 1949 the Director of Fisheries rejected the application filed by
Felipe Deluao on November 17, 1948. Unfazed by this rejection, Deluao reiterated
his claim over the same area in the two administrative cases (DANR Cases 353 and
353-B) and asked for reinvestigation of the application of Nicanor Casteel over the
subject fishpond. However, by letter dated March 15, 1950 sent to the Secretary of
Commerce and Agriculture and Natural Resources (now Secretary of Agriculture
and Natural Resources), Deluao withdrew his petition for reinvestigation.
On September 15, 1950 the Secretary of Agriculture and Natural Resources issued a
decision in DANR Case 353, the dispositive portion of which reads as follows:
In view of all the foregoing considerations, Fp. A. No. 661 (now Fp. A. No. 1717) of
Nicanor Casteel should be, as hereby it is, reinstated and given due course for the
area indicated in the sketch drawn at the back of the last page hereof; and Fp. A.
No. 762 of Victorio D. Carpio shall remain rejected.

On the same date, the same official issued a decision in DANR Case 353-B, the
dispositive portion stating as follows:
WHEREFORE, Fishpond Permit No. F-289-C of Leoncio Aradillos and Fishpond
Permit No. F-539-C of Alejandro Cacam, should be, as they are hereby cancelled
and revoked; Nicanor Casteel is required to pay the improvements introduced
thereon by said permittees in accordance with the terms and dispositions
contained elsewhere in this decision....
Sometime in January 1951 Nicanor Casteel forbade Inocencia Deluao from further
administering the fishpond, and ejected the latter's representative (encargado),
Jesus Donesa, from the premises.
Alleging violation of the contract of service (exhibit A) entered into between
Inocencia Deluao and Nicanor Casteel, Felipe Deluao and Inocencia Deluao on April
3, 1951 filed an action in the Court of First Instance of Davao for specific
performance and damages against Nicanor Casteel and Juan Depra (who, they
alleged, instigated Casteel to violate his contract), praying inter alia, (a) that Casteel
be ordered to respect and abide by the terms and conditions of said contract and
that Inocencia Deluao be allowed to continue administering the said fishpond and
collecting the proceeds from the sale of the fishes caught from time to time; and
(b) that the defendants be ordered to pay jointly and severally to plaintiffs the sum
of P20,000 in damages.
On April 18, 1951 the plaintiffs filed an ex parte motion for the issuance of a
preliminary injunction, praying among other things, that during the pendency of
the case and upon their filling the requisite bond as may be fixed by the court, a
preliminary injunction be issued to restrain Casteel from doing the acts complained
of, and that after trial the said injunction be made permanent. The lower court on
April 26, 1951 granted the motion, and, two days later, it issued a preliminary
mandatory injunction addressed to Casteel, the dispositive portion of which reads
as follows:
POR EL PRESENTE, queda usted ordenado que, hasta nueva orden, usted, el
demandado y todos usu abogados, agentes, mandatarios y demas personas que
obren en su ayuda, desista de impedir a la demandante Inocencia R. Deluao que
continue administrando personalmente la pesqueria objeto de esta causa y que la
misma continue recibiendo los productos de la venta de los pescados provenientes
de dicha pesqueria, y que, asimismo, se prohibe a dicho demandado Nicanor
Casteel a desahuciar mediante fuerza al encargado de los demandantes llamado
Jesus Donesa de la pesqueria objeto de la demanda de autos.
On May 10, 1951 Casteel filed a motion to dissolve the injunction, alleging among
others, that he was the owner, lawful applicant and occupant of the fishpond in
question. This motion, opposed by the plaintiffs on June 15, 1951, was denied by
the lower court in its order of June 26, 1961.
The defendants on May 14, 1951 filed their answer with counterclaim, amended on
January 8, 1952, denying the material averments of the plaintiffs' complaint. A
reply to the defendants' amended answer was filed by the plaintiffs on January 31,
1952.
The defendant Juan Depra moved on May 22, 1951 to dismiss the complaint as to
him. On June 4, 1951 the plaintiffs opposed his motion.
The defendants filed on October 3, 1951 a joint motion to dismiss on the ground
that the plaintiffs' complaint failed to state a claim upon which relief may be
granted. The motion, opposed by the plaintiffs on October 12, 1951, was denied for
lack of merit by the lower court in its order of October 22, 1951. The defendants'
motion for reconsideration filed on October 31, 1951 suffered the same fate when
it was likewise denied by the lower court in its order of November 12, 1951.
After the issues were joined, the case was set for trial. Then came a series of
postponements. The lower court (Branch I, presided by Judge Enrique A.
Fernandez) finally issued on March 21, 1956 an order in open court, reading as
follows: .
Upon petition of plaintiffs, without any objection on the part of defendants, the
hearing of this case is hereby transferred to May 2 and 3, 1956 at 8:30 o'clock in
the morning.
This case was filed on April 3, 1951 and under any circumstance this Court will not
entertain any other transfer of hearing of this case and if the parties will not be
ready on that day set for hearing, the court will take the necessary steps for the
final determination of this case. (emphasis supplied)
On April 25, 1956 the defendants' counsel received a notice of hearing dated April
21, 1956, issued by the office of the Clerk of Court (thru the special deputy Clerk of
Court) of the Court of First Instance of Davao, setting the hearing of the case for
May 2 and 3, 1956 before Judge Amador Gomez of Branch II. The defendants, thru
counsel, on April 26, 1956 filed a motion for postponement. Acting on this motion,
the lower court (Branch II, presided by Judge Gomez) issued an order dated April
27, 1956, quoted as follows:
This is a motion for postponement of the hearing of this case set for May 2 and 3,
1956. The motion is filed by the counsel for the defendants and has the conformity
of the counsel for the plaintiffs.
An examination of the records of this case shows that this case was initiated as
early as April 1951 and that the same has been under advisement of the Honorable
Enrique A. Fernandez, Presiding Judge of Branch No. I, since September 24, 1953,
and that various incidents have already been considered and resolved by Judge
Fernandez on various occasions. The last order issued by Judge Fernandez on this
case was issued on March 21, 1956, wherein he definitely states that the Court will
not entertain any further postponement of the hearing of this case.
CONSIDERING ALL THE FOREGOING, the Court believes that the consideration and
termination of any incident referring to this case should be referred back to Branch
I, so that the same may be disposed of therein. (emphasis supplied)
A copy of the abovequoted order was served on the defendants' counsel on May 4,
1956.
On the scheduled date of hearing, that is, on May 2, 1956, the lower court (Branch
I, with Judge Fernandez presiding), when informed about the defendants' motion
for postponement filed on April 26, 1956, issued an order reiterating its previous
order handed down in open court on March 21, 1956 and directing the plaintiffs to
introduce their evidence ex parte, there being no appearance on the part of the
defendants or their counsel. On the basis of the plaintiffs' evidence, a decision was
rendered on May 4, 1956 the dispositive portion of which reads as follows:
EN SU VIRTUD, el Juzgado dicta de decision a favor de los demandantes y en contra
del demandado Nicanor Casteel:
(a) Declara permanente el interdicto prohibitorio expedido contra el
demandado;
(b) Ordena al demandado entregue la demandante la posesion y
administracion de la mitad () del "fishpond" en cuestion con todas las mejoras
existentes dentro de la misma;
(c) Condena al demandado a pagar a la demandante la suma de P200.00
mensualmente en concepto de danos a contar de la fecha de la expiracion de los 30
dias de la promulgacion de esta decision hasta que entregue la posesion y
administracion de la porcion del "fishpond" en conflicto;
(d) Condena al demandado a pagar a la demandante la suma de P2,000.00
valor de los pescado beneficiados, mas los intereses legales de la fecha de la
incoacion de la demanda de autos hasta el completo pago de la obligacion
principal;
(e) Condena al demandado a pagar a la demandante la suma de P2,000.00,
por gastos incurridos por aquella durante la pendencia de esta causa;
This case was filed on April 3, 1951, and under any circumstance this Court will not
entertain any other transfer of the hearing of this case, and if the parties will not be
ready on the day set for hearing, the Court will take necessary steps for the final
(f) Condena al demandado a pagar a la demandante, en concepto de disposition of this case.
honorarios, la suma de P2,000.00;

In view of the order above-quoted, the Court will not accede to any transfer of this
(g) Ordena el sobreseimiento de esta demanda, por insuficiencia de pruebas, case and the duty of Atty. Ruiz is no other than to be present in the Sala of this
en tanto en cuanto se refiere al demandado Juan Depra; Court and to call the attention of the same to the existence of his motion for
transfer.

(h) Ordena el sobreseimiento de la reconvencion de los demandados por

falta de pruebas; Petition for relief from judgment filed by Atty. Ruiz in behalf of the defendant, not
well taken, the same is hereby denied.

(i) Con las costas contra del demandado, Casteel.

Dissatisfied with the said ruling, Casteel appealed to the Court of Appeals which
certified the case to us for final determination on the ground that it involves only
questions of law.
The defendant Casteel filed a petition for relief from the foregoing decision,
alleging, inter alia, lack of knowledge of the order of the court a quo setting the
case for trial. The petition, however, was denied by the lower court in its order of
May 21, 1956, the pertinent portion of which reads as follows: Casteel raises the following issues:

The duty of Atty. Ruiz, was not to inquire from the Clerk of Court whether the trial (1) Whether the lower court committed gross abuse of discretion when it ordered
of this case has been transferred or not, but to inquire from the presiding Judge, reception of the appellees' evidence in the absence of the appellant at the trial on
particularly because his motion asking the transfer of this case was not set for May 2, 1956, thus depriving the appellant of his day in court and of his property
hearing and was not also acted upon. without due process of law;

Atty. Ruiz knows the nature of the order of this Court dated March 21, 1956, which (2) Whether the lower court committed grave abuse of discretion when it denied
reads as follows: the verified petition for relief from judgment filed by the appellant on May 11,
1956 in accordance with Rule 38, Rules of Court; and

Upon petition of the plaintiff without any objection on the part of the defendants,
the hearing of this case is hereby transferred to May 2 and 3, 1956, at 8:30 o'clock
in the morning.
(3) Whether the lower court erred in ordering the issuance ex parte of a writ of
preliminary injunction against defendant-appellant, and in not dismissing
appellees' complaint.
1. The first and second issues must be resolved against the appellant.
The record indisputably shows that in the order given in open court on March 21,
1956, the lower court set the case for hearing on May 2 and 3, 1956 at 8:30 o'clock
in the morning and empathically stated that, since the case had been pending since
April 3, 1951, it would not entertain any further motion for transfer of the
scheduled hearing.
An order given in open court is presumed received by the parties on the very date
and time of promulgation,1 and amounts to a legal notification for all legal
purposes.2 The order of March 21, 1956, given in open court, was a valid notice to
the parties, and the notice of hearing dated April 21, 1956 or one month
thereafter, was a superfluity. Moreover, as between the order of March 21, 1956,
duly promulgated by the lower court, thru Judge Fernandez, and the notice of
hearing signed by a "special deputy clerk of court" setting the hearing in another
branch of the same court, the former's order was the one legally binding. This is
because the incidents of postponements and adjournments are controlled by the
court and not by the clerk of court, pursuant to section 4, Rule 31 (now sec. 3, Rule
22) of the Rules of Court.
Much less had the clerk of court the authority to interfere with the order of the
court or to transfer the cage from one sala to another without authority or order
from the court where the case originated and was being tried. He had neither the
duty nor prerogative to re-assign the trial of the case to a different branch of the
same court. His duty as such clerk of court, in so far as the incident in question was
concerned, was simply to prepare the trial calendar. And this duty devolved upon
the clerk of court and not upon the "special deputy clerk of court" who purportedly
signed the notice of hearing.
It is of no moment that the motion for postponement had the conformity of the
appellees' counsel. The postponement of hearings does not depend upon
agreement of the parties, but upon the court's discretion.3
The record further discloses that Casteel was represented by a total of 12 lawyers,
none of whom had ever withdrawn as counsel. Notice to Atty. Ruiz of the order
dated March 21, 1956 intransferably setting the case for hearing for May 2 and 3,
1956, was sufficient notice to all the appellant's eleven other counsel of record.
This is a well-settled rule in our jurisdiction.4
It was the duty of Atty. Ruiz, or of the other lawyers of record, not excluding the
appellant himself, to appear before Judge Fernandez on the scheduled dates of
hearing Parties and their lawyers have no right to presume that their motions for
postponement will be granted.5 For indeed, the appellant and his 12 lawyers
cannot pretend ignorance of the recorded fact that since September 24, 1953 until
the trial held on May 2, 1956, the case was under the advisement of Judge
Fernandez who presided over Branch I. There was, therefore, no necessity to "re-
assign" the same to Branch II because Judge Fernandez had exclusive control of
said case, unless he was legally inhibited to try the case and he was not.
There is truth in the appellant's contention that it is the duty of the clerk of court
not of the Court to prepare the trial calendar. But the assignment or
reassignment of cases already pending in one sala to another sala, and the setting
of the date of trial after the trial calendar has been prepared, fall within the
exclusive control of the presiding judge.
The appellant does not deny the appellees' claim that on May 2 and 3, 1956, the
office of the clerk of court of the Court of First Instance of Davao was located
directly below Branch I. If the appellant and his counsel had exercised due
diligence, there was no impediment to their going upstairs to the second storey of
the Court of First Instance building in Davao on May 2, 1956 and checking if the
case was scheduled for hearing in the said sala. The appellant after all admits that
on May 2, 1956 his counsel went to the office of the clerk of court.
The appellant's statement that parties as a matter of right are entitled to notice of
trial, is correct. But he was properly accorded this right. He was notified in open
court on March 21, 1956 that the case was definitely and intransferably set for
hearing on May 2 and 3, 1956 before Branch I. He cannot argue that, pursuant to
the doctrine in Siochi vs. Tirona,6 his counsel was entitled to a timely notice of the
denial of his motion for postponement. In the cited case the motion for
postponement was the first one filed by the defendant; in the case at bar, there
had already been a series of postponements. Unlike the case at bar, the Siochi case
was not intransferably set for hearing. Finally, whereas the cited case did not spend
for a long time, the case at bar was only finally and intransferably set for hearing on
March 21, 1956 after almost five years had elapsed from the filing of the
complaint on April 3, 1951.
The pretension of the appellant and his 12 counsel of record that they lacked
ample time to prepare for trial is unacceptable because between March 21, 1956
and May 2, 1956, they had one month and ten days to do so. In effect, the
appellant had waived his right to appear at the trial and therefore he cannot be
heard to complain that he has been deprived of his property without due process
of law.7 Verily, the constitutional requirements of due process have been fulfilled
in this case: the lower court is a competent court; it lawfully acquired jurisdiction
over the person of the defendant (appellant) and the subject matter of the action;
the defendant (appellant) was given an opportunity to be heard; and judgment was
rendered upon lawful hearing.8
2. Finally, the appellant contends that the lower court incurred an error in ordering
the issuance ex parte of a writ of preliminary injunction against him, and in not
dismissing the appellee's complaint. We find this contention meritorious.
Apparently, the court a quo relied on exhibit A the so-called "contract of service"
and the appellees' contention that it created a contract of co-ownership and
partnership between Inocencia Deluao and the appellant over the fishpond in
question.
Too well-settled to require any citation of authority is the rule that everyone is
conclusively presumed to know the law. It must be assumed, conformably to such
rule, that the parties entered into the so-called "contract of service" cognizant of
the mandatory and prohibitory laws governing the filing of applications for
fishpond permits. And since they were aware of the said laws, it must likewise be
assumed in fairness to the parties that they did not intend to violate them.
This view must perforce negate the appellees' allegation that exhibit A created a
contract of co-ownership between the parties over the disputed fishpond. Were
we to admit the establishment of a co-ownership violative of the prohibitory laws
which will hereafter be discussed, we shall be compelled to declare altogether the
nullity of the contract. This would certainly not serve the cause of equity and
justice, considering that rights and obligations have already arisen between the
parties. We shall therefore construe the contract as one of partnership, divided
into two parts namely, a contract of partnership to exploit the fishpond pending
its award to either Felipe Deluao or Nicanor Casteel, and a contract of partnership
to divide the fishpond between them after such award. The first is valid, the second
illegal.
It is well to note that when the appellee Inocencia Deluao and the appellant
entered into the so-called "contract of service" on November 25, 1949, there were
two pending applications over the fishpond. One was Casteel's which was appealed
by him to the Secretary of Agriculture and Natural Resources after it was
disallowed by the Director of Fisheries on October 25, 1949. The other was Felipe
Deluao's application over the same area which was likewise rejected by the
Director of Fisheries on November 29, 1949, refiled by Deluao and later on
withdrawn by him by letter dated March 15, 1950 to the Secretary of Agriculture
and Natural Resources. Clearly, although the fishpond was then in the possession
of Casteel, neither he nor, Felipe Deluao was the holder of a fishpond permit over
the area. But be that as it may, they were not however precluded from exploiting
the fishpond pending resolution of Casteel's appeal or the approval of Deluao's
application over the same area whichever event happened first. No law, rule or
regulation prohibited them from doing so. Thus, rather than let the fishpond
remain idle they cultivated it.
The evidence preponderates in favor of the view that the initial intention of the
parties was not to form a co-ownership but to establish a partnership Inocencia
Deluao as capitalist partner and Casteel as industrial partner the ultimate
undertaking of which was to divide into two equal parts such portion of the
fishpond as might have been developed by the amount extended by the plaintiffs-
appellees, with the further provision that Casteel should reimburse the expenses
incurred by the appellees over one-half of the fishpond that would pertain to him.
This can be gleaned, among others, from the letter of Casteel to Felipe Deluao on
November 15, 1949, which states, inter alia:
... [W]ith respect to your allowing me to use your money, same will redound to
your benefit because you are the ones interested in half of the work we have done
so far, besides I did not insist on our being partners in my fishpond permit, but it
was you "Tatay" Eping the one who wanted that we be partners and it so happened
that we became partners because I am poor, but in the midst of my poverty it
never occurred to me to be unfair to you. Therefore so that each of us may be
secured, let us have a document prepared to the effect that we are partners in the
fishpond that we caused to be made here in Balasinon, but it does not mean that
you will treat me as one of your "Bantay" (caretaker) on wage basis but not earning
wages at all, while the truth is that we are partners. In the event that you are not
amenable to my proposition and consider me as "Bantay" (caretaker) instead, do
not blame me if I withdraw all my cases and be left without even a little and you
likewise.
(emphasis supplied)9
Pursuant to the foregoing suggestion of the appellant that a document be drawn
evidencing their partnership, the appellee Inocencia Deluao and the appellant
executed exhibit A which, although denominated a "contract of service," was
actually the memorandum of their partnership agreement. That it was not a
contract of the services of the appellant, was admitted by the appellees themselves
in their letter10 to Casteel dated December 19, 1949 wherein they stated that they
did not employ him in his (Casteel's) claim but because he used their money in
developing and improving the fishpond, his right must be divided between them.
Of course, although exhibit A did not specify any wage or share appertaining to the
appellant as industrial partner, he was so entitled this being one of the
conditions he specified for the execution of the document of partnership.11
Further exchanges of letters between the parties reveal the continuing intent to
divide the fishpond. In a letter,12 dated March 24, 1950, the appellant suggested
that they divide the fishpond and the remaining capital, and offered to pay the
Deluaos a yearly installment of P3,000 presumably as reimbursement for the
expenses of the appellees for the development and improvement of the one-half
that would pertain to the appellant. Two days later, the appellee Felipe Deluao
replied,13expressing his concurrence in the appellant's suggestion and advising the
latter to ask for a reconsideration of the order of the Director of Fisheries
disapproving his (appellant's) application, so that if a favorable decision was
secured, then they would divide the area.
Apparently relying on the partnership agreement, the appellee Felipe Deluao saw
no further need to maintain his petition for the reinvestigation of Casteel's
application. Thus by letter14 dated March 15, 1950 addressed to the Secretary of
Agriculture and Natural Resources, he withdrew his petition on the alleged ground
that he was no longer interested in the area, but stated however that he wanted
his interest to be protected and his capital to be reimbursed by the highest bidder.
The arrangement under the so-called "contract of service" continued until the
decisions both dated September 15, 1950 were issued by the Secretary of
Agriculture and Natural Resources in DANR Cases 353 and 353-B. This
development, by itself, brought about the dissolution of the partnership.
Moreover, subsequent events likewise reveal the intent of both parties to
terminate the partnership because each refused to share the fishpond with the
other.
Art. 1830(3) of the Civil Code enumerates, as one of the causes for the dissolution
of a partnership, "... any event which makes it unlawful for the business of the
partnership to be carried on or for the members to carry it on in partnership." The
approval of the appellant's fishpond application by the decisions in DANR Cases 353
and 353-B brought to the fore several provisions of law which made the
continuation of the partnership unlawful and therefore caused its ipso facto
dissolution.
Act 4003, known as the Fisheries Act, prohibits the holder of a fishpond permit (the
permittee) from transferring or subletting the fishpond granted to him, without the
previous consent or approval of the Secretary of Agriculture and Natural
Resources.15 To the same effect is Condition No. 3 of the fishpond permit which
states that "The permittee shall not transfer or sublet all or any area herein granted
or any rights acquired therein without the previous consent and approval of this
Office." Parenthetically, we must observe that in DANR Case 353-B, the permit
granted to one of the parties therein, Leoncio Aradillos, was cancelled not solely for
the reason that his permit covered a portion of the area included in the appellant's
prior fishpond application, but also because, upon investigation, it was ascertained
thru the admission of Aradillos himself that due to lack of capital, he allowed one
Lino Estepa to develop with the latter's capital the area covered by his fishpond
permit F-289-C with the understanding that he (Aradillos) would be given a share in
the produce thereof.16
Sec. 40 of Commonwealth Act 141, otherwise known as the Public Land Act,
likewise provides that
The lessee shall not assign, encumber, or sublet his rights without the consent of
the Secretary of Agriculture and Commerce, and the violation of this condition shall
avoid the contract; Provided, That assignment, encumbrance, or subletting for
purposes of speculation shall not be permitted in any case: Provided, further, That
nothing contained in this section shall be understood or construed to permit the
assignment, encumbrance, or subletting of lands leased under this Act, or under
any previous Act, to persons, corporations, or associations which under this Act,
are not authorized to lease public lands.
Finally, section 37 of Administrative Order No. 14 of the Secretary of Agriculture
and Natural Resources issued in August 1937, prohibits a transfer or sublease
unless first approved by the Director of Lands and under such terms and conditions
as he may prescribe. Thus, it states:
When a transfer or sub-lease of area and improvement may be allowed. If the
permittee or lessee had, unless otherwise specifically provided, held the permit or
lease and actually operated and made improvements on the area for at least one
year, he/she may request permission to sub-lease or transfer the area and
improvements under certain conditions.
(a) Transfer subject to approval. A sub-lease or transfer shall only be valid when
first approved by the Director under such terms and conditions as may be
prescribed, otherwise it shall be null and void. A transfer not previously approved
or reported shall be considered sufficient cause for the cancellation of the permit
or lease and forfeiture of the bond and for granting the area to a qualified
applicant or bidder, as provided in subsection (r) of Sec. 33 of this Order.
Since the partnership had for its object the division into two equal parts of the
fishpond between the appellees and the appellant after it shall have been awarded
to the latter, and therefore it envisaged the unauthorized transfer of one-half
thereof to parties other than the applicant Casteel, it was dissolved by the approval
of his application and the award to him of the fishpond. The approval was an event
which made it unlawful for the business of the partnership to be carried on or for
the members to carry it on in partnership.
The appellees, however, argue that in approving the appellant's application, the
Secretary of Agriculture and Natural Resources likewise recognized and/or
confirmed their property right to one-half of the fishpond by virtue of the contract
of service, exhibit A. But the untenability of this argument would readily surface if
one were to consider that the Secretary of Agriculture and Natural Resources did
not do so for the simple reason that he does not possess the authority to violate
the aforementioned prohibitory laws nor to exempt anyone from their operation.
However, assuming in gratia argumenti that the approval of Casteel's application,
coupled with the foregoing prohibitory laws, was not enough to cause the
dissolution ipso facto of their partnership, succeeding events reveal the intent of
both parties to terminate the partnership by refusing to share the fishpond with
the other.
On December 27, 1950 Casteel wrote17 the appellee Inocencia Deluao, expressing
his desire to divide the fishpond so that he could administer his own share, such
division to be subject to the approval of the Secretary of Agriculture and Natural
Resources. By letter dated December 29, 1950,18 the appellee Felipe Deluao
demurred to Casteel's proposition because there were allegedly no appropriate
grounds to support the same and, moreover, the conflict over the fishpond had not
been finally resolved.
The appellant wrote on January 4, 1951 a last letter19 to the appellee Felipe
Deluao wherein the former expressed his determination to administer the fishpond
himself because the decision of the Government was in his favor and the only
reason why administration had been granted to the Deluaos was because he was
indebted to them. In the same letter, the appellant forbade Felipe Deluao from
sending the couple's encargado, Jesus Donesa, to the fishpond. In reply thereto,
Felipe Deluao wrote a letter20 dated January 5, 1951 in which he reiterated his
refusal to grant the administration of the fishpond to the appellant, stating as a
ground his belief "that only the competent agencies of the government are in a
better position to render any equitable arrangement relative to the present case;
hence, any action we may privately take may not meet the procedure of legal
order."
Inasmuch as the erstwhile partners articulated in the aforecited letters their
respective resolutions not to share the fishpond with each other in direct
violation of the undertaking for which they have established their partnership
each must be deemed to have expressly withdrawn from the partnership, thereby
causing its dissolution pursuant to art. 1830(2) of the Civil Code which provides,
inter alia, that dissolution is caused "by the express will of any partner at any time."
In this jurisdiction, the Secretary of Agriculture and Natural Resources possesses
executive and administrative powers with regard to the survey, classification, lease,
sale or any other form of concession or disposition and management of the lands
of the public domain, and, more specifically, with regard to the grant or
withholding of licenses, permits, leases and contracts over portions of the public
domain to be utilized as fishponds.21, Thus, we held in Pajo, et al. vs. Ago, et al. (L-
15414, June 30, 1960), and reiterated in Ganitano vs. Secretary of Agriculture and
Natural Resources, et al.
(L-21167, March 31, 1966), that
... [T]he powers granted to the Secretary of Agriculture and Commerce (Natural
Resources) by law regarding the disposition of public lands such as granting of
licenses, permits, leases, and contracts, or approving, rejecting, reinstating, or
cancelling applications, or deciding conflicting applications, are all executive and
administrative in nature. It is a well-recognized principle that purely administrative
and discretionary functions may not be interfered with by the courts (Coloso v.
Board of Accountancy, G.R. No. L-5750, April 20, 1953). In general, courts have no
supervising power over the proceedings and action of the administrative
departments of the government. This is generally true with respect to acts
involving the exercise of judgment or discretion, and findings of fact. (54 Am. Jur.
558-559) Findings of fact by an administrative board or official, following a hearing,
are binding upon the courts and will not be disturbed except where the board or
official has gone beyond his statutory authority, exercised unconstitutional powers
or clearly acted arbitrarily and without regard to his duty or with grave abuse of
discretion... (emphasis supplied)
In the case at bar, the Secretary of Agriculture and Natural Resources gave due
course to the appellant's fishpond application 1717 and awarded to him the
possession of the area in question. In view of the finality of the Secretary's decision
in DANR Cases 353 and 353-B, and considering the absence of any proof that the
said official exceeded his statutory authority, exercised unconstitutional powers, or
acted with arbitrariness and in disregard of his duty, or with grave abuse of
discretion, we can do no less than respect and maintain unfettered his official acts
in the premises. It is a salutary rule that the judicial department should not dictate
to the executive department what to do with regard to the administration and
disposition of the public domain which the law has entrusted to its care and
administration. Indeed, courts cannot superimpose their discretion on that of the
land department and compel the latter to do an act which involves the exercise of
judgment and discretion.22
Therefore, with the view that we take of this case, and even assuming that the
injunction was properly issued because present all the requisite grounds for its
issuance, its continuation, and, worse, its declaration as permanent, was improper
in the face of the knowledge later acquired by the lower court that it was the
appellant's application over the fishpond which was given due course. After the
Secretary of Agriculture and Natural Resources approved the appellant's
application, he became to all intents and purposes the legal permittee of the area
with the corresponding right to possess, occupy and enjoy the same. Consequently,
the lower court erred in issuing the preliminary mandatory injunction. We cannot
overemphasize that an injunction should not be granted to take property out of the
possession and control of one party and place it in the hands of another whose title
has not been clearly established by law.23
However, pursuant to our holding that there was a partnership between the
parties for the exploitation of the fishpond before it was awarded to Casteel, this
case should be remanded to the lower court for the reception of evidence relative
to an accounting from November 25, 1949 to September 15, 1950, in order for the
court to determine (a) the profits realized by the partnership, (b) the share (in the
profits) of Casteel as industrial partner, (e) the share (in the profits) of Deluao as
capitalist partner, and (d) whether the amounts totalling about P27,000 advanced
by Deluao to Casteel for the development and improvement of the fishpond have
already been liquidated. Besides, since the appellee Inocencia Deluao continued in
possession and enjoyment of the fishpond even after it was awarded to Casteel,
she did so no longer in the concept of a capitalist partner but merely as creditor of
the appellant, and therefore, she must likewise submit in the lower court an
accounting of the proceeds of the sales of all the fishes harvested from the
fishpond from September 16, 1950 until Casteel shall have been finally given the
possession and enjoyment of the same. In the event that the appellee Deluao has
received more than her lawful credit of P27,000 (or whatever amounts have been
advanced to Casteel), plus 6% interest thereon per annum, then she should
reimburse the excess to the appellant.
ACCORDINGLY, the judgment of the lower court is set aside. Another judgment is
hereby rendered: (1) dissolving the injunction issued against the appellant, (2)
placing the latter back in possession of the fishpond in litigation, and (3) remanding
this case to the court of origin for the reception of evidence relative to the
accounting that the parties must perforce render in the premises, at the
termination of which the court shall render judgment accordingly. The appellant's
counterclaim is dismissed. No pronouncement as to costs.
ALBERT F. KIEL, plaintiff-appellee, vs.ESTATE OF P. S. SABERT, defendant-
appellant.
In this same period, Kiel appears to have tried to secure a settlement from Sabert.
At least in a letter dated June 6, 1918, Sabert wrote Kiel that he had offered "to sell
all property that I have for P40,000 or take in a partner who is willing to develop
the plantation, to take up the K. & S. debt no matter which way I will straiten out
with you." But Sabert's death came before any amicable arrangement could be
reached and before an action by Kiel against Sabert could be decided. So these
proceedings against the estate of Sabert.

This action relates to the legal right of Albert F. Kiel to secure from the estate of P.
S. Sabert the sum of P20,000, on a claim first presented to the commissioners and In this court, the defendant-appellant assigns the following errors:
disallowed, then on appeal to the Court of First Instance allowed, and ultimately
the subject-matter of the appeal taken to this court.

The lower court erred

A skeletonized statement of the case and the facts based on the complaint, the
findings of the trial judge, and the record, may be made in the following manner:
(1) In finding this was an action to establish a resulting trust in land.

In 1907, Albert F. Kiel along with William Milfeil commenced to work on certain
public lands situated in the municipality of Parang, Province of Cotabato, known as (2) In finding a resulting trust in land could have been established in public
Parang Plantation Company. Kiel subsequently took over the interest of Milfeil. In lands in favor of plaintiff herein who was an alien subject at the same time said
1910, Kiel and P. S. Sabert entered into an agreement to develop the Parang alleged resulting trust was created.
Plantation Company. Sabert was to furnish the capital to run the plantation and
Kiel was to manage it. They were to share and share alike in the property. It seems
that this partnership was formed so that the land could be acquired in the name of
Sabert, Kiel being a German citizen and not deemed eligible to acquire public lands (3) In finding a resulting trust in land had been established by the evidence in
in the Philippines. the case.

By virtue of the agreement, from 1910 to 1917, Kiel worked upon and developed (4) In admitting the testimony of the plaintiff herein.
the plantation. During the World War, he was deported from the Philippines.

(5) In admitting the testimony of William Milfeil, John C. Beyersdorfer, Frank

On August 16, 1919, five persons, including P. S. Sabert, organized the Nituan R. Lasage, Oscar C. Butler and Stephen Jurika with reference to alleged statements
Plantation Company, with a subscribed capital of P40,000. On April 10, 1922, P. S. and declarations of the deceased P. S. Sabert.
Sabert transferred all of his rights in two parcels of land situated in the municipality
of Parang, Province of Cotabato, embraced within his homestead application No.
21045 and his purchase application No. 1048, in consideration of the sum of P1, to
the Nituan Plantation Company.
(6) In finding any copartnership existed between plaintiff and the deceased
Sabert.
(7) In rendering judgment for the plaintiff herein.
Errors 1, 2, and 3, relating to resulting trusts. These three errors discussing the
same subject may be resolved together. In effect, as will soon appear, we reach the
conclusion that both parties were in error in devoting so much time to the
elaboration of these questions, and that a ruling on the same is not needed.
It is conceivable, that the facts in this case could have been so presented to the
court by means of allegations in the complaint, as to disclose characteristics of a
resulting trust. But the complaint as framed asks for a straight money judgment
against an estate. In no part of the complaint did plaintiff allege any interest in
land, claim any interest in land, or pretend to establish a resulting trust in land.
That the plaintiff did not care to press such an action is demonstrated by the
relation of the fact of alienage with the rule, that a trust will not be created when,
for the purpose of evading the law prohibiting one from taking or holding real
property, he takes a conveyance thereof in the name of a third person. (26 R. C. L.,
1214-1222; Leggett vs. Dubois [1835], 5 Paige, N. Y., 114; 28 Am. Dec., 413.)
The parties are wrong in assuming that the trial judge found that this was an action
to establish a resulting trust in land. In reality, all that the trial judge did was to
ground one point of his decision on an authority coming from the Supreme Court of
California, which discussed the subject of resulting trusts.
Error 4, relating to the admission of testimony of the plaintiff herein. Well taken.
The Code of Civil Procedure in section 383, No. 7, names as incompetent witnesses,
parties to an action or proceeding against an executor or administrator of a
deceased person upon a claim or demand against the estate of such deceased
person, who "cannot testify as to any matter of fact occuring before the death of
such deceased person." But the trial judge, misled somewhat by the decision of the
Supreme Court of California in the city of Myers vs. Reinstein ([1885], 67 Cal., 89),
permitted this testimony to go in, whereas if the decision had been read more
carefully, it would have been noted that "the action was not on a claim or demand
against the estate of Reinstein." Here this is exactly the situation which confronts
us.
The case of Maxilom vs. Tabotabo ([1907], 9 Phil., 390), is squarely on all fours with
the case at bar. It was there held that "A party to an action against an executor or
administrator of a deceased person, upon a claim against the estate of the latter, is
absolutely prohibited by law from giving testimony concerning such claim or
demand as to anything that occurred before the death of the person against whose
estate the action is prosecuted."
Error 5, relating to the testimony of five witnesses with reference to alleged
statements and declarations of the deceased P. S. Sabert. Not well taken.
By section 282 of the Code of Civil Procedure, the declaration, act, or omission of a
deceased person having sufficient knowledge of the subject, against his pecuniary
interest, is admissible as evidence to that extent against his successor in interest.
By section 298, No. 4, of the same Code, evidence may be given up a trial of the
following facts: ". . . the act or declaration of a deceased person, done or made
against his interest in respect to his real property." (See Leonardo vs. Santiago
[1907], 7 Phil., 401.) The testimony of these witnesses with reference to the acts or
declarations of Sabert was, therefore, properly received for whatever they might
be worth.
Error 6, relating to the existence of a copartnership between Kiel and Sabert.
Not well taken.
No partnership agreement in writing was entered into by Kiel and Sabert. The
question consequently is whether or not the alleged verbal copartnership formed
by Kiel and Sabert has been proved, if we eliminate the testimony of Kiel and only
consider the relevant testimony of other witnesses. In performing this task, we are
not unaware of the rule of partnership that the declarations of one partner, not
made in the presence of his copartner, are not competent to prove the existence of
a partnership between them as against such other partner, and that the existence
of a partnership cannot be established by general reputation, rumor, or hearsay.
(Mechem on Partnership, sec. 65; 20 R. C. L., sec. 53; Owensboro Wagon Company
vs. Bliss [1901], 132 Ala., 253.)
In resume, we disregard errors 1, 2, and 3, we find well taken, errors 4 and 7, and
we find not well taken, errors 5 and 6.

The testimony of the plaintiff's witnesses, together with the documentary

evidence, leaves the firm impression with us that Kiel and Sabert did enter into a
partnership, and that they were to share equally. Applying the tests as to the The judgment appealed from is set aside and the record is returned to the lower
existence of partnership, we feel that competent evidence exists establishing the court where the plaintiff, if he so desires, may proceed further to prove his claim
partnership. Even more primary than any of the rules of partnership above against the estate of P. S. Sabert. Without costs. So ordered.
announced, is the injunction to seek out the intention of the parties, as gathered
from the facts and as ascertained from their language and conduct, and then to
give this intention effect. (Giles vs. Vette [1924], 263 U. S., 553.)
TECK SEING AND CO., LTD., petitioner-appellee. SANTIAGO JO CHUNG, ET AL.,
partners, vs.PACIFIC COMMERCIAL COMPANY, ET AL., creditors-appellants.

Error 7, relating to the judgment rendered for the plaintiff. Well taken in part.
The judgment handed down, it will be remembered, permitted the plaintiff to
recover from the estate the full amount claimed, presumably on the assumption
that Sabert having sold by property to the Nituan Plantation Company for P40,000,
Kiel should have one-half of the same, or P20,000. There is, however, extant in the
record absolutely no evidence as to the precise amount received by Sabert from
the sale of this particular land. If it is true that Sabert sold all his land to the Nituan
Plantation Company for P40,000, although this fact was not proven, what part of
the P40,000 would correspond to the property which belonged to Kiel and Sabert
under their partnership agreement? It impresses us further that Kiel under the
facts had no standing in court to ask for any part of the land and in fact he does not
do so; his only legal right is to ask for what is in effect an accounting with reference
to its improvements and income as of 1917 when Sabert became the trustee of the
estate on behalf of Kiel.
Following the presentation of an application to be adjudged an insolvent by the
"Sociedad Mercantil, Teck Seing & Co., Ltd.," the creditors, the Pacific Commercial
Company, Piol & Company, Riu Hermanos, and W. H. Anderson & Company, filed
a motion in which the Court was prayed to enter an order: "(A) Declaring the
individual partners as described in paragraph 5 parties to this proceeding; (B) to
require each of said partners to file an inventory of his property in the manner
required by section 51 of Act No. 1956; and (C) that each of said partners be
adjudicated insolvent debtors in this proceeding." The trial judge first granted the
motion, but, subsequently, on opposition being renewed, denied it. It is from this
last order that an appeal was taken in accordance with section 82 of the Insolvency
Law.
There has been laid before us for consideration and decision a question of some
importance and of some intricacy. The issue in the case relates to a determination
of the nature of the mercantile establishment which operated under the name of
Teck Seing & co., Ltd., and this issue requires us to look into, and analyze, the
document constituting Teck Seing & Co., Ltd. It reads:

As we have already intimated, we do not think that Kiel is entitled to any share in
the land itself, but we are of the opinion that he has clearly shown his right to one-
half of the value of the improvements and personal property on the land as to the ESCRITURA DE SOCIEDAD MERCANTIL LIMITADA
date upon which he left the plantation. Such improvements and personal property
include buildings, coconut palms, and other plantings, cattle and other animals,
implements, fences, and other constructions, as well as outstanding collectible
credits, if any, belonging to the partnership. The value of these improvements and Sepan todos por la presente:
of the personal property cannot be ascertained from the record and the case must
therefore be remanded for further proceedings.
Que nosotros, Santiago Jo Chung Cang, mayor de edad comerciante, vecino y
residente del municipio de Tabogon Provincia de Cebu, Islas Filipinas, Go Tayco,
mayor de edad, comerciante, vecino y residente del municipio de Cebu Provincia Jo Ybec . . . . . . . . . . . . . . . . . . . . . . . . . . .
de Cebu, Islas Filipinas, Yap Gueco, mayor de edad, comerciante, vecino y residente
del municipio y Provincia de Cebu, Islas Filipinas, Lim Yogsing, mayor de edad
comerciante, vecino y residente del municipio de Cebu, Provincia de Cebu, Islas
Filipinas, y Jo Ybec, mayor de edad, comerciante, vecino y residente del municipio 6,000.00
de Jagna, Provincia de Bohol, Islas Filipinas, hacemos constar por la presente, que
constituimos y formamos una sociedad mercantil limitada, bajo las leyes vigentes
en las Islas Filipinas y para ser registrada de acuerdo con los reglamentos vigentes
Lim Yogsing . . . . . . . . . . . . . . . . . . . . . . .
del Codigo de Comercio en Filipinas.

6,000.00
Que la razon social se denominara "Teck Seing & Co., Ltd." y tendra su domicilio
principal en la Calle Magallanes No. 94, de la Ciudad de Cebu, Provincia de Cebu,
Islas Filipinas.
Total . . . . . . . . . . . . . . . . . . . . . .

Que el capital social sera de treinta mil pesos (P30,000) moneda legal de las Islas
Filipinas, dividido en cinco acciones de a P6,000 como sigue: 30,000.00

Santiago Jo Chung Cang . . . . . . . . . . . . . Que la duracion de la sociedad sera la de seis aos, a contar de la fecha de esta
escritura, pudiendo prorrogarse este tiempo a discrecion unanime de todos los
accionistas.
P6,000.00

El objeto de la sociedad sera la compra y venta de mercaderias en general.

Go Tayco . . . . . . . . . . . . . . . . . . . . . . . . . .

El administrador o administradores de la sociedad podran, previa conformidad de

los accionistas, establecer cuantas sucursales o establecimientos considere
6,000.00
necesarios para facilitar sus negocios y el mayor desarrollo del comercio a que se
dedica la sociedad, verificando todas las operaciones que crean convenientes para
el fomento de su capital.
Yap Gueco . . . . . . . . . . . . . . . . . . . . . . . .

6,000.00
Las ganancias o perdidas que resultaren durante cada ao comercial, se administracion de la sociedad. Entendiendose, que, los accionistas podran disponer
distribuiran proporcionalmente entre los accionistas, de acuerdo con el capital cada fin de aola gratificacion quese concedera a cada administrador, si los
aportado por cada uno de los mismos. negocios del ao fueran boyantes y justifiquen la concesion de una gratificacion
especial, aparte del salario aqui dispuesto y especificado.

Las ganancias que resultaren en cada ao comercial, si resultaren algunas

ganancias, no podran ser retiradas pors los accionistas hasta dentro del termino de
tres aos a contar de la fecha del primer balance anual del negocio, quedadno por
tanto estas ganancias en reserva, para ampliar el capital aportado opor los
accionistas y ampliar por tanto la esfera de accion emprendida por la misma
sociedad. Al pasar o expirar el termino de tres aos, cada accionista podra retirar o
depositar en poder de la sociedad, las ganancias que le debiera corresponder
durante dicho termino de tres aos.
Que los accionistas no podran extraer ni disponer en ningun tiempo cualesquiera
cantidad o cantidades de la sociedad, que haya sido aportado por los mismos, para
atender sus gastos particulares ni aun pagando redito alguno sobre la cantidad que
intenen disponer o extraer de dicha sociedad.
Que pasado el termino de seis aos, y es de la conveniencia de los accionistas la
continuacion del negocio de esta sociedad, dicho termino sera prorrogado por igual
numero de aos, sin necesidas del otorgamiento de ulteriores escrituras, quedando
la presente en vigor hasta el termino dispuesto por todos los accionistas.
Que las diferencias que pudieran suscitarse entre los accionistas, bien sea por
razon de lo estipulado en esta en ella comprendidos, se procurara arreglar entre los
mismos amistosa y extrajudicialmente, y si no se consiguiere un arreglo de este
modo, dichos accionistas nombraran un arbitro, cuya resolucion estan todos
obligados y por la presente se comprometen y se obligan a acatarla en todas sus
partes, renunciando ulteriores recursos.

En cuyos terminos dejamos formalizada esta escritura de sociedad

El accionista Sr. Lim Yogsing tendra a su cargo, en union del Sr. Vicente Jocson Jo, la mercantillimitada, y prometemos cumplirla fiel y estrictamente segun los pactos
administracion de la Compaia, quienes podran usar indistintamente la firma que hemos establecido.
social, quedando por consiguiente autorizados amobs para hacer en nombre de
ella toda calse de operaciones, negocios y especulaciones mercantiles, practicando
judicial y extra-judicialment cuantos actos se requieran para el bien de la sociedad,
nombrar procuradores o abogados para reclamaciones y cobro de creditos y En testimonio de todo lo cual, firmamos en la Ciudad de Cebu, Provincia de Cebu,
proponer ante los tribunales las demandas, convenios, transacciones y excepciones Islas Filipinas, hoy 31 de octubre de mil novecientos diez y nueve.
procdentes. En caso de ausencia, enfermedad o cualquier otro impedimento del
accionista administrador Sr. Lim Yogsing, este podra conferir poder general o
especial al accionista que crea conveniente para que en union del administrador
auxiliar Sr. Vicente Jocson Jo, pudieran ambos administrar convenientemente los (Fdos.) "LIM YOGSING
negocios de la sociedad. Que los administradores podran tener los empleados
"Jo YBec por Ho Seng Sian
necesarios para el mejor que debieran percibir dichos empleados por servicios
rendidos a la sociedad.
"SANTIAGO JO CHUNG CANG

"GO TAYCO
Que ambos administradores podran disponer de mil discientos pesos (P1,200)
"YAP GUECO
moneda filipina, anualmente, para sus gastos particulares, siendo dicha cantidad de
P1,200 la que corresponde a cada uno de dichos administradores, como
emolumentos o salarios que se les asigna a cas uno, por sus trabajos en la
Firnando en presencia de: "Asiento No. 157

(Fdos.) "ATILANO LEYSON Pagina No. 95 de mi

"JULIO DIAZ Registro Notarial

Serie 1919

"ESTADOS UNIDOS DE AMERCA Libro 2.

"ISLAS FILIPINAS

"PROVINCIA DE CEBU Presentado a las diez y cuarenta y tres minutos de la maana de hoy, segun el
asiento No. 125, pagina 9 del Tomo 1. del Libro Diario. Cebu, 11 de febrero de
1920.

En el Municipio de Cebu, de la Provincia antes mencionada, I.F., hoy 31 de octubre

de 1919, A.D., ante mi, Notario Publico que subscribe, comprecieron
personalmente Santiago Jo Chung Cang, Go Tayco, Yap Gueco, Lim Yogsing y Jo (Fdo.) "QUIRICO ABETO
Ybec, representado este ultimo por Ho Seng Sian, segun autorizacion hecha en
telegrama de fecha 27 de septiembre de 1919 que se me ha presentado en este [SELLO] "Registrador Mercantil Ex-Officio"
mismo acto, de quienes doy fe de que les conozco por ser las mismas personas que
otorgaron el preinserto documento, ratificando ant emi su contenido y
manifestando ser el mismo un acto de su libre y voluntario otorgamiento. El Sr.
Santiago Jo Chung Cang me exhibio su cedula personal expedida en Cebu, Cebu, I.F. Inscrito el documento que preced al folio 84 hoja No. 188, inscripcion 1.a del Tomo
el dia 19 de septiembre de 1919 bajo el No. H77742, Go Tayco tambien me exhibio 3. del Libro Registro de Sociedades Mercantiles. Cebu, 11 de febrero de 1920.
la suya expedida en Cebu, Cebu, I.F., el dia 9 de octubre de 1919 bajo el No. Honorarios treinta pesos con cincuenta centavos. Art. 197, Ley No. 2711, Codigo
G2042490, Yap Gueco tambien me exhibio la suya expedida en Cebu, Cebu, I.F. el Administrativo.
dia 20 de enero de 1919 bajo el No. F1452296, Lim Yogsing tambien me exhibio la
suya expedida en Cebu, Cebu, I.F., el dia 26 de febrero de 1919 bajo el No.
F1455662, y Ho Seng Sian representante de Jo Ybec, me exhibio su cedula personal
(Fdo.) "QUIRICO ABETO
expedida en Cebu, Cebu, I.f. el dia 4 de febrero de 1919 bajo el No. F1453733.
[SELLO] "Registrador Mercantil Ex-Officio"

Ante mi,
Proceeding by process of elimination, it is self-evident that Teck Seing & Co., Ltd., is
not a corporation. Neither is it contended by any one that Teck Seing & Co., Ltd., is
(Fdo.) "F.V.ARIAS accidental partnership denominated cuenta en participacion (joint account
association).
"Notario Publico

"Hasta el 1. de enero de 1920

Counsel for the petitioner and appellee described his client in once place in his
opposition to the motion of the creditors as "una verdadera sociedad anonima" (a
true sociedad anonima). The provisions of the Code of Commerce relating to
sociedades anonimas were, however, repealed by section 191 of the Corporation
Law (Act No. 1459), with the exceptions the sociedades anonimas lawfully
organized at the time of the passage of the Corporation Law were recognized,
which is not our case.
The document providing for the partnership contract purported to form "una
sociedad mercantil limitada," and counsel for the petitioner's first contention was
that Teck Seing & Co., Ltd., was not "una sociedad regular colectiva, ni siquiera
comanditaria, sino una sociedad mercantil limitada." Let us see if the partnership
contract created a "sociedad en comandita," or, as it is known in English, and will
hereafter be spoken of, "a limited partnership."
To establish a limited partnership there must be, at least, one general partner and
the name of the least one of the general partners must appear in the firm name.
(Code of Commerce, arts. 122 [2], 146, 148.) But neither of these requirements
have been fulfilled. The general rule is, that those who seek to avail themselves of
the protection of laws permitting the creation of limited partnerships must show a
substantially full compliance with such laws. A limited partnership that has not
complied with the law of its creation is not considered a limited partnership at all,
but a general partnership in which all the members are liable. (Mechem, Elements
of Partnership, p. 412; Gilmore, Partnership, pp. 499, 595; 20 R C. L. 1064.)
The contention of the creditors and appellants is that the partnership contract
established a general partnership.
Article 125 of the Code of Commerce provides that the articles of general
copartnership must estate the names, surnames, and domiciles of the partners; the
firm name; the names, and surnames of the partners to whom the management of
the firm and the use of its signature is instrusted; the capital which each partner
contributes in cash, credits, or property, stating the value given the latter or the
basis on which their appraisement is to be made; the duration of the
copartnership; and the amounts which, in a proper case, are to be given to each
managing partner annually for his private expenses, while the succeeding article of
the Code provides that the general copartnership must transact business under the
name of all its members, of several of them, or of one only. Turning to the
document before us, it will be noted that all of the requirements of the Code have
been met, with the sole exception of that relating to the composition of the firm
name. We leave consideration of this phase of the case for later discussion.
The remaining possibility is the revised contention of counsel for the petitioners to
the effect that Teck Seing & Co., Ltd., is "una sociedad mercantil "de facto"
solamente" (only a de facto commercial association), and that the decision of the
Supreme court in the case of Hung-Man-Yoc vs. Kieng-Chiong-Seng [1906], 6 Phil.,
498), is controlling. It was this argument which convinced the trial judge, who gave
effect to his understanding of the case last cited and which here must be given
serious attention.
The decision in Hung-Man-Yoc vs. Kieng-Chiong-Seng, supra, discloses that the firm
Kieng-Chiong-Seng was not organized by means of any public document; that the
partnership had not been recorded in the mercantile registry; and that Kieng-
Chiong-Seng was not proven to be the firm name, but rather the designation of the
partnership. The conclusion then was, that the partnership in question was merely
de facto and that, therefore, giving effect to the provisions of article 120 of the
Code of Commerce, the right of action was against the persons in charge of the
management of the association.
Laying the facts of the case of Hung-Man-Yoc vs. Kieng-Chiong-Seng, supra, side by
side with the facts before us, a marked difference is at once disclosed. In the cited
case, the organization of the partnership was not evidenced by any public
document; here, it is by a public document. In the cited case, the partnership
naturally could not present a public instrument for record in the mercantile
registry; here, the contract of partnership has been duly registered. But the two
cases are similar in that the firm name failed to include the name of any of the
partners.
We come then to the ultimate question, which is, whether we should follow the
decision in Hung-Man-Yoc vs. Kieng-Chiong-Seng, supra, or whether we should
differentiate the two cases, holding Teck Seing & Co., Ltd., a general copartnership,
notwithstanding the failure of the firm name to include the name of one of the
partners. Let us now notice this decisive point in the case.
Article 119 of the Code of Commerce requires every commercial association before
beginning its business to state its article, agreements, and conditions in a public
instrument, which shall be presented for record in the mercantile registry. Article
120, next following, provides that the persons in charge of the management of the
association who violate the provisions of the foregoing article shall be responsible
in solidum to the persons not members of the association with whom they may
have transacted business in the name of the association. Applied to the facts
before us, it would seem that Teck Seing & Co., Ltd. has fulfilled the provisions of
article 119. Moreover, to permit the creditors only to look to the person in charge
of the management of the association, the partner Lim Yogsing, would not prove
very helpful to them.
What is said in article 126 of the Code of Commerce relating to the general
copartnership transacting business under the name of all its members or of several
of them or of one only, is wisely included in our commercial law. It would appear,
however, that this provision was inserted more for the protection of the creditors
than of the partners themselves. A distinction could well be drawn between the
right of the alleged partnership to institute action when failing to live up to the
provisions of the law, or even the rights of the partners as among themselves, and
the right of a third person to hold responsible a general copartnership which
merely lacks a legal firm name in order to make it a partnership de jure.
The civil law and the common law alike seem to point to a difference between the
rights of the partners who have failed to comply with the law and the rights of third
persons who have dealt with the partnership.
The supreme court of Spain has repeatedly held that notwithstanding the
obligation of the members to register the articles of association in the commercial
registry, agreements containing all the essential requisites are valid as between the
contracting parties, whatever the form adopted, and that, while the failure to
register in the commercial registry necessarily precludes the members from
enforcing rights acquired by them against third persons, such failure cannot
prejudice the rights of third persons. (See decisions of December 6, 1887, January
25, 1888, November 10, 1890, and January 26, 1900.) The same reasoning would
be applicable to the less formal requisite pertaining to the firm name.
The common law is to the same effect. The State of Michigan had a statute
prohibiting the transaction of business under an assumed name or any other than
the real name of the individual conducting the same, unless such person shall file
with the county clerk a certificate setting forth the name under which the business
is to be conducted and the real name of each of the partners, with their residences
and post-office addresses, and making a violation thereof a misdemeanor. The
supreme Court of Michigan said:
The one object of the act is manifestly to protect the public against imposition and
fraud, prohibiting persons from concealing their identity by doing business under
an assumed name, making it unlawful to use other than their real names in
transacting business without a public record of who they are, available for use in
courts, and to punish those who violate the prohibition. The object of this act is not
limited to facilitating the collection of debts, or the protection of those giving credit
to persons doing business under an assumed name. It is not unilateral in its
application. It applies to debtor and creditor, contractor and contractee, alike.
Parties doing business with those acting under an assumed name, whether they
buy or sell, have a right, under the law, to know who they are, and who to hold
responsible, in case the question of damages for failure to perform or breach of
warranty should arise.
The general rule is well settled that, where statutes enacted to protect the public
against fraud or imposition, or to safeguard the public health or morals, contain a
prohibition and impose a penalty, all contracts in violation thereof are void. . . .
As this act involves purely business transactions, and affects only money interests,
we think it should be construed as rendering contracts made in violation of it
unlawful and unforceable at the instance of the offending party only, but not as
designed to take away the rights of innocent parties who may have dealt with the
offenders in ignorance of their having violated the statute. (Cashin vs. Pliter [1912],
168 Mich., 386; Ann. Cas. [1913-C, 697.)
The early decision of our Supreme Court in the case of Prautch Scholes & Co. vs.
Hernandez [1903], 1 Phil., 705), contains the following pertinent observations:
Another case may be supposed. A partnership is organized for commercial
purposes. It fails to comply with the requirements of article 119. A creditor sues the
partnership for a debt contracted by it, claiming to hold the partners severally.
They answer that their failure to comply with the Code of Commerce makes them a
civil partnership and that they are in accordance with article 1698 of the Civil Code
only liable jointly. To allow such liberty of action would be to permit the parties by
a violation of the Code to escape a liability which the law has seen fit to impose
upon persons who organized commercial partnership; "Because it would be
contrary to all legal principles that the nonperformance of a duty should redound
to the benefit of the person in default either intentional or unintentional."
(Mercantile Law, Eixala, fourth ed., p. 145.)" (See also Lichauco vs. Lichauco [1916],
33 Phil., 350, 360.)
Dr. Jose de Echavarri y Vivanco, in his Codigo de Comercio, includes the following
comment after articles 121 and 126 of the Code:
From the decisions cited in this and in the previous comments, the following is
deduced: 1st. Defects in the organization cannot affect relations with third persons.
2d. Members who contract with other persons before the association is lawfully
organized are liable to these persons. 3d. The intention to form an association is
necessary, so that if the intention of mutual participation in the profits and losses
in a particular business is proved, and there are no articles of association, there is
no association. 4th. An association, the articles of which have not been registered,
is valid in favor of third persons. 5th. The private pact or agreement to form a
commercial association is governed not by the commercial law but by the civil law.
6th. Secret stipulations expressed in a public instrument, but not inserted in the
articles of association, do not affect third persons, but are binding on the parties
themselves. 7th. An agreement made in a public instrument, other than the articles
of association, by means of which one of the partners guarantees to another
certain profits or secures him from losses, is valid between them, without affecting
the association. 8th. Contracts entered into by commercial associations defectively
organized are valid when they are voluntarily executed by the parties, if the only
controversy relates to whether or not they complied with the agreement.
xxx xxx xxx
The name of the collective merchant is called firm name. By this name, the new
being is distinguished from others, its sphere of action fixed, and the juridical
personality better determined, without constituting an exclusive character of the
general partnership to such an extent as to serve the purpose of giving a definition
of said kind of a mercantile partnership, as is the case in our Code.
Having in mind that these partnerships are prevailingly of a personal character,
article 126 says that they must transact business under the name of all its
members, of some of them, or of one only, the words "and company" to be added
in the latter two cases.
It is rendered impossible for the general partnership to adopt a firm name
appropriate to its commercial object; the law wants to link, and does link, the
solidary and unlimited responsibility of the members of this partnership with the
formation of its name, and imposes a limitation upon personal liberty in its
selection, not only by prescribing the requisites, but also by prohibiting persons not
members of the company from including their names in its firm name under
penalty of civil solidary responsibility.
Of course, the form required by the Code for the adoption of the firm name does
not prevent the addition thereto of any other title connected with the commercial
purpose of the association. The reader may see our commentaries on the
mercantile registry about the business names and firm names of associations, but it
is proper to establish here that, while the business name may be alienated by any
of the means admitted by the law, it seems impossible to separate the firm names
of general partnerships from the juridical entity for the creation of which it was
formed. (Vol. 2, pp. 197, 213.)
On the question of whether the fact that the firm name "Teck Seing & Co., Ltd."
does not contain the name of all or any of the partners as prescribed by the Code
of Commerce prevents the creation of a general partnership, Professor Jose A.
Espiritu, as amicus curi, states:
My opinion is that such a fact alone cannot and will not be a sufficient cause of
preventing the formation of a general partnership, especially if the other requisites
are present and the requisite regarding registration of the articles of association in
the Commercial Registry has been complied with, as in the present case. I do not
believe that the adoption of a wrong name is a material fact to be taken into
consideration in this case; first, because the mere fact that a person uses a name
not his own does not prevent him from being bound in a contract or an obligation
he voluntarily entered into; second, because such a requirement of the law is
merely a formal and not necessarily an essential one to the existence of the
partnership, and as long as the name adopted sufficiently identity the firm or
partnership intended to use it, the acts and contracts done and entered into under
such a name bind the firm to third persons; and third, because the failure of the
partners herein to adopt the correct name prescribed by law cannot shield them
from their personal liabilities, as neither law nor equity will permit them to utilize
their own mistake in order to put the blame on third persons, and much less, on
the firm creditors in order to avoid their personal possibility.
The legal intention deducible from the acts of the parties controls in determining
the existence of a partnership. If they intend to do a thing which in law constitutes
a partnership, they are partners, although their purpose was to avoid the creation
of such relation. Here, the intention of the persons making up Teck Seing & co., Ltd.
was to establish a partnership which they erroneously denominated a limited
partnership. If this was their purpose, all subterfuges resorted to in order to evade
liability for possible losses, while assuming their enjoyment of the advantages to be
derived from the relation, must be disregarded. The partners who have disguised
their identity under a designation distinct from that of any of the members of the
firm should be penalized, and not the creditors who presumably have dealt with
the partnership in good faith.
Articles 127 and 237 of the Code of Commerce make all the members of the
general copartnership liable personally and in solidum with all their property for
the results of the transactions made in the name and for the account of the
partnership. Section 51 of the Insolvency Law, likewise, makes all the property of
the partnership and also all the separate property of each of the partners liable. In
other words, if a firm be insolvent, but one or more partners thereof are solvent,
the creditors may proceed both against the firm and against the solvent partner or
partners, first exhausting the assets of the firm before seizing the property of the
partners. (Brandenburg of Bankcruptcy, sec. 108; De los Reyes vs. Lukban and Borja
[1916], 35 Phil., 757; Involuntary Insolvency of Campos Rueda & Co. vs. Pacific
Commercial Co. [1922], 44 Phil., 916).
We reach the conclusion that the contract of partnership found in the document
hereinbefore quoted established a general partnership or, to be more exact, a
partnership as this word is used in the Insolvency Law.
Wherefore, the order appealed from is reversed, and the record shall be returned
to the court of origin for further proceedings pursuant to the motion presented by
the creditors, in conformity with the provisions of the Insolvency Law. Without
special findings as to the costs in this instance, it is ordered.
MAURICIO AGAD, plaintiff-appellant, vs.SEVERINO MABATO and MABATO and
AGAD COMPANY, defendants-appellees.
In this appeal, taken by plaintiff Mauricio Agad, from an order of dismissal of the
Court of First Instance of Davao, we are called upon to determine the applicability
of Article 1773 of our Civil Code to the contract of partnership on which the
complaint herein is based.
Alleging that he and defendant Severino Mabato are pursuant to a public
instrument dated August 29, 1952, copy of which is attached to the complaint as
Annex "A" partners in a fishpond business, to the capital of which Agad
contributed P1,000, with the right to receive 50% of the profits; that from 1952 up
to and including 1956, Mabato who handled the partnership funds, had yearly
rendered accounts of the operations of the partnership; and that, despite repeated
demands, Mabato had failed and refused to render accounts for the years 1957 to
1963, Agad prayed in his complaint against Mabato and Mabato & Agad Company,
filed on June 9, 1964, that judgment be rendered sentencing Mabato to pay him
(Agad) the sum of P14,000, as his share in the profits of the partnership for the
period from 1957 to 1963, in addition to P1,000 as attorney's fees, and ordering
the dissolution of the partnership, as well as the winding up of its affairs by a
receiver to be appointed therefor.
In his answer, Mabato admitted the formal allegations of the complaint and denied
the existence of said partnership, upon the ground that the contract therefor had
not been perfected, despite the execution of Annex "A", because Agad had
allegedly failed to give his P1,000 contribution to the partnership capital. Mabato
prayed, therefore, that the complaint be dismissed; that Annex "A" be declared
void ab initio; and that Agad be sentenced to pay actual, moral and exemplary
damages, as well as attorney's fees.

Subsequently, Mabato filed a motion to dismiss, upon the ground that the
complaint states no cause of action and that the lower court had no jurisdiction
over the subject matter of the case, because it involves principally the
determination of rights over public lands. After due hearing, the court issued the
order appealed from, granting the motion to dismiss the complaint for failure to
state a cause of action. This conclusion was predicated upon the theory that the
contract of partnership, Annex "A", is null and void, pursuant to Art. 1773 of our
Civil Code, because an inventory of the fishpond referred in said instrument had
not been attached thereto. A reconsideration of this order having been denied,
Agad brought the matter to us for review by record on appeal.
Articles 1771 and 1773 of said Code provide:
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. 1773. A contract of partnership is void, whenever immovable property is
contributed thereto, if inventory of said property is not made, signed by the
parties; and attached to the public instrument.
The issue before us hinges on whether or not "immovable property or real rights"
have been contributed to the partnership under consideration. Mabato alleged and
the lower court held that the answer should be in the affirmative, because "it is
really inconceivable how a partnership engaged in the fishpond business could exist
without said fishpond property (being) contributed to the partnership." It should
be noted, however, that, as stated in Annex "A" the partnership was established
"to operate a fishpond", not to "engage in a fishpond business". Moreover, none of
the partners contributed either a fishpond or a real right to any fishpond. Their
contributions were limited to the sum of P1,000 each. Indeed, Paragraph 4 of
Annex "A" provides:
That the capital of the said partnership is Two Thousand (P2,000.00) Pesos
Philippine Currency, of which One Thousand (P1,000.00) pesos has been
contributed by Severino Mabato and One Thousand (P1,000.00) Pesos has been
contributed by Mauricio Agad.
xxx xxx xxx
The operation of the fishpond mentioned in Annex "A" was the purpose of the
partnership. Neither said fishpond nor a real right thereto was contributed to the
partnership or became part of the capital thereof, even if a fishpond or a real right
thereto could become part of its assets.
WHEREFORE, we find that said Article 1773 of the Civil Code is not in point and
that, the order appealed from should be, as it is hereby set aside and the case
remanded to the lower court for further proceedings, with the costs of this
instance against defendant-appellee, Severino Mabato. It is so ordered.
J. M. TUASON & CO., INC., represented by it Managing PARTNER, GREGORIA
ARANETA, INC., plaintiff-appellee, vs.QUIRINO BOLAOS, defendant-appellant.
This is an action originally brought in the Court of First Instance of Rizal, Quezon
City Branch, to recover possesion of registered land situated in barrio Tatalon,
Quezon City.
Plaintiff's complaint was amended three times with respect to the extent and
description of the land sought to be recovered. The original complaint described
the land as a portion of a lot registered in plaintiff's name under Transfer
Certificate of Title No. 37686 of the land record of Rizal Province and as containing
an area of 13 hectares more or less. But the complaint was amended by reducing
the area of 6 hectares, more or less, after the defendant had indicated the
plaintiff's surveyors the portion of land claimed and occupied by him. The second
amendment became necessary and was allowed following the testimony of
plaintiff's surveyors that a portion of the area was embraced in another certificate
of title, which was plaintiff's Transfer Certificate of Title No. 37677. And still later,
in the course of trial, after defendant's surveyor and witness, Quirino Feria, had
testified that the area occupied and claimed by defendant was about 13 hectares,
as shown in his Exhibit 1, plaintiff again, with the leave of court, amended its
complaint to make its allegations conform to the evidence.
Defendant, in his answer, sets up prescription and title in himself thru "open,
continuous, exclusive and public and notorious possession (of land in dispute)
under claim of ownership, adverse to the entire world by defendant and his
predecessor in interest" from "time in-memorial". The answer further alleges that
registration of the land in dispute was obtained by plaintiff or its predecessors in
interest thru "fraud or error and without knowledge (of) or interest either personal
or thru publication to defendant and/or predecessors in interest." The answer
therefore prays that the complaint be dismissed with costs and plaintiff required to
reconvey the land to defendant or pay its value.
After trial, the lower court rendered judgment for plaintiff, declaring defendant to
be without any right to the land in question and ordering him to restore possession
thereof to plaintiff and to pay the latter a monthly rent of P132.62 from January,
1940, until he vacates the land, and also to pay the costs.
Appealing directly to this court because of the value of the property involved,
defendant makes the following assignment or errors:
I. The trial court erred in not dismissing the case on the ground that the case was
not brought by the real property in interest.
II. The trial court erred in admitting the third amended complaint.
III. The trial court erred in denying defendant's motion to strike.
IV. The trial court erred in including in its decision land not involved in the
litigation.
V. The trial court erred in holding that the land in dispute is covered by transfer
certificates of Title Nos. 37686 and 37677.
Vl. The trial court erred in not finding that the defendant is the true and lawful
owner of the land.
VII. The trial court erred in finding that the defendant is liable to pay the plaintiff
the amount of P132.62 monthly from January, 1940, until he vacates the premises.
VIII. The trial court erred in not ordering the plaintiff to reconvey the land in
litigation to the defendant.
As to the first assigned error, there is nothing to the contention that the present
action is not brought by the real party in interest, that is, by J. M. Tuason and Co.,
Inc. What the Rules of Court require is that an action be brought in the name of,
but not necessarily by, the real party in interest. (Section 2, Rule 2.) In fact the
practice is for an attorney-at-law to bring the action, that is to file the complaint, in
the name of the plaintiff. That practice appears to have been followed in this case,
since the complaint is signed by the law firm of Araneta and Araneta, "counsel for
plaintiff" and commences with the statement "comes now plaintiff, through its
undersigned counsel." It is true that the complaint also states that the plaintiff is
"represented herein by its Managing Partner Gregorio Araneta, Inc.", another
corporation, but there is nothing against one corporation being represented by
another person, natural or juridical, in a suit in court. The contention that Gregorio
Araneta, Inc. can not act as managing partner for plaintiff on the theory that it is
illegal for two corporations to enter into a partnership is without merit, for the true
rule is that "though a corporation has no power to enter into a partnership, it may
nevertheless enter into a joint venture with another where the nature of that
venture is in line with the business authorized by its charter." (Wyoming-Indiana Oil
Gas Co. vs. Weston, 80 A. L. R., 1043, citing 2 Fletcher Cyc. of Corp., 1082.) There is
nothing in the record to indicate that the venture in which plaintiff is represented
by Gregorio Araneta, Inc. as "its managing partner" is not in line with the corporate
business of either of them.
Errors II, III, and IV, referring to the admission of the third amended complaint, may
be answered by mere reference to section 4 of Rule 17, Rules of Court, which
sanctions such amendment. It reads:
Sec. 4. Amendment to conform to evidence. When issues not raised by the
pleadings are tried by express or implied consent of the parties, they shall be
treated in all respects, as if they had been raised in the pleadings. Such amendment
of the pleadings as may be necessary to cause them to conform to the evidence
and to raise these issues may be made upon motion of any party at my time, even
of the trial of these issues. If evidence is objected to at the trial on the ground that
it is not within the issues made by the pleadings, the court may allow the pleadings
to be amended and shall be so freely when the presentation of the merits of the
action will be subserved thereby and the objecting party fails to satisfy the court
that the admission of such evidence would prejudice him in maintaining his action
or defense upon the merits. The court may grant a continuance to enable the
objecting party to meet such evidence.
Under this provision amendment is not even necessary for the purpose of
rendering judgment on issues proved though not alleged. Thus, commenting on the
provision, Chief Justice Moran says in this Rules of Court:
Under this section, American courts have, under the New Federal Rules of Civil
Procedure, ruled that where the facts shown entitled plaintiff to relief other than
that asked for, no amendment to the complaint is necessary, especially where
defendant has himself raised the point on which recovery is based, and that the
appellate court treat the pleadings as amended to conform to the evidence,
although the pleadings were not actually amended. (I Moran, Rules of Court, 1952
ed., 389-390.)
Our conclusion therefore is that specification of error II, III, and IV are without
merit..
Let us now pass on the errors V and VI. Admitting, though his attorney, at the early
stage of the trial, that the land in dispute "is that described or represented in
Exhibit A and in Exhibit B enclosed in red pencil with the name Quirino Bolaos,"
defendant later changed his lawyer and also his theory and tried to prove that the
land in dispute was not covered by plaintiff's certificate of title. The evidence,
however, is against defendant, for it clearly establishes that plaintiff is the
registered owner of lot No. 4-B-3-C, situate in barrio Tatalon, Quezon City, with an
area of 5,297,429.3 square meters, more or less, covered by transfer certificate of
title No. 37686 of the land records of Rizal province, and of lot No. 4-B-4, situated
in the same barrio, having an area of 74,789 square meters, more or less, covered
by transfer certificate of title No. 37677 of the land records of the same province,
both lots having been originally registered on July 8, 1914 under original certificate
of title No. 735. The identity of the lots was established by the testimony of
Antonio Manahan and Magno Faustino, witnesses for plaintiff, and the identity of
the portion thereof claimed by defendant was established by the testimony of his
own witness, Quirico Feria. The combined testimony of these three witnesses
clearly shows that the portion claimed by defendant is made up of a part of lot 4-B-
3-C and major on portion of lot 4-B-4, and is well within the area covered by the
two transfer certificates of title already mentioned. This fact also appears admitted
in defendant's answer to the third amended complaint.
As the land in dispute is covered by plaintiff's Torrens certificate of title and was
registered in 1914, the decree of registration can no longer be impugned on the
ground of fraud, error or lack of notice to defendant, as more than one year has
already elapsed from the issuance and entry of the decree. Neither court the
decree be collaterally attacked by any person claiming title to, or interest in, the
land prior to the registration proceedings. (Sorogon vs. Makalintal,1 45 Off. Gaz.,
3819.) Nor could title to that land in derogation of that of plaintiff, the registered
owner, be acquired by prescription or adverse possession. (Section 46, Act No.
496.) Adverse, notorious and continuous possession under claim of ownership for
the period fixed by law is ineffective against a Torrens title. (Valiente vs. Judge of
CFI of Tarlac,2 etc., 45 Off. Gaz., Supp. 9, p. 43.) And it is likewise settled that the
right to secure possession under a decree of registration does not prescribed.
(Francisco vs. Cruz, 43 Off. Gaz., 5105, 5109-5110.) A recent decision of this Court
on this point is that rendered in the case of Jose Alcantara et al., vs. Mariano et al.,
92 Phil., 796. This disposes of the alleged errors V and VI.
As to error VII, it is claimed that `there was no evidence to sustain the finding that
defendant should be sentenced to pay plaintiff P132.62 monthly from January,
1940, until he vacates the premises.' But it appears from the record that that
reasonable compensation for the use and occupation of the premises, as stipulated
at the hearing was P10 a month for each hectare and that the area occupied by
defendant was 13.2619 hectares. The total rent to be paid for the area occupied
should therefore be P132.62 a month. It is appears from the testimony of J. A.
Araneta and witness Emigdio Tanjuatco that as early as 1939 an action of
ejectment had already been filed against defendant. And it cannot be supposed
that defendant has been paying rents, for he has been asserting all along that the
premises in question 'have always been since time immemorial in open,
continuous, exclusive and public and notorious possession and under claim of
ownership adverse to the entire world by defendant and his predecessors in
interest.' This assignment of error is thus clearly without merit.
Error No. VIII is but a consequence of the other errors alleged and needs for further
consideration.
During the pendency of this case in this Court appellant, thru other counsel, has
filed a motion to dismiss alleging that there is pending before the Court of First
Instance of Rizal another action between the same parties and for the same cause
and seeking to sustain that allegation with a copy of the complaint filed in said
action. But an examination of that complaint reveals that appellant's allegation is
not correct, for the pretended identity of parties and cause of action in the two
suits does not appear. That other case is one for recovery of ownership, while the
present one is for recovery of possession. And while appellant claims that he is also
involved in that order action because it is a class suit, the complaint does not show
that such is really the case. On the contrary, it appears that the action seeks relief
for each individual plaintiff and not relief for and on behalf of others. The motion
for dismissal is clearly without merit.
Wherefore, the judgment appealed from is affirmed, with costs against the
plaintiff.
Aurbach vs Sanitary Wares
These consolidated petitions seek the review of the amended decision of the Court
of Appeals in CA-G.R. SP Nos. 05604 and 05617 which set aside the earlier decision
dated June 5, 1986, of the then Intermediate Appellate Court and directed that in
all subsequent elections for directors of Sanitary Wares Manufacturing Corporation
(Saniwares), American Standard Inc. (ASI) cannot nominate more than three (3)
directors; that the Filipino stockholders shall not interfere in ASI's choice of its
three (3) nominees; that, on the other hand, the Filipino stockholders can nominate
only six (6) candidates and in the event they cannot agree on the six (6) nominees,
they shall vote only among themselves to determine who the six (6) nominees will
be, with cumulative voting to be allowed but without interference from ASI.
The antecedent facts can be summarized as follows:
In 1961, Saniwares, a domestic corporation was incorporated for the primary
purpose of manufacturing and marketing sanitary wares. One of the incorporators,
Mr. Baldwin Young went abroad to look for foreign partners, European or American
who could help in its expansion plans. On August 15, 1962, ASI, a foreign
corporation domiciled in Delaware, United States entered into an Agreement with
Saniwares and some Filipino investors whereby ASI and the Filipino investors
agreed to participate in the ownership of an enterprise which would engage
primarily in the business of manufacturing in the Philippines and selling here and
abroad vitreous china and sanitary wares. The parties agreed that the business
operations in the Philippines shall be carried on by an incorporated enterprise and
that the name of the corporation shall initially be "Sanitary Wares Manufacturing
Corporation."
The Agreement has the following provisions relevant to the issues in these cases on
the nomination and election of the directors of the corporation:
3. Articles of Incorporation
(a) The Articles of Incorporation of the Corporation shall be substantially in
the form annexed hereto as Exhibit A and, insofar as permitted under Philippine
law, shall specifically provide for
(1) Cumulative voting for directors:
xxx xxx xxx

5. Management
(a) The management of the Corporation shall be vested in a Board of
Directors, which shall consist of nine individuals. As long as American-Standard
shall own at least 30% of the outstanding stock of the Corporation, three of the
nine directors shall be designated by American-Standard, and the other six shall be
designated by the other stockholders of the Corporation. (pp. 51 & 53, Rollo of
75875)
At the request of ASI, the agreement contained provisions designed to protect it as
a minority group, including the grant of veto powers over a number of corporate
acts and the right to designate certain officers, such as a member of the Executive
Committee whose vote was required for important corporate transactions.
Later, the 30% capital stock of ASI was increased to 40%. The corporation was also
registered with the Board of Investments for availment of incentives with the
condition that at least 60% of the capital stock of the corporation shall be owned
by Philippine nationals.
The joint enterprise thus entered into by the Filipino investors and the American
corporation prospered. Unfortunately, with the business successes, there came a
deterioration of the initially harmonious relations between the two groups.
According to the Filipino group, a basic disagreement was due to their desire to
expand the export operations of the company to which ASI objected as it
apparently had other subsidiaries of joint joint venture groups in the countries
where Philippine exports were contemplated. On March 8, 1983, the annual
stockholders' meeting was held. The meeting was presided by Baldwin Young. The
minutes were taken by the Secretary, Avelino Cruz. After disposing of the
preliminary items in the agenda, the stockholders then proceeded to the election
of the members of the board of directors. The ASI group nominated three persons
namely; Wolfgang Aurbach, John Griffin and David P. Whittingham. The Philippine
investors nominated six, namely; Ernesto Lagdameo, Sr., Raul A. Boncan, Ernesto R.
Lagdameo, Jr., George F. Lee, and Baldwin Young. Mr. Eduardo R, Ceniza then
nominated Mr. Luciano E. Salazar, who in turn nominated Mr. Charles Chamsay.
The chairman, Baldwin Young ruled the last two nominations out of order on the
basis of section 5 (a) of the Agreement, the consistent practice of the parties during
the past annual stockholders' meetings to nominate only nine persons as nominees
for the nine-member board of directors, and the legal advice of Saniwares' legal
counsel. The following events then, transpired:
... There were protests against the action of the Chairman and heated arguments
ensued. An appeal was made by the ASI representative to the body of stockholders
present that a vote be taken on the ruling of the Chairman. The Chairman, Baldwin
Young, declared the appeal out of order and no vote on the ruling was taken. The
Chairman then instructed the Corporate Secretary to cast all the votes present and
represented by proxy equally for the 6 nominees of the Philippine Investors and
the 3 nominees of ASI, thus effectively excluding the 2 additional persons
nominated, namely, Luciano E. Salazar and Charles Chamsay. The ASI
representative, Mr. Jaqua protested the decision of the Chairman and announced
that all votes accruing to ASI shares, a total of 1,329,695 (p. 27, Rollo, AC-G.R. SP
No. 05617) were being cumulatively voted for the three ASI nominees and Charles
Chamsay, and instructed the Secretary to so vote. Luciano E. Salazar and other
proxy holders announced that all the votes owned by and or represented by them
467,197 shares (p. 27, Rollo, AC-G.R. SP No. 05617) were being voted cumulatively
in favor of Luciano E. Salazar. The Chairman, Baldwin Young, nevertheless
instructed the Secretary to cast all votes equally in favor of the three ASI nominees,
namely, Wolfgang Aurbach, John Griffin and David Whittingham and the six
originally nominated by Rogelio Vinluan, namely, Ernesto Lagdameo, Sr., Raul
Boncan, Ernesto Lagdameo, Jr., Enrique Lagdameo, George F. Lee, and Baldwin
Young. The Secretary then certified for the election of the following Wolfgang
Aurbach, John Griffin, David Whittingham Ernesto Lagdameo, Sr., Ernesto
Lagdameo, Jr., Enrique Lagdameo, George F. Lee, Raul A. Boncan, Baldwin Young.
The representative of ASI then moved to recess the meeting which was duly
seconded. There was also a motion to adjourn (p. 28, Rollo, AC-G.R. SP No. 05617).
This motion to adjourn was accepted by the Chairman, Baldwin Young, who
announced that the motion was carried and declared the meeting adjourned.
Protests against the adjournment were registered and having been ignored, Mr.
Jaqua the ASI representative, stated that the meeting was not adjourned but only
recessed and that the meeting would be reconvened in the next room. The
Chairman then threatened to have the stockholders who did not agree to the
decision of the Chairman on the casting of votes bodily thrown out. The ASI Group,
Luciano E. Salazar and other stockholders, allegedly representing 53 or 54% of the
shares of Saniwares, decided to continue the meeting at the elevator lobby of the
American Standard Building. The continued meeting was presided by Luciano E.
Salazar, while Andres Gatmaitan acted as Secretary. On the basis of the cumulative
votes cast earlier in the meeting, the ASI Group nominated its four nominees;
Wolfgang Aurbach, John Griffin, David Whittingham and Charles Chamsay. Luciano
E. Salazar voted for himself, thus the said five directors were certified as elected
directors by the Acting Secretary, Andres Gatmaitan, with the explanation that
there was a tie among the other six (6) nominees for the four (4) remaining
positions of directors and that the body decided not to break the tie. (pp. 37-39,
Rollo of 75975-76)
These incidents triggered off the filing of separate petitions by the parties with the
Securities and Exchange Commission (SEC). The first petition filed was for
preliminary injunction by Saniwares, Emesto V. Lagdameo, Baldwin Young, Raul A.
Bonean Ernesto R. Lagdameo, Jr., Enrique Lagdameo and George F. Lee against
Luciano Salazar and Charles Chamsay. The case was denominated as SEC Case No.
2417. The second petition was for quo warranto and application for receivership by
Wolfgang Aurbach, John Griffin, David Whittingham, Luciano E. Salazar and Charles
Chamsay against the group of Young and Lagdameo (petitioners in SEC Case No.
2417) and Avelino F. Cruz. The case was docketed as SEC Case No. 2718. Both sets
of parties except for Avelino Cruz claimed to be the legitimate directors of the
corporation.
The two petitions were consolidated and tried jointly by a hearing officer who
rendered a decision upholding the election of the Lagdameo Group and dismissing
the quo warranto petition of Salazar and Chamsay. The ASI Group and Salazar
appealed the decision to the SEC en banc which affirmed the hearing officer's
decision.
The SEC decision led to the filing of two separate appeals with the Intermediate
Appellate Court by Wolfgang Aurbach, John Griffin, David Whittingham and Charles
Chamsay (docketed as AC-G.R. SP No. 05604) and by Luciano E. Salazar (docketed
as AC-G.R. SP No. 05617). The petitions were consolidated and the appellate court
in its decision ordered the remand of the case to the Securities and Exchange
Commission with the directive that a new stockholders' meeting of Saniwares be
ordered convoked as soon as possible, under the supervision of the Commission.
Upon a motion for reconsideration filed by the appellees Lagdameo Group) the
appellate court (Court of Appeals) rendered the questioned amended decision.
Petitioners Wolfgang Aurbach, John Griffin, David P. Whittingham and Charles
Chamsay in G.R. No. 75875 assign the following errors:
I. THE COURT OF APPEALS, IN EFFECT, UPHELD THE ALLEGED ELECTION OF
PRIVATE RESPONDENTS AS MEMBERS OF THE BOARD OF DIRECTORS OF
SANIWARES WHEN IN FACT THERE WAS NO ELECTION AT ALL.
II. THE COURT OF APPEALS PROHIBITS THE STOCKHOLDERS FROM
EXERCISING THEIR FULL VOTING RIGHTS REPRESENTED BY THE NUMBER OF
SHARES IN SANIWARES, THUS DEPRIVING PETITIONERS AND THE CORPORATION
THEY REPRESENT OF THEIR PROPERTY RIGHTS WITHOUT DUE PROCESS OF LAW.
III. THE COURT OF APPEALS IMPOSES CONDITIONS AND READS PROVISIONS
INTO THE AGREEMENT OF THE PARTIES WHICH WERE NOT THERE, WHICH ACTION
IT CANNOT LEGALLY DO. (p. 17, Rollo-75875)
Petitioner Luciano E. Salazar in G.R. Nos. 75975-76 assails the amended decision on
the following grounds:
11.1. ThatAmendedDecisionwouldsanctiontheCA'sdisregard of binding
contractual agreements entered into by stockholders and the replacement of the
conditions of such agreements with terms never contemplated by the stockholders
but merely dictated by the CA .
11.2. The Amended decision would likewise sanction the deprivation of the
property rights of stockholders without due process of law in order that a favored
group of stockholders may be illegally benefitted and guaranteed a continuing
monopoly of the control of a corporation. (pp. 14-15, Rollo-75975-76)
On the other hand, the petitioners in G.R. No. 75951 contend that:
I
THE AMENDED DECISION OF THE RESPONDENT COURT, WHILE RECOGNIZING THAT
THE STOCKHOLDERS OF SANIWARES ARE DIVIDED INTO TWO BLOCKS, FAILS TO
FULLY ENFORCE THE BASIC INTENT OF THE AGREEMENT AND THE LAW.
II
THE AMENDED DECISION DOES NOT CATEGORICALLY RULE THAT PRIVATE
PETITIONERS HEREIN WERE THE DULY ELECTED DIRECTORS DURING THE 8 MARCH
1983 ANNUAL STOCKHOLDERS MEETING OF SANTWARES. (P. 24, Rollo-75951)
The issues raised in the petitions are interrelated, hence, they are discussed jointly.
The main issue hinges on who were the duly elected directors of Saniwares for the
year 1983 during its annual stockholders' meeting held on March 8, 1983. To
answer this question the following factors should be determined: (1) the nature of
the business established by the parties whether it was a joint venture or a
corporation and (2) whether or not the ASI Group may vote their additional 10%
equity during elections of Saniwares' board of directors.
The rule is that whether the parties to a particular contract have thereby
established among themselves a joint venture or some other relation depends
upon their actual intention which is determined in accordance with the rules
governing the interpretation and construction of contracts. (Terminal Shares, Inc. v.
Chicago, B. and Q.R. Co. (DC MO) 65 F Supp 678; Universal Sales Corp. v. California
Press Mfg. Co. 20 Cal. 2nd 751, 128 P 2nd 668)
The ASI Group and petitioner Salazar (G.R. Nos. 75975-76) contend that the actual
intention of the parties should be viewed strictly on the "Agreement" dated August
15,1962 wherein it is clearly stated that the parties' intention was to form a
corporation and not a joint venture.
They specifically mention number 16 under Miscellaneous Provisions which states:
xxx xxx xxx
c) nothing herein contained shall be construed to constitute any of the
parties hereto partners or joint venturers in respect of any transaction hereunder.
(At P. 66, Rollo-GR No. 75875)
They object to the admission of other evidence which tends to show that the
parties' agreement was to establish a joint venture presented by the Lagdameo and
Young Group on the ground that it contravenes the parol evidence rule under
section 7, Rule 130 of the Revised Rules of Court. According to them, the Lagdameo
and Young Group never pleaded in their pleading that the "Agreement" failed to
express the true intent of the parties.
The parol evidence Rule under Rule 130 provides:
Evidence of written agreements-When the terms of an agreement have been
reduced to writing, it is to be considered as containing all such terms, and
therefore, there can be, between the parties and their successors in interest, no
evidence of the terms of the agreement other than the contents of the writing,
except in the following cases:
(a) Where a mistake or imperfection of the writing, or its failure to express
the true intent and agreement of the parties or the validity of the agreement is put
in issue by the pleadings.
(b) When there is an intrinsic ambiguity in the writing.
Contrary to ASI Group's stand, the Lagdameo and Young Group pleaded in their
Reply and Answer to Counterclaim in SEC Case No. 2417 that the Agreement failed
to express the true intent of the parties, to wit:

xxx xxx xxx
4. While certain provisions of the Agreement would make it appear that the
parties thereto disclaim being partners or joint venturers such disclaimer is
directed at third parties and is not inconsistent with, and does not preclude, the
existence of two distinct groups of stockholders in Saniwares one of which (the
Philippine Investors) shall constitute the majority, and the other ASI shall constitute
the minority stockholder. In any event, the evident intention of the Philippine
Investors and ASI in entering into the Agreement is to enter into ajoint venture
enterprise, and if some words in the Agreement appear to be contrary to the
evident intention of the parties, the latter shall prevail over the former (Art. 1370,
New Civil Code). The various stipulations of a contract shall be interpreted together
attributing to the doubtful ones that sense which may result from all of them taken
jointly (Art. 1374, New Civil Code). Moreover, in order to judge the intention of the
contracting parties, their contemporaneous and subsequent acts shall be
principally considered. (Art. 1371, New Civil Code). (Part I, Original Records, SEC
Case No. 2417)
It has been ruled:
In an action at law, where there is evidence tending to prove that the parties joined
their efforts in furtherance of an enterprise for their joint profit, the question
whether they intended by their agreement to create a joint adventure, or to
assume some other relation is a question of fact for the jury. (Binder v. Kessler v
200 App. Div. 40,192 N Y S 653; Pyroa v. Brownfield (Tex. Civ. A.) 238 SW 725; Hoge
v. George, 27 Wyo, 423, 200 P 96 33 C.J. p. 871)
In the instant cases, our examination of important provisions of the Agreement as
well as the testimonial evidence presented by the Lagdameo and Young Group
shows that the parties agreed to establish a joint venture and not a corporation.
The history of the organization of Saniwares and the unusual arrangements which
govern its policy making body are all consistent with a joint venture and not with
an ordinary corporation. As stated by the SEC:
According to the unrebutted testimony of Mr. Baldwin Young, he negotiated the
Agreement with ASI in behalf of the Philippine nationals. He testified that ASI
agreed to accept the role of minority vis-a-vis the Philippine National group of
investors, on the condition that the Agreement should contain provisions to
protect ASI as the minority.
An examination of the Agreement shows that certain provisions were included to
protect the interests of ASI as the minority. For example, the vote of 7 out of 9
directors is required in certain enumerated corporate acts [Sec. 3 (b) (ii) (a) of the
Agreement]. ASI is contractually entitled to designate a member of the Executive
Committee and the vote of this member is required for certain transactions [Sec. 3
(b) (i)].
The Agreement also requires a 75% super-majority vote for the amendment of the
articles and by-laws of Saniwares [Sec. 3 (a) (iv) and (b) (iii)]. ASI is also given the
right to designate the president and plant manager [Sec. 5 (6)]. The Agreement
further provides that the sales policy of Saniwares shall be that which is normally
followed by ASI [Sec. 13 (a)] and that Saniwares should not export "Standard"
products otherwise than through ASI's Export Marketing Services [Sec. 13 (6)].
Under the Agreement, ASI agreed to provide technology and know-how to
Saniwares and the latter paid royalties for the same. (At p. 2).
xxx xxx xxx
It is pertinent to note that the provisions of the Agreement requiring a 7 out of 9
votes of the board of directors for certain actions, in effect gave ASI (which
designates 3 directors under the Agreement) an effective veto power.
Furthermore, the grant to ASI of the right to designate certain officers of the
corporation; the super-majority voting requirements for amendments of the
articles and by-laws; and most significantly to the issues of tms case, the provision
that ASI shall designate 3 out of the 9 directors and the other stockholders shall
designate the other 6, clearly indicate that there are two distinct groups in
Saniwares, namely ASI, which owns 40% of the capital stock and the Philippine
National stockholders who own the balance of 60%, and that 2) ASI is given certain
protections as the minority stockholder.
Premises considered, we believe that under the Agreement there are two groups of
stockholders who established a corporation with provisions for a special
contractual relationship between the parties, i.e., ASI and the other stockholders.
(pp. 4-5)
Section 5 (a) of the agreement uses the word "designated" and not "nominated" or
"elected" in the selection of the nine directors on a six to three ratio. Each group is
assured of a fixed number of directors in the board.
Moreover, ASI in its communications referred to the enterprise as joint venture.
Baldwin Young also testified that Section 16(c) of the Agreement that "Nothing
herein contained shall be construed to constitute any of the parties hereto
partners or joint venturers in respect of any transaction hereunder" was merely to
obviate the possibility of the enterprise being treated as partnership for tax
purposes and liabilities to third parties.
Quite often, Filipino entrepreneurs in their desire to develop the industrial and
manufacturing capacities of a local firm are constrained to seek the technology and
marketing assistance of huge multinational corporations of the developed world.
Arrangements are formalized where a foreign group becomes a minority owner of
a firm in exchange for its manufacturing expertise, use of its brand names, and
other such assistance. However, there is always a danger from such arrangements.
The foreign group may, from the start, intend to establish its own sole or
monopolistic operations and merely uses the joint venture arrangement to gain a
foothold or test the Philippine waters, so to speak. Or the covetousness may come
later. As the Philippine firm enlarges its operations and becomes profitable, the
foreign group undermines the local majority ownership and actively tries to
completely or predominantly take over the entire company. This undermining of
joint ventures is not consistent with fair dealing to say the least. To the extent that
such subversive actions can be lawfully prevented, the courts should extend
protection especially in industries where constitutional and legal requirements
reserve controlling ownership to Filipino citizens.
The Lagdameo Group stated in their appellees' brief in the Court of Appeal
In fact, the Philippine Corporation Code itself recognizes the right of stockholders
to enter into agreements regarding the exercise of their voting rights.
Sec. 100. Agreements by stockholders.-
xxx xxx xxx
2. An agreement between two or more stockholders, if in writing and signed
by the parties thereto, may provide that in exercising any voting rights, the shares
held by them shall be voted as therein provided, or as they may agree, or as
determined in accordance with a procedure agreed upon by them.
Appellants contend that the above provision is included in the Corporation Code's
chapter on close corporations and Saniwares cannot be a close corporation
because it has 95 stockholders. Firstly, although Saniwares had 95 stockholders at
the time of the disputed stockholders meeting, these 95 stockholders are not
separate from each other but are divisible into groups representing a single
Identifiable interest. For example, ASI, its nominees and lawyers count for 13 of the
95 stockholders. The YoungYutivo family count for another 13 stockholders, the
Chamsay family for 8 stockholders, the Santos family for 9 stockholders, the Dy
family for 7 stockholders, etc. If the members of one family and/or business or
interest group are considered as one (which, it is respectfully submitted, they
should be for purposes of determining how closely held Saniwares is there were as
of 8 March 1983, practically only 17 stockholders of Saniwares. (Please refer to
discussion in pp. 5 to 6 of appellees' Rejoinder Memorandum dated 11 December
1984 and Annex "A" thereof).
Secondly, even assuming that Saniwares is technically not a close corporation
because it has more than 20 stockholders, the undeniable fact is that it is a close-
held corporation. Surely, appellants cannot honestly claim that Saniwares is a
public issue or a widely held corporation.
In the United States, many courts have taken a realistic approach to joint venture
corporations and have not rigidly applied principles of corporation law designed
primarily for public issue corporations. These courts have indicated that express
arrangements between corporate joint ventures should be construed with less
emphasis on the ordinary rules of law usually applied to corporate entities and with
more consideration given to the nature of the agreement between the joint
venturers (Please see Wabash Ry v. American Refrigerator Transit Co., 7 F 2d 335;
Chicago, M & St. P. Ry v. Des Moines Union Ry; 254 Ass'n. 247 US. 490'; Seaboard
Airline Ry v. Atlantic Coast Line Ry; 240 N.C. 495,.82 S.E. 2d 771; Deboy v. Harris,
207 Md., 212,113 A 2d 903; Hathway v. Porter Royalty Pool, Inc., 296 Mich. 90, 90,
295 N.W. 571; Beardsley v. Beardsley, 138 U.S. 262; "The Legal Status of Joint
Venture Corporations", 11 Vand Law Rev. p. 680,1958). These American cases dealt
with legal questions as to the extent to which the requirements arising from the
corporate form of joint venture corporations should control, and the courts ruled
that substantial justice lay with those litigants who relied on the joint venture
agreement rather than the litigants who relied on the orthodox principles of
corporation law.
As correctly held by the SEC Hearing Officer:
It is said that participants in a joint venture, in organizing the joint venture deviate
from the traditional pattern of corporation management. A noted authority has
pointed out that just as in close corporations, shareholders' agreements in joint
venture corporations often contain provisions which do one or more of the
following: (1) require greater than majority vote for shareholder and director
action; (2) give certain shareholders or groups of shareholders power to select a
specified number of directors; (3) give to the shareholders control over the
selection and retention of employees; and (4) set up a procedure for the
settlement of disputes by arbitration (See I O' Neal, Close Corporations, 1971 ed.,
Section 1.06a, pp. 15-16) (Decision of SEC Hearing Officer, P. 16)
Thirdly paragraph 2 of Sec. 100 of the Corporation Code does not necessarily imply
that agreements regarding the exercise of voting rights are allowed only in close
corporations. As Campos and Lopez-Campos explain:
Paragraph 2 refers to pooling and voting agreements in particular. Does this
provision necessarily imply that these agreements can be valid only in close
corporations as defined by the Code? Suppose that a corporation has twenty five
stockholders, and therefore cannot qualify as a close corporation under section 96,
can some of them enter into an agreement to vote as a unit in the election of
directors? It is submitted that there is no reason for denying stockholders of
corporations other than close ones the right to enter into not voting or pooling
agreements to protect their interests, as long as they do not intend to commit any
wrong, or fraud on the other stockholders not parties to the agreement. Of course,
voting or pooling agreements are perhaps more useful and more often resorted to
in close corporations. But they may also be found necessary even in widely held
corporations. Moreover, since the Code limits the legal meaning of close
corporations to those which comply with the requisites laid down by section 96, it
is entirely possible that a corporation which is in fact a close corporation will not
come within the definition. In such case, its stockholders should not be precluded
from entering into contracts like voting agreements if these are otherwise valid.
(Campos & Lopez-Campos, op cit, p. 405)
In short, even assuming that sec. 5(a) of the Agreement relating to the designation
or nomination of directors restricts the right of the Agreement's signatories to vote
for directors, such contractual provision, as correctly held by the SEC, is valid and
binding upon the signatories thereto, which include appellants. (Rollo No. 75951,
pp. 90-94)
In regard to the question as to whether or not the ASI group may vote their
additional equity during elections of Saniwares' board of directors, the Court of
Appeals correctly stated:
As in other joint venture companies, the extent of ASI's participation in the
management of the corporation is spelled out in the Agreement. Section 5(a)
hereof says that three of the nine directors shall be designated by ASI and the
remaining six by the other stockholders, i.e., the Filipino stockholders. This
allocation of board seats is obviously in consonance with the minority position of
ASI.
Having entered into a well-defined contractual relationship, it is imperative that
the parties should honor and adhere to their respective rights and obligations
thereunder. Appellants seem to contend that any allocation of board seats, even in
joint venture corporations, are null and void to the extent that such may interfere
with the stockholder's rights to cumulative voting as provided in Section 24 of the
Corporation Code. This Court should not be prepared to hold that any agreement
which curtails in any way cumulative voting should be struck down, even if such
agreement has been freely entered into by experienced businessmen and do not
prejudice those who are not parties thereto. It may well be that it would be more
cogent to hold, as the Securities and Exchange Commission has held in the decision
appealed from, that cumulative voting rights may be voluntarily waived by
stockholders who enter into special relationships with each other to pursue and
implement specific purposes, as in joint venture relationships between foreign and
local stockholders, so long as such agreements do not adversely affect third parties.
In any event, it is believed that we are not here called upon to make a general rule
on this question. Rather, all that needs to be done is to give life and effect to the
particular contractual rights and obligations which the parties have assumed for
themselves.
On the one hand, the clearly established minority position of ASI and the
contractual allocation of board seats Cannot be disregarded. On the other hand,
the rights of the stockholders to cumulative voting should also be protected.
In our decision sought to be reconsidered, we opted to uphold the second over the
first. Upon further reflection, we feel that the proper and just solution to give due
consideration to both factors suggests itself quite clearly. This Court should
recognize and uphold the division of the stockholders into two groups, and at the
same time uphold the right of the stockholders within each group to cumulative
voting in the process of determining who the group's nominees would be. In
practical terms, as suggested by appellant Luciano E. Salazar himself, this means
that if the Filipino stockholders cannot agree who their six nominees will be, a vote
would have to be taken among the Filipino stockholders only. During this voting,
each Filipino stockholder can cumulate his votes. ASI, however, should not be
allowed to interfere in the voting within the Filipino group. Otherwise, ASI would
be able to designate more than the three directors it is allowed to designate under
the Agreement, and may even be able to get a majority of the board seats, a result
which is clearly contrary to the contractual intent of the parties.
Such a ruling will give effect to both the allocation of the board seats and the
stockholder's right to cumulative voting. Moreover, this ruling will also give due
consideration to the issue raised by the appellees on possible violation or
circumvention of the Anti-Dummy Law (Com. Act No. 108, as amended) and the
nationalization requirements of the Constitution and the laws if ASI is allowed to
nominate more than three directors. (Rollo-75875, pp. 38-39)
The ASI Group and petitioner Salazar, now reiterate their theory that the ASI Group
has the right to vote their additional equity pursuant to Section 24 of the
Corporation Code which gives the stockholders of a corporation the right to
cumulate their votes in electing directors. Petitioner Salazar adds that this right if
granted to the ASI Group would not necessarily mean a violation of the Anti-
Dummy Act (Commonwealth Act 108, as amended). He cites section 2-a thereof
which provides:
And provided finally that the election of aliens as members of the board of
directors or governing body of corporations or associations engaging in partially
nationalized activities shall be allowed in proportion to their allowable participation
or share in the capital of such entities. (amendments introduced by Presidential
Decree 715, section 1, promulgated May 28, 1975)
The ASI Group's argument is correct within the context of Section 24 of the
Corporation Code. The point of query, however, is whether or not that provision is
applicable to a joint venture with clearly defined agreements:
The legal concept of ajoint venture is of common law origin. It has no precise legal
definition but it has been generally understood to mean an organization formed for
some temporary purpose. (Gates v. Megargel, 266 Fed. 811 [1920]) It is in fact
hardly distinguishable from the partnership, since their elements are similar
community of interest in the business, sharing of profits and losses, and a mutual
right of control. Blackner v. Mc Dermott, 176 F. 2d. 498, [1949]; Carboneau v.
Peterson, 95 P. 2d., 1043 [1939]; Buckley v. Chadwick, 45 Cal. 2d. 183, 288 P. 2d. 12
289 P. 2d. 242 [1955]). The main distinction cited by most opinions in common law
jurisdictions is that the partnership contemplates a general business with some
degree of continuity, while the joint venture is formed for the execution of a single
transaction, and is thus of a temporary nature. (Tufts v. Mann 116 Cal. App. 170, 2
P. 2d. 500 [1931]; Harmon v. Martin, 395 111. 595, 71 NE 2d. 74 [1947]; Gates v.
Megargel 266 Fed. 811 [1920]). This observation is not entirely accurate in this
jurisdiction, since under the Civil Code, a partnership may be particular or
universal, and a particular partnership may have for its object a specific
undertaking. (Art. 1783, Civil Code). It would seem therefore that under Philippine
law, a joint venture is a form of partnership and should thus be governed by the
law of partnerships. The Supreme Court has however recognized a distinction
between these two business forms, and has held that although a corporation
cannot enter into a partnership contract, it may however engage in a joint venture
with others. (At p. 12, Tuazon v. Bolanos, 95 Phil. 906 [1954]) (Campos and Lopez-
Campos Comments, Notes and Selected Cases, Corporation Code 1981)
Moreover, the usual rules as regards the construction and operations of contracts
generally apply to a contract of joint venture. (O' Hara v. Harman 14 App. Dev.
(167) 43 NYS 556).
Bearing these principles in mind, the correct view would be that the resolution of
the question of whether or not the ASI Group may vote their additional equity lies
in the agreement of the parties.
Necessarily, the appellate court was correct in upholding the agreement of the
parties as regards the allocation of director seats under Section 5 (a) of the
"Agreement," and the right of each group of stockholders to cumulative voting in
the process of determining who the group's nominees would be under Section 3 (a)
(1) of the "Agreement." As pointed out by SEC, Section 5 (a) of the Agreement
relates to the manner of nominating the members of the board of directors while
Section 3 (a) (1) relates to the manner of voting for these nominees.
This is the proper interpretation of the Agreement of the parties as regards the
election of members of the board of directors.
To allow the ASI Group to vote their additional equity to help elect even a Filipino
director who would be beholden to them would obliterate their minority status as
agreed upon by the parties. As aptly stated by the appellate court:
... ASI, however, should not be allowed to interfere in the voting within the Filipino
group. Otherwise, ASI would be able to designate more than the three directors it
is allowed to designate under the Agreement, and may even be able to get a
majority of the board seats, a result which is clearly contrary to the contractual
intent of the parties.
Such a ruling will give effect to both the allocation of the board seats and the
stockholder's right to cumulative voting. Moreover, this ruling will also give due
consideration to the issue raised by the appellees on possible violation or
circumvention of the Anti-Dummy Law (Com. Act No. 108, as amended) and the
nationalization requirements of the Constitution and the laws if ASI is allowed to
nominate more than three directors. (At p. 39, Rollo, 75875)
Equally important as the consideration of the contractual intent of the parties is
the consideration as regards the possible domination by the foreign investors of
the enterprise in violation of the nationalization requirements enshrined in the
Constitution and circumvention of the Anti-Dummy Act. In this regard, petitioner
Salazar's position is that the Anti-Dummy Act allows the ASI group to elect board
directors in proportion to their share in the capital of the entity. It is to be noted,
however, that the same law also limits the election of aliens as members of the
board of directors in proportion to their allowance participation of said entity. In
the instant case, the foreign Group ASI was limited to designate three directors.
This is the allowable participation of the ASI Group. Hence, in future dealings, this
limitation of six to three board seats should always be maintained as long as the
joint venture agreement exists considering that in limiting 3 board seats in the 9-
man board of directors there are provisions already agreed upon and embodied in
the parties' Agreement to protect the interests arising from the minority status of
the foreign investors.
With these findings, we the decisions of the SEC Hearing Officer and SEC which
were impliedly affirmed by the appellate court declaring Messrs. Wolfgang
Aurbach, John Griffin, David P Whittingham, Emesto V. Lagdameo, Baldwin young,
Raul A. Boncan, Emesto V. Lagdameo, Jr., Enrique Lagdameo, and George F. Lee as
the duly elected directors of Saniwares at the March 8,1983 annual stockholders'
meeting.
On the other hand, the Lagdameo and Young Group (petitioners in G.R. No. 75951)
object to a cumulative voting during the election of the board of directors of the
enterprise as ruled by the appellate court and submits that the six (6) directors
allotted the Filipino stockholders should be selected by consensus pursuant to
section 5 (a) of the Agreement which uses the word "designate" meaning
"nominate, delegate or appoint."
They also stress the possibility that the ASI Group might take control of the
enterprise if the Filipino stockholders are allowed to select their nominees
separately and not as a common slot determined by the majority of their group.
Section 5 (a) of the Agreement which uses the word designates in the allocation of
board directors should not be interpreted in isolation. This should be construed in
relation to section 3 (a) (1) of the Agreement. As we stated earlier, section 3(a) (1)
relates to the manner of voting for these nominees which is cumulative voting
while section 5(a) relates to the manner of nominating the members of the board
of directors. The petitioners in G.R. No. 75951 agreed to this procedure, hence,
they cannot now impugn its legality.
The insinuation that the ASI Group may be able to control the enterprise under the
cumulative voting procedure cannot, however, be ignored. The validity of the
cumulative voting procedure is dependent on the directors thus elected being
genuine members of the Filipino group, not voters whose interest is to increase the
ASI share in the management of Saniwares. The joint venture character of the
enterprise must always be taken into account, so long as the company exists under
its original agreement. Cumulative voting may not be used as a device to enable ASI
to achieve stealthily or indirectly what they cannot accomplish openly. There are
substantial safeguards in the Agreement which are intended to preserve the
majority status of the Filipino investors as well as to maintain the minority status of
the foreign investors group as earlier discussed. They should be maintained.
WHEREFORE, the petitions in G.R. Nos. 75975-76 and G.R. No. 75875 are
DISMISSED and the petition in G.R. No. 75951 is partly GRANTED. The amended
decision of the Court of Appeals is MODIFIED in that Messrs. Wolfgang Aurbach
John Griffin, David Whittingham Emesto V. Lagdameo, Baldwin Young, Raul A.
Boncan, Ernesto R. Lagdameo, Jr., Enrique Lagdameo, and George F. Lee are
declared as the duly elected directors of Saniwares at the March 8,1983 annual
stockholders' meeting. In all other respects, the questioned decision is AFFIRMED.
Costs against the petitioners in G.R. Nos. 75975-76 and G.R. No. 75875.
SO ORDERED.
ANTONIA TORRES, assisted by her husband, ANGELO TORRES; and EMETERIA
BARING, petitioners, vs. COURT OF APPEALS and MANUEL TORRES, respondents.
Courts may not extricate parties from the necessary consequences of their acts.
That the terms of a contract turn out to be financially disadvantageous to them will
not relieve them of their obligations therein. The lack of an inventory of real
property will not ipso facto release the contracting partners from their respective
obligations to each other arising from acts executed in accordance with their
agreement.
The Case
The Petition for Review on Certiorari before us assails the March 5, 1998
Decision[1] Second Division of the Court of Appeals[2] (CA) in CA-GR CV No. 42378
and its June 25, 1998 Resolution denying reconsideration. The assailed Decision
affirmed the ruling of the Regional Trial Court (RTC) of Cebu City in Civil Case No. R-
21208, which disposed as follows:
WHEREFORE, for all the foregoing considerations, the Court, finding for the
defendant and against the plaintiffs, orders the dismissal of the plaintiffs
complaint. The counterclaims of the defendant are likewise ordered dismissed. No
pronouncement as to costs.[3]
The Facts
Sisters Antonia Torres and Emeteria Baring, herein petitioners, entered into a "joint
venture agreement" with Respondent Manuel Torres for the development of a
parcel of land into a subdivision. Pursuant to the contract, they executed a Deed of
Sale covering the said parcel of land in favor of respondent, who then had it
registered in his name. By mortgaging the property, respondent obtained from
Equitable Bank a loan of P40,000 which, under the Joint Venture Agreement, was
to be used for the development of the subdivision.[4] All three of them also agreed
to share the proceeds from the sale of the subdivided lots.
Ruling of the Court of Appeals

The project did not push through, and the land was subsequently foreclosed by the
bank.
According to petitioners, the project failed because of respondents lack of funds or
means and skills. They add that respondent used the loan not for the development
of the subdivision, but in furtherance of his own company, Universal Umbrella
Company.
In affirming the trial court, the Court of Appeals held that petitioners and
respondent had formed a partnership for the development of the subdivision.
Thus, they must bear the loss suffered by the partnership in the same proportion as
their share in the profits stipulated in the contract. Disagreeing with the trial courts
pronouncement that losses as well as profits in a joint venture should be
distributed equally,[7] the CA invoked Article 1797 of the Civil Code which provides:

Article 1797 - The losses and profits shall be distributed in conformity with the
agreement. If only the share of each partner in the profits has been agreed upon,
On the other hand, respondent alleged that he used the loan to implement the the share of each in the losses shall be in the same proportion.
Agreement. With the said amount, he was able to effect the survey and the
subdivision of the lots. He secured the Lapu Lapu City Councils approval of the
subdivision project which he advertised in a local newspaper. He also caused the
construction of roads, curbs and gutters. Likewise, he entered into a contract with The CA elucidated further:
an engineering firm for the building of sixty low-cost housing units and actually
even set up a model house on one of the subdivision lots. He did all of these for a
total expense of P85,000.
In the absence of stipulation, the share of each partner in the profits and losses
shall be in proportion to what he may have contributed, but the industrial partner
shall not be liable for the losses. As for the profits, the industrial partner shall
Respondent claimed that the subdivision project failed, however, because receive such share as may be just and equitable under the circumstances. If besides
petitioners and their relatives had separately caused the annotations of adverse his services he has contributed capital, he shall also receive a share in the profits in
claims on the title to the land, which eventually scared away prospective buyers. proportion to his capital.
Despite his requests, petitioners refused to cause the clearing of the claims,
thereby forcing him to give up on the project.[5]

The Issue

Subsequently, petitioners filed a criminal case for estafa against respondent and his
wife, who were however acquitted. Thereafter, they filed the present civil case
which, upon respondent's motion, was later dismissed by the trial court in an Order Petitioners impute to the Court of Appeals the following error:
dated September 6, 1982. On appeal, however, the appellate court remanded the
case for further proceedings. Thereafter, the RTC issued its assailed Decision,
which, as earlier stated, was affirmed by the CA.
x x x [The] Court of Appeals erred in concluding that the transaction x x x between
the petitioners and respondent was that of a joint venture/partnership, ignoring
outright the provision of Article 1769, and other related provisions of the Civil Code
Hence, this Petition.[6] of the Philippines.[8]

The Courts Ruling
The Petition is bereft of merit.
Main Issue: Existence of a Partnership
Petitioners deny having formed a partnership with respondent. They contend that
the Joint Venture Agreement and the earlier Deed of Sale, both of which were the
bases of the appellate courts finding of a partnership, were void.
In the same breath, however, they assert that under those very same contracts,
respondent is liable for his failure to implement the project. Because the
agreement entitled them to receive 60 percent of the proceeds from the sale of the
subdivision lots, they pray that respondent pay them damages equivalent to 60
percent of the value of the property.[9]
The pertinent portions of the Joint Venture Agreement read as follows:
KNOW ALL MEN BY THESE PRESENTS:
This AGREEMENT, is made and entered into at Cebu City, Philippines, this 5th day
of March, 1969, by and between MR. MANUEL R. TORRES, x x x the FIRST PARTY,
likewise, MRS. ANTONIA B. TORRES, and MISS EMETERIA BARING, x x x the SECOND
PARTY:
W I T N E S S E T H:
That, whereas, the SECOND PARTY, voluntarily offered the FIRST PARTY, this
property located at Lapu-Lapu City, Island of Mactan, under Lot No. 1368 covering
TCT No. T-0184 with a total area of 17,009 square meters, to be sub-divided by the
FIRST PARTY;
Whereas, the FIRST PARTY had given the SECOND PARTY, the sum of: TWENTY
THOUSAND (P20,000.00) Pesos, Philippine Currency, upon the execution of this
contract for the property entrusted by the SECOND PARTY, for sub-division projects
and development purposes;
NOW THEREFORE, for and in consideration of the above covenants and promises
herein contained the respective parties hereto do hereby stipulate and agree as
follows:
ONE: That the SECOND PARTY signed an absolute Deed of Sale x x x dated March 5,
1969, in the amount of TWENTY FIVE THOUSAND FIVE HUNDRED THIRTEEN & FIFTY
CTVS. (P25,513.50) Philippine Currency, for 1,700 square meters at ONE [PESO] &
FIFTY CTVS. (P1.50) Philippine Currency, in favor of the FIRST PARTY, but the
SECOND PARTY did not actually receive the payment.
SECOND: That the SECOND PARTY, had received from the FIRST PARTY, the
necessary amount of TWENTY THOUSAND (P20,000.00) pesos, Philippine currency,
for their personal obligations and this particular amount will serve as an advance
payment from the FIRST PARTY for the property mentioned to be sub-divided and
to be deducted from the sales.
THIRD: That the FIRST PARTY, will not collect from the SECOND PARTY, the interest
and the principal amount involving the amount of TWENTY THOUSAND
(P20,000.00) Pesos, Philippine Currency, until the sub-division project is terminated
and ready for sale to any interested parties, and the amount of TWENTY
THOUSAND (P20,000.00) pesos, Philippine currency, will be deducted accordingly.
FOURTH: That all general expense[s] and all cost[s] involved in the sub-division
project should be paid by the FIRST PARTY, exclusively and all the expenses will not
be deducted from the sales after the development of the sub-division project.
FIFTH: That the sales of the sub-divided lots will be divided into SIXTY PERCENTUM
60% for the SECOND PARTY and FORTY PERCENTUM 40% for the FIRST PARTY, and
additional profits or whatever income deriving from the sales will be divided
equally according to the x x x percentage [agreed upon] by both parties.
SIXTH: That the intended sub-division project of the property involved will start the
work and all improvements upon the adjacent lots will be negotiated in both
parties['] favor and all sales shall [be] decided by both parties.
SEVENTH: That the SECOND PARTIES, should be given an option to get back the
property mentioned provided the amount of TWENTY THOUSAND (P20,000.00)
Pesos, Philippine Currency, borrowed by the SECOND PARTY, will be paid in full to
the FIRST PARTY, including all necessary improvements spent by the FIRST PARTY,
and the FIRST PARTY will be given a grace period to turnover the property
mentioned above.
That this AGREEMENT shall be binding and obligatory to the parties who executed
same freely and voluntarily for the uses and purposes therein stated.[10]
A reading of the terms embodied in the Agreement indubitably shows the
existence of a partnership pursuant to Article 1767 of the Civil Code, which
provides:
ART. 1767. By the contract of partnership two or more persons bind themselves to
contribute money, property, or industry to a common fund, with the intention of
dividing the profits among themselves.
Under the above-quoted Agreement, petitioners would contribute property to the
partnership in the form of land which was to be developed into a subdivision; while
respondent would give, in addition to his industry, the amount needed for general
expenses and other costs. Furthermore, the income from the said project would be
divided according to the stipulated percentage. Clearly, the contract manifested
the intention of the parties to form a partnership.[11]
It should be stressed that the parties implemented the contract. Thus, petitioners
transferred the title to the land to facilitate its use in the name of the respondent.
On the other hand, respondent caused the subject land to be mortgaged, the
proceeds of which were used for the survey and the subdivision of the land. As
noted earlier, he developed the roads, the curbs and the gutters of the subdivision
and entered into a contract to construct low-cost housing units on the property.
Respondents actions clearly belie petitioners contention that he made no
contribution to the partnership. Under Article 1767 of the Civil Code, a partner may
contribute not only money or property, but also industry.
Petitioners Bound by Terms of Contract
Under Article 1315 of the Civil Code, contracts bind the parties not only to what has
been expressly stipulated, but also to all necessary consequences thereof, as
follows:
ART. 1315. Contracts are perfected by mere consent, and from that moment the
parties are bound not only to the fulfillment of what has been expressly stipulated
but also to all the consequences which, according to their nature, may be in
keeping with good faith, usage and law.
It is undisputed that petitioners are educated and are thus presumed to have
understood the terms of the contract they voluntarily signed. If it was not in
consonance with their expectations, they should have objected to it and insisted on
the provisions they wanted.

Courts are not authorized to extricate parties from the necessary consequences of
their acts, and the fact that the contractual stipulations may turn out to be
financially disadvantageous will not relieve parties thereto of their obligations.
They cannot now disavow the relationship formed from such agreement due to
their supposed misunderstanding of its terms.
Alleged Nullity of the Partnership Agreement
Petitioners argue that the Joint Venture Agreement is void under Article 1773 of
the Civil Code, which provides:
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.
They contend that since the parties did not make, sign or attach to the public
instrument an inventory of the real property contributed, the partnership is void.
We clarify. First, Article 1773 was intended primarily to protect third persons. Thus,
the eminent Arturo M. Tolentino states that under the aforecited provision which is
a complement of Article 1771,[12] the execution of a public instrument would be
useless if there is no inventory of the property contributed, because without its
designation and description, they cannot be subject to inscription in the Registry of
Property, and their contribution cannot prejudice third persons. This will result in
fraud to those who contract with the partnership in the belief [in] the efficacy of
the guaranty in which the immovables may consist. Thus, the contract is declared
void by the law when no such inventory is made. The case at bar does not involve
third parties who may be prejudiced.
Second, petitioners themselves invoke the allegedly void contract as basis for their
claim that respondent should pay them 60 percent of the value of the property.[13]
They cannot in one breath deny the contract and in another recognize it,
depending on what momentarily suits their purpose. Parties cannot adopt
inconsistent positions in regard to a contract and courts will not tolerate, much less
approve, such practice.
In short, the alleged nullity of the partnership will not prevent courts from
considering the Joint Venture Agreement an ordinary contract from which the
parties rights and obligations to each other may be inferred and enforced.
Partnership Agreement Not the Result of an Earlier Illegal Contract
Petitioners also contend that the Joint Venture Agreement is void under Article
1422[14] of the Civil Code, because it is the direct result of an earlier illegal
contract, which was for the sale of the land without valid consideration.
This argument is puerile. The Joint Venture Agreement clearly states that the
consideration for the sale was the expectation of profits from the subdivision
project. Its first stipulation states that petitioners did not actually receive payment
for the parcel of land sold to respondent. Consideration, more properly
denominated as cause, can take different forms, such as the prestation or promise
of a thing or service by another.[15]
In this case, the cause of the contract of sale consisted not in the stated peso value
of the land, but in the expectation of profits from the subdivision project, for which
the land was intended to be used. As explained by the trial court, the land was in
effect given to the partnership as [petitioners] participation therein. x x x There was
therefore a consideration for the sale, the [petitioners] acting in the expectation
that, should the venture come into fruition, they [would] get sixty percent of the
net profits.
Liability of the Parties
Claiming that respondent was solely responsible for the failure of the subdivision This petition for review on certiorari seeks the reversal of the decision of the
project, petitioners maintain that he should be made to pay damages equivalent to Insurance Commission in IC Case #367 1 dismissing the complaint 2 for recovery of
60 percent of the value of the property, which was their share in the profits under the alleged unpaid balance of the proceeds of the Fire Insurance Policies issued by
the Joint Venture Agreement. herein respondent insurance company in favor of petitioner-intervenor.

We are not persuaded. True, the Court of Appeals held that petitioners acts were The facts of the case as found by respondent Insurance Commission are as follows:
not the cause of the failure of the project.[16] But it also ruled that neither was
respondent responsible therefor.[17] In imputing the blame solely to him,
petitioners failed to give any reason why we should disregard the factual findings of
the appellate court relieving him of fault. Verily, factual issues cannot be resolved Complainants acquired from a certain Rolando Gonzales a parcel of land and a
in a petition for review under Rule 45, as in this case. Petitioners have not alleged, building located at San Rafael Village, Davao City. Complainants assumed the
not to say shown, that their Petition constitutes one of the exceptions to this mortgage of the building in favor of S.S.S., which building was insured with
doctrine.[18] Accordingly, we find no reversible error in the CA's ruling that respondent S.S.S. Accredited Group of Insurers for P25,000.00.
petitioners are not entitled to damages.

On April 19, 1975, Azucena Palomo obtained a loan from Tai Tong Chuache Inc. in
WHEREFORE, the Petition is hereby DENIED and the challenged Decision the amount of P100,000.00. To secure the payment of the loan, a mortgage was
AFFIRMED. Costs against petitioners. executed over the land and the building in favor of Tai Tong Chuache & Co. (Exhibit
"1" and "1-A"). On April 25, 1975, Arsenio Chua, representative of Thai Tong
Chuache & Co. insured the latter's interest with Travellers Multi-Indemnity
Corporation for P100,000.00 (P70,000.00 for the building and P30,000.00 for the
SO ORDERED. contents thereof) (Exhibit "A-a," contents thereof) (Exhibit "A-a").

TAI TONG CHUACHE & CO., petitioner, On June 11, 1975, Pedro Palomo secured a Fire Insurance Policy No. F- 02500
(Exhibit "A"), covering the building for P50,000.00 with respondent Zenith
vs. Insurance Corporation. On July 16, 1975, another Fire Insurance Policy No. 8459
(Exhibit "B") was procured from respondent Philippine British Assurance Company,
THE INSURANCE COMMISSION and TRAVELLERS MULTI-INDEMNITY CORPORATION, covering the same building for P50,000.00 and the contents thereof for P70,000.00.
respondents.

On July 31, 1975, the building and the contents were totally razed by fire.

Adjustment Standard Corporation submitted a report as follow

GANCAYCO, J.:

xxx xxx xxx

... Thus the apportioned share of each company is as follows:
POLICY INFO
Based on the computation of the loss, including the Travellers Multi- Indemnity,
respondents, Zenith Insurance, Phil. British Assurance and S.S.S. Accredited Group
of Insurers, paid their corresponding shares of the loss. Complainants were paid
the following: P41,546.79 by Philippine British Assurance Co., P11,877.14 by Zenith
Insurance Corporation, and P5,936.57 by S.S.S. Group of Accredited Insurers (Par.
6. Amended Complaint). Demand was made from respondent Travellers Multi-
Indemnity for its share in the loss but the same was refused. Hence, complainants
demanded from the other three (3) respondents the balance of each share in the
loss based on the computation of the Adjustment Standards Report excluding
Travellers Multi-Indemnity in the amount of P30,894.31 (P5,732.79-Zenith
Insurance: P22,294.62, Phil. British: and P2,866.90, SSS Accredited) but the same
was refused, hence, this action.
In their answers, Philippine British Assurance and Zenith Insurance Corporation
admitted the material allegations in the complaint, but denied liability on the
ground that the claim of the complainants had already been waived, extinguished
or paid. Both companies set up counterclaim in the total amount of P 91,546.79.
Instead of filing an answer, SSS Accredited Group of Insurers informed the
Commission in its letter of July 22, 1977 that the herein claim of complainants for
the balance had been paid in the amount of P 5,938.57 in full, based on the
Adjustment Standards Corporation Report of September 22, 1975.
Travellers Insurance, on its part, admitted the issuance of the Policy No. 599 DV
and alleged as its special and affirmative defenses the following, to wit: that Fire
Policy No. 599 DV, covering the furniture and building of complainants was secured
by a certain Arsenio Chua, mortgage creditor, for the purpose of protecting his
mortgage credit against the complainants; that the said policy was issued in the
name of Azucena Palomo, only to indicate that she owns the insured premises; that
the policy contains an endorsement in favor of Arsenio Chua as his mortgage
interest may appear to indicate that insured was Arsenio Chua and the
complainants; that the premium due on said fire policy was paid by Arsenio Chua;
that respondent Travellers is not liable to pay complainants.
On May 31, 1977, Tai Tong Chuache & Co. filed a complaint in intervention claiming
the proceeds of the fire Insurance Policy No. F-559 DV, issued by respondent
Travellers Multi-Indemnity.
Travellers Insurance, in answer to the complaint in intervention, alleged that the
Intervenor is not entitled to indemnity under its Fire Insurance Policy for lack of
insurable interest before the loss of the insured premises and that the
complainants, spouses Pedro and Azucena Palomo, had already paid in full their
mortgage indebtedness to the intervenor. 3
As adverted to above respondent Insurance Commission dismissed spouses
Palomos' complaint on the ground that the insurance policy subject of the
complaint was taken out by Tai Tong Chuache & Company, petitioner herein, for its
own interest only as mortgagee of the insured property and thus complainant as
mortgagors of the insured property have no right of action against herein
respondent. It likewise dismissed petitioner's complaint in intervention in the
following words:
We move on the issue of liability of respondent Travellers Multi-Indemnity to the
Intervenor-mortgagee. The complainant testified that she was still indebted to
Intervenor in the amount of P100,000.00. Such allegation has not however, been
sufficiently proven by documentary evidence. The certification (Exhibit 'E-e') issued
by the Court of First Instance of Davao, Branch 11, indicate that the complainant
was Antonio Lopez Chua and not Tai Tong Chuache & Company. 4
From the above decision, only intervenor Tai Tong Chuache filed a motion for
reconsideration but it was likewise denied hence, the present petition.
It is the contention of the petitioner that respondent Insurance Commission
decided an issue not raised in the pleadings of the parties in that it ruled that a
certain Arsenio Lopez Chua is the one entitled to the insurance proceeds and not
Tai Tong Chuache & Company.
This Court cannot fault petitioner for the above erroneous interpretation of the
decision appealed from considering the manner it was written. 5 As correctly
pointed out by respondent insurance commission in their comment, the decision
did not pronounce that it was Arsenio Lopez Chua who has insurable interest over
the insured property. Perusal of the decision reveals however that it readily
absolved respondent insurance company from liability on the basis of the
commissioner's conclusion that at the time of the occurrence of the peril insured
against petitioner as mortgagee had no more insurable interest over the insured
property. It was based on the inference that the credit secured by the mortgaged
property was already paid by the Palomos before the said property was gutted
down by fire. The foregoing conclusion was arrived at on the basis of the
certification issued by the then Court of First Instance of Davao, Branch II that in a
certain civil action against the Palomos, Antonio Lopez Chua stands as the
complainant and not petitioner Tai Tong Chuache & Company.
We find the petition to be impressed with merit. It is a well known postulate that
the case of a party is constituted by his own affirmative allegations. Under Section
1, Rule 131 6 each party must prove his own affirmative allegations by the amount
of evidence required by law which in civil cases as in the present case is
preponderance of evidence. The party, whether plaintiff or defendant, who asserts
the affirmative of the issue has the burden of presenting at the trial such amount of
evidence as required by law to obtain favorable judgment. 7 Thus, petitioner who is
claiming a right over the insurance must prove its case. Likewise, respondent
insurance company to avoid liability under the policy by setting up an affirmative
defense of lack of insurable interest on the part of the petitioner must prove its
own affirmative allegations.
It will be recalled that respondent insurance company did not assail the validity of
the insurance policy taken out by petitioner over the mortgaged property. Neither
did it deny that the said property was totally razed by fire within the period
covered by the insurance. Respondent, as mentioned earlier advanced an
affirmative defense of lack of insurable interest on the part of the petitioner that
before the occurrence of the peril insured against the Palomos had already paid
their credit due the petitioner. Respondent having admitted the material
allegations in the complaint, has the burden of proof to show that petitioner has no
insurable interest over the insured property at the time the contingency took place.
Upon that point, there is a failure of proof. Respondent, it will be noted, exerted no
effort to present any evidence to substantiate its claim, while petitioner did. For
said respondent's failure, the decision must be adverse to it.
However, as adverted to earlier, respondent Insurance Commission absolved
respondent insurance company from liability on the basis of the certification issued
by the then Court of First Instance of Davao, Branch II, that in a certain civil action
against the Palomos, Arsenio Lopez Chua stands as the complainant and not Tai
Tong Chuache. From said evidence respondent commission inferred that the credit
extended by herein petitioner to the Palomos secured by the insured property
must have been paid. Such is a glaring error which this Court cannot sanction.
Respondent Commission's findings are based upon a mere inference.
The record of the case shows that the petitioner to support its claim for the
insurance proceeds offered as evidence the contract of mortgage (Exh. 1) which
has not been cancelled nor released. It has been held in a long line of cases that
when the creditor is in possession of the document of credit, he need not prove
non-payment for it is presumed. 8 The validity of the insurance policy taken b
petitioner was not assailed by private respondent. Moreover, petitioner's claim
that the loan extended to the Palomos has not yet been paid was corroborated by
Azucena Palomo who testified that they are still indebted to herein petitioner. 9
Public respondent argues however, that if the civil case really stemmed from the
loan granted to Azucena Palomo by petitioner the same should have been brought
by Tai Tong Chuache or by its representative in its own behalf. From the above
premise respondent concluded that the obligation secured by the insured property
must have been paid.
The premise is correct but the conclusion is wrong. Citing Rule 3, Sec. 2 10
respondent pointed out that the action must be brought in the name of the real
party in interest. We agree. However, it should be borne in mind that petitioner
being a partnership may sue and be sued in its name or by its duly authorized
representative. The fact that Arsenio Lopez Chua is the representative of petitioner
is not questioned. Petitioner's declaration that Arsenio Lopez Chua acts as the
managing partner of the partnership was corroborated by respondent insurance
company. 11 Thus Chua as the managing partner of the partnership may execute all
acts of administration 12 including the right to sue debtors of the partnership in
case of their failure to pay their obligations when it became due and demandable.
Or at the very least, Chua being a partner of petitioner Tai Tong Chuache &
Company is an agent of the partnership. Being an agent, it is understood that he
acted for and in behalf of the firm. 13 Public respondent's allegation that the civil
case flied by Arsenio Chua was in his capacity as personal creditor of spouses
Palomo has no basis.

The respondent insurance company having issued a policy in favor of herein
petitioner which policy was of legal force and effect at the time of the fire, it is
bound by its terms and conditions. Upon its failure to prove the allegation of lack of
insurable interest on the part of the petitioner, respondent insurance company is
and must be held liable.
IN VIEW OF THE FOREGOING, the decision appealed from is hereby SET ASIDE and
ANOTHER judgment is rendered order private respondent Travellers Multi-
Indemnity Corporation to pay petitioner the face value of Insurance Policy No. 599-
DV in the amount of P100,000.00. Costs against said private respondent.
SO ORDERED.
URADO & CO., plaintiff, vs. HONGKONG AND SHANGHAI BANKING,
CORPORATION, defendants.
Hartigan, Marple and Solignac, for plaintiffs.
Ortigas and Kincaid, for defendants.
WILLARD, J.:
At the hearing on October 8, 1902, of the motion of Jurado & Co., dated September
11, 1902, the attorney for the Hongkong and Shanghai Banking Corporation
challenged the competency of one of the judges of this court to sit in the case, for
having acted as fiscal.chanrobles virtual law library
The application of article 8 of the Code of Civil Procedure, now in force, to a
challenge directed to the competency of a judge of the Court of First Instance is
free from doubt. But when the challenge is to the competency of the judge of this
court the article may admit of two constructions. Under one construction the
magistrate decides for himself the question of his competency; his decision is
conclusive, and the other members of the court have no voice in it. Under the
other construction the magistrate challenged sits with the court and the question is
decided by it as a body.chanrobles virtual law library
We adopt this second construction as the proper one. We can not admit as possible
a third construction under which the court would decide the question, excluding
from the consideration of it the members challenged. This construction would, if
adopted, put it in the power of a party to stop all proceedings in the cause by
challenging three of the justices. The court has examined the original documents
referred to at the argument, and we find nothing in them to support the challenge
or which expresses an opinion on the merits of the case. Inasmuch as the complaint
of the fiscal had for its purpose the compelling of the judge to comply with the law,
and as this officer had failed to send up the report which he had been directed to
make in accordance with the complaint of the fiscal, now a Justice of this court, the
latter simply made a written request that the judge be directed to send in this
report - a mere matter of procedure.chanrobles virtual law library
In accordance with article 8 of the Code of Civil Procedure in force the challenge
should have been made in writing, but it appears to the court more convenient to
settle the question on the merits, and for the reasons stated the challenge is not
allowed and the hearing of the motion will be continued on Monday
next.chanrobles virtual law library
Torres, Cooper, Mapa, and Ladd, JJ., concur.
Arellano, C.J., withdrew from this case.
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs.WILLIAM J. SUTER and
THE COURT OF TAX APPEALS, respondents.
A limited partnership, named "William J. Suter 'Morcoin' Co., Ltd.," was formed on
30 September 1947 by herein respondent William J. Suter as the general partner,
and Julia Spirig and Gustav Carlson, as the limited partners. The partners
contributed, respectively, P20,000.00, P18,000.00 and P2,000.00 to the
partnership. On 1 October 1947, the limited partnership was registered with the
Securities and Exchange Commission. The firm engaged, among other activities, in
the importation, marketing, distribution and operation of automatic phonographs,
radios, television sets and amusement machines, their parts and accessories. It had
an office and held itself out as a limited partnership, handling and carrying
merchandise, using invoices, bills and letterheads bearing its trade-name,
maintaining its own books of accounts and bank accounts, and had a quota
allocation with the Central Bank.
In 1948, however, general partner Suter and limited partner Spirig got married and,
thereafter, on 18 December 1948, limited partner Carlson sold his share in the
partnership to Suter and his wife. The sale was duly recorded with the Securities
and Exchange Commission on 20 December 1948.
The limited partnership had been filing its income tax returns as a corporation,
without objection by the herein petitioner, Commissioner of Internal Revenue, until
in 1959 when the latter, in an assessment, consolidated the income of the firm and
the individual incomes of the partners-spouses Suter and Spirig resulting in a
determination of a deficiency income tax against respondent Suter in the amount
of P2,678.06 for 1954 and P4,567.00 for 1955.
Respondent Suter protested the assessment, and requested its cancellation and
withdrawal, as not in accordance with law, but his request was denied. Unable to
secure a reconsideration, he appealed to the Court of Tax Appeals, which court,
after trial, rendered a decision, on 11 November 1965, reversing that of the
Commissioner of Internal Revenue.
The present case is a petition for review, filed by the Commissioner of Internal
Revenue, of the tax court's aforesaid decision. It raises these issues:
(a) Whether or not the corporate personality of the William J. Suter "Morcoin" Co.,
Ltd. should be disregarded for income tax purposes, considering that respondent
William J. Suter and his wife, Julia Spirig Suter actually formed a single taxable unit;
and
(b) Whether or not the partnership was dissolved after the marriage of the
partners, respondent William J. Suter and Julia Spirig Suter and the subsequent sale
to them by the remaining partner, Gustav Carlson, of his participation of P2,000.00
in the partnership for a nominal amount of P1.00.
The theory of the petitioner, Commissioner of Internal Revenue, is that the
marriage of Suter and Spirig and their subsequent acquisition of the interests of
remaining partner Carlson in the partnership dissolved the limited partnership, and
if they did not, the fiction of juridical personality of the partnership should be
disregarded for income tax purposes because the spouses have exclusive
ownership and control of the business; consequently the income tax return of
respondent Suter for the years in question should have included his and his wife's
individual incomes and that of the limited partnership, in accordance with Section
45 (d) of the National Internal Revenue Code, which provides as follows:
(d) Husband and wife. In the case of married persons, whether citizens,
residents or non-residents, only one consolidated return for the taxable year shall
be filed by either spouse to cover the income of both spouses; ....
In refutation of the foregoing, respondent Suter maintains, as the Court of Tax
Appeals held, that his marriage with limited partner Spirig and their acquisition of
Carlson's interests in the partnership in 1948 is not a ground for dissolution of the
partnership, either in the Code of Commerce or in the New Civil Code, and that
since its juridical personality had not been affected and since, as a limited
partnership, as contra distinguished from a duly registered general partnership, it is
taxable on its income similarly with corporations, Suter was not bound to include in
his individual return the income of the limited partnership.
We find the Commissioner's appeal unmeritorious.
The thesis that the limited partnership, William J. Suter "Morcoin" Co., Ltd., has
been dissolved by operation of law because of the marriage of the only general
partner, William J. Suter to the originally limited partner, Julia Spirig one year after
the partnership was organized is rested by the appellant upon the opinion of now
Senator Tolentino in Commentaries and Jurisprudence on Commercial Laws of the
Philippines, Vol. 1, 4th Ed., page 58, that reads as follows:
A husband and a wife may not enter into a contract of general copartnership,
because under the Civil Code, which applies in the absence of express provision in
the Code of Commerce, persons prohibited from making donations to each other
are prohibited from entering into universal partnerships. (2 Echaverri 196) It
follows that the marriage of partners necessarily brings about the dissolution of a
pre-existing partnership. (1 Guy de Montella 58)
The petitioner-appellant has evidently failed to observe the fact that William J.
Suter "Morcoin" Co., Ltd. was not a universal partnership, but a particular one. As
appears from Articles 1674 and 1675 of the Spanish Civil Code, of 1889 (which was
the law in force when the subject firm was organized in 1947), a universal
partnership requires either that the object of the association be all the present
property of the partners, as contributed by them to the common fund, or else "all
that the partners may acquire by their industry or work during the existence of the
partnership". William J. Suter "Morcoin" Co., Ltd. was not such a universal
partnership, since the contributions of the partners were fixed sums of money,
P20,000.00 by William Suter and P18,000.00 by Julia Spirig and neither one of them
was an industrial partner. It follows that William J. Suter "Morcoin" Co., Ltd. was
not a partnership that spouses were forbidden to enter by Article 1677 of the Civil
Code of 1889.
The former Chief Justice of the Spanish Supreme Court, D. Jose Casan, in his
Derecho Civil, 7th Edition, 1952, Volume 4, page 546, footnote 1, says with regard
to the prohibition contained in the aforesaid Article 1677:
Los conyuges, segun esto, no pueden celebrar entre si el contrato de sociedad
universal, pero o podran constituir sociedad particular? Aunque el punto ha sido
muy debatido, nos inclinamos a la tesis permisiva de los contratos de sociedad
particular entre esposos, ya que ningun precepto de nuestro Codigo los prohibe, y
hay que estar a la norma general segun la que toda persona es capaz para
contratar mientras no sea declarado incapaz por la ley. La jurisprudencia de la
Direccion de los Registros fue favorable a esta misma tesis en su resolution de 3 de
febrero de 1936, mas parece cambiar de rumbo en la de 9 de marzo de 1943.
Nor could the subsequent marriage of the partners operate to dissolve it, such
marriage not being one of the causes provided for that purpose either by the
Spanish Civil Code or the Code of Commerce.
The appellant's view, that by the marriage of both partners the company became a
single proprietorship, is equally erroneous. The capital contributions of partners
William J. Suter and Julia Spirig were separately owned and contributed by them
before their marriage; and after they were joined in wedlock, such contributions
remained their respective separate property under the Spanish Civil Code (Article
1396):
The following shall be the exclusive property of each spouse:
(a) That which is brought to the marriage as his or her own; ....
Thus, the individual interest of each consort in William J. Suter "Morcoin" Co., Ltd.
did not become common property of both after their marriage in 1948.
It being a basic tenet of the Spanish and Philippine law that the partnership has a
juridical personality of its own, distinct and separate from that of its partners
(unlike American and English law that does not recognize such separate juridical
personality), the bypassing of the existence of the limited partnership as a taxpayer
can only be done by ignoring or disregarding clear statutory mandates and basic
principles of our law. The limited partnership's separate individuality makes it
impossible to equate its income with that of the component members. True,
section 24 of the Internal Revenue Code merges registered general co-partnerships
(compaias colectivas) with the personality of the individual partners for income
tax purposes. But this rule is exceptional in its disregard of a cardinal tenet of our
partnership laws, and can not be extended by mere implication to limited
partnerships.
The rulings cited by the petitioner (Collector of Internal Revenue vs. University of
the Visayas, L-13554, Resolution of 30 October 1964, and Koppel [Phil.], Inc. vs.
Yatco, 77 Phil. 504) as authority for disregarding the fiction of legal personality of
the corporations involved therein are not applicable to the present case. In the
cited cases, the corporations were already subject to tax when the fiction of their
corporate personality was pierced; in the present case, to do so would exempt the
limited partnership from income taxation but would throw the tax burden upon the
partners-spouses in their individual capacities. The corporations, in the cases cited,
merely served as business conduits or alter egos of the stockholders, a factor that
justified a disregard of their corporate personalities for tax purposes. This is not
true in the present case. Here, the limited partnership is not a mere business
conduit of the partner-spouses; it was organized for legitimate business purposes;
it conducted its own dealings with its customers prior to appellee's marriage, and
had been filing its own income tax returns as such independent entity. The change
in its membership, brought about by the marriage of the partners and their
subsequent acquisition of all interest therein, is no ground for withdrawing the
partnership from the coverage of Section 24 of the tax code, requiring it to pay does not authorize it, and even bars it by requiring the limited partnership to pay
income tax. As far as the records show, the partners did not enter into matrimony tax on its own income.
and thereafter buy the interests of the remaining partner with the premeditated
scheme or design to use the partnership as a business conduit to dodge the tax
laws. Regularity, not otherwise, is presumed.
FOR THE FOREGOING REASONS, the decision under review is hereby affirmed. No
costs.

As the limited partnership under consideration is taxable on its income, to require

that income to be included in the individual tax return of respondent Suter is to
overstretch the letter and intent of the law. In fact, it would even conflict with
what it specifically provides in its Section 24: for the appellant Commissioner's
stand results in equal treatment, tax wise, of a general copartnership (compaia
colectiva) and a limited partnership, when the code plainly differentiates the two.
Thus, the code taxes the latter on its income, but not the former, because it is in
the case of compaias colectivas that the members, and not the firm, are taxable in
their individual capacities for any dividend or share of the profit derived from the
duly registered general partnership (Section 26, N.I.R.C.; Araas, Anno. & Juris. on
the N.I.R.C., As Amended, Vol. 1, pp. 88-89).lawphi1.nt
HUNG-MAN-YOC, in the name of KWONG-WO-SING,Plaintiff-Appellee, vs. KIENG-
CHIONG-SENG, ET AL.,Defendants-Appellants.
The court below entered judgment against each and all of the defendants, Chua-
Che-Co, Yu-Yec-Pin, and Ang-Chu-Keng for the sum of 7,962.14 pesos, Mexican,
equivalent to 7,372.75 pesos, Philippine currency, with interest at the rate 6 per
cent per annum from December 7, 1903, and costs.chanroblesvirtualawlibrary
chanrobles virtual law library

But it is argued that the income of the limited partnership is actually or

constructively the income of the spouses and forms part of the conjugal Chua-Che-Co is the only one who appealed.chanroblesvirtualawlibrary chanrobles
partnership of gains. This is not wholly correct. As pointed out in Agapito vs. Molo virtual law library
50 Phil. 779, and People's Bank vs. Register of Deeds of Manila, 60 Phil. 167, the
fruits of the wife's parapherna become conjugal only when no longer needed to
defray the expenses for the administration and preservation of the paraphernal
The court below found that Chu-Che-Co, Yu-Yec-Pin, and Ang-Chu-Keng were
capital of the wife. Then again, the appellant's argument erroneously confines itself
partners of Kiong-Tiao-Eng, under the firm name of Kieng-Chiong-
to the question of the legal personality of the limited partnership, which is not
Seng.chanroblesvirtualawlibrary chanrobles virtual law library
essential to the income taxability of the partnership since the law taxes the income
of even joint accounts that have no personality of their own. 1 Appellant is,
likewise, mistaken in that it assumes that the conjugal partnership of gains is a
taxable unit, which it is not. What is taxable is the "income of both spouses" It has been not proved that Kieng-Chiong-Seng was the firm name, but rather the
(Section 45 [d] in their individual capacities. Though the amount of income (income designation of the partnership.chanroblesvirtualawlibrary chanrobles virtual law
of the conjugal partnership vis-a-vis the joint income of husband and wife) may be library
the same for a given taxable year, their consequences would be different, as their
contributions in the business partnership are not the same.

The difference in tax rates between the income of the limited partnership being
consolidated with, and when split from the income of the spouses, is not a
justification for requiring consolidation; the revenue code, as it presently stands,
It can not be the firm name of a general partnership because this should contain
the names of all the partners, or some of them, or at least one of them to be,
followed in the two latter cases by the words "and company" (art. 126 of the Code
of Commerce), whereas in this case none of the four names of those it is alleged
were members of the firm appear in the firm name of the partnership. Neither can
it be considered as the firm name of a limited partnership for the reason that this
should contain the same requisites as the firm name of a general partnership, and
in addition thereto the word "limited." (Art. 146.) The firm name in question has
absolutely none of these requisites.chanroblesvirtualawlibrary chanrobles virtual
law library
Anonymous partnership (corporations) do not require a firm name or signature; a
designation adequate, for the object or objects of the business to which it is
dedicated, is sufficient. (Art. 151 and 152.)chanrobles virtual law library
The fact is, as alleged by the plaintiff and appellee in his brief, that "there is no
doubt that the partnership of Kieng-Chiong-Seng was a mercantile partnership
organized for the purpose of engaging in commercial pursuits, although such
organization was not evidenced by any public document as required by article 119
of the Code of Commerce, nor was it registered as required by article 17 of the said
code" (p.5).chanroblesvirtualawlibrary chanrobles virtual law library
All these statements are correct.chanroblesvirtualawlibrary chanrobles virtual law
library
The partnership in question was a mercantile one, as it was engaged in the
importation of goods for sale here at a profit. It was so testified to by its manager,
Yu-Yec-Pin, and Kiong-Tiao-Eng. But its organization is not evidenced by any public
document. The agent Yu-Yec-Pin himself and some of his so-called partners have
merely noted in the books of the partnership, which by the way, were not
introduced in evidence, the capital which each had contributed. The agent further
testified that the partnership was not record in the Mercantile Registry but in the
Internal Revenue office.chanroblesvirtualawlibrary chanrobles virtual law library
All this being so, the alleged partnership never had any legal existence nor has it
acquired any judicial personality in the acts and contracts executed and made by it.
(Art. 116, par. 2.)chanrobles virtual law library
But as the said partnership was a partnership de facto, although it had no legal
standing, and contracted obligations in favor of the plaintiff, the liability arising
from such obligations must enforcible against some one.chanroblesvirtualawlibrary
chanrobles virtual law library
The partnership in question not being included in any of the classes of partnership
defined by the Code of Commerce there should be applied to it the general
provisions applicable to all partnerships contained in article 120 of the Code of
Commerce, which reads as follows:
The persons in charge of the management of the association who do not comply
with the provisions of the foregoing article (art. 119, which requires that the
articles of partnership be recorded in a public instrument, and that the partnership
be registered in the Mercantile Register) shall be responsible together with the
persons not members of the association with whom they may have transacted
business in the name of the same.
The defendant, Chua-Che-Co, was in charge of the management of the association,
nor did he make any contract at all with the plaintiff, as clearly appears from the
testimony of the various witnesses, the agent of the partnership, Yu-Yec-Pin, being
the person who made all the contracts for the partnership; also Kieng-Tiao-Eng
according to two of the witnesses. It is evident, therefore, that he has incurred no
liability and that he can not be held individually responsible for the payment of
plaintiff's claims as the court below found.chanroblesvirtualawlibrary chanrobles
virtual law library
We accordingly reverse the judgment of the court below and acquit the defendant,
Chua-Che-Co, without special condemnation as to costs in both
instances.chanroblesvirtualawlibrary chanrobles virtual law library
After the expiration of ten days from the date of final judgment the record will be
remanded to the Court of First Instance for execution. So ordered.chanrobles
PAUL MACDONALD, ET AL., Petitioners, vs. THE NATIONAL CITY BANK OF NEW
YORK, Respondent.
(c) Fargo Pick-Up FKI-16, with motor No. T-112800032,

This is an appeal by certiorari from the decision of the Court of Appeals from which
we are reproducing the following basic findings of fact:chanroblesvirtuallawlibrary Serial No. 8869225 and with plate No. T-7222 (1949).

STASIKINOCEY is a partnership doing business at No. 58, Aurora Boulevard, San The mortgage deed was fully registered by the mortgagee on June 11, 1949, in the
Juan, Rizal, and formed by Alan W. Gorcey, Louis F. da Costa, Jr., William Kusik and Office of the Register of Deeds for the province of Rizal, at Pasig, (Exhibit A), and
Emma Badong Gavino. This partnership was denied registration in the Securities among other provisions it contained the following:chanroblesvirtuallawlibrary
and Exchange Commission, and while it is confusing to see in this case that the
CARDINAL RATTAN, sometimes called the CARDINAL RATTAN FACTORY, is treated
as a copartnership, of which Defendants Gorcey and da Costa are considered
general partners, we are satisfied that, as alleged in various instruments appearing (a) That the mortgagor shall not sell or otherwise dispose of the said chattels
of record, said Cardinal Rattan is merely the business name or style used by the without the mortgagees written consent; chan roblesvirtualawlibraryand
partnership Stasikinocey.

(b) That the mortgagee may foreclose the mortgage at any time, after breach of
Prior to June 3, 1949, Defendant Stasikinocey had an overdraft account with The any condition thereof, the mortgagor waiving the 30- day notice of foreclosure.
National City Bank of New York, a foreign banking association duly licensed to do
business in the Philippines. On June 3, 1949, the overdraft showed a balance of
P6,134.92 against the Defendant Stasikinocey or the Cardinal Rattan (Exhibit D),
On June 7, 1949, the same day of the execution of the chattel mortgage
which account, due to the failure of the partnership to make the required payment,
aforementioned, Gorcey and Da Costa executed an agreement purporting to
was converted into an ordinary loan for which the corresponding promissory joint
convey and transfer all their rights, title and participation in Defendant partnership
note non-negotiable was executed on June 3, 1949, by Louis F. da Costa for and in
to Shaeffer, allegedly in consideration of the cancellation of an indebtedness of
the name of the Cardinal Rattan, Louis F. da Costa and Alan Gorcey (Exhibit D). This
P25,000 owed by them and Defendant partnership to the latter (Exhibit J), which
promissory note was secured on June 7, 1949, by a chattel mortgage executed by
transaction is said to be in violation of the Bulk Sales Law (Act No. 3952 of the
Louis F. da Costa, Jr., General Partner for and in the name of Stasikinocey, alleged
Philippine Legislature).
to be a duly registered Philippine partnership, doing business under the name and
style of Cardinal Rattan, with principal office at 69 Riverside, San Juan, Rizal (Exhibit
A). The chattels mortgaged were the following motor
vehicles:chanroblesvirtuallawlibrary While the said loan was still unpaid and the chattel mortgage subsisting,
Defendant partnership, through Defendants Gorcey and Da Costa transferred to
Defendant McDonald the Fargo truck and Plymouth sedan on June 24, 1949
(Exhibit L). The Fargo pickup was also sold on June 28, 1949, by William Shaeffer to
(a) Fargo truck with motor No. T-118-202839, Serial No. 81410206 and with plate
Paul McDonald.
No. T-7333 (1949);

(b) Plymouth Sedan automobile motor No. T-5638876, Serial No. 11872718 and
with plate No. 10372; chan roblesvirtualawlibraryand
On or about July 19, 1944, Paul Mcdonald, notwithstanding Plaintiffs existing
mortgage lien, in turn transferred the Fargo truck and the Plymouth sedan to
Benjamin Gonzales.
The National City Bank of New York, Respondent herein, upon learning of the
transfers made by the partnership Stasikinocey to William Shaeffer, from the latter
to Paul McDonald, and from Paul McDonald to Benjamin Gonzales, of the vehicles
previously pledged by Stasikinocey to the Respondent, filed an action against
Stasikinocey and its alleged partners Gorcey and Da Costa, as well as Paul
McDonald and Benjamin Gonzales, to recover its credit and to foreclose the
corresponding chattel mortgage. McDonald and Gonzales were made Defendants
because they claimed to have a better right over the pledged vehicle.
After trial the Court of First Instance of Manila rendered judgment in favor of the
Respondent, annulling the sale of the vehicles in question to Benjamin Gonzales;
chan roblesvirtualawlibrarysentencing Da Costa and Gorcey to pay to the
Respondent jointly and severally the sum of P6,134.92, with legal interest from the
debt of the promissory note involved; chan roblesvirtualawlibrarysentencing the
Petitioner Gonzales to deliver the vehicles in question to the Respondent for sale at
public auction if Da Costa and Gorcey should fail to pay the money judgment; chan
roblesvirtualawlibraryand sentencing Da Costa, Gorcey and Shaeffers to pay to the
Respondent jointly and severally any deficiency that may remain unpaid should the
proceeds of the sale not be sufficient; chan roblesvirtualawlibraryand sentencing
Gorcey, Da Costa, McDonald and Shaeffer to pay the costs. Only Paul McDonald
and Benjamin Gonzales appealed to the Court of Appeals which rendered a
decision the dispositive part of which reads as follows:chanroblesvirtuallawlibrary
WHEREFORE, the decision appealed from is hereby modified, relieving Appellant
William Shaeffer of the obligation of paying, jointly and severally, together with
Alan W. Gorcey and Louis F. da Costa, Jr., any deficiency that may remain unpaid
after applying the proceeds of the sale of the said motor vehicles which shall be
undertaken upon the lapse of 90 days from the date this decision becomes final, if
by then Defendants Louis F. da Costa, Jr., and Alan W. Gorcey had not paid the
amount of the judgment debt. With this modification the decision appealed from is
in all other respects affirmed, with costs against Appellants. This decision is without
prejudice to whatever action Louis F. da Costa, Jr., and Alan W. Gorcey may take
against their co-partners in the Stasikinocey unregistered partnership.
This appeal by certiorari was taken by Paul McDonald and Benjamin Gonzales,
Petitioners herein, who have assigned the following
errors:chanroblesvirtuallawlibrary
I
IN RULING THAT AN UNREGISTERED COMMERCIAL CO-PARTNERSHIP WHICH HAS
NO INDEPENDENT JURIDICAL PERSONALITY CAN HAVE A DOMICILE SO THAT A
CHATTEL MORTGAGE REGISTERED IN THAT DOMICILE WOULD BIND THIRD
PERSONS WHO ARE INNOCENT PURCHASERS FOR VALUE.
II
IN RULING THAT WHEN A CHATTEL MORTGAGE IS EXECUTED BY ONE OF THE
MEMBERS OF AN UNREGISTERED COMMERCIAL CO-PARTNERSHIP WITHOUT
JURIDICAL PERSONALITY INDEPENDENT OF ITS MEMBERS, IT NEED NOT BE
REGISTERED IN THE ACTUAL RESIDENCE OF THE MEMBERS WHO EXECUTED SAME;
chan roblesvirtualawlibraryAND, AS A CONSEQUENCE THEREOF, IN NOT MAKING
ANY FINDING OF FACT AS TO THE ACTUAL RESIDENCE OF SAID CHATTEL
MORTGAGOR, DESPITE APPELLANTS RAISING THAT QUESTION PROPERLY BEFORE
IT AND REQUESTING A RULING THEREON.
III
IN NOT RULING THAT, WHEN A CHATTEL MORTGAGOR EXECUTES AN AFFIDAVIT OF
GOOD FAITH BEFORE A NOTARY PUBLIC OUTSIDE OF THE TERRITORIAL
JURISDICTION OF THE LATTER, THE AFFIDAVIT IS VOID AND THE CHATTEL
MORTGAGE IS NOT BINDING ON THIRD PERSONS WHO ARE INNOCENT
PURCHASERS FOR VALUE; chan roblesvirtualawlibraryAND, AS A CONSEQUENCE
THEREOF, IN NOT MAKING ANY FINDING OF FACT AS TO WHERE THE DEED WAS IN
FACT EXECUTED, DESPITE APPELLANTS RAISING THAT QUESTION PROPERLY
BEFORE IT AND EXPRESSLY REQUESTING A RULING THEREON.
IV
IN RULING THAT A LETTER AUTHORIZING ONE MEMBER OF AN UNREGISTERED
COMMERCIAL CO-PARTNERSHIP TO MAKE ALL OFFICIAL AND BUSINESS
ARRANGEMENTS .. WITH THE NATIONAL CITY BANK OF NEW YORK IN ORDER TO
SIMPLIFY ALL MATTERS RELATIVE TO LCS CABLE TRANSFERS, DRAFTS, OR OTHER
BANKING MEDIUMS, WAS SUFFICIENT AUTHORITY FOR THE SAID MEMBER TO
EXECUTE A CHATTEL MORTGAGE IN ORDER TO GIVE THE BANK SECURITY FOR A
PRE-EXISTING OVERDRAFT, GRANTED WITHOUT SECURITY. WHICH THE BANK HAD
CONVERTED INTO A DEMAND LOAN UPON FAILURE TO PAY SAME AND BEFORE
THE CHATTEL MORTGAGE WAS EXECUTED.
This is the first question propounded by the Petitioners:chanroblesvirtuallawlibrary
Since an unregistered commercial partnership unquestionably has no juridical
personality, can it have a domicile so that the registration of a chattel mortgage
therein is notice to the world?.
While an unregistered commercial partnership has no juridical personality,
nevertheless, where two or more persons attempt to create a partnership failing to
comply with all the legal formalities, the law considers them as partners and the
association is a partnership in so far as it is a favorable to third persons, by reason
of the equitable principle of estoppel. In Jo Chung Chang vs. Pacific Commercial Co.,
45 Phil., 145, it was held that although the partnership with the firm name of Teck
Seing and Co. Ltd., could not be regarded as a partnership de jure, yet with respect
to third persons it will be considered a partnership with all the consequent
obligations for the purpose of enforcing the rights of such third persons. Da Costa
and Gorcey cannot deny that they are partners of the partnership Stasikinocey,
because in all their transactions with the Respondent they represented themselves
as such. Petitioner McDonald cannot disclaim knowledge of the partnership
Stasikinocey because he dealt with said entity in purchasing two of the vehicles in
question through Gorcey and Da Costa. As was held in Behn Meyer & Co. vs.
Rosatzin, 5 Phil., 660, where a partnership not duly organized has been recognized
as such in its dealings with certain persons, it shall be considered as partnership by
estoppel and the persons dealing with it are estopped from denying its
partnership existence. The sale of the vehicles in question being void as to
Petitioner McDonald, the transfer from the latter to Petitioner Benjamin Gonzales
is also void, as the buyer cannot have a better right than the seller.
It results that if the law recognizes a defectively organized partnership as de facto
as far as third persons are concerned, for purposes of its de facto existence it
should have such attribute of a partnership as domicile. In Hung-Man Yoc vs. Kieng-
Chiong-Seng, 6 Phil., 498, it was held that although it has no legal standing, it is a
partnership de facto and the general provisions of the Code applicable to all
partnerships apply to it. The registration of the chattel mortgage in question with
the Office of the Register of Deeds of Rizal, the residence or place of business of
the partnership Stasikinocey being San Juan, Rizal, was therefore in accordance
with section 4 of the Chattel Mortgage Law.
The second question propounded by the Petitioners is:chanroblesvirtuallawlibrary
If not, is a chattel mortgage executed by only one of the partners of an
unregistered commercial partnership validly registered so as to constitute notice to
the world if it is not registered at the place where the aforesaid partner actually
resides but only in the place where the deed states that he resides, which is not his
real residence? And the third question is as follows:chanroblesvirtuallawlibrary If
the actual residence of the chattel mortgagor not the residence stated in the
deed of chattel mortgage is controlling, may the Court of Appeals refuse to
make a finding of fact as to where the mortgagor resided despite your Petitioners
having properly raised that question before it and expressly requested a ruling
thereon?
These two questions have become academic by reason of the answer to the first
question, namely, that as a de facto partnership, Stasikinocey had its domicile in
San Juan, Rizal.
The fourth question asked by the Petitioners is as
follows:chanroblesvirtuallawlibrary Is a chattel mortgage executed by only one of
the partners of an unregistered commercial partnership valid as to third persons
when that partner executed the affidavit of good faith in Quezon City before a
notary public whose appointment is only for the City of Manila? If not, may the
Court of Appeals refuse to make a finding of fact as to where the deed was
executed, despite your Petitioners having properly raised that issue before it and
expressly requested a ruling thereon?
It is noteworthy that the chattel mortgage in question is in the form required by
law, and there is therefore the presumption of its due execution which cannot be
easily destroyed by the biased testimony of the one who executed it. The even assuming that the Petitioners are purchasers in good faith and for value, the
interested version of Da Costa that the affidavit of good faith appearing in the Respondent having transacted with Stasikinocey earlier than the Petitioners, it
chattel mortgage was executed in Quezon City before a notary public for and in the should enjoy and be given priority.
City of Manila was correctly rejected by the trial court and the Court of Appeals.
Indeed, cumbersome legal formalities are imposed to prevent fraud. As aptly
pointed out in El Hogar Filipino vs. Olviga, 60 Phil., 17, If the biased and interested
testimony of a grantor and the vague and uncertain testimony of his son are Wherefore, the appealed decision of the Court of Appeals is affirmed with costs
deemed sufficient to overcome a public instrument drawn up with all the against the Petitioners.
formalities prescribed by the law then there will have been established a very
dangerous doctrine which would throw wide open the doors to fraud.

PIONEER INSURANCE & SURETY CORPORATION, petitioner, vs.THE HON. COURT

OF APPEALS, BORDER MACHINERY & HEAVY EQUIPMENT, INC., (BORMAHECO),
The last question raised by the Petitioners is as follows:chanroblesvirtuallawlibrary CONSTANCIO M. MAGLANA and JACOB S. LIM, respondents.
Does only one of several partners of an unregistered commercial partnership
have authority, by himself alone, to execute a valid chattel mortgage over property
owned by the unregistered commercial partnership in order to guarantee a pre-
existing overdraft previously granted, without guaranty, by the bank? The subject matter of these consolidated petitions is the decision of the Court of
Appeals in CA-G.R. CV No. 66195 which modified the decision of the then Court of
First Instance of Manila in Civil Case No. 66135. The plaintiffs complaint (petitioner
in G.R. No. 84197) against all defendants (respondents in G.R. No. 84197) was
In view of the conclusion that Stasikinocey is a de facto partnership, and Da Costa dismissed but in all other respects the trial court's decision was affirmed.
appears as a co-manager in the letter of Gorcey to the Respondent and in the
promissory note executed by Da Costa, and that even the partners considered him
as such, as stated in the affidavit of April 21, 1948, to the effect that That we as
the majority partners hereby agree to appoint Louis da Costa co-managing partner The dispositive portion of the trial court's decision reads as follows:
of Alan W. Gorcey, duly approved managing partner of the said firm, the partner
who executed the chattel mortgage in question must be deemed to be so fully
authorized. Section 6 of the Chattel Mortgage Law provides that when a
WHEREFORE, judgment is rendered against defendant Jacob S. Lim requiring Lim to
partnership is a party to the mortgage, the affidavit may be made and subscribed
pay plaintiff the amount of P311,056.02, with interest at the rate of 12% per
by one member thereof. In this case the affidavit was executed and subscribed by
annum compounded monthly; plus 15% of the amount awarded to plaintiff as
Da Costa, not only as a partner but as a managing partner.
attorney's fees from July 2,1966, until full payment is made; plus P70,000.00 moral
and exemplary damages.

There is no merit in Petitioners pretense that the motor vehicles in question are
the common property of Da Costa and Gorcey. Petitioners invoke article 24 of the
It is found in the records that the cross party plaintiffs incurred additional
Code of Commerce in arguing that an unregistered commercial partnership has no
miscellaneous expenses aside from Pl51,000.00,,making a total of P184,878.74.
juridical personality and cannot execute any act that would adversely affect
Defendant Jacob S. Lim is further required to pay cross party plaintiff, Bormaheco,
innocent third persons. Petitioners forget that the Respondent is a third person
the Cervanteses one-half and Maglana the other half, the amount of Pl84,878.74
with respect to the partnership, and the chattel mortgage executed by Da Costa
with interest from the filing of the cross-complaints until the amount is fully paid;
cannot therefore be impugned by Gorcey on the ground that there is no
plus moral and exemplary damages in the amount of P184,878.84 with interest
partnership between them and that the vehicles in question belonged to them in
from the filing of the cross-complaints until the amount is fully paid; plus moral and
common. As a matter of fact, the Respondent and the Petitioners are all third
exemplary damages in the amount of P50,000.00 for each of the two Cervanteses.
persons as regards the partnership Stasikinocey; chan roblesvirtualawlibraryand
Furthermore, he is required to pay P20,000.00 to Bormaheco and the Cervanteses,
and another P20,000.00 to Constancio B. Maglana as attorney's fees.
xxx xxx xxx
WHEREFORE, in view of all above, the complaint of plaintiff Pioneer against
defendants Bormaheco, the Cervanteses and Constancio B. Maglana, is dismissed.
Instead, plaintiff is required to indemnify the defendants Bormaheco and the
Cervanteses the amount of P20,000.00 as attorney's fees and the amount of
P4,379.21, per year from 1966 with legal rate of interest up to the time it is paid.
Furthermore, the plaintiff is required to pay Constancio B. Maglana the amount of
P20,000.00 as attorney's fees and costs.
No moral or exemplary damages is awarded against plaintiff for this action was
filed in good faith. The fact that the properties of the Bormaheco and the
Cervanteses were attached and that they were required to file a counterbond in
order to dissolve the attachment, is not an act of bad faith. When a man tries to
protect his rights, he should not be saddled with moral or exemplary damages.
Furthermore, the rights exercised were provided for in the Rules of Court, and it
was the court that ordered it, in the exercise of its discretion.
No damage is decided against Malayan Insurance Company, Inc., the third-party
defendant, for it only secured the attachment prayed for by the plaintiff Pioneer. If
an insurance company would be liable for damages in performing an act which is
clearly within its power and which is the reason for its being, then nobody would
engage in the insurance business. No further claim or counter-claim for or against
anybody is declared by this Court. (Rollo - G.R. No. 24197, pp. 15-16)
In 1965, Jacob S. Lim (petitioner in G.R. No. 84157) was engaged in the airline
business as owner-operator of Southern Air Lines (SAL) a single proprietorship.
On May 17, 1965, at Tokyo, Japan, Japan Domestic Airlines (JDA) and Lim entered
into and executed a sales contract (Exhibit A) for the sale and purchase of two (2)
DC-3A Type aircrafts and one (1) set of necessary spare parts for the total agreed
price of US $109,000.00 to be paid in installments. One DC-3 Aircraft with Registry
No. PIC-718, arrived in Manila on June 7,1965 while the other aircraft, arrived in
Manila on July 18,1965.
On May 22, 1965, Pioneer Insurance and Surety Corporation (Pioneer, petitioner in
G.R. No. 84197) as surety executed and issued its Surety Bond No. 6639 (Exhibit C)
in favor of JDA, in behalf of its principal, Lim, for the balance price of the aircrafts
and spare parts.
It appears that Border Machinery and Heavy Equipment Company, Inc.
(Bormaheco), Francisco and Modesto Cervantes (Cervanteses) and Constancio
Maglana (respondents in both petitions) contributed some funds used in the
purchase of the above aircrafts and spare parts. The funds were supposed to be
their contributions to a new corporation proposed by Lim to expand his airline
business. They executed two (2) separate indemnity agreements (Exhibits D-1 and
D-2) in favor of Pioneer, one signed by Maglana and the other jointly signed by Lim
for SAL, Bormaheco and the Cervanteses. The indemnity agreements stipulated
that the indemnitors principally agree and bind themselves jointly and severally to
indemnify and hold and save harmless Pioneer from and against any/all damages,
losses, costs, damages, taxes, penalties, charges and expenses of whatever kind
and nature which Pioneer may incur in consequence of having become surety upon
the bond/note and to pay, reimburse and make good to Pioneer, its successors and
assigns, all sums and amounts of money which it or its representatives should or
may pay or cause to be paid or become liable to pay on them of whatever kind and
nature.
On June 10, 1965, Lim doing business under the name and style of SAL executed in
favor of Pioneer as deed of chattel mortgage as security for the latter's suretyship
in favor of the former. It was stipulated therein that Lim transfer and convey to the
surety the two aircrafts. The deed (Exhibit D) was duly registered with the Office of
the Register of Deeds of the City of Manila and with the Civil Aeronautics
Administration pursuant to the Chattel Mortgage Law and the Civil Aeronautics Law
(Republic Act No. 776), respectively.

Lim defaulted on his subsequent installment payments prompting JDA to request
payments from the surety. Pioneer paid a total sum of P298,626.12.
Pioneer then filed a petition for the extrajudicial foreclosure of the said chattel
mortgage before the Sheriff of Davao City. The Cervanteses and Maglana, however,
filed a third party claim alleging that they are co-owners of the aircrafts,
On July 19, 1966, Pioneer filed an action for judicial foreclosure with an application
for a writ of preliminary attachment against Lim and respondents, the Cervanteses,
Bormaheco and Maglana.
In their Answers, Maglana, Bormaheco and the Cervanteses filed cross-claims
against Lim alleging that they were not privies to the contracts signed by Lim and,
by way of counterclaim, sought for damages for being exposed to litigation and for
recovery of the sums of money they advanced to Lim for the purchase of the
aircrafts in question.
After trial on the merits, a decision was rendered holding Lim liable to pay Pioneer
but dismissed Pioneer's complaint against all other defendants.
As stated earlier, the appellate court modified the trial court's decision in that the
plaintiffs complaint against all the defendants was dismissed. In all other respects
the trial court's decision was affirmed.
We first resolve G.R. No. 84197.
Petitioner Pioneer Insurance and Surety Corporation avers that:
RESPONDENT COURT OF APPEALS GRIEVOUSLY ERRED WHEN IT DISMISSED THE
APPEAL OF PETITIONER ON THE SOLE GROUND THAT PETITIONER HAD ALREADY
COLLECTED THE PROCEEDS OF THE REINSURANCE ON ITS BOND IN FAVOR OF THE
JDA AND THAT IT CANNOT REPRESENT A REINSURER TO RECOVER THE AMOUNT
FROM HEREIN PRIVATE RESPONDENTS AS DEFENDANTS IN THE TRIAL COURT.
(Rollo - G. R. No. 84197, p. 10)
The petitioner questions the following findings of the appellate court:
We find no merit in plaintiffs appeal. It is undisputed that plaintiff Pioneer had
reinsured its risk of liability under the surety bond in favor of JDA and subsequently
collected the proceeds of such reinsurance in the sum of P295,000.00. Defendants'
alleged obligation to Pioneer amounts to P295,000.00, hence, plaintiffs instant
action for the recovery of the amount of P298,666.28 from defendants will no
longer prosper. Plaintiff Pioneer is not the real party in interest to institute the
instant action as it does not stand to be benefited or injured by the judgment.
Plaintiff Pioneer's contention that it is representing the reinsurer to recover the
amount from defendants, hence, it instituted the action is utterly devoid of merit.
Plaintiff did not even present any evidence that it is the attorney-in-fact of the
reinsurance company, authorized to institute an action for and in behalf of the
latter. To qualify a person to be a real party in interest in whose name an action
must be prosecuted, he must appear to be the present real owner of the right
sought to be enforced (Moran, Vol. I, Comments on the Rules of Court, 1979 ed., p.
155). It has been held that the real party in interest is the party who would be
benefited or injured by the judgment or the party entitled to the avails of the suit
(Salonga v. Warner Barnes & Co., Ltd., 88 Phil. 125, 131). By real party in interest is
meant a present substantial interest as distinguished from a mere expectancy or a
future, contingent, subordinate or consequential interest (Garcia v. David, 67 Phil.
27; Oglleaby v. Springfield Marine Bank, 52 N.E. 2d 1600, 385 III, 414; Flowers v.
Germans, 1 NW 2d 424; Weber v. City of Cheye, 97 P. 2d 667, 669, quoting 47 C.V.
35).
Based on the foregoing premises, plaintiff Pioneer cannot be considered as the real
party in interest as it has already been paid by the reinsurer the sum of
P295,000.00 the bulk of defendants' alleged obligation to Pioneer.
In addition to the said proceeds of the reinsurance received by plaintiff Pioneer
from its reinsurer, the former was able to foreclose extra-judicially one of the
subject airplanes and its spare engine, realizing the total amount of P37,050.00 2. If the answer to the preceding question is in the negative, has Pioneer still any
from the sale of the mortgaged chattels. Adding the sum of P37,050.00, to the claim against defendants, considering the amount it has realized from the sale of
proceeds of the reinsurance amounting to P295,000.00, it is patent that plaintiff the mortgaged properties? (Record on Appeal, p. 359, Annex B of G.R. No. 84157).
has been overpaid in the amount of P33,383.72 considering that the total amount
it had paid to JDA totals to only P298,666.28. To allow plaintiff Pioneer to recover
from defendants the amount in excess of P298,666.28 would be tantamount to
unjust enrichment as it has already been paid by the reinsurance company of the In resolving these issues, the trial court made the following findings:
amount plaintiff has paid to JDA as surety of defendant Lim vis-a-vis defendant
Lim's liability to JDA. Well settled is the rule that no person should unjustly enrich
himself at the expense of another (Article 22, New Civil Code). (Rollo-84197, pp. 24-
It appearing that Pioneer reinsured its risk of liability under the surety bond it had
25).
executed in favor of JDA, collected the proceeds of such reinsurance in the sum of
P295,000, and paid with the said amount the bulk of its alleged liability to JDA
under the said surety bond, it is plain that on this score it no longer has any right to
The petitioner contends that-(1) it is at a loss where respondent court based its collect to the extent of the said amount.
finding that petitioner was paid by its reinsurer in the aforesaid amount, as this
matter has never been raised by any of the parties herein both in their answers in
the court below and in their respective briefs with respondent court; (Rollo, p. 11)
On the question of why it is Pioneer, instead of the reinsurance (sic), that is suing
(2) even assuming hypothetically that it was paid by its reinsurer, still none of the
defendants for the amount paid to it by the reinsurers, notwithstanding that the
respondents had any interest in the matter since the reinsurance is strictly
cause of action pertains to the latter, Pioneer says: The reinsurers opted instead
between the petitioner and the re-insurer pursuant to section 91 of the Insurance
that the Pioneer Insurance & Surety Corporation shall pursue alone the case.. . . .
Code; (3) pursuant to the indemnity agreements, the petitioner is entitled to
Pioneer Insurance & Surety Corporation is representing the reinsurers to recover
recover from respondents Bormaheco and Maglana; and (4) the principle of unjust
the amount.' In other words, insofar as the amount paid to it by the reinsurers
enrichment is not applicable considering that whatever amount he would recover
Pioneer is suing defendants as their attorney-in-fact.
from the co-indemnitor will be paid to the reinsurer.

The records belie the petitioner's contention that the issue on the reinsurance
money was never raised by the parties.
A cursory reading of the trial court's lengthy decision shows that two of the issues
threshed out were:
But in the first place, there is not the slightest indication in the complaint that
Pioneer is suing as attorney-in- fact of the reinsurers for any amount. Lastly, and
most important of all, Pioneer has no right to institute and maintain in its own
name an action for the benefit of the reinsurers. It is well-settled that an action
brought by an attorney-in-fact in his own name instead of that of the principal will
not prosper, and this is so even where the name of the principal is disclosed in the
complaint.

xxx xxx xxx Section 2 of Rule 3 of the Old Rules of Court provides that 'Every action must be
prosecuted in the name of the real party in interest.' This provision is mandatory.
The real party in interest is the party who would be benefitted or injured by the
judgment or is the party entitled to the avails of the suit.
1. Has Pioneer a cause of action against defendants with respect to so much
of its obligations to JDA as has been paid with reinsurance money?
This Court has held in various cases that an attorney-in-fact is not a real party in
interest, that there is no law permitting an action to be brought by an attorney-in-
fact. Arroyo v. Granada and Gentero, 18 Phil. Rep. 484; Luchauco v. Limjuco and
Gonzalo, 19 Phil. Rep. 12; Filipinos Industrial Corporation v. San Diego G.R. No. L-
22347,1968, 23 SCRA 706, 710-714.
The total amount paid by Pioneer to JDA is P299,666.29. Since Pioneer has
collected P295,000.00 from the reinsurers, the uninsured portion of what it paid to
JDA is the difference between the two amounts, or P3,666.28. This is the amount
for which Pioneer may sue defendants, assuming that the indemnity agreement is
still valid and effective. But since the amount realized from the sale of the
mortgaged chattels are P35,000.00 for one of the airplanes and P2,050.00 for a
spare engine, or a total of P37,050.00, Pioneer is still overpaid by P33,383.72.
Therefore, Pioneer has no more claim against defendants. (Record on Appeal, pp.
360-363).
The payment to the petitioner made by the reinsurers was not disputed in the
appellate court. Considering this admitted payment, the only issue that cropped up
was the effect of payment made by the reinsurers to the petitioner. Therefore, the
petitioner's argument that the respondents had no interest in the reinsurance
contract as this is strictly between the petitioner as insured and the reinsuring
company pursuant to Section 91 (should be Section 98) of the Insurance Code has
no basis.
In general a reinsurer, on payment of a loss acquires the same rights by
subrogation as are acquired in similar cases where the original insurer pays a loss
(Universal Ins. Co. v. Old Time Molasses Co. C.C.A. La., 46 F 2nd 925).
The rules of practice in actions on original insurance policies are in general
applicable to actions or contracts of reinsurance. (Delaware, Ins. Co. v.
Pennsylvania Fire Ins. Co., 55 S.E. 330,126 GA. 380, 7 Ann. Con. 1134).
Hence the applicable law is Article 2207 of the new Civil Code, to wit:
Art. 2207. If the plaintiffs property has been insured, and he has received
indemnity from the insurance company for the injury or loss arising out of the
wrong or breach of contract complained of, the insurance company shall be
subrogated to the rights of the insured against the wrongdoer or the person who
has violated the contract. If the amount paid by the insurance company does not
fully cover the injury or loss, the aggrieved party shall be entitled to recover the
deficiency from the person causing the loss or injury.
Interpreting the aforesaid provision, we ruled in the case of Phil. Air Lines, Inc. v.
Heald Lumber Co. (101 Phil. 1031 [1957]) which we subsequently applied in Manila
Mahogany Manufacturing Corporation v. Court of Appeals (154 SCRA 650 [1987]):
Note that if a property is insured and the owner receives the indemnity from the
insurer, it is provided in said article that the insurer is deemed subrogated to the
rights of the insured against the wrongdoer and if the amount paid by the insurer
does not fully cover the loss, then the aggrieved party is the one entitled to recover
the deficiency. Evidently, under this legal provision, the real party in interest with
regard to the portion of the indemnity paid is the insurer and not the insured.
(Emphasis supplied).
It is clear from the records that Pioneer sued in its own name and not as an
attorney-in-fact of the reinsurer.
Accordingly, the appellate court did not commit a reversible error in dismissing the
petitioner's complaint as against the respondents for the reason that the petitioner
was not the real party in interest in the complaint and, therefore, has no cause of
action against the respondents.
Nevertheless, the petitioner argues that the appeal as regards the counter
indemnitors should not have been dismissed on the premise that the evidence on
record shows that it is entitled to recover from the counter indemnitors. It does
not, however, cite any grounds except its allegation that respondent "Maglanas
defense and evidence are certainly incredible" (p. 12, Rollo) to back up its
contention.
On the other hand, we find the trial court's findings on the matter replete with
evidence to substantiate its finding that the counter-indemnitors are not liable to
the petitioner. The trial court stated:
Apart from the foregoing proposition, the indemnity agreement ceased to be valid
and effective after the execution of the chattel mortgage.
Testimonies of defendants Francisco Cervantes and Modesto Cervantes.
Pioneer Insurance, knowing the value of the aircrafts and the spare parts involved,
agreed to issue the bond provided that the same would be mortgaged to it, but this
was not possible because the planes were still in Japan and could not be mortgaged
here in the Philippines. As soon as the aircrafts were brought to the Philippines,
they would be mortgaged to Pioneer Insurance to cover the bond, and this
indemnity agreement would be cancelled.
The following is averred under oath by Pioneer in the original complaint:
The various conflicting claims over the mortgaged properties have impaired and
rendered insufficient the security under the chattel mortgage and there is thus no
other sufficient security for the claim sought to be enforced by this action.
This is judicial admission and aside from the chattel mortgage there is no other
security for the claim sought to be enforced by this action, which necessarily means
that the indemnity agreement had ceased to have any force and effect at the time
this action was instituted. Sec 2, Rule 129, Revised Rules of Court.
Prescinding from the foregoing, Pioneer, having foreclosed the chattel mortgage on
the planes and spare parts, no longer has any further action against the defendants
as indemnitors to recover any unpaid balance of the price. The indemnity
agreement was ipso jure extinguished upon the foreclosure of the chattel
mortgage. These defendants, as indemnitors, would be entitled to be subrogated
to the right of Pioneer should they make payments to the latter. Articles 2067 and
2080 of the New Civil Code of the Philippines.
Independently of the preceding proposition Pioneer's election of the remedy of
foreclosure precludes any further action to recover any unpaid balance of the
price.
SAL or Lim, having failed to pay the second to the eight and last installments to JDA
and Pioneer as surety having made of the payments to JDA, the alternative
remedies open to Pioneer were as provided in Article 1484 of the New Civil Code,
known as the Recto Law.
Pioneer exercised the remedy of foreclosure of the chattel mortgage both by
extrajudicial foreclosure and the instant suit. Such being the case, as provided by
the aforementioned provisions, Pioneer shall have no further action against the
purchaser to recover any unpaid balance and any agreement to the contrary is
void.' Cruz, et al. v. Filipinas Investment & Finance Corp. No. L- 24772, May
27,1968, 23 SCRA 791, 795-6.
The operation of the foregoing provision cannot be escaped from through the
contention that Pioneer is not the vendor but JDA. The reason is that Pioneer is
actually exercising the rights of JDA as vendor, having subrogated it in such rights.
Nor may the application of the provision be validly opposed on the ground that
these defendants and defendant Maglana are not the vendee but indemnitors.
Pascual, et al. v. Universal Motors Corporation, G.R. No. L- 27862, Nov. 20,1974, 61
SCRA 124.
The restructuring of the obligations of SAL or Lim, thru the change of their maturity
dates discharged these defendants from any liability as alleged indemnitors. The
change of the maturity dates of the obligations of Lim, or SAL extinguish the
original obligations thru novations thus discharging the indemnitors.
The principal hereof shall be paid in eight equal successive three months interval
installments, the first of which shall be due and payable 25 August 1965, the
remainder of which ... shall be due and payable on the 26th day x x x of each
succeeding three months and the last of which shall be due and payable 26th May
1967. Manresa, 4th ed., Vol. 12, pp. 316-317, Vol. VI, pp. 562-563, M.F. Stevenson & Co.,
Ltd., v. Climacom et al. (C.A.) 36 O.G. 1571.

However, at the trial of this case, Pioneer produced a memorandum executed by

SAL or Lim and JDA, modifying the maturity dates of the obligations, as follows:
The principal hereof shall be paid in eight equal successive three month interval
installments the first of which shall be due and payable 4 September 1965, the
remainder of which ... shall be due and payable on the 4th day ... of each
succeeding months and the last of which shall be due and payable 4th June 1967.
Pioneer's liability as surety to JDA had already prescribed when Pioneer paid the
same. Consequently, Pioneer has no more cause of action to recover from these
defendants, as supposed indemnitors, what it has paid to JDA. By virtue of an
express stipulation in the surety bond, the failure of JDA to present its claim to
Pioneer within ten days from default of Lim or SAL on every installment, released
Pioneer from liability from the claim.

Therefore, Pioneer is not entitled to exact reimbursement from these defendants

thru the indemnity.
Not only that, Pioneer also produced eight purported promissory notes bearing
maturity dates different from that fixed in the aforesaid memorandum; the due
date of the first installment appears as October 15, 1965, and those of the rest of
the installments, the 15th of each succeeding three months, that of the last Art. 1318. Payment by a solidary debtor shall not entitle him to reimbursement
installment being July 15, 1967. from his co-debtors if such payment is made after the obligation has prescribed or
became illegal.

These restructuring of the obligations with regard to their maturity dates, effected
twice, were done without the knowledge, much less, would have it believed that These defendants are entitled to recover damages and attorney's fees from
these defendants Maglana (sic). Pioneer's official Numeriano Carbonel would have Pioneer and its surety by reason of the filing of the instant case against them and
it believed that these defendants and defendant Maglana knew of and consented the attachment and garnishment of their properties. The instant action is clearly
to the modification of the obligations. But if that were so, there would have been unfounded insofar as plaintiff drags these defendants and defendant Maglana.'
the corresponding documents in the form of a written notice to as well as written (Record on Appeal, pp. 363-369, Rollo of G.R. No. 84157).
conformity of these defendants, and there are no such document. The
consequence of this was the extinguishment of the obligations and of the surety
bond secured by the indemnity agreement which was thereby also extinguished.
Applicable by analogy are the rulings of the Supreme Court in the case of We find no cogent reason to reverse or modify these findings.
Kabankalan Sugar Co. v. Pacheco, 55 Phil. 553, 563, and the case of Asiatic
Petroleum Co. v. Hizon David, 45 Phil. 532, 538.
Hence, it is our conclusion that the petition in G.R. No. 84197 is not meritorious.

Art. 2079. An extension granted to the debtor by the creditor without the consent
of the guarantor extinguishes the guaranty The mere failure on the part of the
We now discuss the merits of G.R. No. 84157.
creditor to demand payment after the debt has become due does not of itself
constitute any extension time referred to herein, (New Civil Code).'
Petitioner Jacob S. Lim poses the following issues:
l. What legal rules govern the relationship among co-investors whose
agreement was to do business through the corporate vehicle but who failed to
incorporate the entity in which they had chosen to invest? How are the losses to be
treated in situations where their contributions to the intended 'corporation' were
invested not through the corporate form? This Petition presents these fundamental
questions which we believe were resolved erroneously by the Court of Appeals
('CA'). (Rollo, p. 6).
These questions are premised on the petitioner's theory that as a result of the
failure of respondents Bormaheco, Spouses Cervantes, Constancio Maglana and
petitioner Lim to incorporate, a de facto partnership among them was created, and
that as a consequence of such relationship all must share in the losses and/or gains
of the venture in proportion to their contribution. The petitioner, therefore,
questions the appellate court's findings ordering him to reimburse certain amounts
given by the respondents to the petitioner as their contributions to the intended
corporation, to wit:
However, defendant Lim should be held liable to pay his co-defendants' cross-
claims in the total amount of P184,878.74 as correctly found by the trial court, with
interest from the filing of the cross-complaints until the amount is fully paid.
Defendant Lim should pay one-half of the said amount to Bormaheco and the
Cervanteses and the other one-half to defendant Maglana. It is established in the
records that defendant Lim had duly received the amount of Pl51,000.00 from
defendants Bormaheco and Maglana representing the latter's participation in the
ownership of the subject airplanes and spare parts (Exhibit 58). In addition, the
cross-party plaintiffs incurred additional expenses, hence, the total sum of P
184,878.74.
We first state the principles.
While it has been held that as between themselves the rights of the stockholders in
a defectively incorporated association should be governed by the supposed charter
and the laws of the state relating thereto and not by the rules governing partners
(Cannon v. Brush Electric Co., 54 A. 121, 96 Md. 446, 94 Am. S.R. 584), it is
ordinarily held that persons who attempt, but fail, to form a corporation and who
carry on business under the corporate name occupy the position of partners inter
se (Lynch v. Perryman, 119 P. 229, 29 Okl. 615, Ann. Cas. 1913A 1065). Thus, where
persons associate themselves together under articles to purchase property to carry
on a business, and their organization is so defective as to come short of creating a
corporation within the statute, they become in legal effect partners inter se, and
their rights as members of the company to the property acquired by the company
will be recognized (Smith v. Schoodoc Pond Packing Co., 84 A. 268,109 Me. 555;
Whipple v. Parker, 29 Mich. 369). So, where certain persons associated themselves
as a corporation for the development of land for irrigation purposes, and each
conveyed land to the corporation, and two of them contracted to pay a third the
difference in the proportionate value of the land conveyed by him, and no stock
was ever issued in the corporation, it was treated as a trustee for the associates in
an action between them for an accounting, and its capital stock was treated as
partnership assets, sold, and the proceeds distributed among them in proportion to
the value of the property contributed by each (Shorb v. Beaudry, 56 Cal. 446).
However, such a relation does not necessarily exist, for ordinarily persons cannot
be made to assume the relation of partners, as between themselves, when their
purpose is that no partnership shall exist (London Assur. Corp. v. Drennen, Minn., 6
S.Ct. 442, 116 U.S. 461, 472, 29 L.Ed. 688), and it should be implied only when
necessary to do justice between the parties; thus, one who takes no part except to
subscribe for stock in a proposed corporation which is never legally formed does
not become a partner with other subscribers who engage in business under the
name of the pretended corporation, so as to be liable as such in an action for
settlement of the alleged partnership and contribution (Ward v. Brigham, 127
Mass. 24). A partnership relation between certain stockholders and other
stockholders, who were also directors, will not be implied in the absence of an
agreement, so as to make the former liable to contribute for payment of debts
illegally contracted by the latter (Heald v. Owen, 44 N.W. 210, 79 Iowa 23). (Corpus
Juris Secundum, Vol. 68, p. 464). (Italics supplied).
In the instant case, it is to be noted that the petitioner was declared non-suited for
his failure to appear during the pretrial despite notification. In his answer, the
petitioner denied having received any amount from respondents Bormaheco, the
Cervanteses and Maglana. The trial court and the appellate court, however, found
through Exhibit 58, that the petitioner received the amount of P151,000.00
representing the participation of Bormaheco and Atty. Constancio B. Maglana in
the ownership of the subject airplanes and spare parts. The record shows that
defendant Maglana gave P75,000.00 to petitioner Jacob Lim thru the Cervanteses.
It is therefore clear that the petitioner never had the intention to form a
corporation with the respondents despite his representations to them. This gives
credence to the cross-claims of the respondents to the effect that they were
induced and lured by the petitioner to make contributions to a proposed
corporation which was never formed because the petitioner reneged on their
agreement. Maglana alleged in his cross-claim:
... that sometime in early 1965, Jacob Lim proposed to Francisco Cervantes and
Maglana to expand his airline business. Lim was to procure two DC-3's from Japan
and secure the necessary certificates of public convenience and necessity as well as
the required permits for the operation thereof. Maglana sometime in May 1965,
gave Cervantes his share of P75,000.00 for delivery to Lim which Cervantes did and
Lim acknowledged receipt thereof. Cervantes, likewise, delivered his share of the
undertaking. Lim in an undertaking sometime on or about August 9,1965, promised
to incorporate his airline in accordance with their agreement and proceeded to
acquire the planes on his own account. Since then up to the filing of this answer,
Lim has refused, failed and still refuses to set up the corporation or return the
money of Maglana. (Record on Appeal, pp. 337-338).
while respondents Bormaheco and the Cervanteses alleged in their answer,
counterclaim, cross-claim and third party complaint:
Sometime in April 1965, defendant Lim lured and induced the answering
defendants to purchase two airplanes and spare parts from Japan which the latter
considered as their lawful contribution and participation in the proposed
corporation to be known as SAL. Arrangements and negotiations were undertaken
by defendant Lim. Down payments were advanced by defendants Bormaheco and
the Cervanteses and Constancio Maglana (Exh. E- 1). Contrary to the agreement
among the defendants, defendant Lim in connivance with the plaintiff, signed and
executed the alleged chattel mortgage and surety bond agreement in his personal
capacity as the alleged proprietor of the SAL. The answering defendants learned for
the first time of this trickery and misrepresentation of the other, Jacob Lim, when
the herein plaintiff chattel mortgage (sic) allegedly executed by defendant Lim,
thereby forcing them to file an adverse claim in the form of third party claim.
Notwithstanding repeated oral demands made by defendants Bormaheco and
Cervanteses, to defendant Lim, to surrender the possession of the two planes and
their accessories and or return the amount advanced by the former amounting to
an aggregate sum of P 178,997.14 as evidenced by a statement of accounts, the
latter ignored, omitted and refused to comply with them. (Record on Appeal, pp.
341-342).
Applying therefore the principles of law earlier cited to the facts of the case,
necessarily, no de facto partnership was created among the parties which would
entitle the petitioner to a reimbursement of the supposed losses of the proposed
corporation. The record shows that the petitioner was acting on his own and not in
behalf of his other would-be incorporators in transacting the sale of the airplanes
and spare parts.
WHEREFORE, the instant petitions are DISMISSED. The questioned decision of the
Court of Appeals is AFFIRMED.
SO ORDERED.
LA COMPAIA MARITIMA, plaintiff-appellant, vs.FRANCISCO MUOZ, ET AL.,
defendants-appellees.
The plaintiff brought this action in the Court of First Instance of Manila against the
partnership of Franciso Muoz & Sons, and against Francisco Muoz de Bustillo,
Emilio Muoz de Bustillo, and Rafael Naval to recover the sum of P26,828.30, with
interest and costs. Judgment was rendered in the court below acquitting Emilio
Muoz de Bustillo and Rafael Naval of the complaint, and in favor of the plaintiff
and against the defendant partnership, Francisco Muoz & Sons, and Francisco
Muoz de Bustillo form the sum of P26,828.30 with interest at the rate of 8 per
cent per annum from the 31st day of March, 1905, and costs. From this judgment
the plaintiff appealed.
On the 31st day of March, 1905, the defendants Francisco Muoz, Emilio Muoz,
and Rafael Naval formed on ordinary general mercantile partnership under the
name of Francisco Muoz & Sons for the purpose of carrying on the mercantile
business in the Province of Albay which had formerly been carried on by Francisco
Muoz. Francisco Muoz was a capitalist partner and Emilio Muoz and Rafael
Naval were industrial partners.

It is said in the decision of the court below that in the articles of partnership it was
called an ordinary, general mercantile partnership, but that from the article it does
not appear to be such a partnership. In the brief of the appellees it is also claimed
that it is not an ordinary, general commercial partnership. We see nothing in the
case to support either the statement of the court below in its decision or the claim
of the appellees in their brief. In the articles of partnership signed by the partners it
is expressly stated that they have agreed to form, and do form, an ordinary,
general mercantile partnership. The object of the partnership, as stated in the
fourth paragraph of the articles, is a purely mercantile one and all the requirements
of the Code of Commerce in reference to such partnership were complied with.
The articles of partnership were recorded in the mercantile registry in the Province
of Albay. If it should be held that the contract made in this case did not create an
ordinary, general mercantile partnership we do not see how one could be created.
The claim of the appellees that Emilio Muoz contributed nothing to the
partnership, either in property, money, or industry, can not be sustained. He
contributed as much as did the other industrial partner, Rafael Naval, the
difference between the two being that Rafael Naval was entitled by the articles of
agreement to a fixed salary of P2,500 as long as he was in charge of the branch
office established at Ligao. If he had left that branch office soon after the
partnership was organized, he would have been in the same condition then that
Emilio Muoz was from the beginning. Such a change would have deprived him of
the salary P2,500, but would not have affected in any way the partnership nor have
produced the effect of relieving him from liability as a partner. The argument of the
appellees seems to be that, because no yearly or monthly salary was assigned to
Emilio Muoz, he contributed nothing to the partnership and received nothing
from it. By the articles themselves he was to receive at the end of five years one-
eighth of the profits. It can not be said, therefore, that he received nothing from
the partnership. The fact that the receipt of this money was postponed for five
years is not important. If the contention of the appellees were sound, it would
result that, where the articles of partnership provided for a distribution of profits at
the end of each year, but did not assign any specific salary to an industrial partner
during that time, he would not be a member of the partnership. Industrial partners,
by signing the articles, agree to contribute their work to the partnership and article
138 of the Code of Commerce prohibits them from engaging in other work except
by the express consent of the partnership. With reference to civil partnerships,
section 1683 of the Civil Code relates to the same manner.
It is also said in the brief of the appellees that Emilio Muoz was entirely excluded
from the management of the business. It rather should be said that he excluded
himself from such management, for he signed the articles of partnership by the
terms of which the management was expressly conferred by him and the others
upon the persons therein named. That partners in their articles can do this, admits
of no doubt. Article 125 of the Code of Commerce requires them to state the
partners to whom the management is intrusted. This right is recognized also in
article 132. In the case of Reyes vs. The Compania Maritima (3 Phil. Rep., 519) the
articles of association provided that the directors for the first eight years should be
certain persons named therein. This court not only held that such provision was
valid but also held that those directors could not be removed from office during the
eight years, even by a majority vote of all the stockholders of the company.
Emilio Muoz was, therefore, a general partner, and the important question in the
case is whether, as such general partner, he is liable to third persons for the
obligations contracted by the partnership, or whether he relieved from such
liability, either because he is an industrial partner or because he was so relieved by
the express terms of the articles of partnership.
Paragraph 12 of the articles of partnership is as follows:
Twelfth. All profits arising from mercantile transactions carried on, as well as such
as may be obtained from the sale of property and other assets which constitute the
corporate capital, shall be distributed, on completion of the term of five years
agreed to for the continuation of the partnership, in the following manner: Three-
fourths thereof for the capitalist partner Francisco Muoz de Bustillo and one-
eighth thereof for the industrial partner Emilio Muoz de Bustillo y Carpiso, and the
remaining one-eighth thereof for the partner Rafael Naval y Garcia. If, in lieu of
profits, losses should result in the winding up of the partnership, the same shall be
for the sole and exclusive account of the capitalist partner Francisco Muoz de
Bustillo, without either of the two industrial partners participating in such losses.
Articles 140 and 141 of the Code of Commerce are as follows:
ART. 140. Should there not have been stated in the articles of copartnership the
portion of the profits to be received by each partner, said profits shall be divided
pro rata, in accordance with the interest each one has on the copartnership,
partners who have not contributed any capital, but giving their services, receiving
in the distribution the same amount as the partner who contributed the smallest
capital.
ART. 141. Losses shall be charged in the same proportion among the partners who
have contributed capital, without including those who have not, unless by special
agreement the latter have been constituted as participants therein.
A comparison of these articles with the twelfth paragraph above quoted will show
that the latter is simply a statement of the rule laid down in the former. The article
do not, therefore, change the rights of the industrial partners as they are declared
by the code, and the question may be reduced to the very simple one namely, Is an
industrial partner in an ordinary, general mercantile partnership liable to third
persons for the debts and obligations contracted by the partnership?
In limited partnership the Code of Commerce recognizes a difference between
general and special partners, but in a general partnership there is no such
distinction-- all the members are general partners. The fact that some may be
industrial and some capitalist partners does not make the members of either of
these classes alone such general partners. There is nothing in the code which says
that the industrial partners shall be the only general partners, nor is there anything
which says that the capitalist partners shall be the only general partners.
Article 127 of the Code of Commerce is as follows:
All the members of the general copartnership, be they or be they not managing
partners of the same, are liable personally and in solidum with all their property for
the results of the transactions made in the name and for the account of the
partnership, under the signature of the latter, and by a person authorized to make
use thereof.
Do the words "all the partners" found in this article include industrial partners? The
same expression is found in other articles of the code. In article 129 it is said that, if
the management of the partnership has not been limited by special act to one of
the partners, all shall have the right to participate in the management. Does this
mean that the capitalist partners are the only ones who have that right, or does it
include also industrial partners? Article 132 provides that, when in the articles of
partnership the management has been intrusted to a particular person, he can not
be deprived of such management, but that in certain cases the remaining partners
may appoint a comanager. Does the phrase "remaining partners" include industrial
partners, or is it limited to capitalist partners, and do industrial partners have no
right to participate in the selection of the comanager? Article 133 provides that all
the partners shall have the right to examine the books of the partnership. Under
this article are the capitalist partners the only ones who have such right? Article
135 provides that the partners can not use the firm name in their private business.
Does this limitation apply only to capitalist partners or does it extend also to
industrial partners? Article 222 provides that a general partnership shall be dissolve
by the death of one of the general partners unless it is otherwise provided in the
articles. Would such a partnership continue if all the industrial partners should die?
Article 229 provides that upon a dissolution of a general partnership it shall be
liquidated by the former managers, but, if all the partners do not agree to this, a
general meeting shall be called, which shall determine to whom the settlement of
the affairs shall be intrusted. Does this phrase "all the partners" include industrial
partners, or are the capitalist partners the only ones who have a voice in the
selection of a manager during a period of liquidation? Article 237 provides that the
private property of the general partners shall not be taken in payment of the
obligations of the partnership until its property has been exhausted. Does the
phrase "the general partners" include industrial partners?
In all of these articles the industrial partners must be included. It can not have been
intended that, in such a partnership as the one in question, where there were two
industrial and only one capitalist partner, the industrial partners should have no
voice in the management of the business when the articles of partnership were
silent on that subject; that when the manager appointed mismanages the business
the industrial partners should have no right to appoint a comanager; that they
should have no right to examine the books; that they might use the firm name in
their private business; or that they have no voice in the liquidation of the business
after dissolution. To give a person who contributed no more than, say, P500, these
rights and to take them away from a person who contributed his services, worth,
perhaps, infinitely more than P500, would be discriminate unfairly against
industrial partners.
If the phrase "all the partners" as found in the articles other than article 127
includes industrial partners, then article 127 must include them and they are liable
by the terms thereof for the debts of the firm.
But it is said that article 141 expressly declares to the contrary. It is to be noticed in
the first place that this article does not say that they shall not be liable for losses.
Article 140 declares how the profits shall be divided among the partners. This
article simply declares how the losses shall be divided among the partners. The use
of the words se imputaran is significant. The verb means abonar una partida a
alguno en su cuenta o deducirla de su debito. Article 141 says nothing about third
persons and nothing about the obligations of the partnership.
While in this section the word "losses" stand's alone, yet in other articles of the
code, where it is clearly intended to impose the liability to third persons, it is not
considered sufficient, but the word "obligations" is added. Thus article 148, in
speaking of the liability of limited partners, uses the phrase las obligaciones y
perdidas. There is the same use of the two same words in article 153, relating to
anonymous partnership. In article 237 the word "obligations" is used and not the
word "losses."
The claim of the appellees is that this article 141 fixes the liability of the industrial
partners to third persons for the obligations of the company. If it does, then it also
fixes the liability of the capitalist partners to the same persons for the same
obligations. If this article says that industrial partners are not liable for the debts of
the concern, it also says that the capitalist partners shall be only liable for such
debts in proportion to the amount of the money which they have contributed to
the partnership; that is to say, that if there are only two capitalist partners, one of
whom has contributed two-thirds of the capital and the other one-third, the latter
is liable to a creditor of the company for only one-third of the debt and the former
for only two-thirds. It is apparent that, when given this construction, article 141 is
directly in conflict with article 127. It is not disputed by the appellees that by the
terms of article 127 each one of the capitalist partners is liable for all of the debts,
regardless of the amount of his contribution, but the construction which they put
upon article 141 makes such capitalist partners liable for only a proportionate part
of the debts.
There is no injustice in imposing this liability upon the industrial partners. They
have a voice in the management of the business, if no manager has been named in
the articles; they share in the profits and as to third persons it is no more than right
that they should share in the obligations. It is admitted that if in this case there had
been a capitalist partner who had contributed only P100 he would be liable for this
entire debt of P26,000.
Our construction of the article is that it relates exclusively to the settlement of the
partnership affairs among the partners themselves and has nothing to do with the
liability of the partners to third persons; that each one of the industrial partners is
liable to third persons for the debts of the firm; that if he has paid such debts out of
his private property during the life of the partnership, when its affairs are settled
he is entitled to credit for the amount so paid, and if it results that there is not
enough property in the partnership to pay him, then the capitalist partners must
pay him. In this particular case that view is strengthened by the provisions of article
12, above quoted. There it is stated that if, when the affairs of the partnership are
liquidated that is, at the end of five years it turns out that there had been
losses instead of gains, then the capitalist partner, Francisco Muoz, shall pay such
losses that is, pay them to the industrial partners if they have been compelled to
disburse their own money in payment of the debts of the partnership.
While this is a commercial partnership and must be governed therefore by the
rules of the Code of Commerce, yet an examination of the provisions of the Civil
Code in reference to partnerships may throw some light upon the question here to
be resolved. Articles 1689 and 1691 contain, in substance, the provisions of articles
140 and 141 of the Code of Commerce. It is to be noticed that these articles are
found in section 1 of Chapter II [Title VIII] of Book IV. That section treats of the
obligations of the partners between themselves. The liability of the partners as to
third persons is treated in a distinct section, namely, section 2, comprising articles
from 1697 to 1699.
If industrial partners in commercial partnerships are not responsible to third
persons for the debts of the firm, then industrial partners in civil partnerships are
not. Waiving the question as to whether there can be a commercial partnership
composed entirely of industrial partners, it seems clear that there can be such civil
partnership, for article 1678 of the Civil Code provides as follows:
A particular partnership has for its object specified things only, their use of profits,
or a specified undertaking, or the exercise of a profession or art.
It might very easily happen, therefor, that a civil partnership could be composed
entirely of industrial partners. If it were, according to the claim of the appellees,
there would be no personal responsibility whatever for the debts of the
partnership. Creditors could rely only upon the property which the partnership
had, which in the case of a partnership organized for the practice of any art or
profession would be practically nothing. In the case of Agustin vs. Inocencio, 1 just
decided by this court, it was alleged in the complaint, and admitted by the answer
That is partnership has been formed without articles of association or capital other
than the personal work of each one of the partners, whose profits are to be equally
divided among themselves.
Article 1675 of the Civil Code is as follows:
General partnership of profits include all that the partners may acquire by their by
their industry or work during the continuation of the partnership.
Personal or real property which each of the partners may possess at the time of the
celebration of the agreement shall continue to be their private property, the
usufruct only passing to the partnership.
It might very well happen in partnership of this kind that no one of the partners
would have any private property and that if they did the usufruct thereof would be
inconsiderable.
Having in mind these different cases which may arise in the practice, that
construction of the law should be avoided which would enable two persons, each
with a large amount of private property, to form and carry on a partnership and,
upon the bankruptcy of the latter, to say to its creditors that they contributed no
capital to the company but only their services, and that their private property is
not, therefore, liable for its debts.
But little light is thrown upon this question by the authorities. No judgment of the
supreme court of Spain has been called to our attention, and we have been able to
find none which refers in any way to this question. There is, therefore, no authority
from the tribunal for saying that an industrial partner is not liable to third persons
for the debts of the partnership.
In a work published by Lorenzo Benito in 1889 (Lecciones de derecho mercantil) it
is said that industrial partners are not liable for debts. The author, at page 127,
divides general partnership into ordinary and irregular. The irregular partnership
are those which include one or more industrial partners. It may be said in passing
that his views can not apply to this case because the articles of partnership directly
state that it is an ordinary partnership and do not state that it is an irregular one.
But his view of the law seems to be derived from something other than the Code of
Commerce now in force. He says:
. . . but it has not been very fortunate in sketching the characters of a regular
collective partnership (since it says nothing conclusive in reference to the irregular
partnership) . . . . (p. 127.)
And again:
This article would not need to be commented upon were it not because the writer
entirely overlooked the fact that there might exist industrial partners who did not
contribute with capital in money, credits, or goods, which partners generally
participate in the profits but not in the losses, and whose position must also be
determined in the articles of copartnership. (p. 128.)
And again: lawphil.net
The only defect that can be pointed out in this article is the fact that it has been
forgotten that in collective partnerships there are industrial partners who, not
being jointly liable for the obligations of the copartnership, should not include their
names in that of the firm. (p. 129.)
As a logical result of his theory he says that an industrial partner has no right to
participate in the administration of the partnership and that his name can not
appear in the firm name. In this last respect his view is opposed to that of Manresa,
who says (Commentaries on the Spanish Civil Code, vol. 11, p. 330):
It only remains to us to state that a partner who contributes his industry to the
concern can also confer upon it the name or the corporate name under which such
industry should be carried on. In this case, so long as the copartnership lasts, it can
enjoy the credit, reputation, and name or corporate name under which such
industry is carried on; but upon dissolution thereof the aforesaid name or
corporate name pertains to the partner who contributed the same, and he alone is
entitled to use it, because such a name or style is an accessory to the work of
industrial partner, and upon recovering his work or his industry he also recovers his
name or the style under which he exercised his activity. It has thus been decided by
the French court of cassation in a decision dated June 6, 1859.
In speaking of limited partnerships Benito says (p. 144) that here are found two
kinds of partners, one with unlimited responsibility and the other with limited
responsibility, but adopting his view as to industrial partners, it should be said that
there are three kinds of partners, one with unlimited responsibility, another with
limited responsibility, and the third, the industrial partner, with no responsibility at
all. In Estasen's recent publication on mercantile partnerships (Tratado de las
Sociedades Mercantiles) he quotes from the work of Benito, but we do not
understand that he commits himself to the doctrines therein laid down. In fact, in
his former treatise, Instituciones de Derecho Mercantil (vol. 3, pp. 1-99), we find
nothing which recognizes the existence of these irregular general partnerships, or
the exemption from the liability to third persons of the industrial partners. He says
in his latter work (p. 186) that according to Dr. Benito the irregular general partner
originated from the desire of the partnership to associate with itself some old clerk
or employee as a reward for his services and the interest which he had shown in
the affairs of the partnership, giving him in place of a fixed salary a proportionate
part of the profits of the business. Article 269 of the Code of Commerce of 1829
relates to this subject and apparently provides that such partners shall not be liable
for debts. If this article was the basis for Dr. Benito's view, it can be so no longer,
for it does not appear in the present code. We held in the case of Fortis vs. Gutirrez
Hermanos (6 Phil. Rep., 100) that a mere agreement of that kind does not make the
employee a partner.
An examination of the works of Manresa and Sanchez Roman on the Civil Code,
and of Blanco's Mercantile Law, will shows that no one of these mentions in any
way the irregular general partnership spoken of by Dr. Benito, nor is there anything
found in any one of these commentaries which in any way indicates that an
industrial partner is not liable to third persons for the debts of the partnership. An
examination of the French law will also show that no distinction of that kind is
therein anywhere made and nothing can be found therein which indicates that the
industrial partners are not liable for the debts of the partnership. (Fuzier-Herman,
Repertoire de Droit Francais, vol. 34, pp. 256, 361, 510, and 512.)
Our conclusion is upon this branch of the case that neither on principle nor on
authority can the industrial partner be relieved from liability to third persons for
the debts of the partnership.
It is apparently claimed by the appellee in his brief that one action can not be
maintained against the partnership and the individual partners, this claim being
based upon the provisions of article 237 of the Code of Commerce which provides
that the private property of the partners shall not be taken until the partnership
property has been exhausted. But this article furnishes to argument in support of
the appellee's claim. An action can be maintained against the partnership and
partners, but the judgment should recognize the rights of the individual partners
which are secured by said article 237.lawphil.net
The judgment of the court below is reversed and judgment is ordered against all of
the defendants for the sum of P26,828.30, with interest thereon at the rate of 8
per cent per annum since the 31st day of March, 1905, and for the cost of this
action. Execution of such judgment shall not issue against the private property of
the defendants Francisco Muoz, Emilio Muoz, or Rafael Naval until the property
of the defendant Francisco Muoz & Sons is exhausted. No costs will be allowed to
their party in this court. So ordered.
Torres, Johnson and Tracey, JJ., concur.
 alleged that under the partnership agreement the parties were to contribute
equipments, plaintiff contributing the generator and the defendant, the wires for
MAURO LOZANA, plaintiff-appellee, vs.SERAFIN DEPAKAKIBO, defendant- the purpose of installing the main and delivery lines; that the plaintiff sold his
appellant. contribution to the partnership, in violation of the terms of their agreement. He,
therefore, prayed that the complaint against him be dismissed; that plaintiff be
This is an appeal from a judgment of the Court of First Instance of Iloilo, certified to adjudged guilty of violating the partnership contract and be ordered to pay the
us by the Court of Appeals, for the reason that only questions of law are involved in defendant the sum of P3,000, as actual damages, P600.00 as attorney's fees and
said appeal. P2,600 annually as actual damages; that the court order dissolution of the
partnership, after the accounting and liquidation of the same.
The record discloses that on November 16, 1954 plaintiff Mauro Lozana entered
into a contract with defendant Serafin Depakakibo wherein they established a
partnership capitalized at the sum of P30,000, plaintiff furnishing 60% thereof and
the defendant, 40%, for the purpose of maintaining, operating and distributing On September 27, 1956, the defendant filed a motion to declare plaintiff in default
electric light and power in the Municipality of Dumangas, Province of Iloilo, under a on his counterclaim, but this was denied by the court. Hearings on the case were
franchise issued to Mrs. Piadosa Buenaflor. However, the franchise or certificate of conducted on October 25, 1956 and November 5, 1956, and on the latter date the
public necessity and convenience in favor of the said Mrs. Piadosa Buenaflor was judge entered a decision declaring plaintiff owner of the equipment and entitled to
cancelled and revoked by the Public Service Commission on May 15, 1955. But the the possession thereof, with costs against defendant. It is against this judgment
decision of the Public Service Commission was appealed to Us on October 21, 1955. that the defendant has appealed.
A temporary certificate of public convenience was issued in the name of Olimpia D.
Decolongon on December 22, 1955 (Exh. "B"). Evidently because of the cancellation
of the franchise in the name of Mrs. Piadosa Buenaflor, plaintiff herein Mauro
Lozana sold a generator, Buda (diesel), 75 hp. 30 KVA capacity, Serial No. 479, to The above judgment of the court was rendered on a stipulation of facts, which is as
the new grantee Olimpia D. Decolongon, by a deed dated October 30, 1955 (Exhibit follows:
"C"). Defendant Serafin Depakakibo, on the other hand, sold one Crossly Diesel
Engine, 25 h. p., Serial No. 141758, to the spouses Felix Jimenea and Felina Harder,
by a deed dated July 10, 1956.
1. That on November 16, 1954, in the City of Iloilo, the aforementioned plaintiff,
and the defendant entered into a contract of Partnership, a copy of which is
attached as Annex "A" of defendant's answer and counterclaim, for the purpose set
On November 15, 1955, plaintiff Mauro Lozana brought an action against the forth therein and under the national franchise granted to Mrs. Piadosa Buenaflor;
defendant, alleging that he is the owner of the Generator Buda (Diesel), valued at
P8,000 and 70 wooden posts with the wires connecting the generator to the
different houses supplied by electric current in the Municipality of Dumangas, and
that he is entitled to the possession thereof, but that the defendant has wrongfully 2. That according to the aforementioned Partnership Contract, the plaintiff Mr.
detained them as a consequence of which plaintiff suffered damages. Plaintiff Mauro Lozana, contributed the amount of Eighteen Thousand Pesos (P18,000.00);
prayed that said properties be delivered back to him. Three days after the filing of said contributions of both parties being the appraised values of their respective
the complaint, that is on November 18, 1955, Judge Pantaleon A. Pelayo issued an properties brought into the partnership;
order in said case authorizing the sheriff to take possession of the generator and 70
wooden posts, upon plaintiff's filing of a bond in the amount of P16,000 in favor of
the defendant (for subsequent delivery to the plaintiff). On December 5, 1955,
3. That the said Certificate of Public Convenience and Necessity was revoked and
defendant filed an answer, denying that the generator and the equipment
cancelled by order of the Public Service Commission dated March 15, 1955,
mentioned in the complaint belong to the plaintiff and alleging that the same had
promulgated in case No. 58188, entitled, "Piadosa Buenaflor, applicant", which
been contributed by the plaintiff to the partnership entered into between them in
order has been appealed to the Supreme Court by Mrs. Buenaflor;
the same manner that defendant had contributed equipments also, and therefore
that he is not unlawfully detaining them. By way of counterclaim, defendant
4. That on October 30, 1955, the plaintiff sold properties brought into by him to the
said partnership in favor of Olimpia Decolongon in the amount of P10,000.00 as per
Deed of Sale dated October 30, 1955 executed and ratified before Notary Public,
Delfin Demaisip, in and for the Municipality of Dumangas, Iloilo and entered in his
Notarial Registry as Doc. No. 832; Page No. 6; Book No. XIII; and Series of 1955, a
copy thereof is made as Annex "B" of defendant's answer and counterclaim;
5. That there was no liquidation of partnership and that at the time of said Sale on
October 30, 1955, defendant was the manager thereof;
6. That by virtue of the Order of this Honorable Court dated November 18, 1955,
those properties sold were taken by the Provincial Sheriff on November 20, 1955
and delivered to the plaintiff on November 25, 1955 upon the latter posting the
required bond executed by himself and the Luzon Surety Co., dated November 17,
1955 and ratified before the Notary Public, Eleuterio del Rosario in and for the
province of Iloilo known as Doc. No. 200; Page 90; Book No. VII; and Series of 1955;
of said Notary Public;
7. That the said properties sold are now in the possession of Olimpia Decolongon,
the purchaser, who is presently operating an electric light plant in Dumangas, Iloilo;
8. That the defendant sold certain properties in favor of the spouses, Felix Jimenea
and Felisa Harder contributed by him to the partnership for P3,500.00 as per Deed
of Sale executed and ratified before the Notary Public Rodrigo J. Harder in and for
the Province of Iloilo, known as Doc. No. 76; Page 94; Book No. V; and Series of
1955, a certified copy of which is hereto attached marked as Annex "A", and made
an integral part hereof; (pp, 27-29 ROA).
As it appears from the above stipulation of facts that the plaintiff and the
defendant entered into the contract of partnership, plaintiff contributing the
amount of P18,000, and as it is not stated therein that there bas been a liquidation
of the partnership assets at the time plaintiff sold the Buda Diesel Engine on
October 15, 1955, and since the court below had found that the plaintiff had
actually contributed one engine and 70 posts to the partnership, it necessarily
follows that the Buda diesel engine contributed by the plaintiff had become the
property of the partnership. As properties of the partnership, the same could not
be disposed of by the party contributing the same without the consent or approval
of the partnership or of the other partner. (Clemente vs. Galvan, 67 Phil., 565).
The lower court declared that the contract of partnership was null and void,
because by the contract of partnership, the parties thereto have become dummies
of the owner of the franchise. The reason for this holding was the admission by
defendant when being cross-examined by the court that he and the plaintiff are
dummies. We find that this admission by the defendant is an error of law, not a
statement of a fact. The Anti-Dummy law has not been violated as parties plaintiff
and defendant are not aliens but Filipinos. The Anti-Dummy law refers to aliens
only (Commonwealth Act 108 as amended).
Upon examining the contract of partnership, especially the provision thereon
wherein the parties agreed to maintain, operate and distribute electric light and
power under the franchise belonging to Mrs. Buenaflor, we do not find the
agreement to be illegal, or contrary to law and public policy such as to make the
contract of partnership, null and void ab initio. The agreement could have been
submitted to the Public Service Commission if the rules of the latter require them
to be so presented. But the fact of furnishing the current to the holder of the
franchise alone, without the previous approval of the Public Service Commission,
does not per se make the contract of partnership null and void from the beginning
and render the partnership entered into by the parties for the purpose also void
and non-existent. Under the circumstances, therefore, the court erred in declaring
that the contract was illegal from the beginning and that parties to the partnership
are not bound therefor, such that the contribution of the plaintiff to the
partnership did not pass to it as its property. It also follows that the claim of the
defendant in his counterclaim that the partnership be dissolved and its assets
liquidated is the proper remedy, not for each contributing partner to claim back
what he had contributed.
For the foregoing considerations, the judgment appealed from as well as the order
of the court for the taking of the property into custody by the sheriff must be, as
they hereby are set aside and the case remanded to the court below for further
proceedings in accordance with law.
MAXIMILIANO SANCHO, plaintiff-appellant, vs.SEVERIANO LIZARRAGA,
defendant-appellee.
The plaintiff brought an action for the rescission of a partnership contract between
himself and the defendant, entered into on October 15, 1920, the reimbursement
by the latter of his 50,000 peso investment therein, with interest at 12 per cent per
annum form October 15, 1920, with costs, and any other just and equitable remedy
against said defendant.
The defendant denies generally and specifically all the allegations of the complaint
which are incompatible with his special defenses, cross-complaint and
counterclaim, setting up the latter and asking for the dissolution of the partnership,
and the payment to him as its manager and administrator of P500 monthly from
October 15, 1920, until the final dissolution, with interest, one-half of said amount
to be charged to the plaintiff. He also prays for any other just and equitable
remedy.
The Court of First Instance of Manila, having heard the cause, and finding it duly
proved that the defendant had not contributed all the capital he had bound himself
to invest, and that the plaintiff had demanded that the defendant liquidate the
partnership, declared it dissolved on account of the expiration of the period for
which it was constituted, and ordered the defendant, as managing partner, to
proceed without delay to liquidate it, submitting to the court the result of the
liquidation together with the accounts and vouchers within the period of thirty
days from receipt of notice of said judgment, without costs.
The plaintiff appealed from said decision making the following assignments of
error:
1. In holding that the plaintiff and appellant is not entitled to the rescission of the
partnership contract, Exhibit A, and that article 1124 of the Civil Code is not
applicable to the present case.
2. In failing to order the defendant to return the sum of P50,000 to the plaintiff
with interest from October 15, 1920, until fully paid.
3. In denying the motion for a new trial.
In the brief filed by counsel for the appellee, a preliminary question is raised
purporting to show that this appeal is premature and therefore will not lie. The
point is based on the contention that inasmuch as the liquidation ordered by the
trial court, and the consequent accounts, have not been made and submitted, the
case cannot be deemed terminated in said court and its ruling is not yet
appealable. In support of this contention counsel cites section 123 of the Code of
Civil Procedure, and the decision of this court in the case of Natividad vs. Villarica
(31 Phil., 172).
This contention is well founded. Until the accounts have been rendered as ordered
by the trial court, and until they have been either approved or disapproved, the
litigation involved in this action cannot be considered as completely decided; and,
as it was held in said case of Natividad vs .Villarica, also with reference to an appeal
taken from a decision ordering the rendition of accounts following the dissolution
of partnership, the appeal in the instant case must be deemed premature.
But even going into the merits of the case, the affirmation of the judgment
appealed from is inevitable. In view of the lower court's findings referred to above,
which we cannot revise because the parol evidence has not been forwarded to this
court, articles 1681 and 1682 of the Civil Code have been properly applied. Owing
to the defendant's failure to pay to the partnership the whole amount which he
bound himself to pay, he became indebted to it for the remainder, with interest
and any damages occasioned thereby, but the plaintiff did not thereby acquire the
right to demand rescission of the partnership contract according to article 1124 of
the Code. This article cannot be applied to the case in question, because it refers to
the resolution of obligations in general, whereas article 1681 and 1682 specifically
refer to the contract of partnership in particular. And it is a well known principle
that special provisions prevail over general provisions.
By virtue of the foregoing, this appeal is hereby dismissed, leaving the decision
appealed from in full force, without special pronouncement of costs. So ordered.
WILLIAM UY, plaintiff-appellee,
vs.
BARTOLOME PUZON, substituted by FRANCO PUZON, defendant-appellant.
R.P. Sarandi for appellant.
Jose L. Uy & Andres P. Salvador for appellee.
CONCEPCION JR., J.:t.hqw to the partnership; and the balance of P60,000.00 as Puzon's personal loan to the
Appeal from the decision of the Court of First Instanre of Manila, dissolving the
"U.P. Construction Company" and ordering the defendant Bartolome Puzon to pay
the plaintiff the amounts of: (1) P115,102.13, with legal interest thereon from the
date of the filing of the complaint until fully paid; (2) P200,000.00, as plaintiffs
share in the unrealized profits of the "U.P. Construction Company" and (3)
P5,000.00, as and for attorney's fees.
It is of record that the defendant Bartolome Puzon had a contract with the Republic
of the Philippines for the construction of the Ganyangan Bato Section of the
Pagadian Zamboanga City Road, province of Zamboanga del Sur 1 and of five (5)
bridges in the Malangas-Ganyangan Road. 2 Finding difficulty in accomplishing both
projects, Bartolome Puzon sought the financial assistance of the plaintiff, William
Uy. As an inducement, Puzon proposed the creation of a partnership between
them which would be the sub-contractor of the projects and the profits to be
divided equally between them. William Uy inspected the projects in question and,
expecting to derive considerable profits therefrom, agreed to the proposition, thus
resulting in the formation of the "U.P. Construction Company" 3 which was
subsequently engaged as subcontractor of the construction projects. 4
The partners agreed that the capital of the partnership would be P100,000.00 of
which each partner shall contribute the amount of P50,000.00 in cash. 5 But, as
heretofore stated, Puzon was short of cash and he promised to contribute his share
in the partnership capital as soon as his application for a loan with the Philippine
National Bank in the amount of P150,000.00 shall have been approved. However,
before his loan application could be acted upon, he had to clear his collaterals of its
incumbrances first. For this purpose, on October 24, 1956, Wilham Uy gave
Bartolome Puzon the amount of P10,000.00 as advance contribution of his share in
the partnership to be organized between them under the firm name U.P.
CONSTRUCTION COMPANY which amount mentioned above will be used by Puzon
to pay his obligations with the Philippine National Bank to effect the release of his
mortgages with the said Bank. 6 On October 29, 1956, William Uy again gave Puzon
the amount of P30,000.00 as his partial contribution to the proposed partnership
and which the said Puzon was to use in payment of his obligation to the
Rehabilitation Finance Corporation. 7 Puzon promised William Uy that the amount
of P150,000.00 would be given to the partnership to be applied thusly: P40,000.00,
as reimbursement of the capital contribution of William Uy which the said Uy had
advanced to clear the title of Puzon's property; P50,000.00, as Puzon's contribution
partnership. 8
Although the partnership agreement was signed by the parties on January 18,
1957,9 work on the projects was started by the partnership on October 1, 1956 in
view of the insistence of the Bureau of Public Highways to complete the project
right away. 10 Since Puzon was busy with his other projects, William Uy was
entrusted with the management of the projects and whatever expense the latter
might incur, would be considered as part of his contribution. 11 At the end of
December, 1957, William Uy had contributed to the partnership the amount of
P115,453.39, including his capital. 12
The loan of Puzon was approved by the Philippine National Bank in November,
1956 and he gave to William Uy the amount of P60,000.00. Of this amount,
P40,000.00 was for the reimbursement of Uy's contribution to the partnership
which was used to clear the title to Puzon's property, and the P20,000.00 as
Puzon's contribution to the partnership capital. 13
To guarantee the repayment of the above-mentioned loan, Bartolome Puzon,
without the knowledge and consent of William Uy, 14 assigned to the Philippine
National Bank all the payments to be received on account of the contracts with the
Bureau of Public Highways for the construction of the afore-mentioned projects. 15
By virtue of said assignment, the Bureau of Public Highways paid the money due on
the partial accomplishments on the government projects in question to the
Philippine National Bank which, in turn, applied portions of it in payment of Puzon's
loan. Of the amount of P1,047,181.07, released by the Bureau of Public Highways
in payment of the partial work completed by the partnership on the projects, the Answering, Bartolome Puzon denied that he violated the terms of their agreement
amount of P332,539.60 was applied in payment of Puzon's loan and only the claiming that it was the plaintiff, William Uy, who violated the terms thereof. He,
amount of P27,820.80 was deposited in the partnership funds, 16 which, for all likewise, prayed for the dissolution of the partnership and for the payment by the
practical purposes, was also under Puzon's account since Puzon was the custodian plaintiff of his, share in the losses suffered by the partnership.
of the common funds.

As time passed and the financial demands of the projects increased, William Uy,
who supervised the said projects, found difficulty in obtaining the necessary funds
with which to pursue the construction projects. William Uy correspondingly called
on Bartolome Puzon to comply with his obligations under the terms of their
partnership agreement and to place, at lest, his capital contribution at the disposal
of the partnership. Despite several promises, Puzon, however, failed to do so. 17
Realizing that his verbal demands were to no avail, William Uy consequently wrote
Bartolome Puzon pormal letters of demand, 18 to which Puzon replied that he is
unable to put in additional capital to continue with the projects. 19
After appropriate proceedings, the trial court found that the defendant, contrary to
the terms of their partnership agreement, failed to contribute his share in the
capital of the partnership applied partnership funds to his personal use; ousted the
plaintiff from the management of the firm, and caused the failure of the
partnership to realize the expected profits of at least P400,000.00. As a
consequence, the trial court dismissed the defendant's counterclaim and ordered
the dissolution of the partnership. The trial court further ordered the defendant to
pay the plaintiff the sum of P320,103.13.

Hence, the instant appeal by the defendant Bartolome Puzon during the pendency
of the appeal before this Court, the said Bartolome Puzon died, and was
Failing to reach an agreement with William Uy, Bartolome Puzon, as prime substituted by Franco Puzon.
contractor of the construction projects, wrote the subcontractor, U.P. Construction
Company, on November 20, 1957, advising the partnership, of which he is also a
partner, that unless they presented an immediate solution and capacity to
prosecute the work effectively, he would be constrained to consider the sub- The appellant makes in his brief nineteen (19) assignment of errors, involving
contract terminated and, thereafter, to assume all responsibilities in the questions of fact, which relates to the following points:
construction of the projects in accordance with his original contract with the
Bureau of Public Highways. 20 On November 27, 1957, Bartolome Puzon again
wrote the U.P.Construction Company finally terminating their subcontract
(1) That the appellant is not guilty of breach of contract; and
agreement as of December 1, 1957. 21

(2) That the amounts of money the appellant has been order to pay the
Thereafter, William Uy was not allowed to hold office in the U.P. Construction
appellee is not supported by the evidence and the law.
Company and his authority to deal with the Bureau of Public Highways in behalf of
the partnership was revoked by Bartolome Puzon who continued with the
construction projects alone. 22
After going over the record, we find no reason for rejecting the findings of fact
below, justifying the reversal of the decision appealed from.
On May 20, 1958, William Uy, claiming that Bartolome Puzon had violated the
terms of their partnership agreement, instituted an action in court, seeking, inter
alia, the dissolution of the partnership and payment of damages.
The findings of the trial court that the appellant failed to contribute his share in the
capital of the partnership is clear incontrovertible. The record shows that after the
appellant's loan the amount of P150,000.00 was approved by the Philippin National
Bank in November, 1956, he gave the amount P60,000.00 to the appellee who was
then managing the construction projects. Of this amount, P40,000.00 was to be
applied a reimbursement of the appellee's contribution to the partnership which
was used to clear the title to the appellant's property, and th balance of
P20,000.00, as Puzon's contribution to the partnership. 23 Thereafter, the
appellant failed to make any further contributions the partnership funds as shown
in his letters to the appellee wherein he confessed his inability to put in additional
capital to continue with the projects. 24
Parenthetically, the claim of the appellant that the appellee is equally guilty of not
contributing his share in the partnership capital inasmuch as the amount of
P40,000.00, allegedly given to him in October, 1956 as partial contribution of the
appellee is merely a personal loan of the appellant which he had paid to the
appellee, is plainly untenable. The terms of the receipts signed by the appellant are
clear and unequivocal that the sums of money given by the appellee are appellee's
partial contributions to the partnership capital. Thus, in the receipt for P10,000.00
dated October 24, 1956, 25 the appellant stated:+.wph!1
Received from Mr. William Uy the sum of TEN THOUSAND PESOS (P10,000.00) in
Check No. SC 423285 Equitable Banking Corporation, dated October 24, 1956, as
advance contribution of the share of said William Uy in the partnership to be
organized between us under the firm name U.P. CONSTRUCTION COMPANY which
amount mentioned above will be used by the undersigned to pay his obligations
with the Philippine National Bank to effect the release of his mortgages with the
said bank. (Emphasis supplied)
In the receipt for the amount of P30,000.00 dated October 29, 1956, 26 the
appellant also said:+.wph!1
Received from William Uy the sum of THIRTY THOUSAND PESOS (P30,000.00) in
Check No. SC423287, of the Equitable Banking Corporation, as partial contribution
of the share of the said William Uy to the U.P. CONSTRUCTION COMPANY for which
the undersigned will use the said amount in payment of his obligation to the
Rehabilitation Finance Corporation. (Emphasis supplied)
The findings of the trial court that the appellant misapplied partnership funds is,
likewise, sustained by competent evidence. It is of record that the appellant
assigned to the Philippine National Bank all the payments to be received on
account of the contracts with the Bureau of Public Highways for the construction of
the aforementioned projects to guarantee the repayment of the bank. 27 By virtue
of the said appeflant's personal loan with the said bank assignment, the Bureau of
Public Highways paid the money due on the partial accomplishments on the
construction projects in question to the Philippine National Bank who, in turn,
applied portions of it in payment of the appellant's loan. 28
The appellant claims, however, that the said assignment was made with the
consent of the appellee and that the assignment not prejudice the partnership as it
was reimbursed by the appellant.
But, the appellee categorically stated that the assignment to the Philippine
National Bank was made without his prior knowledge and consent and that when
he learned of said assignment, he cal the attention of the appellant who assured
him that the assignment was only temporary as he would transfer the loan to the
Rehabilitation Finance Corporation within three (3) months time. 29
The question of whom to believe being a matter large dependent on the trier's
discretion, the findings of the trial court who had the better opportunity to
examine and appraise the fact issue, certainly deserve respect.
That the assignment to the Philippine National Bank prejudicial to the partnership
cannot be denied. The record show that during the period from March, 1957 to
September, 1959, the appellant Bartolome Puzon received from the Bureau of
Public highways, in payment of the work accomplished on the construction
projects, the amount of P1,047,181.01, which amount rightfully and legally belongs
to the partnership by virtue of the subcontract agreements between the appellant
and the U.P. Construction Company. In view of the assignemt made by Puzon to
the Philippine National Bank, the latter withheld and applied the amount of
P332,539,60 in payment of the appellant's personal loan with the said bank. The
balance was deposited in Puzon's current account and only the amount of
P27,820.80 was deposited in the current account of the partnership. 30 For sure, if
the appellant gave to the partnership all that were eamed and due it under the
subcontract agreements, the money would have been used as a safe reserve for
the discharge of all obligations of the firm and the partnership would have been
able to successfully and profitably prosecute the projects it subcontracted.
When did the appellant make the reimbursement claimed by him?
For the same period, the appellant actually disbursed for the partnership, in
connection with the construction projects, the amount of P952,839.77. 31 Since
the appellant received from the Bureau of Public Highways the sum of
P1,047,181.01, the appellant has a deficit balance of P94,342.24. The appellant,
therefore, did not make complete restitution.
The findings of the trial court that the appellee has been ousted from the
management of the partnership is also based upon persuasive evidence. The
appellee testified that after he had demanded from the appellant payment of the
latter's contribution to the partnership capital, the said appellant did not allow him
to hold office in the U.P. Construction Company and his authority to deal with the
Bureau of Public Highways was revoked by the appellant. 32
As the record stands, We cannot say, therefore, that the decis of the trial court is
not sustained by the evidence of record as warrant its reverw.
Since the defendantappellant was at fauh, the tral court properly ordered him to
reimburse the plaintiff-appellee whatever amount latter had invested in or spent
for the partnership on account of construction projects.
How much did the appellee spend in the construction projects question?
It appears that although the partnership agreement stated the capital of the
partnership is P100,000.00 of which each part shall contribute to the partnership
the amount of P50,000.00 cash 33 the partners of the U.P. Construction Company
did contribute their agreed share in the capitalization of the enterprise in lump
sums of P50,000.00 each. Aside from the initial amount P40,000.00 put up by the
appellee in October, 1956, 34 the partners' investments took, the form of cash
advances coveting expenses of the construction projects as they were incurred.
Since the determination of the amount of the disbursements which each of them
had made for the construction projects require an examination of the books of
account, the trial court appointed two commissioners, designated by the parties,
"to examine the books of account of the defendant regarding the U.P. Construction
Company and his personal account with particular reference to the Public Works
contract for the construction of the Ganyangan-Bato Section, Pagadian-Zamboanga
City Road and five (5) Bridges in Malangas-Ganyangan Road, including the
payments received by defendant from the Bureau of Public Highways by virtue of
the two projects above mentioned, the disbursements or disposition made by
defendant of the portion thereof released to him by the Philippine National Bank
and in whose account these funds are deposited . 35
In due time, the loners so appointed, 36 submitted their report 37 they indicated
the items wherein they are in agreement, as well as their points of disagreement.
In the commissioners' report, the appellant's advances are listed under Credits; the
money received from the firm, under Debits; and the resulting monthly investment
standings of the partners, under Balances. The commissioners are agreed that at
the end of December, 1957, the appellee had a balance of P8,242.39. 38 It is in
their respective adjustments of the capital account of the appellee that the
commissioners had disagreed.
Mr. Ablaza, designated by the appellant, would want to charge the appellee with
the sum of P24,239.48, representing the checks isssued by the appellant, 39 and
encashed by the appellee or his brother, Uy Han so that the appellee would owe
the partnership the amount of P15,997.09.
Mr. Tayag, designated by the appellee, upon the other hand, would credit the
appellee the following additional amounts:
(1) P7,497.80 items omitted from the books of partnership but recognized
and charged to Miscellaneous Expenses by Mr. Ablaza;
 The explanation of Mr. Tayag on the inclusion of the amount of P65,103.77 is
likewise clear and convincing. 43
(2) P65,103.77 payrolls paid by the appellee in the amount P128,103.77
less payroll remittances from the appellant in amount of P63,000.00; and

(3) P26,027.04 other expeses incurred by the appellee at construction site.
With respect to the amount of P24,239.48, claimed by appellant, we are hereunder
adopting the findings of the trial which we find to be in accord with the evidence:
As for the sum of of P26,027.04, the same represents the expenses which the
appelle paid in connection withe the projects and not entered in the books of the
partnership since all vouchers and receipts were sent to the Manila office which
were under the control of the appellant. However, officer which were under the
control of the appellant. However, a list of these expenses are incorporated in
Exhibits ZZ, ZZ-1 to ZZ-4.

In resume', the appelllee's credit balance would be as follows:

To enhance defendant's theory that he should be credited P24,239.48, he Undisputed balance as of Dec. 1967
presented checks allegedly given to plaintiff and the latter's brother, Uy Han,
marked as Exhibits 2 to 11. However, defendant admitted that said cheeks were
not entered nor record their books of account, as expenses for and in behalf of
partnership or its affairs. On the other hand, Uy Han testified that of the cheeks he Add: Items omitted from the books but
received were exchange for cash, while other used in the purchase of spare parts
requisitioned by defendant. This testimony was not refuted to the satisfaction of
the Court, considering that Han's explanation thereof is the more plausible because
if they were employed in the prosecution of the partners projects, the P 8,242.
corresponding disbursements would have certainly been recorded in its books,
which is not the case. Taking into account defendant is the custodian of the books recognized and charged to Miscellaneous
of account, his failure to so enter therein the alleged disbursements, accentuates
the falsity of his claim on this point. 40
Expenses by Mr. Ablaza

Besides, as further noted by the trial court, the report Commissioner Ablaza is 7,497.80
unreliable in view of his proclivity to favor the appellant and because of the
Add: Payrolls paid by the appellee
inaccurate accounting procedure adopted by him in auditing the books of account
of the partnership unlike Mr. Tayag's report which inspires faith and credence. 41
P128,103.77

As explained by Mr. Tayag, the amount of P7,497.80 represen expenses paid by the
Less: Payroll remittances received
appellee out of his personal funds which not been entered in the books of the
partnership but which been recognized and conceded to by the auditor designated 63,000.00
by the appellant who included the said amount under Expenses. 42
65,103.77

Add: Other expenses incurred at the

 lower court, in making its determination, did not take into consideration the great
risks involved in business operations involving as it does the completion of the
projects within a definite period of time, in the face of adverse and often
unpredictable circumstances, as well as the fact that the appellee, who was in
charge of the projects in the field, contributed in a large measure to the failure of
the partnership to realize such profits by his field management.

This argument must be overruled in the light of the law and evidence on the
matter. Under Article 2200 of the Civil Code, indemnification for damages shall
comprehend not only the value of the loss suffered, but also that of the profits
site (Exhs, ZZ, ZZ-1 to ZZ-4) which the obligee failed to obtain. In other words lucrum cessans is also a basis for
indemnification.
26,027.04
Has the appellee failed to make profits because of appellant's breach of contract?
TOTAL
There is no doubt that the contracting business is a profitable one and that the U.P.
P106,871.00
Construction Company derived some profits from' co io oa ects its sub ntracts in
the construction of the road and bridges projects its deficient working capital and
At the trial, the appellee presented a claim for the amounts of P3,917.39 and
the juggling of its funds by the appellant.
P4,665.00 which he also advanced for the construction projects but which were not
included in the Commissioner's Report. 44
Contrary to the appellant's claim, the partnership showed some profits during the
period from July 2, 1956 to December 31, 1957. If the Profit and Loss Statement 45
Appellee's total investments in the partnership would, therefore, be:
showed a net loss of P134,019.43, this was primarily due to the confusing
Appellee's total credits accounting method employed by the auditor who intermixed h and accthe cas
ruamethod of accounting and the erroneous inclusion of certain items, like
P106,871.00 personal expenses of the appellant and afteged extraordinary losses due to an
accidental plane crash, in the operating expenses of the partnership, Corrected, the
Add: unrecorded balances for the month of Dec. 1957 (Exhs. KKK, KK-1 to KKK_19, Profit and Loss Statement would indicate a net profit of P41,611.28.
KKK-22)
For the period from January 1, 1958 to September 30, 1959, the partnership
3,917,39 admittedly made a net profit of P52,943.89. 46

Add: Payments to Munoz, as subcontractor of five,(5) Bridges (p. 264 tsn; Exhs.
KKK-20, KKK-21)
4,665.00
Total Investments
Pl 15,453.39
Regarding the award of P200,000.00 as his share in the unrealized profits of the
partnership, the appellant contends that the findings of the trial court that the
amount of P400,000.00 as reasonable profits of the partnership venture is without
any basis and is not supported by the evidence. The appemnt maintains that the
Besides, as We have heretofore pointed out, the appellant received from the
Bureau of Public Highways, in payment of the zonstruction projects in question, the
amount of P1,047,181.01 47 and disbursed the amount of P952,839.77, 48 leaving
an unaccounted balance of P94,342.24. Obviously, this amount is also part of the
profits of the partnership.
During the trial of this case, it was discovered that the appellant had money and
credits receivable froin the projects in question, in the custody of the Bureau of
Public Highways, in the amount of P128,669.75, representing the 10% retention of
said projects.49 After the trial of this case, it was shown that the total retentions
Wucted from the appemnt amounted to P145,358.00. 50 Surely, these retained
amounts also form part of the profits of the partnership.
Had the appellant not been remiss in his obligations as partner and as prime
contractor of the construction projects in question as he was bound to perform
pursuant to the partnership and subcontract agreements, and considering the fact
that the total contract amount of these two projects is P2,327,335.76, it is
reasonable to expect that the partnership would have earned much more than the
P334,255.61 We have hereinabove indicated. The award, therefore, made by the
trial court of the amount of P200,000.00, as compensatory damages, is not
speculative, but based on reasonable estimate.
WHEREFORE, finding no error in the decision appealed from, the said decision is
hereby affirmed with costs against the appellant, it being understood that the
liability mentioned herein shall be home by the estate of the deceased Bartolome
Puzon, represented in this instance by the administrator thereof, Franco Puzon.
SO ORDERED.
THE UNITED STATES, plaintiff-appellee, vs.EUSEBIO CLARIN, defendant-appellant.
Pedro Larin delivered to Pedro Tarug P172, in order that the latter, in company
with Eusebio Clarin and Carlos de Guzman, might buy and sell mangoes, and,
believing that he could make some money in this business, the said Larin made an
agreement with the three men by which the profits were to be divided equally
between him and them.
Pedro Tarug, Eusebio Clarin, and Carlos de Guzman did in fact trade in mangoes
and obtained P203 from the business, but did not comply with the terms of the
contract by delivering to Larin his half of the profits; neither did they render him
any account of the capital.
Larin charged them with the crime of estafa, but the provincial fiscal filed an
information only against Eusebio Clarin in which he accused him of appropriating to
himself not only the P172 but also the share of the profits that belonged to Larin,
amounting to P15.50.
Pedro Tarug and Carlos de Guzman appeared in the case as witnesses and assumed
that the facts presented concerned the defendant and themselves together.
The trial court, that of First Instance of Pampanga, sentenced the defendant,
Eusebio Clarin, to six months' arresto mayor, to suffer the accessory penalties, and
to return to Pedro Larin P172, besides P30.50 as his share of the profits, or to
subsidiary imprisonment in case of insolvency, and to pay the costs. The defendant
appealed, and in deciding his appeal we arrive at the following conclusions:
When two or more persons bind themselves to contribute money, property, or
industry to a common fund, with the intention of dividing the profits among
themselves, a contract is formed which is called partnership. (Art. 1665, Civil Code.)
When Larin put the P172 into the partnership which he formed with Tarug, Clarin,
and Guzman, he invested his capital in the risks or benefits of the business of the
purchase and sale of mangoes, and, even though he had reserved the capital and
conveyed only the usufruct of his money, it would not devolve upon of his three
partners to return his capital to him, but upon the partnership of which he himself
formed part, or if it were to be done by one of the three specifically, it would be
Tarug, who, according to the evidence, was the person who received the money
directly from Larin.
The P172 having been received by the partnership, the business commenced and
profits accrued, the action that lies with the partner who furnished the capital for
the recovery of his money is not a criminal action for estafa, but a civil one arising
from the partnership contract for a liquidation of the partnership and a levy on its
assets if there should be any.
No. 5 of article 535 of the Penal Code, according to which those are guilty of estafa
"who, to the prejudice of another, shall appropriate or misapply any money, goods,
or any kind of personal property which they may have received as a deposit on
commission for administration or in any other character producing the obligation
to deliver or return the same," (as, for example, in commodatum, precarium, and
other unilateral contracts which require the return of the same thing received)
does not include money received for a partnership; otherwise the result would be
that, if the partnership, instead of obtaining profits, suffered losses, as it could not
be held liable civilly for the share of the capitalist partner who reserved the
ownership of the money brought in by him, it would have to answer to the charge
of estafa, for which it would be sufficient to argue that the partnership had
received the money under obligation to return it.
We therefore freely acquit Eusebio Clarin, with the costs de oficio. The complaint
for estafa is dismissed without prejudice to the institution of a civil action.
PEOPLE OF THE PHILIPPINES, plaintiff-appellee, vs. ALEJANDRO CAMPOS y
ARMADO, RENATO DE LA CRUZ y BORAC, accused.RENATO DE LA CRUZ y BORAC,
accused-appellant.
The case is an appeal from the decision[1] of the Regional Trial Court, Caloocan
City, Branch 124, convicting Alejandro Campos y Armado and Renato dela Cruz y
Borac of robbery with homicide with frustrated homicide[2], and sentencing each
of them to reclusion perpetua and to indemnify jointly and severally Felipa Jacobe
in the amount of P30,000.00 for burial expenses of Mercelina Alfaro Jacobe, the
amount of P60,000.00 for hospital expenses of Felicidad Alfaro, and the amount of
P10,000.00 representing the amount stolen from the victims, and to pay the costs.
On August 18, 1989, Assistant City Fiscal Bartolome G. Viola, Jr. filed with the
Regional Trial Court, Caloocan City, an information charging Alejandro Campos y
Armado and Renato dela Cruz y Borac with robbery with homicide, committed as
follows:
"That on or about the 17th day of August 1989, in Kalookan City, Metro-Manila and
within the jurisdiction of this Honorable Court, the above-named accused,
conspiring together and mutually helping one another, with intent to gain and by
means of force, violence and intimidation employed on the person of one
MERCELINA ALFARO DE JACOBE, did then and there, willfully, unlawfully and
feloniously take, rob and carry away cash money amounting to P10,000.00
belonging to said complainant, to the damage and prejudice of the latter in the
aforestated amount of P10,000.00; that on the occasion of the said robbery and for
the purpose of enabling them to take, rob and carry away the said amount of
P10,000.00, the herein accused in pursuance of their conspiracy did then and there
willfully, unlawfully and feloniously with intent to kill the victim, attack and stab on
the different vital parts of the body, thereby inflicting upon said MERCELINA
ALFARO DE JACOBE, serious physical injuries, which directly caused her death; and
also with deliberate intent to kill, did then and there willfully, unlawfully and
feloniously attack, assault and stab with a bladed instrument on the vital parts of
the body one FELICIDAD ALFARO y CRUZ, thus, performing all the acts of execution
which would have produced the crime of Homicide as a consequence, but which
nevertheless did not produce it by reason of causes independent of the will of the
herein accused, that is due to the timely, able and efficient medical attendance
rendered the victim at the Quezon City General Hospital, which prevented the
victim's death.
"CONTRARY TO LAW.[3]
On August 29, 1989, at the arraignment, both accused pleaded not guilty.[4]
Felicidad Alfaro and Mercelina Alfaro Jacobe resided inside Maxim's Mini Mart at
Cefel's Park Subdivision, Tala, Novaliches, Caloocan City. Beside the mini mart was
Cefel's General Merchandise, a hardware store owned by Felipa Jacobe, the
mother-in-law of Mercelina Alfaro Jacobe.
On August 16, 1989, at around 10:00 in the evening, Felicidad and Mercelina
prepared to sleep. Their bedroom and the kitchen were located inside the mini
mart. Felicidad turned off all lights in the store except the kitchen light. Mercelina
laid on the bed with her two-year old son, Christopher, while Felicidad laid on the
floor beside them.
At around midnight, Felicidad roused from her sleep and stood up. Suddenly,
someone stabbed her on her left arm. She started to shout as her assailant
continued to stab her. She was hit on her abdomen, left arm, and left side. She fell
to the floor in a sitting position and she looked at the person who stabbed her. She
recognized accused Alejandro Campos, who worked at the neighboring gravel and
sand area and frequented their store to buy gas. She also noticed accused Renato
dela Cruz standing near the door of the room. She knew accused dela Cruz because
they used to work together in the Cefel's General Merchandise Store, a hardware
store adjacent to the mini-mart.
Suddenly, accused Campos moved towards Mercelina and started stabbing her.
Mercelina, still lying on the bed, woke up and shouted for help. Accused Campos
kept stabbing her.
Thereafter, the two accused left hurriedly, exiting through the storeroom of the
minimart.
At around midnight of August 17, 1989, Barangay Captain Federico Hallig was
inside the Barangay Hall at Malaria, Tala, Caloocan City together with Barangay
Tanods Romulo Meglares, Jesus Sienda, Marcos Manalo and Maximo Baylon.
Suddenly, they saw a man running outside the barangay hall with blood on his
chest and on his short pants. The man was holding a kitchen knife about eleven
inches long. After questioning the man, who identified himself as Alejandro
Campos, the barangay officials brought him to the police station.
Meanwhile, Felicidad, though wounded, managed to call for help from her mother-
in-law, Felipa Jacobe, who resided beside the store. Felicidad was brought to Tala
Hospital but was later transferred to Quezon City General Hospital. Mercelina was
taken to Tala Hospital. She was pronounced dead on arrival.
Dr. Amancio Angustia of the Quezon City General Hospital found that Felicidad
Alfaro had several stab wounds on the chest and a fractured left arm.[5] Two teams
of surgeons immediately operated on Felicidad, thereby saving her life.
Dr. Dario Gajardo of the medico-legal unit of the Philippine Constabulary Crime
Laboratory conducted an autopsy on the body of Mercelina Alfaro Jacobo.[6] He
found eight stab wounds on different parts of the body of the deceased. He also
found internal injuries in the heart, right lung, liver, stomach and the diaphragm.
The cause of death was cardio-respiratory arrest due to shock and hemorrhage
secondary to multiple stab wounds.
On August 17, 1989, Felicidad, still in her hospital bed, asked her father, Ramon
Alfaro, to look for a bag containing money, amounting to ten thousand
(P10,000.00) pesos, from the store. Ramon Alfaro went to the store and found the
bag on the floor, empty.[7]
That afternoon, policemen brought accused dela Cruz and accused Campos to
Felicidad. Felicidad identified accused Campos and accused dela Cruz as the
persons who entered the room in the early morning of August 17, 1989 and
stabbed her and her sister.
Accused Alejandro Campos denied any participation in the stabbing incident. He
testified that at that time, he was at home in Malaria, Ilang-Ilang Street, Tala,
Caloocan City.
Upon further questioning, accused Alejandro Campos admitted that he went to the
mini-mart on the evening of August 16, 1989, at the call of accused Renato dela
Cruz. Accused Campos claimed that he stayed outside the store when accused dela
Cruz entered the minimart. Moments later, accused Campos heard shouts of
women inside and saw accused dela Cruz emerge from the store. Accused dela
Cruz entrusted a knife into the hands of accused Campos and told him to keep it.
Accused Campos walked away from the store, holding the knife. He failed to notice
that the knife was bloodied. Later, barangay officials intercepted him and brought
him to police headquarters for questioning.
Accused Renato dela Cruz, driver and caretaker of the hardware store owned by
Felipa Jacobe, denied any involvement in the crime. He alleged that Alejandro
Campos implicated him in this serious crime because the latter was envious that he
was receiving a higher salary than the other employees of Felipa Jacobe.[8] He
claimed that at around 9:00 in the evening of August 16, 1989, he was at his
residence, 40 meters away from the minimart, on the night in question.[9] He
played several games of Russian poker or pusoy with his friends until 11:00 in the
evening when his wife told him to go to sleep. At around 1:00 in the morning, his
wife woke him up because somebody was calling him outside their house. When
accused dela Cruz opened the door, he saw several policemen who told him that
Mrs. Felipa Jacobe wanted to see him. He went with the policemen but later
realized that he was being taken to the police station. There, the policemen
informed him that something happened to Mercelina and Felicidad Alfaro. Accused
dela Cruz stated that he knew nothing about the incident. Later, policemen took
him to the hospital where Felicidad Alfaro was lying unconscious. Accused dela
Cruz saw Patrolman Antonio Paras attempting to talk to Felicidad. Later, accused
dela Cruz and the policemen left the hospital. Accused dela Cruz did not see
Felicidad point to him as one of the suspects. It was only Pat. Antonio Paras who
told him that Felicidad identified him as one of the suspects.
On October 24, 1990, the trial court rendered a decision, the dispositive portion of
which states:
"WHEREFORE, in view of the foregoing, this Court finds the accused Alejandro
Campos y Armado and Renato dela Cruz y Borac guilty beyond reasonable doubt of
Robbery with Homicide with Frustrated Homicide as charged and hereby sentences
each accused to suffer imprisonment of RECLUSION PERPETUA. Both accused are
also directed to indemnify jointly and severally Felipa Jacobe the amount of
P30,000.00 for shouldering the burial and miscellaneous expenses of Mercelina
Alfaro Jacobe, the amount of P60,000.00 for shouldering the hospitalization,
operation and the purchase of medicine in the treatment of Felicidad Alfaro and to
jointly and severally indemnify the heirs of Mercelina Alfaro Jacobe the amount of
P10,000.00 which was stolen from Mercelina Alfaro. Both accused are also directed
to pay the costs.
"Both of the accused shall be entitled to be credited with the full period of their
preventive imprisonment pursuant to Art. 29 of the Revised Penal Code provided
the requirements listed therein have been complied with.
"SO ORDERED.
"Promulgated in open court on this 24th day of October 1990 at Kalookan City,
Metro Manila.
"(sgd.) RENE VICTORIANO
Judge"[10]
Only accused Renato dela Cruz appealed the decision to the Supreme Court.[11]
Accused-appellant Renato dela Cruz contended that the trial court erred in
convicting him because his participation in the crime was not clearly established.
The prosecution witness failed to see anyone taking the contents of the bag
containing the store earnings. The prosecution also failed to prove conspiracy
between the two accused in the stabbing incident.
In order to be convicted of robbery with homicide, four (4) elements are necessary:
(a) the taking of personal property with the use of violence or intimidation against
the person; (b) the property taken belongs to another; (c) the taking is
characterized by intent to gain or animus lucrandi; and, (d) on the occasion of the
robbery or by reason thereof the crime of homicide was committed.[12]
We find insufficient evidence to show that accused-appellant dela Cruz was guilty
of the first three elements of robbery with homicide. In robbery with homicide
cases, the robbery itself must be proved as conclusively as any other essential
element of the crime.[13] Robbery is the taking of personal property belonging to
another, with intent to gain, by means of violence against or intimidation of any
person or by using force upon things.[14] In this case, all that the witness Felicidad
saw that night was the stabbing of her sister, not the taking of personal property.
The taking cannot be assumed from the actions of accused-appellant as seen by
Felicidad. She saw him at the doorway and then noticed him running out the store
after the stabbing occurred. Felicidad claimed that the bag purportedly containing
money was recovered empty the next day. However, it was undisputed that various
persons had entered the store of the victims after the incident, including
investigators and onlookers. The bag was not conclusively shown to contain money
nor was the money ever recovered. Further, there was no substantial link from the
loss of the contents of the bag to the accused, for the money was never seen in the
possession of the accused.
Thus, accused may not be held liable for robbery.
Regarding the stabbing involving Felicidad and Mercelina, the testimony of one of
the victims, namely, Felicidad, who survived the stabbing, becomes crucial.
Felicidad categorically stated that accused Campos stabbed her and her sister. "The
most natural reaction of victims of violence is to strive to look at the appearance of
the perpetrators of the crime and observe the manner in which the crime is being
committed."[15] Even as she fell to the floor, Felicidad endeavored to see the
identity of her assailant. She saw accused Campos as he stabbed her at close range
and watched as he moved on to stab her sister.
However, accused-appellant dela Cruz alleged that the prosecution witness failed
to establish his actual participation in the stabbing of Felicidad and Mercelina, as
well as his overt acts that tended to show his conspiracy with accused Campos. We
agree.
Undoubtedly, accused-appellant did not stab Felicidad and Mercelina. Considering
the scant evidence showing conspiracy and accused-appellant's involvement in the
stabbing incident, accused-appellant can not be convicted of the crime charged. It
is axiomatic that the accused is accorded in his favor the disputable presumption of
innocence.[24] Unless the guilt of the accused is proven beyond reasonable doubt,
the constitutional presumption of innocence applies.[25]
WHEREFORE, the Court REVERSES the decision of the Regional Trial Court,
Caloocan City, Branch 124, convicting accused-appellant Renato dela Cruz y Borac
of robbery with homicide. Accused-appellant Renato dela Cruz is hereby
ACQUITTED on reasonable doubt and is ordered released immediately from
confinement unless he is held for another case.
Costs de oficio.

Conspiracy exists when two or more persons come to an agreement concerning the The Director, Bureau of Corrections, shall implement this decision and report to the
commission of a felony and decide to commit it.[16] Direct proof is not essential to Court the action taken hereon within ten (10) days from notice hereof.
prove conspiracy; however, the evidence to prove the same must be positive and
convincing.[17] Similar to the physical act constituting the crime itself, the
conspiracy must be proven beyond reasonable doubt.[18] It must be founded on
facts, not on mere surmises or conjectures.[19] SO ORDERED.

In this case, there was no clear indication of the existence of conspiracy. First,
eyewitness' identification of accused-appellant at the scene of the crime was not
clear. Although the witness was familiar with the accused-appellant, the lack of PEDRO MARTINEZ, plaintiff-appellee, vs.ONG PONG CO and ONG LAY,
lighting in the store at the time left doubt as to her proper identification of defendants. ONG PONG CO., appellant.
accused-appellant, who was several meters away from her. Second, Felicidad
merely stated that she saw him standing by the door of the store.[20] Mere
presence at the scene of the crime is insufficient to prove conspiracy.[21] A
On the 12th of December, 1900, the plaintiff herein delivered P1,500 to the
conspirator must perform an overt act in furtherance of the plan to commit a
defendants who, in a private document, acknowledged that they had received the
felony; mere presence at the scene of the incident, knowledge of the plan or
same with the agreement, as stated by them, "that we are to invest the amount in
acquiescence thereto are not sufficient grounds to hold a person liable as a
a store, the profits or losses of which we are to divide with the former, in equal
conspirator.[22] Mere presence, knowledge, acquiescence to or agreement to
shares."
cooperate, is not enough to constitute one as a party to a conspiracy, absent any
active participation in the commission of the crime, with a view to the furtherance
of the common design and purpose.[23]
The plaintiff filed a complaint on April 25, 1907, in order to compel the defendants
to render him an accounting of the partnership as agreed to, or else to refund him
the P1,500 that he had given them for the said purpose. Ong Pong Co alone
appeared to answer the complaint; he admitted the fact of the agreement and the
delivery to him and to Ong Lay of the P1,500 for the purpose aforesaid, but he
alleged that Ong Lay, who was then deceased, was the one who had managed the
business, and that nothing had resulted therefrom save the loss of the capital of
P1,500, to which loss the plaintiff agreed.
The judge of the Court of First Instance of the city of Manila who tried the case
ordered Ong Pong Co to return to the plaintiff one-half of the said capital of P1,500
which, together with Ong Lay, he had received from the plaintiff, to wit, P750, plus
P90 as one-half of the profits, calculated at the rate of 12 per cent per annum for
the six months that the store was supposed to have been open, both sums in
Philippine currency, making a total of P840, with legal interest thereon at the rate
of 6 per cent per annum, from the 12th of June, 1901, when the business
terminated and on which date he ought to have returned the said amount to the
plaintiff, until the full payment thereof with costs.
From this judgment Ong Pong Co appealed to this court, and assigned the following
errors:
1. For not having taken into consideration the fact that the reason for the closing of
the store was the ejectment from the premises occupied by it.
2. For not having considered the fact that there were losses.
3. For holding that there should have been profits.
4. For having applied article 1138 of the Civil Code.
5. and 6. For holding that the capital ought to have yielded profits, and that the
latter should be calculated 12 per cent per annum; and
7. The findings of the ejectment.
As to the first assignment of error, the fact that the store was closed by virtue of
ejectment proceedings is of no importance for the effects of the suit. The whole
action is based upon the fact that the defendants received certain capital from the
plaintiff for the purpose of organizing a company; they, according to the
agreement, were to handle the said money and invest it in a store which was the
object of the association; they, in the absence of a special agreement vesting in one
sole person the management of the business, were the actual administrators
thereof; as such administrators they were the agent of the company and incurred
the liabilities peculiar to every agent, among which is that of rendering account to
the principal of their transactions, and paying him everything they may have
received by virtue of the mandatum. (Arts. 1695 and 1720, Civil Code.) Neither of
them has rendered such account nor proven the losses referred to by Ong Pong Co;
they are therefore obliged to refund the money that they received for the purpose
of establishing the said store the object of the association. This was the principal
pronouncement of the judgment.
With regard to the second and third assignments of error, this court, like the court
below, finds no evidence that the entire capital or any part thereof was lost. It is no
evidence of such loss to aver, without proof, that the effects of the store were
ejected. Even though this were proven, it could not be inferred therefrom that the
ejectment was due to the fact that no rents were paid, and that the rent was not
paid on account of the loss of the capital belonging to the enterprise.
With regard to the possible profits, the finding of the court below are based on the
statements of the defendant Ong Pong Co, to the effect that "there were some
profits, but not large ones." This court, however, does not find that the amount
thereof has been proven, nor deem it possible to estimate them to be a certain
sum, and for a given period of time; hence, it can not admit the estimate, made in
the judgment, of 12 per cent per annum for the period of six months.
Inasmuch as in this case nothing appears other than the failure to fulfill an
obligation on the part of a partner who acted as agent in receiving money for a
given purpose, for which he has rendered no accounting, such agent is responsible
only for the losses which, by a violation of the provisions of the law, he incurred.
This being an obligation to pay in cash, there are no other losses than the legal
interest, which interest is not due except from the time of the judicial demand, or,
in the present case, from the filing of the complaint. (Arts. 1108 and 1100, Civil
Code.) We do not consider that article 1688 is applicable in this case, in so far as it
provides "that the partnership is liable to every partner for the amounts he may
have disbursed on account of the same and for the proper interest," for the reason
that no other money than that contributed as is involved.
As in the partnership there were two administrators or agents liable for the above-
named amount, article 1138 of the Civil Code has been invoked; this latter deals
with debts of a partnership where the obligation is not a joint one, as is likewise
provided by article 1723 of said code with respect to the liability of two or more
agents with respect to the return of the money that they received from their
principal. Therefore, the other errors assigned have not been committed.
In view of the foregoing judgment appealed from is hereby affirmed, provided,
however, that the defendant Ong Pong Co shall only pay the plaintiff the sum of
P750 with the legal interest thereon at the rate of 6 per cent per annum from the
time of the filing of the complaint, and the costs, without special ruling as to the
costs of this instance. So ordered.
RAMNANI VS CA
This case involves the bitter quarrel of two brothers over two (2) parcels of land
and its improvements now worth a fortune. The bone of contention is the
apparently conflicting factual findings of the trial court and the appellate court, the
resolution of which will materially affect the result of the contest.
The following facts are not disputed.
Ishwar, Choithram and Navalrai, all surnamed Jethmal Ramnani, are brothers of the
full blood. Ishwar and his spouse Sonya had their main business based in New York.
Realizing the difficulty of managing their investments in the Philippines they
executed a general power of attorney on January 24, 1966 appointing Navalrai and
Choithram as attorneys-in-fact, empowering them to manage and conduct their
business concern in the Philippines. 1
On February 1, 1966 and on May 16, 1966, Choithram, in his capacity as aforesaid
attorney-in-fact of Ishwar, entered into two agreements for the purchase of two
parcels of land located in Barrio Ugong, Pasig, Rizal, from Ortigas & Company, Ltd.
Partnership (Ortigas for short) with a total area of approximately 10,048 square
meters. 2 Per agreement, Choithram paid the down payment and installments on
the lot with his personal checks. A building was constructed thereon by Choithram
in 1966 and this was occupied and rented by Jethmal Industries and a wardrobe
shop called Eppie's Creation. Three other buildings were built thereon by
Choithram through a loan of P100,000.00 obtained from the Merchants Bank as
well as the income derived from the first building. The buildings were leased out by
Choithram as attorney-in-fact of Ishwar. Two of these buildings were later burned.
Sometime in 1970 Ishwar asked Choithram to account for the income and expenses
relative to these properties during the period 1967 to 1970. Choithram failed and
refused to render such accounting. As a consequence, on February 4, 1971, Ishwar
revoked the general power of attorney. Choithram and Ortigas were duly notified
of such revocation on April 1, 1971 and May 24, 1971, respectively. 3 Said notice
was also registered with the Securities and Exchange Commission on March 29,
1971 4 and was published in the April 2, 1971 issue of The Manila Times for the
information of the general public. 5
Nevertheless, Choithram as such attorney-in-fact of Ishwar, transferred all rights
and interests of Ishwar and Sonya in favor of his daughter-in-law, Nirmla Ramnani,
on February 19, 1973. Her husband is Moti, son of Choithram. Upon complete
payment of the lots, Ortigas executed the corresponding deeds of sale in favor of
Nirmla. 6 Transfer Certificates of Title Nos. 403150 and 403152 of the Register of
Deeds of Rizal were issued in her favor.
Thus, on October 6, 1982, Ishwar and Sonya (spouses Ishwar for short) filed a a) On Building C occupied by Eppie's Creation and Jethmal Industries from
complaint in the Court of First Instance of Rizal against Choithram and/or spouses 1967 to 1973, inclusive, based on the 1967 to 1973 monthly rentals paid by Eppie's
Nirmla and Moti (Choithram et al. for brevity) and Ortigas for reconveyance of said Creation;
properties or payment of its value and damages. An amended complaint for
damages was thereafter filed by said spouses.

b) Also on Building C above, occupied by Jethmal Industries and Lavine from

After the issues were joined and the trial on the merits, a decision was rendered by
the trial court on December 3, 1985 dismissing the complaint and counterclaim. A
motion for reconsideration thereof filed by spouses Ishwar was denied on March 3,
1986.
1974 to 1978, the rental incomes based on then rates prevailing as shown under
Exhibit "P"; and from 1979 to 1981, based on then prevailing rates as indicated
under Exhibit "Q";

c) On Building A occupied by Transworld Knitting Mills from 1972 to 1978,

the rental incomes based upon then prevailing rates shown under Exhibit "P", and
An appeal therefrom was interposed by spouses Ishwar to the Court of Appeals from 1979 to 1981, based on prevailing rates per Exhibit "Q";
wherein in due course a decision was promulgated on March 14, 1988, the
dispositive part of which reads as follows:

d) On the two Bays Buildings occupied by Sigma-Mariwasa from 1972 to

1978, the rentals based on the Lease Contract, Exhibit "P", and from 1979 to 1980,
WHEREFORE, judgment is hereby rendered reversing and setting aside the the rentals based on the Lease Contract, Exhibit "Q",
appealed decision of the lower court dated December 3, 1985 and the Order dated
March 3, 1986 which denied plaintiffs-appellants' Motion for Reconsideration from
aforesaid decision. A new decision is hereby rendered sentencing defendants-
appellees Choithram Jethmal Ramnani, Nirmla V. Ramnani, Moti C. Ramnani, and and thereafter commencing 1982, to account for and turn over the rental incomes
Ortigas and Company Limited Partnership to pay, jointly and severally, plaintiffs- paid or ought to be paid for the use and occupancy of the properties and all
appellants the following: improvements totalling 10,048 sq. m based on the rate per square meter prevailing
in 1981 as indicated annually cumulative up to 1984. Then, commencing 1985 and
up to the satisfaction of the judgment, rentals shall be computed at ten percent
(10%) annually of the fair market values of the properties as appraised by the Asian
1. Actual or compensatory damages to the extent of the fair market value of Appraisal, Inc. in August 1985 (Exhibits T to T-14, inclusive.)
the properties in question and all improvements thereon covered by Transfer
Certificate of Title No. 403150 and Transfer Certificate of Title No. 403152 of the
Registry of Deeds of Rizal, prevailing at the time of the satisfaction of the judgment
but in no case shall such damages be less than the value of said properties as 3. Moral damages in the sum of P200,000.00;
appraised by Asian Appraisal, Inc. in its Appraisal Report dated August 1985
(Exhibits T to T-14, inclusive).

4. Exemplary damages in the sum of P100,000.00;

2. All rental incomes paid or ought to be paid for the use and occupancy of
the properties in question and all improvements thereon consisting of buildings,
and to be computed as follows: 5. Attorney's fees equivalent to 10% of the award herein made;
6. Legal interest on the total amount awarded computed from first demand
in 1967 and until the full amount is paid and satisfied; and
II

7. The cost of suit. 7

Acting on a motion for reconsideration filed by Choithram, et al. and Ortigas, the
appellate court promulgated an amended decision on October 17, 1988 granting
the motion for reconsideration of Ortigas by affirming the dismissal of the case by
the lower court as against Ortigas but denying the motion for reconsideration of
Choithram, et al. 8
THE COURT OF APPEALS ACTED WITH GRAVE ABUSE OF DISCRETION AND
MANIFEST PARTIALITY IN DISREGARDING THE TRIAL COURTS FINDINGS BASED ON
THE DIRECT DOCUMENTARY AND TESTIMONIAL EVIDENCE PRESENTED BY
CHOITHRAM IN THE TRIAL COURT ESTABLISHING THAT THE PROPERTIES WERE
PURCHASED WITH PERSONAL FUNDS OF PETITIONER CHOITHRAM AND NOT WITH
MONEY ALLEGEDLY REMITTED BY RESPONDENT ISHWAR.

III

Choithram, et al. thereafter filed a petition for review of said judgment of the
appellate court alleging the following grounds:
THE COURT OF APPEALS ACTED IN EXCESS OF JURISDICTION IN AWARDING
DAMAGES BASED ON THE VALUE OF THE PROPERTIES AND THE FRUITS OF THE
IMPROVEMENTS THEREON. 9
1. The Court of Appeals gravely abused its discretion in making a factual
finding not supported by and contrary, to the evidence presented at the Trial
Court.
Similarly, spouses Ishwar filed a petition for review of said amended decision of the
appellate court exculpating Ortigas of liability based on the following assigned
errors
2. The Court of Appeals acted in excess of jurisdiction in awarding damages
based on the value of the real properties in question where the cause of action of
private respondents is recovery of a sum of money.
I

ARGUMENTS
THE RESPONDENT HONORABLE COURT OF APPEALS COMMITTED GRAVE ERROR
AND HAS DECIDED A QUESTION OF SUBSTANCE NOT IN ACCORD WITH LAW
AND/OR WITH APPLICABLE DECISIONS OF THIS HONORABLE COURT
I

A) IN PROMULGATING THE QUESTIONED AMENDED DECISION (ANNEX "A")

THE COURT OF APPEALS ACTED IN GRAVE ABUSE OF ITS DISCRETION IN MAKING A RELIEVING RESPONDENT ORTIGAS FROM LIABILITY AND DISMISSING PETITIONERS'
FACTUAL FINDING THAT PRIVATE RESPONDENT ISHWAR REMITTED THE AMOUNT AMENDED COMPLAINT IN CIVIL CASE NO. 534-P, AS AGAINST SAID RESPONDENT
OF US $150,000.00 TO PETITIONER CHOITHRAM IN THE ABSENCE OF PROOF OF ORTIGAS;
SUCH REMITTANCE.

B) IN HOLDING IN SAID AMENDED DECISION THAT AT ANY RATE NO ONE
EVER TESTIFIED THAT ORTIGAS WAS A SUBSCRIBER TO THE MANILA TIMES
PUBLICATION OR THAT ANY OF ITS OFFICERS READ THE NOTICE AS PUBLISHED IN
THE MANILA TIMES, THEREBY ERRONEOUSLY CONCLUDING THAT FOR
RESPONDENT ORTIGAS TO BE CONSTRUCTIVELY BOUND BY THE PUBLISHED NOTICE
OF REVOCATION, ORTIGAS AND/OR ANY OF ITS OFFICERS MUST BE A SUBSCRIBER
AND/OR THAT ANY OF ITS OFFICERS SHOULD READ THE NOTICE AS ACTUALLY
PUBLISHED;
C) IN HOLDING IN SAID AMENDED DECISION THAT ORTIGAS COULD NOT BE
HELD LIABLE JOINTLY AND SEVERALLY WITH THE DEFENDANTS-APPELLEES
CHOITHRAM, MOTI AND NIRMLA RAMNANI, AS ORTIGAS RELIED ON THE WORD OF
CHOITHRAM THAT ALL ALONG HE WAS ACTING FOR AND IN BEHALF OF HIS
BROTHER ISHWAR WHEN IT TRANSFERRED THE RIGHTS OF THE LATTER TO NIRMLA
V. RAMNANI;
D) IN IGNORING THE EVIDENCE DULY PRESENTED AND ADMITTED DURING
THE TRIAL THAT ORTIGAS WAS PROPERLY NOTIFIED OF THE NOTICE OF
REVOCATION OF THE GENERAL POWER OF ATTORNEY GIVEN TO CHOITHRAM,
EVIDENCED BY THE PUBLICATION IN THE MANILA TIMES ISSUE OF APRIL 2, 1971
(EXH. F) WHICH CONSTITUTES NOTICE TO THE WHOLE WORLD; THE RECEIPT OF
THE NOTICE OF SUCH REVOCATION WHICH WAS SENT TO ORTIGAS ON MAY 22,
1971 BY ATTY. MARIANO P. MARCOS AND RECEIVED BY ORTIGAS ON MAY 24, 1971
(EXH. G) AND THE FILING OF THE NOTICE WITH THE SECURITIES AND EXCHANGE
COMMISSION ON MARCH 29,1971 (EXH. H);
E) IN DISCARDING ITS FINDINGS CONTAINED IN ITS DECISION OF 14 MARCH
1988 (ANNEX B) THAT ORTIGAS WAS DULY NOTIFIED OF THE REVOCATION OF THE
POWER OF ATTORNEY OF CHOITHRAM, HENCE ORTIGAS ACTED IN BAD FAITH IN
EXECUTING THE DEED OF SALE TO THE PROPERTIES IN QUESTION IN FAVOR OF
NIRMLA V. RAMNANI;
F) IN SUSTAINING RESPONDENT ORTIGAS VACUOUS REHASHED
ARGUMENTS IN ITS MOTION FOR RECONSIDERATION THAT IT WOULD NOT GAIN
ONE CENTAVO MORE FROM CHOITHRAM FOR THE SALE OF SAID LOTS AND THE
SUBSEQUENT TRANSFER OF THE SAME TO THE MATTER'S DAUGHTER-IN-LAW, AND
THAT IT WAS IN GOOD FAITH WHEN IT TRANSFERRED ISHWAR'S RIGHTS TO THE
LOTS IN QUESTION.
II
THE RESPONDENT HONORABLE COURT OF APPEALS HAS SO FAR DEPARTED FROM
THE ACCEPTED AND USUAL COURSE OF JUDICIAL PROCEEDING WHEN IT HELD IN
THE QUESTIONED AMENDED DECISION OF 17 NOVEMBER 1988 (ANNEX A) THAT
RESPONDENT ORTIGAS & CO., LTD., IS NOT JOINTLY AND SEVERALLY LIABLE WITH
DEFENDANTS-APPELLEES CHOITHRAM, MOTI AND NIRMLA RAMNANI IN SPITE OF
ITS ORIGINAL DECISION OF 14 MARCH 1988 THAT ORTIGAS WAS DULY NOTIFIED OF
THE REVOCATION OF THE POWER OF ATTORNEY OF CHOITHRAM RAMNANI. 10
The center of controversy is the testimony of Ishwar that during the latter part of
1965, he sent the amount of US $150,000.00 to Choithram in two bank drafts of
US$65,000.00 and US$85,000.00 for the purpose of investing the same in real
estate in the Philippines. The trial court considered this lone testimony unworthy of
faith and credit. On the other hand, the appellate court found that the trial court
misapprehended the facts in complete disregard of the evidence, documentary and
testimonial.
Another crucial issue is the claim of Choithram that because he was then a British
citizen, as a temporary arrangement, he arranged the purchase of the properties in
the name of Ishwar who was an American citizen and who was then qualified to
purchase property in the Philippines under the then Parity Amendment. The trial
court believed this account but it was debunked by the appellate court.
As to the issue of whether of not spouses Ishwar actually sent US$150,000.00 to
Choithram precisely to be used in the real estate business, the trial court made the
following disquisition
After a careful, considered and conscientious examination of the evidence adduced
in the case at bar, plaintiff Ishwar Jethmal Ramanani's main evidence, which
centers on the alleged payment by sending through registered mail from New York
two (2) US$ drafts of $85,000.00 and $65,000.00 in the latter part of 1965 (TSN 28
Feb. 1984, p. 10-11). The sending of these moneys were before the execution of
that General Power of Attorney, which was dated in New York, on January 24,
1966. Because of these alleged remittances of US $150,000.00 and the subsequent
acquisition of the properties in question, plaintiffs averred that they constituted a
trust in favor of defendant Choithram Jethmal Ramnani. This Court can be in full
agreement if the plaintiffs were only able to prove preponderantly these
remittances. The entire record of this case is bereft of even a shred of proof to that
effect. It is completely barren. His uncorroborated testimony that he remitted
these amounts in the "later part of 1965" does not engender enough faith and
credence. Inadequacy of details of such remittance on the two (2) US dollar drafts
in such big amounts is completely not positive, credible, probable and entirely not
in accord with human experience. This is a classic situation, plaintiffs not exhibiting
any commercial document or any document and/or paper as regard to these
alleged remittances. Plaintiff Ishwar Ramnani is not an ordinary businessman in the
strict sense of the word. Remember his main business is based in New York, and he
should know better how to send these alleged remittances. Worst, plaintiffs did
not present even a scum of proof, that defendant Choithram Ramnani received the
alleged two US dollar drafts. Significantly, he does not know even the bank where
these two (2) US dollar drafts were purchased. Indeed, plaintiff Ishwar Ramnani's
lone testimony is unworthy of faith and credit and, therefore, deserves scant
consideration, and since the plaintiffs' theory is built or based on such testimony,
their cause of action collapses or falls with it.
Further, the rate of exchange that time in 1966 was P4.00 to $1.00. The alleged two
US dollar drafts amounted to $150,000.00 or about P600,000.00. Assuming the
cash price of the two (2) lots was only P530,000.00 (ALTHOUGH he said: "Based on
my knowledge I have no evidence," when asked if he even knows the cash price of
the two lots). If he were really the true and bonafide investor and purchaser for
profit as he asserted, he could have paid the price in full in cash directly and
obtained the title in his name and not thru "Contracts To Sell" in installments
paying interest and thru an attorney-in fact (TSN of May 2, 1984, pp. 10-11) and,
again, plaintiff Ishwar Ramnani told this Court that he does not know whether or
not his late father-in-law borrowed the two US dollar drafts from the Swiss Bank or
whether or not his late father-in-law had any debit memo from the Swiss Bank (TSN
of May 2, 1984, pp. 9-10). 11
On the other hand, the appellate court, in giving credence to the version of Ishwar,
had this to say
While it is true, that generally the findings of fact of the trial court are binding upon
the appellate courts, said rule admits of exceptions such as when (1) the conclusion
is a finding grounded entirely on speculations, surmises and conjectures; (2) when
the inferences made is manifestly mistaken, absurd and impossible; (3) when there
is grave abuse of discretion; (4) when the judgment is based on a misapprehension
of facts and when the court, in making its findings, went beyond the issues of the
case and the same are contrary to the admissions of both appellant and appellee
(Ramos vs. Court of Appeals, 63 SCRA 33; Philippine American Life Assurance Co. vs.
Santamaria, 31 SCRA 798; Aldaba vs. Court of Appeals, 24 SCRA 189).
The evidence on record shows that the t court acted under a misapprehension of
facts and the inferences made on the evidence palpably a mistake.
The trial court's observation that "the entire records of the case is bereft of even a
shred of proof" that plaintiff-appellants have remitted to defendant-appellee
Choithram Ramnani the amount of US $ 150,000.00 for investment in real estate in
the Philippines, is not borne by the evidence on record and shows the trial court's
misapprehension of the facts if not a complete disregard of the evidence, both
documentary and testimonial.
Plaintiff-appellant Ishwar Jethmal Ramnani testifying in his own behalf, declared
that during the latter part of 1965, he sent the amount of US $150,000.00 to his
brother Choithram in two bank drafts of US $65,000.00 and US $85,000.00 for the
purpose of investing the same in real estate in the Philippines. His testimony is as
follows:
ATTY. MARAPAO:
Mr. Witness, you said that your attorney-in-fact paid in your behalf. Can you tell
this Honorable Court where your attorney-in-fact got the money to pay this
property?
ATTY. CRUZ:
Wait. It is now clear it becomes incompetent or hearsay. xxx xxx xxx

COURT: ATTY. CRUZ:

Witness can answer. Q The two bank drafts which you sent I assume you bought that from some
banks in New York?

A I paid through my attorney-in-fact. I am the one who gave him the

money. A No, sir.

ATTY. MARAPAO: Q But there is no question those two bank drafts were for the purpose of
paying down payment and installment of the two parcels of land?

Q You gave him the money?

A Down payment, installment and to put up the building.

A That's right.
Q I thought you said that the buildings were constructed . . . subject to our
continuing objection from rentals of first building?

Q How much money did you give him?

ATTY. MARAPAO:

A US $ 150,000.00.

Your Honor, that is misleading.

Q How was it given then?

COURT;

A Through Bank drafts. US $65,000.00 and US $85,000.00 bank drafts. The

total amount which is $ 150,000.00 (TSN, 28 February 1984, p. 10; Emphasis
supplied.) Witness (may) answer.
A Yes, the first building was immediately put up after the purchase of the
two parcels of land that was in 1966 and the finds were used for the construction
of the building from the US $150,000.00 (TSN, 7 March 1984, page 14; Emphasis
supplied.)
xxx xxx xxx
Q These two bank drafts which you mentioned and the use for it you sent
them by registered mail, did you send them from New Your?
A That is right.
Q And the two bank drafts which were put in the registered mail, the
registered mail was addressed to whom?
A Choithram Ramnani. (TSN, 7 March 1984, pp. 14-15).
On cross-examination, the witness reiterated the remittance of the money to his
brother Choithram, which was sent to him by his father-in-law, Rochiram L.
Mulchandoni from Switzerland, a man of immense wealth, which even defendants-
appellees' witness Navalrai Ramnani admits to be so (tsn., p. 16, S. Oct. 13, 1985).
Thus, on cross-examination, Ishwar testified as follows:
Q How did you receive these two bank drafts from the bank the name of
which you cannot remember?
A I got it from my father-in-law.
Q From where did your father- in-law sent these two bank drafts?
A From Switzerland.
Q He was in Switzerland.
A Probably, they sent out these two drafts from Switzerland.
(TSN, 7 March 1984, pp. 16-17; Emphasis supplied.)
This positive and affirmative testimony of plaintiff-appellant that he sent the two
(2) bank drafts totalling US $ 150,000.00 to his brother, is proof of said remittance.
Such positive testimony has greater probative force than defendant-appellee's
denial of receipt of said bank drafts, for a witness who testifies affirmatively that
something did happen should be believed for it is unlikely that a witness will
remember what never happened (Underhill's Cr. Guidance, 5th Ed., Vol. 1, pp. 10-
11).
That is not all. Shortly thereafter, plaintiff-appellant Ishwar Ramnani executed a
General Power of Attorney (Exhibit "A") dated January 24, 1966 appointing his
brothers, defendants-appellees Navalrai and Choithram as attorney-in-fact
empowering the latter to conduct and manage plaintiffs-appellants' business affairs
in the Philippines and specifically
No. 14. To acquire, purchase for us, real estates and improvements for the
purpose of real estate business anywhere in the Philippines and to develop,
subdivide, improve and to resell to buying public (individual, firm or corporation);
to enter in any contract of sale in oar behalf and to enter mortgages between the
vendees and the herein grantors that may be needed to finance the real estate
business being undertaken.

Pursuant thereto, on February 1, 1966 and May 16, 1966, Choithram Jethmal
Ramnani entered into Agreements (Exhibits "B' and "C") with the other defendant.
Ortigas and Company, Ltd., for the purchase of two (2) parcels of land situated at
Barrio Ugong, Pasig, Rizal, with said defendant-appellee signing the Agreements in
his capacity as Attorney-in-fact of Ishwar Jethmal Ramnani.
Again, on January 5, 1972, almost seven (7) years after Ishwar sent the US $
150,000.00 in 1965, Choithram Ramnani, as attorney-in fact of Ishwar entered into
a Contract of Lease with Sigma-Mariwasa (Exhibit "P") thereby re-affirming the
ownership of Ishwar over the disputed property and the trust relationship between
the latter as principal and Choithram as attorney-in-fact of Ishwar.
All of these facts indicate that if plaintiff-appellant Ishwar had not earlier sent the
US $ 150,000.00 to his brother, Choithram, there would be no purpose for him to
execute a power of attorney appointing his brothers as s attorney-in-fact in buying
real estate in the Philippines.
As against Choithram's denial that he did not receive the US $150,000.00 remitted
by Ishwar and that the Power of Attorney, as well as the Agreements entered into
with Ortigas & Co., were only temporary arrangements, Ishwar's testimony that he
did send the bank drafts to Choithram and was received by the latter, is the more
credible version since it is natural, reasonable and probable. It is in accord with the
common experience, knowledge and observation of ordinary men (Gardner vs.
Wentors 18 Iowa 533). And in determining where the superior weight of the
evidence on the issues involved lies, the court may consider the probability or
improbability of the testimony of the witness (Sec. 1, Rule 133, Rules of Court).
Contrary, therefore, to the trial court's sweeping observation that 'the entire
records of the case is bereft of even a shred of proof that Choithram received the
alleged bank drafts amounting to US $ 150,000.00, we have not only testimonial
evidence but also documentary and circumstantial evidence proving said
remittance of the money and the fiduciary relationship between the former and
Ishwar.12
The Court agrees. The environmental circumstances of this case buttress the claim
of Ishwar that he did entrust the amount of US $ 150,000.00 to his brother,
Choithram, which the latter invested in the real property business subject of this
litigation in his capacity as attorney-in-fact of Ishwar.
True it is that there is no receipt whatever in the possession of Ishwar to evidence
the same, but it is not unusual among brothers and close family members to
entrust money and valuables to each other without any formalities or receipt due
to the special relationship of trust between them.
And another proof thereof is the fact that Ishwar, out of frustration when
Choithram failed to account for the realty business despite his demands, revoked
the general power of attorney he extended to Choithram and Navalrai. Thereafter,
Choithram wrote a letter to Ishwar pleading that the power of attorney be
renewed or another authority to the same effect be extended, which reads as
follows:
June 25,1971
MR. ISHWAR JETHMAL
NEW YORK
(1) Send power of Atty. immediately, because the case has been postponed
for two weeks. The same way as it has been send before in favor of both names.
Send it immediately otherwise everything will be lost unnecessarily, and then it will
take us in litigation. Now that we have gone ahead with a case and would like to
end it immediately otherwise squatters will take the entire land. Therefore, send it
immediately.
(2) Ortigas also has sued us because we are holding the installments,
because they have refused to give a rebate of P5.00 per meter which they have to
give us as per contract. They have filed the law suit that since we have not paid the
installment they should get back the land. The hearing of this case is in the month
of July. Therefore, please send the power immediately. In one case DADA (Elder
Brother) will represent and in another one, I shall.
(3) In case if you do not want to give power then make one letter in favor of
Dada and the other one in my favor showing that in any litigation we can represent
you and your wife, and whatever the court decide it will be acceptable by me. You
can ask any lawyer, he will be able to prepare these letters. After that you can have
these letters ratify before P.I. Consulate. It should be dated April 15, 1971.
(4) Try to send the power because it will be more useful. Make it in any
manner whatever way you have confident in it. But please send it immediately.
You have cancelled the power. Therefore, you have lost your reputation
everywhere. What can I further write you about it. I have told everybody that due
to certain reasons I have written you to do this that is why you have done this. This
way your reputation have been kept intact. Otherwise if I want to do something
about it, I can show you that inspite of the power you have cancelled you can not
do anything. You can keep this letter because my conscience is clear. I do not have
anything in my mind.
I should not be writing you this, but because my conscience is clear do you know
that if I had predated papers what could you have done? Or do you know that I
have many paper signed by you and if had done anything or do then what can you
do about it? It is not necessary to write further about this. It does not matter if you
have cancelled the power. At that time if I had predated and done something about
it what could you have done? You do not know me. I am not after money. I can
earn money anytime. It has been ten months since I have not received a single
penny for expenses from Dada (elder brother). Why there are no expenses? We
can not draw a single penny from knitting (factory). Well I am not going to write
you further, nor there is any need for it. This much I am writing you because of the
way you have conducted yourself. But remember, whenever I hale the money I will
not keep it myself Right now I have not got anything at all.
I am not going to write any further.
Keep your business clean with Naru. Otherwise he will discontinue because he likes
to keep his business very clean. 13
The said letter was in Sindhi language. It was translated to English by the First
Secretary of the Embassy of Pakistan, which translation was verified correct by the
Chairman, Department of Sindhi, University of Karachi. 14
From the foregoing letter what could be gleaned is that
1. Choithram asked for the issuance of another power of attorney in their
favor so they can continue to represent Ishwar as Ortigas has sued them for unpaid
installments. It also appears therefrom that Ortigas learned of the revocation of the
power of attorney so the request to issue another.
2. Choithram reassured Ishwar to have confidence in him as he was not
after money, and that he was not interested in Ishwar's money.
3. To demonstrate that he can be relied upon, he said that he could have
ante-dated the sales agreement of the Ortigas lots before the issuance of the
powers of attorney and acquired the same in his name, if he wanted to, but he did
not do so.
4. He said he had not received a single penny for expenses from Dada (their
elder brother Navalrai). Thus, confirming that if he was not given money by Ishwar
to buy the Ortigas lots, he could not have consummated the sale.
5. It is important to note that in said letter Choithram never claimed
ownership of the property in question. He affirmed the fact that he bought the
same as mere agent and in behalf of Ishwar. Neither did he mention the alleged
temporary arrangement whereby Ishwar, being an American citizen, shall appear to
be the buyer of the said property, but that after Choithram acquires Philippine
citizenship, its ownership shall be transferred to Choithram.

This brings us to this temporary arrangement theory of Choithram.
The appellate court disposed of this matter in this wise
Choithram's claim that he purchased the two parcels of land for himself in 1966 but
placed it in the name of his younger brother, Ishwar, who is an American citizen, as
a temporary arrangement,' because as a British subject he is disqualified under the
1935 Constitution to acquire real property in the Philippines, which is not so with
respect to American citizens in view of the Ordinance Appended to the Constitution
granting them parity rights, there is nothing in the records showing that Ishwar
ever agreed to such a temporary arrangement.
During the entire period from 1965, when the US $ 150,000. 00 was transmitted to
Choithram, and until Ishwar filed a complaint against him in 1982, or over 16 years,
Choithram never mentioned of a temporary arrangement nor can he present any
memorandum or writing evidencing such temporary arrangement, prompting
plaintiff-appellant to observe:
The properties in question which are located in a prime industrial site in Ugong,
Pasig, Metro Manila have a present fair market value of no less than
P22,364,000.00 (Exhibits T to T-14, inclusive), and yet for such valuable pieces of
property, Choithram who now belatedly that he purchased the same for himself
did not document in writing or in a memorandum the alleged temporary
arrangement with Ishwar' (pp. 4-41, Appellant's Brief).
Such verbal allegation of a temporary arrangement is simply improbable and
inconsistent. It has repeatedly been held that important contracts made without
evidence are highly improbable.
The improbability of such temporary arrangement is brought to fore when we
consider that Choithram has a son (Haresh Jethmal Ramnani) who is an American
citizen under whose name the properties in question could be registered, both
during the time the contracts to sell were executed and at the time absolute title
over the same was to be delivered. At the time the Agreements were entered into
with defendant Ortigas & Co. in 1966, Haresh, was already 18 years old and
consequently, Choithram could have executed the deeds in trust for his minor son.
But, he did not do this. Three (3) years, thereafter, or in 1968 after Haresh had
attained the age of 21, Choithram should have terminated the temporary
arrangement with Ishwar, which according to him would be effective only pending
the acquisition of citizenship papers. Again, he did not do anything.
Evidence to be believed, said Vice Chancellor Van Fleet of New Jersey, must not
only proceed from the mouth of a credible witness, but it must be credible in
itselfsuch as the common experience and observation of mankind can approve as
probable under the circumstances. We have no test of the truth of human
testimony, except its conformity to our knowledge, observation and experience.
Whatever is repugnant to these belongs to the miraculous and is outside of judicial
cognizance. (Daggers vs. Van Dyek 37 M.J. Eq. 130, 132).
Another factor that can be counted against the temporary arrangement excuse is
that upon the revocation on February 4, 1971 of the Power of attorney dated
January 24, 1966 in favor of Navalrai and Choithram by Ishwar, Choithram wrote
(tsn, p. 21, S. July 19, 1985) a letter dated June 25, 1971 (Exhibits R, R-1, R-2 and R-
3) imploring Ishwar to execute a new power of attorney in their favor. That if he did
not want to give power, then Ishwar could make a letter in favor of Dada and
another in his favor so that in any litigation involving the properties in question,
both of them could represent Ishwar and his wife. Choithram tried to convince
Ishwar to issue the power of attorney in whatever manner he may want. In said
letter no mention was made at all of any temporary arrangement.
On the contrary, said letter recognize(s) the existence of principal and attorney-in-
fact relationship between Ishwar and himself. Choithram wrote: . . . do you know
that if I had predated papers what could you have done? Or do you know that I
have many papers signed by you and if I had done anything or do then what can
you do about it?' Choithram was saying that he could have repudiated the trust and
ran away with the properties of Ishwar by predating documents and Ishwar would
be entirely helpless. He was bitter as a result of Ishwar's revocation of the power of
attorney but no mention was made of any temporary arrangement or a claim of
ownership over the properties in question nor was he able to present any
memorandum or document to prove the existence of such temporary
arrangement.

Choithram is also estopped in pais or by deed from claiming an interest over the
properties in question adverse to that of Ishwar. Section 3(a) of Rule 131 of the
Rules of Court states that whenever a party has, by his own declaration, act, or
omission intentionally and deliberately led another to believe a particular thing
true and act upon such belief, he cannot in any litigation arising out of such
declaration, act or omission be permitted to falsify it.' While estoppel by deed is a
bar which precludes a party to a deed and his privies from asserting as against the
other and his privies any right of title in derogation of the deed, or from denying
the truth of any material fact asserted in it (31 C.J.S. 195; 19 Am. Jur. 603).
Thus, defendants-appellees are not permitted to repudiate their admissions and
representations or to assert any right or title in derogation of the deeds or from
denying the truth of any material fact asserted in the (1) power of attorney dated
January 24, 1966 (Exhibit A); (2) the Agreements of February 1, 1966 and May 16,
1966 (Exhibits B and C); and (3) the Contract of Lease dated January 5, 1972
(Exhibit P).
. . . The doctrine of estoppel is based upon the grounds of public policy, fair dealing,
good faith and justice, and its purpose is to forbid one to speak against his own act,
representations, or commitments to the injury of one to whom they were directed
and who reasonably relied thereon. The doctrine of estoppel springs from
equitable principles and the equities in the case. It is designed to aid the law in the
administration of justice where without its aid injustice might result. It has been
applied by court wherever and whenever special circumstances of a case so
demands' (Philippine National Bank vs. Court of Appeals, 94 SCRA 357, 368 [1979]).
It was only after the services of counsel has been obtained that Choithram alleged
for the first time in his Answer that the General Power of attorney (Annex A) with
the Contracts to Sell (Annexes B and C) were made only for the sole purpose of
assuring defendants' acquisition and ownership of the lots described thereon in
due time under the law; that said instruments do not reflect the true intention of
the parties (par. 2, Answer dated May 30, 1983), seventeen (17) long years from
the time he received the money transmitted to him by his brother, Ishwar.
Moreover, Choithram's 'temporary arrangement,' by which he claimed purchasing
the two (2) parcels in question in 1966 and placing them in the name of Ishwar who
is an American citizen, to circumvent the disqualification provision of aliens
acquiring real properties in the Philippines under the 1935 Philippine Constitution,
as Choithram was then a British subject, show a palpable disregard of the law of
the land and to sustain the supposed "temporary arrangement" with Ishwar would
be sanctioning the perpetration of an illegal act and culpable violation of the
Constitution.
Defendants-appellees likewise violated the Anti-Dummy Law (Commonwealth Act
108, as amended), which provides in Section 1 thereof that:
In all cases in which any constitutional or legal provision requires Philippine or any
other specific citizenship as a requisite for the exercise or enjoyment of a right,
franchise or privilege, . . . any alien or foreigner profiting thereby, shall be punished
. . . by imprisonment . . . and of a fine of not less than the value of the right,
franchise or privileges, which is enjoyed or acquired in violation of the provisions
hereof . . .
Having come to court with unclean hands, Choithram must not be permitted foist
his 'temporary arrangement' scheme as a defense before this court. Being in
delicto, he does not have any right whatsoever being shielded from his own wrong-
doing, which is not so with respect to Ishwar, who was not a party to such an
arrangement.
The falsity of Choithram's defense is further aggravated by the material
inconsistencies and contradictions in his testimony. While on January 23, 1985 he
testified that he purchased the land in question on his own behalf (tsn, p. 4, S. Jan.
23, 1985), in the July 18, 1985 hearing, forgetting probably what he stated before,
Choithram testified that he was only an attorney-in-fact of Ishwar (tsn, p. 5, S. July
18, 1985). Also in the hearing of January 23, 1985, Choithram declared that nobody
rented the building that was constructed on the parcels of land in question (tsn, pp.
5 and 6), only to admit in the hearing of October 30, 1985, that he was in fact
renting the building for P12,000. 00 per annum (tsn, p. 3). Again, in the hearing of
July 19, 1985, Choithram testified that he had no knowledge of the revocation of
the Power of Attorney (tsn, pp. 20- 21), only to backtrack when confronted with
the letter of June 25, 1971 (Exhibits R to R-3), which he admitted to be in "his own
writing," indicating knowledge of the revocation of the Power of Attorney.
These inconsistencies are not minor but go into the entire credibility of the
testimony of Choithram and the rule is that contradictions on a very crucial point
by a witness, renders s testimony incredible People vs. Rafallo, 80 Phil. 22). Not
only this the doctrine of falsus in uno, falsus in omnibus is fully applicable as far as
the testimony of Choithram is concerned. The cardinal rule, which has served in all
ages, and has been applied to all conditions of men, is that a witness willfully
falsifying the truth in one particular, when upon oath, ought never to be believed
upon the strength of his own testimony, whatever he may assert (U.S. vs. Osgood
27 Feb. Case No. 15971-a, p. 364); Gonzales vs. Mauricio, 52 Phil, 728), for what
ground of judicial relief can there be left when the party has shown such gross
insensibility to the difference between right and wrong, between truth and
falsehood? (The Santisima Trinidad, 7 Wheat, 283, 5 U.S. [L. ed.] 454).
True, that Choithram's testimony finds corroboration from the testimony of his
brother, Navalrai, but the same would not be of much help to Choithram. Not only
is Navalrai an interested and biased witness, having admitted his close relationship
with Choithram and that whenever he or Choithram had problems, they ran to
each other (tsn, pp. 17-18, S. Sept. 20, 1985), Navalrai has a pecuniary interest in
the success of Choithram in the case in question. Both he and Choithram are
business partners in Jethmal and Sons and/or Jethmal Industries, wherein he owns
60% of the company and Choithram, 40% (p. 62, Appellant's Brief). Since the
acquisition of the properties in question in 1966, Navalrai was occupying 1,200
square meters thereof as a factory site plus the fact that his son (Navalrais) was
occupying the apartment on top of the factory with his family rent free except the
amount of P l,000.00 a month to pay for taxes on said properties (tsn, p. 17, S. Oct.
3, 1985).
Inherent contradictions also marked Navalrai testimony. "While the latter was very
meticulous in keeping a receipt for the P 10,000.00 that he paid Ishwar as
settlement in Jethmal Industries, yet in the alleged payment of P 100,000.00 to
Ishwar, no receipt or voucher was ever issued by him (tsn, p. 17, S. Oct. 3, 1983). 15
We concur.
The foregoing findings of facts of the Court of Appeals which are supported by the
evidence is conclusive on this Court. The Court finds that Ishwar entrusted
US$150,000.00 to Choithram in 1965 for investment in the realty business. Soon
thereafter, a general power of attorney was executed by Ishwar in favor of both
Navalrai and Choithram. If it is true that the purpose only is to enable Choithram to
purchase realty temporarily in the name of Ishwar, why the inclusion of their elder
brother Navalrai as an attorney-in-fact?
Then, acting as attorney-in-fact of Ishwar, Choithram purchased two parcels of land
located in Barrio Ugong Pasig, Rizal, from Ortigas in 1966. With the balance of the
money of Ishwar, Choithram erected a building on said lot. Subsequently, with a
loan obtained from a bank and the income of the said property, Choithram
constructed three other buildings thereon. He managed the business and collected
the rentals. Due to their relationship of confidence it was only in 1970 when Ishwar
demanded for an accounting from Choithram. And even as Ishwar revoked the
general power of attorney on February 4, 1971, of which Choithram was duly
notified, Choithram wrote to Ishwar on June 25, 1971 requesting that he execute a
new power of attorney in their favor. 16 When Ishwar did not respond thereto,
Choithram nevertheless proceeded as such attorney-in-fact to assign all the rights
and interest of Ishwar to his daughter-in-law Nirmla in 1973 without the knowledge
and consent of Ishwar. Ortigas in turn executed the corresponding deeds of sale in
favor of Nirmla after full payment of the purchase accomplice of the lots.
In the prefatory statement of their petition, Choithram pictured Ishwar to be so
motivated by greed and ungratefulness, who squandered the family business in
New York, who had to turn to his wife for support, accustomed to living in
ostentation and who resorted to blackmail in filing several criminal and civil suits
against them. These statements find no support and should be stricken from the
records. Indeed, they are irrelevant to the proceeding.
Moreover, assuming Ishwar is of such a low character as Choithram proposes to
make this Court to believe, why is it that of all persons, under his temporary
arrangement theory, Choithram opted to entrust the purchase of valuable real
estate and built four buildings thereon all in the name of Ishwar? Is it not an
unconscious emergence of the truth that this otherwise wayward brother of theirs
was on the contrary able to raise enough capital through the generosity of his
father-in-law for the purchase of the very properties in question? As the appellate
court aptly observed if truly this temporary arrangement story is the only
motivation, why Ishwar of all people? Why not the own son of Choithram, Haresh
who is also an American citizen and who was already 18 years old at the time of
purchase in 1966? The Court agrees with the observation that this theory is an
afterthought which surfaced only when Choithram, Nirmla and Moti filed their
answer.
When Ishwar asked for an accounting in 1970 and revoked the general power of
attorney in 1971, Choithram had a total change of heart. He decided to claim the
property as his. He caused the transfer of the rights and interest of Ishwar to
Nirmla. On his representation, Ortigas executed the deeds of sale of the properties
in favor of Nirmla. Choithram obviously surmised Ishwar cannot stake a valid claim
over the property by so doing.
Clearly, this transfer to Nirmla is fictitious and, as admitted by Choithram, was
intended only to place the property in her name until Choithram acquires
Philippine citizenship. 17 What appears certain is that it appears to be a scheme of
Choithram to place the property beyond the reach of Ishwar should he successfully
claim the same. Thus, it must be struck down.
Worse still, on September 27, 1990 spouses Ishwar filed an urgent motion for the
issuance of a writ of preliminary attachment and to require Choithram, et al. to
submit certain documents, inviting the attention of this Court to the following:
a) Donation by Choithram of his 2,500 shares of stock in General Garments
Corporation in favor of his children on December 29, 1989; 18
b) Sale on August 2, 1990 by Choithram of his 100 shares in Biflex (Phils.),
Inc., in favor of his children; 19 and
c) Mortgage on June 20, 1989 by Nirmla through her attorney-in-fact,
Choithram, of the properties subject of this litigation, for the amount of $3 Million
in favor of Overseas Holding, Co. Ltd., (Overseas for brevity), a corporation which
appears to be organized and existing under and by virtue of the laws of Cayman
Islands, with a capital of only $100.00 divided into 100 shares of $1.00 each, and
with address at P.O. Box 1790, Grand Cayman, Cayman Islands. 20
An opposition thereto was filed by Choithram, et al. but no documents were
produced. A manifestation and reply to the opposition was filed by spouses Ishwar.
All these acts of Choithram, et al. appear to be fraudulent attempts to remove
these properties to the detriment of spouses Ishwar should the latter prevail in this
litigation.
On December 10, 1990 the court issued a resolution that substantially reads as
follows:
Considering the allegations of petitioners Ishwar Jethmal Ramnani and Sonya
Ramnani that respondents Choithram Jethmal Ramnani, Nirmla Ramnani and Moti
G. Ramnani have fraudulently executed a simulated mortgage of the properties
subject of this litigation dated June 20, 1989, in favor of Overseas Holding Co., Ltd.
which appears to be a corporation organized in Cayman Islands, for the amount of
$ 3,000,000.00, which is much more than the value of the properties in litigation;
that said alleged mortgagee appears to be a "shell" corporation with a capital of
only $100.00; and that this alleged transaction appears to be intended to defraud
petitioners Ishwar and Sonya Jethmal Ramnani of any favorable judgment that this
Court may render in this case;
Wherefore the Court Resolved to issue a writ of preliminary injunction enjoining
and prohibiting said respondents Choithram Jethmal Ramnani, Nirmla V. Ramnani,
Moti G. Ramnani and the Overseas Holding Co., Ltd. from encumbering, selling or
otherwise disposing of the properties and improvements subject of this litigation
until further orders of the Court. Petitioners Ishwar and Sonya Jethmal Ramnani
are hereby required to post a bond of P 100,000.00 to answer for any damages d
respondents may suffer by way of this injunction if the Court finally decides the
said petitioners are not entitled thereto.
The Overseas Holding Co., Ltd. with address at P.O. Box 1790 Grand Cayman,
Cayman Islands, is hereby IMPLEADED as a respondent in these cases, and is
hereby required to SUBMIT its comment on the Urgent Motion for the Issuance of
a Writ of Preliminary Attachment and Motion for Production of Documents, the
Manifestation and the Reply to the Opposition filed by said petitioners, within Sixty
(60) days after service by publication on it in accordance with the provisions of
Section 17, Rule 14 of the Rules of Court, at the expense of petitioners Ishwar and
Sonya Jethmal Ramnani.

Let copies of this resolution be served on the Register of Deeds of Pasig, Rizal, and
the Provincial Assessor of Pasig, Rizal, both in Metro Manila, for its annotation on
the transfer Certificates of Titles Nos. 403150 and 403152 registered in the name of
respondent Nirmla V. Ramnani, and on the tax declarations of the said properties
and its improvements subject of this litigation. 21
The required injunction bond in the amount of P 100,000.00 was filed by the
spouses Ishwar which was approved by the Court. The above resolution of the
Court was published in the Manila Bulletin issue of December 17, 1990 at the
expense of said spouses. 22 On December 19, 1990 the said resolution and petition
for review with annexes in G.R. Nos. 85494 and 85496 were transmitted to
respondent Overseas, Grand Cayman Islands at its address c/o Cayman Overseas
Trust Co. Ltd., through the United Parcel Services Bill of Lading 23 and it was
actually delivered to said company on January 23, 1991. 24
On January 22, 1991, Choithram, et al., filed a motion to dissolve the writ of
preliminary injunction alleging that there is no basis therefor as in the amended
complaint what is sought is actual damages and not a reconveyance of the
property, that there is no reason for its issuance, and that acts already executed
cannot be enjoined. They also offered to file a counterbond to dissolve the writ.
A comment/opposition thereto was filed by spouses Ishwar that there is basis for
the injunction as the alleged mortgage of the property is simulated and the other
donations of the shares of Choithram to his children are fraudulent schemes to
negate any judgment the Court may render for petitioners.
No comment or answer was filed by Overseas despite due notice, thus it is and
must be considered to be in default and to have lost the right to contest the
representations of spouses Ishwar to declare the aforesaid alleged mortgage nun
and void.
This purported mortgage of the subject properties in litigation appears to be
fraudulent and simulated. The stated amount of $3 Million for which it was
mortgaged is much more than the value of the mortgaged properties and its
improvements. The alleged mortgagee-company (Overseas) was organized only on
June 26,1989 but the mortgage was executed much earlier, on June 20, 1989, that
is six (6) days before Overseas was organized. Overseas is a "shelf" company worth
only $100.00. 25 In the manifestation of spouses Ishwar dated April 1, 1991, the
Court was informed that this matter was brought to the attention of the Central
Bank (CB) for investigation, and that in a letter of March 20, 1991, the CB informed
counsel for spouses Ishwar that said alleged foreign loan of Choithram, et al. from
Overseas has not been previously approved/registered with the CB. 26
Obviously, this is another ploy of Choithram, et al. to place these properties beyond
the reach of spouses Ishwar should they obtain a favorable judgment in this case.
The Court finds and so declares that this alleged mortgage should be as it is hereby
declared null and void.
All these contemporaneous and subsequent acts of Choithram, et al., betray the
weakness of their cause so they had to take an steps, even as the case was already
pending in Court, to render ineffective any judgment that may be rendered against
them.
The problem is compounded in that respondent Ortigas is caught in the web of this
bitter fight. It had all the time been dealing with Choithram as attorney-in-fact of
Ishwar. However, evidence had been adduced that notice in writing had been
served not only on Choithram, but also on Ortigas, of the revocation of Choithram's
power of attorney by Ishwar's lawyer, on May 24, 1971. 27 A publication of said
notice was made in the April 2, 1971 issue of The Manila Times for the information
of the general public. 28 Such notice of revocation in a newspaper of general
circulation is sufficient warning to third persons including Ortigas. 29 A notice of
revocation was also registered with the Securities and Exchange Commission on
March 29, 1 971. 30
Indeed in the letter of Choithram to Ishwar of June 25, 1971, Choithram was
pleading that Ishwar execute another power of attorney to be shown to Ortigas
who apparently learned of the revocation of Choithram's power of attorney. 31
Despite said notices, Ortigas nevertheless acceded to the representation of
Choithram, as alleged attorney-in-fact of Ishwar, to assign the rights of petitioner
Ishwar to Nirmla. While the primary blame should be laid at the doorstep of
Choithram, Ortigas is not entirely without fault. It should have required Choithram
to secure another power of attorney from Ishwar. For recklessly believing the
pretension of Choithram that his power of attorney was still good, it must,
therefore, share in the latter's liability to Ishwar.
In the original complaint, the spouses Ishwar asked for a reconveyance of the
properties and/or payment of its present value and damages. 32 In the amended
complaint they asked, among others, for actual damages of not less than the
present value of the real properties in litigation, moral and exemplary damages,
attorneys fees, costs of the suit and further prayed for "such other reliefs as may
be deemed just and equitable in the premises .33 The amended complaint contain
the following positive allegations:
7. Defendant Choithram Ramnani, in evident bad faith and despite due
notice of the revocation of the General Power of Attorney, Annex 'D" hereof,
caused the transfer of the rights over the said parcels of land to his daughter-in-
law, defendant Nirmla Ramnani in connivance with defendant Ortigas & Co., the
latter having agreed to the said transfer despite receiving a letter from plaintiffs'
lawyer informing them of the said revocation; copy of the letter is hereto attached
and made an integral part hereof as Annex "H";
8. Defendant Nirmla Ramnani having acquired the aforesaid property by
fraud is, by force of law, considered a trustee of an implied trust for the benefit of
plaintiff and is obliged to return the same to the latter:
9. Several efforts were made to settle the matter within the family but
defendants (Choithram Ramnani, Nirmla Ramnani and Moti Ramnani) refused and
up to now fail and still refuse to cooperate and respond to the same; thus, the
present case;
10. In addition to having been deprived of their rights over the properties
(described in par. 3 hereof), plaintiffs, by reason of defendants' fraudulent act,
suffered actual damages by way of lost rental on the property which defendants
(Choithram Ramnani, Nirmla Ramnani and Moti Ramnani have collected for
themselves; 34
In said amended complaint, spouses Ishwar, among others, pray for payment of
actual damages in an amount no less than the value of the properties in litigation
instead of a reconveyance as sought in the original complaint. Apparently they
opted not to insist on a reconveyance as they are American citizens as alleged in
the amended complaint.
The allegations of the amended complaint above reproduced clearly spelled out
that the transfer of the property to Nirmla was fraudulent and that it should be
considered to be held in trust by Nirmla for spouses Ishwar. As above-discussed,
this allegation is well-taken and the transfer of the property to Nirmla should be
considered to have created an implied trust by Nirmla as trustee of the property for
the benefit of spouses Ishwar. 35
The motion to dissolve the writ of preliminary injunction filed by Choithram, et al.
should be denied. Its issuance by this Court is proper and warranted under the
circumstances of the case. Under Section 3(c) Rule 58 of the Rules of Court, a writ
of preliminary injunction may be granted at any time after commencement of the
action and before judgment when it is established:
(c) that the defendant is doing, threatens, or is about to do, or is procuring
or suffering to be done, some act probably in violation of plaintiffs's rights
respecting the subject of the action, and tending to render the judgment
ineffectual.
As above extensively discussed, Choithram, et al. have committed and threaten to
commit further acts of disposition of the properties in litigation as well as the other
assets of Choithram, apparently designed to render ineffective any judgment the
Court may render favorable to spouses Ishwar.
The purpose of the provisional remedy of preliminary injunction is to preserve the
status quo of the things subject of the litigation and to protect the rights of the
spouses Ishwar respecting the subject of the action during the pendency of the Suit
36 and not to obstruct the administration of justice or prejudice the adverse party.
37 In this case for damages, should Choithram, et al. continue to commit acts of
disposition of the properties subject of the litigation, an award of damages to
spouses Ishwar would thereby be rendered ineffectual and meaningless. 38

Consequently, if only to protect the interest of spouses Ishwar, the Court hereby
finds and holds that the motion for the issuance of a writ of preliminary
attachment filed by spouses Ishwar should be granted covering the properties
subject of this litigation.
Section 1, Rule 57 of the Rules of Court provides that at the commencement of an
action or at any time thereafter, the plaintiff or any proper party may have the
property of the adverse party attached as security for the satisfaction of any
judgment that may be recovered, in, among others, the following cases:
(d) In an action against a party who has been guilty of a fraud in contracting
the debt or incurring the obligation upon which the action is brought, or in
concealing or disposing of the property for the taking, detention or conversion of
which the action is brought;
(e) In an action against a party who has removed or disposed of his property,
or is about to do so, with intent to defraud his creditors; . . .
Verily, the acts of Choithram, et al. of disposing the properties subject of the
litigation disclose a scheme to defraud spouses Ishwar so they may not be able to
recover at all given a judgment in their favor, the requiring the issuance of the writ
of attachment in this instance.
Nevertheless, under the peculiar circumstances of this case and despite the fact
that Choithram, et al., have committed acts which demonstrate their bad faith and
scheme to defraud spouses Ishwar and Sonya of their rightful share in the
properties in litigation, the Court cannot ignore the fact that Choithram must have
been motivated by a strong conviction that as the industrial partner in the
acquisition of said assets he has as much claim to said properties as Ishwar, the
capitalist partner in the joint venture.
The scenario is clear. Spouses Ishwar supplied the capital of $150,000.00 for the
business.1wphi1 They entrusted the money to Choithram to invest in a profitable
business venture in the Philippines. For this purpose they appointed Choithram as
their attorney-in-fact.
Choithram in turn decided to invest in the real estate business. He bought the two
(2) parcels of land in question from Ortigas as attorney-in-fact of Ishwar- Instead of
paying for the lots in cash, he paid in installments and used the balance of the
capital entrusted to him, plus a loan, to build two buildings. Although the buildings
were burned later, Choithram was able to build two other buildings on the
property. He rented them out and collected the rentals. Through the industry and
genius of Choithram, Ishwar's property was developed and improved into what it is
nowa valuable asset worth millions of pesos. As of the last estimate in 1985,
while the case was pending before the trial court, the market value of the
properties is no less than P22,304,000.00. 39 It should be worth much more today.
We have a situation where two brothers engaged in a business venture. One
furnished the capital, the other contributed his industry and talent. Justice and
equity dictate that the two share equally the fruit of their joint investment and
efforts. Perhaps this Solomonic solution may pave the way towards their
reconciliation. Both would stand to gain. No one would end up the loser. After all,
blood is thicker than water.
However, the Court cannot just close its eyes to the devious machinations and
schemes that Choithram employed in attempting to dispose of, if not dissipate, the
properties to deprive spouses Ishwar of any possible means to recover any award
the Court may grant in their favor. Since Choithram, et al. acted with evident bad
faith and malice, they should pay moral and exemplary damages as well as
attorney's fees to spouses Ishwar.
WHEREFORE, the petition in G.R. No. 85494 is DENIED, while the petition in G.R.
No. 85496 is hereby given due course and GRANTED. The judgment of the Court of
Appeals dated October 18, 1988 is hereby modified as follows:
1. Dividing equally between respondents spouses Ishwar, on the one hand,
and petitioner Choithram Ramnani, on the other, (in G.R. No. 85494) the two
parcels of land subject of this litigation, including all the improvements thereon,
presently covered by transfer Certificates of Title Nos. 403150 and 403152 of the
Registry of Deeds, as well as the rental income of the property from 1967 to the
present.
2. Petitioner Choithram Jethmal Ramnani, Nirmla V. Ramnani, Moti C.
Ramnani and respondent Ortigas and Company, Limited Partnership (in G.R. No.
85496) are ordered solidarily to pay in cash the value of said one-half (1/2) share in
the said land and improvements pertaining to respondents spouses Ishwar and
Sonya at their fair market value at the time of the satisfaction of this judgment but
in no case less than their value as appraised by the Asian Appraisal, Inc. in its
Appraisal Report dated August 1985 (Exhibits T to T-14, inclusive).
3. Petitioners Choithram, Nirmla and Moti Ramnani and respondent Ortigas
& Co., Ltd. Partnership shall also be jointly and severally liable to pay to said
respondents spouses Ishwar and Sonya Ramnani one-half (1/2) of the total rental
income of said properties and improvements from 1967 up to the date of
satisfaction of the judgment to be computed as follows:
a. On Building C occupied by Eppie's Creation and Jethmal Industries from
1967 to 1973, inclusive, based on the 1967 to 1973 monthly rentals paid by Eppie's
Creation;
b. Also on Building C above, occupied by Jethmal Industries and Lavine from
1974 to 1978, the rental incomes based on then rates prevailing as shown under
Exhibit "P"; and from 1979 to 1981, based on then prevailing rates as indicated
under Exhibit "Q";
c. On Building A occupied by Transworld Knitting Mills from 1972 to 1978,
the rental incomes based upon then prevailing rates shown under Exhibit "P", and
from 1979 to 1981, based on prevailing rates per Exhibit "Q";
d. On the two Bays Buildings occupied by Sigma-Mariwasa from 1972 to
1978, the rentals based on the Lease Contract, Exhibit "P", and from 1979 to 1980,
the rentals based on the Lease Contract, Exhibit "Q".
and thereafter commencing 1982, to account for and turn over the rental incomes
paid or ought to be paid for the use and occupancy of the properties and all
improvements totalling 10,048 sq. m., based on the rate per square meter
prevailing in 1981 as indicated annually cumulative up to 1984. Then, commencing
1985 and up to the satisfaction of the judgment, rentals shall be computed at ten
percent (10%) annually of the fair market values of the properties as appraised by
the Asian Appraisals, Inc. in August 1985. (Exhibits T to T-14, inclusive.)
4. To determine the market value of the properties at the time of the
satisfaction of this judgment and the total rental incomes thereof, the trial court is
hereby directed to hold a hearing with deliberate dispatch for this purpose only
and to have the judgment immediately executed after such determination.
5. Petitioners Choithram, Nirmla and Moti, all surnamed Ramnani, are also
jointly and severally liable to pay respondents Ishwar and Sonya Ramnani the
amount of P500,000.00 as moral damages, P200,000.00 as exemplary damages and
attorney's fees equal to 10% of the total award. to said respondents spouses.
6. The motion to dissolve the writ of preliminary injunction dated December
10, 1990 filed by petitioners Choithram, Nirmla and Moti, all surnamed Ramnani, is
hereby DENIED and the said injunction is hereby made permanent. Let a writ of
attachment be issued and levied against the properties and improvements subject
of this litigation to secure the payment of the above awards to spouses Ishwar and
Sonya.
7. The mortgage constituted on the subject property dated June 20, 1989 by
petitioners Choithram and Nirmla, both surnamed Ramnani in favor of respondent
Overseas Holding, Co. Ltd. (in G.R. No. 85496) for the amount of $3-M is hereby
declared null and void. The Register of Deeds of Pasig, Rizal, is directed to cancel
the annotation of d mortgage on the titles of the properties in question.
8. Should respondent Ortigas Co., Ltd. Partnership pay the awards to Ishwar
and Sonya Ramnani under this judgment, it shall be entitled to reimbursement
from petitioners Choithram, Nirmla and Moti, all surnamed Ramnani.
9. The above awards shag bear legal rate of interest of six percent (6%) per
annum from the time this judgment becomes final until they are fully paid by
petitioners Choithram Ramnani, Nirmla V. Ramnani, Moti C. Ramnani and Ortigas,
Co., Ltd. Partnership. Said petitioners Choithram, et al. and respondent Ortigas
shall also pay the costs.
SO ORDERED.
ISABELO MORAN, JR., petitioner, vs.THE HON. COURT OF APPEALS and MARIANO
E. PECSON, respondents.
This is a petition for review on certiorari of the decision of the respondent Court of
Appeals which ordered petitioner Isabelo Moran, Jr. to pay damages to respondent
Mariano E, Pecson.
As found by the respondent Court of Appeals, the undisputed facts indicate that:
t.hqw
xxx xxx xxx
... on February 22, 1971 Pecson and Moran entered into an agreement whereby
both would contribute P15,000 each for the purpose of printing 95,000 posters
(featuring the delegates to the 1971 Constitutional Convention), with Moran
actually supervising the work; that Pecson would receive a commission of P l,000 a
month starting on April 15, 1971 up to December 15, 1971; that on December 15,
1971, a liquidation of the accounts in the distribution and printing of the 95,000
posters would be made, that Pecson gave Moran P10,000 for which the latter
issued a receipt; that only a few posters were printed; that on or about May 28,
1971, Moran executed in favor of Pecson a promissory note in the amount of
P20,000 payable in two equal installments (P10,000 payable on or before June 15,
1971 and P10,000 payable on or before June 30, 1971), the whole sum becoming
due upon default in the payment of the first installment on the date due, complete
with the costs of collection.
Private respondent Pecson filed with the Court of First Instance of Manila an action
for the recovery of a sum of money and alleged in his complaint three (3) causes of
action, namely: (1) on the alleged partnership agreement, the return of his
contribution of P10,000.00, payment of his share in the profits that the partnership
would have earned, and, payment of unpaid commission; (2) on the alleged
promissory note, payment of the sum of P20,000.00; and, (3) moral and exemplary
damages and attorney's fees.
After the trial, the Court of First Instance held that: t.hqw
From the evidence presented it is clear in the mind of the court that by virtue of
the partnership agreement entered into by the parties-plaintiff and defendant the
plaintiff did contribute P10,000.00, and another sum of P7,000.00 for the Voice of
the Veteran or Delegate Magazine. Of the expected 95,000 copies of the posters,
the defendant was able to print 2,000 copies only authorized of which, however,
were sold at P5.00 each. Nothing more was done after this and it can be said that
the venture did not really get off the ground. On the other hand, the plaintiff failed
to give his full contribution of P15,000.00. Thus, each party is entitled to rescind
the contract which right is implied in reciprocal obligations under Article 1385 of
the Civil Code whereunder 'rescission creates the obligation to return the things
which were the object of the contract ...
WHEREFORE, the court hereby renders judgment ordering defendant Isabelo C.
Moran, Jr. to return to plaintiff Mariano E. Pecson the sum of P17,000.00, with
interest at the legal rate from the filing of the complaint on June 19, 1972, and the
costs of the suit.
For insufficiency of evidence, the counterclaim is hereby dismissed.
From this decision, both parties appealed to the respondent Court of Appeals. The II
latter likewise rendered a decision against the petitioner. The dispositive portion of
the decision reads: t.hqw

THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN HOLDING PETITIONER

ISABELO C. MORAN, JR. LIABLE TO RESPONDENT MARIANO E. PECSON IN THE SUM
PREMISES CONSIDERED, the decision appealed from is hereby SET ASIDE, and a OF P8,000, AS SUPPOSED COMMISSION IN THE PARTNERSHIP ARISING OUT OF
new one is hereby rendered, ordering defendant-appellant Isabelo C. Moran, Jr. to PECSON'S INVESTMENT.
pay plaintiff- appellant Mariano E. Pecson:

III
(a) Forty-seven thousand five hundred (P47,500) (the amount that could have
accrued to Pecson under their agreement);

THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN HOLDING PETITIONER

ISABELO C. MORAN, JR. LIABLE TO RESPONDENT MARIANO E. PECSON IN THE SUM
(b) Eight thousand (P8,000), (the commission for eight months); OF P7,000 AS A SUPPOSED RETURN OF INVESTMENT IN A MAGAZINE VENTURE.

(c) Seven thousand (P7,000) (as a return of Pecson's investment for the Veteran's IV
Project);

ASSUMING WITHOUT ADMITTING THAT PETITIONER IS AT ALL LIABLE FOR ANY

(d) Legal interest on (a), (b) and (c) from the date the complaint was filed (up to the AMOUNT, THE HONORABLE COURT OF APPEALS DID NOT EVEN OFFSET PAYMENTS
time payment is made) ADMITTEDLY RECEIVED BY PECSON FROM MORAN.

The petitioner contends that the respondent Court of Appeals decided questions of V
substance in a way not in accord with law and with Supreme Court decisions when
it committed the following errors:

THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN NOT GRANTING THE

PETITIONER'S COMPULSORY COUNTERCLAIM FOR DAMAGES.
I

The first question raised in this petition refers to the award of P47,500.00 as the
THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN HOLDING PETITIONER private respondent's share in the unrealized profits of the partnership. The
ISABELO C. MORAN, JR. LIABLE TO RESPONDENT MARIANO E. PECSON IN THE SUM petitioner contends that the award is highly speculative. The petitioner maintains
OF P47,500 AS THE SUPPOSED EXPECTED PROFITS DUE HIM.
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 contractors in the construction of roads and bridges despite its deficient capital."
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
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.
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

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 xxx xxx xxx
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
... Moran admittedly signed the promissory note of P20,000 in favor of Pecson.
income therefore was P10,000.00. Deducting the printing costs of P4,000.00 from
Moran does not question the due execution of said note. Must Moran therefore
the gross income of P10,000.00 and with no evidence on the cost of distribution,
pay the amount of P20,000? The evidence indicates that the P20,000 was assigned
the net profits amount to only P6,000.00. This net profit of P6,000.00 should be
by Moran to cover the following: t.hqw
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.
(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');
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.

(b) P10,000 to cover the return of Pecson's contribution in the project of the
Posters;
Again, we agree with the petitioner.

(c) P3,000 representing Pecson's commission for three months (April, May, June,
The partnership agreement stipulated that the petitioner would give the private
1971).
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
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, in Carolina Industries Inc. v. CMS Stock Brokerage, Inc., et al., (97 SCRA 734),
we held that this Court retains the power to review and rectify the findings of fact
of the Court of Appeals when (1) the conclusion is a finding grounded entirely on
speculation, surmises and conjectures; (2) when the inference made is manifestly
mistaken absurd and impossible; (3) where there is grave abuse of discretion; (4)
when the judgment is based on a misapprehension of facts; and (5) when the court,
in making its findings, went beyond the issues of the case and the same are
contrary to the admissions of both the appellant and the appellee.
In this case, there is misapprehension of facts. The evidence of the private
respondent himself shows that his investment in the "Voice of Veterans" project
amounted to only P3,000.00. The remaining P4,000.00 was the amount of profit
that the private respondent expected to receive.
The records show the following exhibits- t.hqw
E Xerox copy of PNB Manager's Check No. 234265 dated March 22, 1971 in favor
of defendant. Defendant admitted the authenticity of this check and of his receipt
of the proceeds thereof (t.s.n., pp. 3-4, Nov. 29, 1972). This exhibit is being offered
for the purpose of showing plaintiff's capital investment in the printing of the
"Voice of the Veterans" for which he was promised a fixed profit of P8,000. This
investment of P6,000.00 and the promised profit of P8,000 are covered by
defendant's promissory note for P14,000 dated March 31, 1971 marked by
defendant as Exhibit 2 (t.s.n., pp. 20-21, Nov. 29, 1972), and by plaintiff as Exhibit P.
Later, defendant returned P3,000.00 of the P6,000.00 investment thereby
proportionately reducing the promised profit to P4,000. With the balance of P3,000
(capital) and P4,000 (promised profit), defendant signed and executed the
promissory note for P7,000 marked Exhibit 3 for the defendant and Exhibit M for
plaintiff. Of this P7,000, defendant paid P4,000 representing full return of the
capital investment and P1,000 partial payment of the promised profit. The P3,000
balance of the promised profit was made part consideration of the P20,000
promissory note (t.s.n., pp. 22-24, Nov. 29, 1972). It is, therefore, being presented
to show the consideration for the P20,000 promissory note.
F Xerox copy of PNB Manager's check dated May 29, 1971 for P7,000 in favor of
defendant. The authenticity of the check and his receipt of the proceeds thereof
were admitted by the defendant (t.s.n., pp. 3-4, Nov. 29, 1972). This P 7,000 is part
consideration, and in cash, of the P20,000 promissory note (t.s.n., p. 25, Nov. 29,
1972), and it is being presented to show the consideration for the P20,000 note
and the existence and validity of the obligation.
xxx xxx xxx
L-Book entitled "Voice of the Veterans" which is being offered for the purpose of
showing the subject matter of the other partnership agreement and in which
plaintiff invested the P6,000 (Exhibit E) which, together with the promised profit of
P8,000 made up for the consideration of the P14,000 promissory note (Exhibit 2;
Exhibit P). As explained in connection with Exhibit E. the P3,000 balance of the
promised profit was later made part consideration of the P20,000 promissory note.
M-Promissory note for P7,000 dated March 30, 1971. This is also defendant's
Exhibit E. This document is being offered for the purpose of further showing the
transaction as explained in connection with Exhibits E and L.
N-Receipt of plaintiff dated March 30, 1971 for the return of his P3,000 out of his
capital investment of P6,000 (Exh. E) in the P14,000 promissory note (Exh. 2; P).
This is also defendant's Exhibit 4. This document is being offered in support of
plaintiff's explanation in connection with Exhibits E, L, and M to show the
transaction mentioned therein.
xxx xxx xxx
P-Promissory note for P14,000.00. This is also defendant's Exhibit 2. It is being A It represents the P6,000.00 cash which I gave to Mr. Moran, as evidenced by the
offered for the purpose of showing the transaction as explained in connection with Philippine National Bank Manager's check and the P8,000.00 profit assured me by
Exhibits E, L, M, and N above. Mr. Moran which I will derive from the printing of this "Voice of the Veterans"
book.

Explaining the above-quoted exhibits, respondent Pecson testified that:

t.hqw 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?

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. A Yes, sir.
Do you know this promissory note?

Q What happened to this promissory note of P14,000.00 which you said

A Yes, sir. represented P6,000.00 of your investment and P8,000.00 promised profits?

Q What is this promissory note, in connection with your transaction with A Latter, Mr. Moran returned to me P3,000.00 which represented one-half (1/2) of
the defendant? the P6,000.00 capital I gave to him.

A This promissory note is for the printing of the "Voice of the Veterans". Q As a consequence of the return by Mr. Moran of one-half (1/2) of the P6,000.00
capital you gave to him, what happened to the promised profit of P8,000.00?

Q What is this "Voice of the Veterans", Mr. Pecson?

A It was reduced to one-half (1/2) which is P4,000.00.

A It is a book.t.hqw
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?

(T.S.N., p. 19, Nov. 29, 1972)

A Yes, sir, he executed a promissory note.

Q And what does the amount of P14,000.00 indicated in the promissory

note, Exhibit 2, represent?
Q I show you a promissory note in the amount of P7,000.00 dated March 30, 1971 Q You stated that Mr. Moran paid the amount of P4,000.00 on account of the
which for purposes of Identification I request the same to be marked as Exhibit M. . P7,000.00 covered by the promissory note, Exhibit M. What does this P4,000.00
. covered by Exhibit N represent?

Court t.hqw 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.

Mark it as Exhibit M.

Q And what happened to the balance of P3,000.00 under the promissory note,
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 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.

A Yes, sir. (T.S.N., pp. 20-22, Nov. 29, 1972).

(T.S.N., pp. 23-24, Nov. 29, 1972).

Q What happened to this promissory note executed by Mr. Moran, Mr. Pecson?

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
A Mr. Moran paid me P4,000.00 out of the P7,000.00 as shown by the promissory respondent himself who presented a copy of the book entitled "Voice of the
note. 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.

Q Was there a receipt issued by you covering this payment of P4,000.00 in favor of
Mr. Moran?
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.
A Yes, sir. 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.
(T.S.N., p. 23, Nov. 29, 1972).

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. M. TEAGUE, plaintiff-appellant, vs.H. MARTIN, J. T. MADDY and L.H. GOLUCKE,
defendants-appellees.

Plaintiff alleges that about December 23, 1926, he and the defendants formed a
SO ORDERED.1wph1.t partnership for the operation of a fish business and similar commercial
transactions, which by mutual contest was called "Malangpaya Fish Co," with a
capital of P35,000, of which plaintiff paid P25,000, the defendant Martin P5,000,
P2,500, and Golucke P2,500. That as such partnership, they agreed to share in the
profits and losses of the business in proportion to the amount of capital which each
contributed. That the plaintiff was named the general manager to take charge of
the business, with full power to do and perform all acts necessary to carry out of
the purposes of the partnership. That there was no agreement as to the duration of
the partnership. That plaintiff wants to dissolve it, but that the defendants refused
to do so. A statement marked Exhibit A, which purports to be a cash book, is made
a part of the complaint. That the partnership purchased and now owns a lighter
called Lapu-Lapu, and a motorship called Barracuda, and other properties. That the
lighter and the motorship are in the possession of the defendants who are making
use of them, to the damage and prejudice of the plaintiff, for any damage which
plaintiff may sustain. That it is for the best interest of the parties to have a receiver
appointed pending this litigation, to take possession of the properties, and he prays
that the Philippine Trust Company be appointed receiver, and for judgment
dissolving the partnership, with costs.

Each of the defendants filed a separate answer, but the same nature, in which they
admit that about December 10, 1926, the plaintiff and the defendants formed a
partnership for the purpose of the equipment of the Manila Fish Co., Inc., and the
conduct of a fish business. That the terms of the partnership were never evidenced
by a truth and in fact, the partnership was formed under a written plan, of which
each member received a copy and to which all agreed. That by its terms the
amount of the capital was P45,000, of which the plaintiff agreed to contribute
P35,000. That P20,000 of the capital was to be used for the purchase of the
equipment of the Manila Fish Co., Inc. and the balance placed to the checking
account o the new company.

It is then alleged that "the new owners agree to duties as follows:

Capt. Maddy will have charger of the Barracuda and the navigating of the same.
Salary P300 per month.
Mr. Martin will have charge of the southern station, cold stores, commissary and
procuring fish. Salary P300 per month.
Mr. Teague will have charge of selling fish in Manila and purchasing supplies. No
salary until business is on paying basis, then the same as Maddy or Martin.
The principal office shall be in Manila, each party doing any business shall keep
books showing plainly all transactions, the books shall be available at all time for
inspections of any member of the partnership.
If Mr. Martin or Mr. Maddy wishes at some future time to repurchase a larger
share in the business Teague agrees to sell part of his shares to each on the basis
double the amount originally invested by each or ten thousand to Martin and five
thousand to Maddy.
This offer will expire after two years.
That no charge was ever made in the terms of said agreement of copartnership as
set forth above except that it was later agreed among the partners that the
business of the partnership should be conducted under the trade name
"Malangpaya Fish Company."
That as shown by the foregoing quoted agreement the agreed capital of the
copartnership was P45,000 and not P35,000 as stated in the third paragraph of
plaintiff's amended complaint, and the plaintiff herein, M. Teague, bound himself
and agreed to contribute to the said copartnership the sum of P35,000 and not the
sum of P25,000 as stated in the third paragraph of his said amended complaint.
Defendant Martin specificaly denies the "plaintiff was named general manager of
the partnership," and alleged "that all the duties and powers of the said plaintiff
were specifically set forth in the above quoted written agreement and that no
further or additional powers were ever given the said plaintiff." But he admits the
purchase of the motorship Barracuda, by the partnership. He denies that Exhibit A
is a true or correct statement of the cash received and paid out by or on behalf of
the partnership, or that the partnership over purchased or that it now owns the
lighter Lapu-Lapu, "And/ or any other properties" as mentioned in said ninth
paragraph, except such motorship and a smoke in the house," or that the
defendants are making use of any of the properties of the partnership, to the
damage and prejudice of the plaintiff, or that they do not have any visible means to
answer for any damages, and alleges that at the time of the filing of the complaint,
partnership in cold storage, of the value of P6,000, for which he has never
accounted on the books of the partnership or mentioned in the complaint, and
defendant prays that plaintiff's complaint be dismissed, and that he be ordered and
required to render an accounting , and to pay to partnership the balance of his
unpaid subscription amounting to P10,000.
In his answer the defendant Maddy claimed and asserted that there is due and
owing him from the plaintiff P1,385.53, with legal interest, and in his amended
answer, the defendant Martin prays for judgment for P615.49.
To all which the plaintiff made a general and specific denial.
Upon such issues the lower court on April 30, 1928, rendered the following
judgment:
In view of the foregoing considerations, the court decrees:
That the partnership, existing among the parties in this suit, is hereby declared
dissolved; that all the existing properties of the said partnership are ordered to be
sold at public auction; and that all the proceeds and other unexpended funds of the
partnership be used, first, to pay he P529.48 tax to the Government of the
Philippine Islands; second, to pay debts owing to third persons; third, to reimburse
the partners for their advances and salaries due; and lastly, to return to the
partners the amounts they contributed to the capital of the association and any
other remaining such to be distributed proportionately among them as profits:
That the plaintiff immediately render a true and proper account of all the money
due to and received by him for the partnership.
That the barge Lapu-Lapu as well as the Ford truck No. T-3019 and adding machine
belong exclusively to the plaintiff, M. Teague, but the said plaintiff must return to
and reimburse the partnership the sum of P14,032.26 taken from its funds for the
purchase and equipment of the said barge Lapu-Lapu; and also to return the sum of
P1,230 and P228 used for buying the Ford truck and adding machine, respectively:
That the sum of P,1512.03 be paid to the defendant, J. T. Maddy, and the sum of
P615.49 be paid to defendant, H. Martin, for their advances and their unpaid
salaries, with legal interest from October 27, 1927, until paid; that the plaintiff pay
the costs of this action.
So ordered.
May 16, 1928, plaintiff filed a motion praying for an order "directing the court's
stenographic notes taken by them of the evidence presented in the present case,
as soon as possible." This motion was denied on May 19th, and on May 16th, the
court denied the plaintiff's motion for reconsideration. To all of which exceptions
were duly taken.
June 7, 1928, plaintiff filed a petition praying, for the reasons therein stated, that
the decision of the court in the case be set aside, and that the parties be permitted
to again present their testimony and to have the case decided upon its merits. To
which objections were duly made, and on June 28, 1928, the court denied
plaintiff's motion for a new trial. To which exceptions were duly taken, and on July
10, 1928, the plaintiff filed a motion in which he prayed that the period for the
appeal interposed by the plaintiff be suspended, and that the order of June 28,
1928, be set aside, "and that another be entered ordering the re-taking of the
evidence in this case." To which objections were also filed and later overruled, from
all of which the plaintiff appealed and assigns the following errors:
I. The trial court erred in not having confined itself, in the determination of
this case, to the question as to whether or not it is proper to dissolve the
partnership and to liquidate its assets, for all other issues raised by appellees are
incidental with the process of liquidation provided for by law.
II. The trial court erred in not resolving the primary and most important
question at issue in his case, namely, whether or not the appellant M. Teague was
the manager of the unregistered partnership Malangpaya Fish Company.
III. The trial court erred in holding that the appellant had no authority to buy
the Lapu-Lapu, the Ford truck and the adding machine without the consent of his
copartners, for in accordance with article 131 of the Code of Commerce the
managing partner of a partnership can make purchases for the partnership without
the knowledge and/or consent of his copartners.
IV. The trial court erred in holding that the Lapu-Lapu, the Ford truck and the
adding machine purchased by appellant, as manager of the Malangpaya Fish
Company, for and with funds of the partnership, do not form part of the assets of
the partnership.
V. The trial court erred in requiring the appellant to pay to the partnership
the sum of P14,032.26, purchase price, cost of repairs and equipment of the barge
Lapu-Lapu; P1,230 purchase price of the adding machine, for these properties were
purchased for and they form part of the assets of the partnership.
VI. The trial court erred in disapproving appellant's claim for salary and
expenses incurred by him for and in connection with the partnership's business.
VII. The trial court erred in approving the claims of appellees J.T. Maddy and
H. Martin and in requiring the appellant to pay them the sum of P1,512.03 and
P615.49 respectively.
VIII. The trial court erred in not taking cognizance of appellant's claim for
reimbursement for advances made by him for the partnerships, as shown in the
statement attached to the complaint marked Exhibit A, in which there is a balance
in his favor and against the partnership amounting to over P16,000.
X. Lastly, considering the irregularities committed, the disappearance of the
stenographic notes for a considerable length of time, during which time changes in
the testimonies of the witnesses could have been made and the impossibility of
having an accurate and complete transcript of the stenographic notes, the trial
court erred in denying appellant's petition for the retaking of the evidence in this
case.
JOHNS, J.:
By their respective pleadings, all parties agreed that there was a partnership
between them, which appears at one time to have done a good business. In legal
effect, plaintiff asked for its dissolution and the appointment of a receiver
pendente lite. The defendants did not object to the dissolution of the partnership,
but prayed for an accounting with the plaintiff. It was upon such issues that the
evidence was taken and the case tried. Hence, there is no merit in the first in the
first assignment of error. Complaint is made that the lower court did not
specifically decide as to whether or not the plaintiff was the manager of the
unregistered partnership. But upon that question the lower court, in legal effect,
followed and approved the contention of the defendants that the duties of each
partners were specified and defined in the "plans for formation of a limited
partnership," in which it is stated that Captain Maddy would have charge of the
Barracuda and its navigation, with a salary of P300 per month, and that Martin
would have charge of the southern station, cold stores, commisary and procuring
fish, with a salary of P300 per month, and that the plaintiff would have charge of
selling fish in Manila and purchasing supplies, without salary until such time as the
business is placed on a paying basis, when his salary would be the same as that of
Maddy and Martin, and that the principal office of the partnership "shall keep
books showing plainly all transactions," which shall be available at all time for
inspection of any of the members.
It will thus be noted that the powers and duties of Maddy Martin, and the plaintiff
are specifically defined, and that each of them was more or less the general
manager in his particular part of the business. That is to say, that Maddy's power
and duties are confined and limited to the charge of the Barracuda and its
navigation, and Martin's to the southern station, cold stores, commissary and
procuring fish, and that plaintiff's powers and duties are confined and limited to
"selling fish in Manila and the purchase of supplies." In the selling of fish, plaintiff
received a substantial amount of money which he deposited to the credit of the
company signed by him as manager, but it appears that was a requirement which
the bank made in the ordinary course of business, as to who was authorized to sign
checks for the partnership; otherwise, it would not cash the checks.
In the final analysis, the important question in this case is the ownership of the
Lapu-Lapu, the Ford truck, and the adding machine. The proof is conclusive that
they were purchased by the plaintiff and paid for him from and out of the money of
the partnership. That at the time of their purchase, the Lapu-Lapu was purchased
in the name of the plaintiff, and that he personally had it registered in the customs
house in his own name, for which he made an affidavit that he was its owner. After
the purchase, he also had the Ford truck registered in his won name. His
contention that this was done as a matter of convenience is not tenable. The
record shows that when the partnership purchased the Barracuda, it was
registered in the customs house in the name of the partnership, and that it was a
very simple process to have it so registered.
Without making a detailed analysis of the evidence, we agree with the trial court
that the Lapu-Lapu, the Ford truck, and the adding machine were purchased by the
plaintiff and paid for out of the funds of the partnership, and that by his own
actions and conduct, and the taking of the title in his own name, he is now
estopped to claim or assert that they are not his property or that they are the
property of the company. Again, under his powers and duties as specified in the
tentative, unsigned written agreement, his authority was confined and limited to
the "selling of fish in Manila and the purchase of supplies." It must be conceded
that, standing alone, the power to sell fish and purchase supplies does not carry
with it or imply the authority to purchase the Lapu-Lapu, or the Ford truck, or the
adding machine. From which it must follow that he had no authority to purchase
the lighter Lapu-Lapu, the Ford truck, or the adding machine, as neither of them
can be construed as supplies for the partnership business. While it is true that the A. You asked me my opinion and I said that I am entitled to it.
tentative agreement was never personally signed by any member of the firm, the
trial court found as a fact, and that finding is sustained by the evidence, that this
unsigned agreement was acted upon and accepted by all parties as the basis of the
partnership. It was upon that theory that the lower court allowed the defendant s xxx xxx xxx
Maddy and Martin a salary of P300 per month and the money which each of them
paid out and advanced in the discharged of their respective duties, and denied any
salary to the plaintiff, for the simple reason that the business was never on a
paying basis. I am not on trial as a bookkeeper; if my lawyers won't object to the question I will
object myself; I am not on trial as a bookkeeper; I keep my books any way I want
to, put in what I want to, and I leave out anything I don't choose to put in,

Much could be said about this division of powers, and that Maddy and Martin's
duties were confined and limited to the catching and procuring of fish, which were
then shipped to the plaintiff who sold them on the Manila market and received the xxx xxx xxx
proceeds of the sales. In other words, Maddy and Martin were supplying the fish to
plaintiff who sold them under an agreement that he would account for the money.
Q. You have your own bookkeeping?

Upon the question of accounting, his testimony as to the entries which he made
and how he kept the books of the partnership is very interesting:
A. Well, I run my business to suit myself, I put in the books what I want to,
and I leave out what I want to, and I have a quarter of a million pesos to show for
it,
Q. Then this salary does not take into consideration the fact that you claim
the company is very badly in debt?
xxx xxx xxx

A. Well, I put the salary in there.

Q. Did you not say that you paid yourself a salary in August because you
made a profit?
Q. I am asking you if that is true?

A. Yes. This profit was made counting the stock on hand and equipment on
A. I do not think I will decide that, I think it will be decided by the court. hand, but as far as cash to pay this balance, I did not have it. when I wanted a
salary I just took it. I ran things to suit myself.

Q. I will ask you to answer the question?

xxx xxx xxx
Q. In other words in going against these partners you are going to tax them
for the services of your attorney?
A. You are mistaken; I am not against them. I paid this out for filing this
complaint and if the honorable court strikes it out, all right. I think it was a just
charge. When I want to sue them the Company can pay for my suit.
Q. Would you have any objection to their asking for their attorney's fees
from the company as partners also in the business?
A. Yes.
Q. You would object to your partners having their attorney's fees here paid
out of the copartnership like you have had yours paid?
A. Yes, that is the way I do my business.
To say the least, this kind of evidence does not appeal to the court. This case has
been bitterly contested, and there is much feeling between the parties and even
their respective attorneys. Be that as it may, we are clearly of the opinion that the
findings of the lower court upon questions of fact are well sustained by the
evidence. Plaintiff's case was tried on the theory that the partnership was the
owner of the property in question, and no claim was made for the use of the Lapu-
Lapu, and it appears that P14,032.26 of the partnership money was used in its
purchase, overhauling, expenses and repairs. That in truth and in fact the
partnership had the use and benefit of the Lapu-Lapu in its business from
sometime in May until the receiver was appointed on November 11, 1927, or a
period of about six months, and that the partnership has never paid anything for its
use. it is true that there is no testimony as to the value of such use, but the cost of
the Lapu-Lapu and the time of its use and the purpose for which it was used, all
appear in the record. For such reason, in the interest of justice, plaintiff should be
compensated for the reasonable value of the time which the partnership made use
of the Lapu-Lapu.
All things considered, we are of the opinion that P2,000 is a reasonable, amount
which the plaintiff should receive for its use.
In all things and respects, the judgment of the lower court as to the merits is
affirmed, with the modification only that P2,000 shall be deducted from the
amount of the judgment which was awarded against the plaintiff, such deduction
to be made for and on account of such use of the Lapu-Lapu by the partnership,
with costs against the appellant. So ordered.
MARGARITA VILLANUEVA, as judicial administratrix of the deceased Lorenzo
Villanueva, Plaintiff-Appellant, vs. JUAN SANTOS, Defendant-Appellee.
This appeal was taken by the plaintiff from the order of the Court of First Instance
of Bulacan, holding that the consignation made by said plaintiff was invalid and
that the sale with the right of repurchase of the parcels of land in litigation was
final, and ordering her to yield possession thereof to the defendant within ten days
from receipt of notice of the said order.chanroblesvirtualawlibrary chanrobles
virtual law library
The plaintiff, as judicial administratrix of the deceased Lorenzo Villanueva,
commenced in the Court of First Instance of Bulacan civil case No. 5249 against the
defendant to annul the deed of sale with the right of repurchase of two parcels of
land executed by the said Lorenzo Villanueva while living in favor of the defendant.
The following decision was rendered in the said case:
When this case was called for trial, the parties through their respective attorneys
submitted the following stipulation for the decision of the court:chanrobles virtual
law library
"Both parties, assisted by their respective attorneys, agree that the plaintiff shall
pay on December 4, 1936, to the defendant to repurchase the two parcels of land
described in the complaint, the sum of three hundred fifty-nine pesos and sixty
centavos (P356.60), with legal interest thereon from January 8, 1934 until the said
date, December 4, 1936; and that should she fail to pay the said sum of P359.60, or
a part thereof, or the interest thereon, wholly or partially, then the sale with the
right of repurchase of said parcels, as they appear in the deed of sale Exhibit A of
the complaint, shall be deemed final; and that the plaintiff shall deliver the
possession of said parcels.chanroblesvirtualawlibrary chanrobles virtual law library
"They likewise agree that should the plaintiff pay the aforesaid sums within the
stipulated period, the expenses for the execution of the corresponding deed and
the transfer of certificates shall be defrayed by the
plaintiff.chanroblesvirtualawlibrary chanrobles virtual law library
"They also agree that the plaintiff shall on this very date ask the authority of the
court to enter into this stipulation in the intestate of the deceased Lorenzo
Villanueva; and to render a decision in accordance therewith."chanrobles virtual
law library
Wherefore, the court approves this stipulation and orders the parties to observe
and comply strictly with the conditions thereof, without pronouncement as to the
costs. So ordered.chanroblesvirtualawlibrary chanrobles virtual law library
Malolos, Bulacan, today November 5, 1936.
(Sgd.) PEDRO MA. SISON
Judge (B. E., p. 7.)
On the night of December 4, 1936, the date of the expiration of the period granted
to the plaintiff to pay the repurchase price, the latter offered to the defendant the
check No. D-8695 for P421.04, issued by Ramon Meneses against the Bank of the
Philippines Islands in payment of the repurchase price. As the defendant refused to
accept the check on the allegation that the payment should be made in money or
legal tender, the plaintiff, through counsel, deposited the check with the clerk of
court who received the same, and at the same time put in a motion asking that the
payment be deemed effected and the two parcels of land redeemed, and, further,
that the defendant be ordered to pay her the sum of P120 as damages. After
hearing the motion, the court on April 30, 1937, issued the aforementioned order
from which the plaintiff appealed.chanroblesvirtualawlibrary chanrobles virtual law
library
In her sole assigned error the plaintiff contends that the court erred in holding that
the consignation of the check with the clerk of court was invalid and that it did not
have the effect of paying her obligation. The court correctly held that the
consignation was unavailing and that it did not produce any legal effect because
the defendant did not accept it and it was not in the form of money or legal tender.
Article 1170 of the Civil Code provides that payment of debts of money shall be
made in the specie stipulation and, should it not be possible to deliver such specie,
in silver or gold coin legally current; and provides, further, that the delivery of
promissory notes payable to order, or drafts or other commercial paper, shall
produce the effects of payment only when realized or when, by the fault of the
creditor, the privileges inherent in their negotiable character have been lost. Under
this legal provision the defendant was not under a duty to accept the check
because it is known that it does not constitute legal tender, and the consignation
having been refused, it did not produce any legal effect and could not be
considered as payment made by the plaintiff of the repurchase price. In Belisario
vs. Natividad ([1934]), 60 Phil., 156), it was held that a creditor is not bound to
accept a check in satisfaction of his demand, because a check, even if good when
offered, does not meet the requirements of a legal
tender.chanroblesvirtualawlibrary chanrobles virtual law library
The defendant, in turn, alleges that the court erred in concluding that he testified
that the plaintiff's indebtedness was P421.04, and in not holding that the
consignation was invalid because the plaintiff's debt was P422.29 and the check
only amounted to P421.04. These assigned errors can neither be considered nor
passed for the simple reason that the defendant did not appeal from any part of
the court's order.chanroblesvirtualawlibrary chanrobles virtual law library
In view of the foregoing, the appealed order is affirmed, with the costs of this
instance to the plaintiff-appellant. So ordered.
E. M. BACHRACH, plaintiff-appellee, vs."LA PROTECTORA", ET AL., defendants-
appellants.
In the year 1913, the individuals named as defendants in this action formed a civil
partnership, called "La Protectora," for the purpose of engaging in the business of
transporting passengers and freight at Laoag, Ilocos Norte. In order to provide the
enterprise with means of transportation, Marcelo Barba, acting as manager, came
to Manila and upon June 23, 1913, negotiated the purchase of two automobile
trucks from the plaintiff, E. M. Bachrach, for the agree price of P16,500. He paid the
sum of 3,000 in cash, and for the balance executed promissory notes representing
the deferred payments. These notes provided for the payment of interest from
June 23, 1913, the date of the notes, at the rate of 10 per cent per annum.
Provision was also made in the notes for the payment of 25 per cent of the amount
due if it should be necessary to place the notes in the hands of an attorney for
collection. Three of these notes, for the sum of P3,375 each, have been made the
subject of the present action, and there are exhibited with the complaint in the
cause. One was signed by Marcelo Barba in the following manner:
P. P. La Protectora
By Marcelo Barba
Marcelo Barba.
The other two notes are signed in the same way with the word "By" omitted before
the name of Marcelo Barba in the second line of the signature. It is obvious that in
thus signing the notes Marcelo Barba intended to bind both the partnership and
himself. In the body of the note the word "I" (yo) instead of "we" (nosotros) is used
before the words "promise to pay" (prometemos) used in the printed form. It is
plain that the singular pronoun here has all the force of the plural.
As preliminary to the purchase of these trucks, the defendants Nicolas Segundo,
Antonio Adiarte, Ignacio Flores, and Modesto Serrano, upon June 12, 1913,
executed in due form a document in which they declared that they were members
of the firm "La Protectora" and that they had granted to its president full authority
"in the name and representation of said partnership to contract for the purchase of
two automobiles" (en nombre y representacion de la mencionada sociedad
contratante la compra de dos automoviles). This document was apparently
executed in obedience to the requirements of subsection 2 of article 1697 of the
Civil Code, for the purpose of evidencing the authority of Marcelo Barba to bind the
partnership by the purchase. The document in question was delivered by him to
Bachrach at the time the automobiles were purchased.
From time to time after this purchase was made, Marcelo Barba purchased of the
plaintiff various automobile effects and accessories to be used in the business of
"La Protectora." Upon May 21, 1914, the indebtedness resulting from these
additional purchases amounted to the sum of P2,916.57
In May, 1914, the plaintiff foreclosed a chattel mortgage which he had retained on
the trucks in order to secure the purchase price. The amount realized from this sale
was P1,000. This was credited unpaid. To recover this balance, together with the
sum due for additional purchases, the present action was instituted in the Court of
First Instance of the city of Manila, upon May 29, 1914, against "La Protectora" and
the five individuals Marcelo Barba, Nicolas Segundo, Antonio Adiarte, Ignacio
Flores, and Modesto Serrano. No question has been made as to the propriety of
impleading "La Protectora" as if it were a legal entity. At the hearing, judgment was
rendered against all of the defendants. From this judgment no appeal was taken in
behalf either of "La Protectora" or Marcelo Barba; and their liability is not here
under consideration. The four individuals who signed the document to which
reference has been made, authorizing Barba to purchase the two trucks have,
however, appealed and assigned errors. The question here to be determined is
whether or not these individuals are liable for the firm debts and if so to what
extent.
The amount of indebtedness owing to the plaintiff is not in dispute, as the principal
of the debt is agreed to be P7,037. Of this amount it must now be assumed, in view
of the finding of the trial court, from which no appeal has been taken by the
plaintiff, that the unpaid balance of the notes amounts to P4,121, while the
remainder (P2,916) represents the amount due for automobile supplies and
accessories.
The business conducted under the name of "La Protectora" was evidently that of a
civil partnership; and the liability of the partners to this association must be
determined under the provisions of the Civil Code. The authority of Marcelo Barba
to bind the partnership, in the purchase of the trucks, is fully established by the
document executed by the four appellants upon June 12, 1913. The transaction by
which Barba secured these trucks was in conformity with the tenor of this
document. The promissory notes constitute the obligation exclusively of "La
Protectora" and of Marcelo Barba; and they do not in any sense constitute an
obligation directly binding on the four appellants. Their liability is based on the fact
that they are members of the civil partnership and as such are liable for its debts. It
is true that article 1698 of the Civil Code declares that a member of a civil
partnership is not liable in solidum (solidariamente) with his fellows for its entire
indebtedness; but it results from this article, in connection with article 1137 of the
Civil Code, that each is liable with the others (mancomunadamente) for his aliquot
part of such indebtedness. And so it has been held by this court. (Co-Pitco vs. Yulo,
8 Phil. Rep., 544.)
The Court of First Instance seems to have founded its judgment against the
appellants in part upon the idea that the document executed by them constituted
an authority for Marcelo Barba to bind them personally, as contemplated in the
second clause of article 1698 of the Civil Code. That cause says that no member of
the partnership can bind the others by a personal act if they have not given him
authority to do so. We think that the document referred to was intended merely as
an authority to enable Barba to bind the partnership and that the parties to that
instrument did not intend thereby to confer upon Barba an authority to bind them
personally. It is obvious that the contract which Barba in fact executed in
pursuance of that authority did not by its terms profess to bind the appellants
personally at all, but only the partnership and himself. It follows that the four
appellants cannot be held to have been personally obligated by that instrument;
but, as we have already seen, their liability rests upon the general principles
underlying partnership liability.
As to so much of the indebtedness as is based upon the claim for automobile
supplies and accessories, it is obvious that the document of June 12, 1913, affords
no authority for holding the appellants liable. Their liability upon this account is,
however, no less obvious than upon the debt incurred by the purchase of the
trucks; and such liability is derived from the fact that the debt was lawfully incurred
in the prosecution of the partnership enterprise.
There is no proof in the record showing what the agreement, if any, was made with
regard to the form of management. Under these circumstances it is declared in
article 1695 of the Civil Code that all the partners are considered agents of the
partnership. Barba therefore must be held to have had authority to incur these
expenses. But in addition to this he is shown to have been in fact the president or
manager, and there can be no doubt that he had actual authority to incur this
obligation.
From what has been said it results that the appellants are severally liable for their
respective shares of the entire indebtedness found to be due; and the Court of First
Instance committed no error in giving judgment against them. The amount for
which judgment should be entered is P7,037, to which shall be added (1) interest at
10 per cent per annum from June 23, 1913, to be calculated upon the sum of
P4.121; (2) interest at 6 per cent per annum from July 21, 1915, to be calculated
upon the sum of P2,961; (3) the further sum of P1,030.25, this being the amount
stipulated to be paid by way of attorney's fees. However, it should be noted that
any property pertaining to "La Protectora" should first be applied to this
indebtedness pursuant to the judgment already entered in this case in the court
below; and each of the four appellants shall be liable only for the one-fifth part of
the remainder unpaid.
Let judgment be entered accordingly, without any express finding of costs of this
instance. So ordered.
JOSE MACHUCA, plaintiff-appellee, vs.CHUIDIAN, BUENAVENTURA & CO.,
defendants-appellants.
Most of the allegations of the complaint were admitted by the defendant at the
hearing, and the judgment of the court below is based on the state of facts
appearing from such admissions, no evidence having been taken.
The defendants are a regular general partnership, organized in Manila, December
29, 1882, as a continuation of a prior partnership of the same name. The original
partners constituting the partnership of 1882 were D. Telesforo Chuidian, Doa
Raymunda Chuidian, Doa Candelaria Chuidian, and D. Mariano Buenaventura. The
capital was fixed in the partnership agreement at 16,000 pesos, of which the first
three partners named contributed 50,000 pesos each, and the last named 10,000
pesos, and it was stipulated that the liability of the partners should be "limited to
the amounts brought in by them to form the partnership stock."
In addition to the amounts contributed by the partners to the capital, it appears
from the partnership agreement that each one of them had advanced money to
the preexisting partnership, which advances were assumed or accounts-current
aggregated something over 665,000 pesos, of which sum about 569,000 pesos
represented the advances from the Chuidians and the balance that balance that
from D. Mariano Buenaventura.
Doa Raymunda Chuidian retired from the partnership November 4, 1885. On
January 1, 1888, the partnership went into liquidation, and it does not appear that
the liquidation had been terminated when this action was brought.
Down to the time the partnership went into liquidation the accounts-current of D.
Telesforo Chuidian and Doa Candelaria Chuidian had been diminished in an
amount aggregating about 288,000 pesos, while that of D. Mariano Buenaventura
had been increased about 51,000 pesos. During the period from the
commencement of the liquidation down to January 1, 1896, the account-current of
each of the Chuidians had been still further decreased, while that of D. Mariano
Buenaventura had been still further increased.
On January 1, 1894, D. Mariano Buenaventura died, his estate passing by will to his
children, among whom was D. Vicente Buenaventura. Upon the partition of the
estate the amount of the interest of D. Vicente Buenaventura in his father's
account-current and in the capital was ascertained and recorded in the books of
the firm.
On December 15, 1898, D. Vicente Buenaventura executed a public instrument in
which for a valuable consideration he "assigns to D. Jose Gervasio Garcia . . . a 25
per cent share in all that may be obtained by whatever right in whatever form from
the liquidation of the partnership of Chuidian, Buenaventura & Co., in the part
pertaining to him in said partnership, . . . the assignee, being expressly empowered
to do in his own name, and as a part owner, by virtue of this assignment in the
assets of the partnership, whatever things may be necessary for the purpose of
accelerating the liquidation, and of obtaining on judicially or extrajudicially the
payment of the deposits account-current pertaining to the assignor, it being
understood that D. Jose Gervasio Garcia is to receive the 25 per cent assigned to
him, in the same form in which it may be obtained from said partnership, whether
in cash, credits, goods, movables or immovables, and on the date when Messrs.
Chuidian, Buenaventura & Co., in liquidation, shall have effected the operations
necessary in order to satisfy the credits and the share in the partnership capital
hereinbefore mentioned."
The plaintiff claims under Garcia by virtue of a subsequent assignment, which has
been notified to the liquidator of the partnership.
The liquidator of the partnership having declined to record in the books of the
partnership the plaintiff's claim under the assignment as a credit due from the
concern to him this action is brought to compel such record to be made, and the
plaintiff further asks that he be adjudicated to be a creditor of the partnership in an
amount equal to 25 per cent of D. Vicente Buenaventura's share in his father's
account-current, as ascertained when the record was made in the books of the
partnership upon the partition of the latters estate, with interest, less the liability
to which the plaintiff is subject by reason of his share in the capital; that the
necessary liquidation being first had, the partnership pay to the plaintiff the
balance which may be found to be due him; and that if the partnership has no
funds with which to discharge this obligation an adjudication of bankruptcy be
made. He also asks to recover the damages caused by reason of the failure of the
liquidator to record his credit in the books of partnership.
The judgment of the court below goes beyond the relief asked by the plaintiff in
the complaint, the plaintiff being held entitled not only to have the credit assigned
him recorded in the books of the partnership but also to receive forthwith 25 per
cent of an amount representing the share of D. Vicente Buenaventura in the
account-current at the time of the partition of his father's estate, with interest, the
payment of the 25 percent of Buenaventura's share in the capital to be postponed
till the termination of the liquidation. This point has not, however, been taken by
counsel, and we have therefore considered the case upon its merits.
The underlying question in the case relates to the construction of clause 19 of the
partnership agreement, by which it was stipulated that "upon the dissolution of the
company, the pending obligations in favor of outside parties should be satisfied,
the funds of the minors Jose and Francisco Chuidian [it does not appear what their
interest in the partnership was or when or how it was acquired] should be taken
out, and afterwards the resulting balance of the account-current of each one of
those who had put in money (imponentes) should be paid."
Our construction of this clause is that it establishes a a basis for the final
adjustment of the affairs of the partnership; that that basis is that the liabilities to
noncompartners are to be first discharged; that the claims of the Chuidian minors
are to be next satisfied; and that what is due to the respective partners on account
of their advances to the firm is to be paid last of all, leaving the ultimate residue, of
course, if there be any, to be distributed, among the partners in the proportions in
which they may be entitled thereto.
Although in a sense the partners, being at the same time creditors, were "outside
parties," it is clear that a distinction is made in this clause between creditors who
were partners and creditors who were not partners, and that the expression
"outside parties" refers to the latter class. And the words "pending obligations," we
think, clearly comprehend outstanding obligations of every kind in favor of such
outside parties, and do not refer merely, as claimed by counsel for the plaintiff, to
the completion of mercantile operations unfinished at the time of the dissolution
of the partnership, such as consignments of goods and the like. As respects the
claims of the Chuidian minors, the suggestion of counsel is that the clause in
question means that their accounts are to be adjusted before those of the partners
but not paid first. Such a provision would have been of no practical utility, and the
language used that the funds should be "taken out" (se dedujeran) does not
admit of such a construction.
Such being the basis upon which by agreement of the partners the assets of the
partnership are to be applied to the discharge of the various classes of the firm's
liabilities, it follows that D. Vicente Buenaventura, whose rights are those of his
father, is in no case entitled to receive any part of the assets until the creditors who
are nonpartners and the Chuidian minors are paid. Whatever rights he had either
as creditor or partner, he could only transfer subject to this condition. And it is
clear, from the language of the instrument under which the plaintiff claims, that
this conditional interest was all that D. Vicente Buenaventura ever intended to
transfer. By that instrument he undertakes to assign to Garcia not a present
interest in the assets of the partnership but an interest in whatever "may be
obtained from the liquidation of the partnership," which Garcia is to receive "in the
same form in which it may be obtained from said partnership," and "on the date
when Messrs. Chuidian, Buenaventura & Co., in liquidation, shall have effected the
operations necessary in order to satisfy" the claims of D. Vicente Buenaventura.
Upon this interpretation of the assignment, it becomes unnecessary to inquire
whether article 143 of the Code of Commerce, prohibiting a partner from
transferring his interest in the partnership without the consent of the other
partners, applies to partnerships in liquidation, as contended by the defendant. The
assignment by its terms is not to take effect until all the liabilities of the
partnership have been discharged and nothing remains to be done except to
distribute the assets, if there should be any, among the partners. Meanwhile the
assignor, Buenaventura, is to continue in the enjoyment of the rights and is to
remain subject to the liabilities of a partner as though no assignment had been
made. In other words, the assignment does not purport to transfer an interest in
the partnership, but only a future contingent right to 25 per cent of such portion of
the ultimate residue of the partnership property as the assignor may become
entitled to receive by virtue of his proportionate interest in the capital.
There is nothing in the case to show either that the nonpartner creditors of the
partnership have been paid or that the claims of the Chuidian minors have been
satisfied. Such rights as the plaintiff has acquired against the partnership under the
assignment still remain, therefore, subject to the condition which attached to them
in their origin, a condition wholly uncertain of realization, since it may be that the
entire assets of the partnership will be exhausted in the payment of the creditors
entitled to preference under the partnership agreement, thus extinguishing the
plaintiff's right to receive anything from the liquidation.
It is contended by the plaintiff that, as the partnership was without authority to
enter upon new mercantile operations after the liquidation commenced, the
increase in D. Mariano Buenaventura's account-current during that period was the
result of a void transaction, and that therefore the plaintiff is entitled to withdraw
at once the proportion of such increase to which he is entitled under the
assignment. With reference to this contention, it is sufficient to say that it nowhere
appears in the case that the increase in D. Mariano Buenaventura's account-
current during the period of liquidation was the result of new advances to the firm,
and the figures would appear to indicate that it resulted from the accumulation of
interest.
Counsel for the plaintiff have discussed at length in their brief the meaning of the
clause in the partnership agreement limiting the liability of the partners to the
amounts respectively brought into the partnership by them, and the effect of this
stipulation upon their rights as creditors of the firm. These are questions which
relate to the final adjustment of the affairs of the firm, the distribution of the
assets remaining after all liabilities have been discharged, or, on the other hand,
the apportionment of the losses if the assets should not be sufficient to meet the
liabilities. They are in no way involved in the determination of the present case.

The plaintiff having acquired no rights under the assignment which are now
enforceable against the defendant, this action can not be maintained. The
liquidator of the defendant having been notified of the assignment, the plaintiff will
be entitled to receive from the assets of the partnership, if any remain, at the
termination of the liquidation, 25 per cent of D. Vicente's resulting interest, both as
partner and creditor. The judgment in this case should not affect the plaintiff's right
to bring another action against the partnership when the affairs of the same are
finally wound up. The proper judgment will be that the action be dismissed. The
judgment of the court below is reversed and the case is remanded to that court
with directions to enter a judgment of dismissal. So ordered.
DAN FUE LEUNG, petitioner, vs.HON. INTERMEDIATE APPELLATE COURT and
LEUNG YIU, respondents.
The petitioner asks for the reversal of the decision of the then Intermediate
Appellate Court in AC-G.R. No. CV-00881 which affirmed the decision of the then
Court of First Instance of Manila, Branch II in Civil Case No. 116725 declaring
private respondent Leung Yiu a partner of petitioner Dan Fue Leung in the business
of Sun Wah Panciteria and ordering the petitioner to pay to the private respondent
his share in the annual profits of the said restaurant.
This case originated from a complaint filed by respondent Leung Yiu with the then
Court of First Instance of Manila, Branch II to recover the sum equivalent to
twenty-two percent (22%) of the annual profits derived from the operation of Sun
Wah Panciteria since October, 1955 from petitioner Dan Fue Leung.
The Sun Wah Panciteria, a restaurant, located at Florentino Torres Street, Sta. Cruz,
Manila, was established sometime in October, 1955. It was registered as a single
proprietorship and its licenses and permits were issued to and in favor of petitioner
Dan Fue Leung as the sole proprietor. Respondent Leung Yiu adduced evidence
during the trial of the case to show that Sun Wah Panciteria was actually a
partnership and that he was one of the partners having contributed P4,000.00 to
its initial establishment.
The private respondents evidence is summarized as follows:
About the time the Sun Wah Panciteria started to become operational, the private
respondent gave P4,000.00 as his contribution to the partnership. This is evidenced
by a receipt identified as Exhibit "A" wherein the petitioner acknowledged his
acceptance of the P4,000.00 by affixing his signature thereto. The receipt was
written in Chinese characters so that the trial court commissioned an interpreter in
the person of Ms. Florence Yap to translate its contents into English. Florence Yap
issued a certification and testified that the translation to the best of her knowledge
and belief was correct. The private respondent identified the signature on the
receipt as that of the petitioner (Exhibit A-3) because it was affixed by the latter in
his (private respondents') presence. Witnesses So Sia and Antonio Ah Heng
corroborated the private respondents testimony to the effect that they were both
present when the receipt (Exhibit "A") was signed by the petitioner. So Sia further
testified that he himself received from the petitioner a similar receipt (Exhibit D)
evidencing delivery of his own investment in another amount of P4,000.00 An
examination was conducted by the PC Crime Laboratory on orders of the trial court
granting the private respondents motion for examination of certain documentary
exhibits. The signatures in Exhibits "A" and 'D' when compared to the signature of
the petitioner appearing in the pay envelopes of employees of the restaurant,
namely Ah Heng and Maria Wong (Exhibits H, H-1 to H-24) showed that the
signatures in the two receipts were indeed the signatures of the petitioner.
Furthermore, the private respondent received from the petitioner the amount of
P12,000.00 covered by the latter's Equitable Banking Corporation Check No.
13389470-B from the profits of the operation of the restaurant for the year 1974.
Witness Teodulo Diaz, Chief of the Savings Department of the China Banking
Corporation testified that said check (Exhibit B) was deposited by and duly credited
to the private respondents savings account with the bank after it was cleared by
the drawee bank, the Equitable Banking Corporation. Another witness Elvira Rana
of the Equitable Banking Corporation testified that the check in question was in fact
and in truth drawn by the petitioner and debited against his own account in said
bank. This fact was clearly shown and indicated in the petitioner's statement of
account after the check (Exhibit B) was duly cleared. Rana further testified that
upon clearance of the check and pursuant to normal banking procedure, said check
was returned to the petitioner as the maker thereof.
The petitioner denied having received from the private respondent the amount of
P4,000.00. He contested and impugned the genuineness of the receipt (Exhibit D).
His evidence is summarized as follows:
The petitioner did not receive any contribution at the time he started the Sun Wah
Panciteria. He used his savings from his salaries as an employee at Camp
Stotsenberg in Clark Field and later as waiter at the Toho Restaurant amounting to
a little more than P2,000.00 as capital in establishing Sun Wah Panciteria. To
bolster his contention that he was the sole owner of the restaurant, the petitioner
presented various government licenses and permits showing the Sun Wah
Panciteria was and still is a single proprietorship solely owned and operated by
himself alone. Fue Leung also flatly denied having issued to the private respondent
the receipt (Exhibit G) and the Equitable Banking Corporation's Check No.
13389470 B in the amount of P12,000.00 (Exhibit B).
As between the conflicting evidence of the parties, the trial court gave credence to
that of the plaintiffs. Hence, the court ruled in favor of the private respondent. The
dispositive portion of the decision reads:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the
defendant, ordering the latter to deliver and pay to the former, the sum equivalent
to 22% of the annual profit derived from the operation of Sun Wah Panciteria from
October, 1955, until fully paid, and attorney's fees in the amount of P5,000.00 and
cost of suit. (p. 125, Rollo)
The private respondent filed a verified motion for reconsideration in the nature of
a motion for new trial and, as supplement to the said motion, he requested that
the decision rendered should include the net profit of the Sun Wah Panciteria
which was not specified in the decision, and allow private respondent to adduce
evidence so that the said decision will be comprehensively adequate and thus put
an end to further litigation.
The motion was granted over the objections of the petitioner. After hearing the
trial court rendered an amended decision, the dispositive portion of which reads:
FOR ALL THE FOREGOING CONSIDERATIONS, the motion for reconsideration filed
by the plaintiff, which was granted earlier by the Court, is hereby reiterated and
the decision rendered by this Court on September 30, 1980, is hereby amended.
The dispositive portion of said decision should read now as follows:
WHEREFORE, judgment is hereby rendered, ordering the plaintiff (sic) and against
the defendant, ordering the latter to pay the former the sum equivalent to 22% of
the net profit of P8,000.00 per day from the time of judicial demand, until fully
paid, plus the sum of P5,000.00 as and for attorney's fees and costs of suit. (p. 150,
Rollo)
The petitioner appealed the trial court's amended decision to the then
Intermediate Appellate Court. The questioned decision was further modified by the
appellate court. The dispositive portion of the appellate court's decision reads:
WHEREFORE, the decision appealed from is modified, the dispositive portion
thereof reading as follows:
1. Ordering the defendant to pay the plaintiff by way of temperate damages 22% of
the net profit of P2,000.00 a day from judicial demand to May 15, 1971;
2. Similarly, the sum equivalent to 22% of the net profit of P8,000.00 a day from
May 16, 1971 to August 30, 1975;
3. And thereafter until fully paid the sum equivalent to 22% of the net profit of
P8,000.00 a day.
Except as modified, the decision of the court a quo is affirmed in all other respects.
(p. 102, Rollo)
Later, the appellate court, in a resolution, modified its decision and affirmed the
lower court's decision. The dispositive portion of the resolution reads:
WHEREFORE, the dispositive portion of the amended judgment of the court a quo
reading as follows:
WHEREFORE, judgment is rendered in favor of the plaintiff and against the
defendant, ordering the latter to pay to the former the sum equivalent to 22% of
the net profit of P8,000.00 per day from the time of judicial demand, until fully
paid, plus the sum of P5,000.00 as and for attorney's fees and costs of suit.
is hereby retained in full and affirmed in toto it being understood that the date of
judicial demand is July 13, 1978. (pp. 105-106, Rollo).
In the same resolution, the motion for reconsideration filed by petitioner was
denied.
Both the trial court and the appellate court found that the private respondent is a
partner of the petitioner in the setting up and operations of the panciteria. While
the dispositive portions merely ordered the payment of the respondents share,
there is no question from the factual findings that the respondent invested in the
business as a partner. Hence, the two courts declared that the private petitioner is
entitled to a share of the annual profits of the restaurant. The petitioner, however,
claims that this factual finding is erroneous. Thus, the petitioner argues: "The
complaint avers that private respondent extended 'financial assistance' to herein
petitioner at the time of the establishment of the Sun Wah Panciteria, in return of
which private respondent allegedly will receive a share in the profits of the
restaurant. The same complaint did not claim that private respondent is a partner
of the business. It was, therefore, a serious error for the lower court and the Hon.
Intermediate Appellate Court to grant a relief not called for by the complaint. It
was also error for the Hon. Intermediate Appellate Court to interpret or construe
'financial assistance' to mean the contribution of capital by a partner to a
partnership;" (p. 75, Rollo)
The pertinent portions of the complaint state:
xxx xxx xxx
2. That on or about the latter (sic) of September, 1955, defendant sought the
financial assistance of plaintiff in operating the defendant's eatery known as Sun
Wah Panciteria, located in the given address of defendant; as a return for such
financial assistance. plaintiff would be entitled to twenty-two percentum (22%) of
the annual profit derived from the operation of the said panciteria;
3. That on October 1, 1955, plaintiff delivered to the defendant the sum of four
thousand pesos (P4,000.00), Philippine Currency, of which copy for the receipt of
such amount, duly acknowledged by the defendant is attached hereto as Annex
"A", and form an integral part hereof; (p. 11, Rollo)
In essence, the private respondent alleged that when Sun Wah Panciteria was
established, he gave P4,000.00 to the petitioner with the understanding that he
would be entitled to twenty-two percent (22%) of the annual profit derived from
the operation of the said panciteria. These allegations, which were proved, make
the private respondent and the petitioner partners in the establishment of Sun
Wah Panciteria because Article 1767 of the Civil Code provides that "By the
contract of partnership two or more persons bind themselves to contribute money,
property or industry to a common fund, with the intention of dividing the profits
among themselves".
Therefore, the lower courts did not err in construing the complaint as one wherein
the private respondent asserted his rights as partner of the petitioner in the
establishment of the Sun Wah Panciteria, notwithstanding the use of the term
financial assistance therein. We agree with the appellate court's observation to the
effect that "... given its ordinary meaning, financial assistance is the giving out of
money to another without the expectation of any returns therefrom'. It connotes
an ex gratia dole out in favor of someone driven into a state of destitution. But this
circumstance under which the P4,000.00 was given to the petitioner does not
obtain in this case.' (p. 99, Rollo) The complaint explicitly stated that "as a return
for such financial assistance, plaintiff (private respondent) would be entitled to
twenty-two percentum (22%) of the annual profit derived from the operation of
the said panciteria.' (p. 107, Rollo) The well-settled doctrine is that the '"... nature Under these circumstances, we find no reason why Exhibit "J" should be rejected or
of the action filed in court is determined by the facts alleged in the complaint as ignored. The records sufficiently establish that there was a partnership.
constituting the cause of action." (De Tavera v. Philippine Tuberculosis Society, Inc.,
113 SCRA 243; Alger Electric, Inc. v. Court of Appeals, 135 SCRA 37).

The appellate court did not err in declaring that the main issue in the instant case
was whether or not the private respondent is a partner of the petitioner in the
establishment of Sun Wah Panciteria.
The petitioner raises the issue of prescription. He argues: The Hon. Respondent
Intermediate Appellate Court gravely erred in not resolving the issue of
prescription in favor of petitioner. The alleged receipt is dated October 1, 1955 and
the complaint was filed only on July 13, 1978 or after the lapse of twenty-two (22)
years, nine (9) months and twelve (12) days. From October 1, 1955 to July 13, 1978,
no written demands were ever made by private respondent.

The petitioner also contends that the respondent court gravely erred in giving
probative value to the PC Crime Laboratory Report (Exhibit "J") on the ground that The petitioner's argument is based on Article 1144 of the Civil Code which provides:
the alleged standards or specimens used by the PC Crime Laboratory in arriving at
the conclusion were never testified to by any witness nor has any witness identified
the handwriting in the standards or specimens belonging to the petitioner. The
supposed standards or specimens of handwriting were marked as Exhibits "H" "H- Art. 1144. The following actions must be brought within ten years from the time
1" to "H-24" and admitted as evidence for the private respondent over the vigorous the right of action accrues:
objection of the petitioner's counsel.

(1) Upon a written contract;

The records show that the PC Crime Laboratory upon orders of the lower court
examined the signatures in the two receipts issued separately by the petitioner to
the private respondent and So Sia (Exhibits "A" and "D") and compared the
signatures on them with the signatures of the petitioner on the various pay (2) Upon an obligation created by law;
envelopes (Exhibits "H", "H-1" to 'H-24") of Antonio Ah Heng and Maria Wong,
employees of the restaurant. After the usual examination conducted on the
questioned documents, the PC Crime Laboratory submitted its findings (Exhibit J)
(3) Upon a judgment.
attesting that the signatures appearing in both receipts (Exhibits "A" and "D") were
the signatures of the petitioner.

in relation to Article 1155 thereof which provides:

The records also show that when the pay envelopes (Exhibits "H", "H-1" to "H-24")
were presented by the private respondent for marking as exhibits, the petitioner
did not interpose any objection. Neither did the petitioner file an opposition to the Art. 1155. The prescription of actions is interrupted when they are filed before the
motion of the private respondent to have these exhibits together with the two court, when there is a written extra-judicial demand by the creditor, and when
receipts examined by the PC Crime Laboratory despite due notice to him. Likewise, there is any written acknowledgment of the debt by the debtor.'
no explanation has been offered for his silence nor was any hint of objection
registered for that purpose.

The argument is not well-taken.

 Apart from his own testimony and allegations, the private respondent presented
the cashier of Sun Wah Panciteria, a certain Mrs. Sarah L. Licup, to testify on the
The private respondent is a partner of the petitioner in Sun Wah Panciteria. The income of the restaurant.
requisites of a partnership which are 1) two or more persons bind themselves to
contribute money, property, or industry to a common fund; and 2) intention on the
part of the partners to divide the profits among themselves (Article 1767, Civil
Code; Yulo v. Yang Chiao Cheng, 106 Phil. 110)-have been established. As stated by Mrs. Licup stated:
the respondent, a partner shares not only in profits but also in the losses of the
firm. If excellent relations exist among the partners at the start of business and all
the partners are more interested in seeing the firm grow rather than get immediate
returns, a deferment of sharing in the profits is perfectly plausible. It would be ATTY. HIPOLITO (direct examination to Mrs. Licup).
incorrect to state that if a partner does not assert his rights anytime within ten
years from the start of operations, such rights are irretrievably lost. The private
respondent's cause of action is premised upon the failure of the petitioner to give
Q Mrs. Witness, you stated that among your duties was that you were in charge of
him the agreed profits in the operation of Sun Wah Panciteria. In effect the private
the custody of the cashier's box, of the money, being the cashier, is that correct?
respondent was asking for an accounting of his interests in the partnership.

A Yes, sir.
It is Article 1842 of the Civil Code in conjunction with Articles 1144 and 1155 which
is applicable. Article 1842 states:

Q So that every time there is a customer who pays, you were the one who
accepted the money and you gave the change, if any, is that correct?
The right to an account of his interest shall accrue to any partner, or his legal
representative as against the winding up partners or the surviving partners or the
person or partnership continuing the business, at the date of dissolution, in the
absence or any agreement to the contrary. A Yes.

Regarding the prescriptive period within which the private respondent may Q Now, after 11:30 (P.M.) which is the closing time as you said, what do you
demand an accounting, Articles 1806, 1807, and 1809 show that the right to do with the money?
demand an accounting exists as long as the partnership exists. Prescription begins
to run only upon the dissolution of the partnership when the final accounting is
done.
A We balance it with the manager, Mr. Dan Fue Leung.

Finally, the petitioner assails the appellate court's monetary awards in favor of the
private respondent for being excessive and unconscionable and above the claim of ATTY. HIPOLITO:
private respondent as embodied in his complaint and testimonial evidence
presented by said private respondent to support his claim in the complaint.

I see.
Q So, in other words, after your job, you huddle or confer together? Q Per service?

A Yes, count it all. I total it. We sum it up. A Per service, Per catering.

Q Now, Mrs. Witness, in an average day, more or less, will you please tell Q So in other words, Mrs. witness, for your shift alone in a single day from
us, how much is the gross income of the restaurant? 3:30 P.M. to 11:30 P.M. in the evening the restaurant grosses an income of
P7,000.00 in a regular day?

A For regular days, I received around P7,000.00 a day during my shift alone and
during pay days I receive more than P10,000.00. That is excluding the catering A Yes.
outside the place.

Q And ten thousand pesos during pay day.?

Q What about the catering service, will you please tell the Honorable Court how
many times a week were there catering services?

A Yes.

A Sometimes three times a month; sometimes two times a month or more.

(TSN, pp. 53 to 59, inclusive, November 15,1978)

xxx xxx xxx

xxx xxx xxx

Q Now more or less, do you know the cost of the catering service?

COURT:

A Yes, because I am the one who receives the payment also of the catering.

Any cross?

Q How much is that?

ATTY. UY (counsel for defendant):

A That ranges from two thousand to six thousand pesos, sir.

No cross-examination, Your Honor. (T.S.N. p. 65, November 15, 1978). (Rollo, pp.
127-128)
The statements of the cashier were not rebutted. Not only did the petitioner's
counsel waive the cross-examination on the matter of income but he failed to
comply with his promise to produce pertinent records. When a subpoena duces
tecum was issued to the petitioner for the production of their records of sale, his
counsel voluntarily offered to bring them to court. He asked for sufficient time
prompting the court to cancel all hearings for January, 1981 and reset them to the
later part of the following month. The petitioner's counsel never produced any
books, prompting the trial court to state:
Counsel for the defendant admitted that the sales of Sun Wah were registered or
recorded in the daily sales book. ledgers, journals and for this purpose, employed a
bookkeeper. This inspired the Court to ask counsel for the defendant to bring said
records and counsel for the defendant promised to bring those that were available.
Seemingly, that was the reason why this case dragged for quite sometime. To
bemuddle the issue, defendant instead of presenting the books where the same,
etc. were recorded, presented witnesses who claimed to have supplied chicken,
meat, shrimps, egg and other poultry products which, however, did not show the
gross sales nor does it prove that the same is the best evidence. This Court gave
warning to the defendant's counsel that if he failed to produce the books, the same
will be considered a waiver on the part of the defendant to produce the said books
inimitably showing decisive records on the income of the eatery pursuant to the
Rules of Court (Sec. 5(e) Rule 131). "Evidence willfully suppressed would be adverse
if produced." (Rollo, p. 145)
The records show that the trial court went out of its way to accord due process to
the petitioner.
The defendant was given all the chance to present all conceivable witnesses, after
the plaintiff has rested his case on February 25, 1981, however, after presenting
several witnesses, counsel for defendant promised that he will present the
defendant as his last witness. Notably there were several postponement asked by
counsel for the defendant and the last one was on October 1, 1981 when he asked
that this case be postponed for 45 days because said defendant was then in
Hongkong and he (defendant) will be back after said period. The Court acting with
great concern and understanding reset the hearing to November 17, 1981. On said
date, the counsel for the defendant who again failed to present the defendant
asked for another postponement, this time to November 24, 1981 in order to give
said defendant another judicial magnanimity and substantial due process. It was
however a condition in the order granting the postponement to said date that if
the defendant cannot be presented, counsel is deemed to have waived the
presentation of said witness and will submit his case for decision.
On November 24, 1981, there being a typhoon prevailing in Manila said date was
declared a partial non-working holiday, so much so, the hearing was reset to
December 7 and 22, 1981. On December 7, 1981, on motion of defendant's
counsel, the same was again reset to December 22, 1981 as previously scheduled
which hearing was understood as intransferable in character. Again on December
22, 1981, the defendant's counsel asked for postponement on the ground that the
defendant was sick. the Court, after much tolerance and judicial magnanimity,
denied said motion and ordered that the case be submitted for resolution based on
the evidence on record and gave the parties 30 days from December 23, 1981,
within which to file their simultaneous memoranda. (Rollo, pp. 148-150)
The restaurant is located at No. 747 Florentino Torres, Sta. Cruz, Manila in front of
the Republic Supermarket. It is near the corner of Claro M. Recto Street. According
to the trial court, it is in the heart of Chinatown where people who buy and sell
jewelries, businessmen, brokers, manager, bank employees, and people from all
walks of life converge and patronize Sun Wah.
There is more than substantial evidence to support the factual findings of the trial
court and the appellate court. If the respondent court awarded damages only from
judicial demand in 1978 and not from the opening of the restaurant in 1955, it is
because of the petitioner's contentions that all profits were being plowed back into
the expansion of the business. There is no basis in the records to sustain the
petitioners contention that the damages awarded are excessive. Even if the Court is
minded to modify the factual findings of both the trial court and the appellate
court, it cannot refer to any portion of the records for such modification. There is
no basis in the records for this Court to change or set aside the factual findings of
the trial court and the appellate court. The petitioner was given every opportunity
to refute or rebut the respondent's submissions but, after promising to do so, it
deliberately failed to present its books and other evidence.
The resolution of the Intermediate Appellate Court ordering the payment of the
petitioner's obligation shows that the same continues until fully paid. The question
now arises as to whether or not the payment of a share of profits shall continue
into the future with no fixed ending date.
Considering the facts of this case, the Court may decree a dissolution of the
partnership under Article 1831 of the Civil Code which, in part, provides:
Art. 1831. On application by or for a partner the court shall decree a dissolution
whenever:
xxx xxx xxx
(3) A partner has been guilty of such conduct as tends to affect prejudicially the
carrying on of the business;
(4) A partner willfully or persistently commits a breach of the partnership
agreement, or otherwise so conducts himself in matters relating to the partnership
business that it is not reasonably practicable to carry on the business in partnership
with him;
xxx xxx xxx
(6) Other circumstances render a dissolution equitable.
There shall be a liquidation and winding up of partnership affairs, return of capital,
and other incidents of dissolution because the continuation of the partnership has
become inequitable.
WHEREFORE, the petition for review is hereby DISMISSED for lack of merit. The
decision of the respondent court is AFFIRMED with a MODIFICATION that as
indicated above, the partnership of the parties is ordered dissolved.
SO ORDERED.
SERGIO V. SISON, plaintiff-appellant, vs.HELEN J. MCQUAID, defendant-appellee
On March 28, 1951, plaintiff brought an action in the Court of First Instance of
Manila against defendant, alleging that during the year 1938 the latter borrowed
from him various sums of money, aggregating P2,210, to enable her to pay her
obligation to the Bureau of Forestry and to add to her capital in her lumber
business, receipt of the amounts advanced being acknowledged in a document,
Exhibit A, executed by her on November 10, 1938 and attached to the complaint;
that as defendant was not able to pay the loan in 1938, as she had promised, she
proposed to take in plaintiff as a partner in her lumber business, plaintiff to
contribute to the partnership the said sum of P2,210 due him from defendant in
addition to his personal services; that plaintiff agreed to defendant's proposal and,
as a result, there was formed between them, under the provisions of the Civil
Code, a partnership in which they were to share alike in the income or profits of
the business, each to get one-half thereof; that in accordance with said contract,
plaintiff, together with defendant, rendered services to the partnership without
compensation from June 15, 1938 to December, 1941; that before the last World
War, the partnership sold to the United States Army 230,000 board feet of lumber
for P13,800, for the collection of which sum defendant, as manager of the
partnership, filed the corresponding claim with the said army after the war; that
the claim was "finally" approved and the full amount paid the complaint does
not say when but defendant has persistently refused to deliver one-half of it, or
P6,900, to plaintiff notwithstanding repeated demands, investing the whole sum of
P13,800 for her own benefit. Plaintiff, therefore, prays for judgment declaring the
existence of the alleged partnership and requiring the defendant to pay him the
said sum of P6,900, in addition to damages and costs.
Notified of the action, defendant filed a motion to dismiss on the grounds that
plaintiff's action had already prescribed, that plaintiff's claim was not provable
under the Statute of Frauds, and that the complaint stated no cause of action.
Sustaining the first ground, the court dismissed the case, whereupon, plaintiff
appealed to the Court of Appeals; but that court has certified the case here on the
ground that the appeal involved only questions of law.

It is not clear from the allegations of the complaint just when plaintiff's cause of
action accrued. Consequently, it cannot be determined with certainty whether that
action has already prescribed or not. Such being the case, the defense of
prescription can not be sustained on a mere motion to dismiss based on what
appears on the face of the complaint.
But though the reason given for the order of dismissal be untenable, we find that
the said order should be upheld on the ground that the complaint states no cause
of action, which is also one of the grounds on which defendant's motion to dismiss
was based. Plaintiff seeks to recover from defendant one-half of the purchase price
of lumber sold by the partnership to the United States Army. But his complaint
does not show why he should be entitled to the sum he claims. It does not allege
that there has been a liquidation of the partnership business and the said sum has
been found to be due him as his share of the profits. The proceeds from the sale of
a certain amount of lumber cannot be considered profits until costs and expenses
have been deducted. Moreover, the profits of the business cannot be determined
by taking into account the result of one particular transaction instead of all the
transactions had. Hence, the need for a general liquidation before a member of a
partnership may claim a specific sum as his share of the profits.
In view of the foregoing, the order of dismissal is affirmed, but on the ground that
the complaint states no cause of action and without prejudice to the filing of an
action for accounting or liquidation should that be what plaintiff really wants.
Without costs in this instance.1awphil.net
JOSE ORNUM and EMERENCIANA ORNUM, petitioners, vs.MARIANO, LASALA, et
al., respondent.
The following facts are practically admitted in the pleadings and briefs of the
parties: The respondents (plaintiffs below) are natives of Taal, Batangas, and
resided therein or in Manila. The petitioners (defendants below) are also natives of
Taal, but resided in the barrio of Tan-agan, municipality of Tablas, Province of
Romblon. In 1908 Pedro Lasala, father of the respondents, and Emerenciano
Ornum formed a partnership, whereby the former, as capitalist, delivered the sum
of P1,000 to the latter who, as industrial partner, was to conduct a business at his
place of residence in Romblon. In 1912, when the assets of the partnership
consisted of outstanding accounts and old stock of merchandise, Emerenciano
Ornum, following the wishes of his wife, asked for the dissolution of the Lasala,
Emerenciano Ornum looked for some one who could take his place and he
suggested the names of the petitioners who accordingly became the new partners.
Upon joining the business, the petitioners, contributed P505.54 as their capital,
with the result that in the new partnership Pedro Lasala had a capital of P1,000,
appraised value of the assets of the former partnership, plus the said P505.54
invested by the petitioners who, as industrial partners, were to run the business in
Romblon. After the death of Pedro Lasala, his children (the respondents) succeeded
to all his rights and interest in the partnership. The partners never knew each other
personally. No formal partnership agreement was ever executed. The petitioners,
as managing partners, were received one-half of the net gains, and the other half
was to be divided between them and the Lasala group in proportion to the capital
put in by each group. During the course divided, but the partners were given the
election, as evidenced by the statements of accounts referred to in the decision of
the Court of Appeals, to invest their respective shares in such profits as additional
capital. The petitioners accordingly let a greater part of their profits as additional
investment in the partnership. After twenty years the business had grown to such
an extent that is total value, including profits, amounted to P44,618.67. Statements
of accounts were periodically prepared by the petitioners and sent to the
respondents who invariably did not make any objection thereto. Before the last
statement of accounts was made, the respondents had received P5,387.29 by way
of profits. The last and final statement of accounts, dated May 27, 1932, and
prepared by the petitioners after the respondents had announced their desire to
dissolve the partnership, read as follows:
Ganancia total desde el ultimo balance hasta la fecha
P575.45
Participacion del capital de los hermanos Lasala en la ganancia
P55.39
Participacion del capital de Jose Ornum en el ganancia

55.39

125.79

P4,448.47

Participacion de Jose Ornum como socio industrial

Pero se debe deducir la cantidad tomada por los hermanos Lasala

143.96

1,730.00

Participacion del capital de Emerenciana Ornum en la ganancia

Cantidad nota que debe corresponder a los hermanos Lasala

106.54

P2,718.47

Participacion de Emerenciana Ornum como socia industrial

Capital de Jose Ornum segun el ultimo balance

143.86

P9,975.13

Siendo este el balance final lo siguiente es la cantidad que debe corresponder a

cada socio:
Ganancia de este capital

Capital de los hermanos Lasala segun el ultimo balance

125.79

P4,393.08
Participacion de Jose Ornum como socio industrial

Ganancia de este capital

143.86
P10,244.65 Pero se debe deducir la cantidad tomada por Emerenciana Ornum

Pero se debe deducir la cantidad tomada por Jose Ornum 1,850.00

1,650.00 Cantidad neta que debe corresponder a Emerenciana Ornum

Cantidad neta que debe corresponder a Jose Ornum P6,848.40

P8,594.65 After the receipt of the foregoing statement of accounts, Father Mariano Lasala,
spokesman for the respondents, wrote the following letter to the petitioners on
July 19, 1932:

Capital de Emerenciana Ornum segun el ultimo balance

Ya te manifestamos francamente aqui, como consocio, y te autorizamos tambien

para que lo repitas a tu hermana Mering, viuda, que el motivo porque recogemos
P8,448.00 el capital y utilidades de nuestra sociedad en todo nuestro negocio que esta al
cuidado vosotros dos, es que tenemos un grande compromiso que casi no
podemos evitarlo. Por esto volvemos a rogarles que por cualquier medio antes de
terminar este mes de julio, 1932, nosotros esperamos vuestra consideracion.
Ganancia de este capital Gracias.

106.54 En cuanto hayamos recibido esto, entonces firmaremos el balance que habeis
hecho alli, cuya copia has dejado aqui.

Participacion de Emerenciana Ornum como socia industrial

Recuerdos a todos alli y mandar.

143.86
Pursuant to the request contained in this letter, the petitioners remitted and paid
to the respondents the total amount corresponding to them under the above-
quoted statement of accounts which, however, was not signed by the latter.
P8,698.40
Thereafter the complaint in this case was filed by the respondents, praying for an
accounting and final liquidation of the assets of the partnership. The Court of First
Instance of Manila held that the last and final statement of accounts prepared by
the petitioners was tacitly approved and accepted by the respondents who, by
virtue of the above-quoted letter of Father Mariano Lasala, lost their right to a
further accounting from the moment they received and accepted their shares as
itemized in said statement. This judgment was reversed by the Court of Appeals
principally on the ground that as the final statement of accounts remains unsigned
by the respondents, the same stands disapproved. The decision appealed by the
petitioners thus said:
To support a plea of a stated account so as to conclude the parties in relation to all
dealings between them, the accounting must be shown to have been final. (1 Cyc.
366.) All the first nine statements which the defendants sent the plaintiffs were
partial settlements, while the last, although intended to be final, has not been
signed.
We hold that the last and final statement of accounts hereinabove quoted, had
been approved by the respondents. This approval resulted, by virtue of the letter of
Father Mariano Lasala of July 19, 1932, quoted in part in the appealed decision
from the failure of the respondents to object to the statement and from their
promise to sign the same as soon as they received their shares as shown in said
statement. After such shares had been paid by the petitioners and accepted by the
respondents without any reservation, the approval of the statement of accounts
was virtually confirmed and its signing thereby became a mere formality to be
complied with by the respondents exclusively. Their refusal to sign, after receiving
their shares, amounted to a waiver to that formality in favor of the petitioners who
has already performed their obligation.
This approval precludes any right on the part of the respondents to a further
liquidation, unless the latter can show that there was fraud, deceit, error or
mistake in said approval. (Pastor, vs. Nicasio, 6 Phil., 152; Aldecoa & Co., vs.
Warner, Barnes & Co., 16 Phil., 423; Gonsalez vs. Harty, 32 Phil. 328.) The Court of
Appeals did not make any findings that there was fraud, and on the matter of error
or mistake it merely said:
The question, then is, have mistakes, been committed in the statements sent
appellants? Not only do plaintiffs so allege, and not only does not evidence so tend
to prove, but the charge is seconded by the defendants themselves when in their
counterclaims they said:
"(a) Que recientemente se ha hecho una acabada revision de las cuentas y libros
del negocio, y, se ha descubierto que los demandados cometieron un error al hacer
las entregas de las varias cantidades en efectivo a los demandantes, entregando en
total mayor cantidades a la que tenian derecho estos por su participacion y
ganancias en dicho negocio;
"(b) Que el exceso entregado a los demandantes, asciende a la suma de quinientos
setenta y cinco pesos con doce centimos (P575.12), y que los demandados
reclaman ahora de aquellos su devolucion o pago en la presente contrademanda;"
In our opinion, the pronouncement that the evidence tends to prove that there
were mistakes in the petitioners' statements of accounts, without specifying the
mistakes, merely intimates as suspicion and is not such a positive and unmistakable
finding of fact (Cf. Concepcion vs. People, G.R. No. 48169, promulgated December
28, 1942) as to justify a revision, especially because the Court of Appeals has relied
on the bare allegations of the parties, Even admitting that, as alleged by the
petitioners in their counterclaim, they overpaid the respondents in the sum of
P575.12, this error is essentially fatal to the latter's theory what the statement of
accounts shows, and is therefore not the kind of error that calls for another
accounting which will serve the purpose of the respondent's suit. Moreover, as the
petitioners did not appeal from the decision of the Court abandoned such
allegation in the Court of Appeals.
If the liquidation is ordered in the absence of any particular error, found as a fact,
simply because no damage will be suffered by the petitioners in case the latter's
final statement of the accounts proves to be correct, we shall be assuming a
fundamentally inconsistent position. If there is not mistake, the only reason for a
new accounting disappears. The petitioners may not be prejudiced in the sense
that they will be required to pay anything to the respondents, but they will have to
go to the trouble of itemizing accounts covering a period of twenty years mostly
from memory, its appearing that no regular books of accounts were kept. Stated
more emphatically, they will be told to do what seems to be hardly possible. When
it is borne in mind that this case has been pending for nearly nine years and that, if
another accounting is ordered, a costly action or proceeding may arise which may
not be disposed of within a similar period, it is not improbable that the intended
relief may in fact be the respondents' funeral.
We are reversing the appealed decision on the legal ground that the petitioners'
final statement of accounts had been approved by the respondents and no
justifiable reason (fraud, deceit, error or mistake) has been positively and
unmistakably found by the Court of Appeals so as to warrant the liquidations
sought by the respondents. In justice to the petitioners, however, we may add that,
considering that they ran the business of the partnership for about twenty years at
a place far from the residence of the respondents and without the latter's
intervention; that the partners did not even know each other personally; that no
formal partnership agreement was entered into which bound the petitioners under
specific conditions; that the petitioners could have easily and freely alleged that
the business became partial, or even a total, loss for any plausible reason which
they could have concocted, it appearing that the partnership engaged in such
uncertain ventures as agriculture, cattle raising and operation of rice mill, and the
petitioners did not keep any regular books of accounts; that the petitioners were
still frank enough to disclose that the original capital of P1,505.54 amounted, as of
the date of the dissolution of the partnership, to P44,618.67; and that the
respondents had received a total of P8,105.76 out of their capital of P1,000,
without any effort on their part, we are reluctant even to make the conjecture that
the petitioners had ever intended to, or actually did, take undue advantage of the
absence and confidence of the respondents. Indeed, we feel justified in stating that
the petitioners have here given a remarkable demonstration of the legendary
honesty, good faith and industry with which the natives of Taal pursue business
arrangements similar to the partnership in question, and we would hate, in the
absence of any sufficient reason, to let such a beautiful legend have a distateful
ending.
The appealed decision is hereby reversed and the petitioners (defendants below)
absolved from the complaints of the respondents (plaintiffs below), with costs
against the latter.
ANTONIO M. PABALAN, plaintiff-appellant, vs.FELICIANO VELEZ, defendant-
appellee.
This case was appealed by counsel for the plaintiff, from the judgment rendered by
the Honorable Judge A. S. Crossfield.
On January 20, 1908, counsel for the plaintiff filed a written complaint against the
defendant, the administrator of the intestate estate of Walter A. Fitton, now
deceased. The said administrator was appointed by an order issued on December
21, 1907, by the aforementioned judge in case No. 5103, heard in the Court of First
Instance of this city.
The complaint alleged: That until June 27, 1900, the plaintiff, Antonio M. Pabalan,
was the owner in fee simple of a rural estate consisting of an hacienda known by
the name of "Pantayani," which was devoted to agricultural purposes, situated on
the roads leading from Mariquina to Antipolo, within the pueblos of Cainta and
Antipolo, Province of Rizal, and which covered an area of 1,978,822 square meters;
also a parcel of land consisting of a building lot situated on Calle Real, of Cainta,
measuring 371.30 square meters, the metes and bounds of which were specified in
the complaint; that, on the said date of June 27, 1900, the plaintiff, desiring to
make use of the two properties described, and lacking the required means for the
purpose, entered into an agreement with the said Walter A. Fitton whereby they
formed a regular mercantile partnership for the development of the said properties
and for the manufacture and sale of their products and other business pertinent
thereto; that the sum of 9,000 pesos Mexican currency was fixed as the amount of
the capital stock of the partnership, of which 3,000 pesos, in cash, were to be
contributed by the plaintiff and 6,000 pesos, in real property, by the said Fitton;
that, for the purpose of obtaining the said 3,000 pesos, the plaintiff sold his two
aforementioned real properties to the said Walter A. Fitton, the rural estate, shown
in Exhibit A, for 5,900 pesos, and the urban property, described in Exhibit B, for 100
pesos; that the plaintiff received from the purchaser the sum of 3,000 pesos and
the latter, Walter A. Fitton, bound himself to pay into the funds of the said
partnership, as the plaintiff's capital, the remaining 3,000 pesos of the selling price;
that it was furthermore agreed that the two said real properties should constitute
the capital of Walter A. Fitton in the partnership, which would be known by the
name of "A. M. Pabalan and Company" and should be an equivalent for the
aforesaid sum of 6,000 pesos; that all the foregoing facts set forth in the complaint
were recorded in the instrument of sale and organization of the partnership,
executed on June 27, 1900, before the notary public Rosado, a copy of which was
attached to and made an integral part of the complaint; that, from June 27, 1900,
up to the date when the partner Fitton died, the latter failed to pay into the
partnership funds the said 3,000 pesos, the remainder of the price of the
properties purchased by him, or any part thereof, and did not pay the said sum or
any part of the same to the plaintiff; that, since Fitton's death, and up to the date
of the filing of the complaint, neither the administrator of the latter's estate nor
any other person had turned into the partnership or paid to the plaintiff the
aforesaid 3,000 pesos; that, owing to the failure of Fitton to comply with his
obligation, the properties in question had been entirely unproductive and losses
and damages had been occasioned to the plaintiff in the sum of 2,000 pesos
Philippine currency. The latter, therefore, prayed for the rescission of the contract
entered into, on June 27, 1900, by himself, the plaintiff, and Walter A. Fitton, the
dissolution of the partnership "A. M. Pabalan and Company," and the annulment of
the sale of the said properties, by returning to the defendant a sum in Philippine
currency equivalent to the 3,000 pesos in Mexican currency received from Walter
A. Fitton, and that the defendant be sentenced to pay to the plaintiff, as losses and
damages, the sum of 2,000 pesos, and to the payment of the cost of the suit, in
addition to the other remedies sought.
The instrument attached to the complaint and executed on June 27, 1900, before
the notary public Jose M.a Rosado y Calvo, by Antonio M. Pabalan y Santos, on the
one hand, and Walter A. Fitton, on the other, contains the following clauses:
First. That Don Antonio Maria Pabalan y Santos is the sole and exclusive owner in
fee-simple of the following landed properties, to wit: (a) A rural estate consisting of
an hacienda, known as Pantayaning or Pantaen, devoted to agricultured and
situated on the roads which lead from Mariquina to Antipolo, within the pueblos of
Cainta and Antipolo of the district of Morong, inscribed in the property registry of
this city as of the north district, with an area of 1,978,022 square meters and
bounded on the north by the land of Victor Vargas and the Sucabin River, by a part
of the Tabang River, Mount Magpatong, the sitio of Palenque and another part of
the said Tabang River, as far as the foot of Mount Cay-Alaring, Mount Sapang, and
the road leading to the pueblo of Taytay; on the south by the summit of Mount
Matugalo, the Paglilingohan estero, the old Cainta highway, and the land of Juan
Santa Ana; and one on the west by the lands of Doa Columba Suarez and Don
Mariano Sumulong, the Bilao road, and the lands of Perfecto Legaspi Miguel
Gonzales, Zacarias Gonzales, Juan Adriano, and that of the aforesaid Juan Santa
Ana. And (b) an urban property consisting of a building lot, with neither street nor
district number, situated on Calle Real, pueblo of Cainta, Morong District, and in
the north district division of the property registry of this city; it is bounded on its
front, which faces the south, by the aforesaid Calle Real; on its right, upon entering,
or on the east, by the lot belonging to Don Alejandro San Diego and his wife Doa
Buenaventura Santos; on its left, or the west, by the lot of Don Pablo Ordoez and
his wife Dionisia Salandanan; and on its rear, or the north, by the lot of Don
Florencio San Antonio, his wife and Doa Severina Santos, and has an area of 361
square meters and 30 square centimeters. Second. That the properties
hereinbefore described belong to the aforementioned Don Antonio Maria Pabalan
y Santos, who purchased the same from their former owner, the firm of G.
Buchanan and Company, of the city of London, represented by its agent, Herbert
Heiden Todd, through a deed, serial number 852, drawn up in this city and attested
before the former notary public of the same, Don Jose Engracio Monroy y Torres,
on the twenty-ninth of November, 1894, as shown by the notarial instrument
containing the description of the said properties, written by the undersigned
notary at the request of their owner, Sr. Pabalan, on the twelfth of the present
month of June, which certificate, without number, on account of its notarial
character, was exhibited to me by the latter and I certify to the same. Third. That
the properties in question are free of all encumbrance, charge, and liability, and
Don Antonio Maria Pabalan y Santos and Mr. Walter A. Fitton having agreed to sell
the same and to form a regular mercantile partnership for the purpose of their
improvement and the utilization of their products, hereby execute the present
instrument, in order that all its contents may appear in an authenticated form, and
solemnly stipulated: That Don Antonio Maria Pabalan y Santos hereby sells
absolutely and finally to Mr. Walter A. Fitton, the property which, under the letters
A and B, is mentioned and described in the first paragraph of this instrument,
together with all the rights, actions, uses and easements thereto pertaining, for the
price of 5,900 pesos, for the property specified under letter A, and the price of 100
pesos, for that described under letter B, that is, for the total price of 6,000 pesos,
of which the vendor received in the act, in my presence and in that of the
witnesses hereunto, which I, the notary, hereby attest, and from the hands of the
vendee, the sum of 3,000 pesos in coin, counted to his entire satisfaction, for which
the said Walter A. Fitton hereby acknowledges by a binding receipt which secures
the said Antonio M. Pabalan in all his rights and the vendor binds himself to protect
and defend the title to the properties hereby sold and guarantees them in
accordance with law; and the vendee shall retain the remaining 3,000 pesos for the
purpose of bringing them, as the vendor's capital, into the partnership which is also
a subject of this public instrument. Fourth. Walter A. Fitton, in his turn, covenants:
That he accepts this sale in the precise terms in which it is executed by Antonio
Maria Pabalan y Santos. Fifth. That, by virtue of the preinserted stipulations, both
parties to this contract, by this same public instrument, form a regular mercantile
partnership, upon the following bases and conditions: 1. The company organized
through the present public instrument shall operate under the firm name of "A. M.
Pabalan and Company" and shall have its domicile, for all legal purposes, in this city
of Manila. 2. The object and aim of the company is the cultivation and
improvement of the two properties described under letters A and B of the first
paragraph hereof, the manufacture and sale of their products, and the conduct of
all other business connected with, incidental or pertinent to the said lands. 3. The
management, direction and administration of the company shall be in charge of the
two partners who shall both be entitled to use the firm name, it being thereof
understood that they are authorized to carry on, jointly or severally, all kinds of
operations comprised within the purpose of this partnership, with the sole
limitation that neither of them may make the company a surety or borrow money
for the same, without its being necessary, with respect to this latter prohibition, for
Mr. Pabalan to state that it does not suit him to increase his capital to an amount
equal to that invested by Mr. Fitton. Both partners are likewise authorized, for the
purposes of management, to appoint general or social attorneys-in-fact to
represent the company, as well as attorneys to demand and collect such credits
and bring such suits before the courts as be proper. 4. The management of
agricultural matters pertaining to the rural and the urban property described in the
first paragraph of this instrument, shall be solely and exclusively in charge of the
partner Antonio Maria Pabalan or the person by him designated for this purpose. 5.
The capital stock is composed of the total sum of 9,000 pesos contributed by the
partners in the following proportion and from: Antonio Maria Pabalan, 3,000 pesos
in cash, which shall be paid into the partnership fund by Walter A. Fitton, who, for
this purpose, has retained them in his possession upon his paying the amount of
the sale herein set forth; Walter A. Fitton, 6,000 pesos, represented by the two
properties described under letters A and B in the first paragraph herein, and in
which the said lands are by common accord appraised. 6. The partners may not
engage, in the Province of Morong, in the same kinds of business engaged in by this
company, but they mutually authorize each other personally to carry on and
conduct any such business at any other place outside of the said province. 7. Any
and all rural or city properties which Mr. Pabalan may acquire to the west of the
hacienda hereinabove described under letter A, shall necessarily form a part of the
hacienda itself. 8. The term of the existence of this partnership shall be twenty-five
years, which shall begin to run from this date and may be extended at the will of
the contracting parties. 9. In order that a regular and orderly course be pursued in
the management of the company, and the losses and profits of the latter
ascertained, an annual balance of accounts shall be struck in the month of June of
each year, in addition to such other balances as the partners may, by mutual
accord, determine. 10. If, during the term of this contract, either of the partners
should die, the company shall not, on such account, be considered as dissolved, but
shall be continued by the surviving partner and the heirs of the deceased partner,
unless it should suit the former to be separated from the latter, in which case he
shall deliver to such heirs the part of the capital that belonged to the deceased,
together with all the latter's vested rights. 11. The profits obtained and losses
suffered by the company shall be shared by the partners in proportion to the
capital invested by each respectively. 12. The partners may, by agreement, change
the company hereby organized into a joint stock company, in which case they shall
observe and comply with the formalities provided and prescribed by the existing
Code of Commerce in respect to companies of this kind. 13. All questions,
controversies, doubts or differences which may arise between the partners, by
reason of this company or from any acts performed by them on account of the
same, shall be determined by the decision of friendly arbitrators appointed one by
each party, such appointees so designated to choose a third arbitrator in case of
disagreement.
The demurrer interposed to the complaint having been overruled by an order of
April 1, 1908, and exception thereto taken by the defendant, the latter, on the 11th
of the same month, filed a written answer wherein he set forth that he admitted
the allegations contained in paragraphs 1, 2, and 4 of the complaint and denied,
generally and specifically, each and all of those contained in paragraphs 3, 5, 6, 7, 8,
and 9.
As a special defense the defendant alleged that the action prosecuted by the
plaintiff had prescribed; that the fact that the properties of the company known as
"A. M. Pabalan and Company" had been unproductive was exclusively due to the
great negligence of the plaintiff, since he had had more than sufficient time, from
June 27, 1900, to the date of the death of Fitton, to have demanded from his
copartner the sum offered by the latter and which he was to contribute to the
common assets, and that, notwithstanding all the time that had elapsed since the
execution of the articles of partnership, up to the date of the presentation of the
complaint the plaintiff had never required his copartner to turn into the
partnership funds the capital pledged.
The defendant, in his cross-complaint and counterclaim, set forth: That, according
to the said articles of partnership, the plaintiff had the management of agricultural
matters pertaining to the properties, rural and urban, described therein, and,
consequently, was alone responsible for the successful management of the
company; that, also, according to the articles of partnership, either of the two
partners had charge of the management, direction, and administration of the
company; that, some months after the execution of the said instrument of
partnership, Walter A. Fitton was obliged, for reasons of health, to go abroad,
where he resided until his death, and during his absence from this city the plaintiff,
Antonio M. Pabalan, with notable negligence and abandonment of the interests of
the company, failed to attend to the administration of its affairs and did not
employ on his part any means to maintain in a productive condition the two
properties brought into the partnership by the partner Fitton, and that, through
the negligence, abandonment, and carelessness of the plaintiff Pabalan, the
defendant suffered losses and damages in the sum of P3,000 Philippine currency;
the latter, therefore, prayed that the complaint be dismissed and that, by reason of
his cross-complaint and counterclaim, an award be made in his behalf, and against
the plaintiff, for losses and damages, in the sum of P3,000 Philippine currency, with
the costs.
By a written motion of March 19, 1909, Antonio Vasquez represented: That, owing
to the death of the plaintiff, the hearing of the case had to be suspended until, on
the 4th of March, as aforesaid, letters of administration were issued in his behalf,
relative to the estate of the plaintiff Pabalan; and he therefore prayed that he be
admitted as a party in the capacity of administrator of the estate of the deceased
Antonio M. Pabalan.
The case having come to trial on April 29, 1909, with the introduction of oral
evidence by counsel for the plaintiff, the court, on July 9 of the same year,
pronounced judgment and found that the defendant had not proved any of the
damages alleged in his answer, and was not entitled to any recovery therefore, nor
the plaintiff for the taxes that he had paid. The court ordered a dissolution of the
partnership formed between the plaintiff and the deceased Walter A. Fitton and a
recission of the sale and contract of partnership executed between them on July
27, 1900, and further ordered that the defendant, as the administrator of the
estate of the said deceased Walter A. Fitton, deliver to the plaintiff, upon the
latter's paying to the defendant, out of the property which belonged to the
aforesaid deceased, the sum of P3,000 Mexican currency, equivalent to P2,700
Philippine currency, the following real properties:
Ordoez and his wife Dionisia Salandanan; and on its rear, or the north, by the lot
of Florencio San Antonio and his wife Severina Santos, with an area of 361 square
meters and 30 square centimeters.
This litigation concerns the dissolution of a regular mercantile partnership and the
rescission of the sale of certain real properties, the contracts with respect to which
were entered into between Antonio M. Pabalan y Santos, on one hand, and Walter
A. Fitton, on the other, according to a notarial instrument executed by the
contracting parties on July 27, 1900.
The plaintiff's claim is founded on the alleged fact that the said Walter A. Fitton
failed to comply with his obligations as stipulated in the said double contract,
inasmuch as he did not pay into the funds of the company entitled "A. M. Pabalan
and Company," as the capital of the partner Pabalan, the sum of P3,000, or the
remainder of P6,000, the price of the properties which he had purchased from the
plaintiff, did not pay to the latter the said amount, nor any part thereof, nor was
such payment made, after the said Fitton's death, by the administrator of the
latter's estate.

A. A rural estate consisting of an hacienda, known as Pantayani or Pantaen,

devoted to agriculture and situated on the roads from Mariquina to Antipolo, Article 1506 of the Civil Code prescribes:
within the pueblos of Cainta and Antipolo of the old district of Morong, now
Province of Rizal, having an area of 1,978,822 square meters, bounded on the north
by the land of Victor Vargas and the Sucabin River; on the east by a part of the said
Sucabin River, a part of the Tabang River, Mount Nagtapong, the sitio of Palenque, The sale shall be rescinded for the same causes as all other obligations, etc.
and by another part of the Tabang River toward the base of Mount Cay-Alaring,
Mount Sapang, and the road leading to the pueblo of Taytay; on the south by the
summit of Mount Matugalo, the Paglilingohan estero, the old Cainta highway, and
Article 1124 provides:
the land of Juan Santa Ana; and on the east by the lands of Columba Suarez and
Mariano Sumulong, the Bulao Road, the lands of Perfecto Legaspi, Miguel
Gonzales, Zacarias Gonzales, Juan Adriano, and of the aforementioned Juan Santa
Ana. The right to rescind the obligations is considered as implied in mutual ones, in case
one of the obligated persons does not comply with what is incumbent upon him.

B. An urban property consisting of a building lot, without either street or district

number, situated on Calle Real in Cainta, a municipality of the Province of Rizal; The person prejudiced may choose between exacting the fulfillment of the
bounded on its front, which faces the south, by the aforesaid Calle Real; on its obligation or its rescission, with indemnity for damages and the payment of
right, upon entering, or on the east, by the lot belonging to Alejandro San Diego interest in either case. He may also demand the rescission, even after having
and his wife Buenaventura Santos; on its left, or the west, by the lot of Pablo requested its fulfillment, should the latter appear impossible.
The court shall order the rescission demanded, unless there are sufficient causes
authorizing it to fix a period.
This is understood without prejudice to the rights of third acquirers, in accordance
with articles 1295 and 1298, and with the provisions of the Mortgage Law.
Article 116 of the Code of Commerce prescribes:
Articles of association by which two or more persons obligate themselves to place
in a common fund any property, industry, or any of these things, in order to obtain
profit, shall be commercial, no matter what its class may be, provided it has been
established in accordance with the provisions of this code.
After the organization of the general mercantile partnership denominated "A. M.
Pabalan and Company," through the aforesaid instrument of June 27, 1900, the
partner Fitton did not turn into the company funds the sum of P3,000, in the name
and to the credit of Pabalan, as the latter's capital, which sum was a part of the
price of the sale of the two real properties purchased from the said Pabalan by his
partner Fitton who, in turn, brought the said two parcels of land, as his capital, into
the common fund, without having paid the said sum up to the time when he
absented himself from these Islands, a few months after the establishment of the
partnership, and died in a foreign country.
It was duly proved at the trial of this case, that the partner Walter A. Fitton failed
to observe the stipulations of the two aforesaid contracts; that he did not pay any
part of the price of the sale of the two parcels of land which he had purchased from
his partner, Antonio M. Pabalan, and, consequently, did not turn into the company
funds, as capital of the said Pabalan, the sum of which the said price consisted; it is
therefore unquestionable that he did not comply with his two principal obligations,
assumed in the said double contract wherein he expressly agreed that the said
P3,000, a part of the price of the two pieces of land that he purchased from
Pabalan, would be by him turned into the fund of the general partnership which
they had formed, as capital of the partner Pabalan.
In case one of the parties to a contract does not fulfill his obligation as stipulated
therein, the other contracting party, by the provisions of the above-quoted article
1124 of the Civil Code, is entitled to demand the rescission of the contract, as such
obligations are mutual, and the court must order the rescission demanded. The
partner, Walter A. Fitton, came within such a case, since he failed to pay any part of
the price of the two properties which he had acquired and did not turn into the
company fund, as capital of the vendor partner, the sum representing such sale,
and therefore justice requires the dissolution of the aforementioned company and
the rescission of the said sale, in conformity with the finding contained in the
judgment appealed from the prayer rightfully and lawfully made by the partner
who did not violate his obligations as set forth in the said contract.
During the course of this suit in the Court of First Instance, the plaintiff, Antonio M.
Pabalan, also died; and if the latter, while living, was not obliged, according to
clause 10 of the articles of partnership, to continue in the company after the
decease of his copartner, and had a right to withdraw therefrom or from the heirs
of the deceased Walter A. Fitton, after the death of the partner Pabalan, neither
are the latter's successors in interest obliged to continue in the company, and,
therefore, under this circumstance, the propriety of the judgment appealed from is
still more evident. With respect to the interest on the capital which belonged to
Pabalan, and which Fitton failed to turn into the company fund in conformity with
the agreement made, and in regard to the amount of the losses and damages
occasioned by the noncompliance, on the part of the partner Fitton, with the
stipulated provisions, both such amounts should be considered as the company's
losses and computed pro rata, in proportion to the extent that each partner is
interested in the company and on the same basis as the profits. (Arts. 140 and 141
of the Code of Commerce.)
As regards the amount of the land tax, which the partner Pabalan had to pay,
amounting to P522.30, under the assessment levied upon the two real properties
owned by the company, inasmuch as the latter is the owner of the said two parcels
of land, which form the assets of the company known as "A. M. Pabalan and
Company," it is unquestionable that this company should have paid the said tax to
the Government, and the same being paid by the partner Pabalan out of his private
funds and not of those of the company, he was solely entitled to be reimbursed for
two-thirds of the said sum paid, in proportion to the amount of the respective
capital brought in, which two-thirds of the sum of P522.30, that is, P348.20, may be
deducted from the sum of P2,700 Philippine currency, equivalent to P3,000
Mexican currency, which the estate of Antonio M. Pabalan must restore to the
testate or intestate estate of Walter A. Fitton, upon the defendant's returning to
the plaintiff the two aforesaid parcels of land.
On August 3, 1918, the Court of First Instance of Nueva Ecija appointed Justo Cabo-
Chan, Francisco T. Tantengco and Go-Tiao, as commissioners to make an inventory,
liquidate and determine the one-half belonging to the plaintiff of all the property of
For the reasons hereinbefore stated, we are of opinion that the judgment appealed the store in question.
from should be and is hereby affirmed, with no special finding as to the costs;
provided, however, that the administrator of the estate of the deceased Fitton
shall deliver to the administrator of the estate of Pabalan the two parcels of land,
the sale of which was rescinded, upon payment by the last named administrator to On August 9, 1918, in order to prevent Justo Cabo-Chan from assuming the office
that of the estate of Fitton, of the sum of P2,700, equivalent to P3,000 Mexican of receiver, pursuant to the order of the court dated August 3, 1918, the defendant
pesos, the said administrator of the Pabalan estate being entitled to deduct from filed a bond in the sum of P10,000.
the said sum that of P348.20, which is two-thirds of the amount paid as land tax on
the properties concerned. So ordered.

Under the date of November 15, 1920, the said commissioners submitted to the
court their report, showing the net profits of the business between the period from
ILDEFONSO DE LA ROSA, administrator of the intestate estate of the deceased 1913 to 1917, which amounted to the total sum of P25,038.70 and consisted of the
Go-Lio, plaintiff-appellant, vs.ENRIQUE ORTEGA GO-COTAY, defendant-appellant. following items:

During the Spanish regime the Chinamen Go-Lio and Vicente Go-Sengco formed a
society for the purchase and sale of articles of commerce, and for this purpose they
opened a store in the town of San Isidro, Nueva Ecija. Later Go-Lio went to China. Profits for the year 1913........................ P2,979.00
Vicenyte Go-Sengco died and his son Enrique Ortega Go-Cotay took charge of the
businesses. Go-Lio died in China in October, 1916, leaving a widow and three Profits for the year 1914........................3,046.94
children, one of whom came to the Philippines and filed a petition for the
appointment of Ildefonso de la Rosa as administrator of the intestate estate of his Profits for the year 1915........................ 4,103.07
deceased father, which petition was granted by the Court of First Instance of Nueva
Profits for the year 1916........................ 4,735.00
Ecija. Ildefonso de la Rosa, in his capacity as administrator of the intestate estate of
the deceased Go-Lio, requested Enrique Go-Cotay to wind up the business and to
Profits for the year 1917........................ 10,174.69
deliver to him the portion corresponding to the deceased Go-Lio. Enrique Ortega
Go-Cotay denied the petition, alleging that the business was his exclusively. In view Total........................................................... 25.038.70
of this denial, Ildefonso de la Rosa, as administratorm, on July 2, 1918, filed with
the Court of First Instance of Nueva Ecija a complaint against Enrique Ortega Co- In view of the appeal taken by defendant the parties on December 7, 1921, entered
Cotay in which he prayed that the defendant be sentenced to deliver to the into an agreement whereby they agreed to suspend the liquidation ordered by the
plaintiff one-half of all the property of the partnership formed by Go-lIo and court until the appeal to the Supreme Court was decided, and whereby the
Vicente Go-Sengco, with costs against the defendant, and that the said plaintiff be defenadnt was authorized to continue in the possession of the property in
appointed receiver for the property of the said partnership. litigation, upon the giving of a bond in the amount of P25,000, and cancelling the
former bond for P10,000.

Defendant, in answering the complaint, denied each and every allegation thereof,
and as a special defense alleged that more than ten years had elapsed before the This court in deciding case R. G. No. 18919, on October 5, 1922, 1 held that the
filing of the complaint, and prayed that he be absolved therefrom, with costs appeal was premature and ordered that the record be remanded to the court of
against the plaintiff.
origin with instruction to enter a final order in accordance with the liquidation
made by the commissioners.
The record having been remanded and two of the commissioners having filed their
resignations, the copurt below appointed again Justo Cabo-Chan suggested by the
defendant and Cua POco suggested by the plaintiff, as commissioners, who
submitted two reports, one prepared by commissioners Tantengco and Cua Poco,
and the other by commissioners Justo Cabo-Chan. The former stated in their report
that they had examined the books for the years 1919 to 1922, for the reason, they
said, that they appeared "to have been prepared by some person in a careful way
at a certain time." The later commissioner examined all books and stated in his
report that the business had suffered a net loss amounting to the sum of
P89,099.22.
After trial and the parties having introduced all their evidence, the lower court, by
order of December 13, 1924, disapproved the report of the commissioners
Tantengco and Cua Poco, but approved, with slight modifications, the report of
commissioner Cabo-Chan, holding that the result of the liquidation showed
liabilities to the amiount of P89,690.45 in view of which plaintiff had nothing to
recover from defendant, as there was no profit to divide.
From this decision the plaintiff has appealed in due time and form making the
following assignment of errors: (1) The lower court erred in holding that the books
were authentic, and in not holding that they were false books exhibited by the
defendant about alleged operations in the years 1918 et seq. which show
enormous debts and imaginary losses of the business; (2) the lower court erred in
giving full credit to the testimony of commissioner Justo Cabo-Chan; (3) the lower
court erred in holding that the partnership had incurred debts and suffered losses,
as shown in the report of Justo Cabo-Cahn from 1918 on; (4) the lower court erred
in not holding that the share of the plaintiff, as his capital and profits until the end
of 1917, is equivalent to the sum of twenty-seven thousand seven hundred fifty-
five pesos and forty-seven centavos (P27,755.47). Philippine currency, plus an
annual quota of at least two thousand five hundred three pesos and eighty-seven
centavos (P2,503.87), Philippime currency, as his portion of the profits since the
beginning of 1918 until the delivery to the palintiff of his share in the partnership;
(5) the court below erred in not ordering the prosecuting attorney to commence an
investigation as to the falsified books of accounts that the defendant had exhibited
for proper criminal proceeding.
From the evidence it appears that the partnership capital was P4,779.39, and the
net profits until the year 1915 amounted to P5,551.40. Because some books of
account had been destroyed by white ants (anay), the liquidation of the business of
the partnership for the period from 1906 to 1912 could not be made. But knowing
the net profit for the period between 1904 and 1905, which is P5,551.40, and
findng the average of the profits for each of these years, which is P2,775.70; and
knowing the net profit for the year 1913, which is P2,979, we can find the average
between the net profit for 1905, namely, P2,979. Said average is the sum of
P2,877.35, which may be considered as the average of the net annual profits for
the period between 1906 an 1912, which in seven years make a total of
P20,141.45. The assets of the partnership, as well as the value of its property, could
not be determined when making the liquidation because there was no inventory
and for this reason it was not possible to determine the capital of the partnership.
The plaintiff, however, seems to be agreeable to considering the initial partnership
capital as the capital at the time of the winding up of the business.
August 3, 1918, defendant assumed complete responsibility for the business by
objecting to the appointment of a receiver as prayed for by plaintiff, and giving a
bond therefor. Until that date his acts were those of a managing partner, binding
against the partnership; but thereafter his acts were those of a receiver whose
authority is contained in section 175 of the Code of Civil Procedure.
A receiver has no right to carry on and conduct a business unless he is authorized
or directed by the court to do some, and such authority is not derived from an
order of appointment to take and preserve the property (34 Cyc., 283; 23 R. C. L.,
73). It does not appear that the defendant as a receiver was authorized by the
court to continue the business of the partnership in liquidation. This being so, he is
personally liable for the losses that the business amy have sustained. (34 Cyc., 296.)
The partnership must not, therefore, be liable for the acts of the defendant in
connection with the management of the business until August 3, 1918, the date
when he ceased to be a member and manager in order to become receiver.
As to the first semester of 1918, during which time the defendant had seen
managing the business of the partnership as a member and manager, taking into
account that the profits had been on the increase, said profits having reached the
amount of P10,174.69 in the year 1917, it would not be an exaggeration to
estimate that the profits for 1918 would have been at least the same as the profits
of 1917; so that for the first half of 1918, the profit would be P5,087.34.
In conclusion we have the following profits of the business of this partnership now
in liquidation, to wit:
Capital of partnership........................... P4,779.39
Profits until 1905.................................. 5,551.40
Profits 1906-1912................................ 20,141.45
Profits 1913-1917................................ 25,038.70
Profits first semester 1918............... 5,087.34
Total....................................................... 60,598.28
One-half of this total, that is, P30,299.14 pertains to the plaintiff as administrator
of the intestate estate of Go-Lio.
In view of the foregoing, we are of the opinion that the case must be, as is hereby,
decided by the reversing the judgment appealed from, and sentencing the
defendant to pay the plaintiff the sum of P30,299.14 with legal interest at the rate
of 6 per cent per annum from July 1, 1918, until fully paid, with costs. So ordered.
JOSUE SONCUYA, plaintiff-appellant, vs.CARMEN DE LUNA, defendant-appellee
On September 11, 1936, plaintiff Josue Soncuya filed with the Court of First
Instance of Manila and amended complaint against Carmen de Luna in her own
name and as co-administratrix of the intestate estate, of Librada Avelino, in which,
upon the facts therein alleged, he prayed that defendant be sentenced to pay him
the sum of P700,432 as damages and costs.
To the aforesaid amended complaint defendant Carmen de Luna interposed a
demurrer based on the following grounds: (1) That the complaint does not contain
facts sufficient to constitute a cause of action; and (2) that the complaint is
ambiguous, unintelligible and vague.
Trial on the demurrer having been held and the parties heard, the court found the
same well-founded and sustained it, ordering the plaintiff to amend his complaint
within a period of ten days from receipt of notice of the order.
Plaintiff having manifested that he would prefer not to amend his amended
complaint, the attorney for the defendant, Carmen de Luna, filed a motion praying
that the amended complaint be dismissed with costs against the plaintiff. Said
motion was granted by The Court of First Instance of Manila which ordered the
dismissal of the aforesaid amended complaint, with costs against the plaintiff.
From this order of dismissal, the appellant took an appeal, assigning twenty alleged
errors committed by the lower court in its order referred to.
The demurrer interposed by defendant to the amended complaint filed by plaintiff
having been sustained on the grounds that the facts alleged in said complaint are
not sufficient to constitute a cause of action and that the complaint is ambiguous,
unintelligible and vague, the only questions which may be raised and considered in
the present appeal are those which refer to said grounds.
In the amended complaint it is prayed that defendant Carmen de Luna be
sentenced to pay plaintiff damages in the sum of P700,432 as a result of the
administration, said to be fraudulent, of he partnership, "Centro Escolar de
Seoritas", of which plaintiff, defendant and the deceased Librada Avelino were
members. For the purpose of adjudicating to plaintiff damages which he alleges to
have suffered as a partner by reason of the supposed fraudulent management of
he partnership referred to, it is first necessary that a liquidation of the business
thereof be made to the end that the profits and losses may be known and the
causes of the latter and the responsibility of the defendant as well as the damages
which each partner may have suffered, may be determined. It is not alleged in the
complaint that such a liquidation has been effected nor is it prayed that it be made.
Consequently, there is no reason or cause for plaintiff to institute the action for
damages which he claims from the managing partner Carmen de Luna (Po Yeng
Cheo vs. Lim Ka Yam, 44 Phil., 172).

Having reached the conclusion that the facts alleged in the complaint are not
sufficient to constitute a cause of action on the part of plaintiff as member of the
partnership "Centro Escolar de Seoritas" to collect damages from defendant as
managing partner thereof, without a previous liquidation, we do not deem it
necessary to discuss the remaining question of whether or not the complaint is
ambiguous, unintelligible and vague.
In view of the foregoing considerations, we are of the opinion and so hold that for a
partner to be able to claim from another partner who manages the general
copartnership, damages allegedly suffered by him by reason of the fraudulent
administration of the latter, a previous liquidation of said partnership is necessary.
Wherefore, finding no error in the order appealed from the same is affirmed in all
its parts, with costs against the appellant. So ordered.
ANTONIO C. GOQUIOLAY and THE PARTNERSHIP "TAN SIN AN and ANTONIO C.
GOQUIOLAY, plaintiffs-appellants, vs.WASHINGTON Z. SYCIP, ET AL., defendants-
appellees.
Direct appeal from the decision of the Court of First Instance of Davao (the amount
involved being more than P200,00) dismissing the plaintiffs-appellants' complaint.
From the stipulation of facts of the parties and the evidence on record, it would
appear that on May 29, 1940, Tan Sin An and Antonio C. Goquiolay", entered into a
general commercial partnership under the partnership name "Tan Sin An and
Antonio C. Goquiolay", for the purpose in dealing in real state. The partnership had
a capital of P30,000.00, P18,000.00 of which was contributed by Goquiolay and
P12,000.00 by Tan Sin An. The agreement lodge upon Tan Sin An the sole
management of the partnership affairs, stipulating that
III. The co-partnership shall be composed of said Tan Sin An as sole managing and
partner (sic), and Antonio C. Goquiolay as co-partner.
IV. Vhe affairs of co-partnership shall be managed exclusively by the managing and
partner (sic) or by his authorized agent, and it is expressly stipulated that the
managing and partner (sic) may delegate the entire management of the affairs of
the co-partnership by irrevocable power of attorney to any person, firm or
corporation he may select upon such terms as regards compensation as he may
deem proper, and vest in such persons, firm or corporation full power and
authority, as the agent of the co-partnership and in his name, place and stead to do
anything for it or on his behalf which he as such managing and partner (sic) might
do or cause to be done.
V. The co-partner shall have no voice or participation in the management of the
affairs of the co-partnership; but he may examine its accounts once every six (6)
months at any time during ordinary business hours, and in accordance with the
provisions of the Code of Commerce. (Article of Co-Partnership).
The lifetime of the partnership was fixed at ten (10) years and also that
In the event of the death of any of the partners at any time before the expiration of
said term, the co-partnership shall not be dissolved but will have to be continued
and the deceased partner shall be represented by his heirs or assigns in said co-
partnership (Art. XII, Articles of Co-Partnership).
However, the partnership could be dissolved and its affairs liquidated at any time
upon mutual agreement in writing of the partners (Art. XIII, articles of Co-
Partnership).
On May 31, 1940, Antonio Goquiolay executed a general power of attorney to this
effect:
That besides the powers and duties granted the said Tan Sin An by the articles of
co-partnership of said co-partnership "Tan Sin An and Antonio Goquiolay", that said
Tan Sin An should act as the Manager for said co-partnership for the full period of
the term for which said co-partnership was organized or until the whole period that
the said capital of P30,000.00 of the co-partnership should last, to carry on to the
best advantage and interest of the said co-partnership, to make and execute, sign,
seal and deliver for the co-partnership, and in its name, all bills, bonds, notes,
specialties, and trust receipts or other instruments or documents in writing
whatsoever kind or nature which shall be necessary to the proper conduction of
the said businesses, including the power to mortgage and pledge real and personal
properties, to secure the obligation of the co-partnership, to buy real or personal
properties for cash or upon such terms as he may deem advisable, to sell personal
or real properties, such as lands and buildings of the co-partnership in any manner
he may deem advisable for the best interest of said co-partnership, to borrow
money on behalf of the co-partnership and to issue promissory notes for the
repayment thereof, to deposit the funds of the co-partnership in any local bank or
elsewhere and to draw checks against funds so deposited ... .
On May 29, 1940, the plaintiff partnership "Tan Sin An and Goquiolay" purchased
the three (3) parcels of land, known as Lots Nos. 526, 441 and 521 of the Cadastral
Survey of Davao, subject-matter of the instant litigation, assuming the payment of
a mortgage obligation of P25,000.00, payable to "La Urbana Sociedad Mutua de
Construccion y Prestamos" for a period of ten (10) years, with 10% interest per
annum. Another 46 parcels were purchased by Tan Sin An in his individual capacity,
and he assumed payment of a mortgage debt thereon for P35,000.00 with interest.
The downpayment and the amortization were advanced by Yutivo and Co., for the
account of the purchasers.
On September 25, 1940, the two separate obligations were consolidated in an
instrument executed by the partnership and Tan Sin An, whereby the entire 49 lots
were mortgaged in favor of the "Banco Hipotecario de Filipinas" (as successor to
"La Urbana") and the covenantors bound themselves to pay, jointly and severally,
the remaining balance of their unpaid accounts amounting to P52,282.80 within
eight 8 years, with 8% annual interest, payable in 96 equal monthly installments.
On June 26, 1942, Tan Sin An died, leaving as surviving heirs his widow, Kong Chai
Pin, and four minor children, namely: Tan L. Cheng, Tan L. Hua, Tan C. Chiu and Tan
K. Chuan. Defendant Kong Chai Pin was appointed administratrix of the intestate
estate of her deceased husband.
In the meantime, repeated demands for payment were made by the Banco
Hipotecario on the partnership and on Tan Sin An. In March, 1944, the defendant
Sing Yee and Cuan, Co., Inc., upon request of defendant Yutivo Sans Hardware Co.,
paid the remaining balance of the mortgage debt, and the mortgage was cancelled.
Then in 1946, Yutivo Sons Hardware Co. and Sing Yee and Cuan Co., Inc. filed their
claims in the intestate proceedings of Tan Sin An for P62,415.91 and P54,310.13,
respectively, as alleged obligations of the partnership "Tan Sin An and Antonio C.
Goquiolay" and Tan Sin An, for advances, interest and taxes paid in amortizing and
discharging their obligations to "La Urbana" and the "Banco Hipotecario".
Disclaiming knowledge of said claims at first, Kong Chai Pin later admitted the
claims in her amended answer and they were accordingly approved by the Court.
On March 29, 1949, Kong Chai Pin filed a petition with the probate court for
authority to sell all the 49 parcels of land to Washington Z, Sycip and Betty Y. Lee,
for the purpose preliminary of settling the aforesaid debts of Tan Sin An and the
partnership. Pursuant to a court order of April 2, 1949, the administratrix executed
on April 4, 1949, a deed of sale1 of the 49 parcels of land to the defendants
Washington Sycip and Betty Lee in consideration of P37,000.00 and of vendees'
assuming payments of the claims filed by Yutivo Sons Hardware Co. and Sing Yee
and Cuan Co., Inc. Later, in July, 1949, defendants Sycip and Betty Lee executed in
favor of the Insular Development Co., Inc. a deed of transfer covering the said 49
parcels of land.
Learning about the sale to Sycip and Lee, the surviving partner Antonio Goquiolay
filed, on or about July 25, 1949, a petition in the intestate proceedings seeking to
set aside the order of the probate court approving the sale in so far as his interest
over the parcels of land sold was concerned. In its order of December 29, 1949, the
probate court annulled the sale executed by the administratrix with respect to the
60% interest of Antonio Goquiolay over the properties sold. Kong Chai Pin appealed
to the Court of Appeals, which court later certified the case to us (93 Phil., 413; 49
Off. Gaz. [7] 2307). On June 30, 1953, we rendered decision setting aside the orders
of the probate court complained of and remanding the case for new trial, due to
the non-inclusion of indispensable parties. Thereafter, new pleadings were filed.
The second amended complaint in the case at bar prays, among other things, for
the annulment of the sale in favor of Washington Sycip and Betty Lee, and their
subsequent conveyance in favor of Insular Development Co., Inc., in so far as the
three (3) lots owned by the plaintiff partnership are concerned. The answer
averred the validity of the sale by Kong Chai Pin as successor partner, in lieu of the
late Tan Sin An. After hearing, the complaint was dismissed by the lower court in its
decision dated October 30, 1956; hence, this appeal taken directly to us by the
plaintiffs, as the amount involved is more than P200,000.00. Plaintiffs-appellants
assign as errors that
I The lower court erred in holding that Kong Chai Pin became the
managing partner of the partnership upon the death of her husband, Tan Sin An, by
virtue of the articles of Partnership executed between Tan Sin An and Antonio
Goquiolay, and the general power of attorney granted by Antonio Goquiolay.
II The lower court erred in holding that Kong Chai Pin could act alone as
sole managing partner in view of the minority of the other heirs.
III The lower court erred in holding that Kong Chai Pin was the only heir
qualified to act as managing partner.
IV The lower court erred in holding that Kong Chai Pin had authority to
sell the partnership properties by virtue of the articles of partnership and the
general power of attorney granted to Tan Sin An in order to pay the partnership
indebtedness.
V The lower court erred in finding that the partnership did not pay its
obligation to the Banco Hipotecario.
VI The lower court erred in holding that the consent of Antonio
Goquiolay was not necessary to consummate the sale of the partnership
properties.
VII The lower court erred in finding that Kong Chai Pin managed the
business of the partnership after the death of her husband, and that Antonio
Goquiolay knew it.
VIII The lower court erred in holding that the failure of Antonio Goquiolay
to oppose the management of the partnership by Kong Chai Pin estops him now
from attacking the validity of the sale of the partnership properties.
IX The lower court erred in holding that the buyers of the partnership
properties acted in good faith.
X The lower court erred in holding that the sale was not fraudulent
against the partnership and Antonio Goquiolay.
XI The lower court erred in holding that the sale was not only necessary
but beneficial to the partnership.
XII The lower court erred in dismissing the complaint and in ordering
Antonio Goquiolay to pay the costs of suit.
There is a merit in the contention that the lower court erred in holding that the
widow, Kong Chai Pin, succeeded her husband, Tan Sin An, in the sole management
of the partnership, upon the latter's death. While, as we previously stated in our
narration of facts, the Articles of Co-Partnership and the power of attorney
executed by Antonio Goquiolay, conferred upon Tan Sin An the exclusive
management of the business, such power, premised as it is upon trust and
confidence, was a mere personal right that terminated upon Tan's demise. The
provision in the articles stating that "in the event of death of any one of the
partners within the 10-year term of the partnership, the deceased partner shall be
represented by his heirs", could not have referred to the managerial right given to
Tan Sin An; more appropriately, it related to the succession in the proprietary
interest of each partner. The covenant that Antonio Goquiolay shall have no voice
or participation in the management of the partnership, being a limitation upon his
right as a general partner, must be held coextensive only with Tan's right to
manage the affairs, the contrary not being clearly apparent.
Upon the other hand, consonant with the articles of co-partnership providing for
the continuation of the firm notwithstanding the death of one of the partners, the
heirs of the deceased, by never repudiating or refusing to be bound under the said
provision in the articles, became individual partners with Antonio Goquiolay upon
Tan's demise. The validity of like clauses in partnership agreements is expressly
sanctioned under Article 222 of the Code of Commerce.2
. . . 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.

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

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 "The presumption is sufficient to permit third persons to hold the firm liable on
deceased Tan Sin An, they became no more than limited partners and, as such, transactions entered into by one of the members of the firm acting apparently in
were disqualified from the management of the business under Article 148 of the its behalf and within the scope of his authority." [Le Roy vs. Johnson, 7 U.S. Law,
Code of Commerce. Although ordinarily, this effect follows from the continuance of Ed., 391] (George Litton vs. Hill & Ceron, et al., 67 Phil., 513-514).
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 We are not unaware of the provision of Article 129 of the Code of Commerce to the
admittedly deriving income therefrom up to and until the same were sold to effect that
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
If the management of the general partnership has not been limited by special
liable for the partnership debts and liabilities as a general partner, beyond what
agreement to any of the members, all shall have the power to take part in the
she might have derived only from the estate of her deceased husband. By allowing
direction and management of the common business, and the members present
her to retain control of the firm's property from 1942 to 1949, plaintiff estopped
shall come to an agreement for all contracts or obligations which may concern the
himself to deny her legal representation of the partnership, with the power to bind
association. (Emphasis supplied)
it by the proper contracts.

but this obligation is one imposed by law on the partners among themselves, that
The question now arises as to whether or not the consent of the other partners
does not necessarily affect the validity of the acts of a partner, while acting within
was necessary to perfect the sale of the partnership properties to Washington
the scope of the ordinary course of business of the partnership, as regards third
Sycip and Betty Lee. The answer is, we believe, in the negative. Strangers dealing
persons without notice. The latter may rightfully assume that the contracting
with a partnership have the right to assume, in the absence of restrictive clauses in
partner was duly authorized to contract for and in behalf of the firm and that,
the co-partnership agreement, that every general partner has power to bind the
furthermore, he would not ordinarily act to the prejudice of his co-partners. The
partnership, specially those partners acting with ostensible authority. And so, we
regular course of business procedure does not require that each time a third
held in one case:
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
 P153,726.04

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:
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
Cash paid reconsider, being basic and beyond controversy:

P37,000.00 (a) That we are dealing here with the transfer of partnership property by one
partner, acting in behalf of the firm, to a stranger. There is no question between
partners inter se, and this aspects of the case was expressly reserved in the main
decision of 26 July 1960;
Debts assumed by purchase:

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

62,415.91
IV. The object and purpose of the co-partnership are as follows:

To Sing Yee Cuan & Co.

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.;
54,310.13

(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
TOTAL
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 Discarding the self-serving expressions, these admissions of Goquiolay are certainly
appellant. entitled to greater weight than those of Hernando Young and Rufino Lim, having
been made against the party's own interest.

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 Moreover, the appellant's reference to the testimony of Hernando Young, that the
appellant Goquiolay himself admitted that witness found the properties "abandoned and undeveloped", omits to mention
that said part of the testimony started with the question:

. . . 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 Now, you said that about 1942 or 1943 you returned to Davao. Did you meet Mrs.
wanted to help Mrs. Kong Chai Pin, she could just do it and besides I am not Kong Chai Pin there in Davao at that time?
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.

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
Q. So the answer to my question is you did not take any steps? receive any income from the partnership properties, was given in answer to the
question:

A. I did not.
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)
Q. And this conversation which you had with Mrs. Yu Eng Lai was few months
after 1945?

And also

A. In the year 1945. (Emphasis supplied)

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

to which witness gave the following answer:

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.

I saw the properties in Mamay still undeveloped. The third property which is in
Tigatto is about eleven (11) hectares and planted with abaca seedlings planted by
Mr. Sin An. When I went there with Hernando Young we saw all the abaca
destroyed. The place was occupied by the Japanese Army. They planted camotes
and vegetables to feed the Japanese Army. Of course they never paid any money to
Tan Sin An or his family. (Dep., Lim. pp. 13-14.) (Emphasis supplied)
Plainly, Both Young and Lim's testimonies do not belie, or contradict, Goquiolay's
admission that he told Mr. Yu Eng Lai that the widow "could just do it" (i e.,
continue to manage the properties. Witnesses Lim and Young referred to the
period of Japanese occupation; but Goquiolay's authority was, in fact, given to the
widow in 1945, after the occupation.
Again, the disputed sale by the widow took place in 1949. That Kong Chai Pin
carried out no acts of management during the Japanese occupation (1942-1944)
does not mean that she did not do so from 1945 to 1949.
We thus fine that Goquiolay did not merely rely on reports from Lim and Young; he
actually manifested his willingness that the widow should manage the partnership
properties. Whether or not she complied with this authority is a question between
her and the appellant, and is not here involved. But the authority was given, and
she did have it when she made the questioned sale, because it has never revoked.
It is argued that the authority given by Goquiolay to the widow Kong Chai Pin was
only to manage the property, and that it did not include the power to alienate,
citing Article 1713 of the Civil Code of 1889. What this argument overlooks is that
the widow was not a mere agent, because she had become a partner upon her
husband's death, as expressly provided by the articles of co-partnership. Even
more, granting that by succession to her husband, Tan Sin An, the widow only a
became the limited partner, Goquiolay's authorization to manage the partnership
property was proof that he considered and recognized her has general partner, at
least since 1945. The reason is plain: Under the law (Article 148, last paragraph,
Code of Commerce), appellant could not empower the widow, if she were only a
limited partner, to administer the properties of the firm, even as a mere agent:
Limited partners may not perform any act of administration with respect to the
interests of the co-partnership, not even in the capacity agents of the managing
partners.(Emphasis supplied)
By seeking authority to manage partnership property, Tan Sin An's widow showed
that she desired to be considered a general partner. By authorizing the widow to
manage partnership property (which a limited partner could not be authorized to
do), Goquiolay recognized her as such partner, and is now in estoppel to deny her
position as a general partner, with authority to administer and alienate partnership
property.
Besides, as we pointed out in our main decision, the heir ordinarily (and we did not
say "necessarily") becomes a limited partner for his own protection, because he
would normally prefer to avoid any liability in excess of the value of the estate
inherited so as not to jeopardize his personal assets. But this statutory limitation of
responsibility being designed to protect the heir, the latter may disregard it and
instead elect to become a collective or general partner, with all the rights and
privileges of one, and answering for the debts of the firm not only with the
inheritance bud also with the heir's personal fortune. This choice pertains
exclusively to the heir, and does not require the assent of the surviving partner.
It must be remembered that the articles of co-partnership here involved expressly
stipulated that:
In that event of the death of any of the partners at any time before the expiration
of said term, the co-partnership shall not be dissolved but will have to be continued
and the deceased partner shall be represented by his heirs or assigns in said co-
partnership" (Art. XII, Articles of Co-Partnership).
The Articles did not provide that the heirs of the deceased would be merely limited
partner; on the contrary they expressly stipulated that in case of death of either
partner "the co-partnership ... will have to be continued" with the heirs or assigns.
It certainly could not be continued if it were to be converted from a general
partnership into a limited partnership, since the difference between the two kinds
of associations is fundamental; and specially because the conversion into a limited
association would leave the heirs of the deceased partner without a share in the
management. Hence, the contractual stipulation does actually contemplate that
the heirs would become general partners rather than limited ones.
Of course, the stipulation would not bind the heirs of the deceased partner should
they refuse to assume personal and unlimited responsibility for the obligations of
the firm. The heirs, in other words, can not be compelled to become general
partners against their wishes. But because they are not so compellable, it does not
legitimately follow that they may not voluntarily choose to become general
partners, waiving the protective mantle of the general laws of succession. And in
the latter event, it is pointless to discuss the legality of any conversion of a limited
partner into a general one. The heir never was a limited partner, but chose to be,
and became, a general partner right at the start.
It is immaterial that the heirs name was not included in the firm name, since no
conversion of status is involved, and the articles of co-partnership expressly
contemplated the admission of the partner's heirs into the partnership.
It must never be overlooked that this case involves the rights acquired by strangers,
and does not deal with the rights arising between partners Goquiolay and the
widow of Tan Sin An. The issues between the partners inter se were expressly
reversed in our main decision. Now, in determining what kind of partner the widow
of partner Tan Sin An had elected to become, strangers had to be guided by her
conduct and actuations and those of appellant Goquiolay. Knowing that by law a
limited partner is barred from managing the partnership business or property, third
parties (like the purchasers) who found the widow possessing and managing the
firm property with the acquiescense (or at least without apparent opposition) of
the surviving partners were perfectly justified in assuming that she had become a
general partner, and, therefore, in negotiating with her as such a partner, having
authority to act for, and in behalf of, the firm. This belief, be it noted, was shared
even by the probate court that approved the sale by the widow of the real property
standing in the partnership name. That belief was fostered by the very inaction of
appellant Goquiolay. Note that for seven long years, from partner Tan Sin An's
death in 1942 to the sale in 1949, there was more than ample time for Goquiolay to
take up the management of these properties, or at least ascertain how its affairs
stood. For seven years Goquiolay could have asserted his alleged rights, and by
suitable notice in the commercial registry could have warned strangers that they
must deal with him alone, as sole general partner. But he did nothing of the sort,
because he was not interested (supra), and he did not even take steps to pay, or
settle, the firm debts that were overdue since before the outbreak of the last war.
He did not even take steps, after Tan Sin An died, to cancel, or modify, the
provisions of the partnership articles that he (Goquiolay) would have no
intervention in the management of the partnership. This laches certainly
contributed to confirm the view that the widow of Tan Sin An had, or was given,
authority to manage and deal with the firm's properties, apart from the
presumption that a general partner dealing with partnership property has the
requisite authority from his co-partners (Litton vs. Hill and Ceron, et al., 67 Phil.,
513; quoted in our main decision, p. 11).
The stipulation in the articles of partnership that any of the two managing partners
may contract and sign in the name of the partnership with the consent of the
other, undoubtedly creates an obligation between the two partners, which consists
in asking the other's consent before contracting for the partnership. This obligation
of course is not imposed upon a third person who contracts with the partnership.
Neither is it necessary for the third person to ascertain if the managing partner
with whom he contracts has previously obtained the consent of the other. A third
person may and has a right to presume that the partner with whom he contracts
has, in the ordinary and natural course of business, the consent of his co-partner;
for otherwise he would not enter into the contract. The third person would
naturally not presume that the partner with whom he enters into the transaction is
violating the articles of partnership, but on the contrary, is acting in accordance
therewith. And this finds support in the legal presumption that the ordinary course
of business has been followed (No. 18, section 334, Code of Civil Procedure), and
that the law has been obeyed (No. 31, section 334). This last presumption is equally
applicable to contracts which have the force of law between the parties. (Litton vs.
Hill & Ceron, et al., 67 Phil., 509, 516) (Emphasis supplied)
It is next urged that the widow, even as a partner, had no authority to sell the real
estate of the firm. This argument is lamentably superficial because it fails to
differentiate between real estate acquired and held as stock-in-trade and real state
held merely as business site (Vivante's "taller o banco social") for the partnership.
Where the partnership business is to deal in merchandise and goods, i.e., movable
property, the sale of its real property (immovables) is not within the ordinary
powers of a partner, because it is not in line with the normal business of the firm.
But where the express and avowed purpose of the partnership is to buy and sell
real estate (as in the present case), the immovables thus acquired by the firm form
part of its stock-in-trade, and the sale thereof is in pursuance of partnership
purposes, hence within the ordinary powers of the partner. This distinction is
supported by the opinion of Gay de Montella1, in the very passage quoted in the
appellant's motion for reconsideration:
La enajenacion puede entrar en las facultades del gerente: cuando es conforme a
los fines sociales. Pero esta facultad de enajenar limitada a las ventas conforme a
los fines sociales, viene limitada a los objetos de comecio o a los productos de la
fabrica para explotacion de los cuales se ha constituido la Sociedad. Ocurrira una
cosa parecida cuando el objeto de la Sociedad fuese la compra y venta de
inmuebles, en cuyo caso el gerente estaria facultado para otorgar las ventas que
fuere necesario. (Montella) (Emphasis supplied)
The same rule obtains in American law.
In Rosen vs. Rosen, 212 N. Y. Supp. 405, 406, it was held:
a partnership to deal in real estate may be created and either partner has the legal
right to sell the firm real estate
In Chester vs. Dickerson, 54 N. Y. 1, 13 Am. Rep. 550:
And hence, when the partnership business is to deal in real estate, one partner has
ample power, as a general agent of the firm, to enter into an executory contract for
the sale of real estate.
And in Rovelsky vs. Brown, 92 Ala. 522, 9 South 182, 25 Am. St., Rep. 83:
If the several partners engaged in the business of buying and selling real estate can
not bind the firm by purchases or sales of such property made in the regular course
of business, then they are incapable of exercising the essential rights and powers of
general partners and their association is not really a partnership at all, but a several
agency.
Since the sale by the widow was in conformity with the express objective of the
partnership, "to engage * * * in buying and selling real estate" (Art IV, No. 1,
Articles of Copartnership), it can not be maintained that the sale was made in
excess of her powers as general partner.
Considerable stress is laid by appellant in the ruling of the Supreme Court of Ohio
in McGrath, et al., vs. Cowen, et al., 49 N. E., 338. But the facts of that case are
vastly different from the one before us. In the McGrath case, the Court expressly
found that:
The firm was then, and for some time had been, insolvent, in the sense that its
property was insufficient to pay its debts, though it still had good credit, and was
actively engaged in the prosecution of its business. On that day, which was
Saturday, the plaintiff caused to be prepared, ready for execution, the four chattel
mortgages in question, which cover all the tangible property then belonging to the
firm, including the counters, shelving, and other furnishings and fixtures necessary
for, and used in carrying on, its business, and signed the same in this form: "In
witness whereof, the said Cowen & McGrath, a firm, and Owen McGrath, surviving
partner of said firm, and Owen McGrath, individually, have here-unto set their
hands, this 20th day of May, A. D. 1893. Cowen & McGrath, by Owen McGrath.
Owen McGrath, Surviving partner of Cowen & McGrath. Owen McGrath" At the
same time, the plaintiff had prepared, ready for filing, the petition for the
dissolution of the partnership and appointment of a receiver, which he
subsequently filed, as hereinafter stated. On the day the mortgages were signed,
they were placed in the hands of the mortgagees, which was the first intimation to
them that there was any intention to make then. At that time none of the claims
secured by the mortgages were due, except, it may be, a small part of one of them,
and none of the creditors to whom the mortgages were made had requested
security, or were pressing for the payment of their debts. ... The mortgages appear
to be without a sufficient condition of defeasance, and contain a stipulation
authorizing the mortgagees to take immediate possession of the property, which
they did as soon as the mortgages were filed, through the attorney who then
represented them, as well as the plaintiff; and the stores were at once closed, and
possession delivered by them to the receiver appointed upon the filing of the
petition. The avowed purpose of the plaintiff in the course pursued by him, was to
terminate the partnership, place its property beyond the control of the firm, and
insure the preference of the mortgages, all of which was known to them at the
time: ... . (Cas cit., p. 343, 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.
ADRIANO BUENAVENTURA Y DEZOLLIER, palintiff- appellant, vs.ANTONIO DAVID
y ABELIDO, defendant-appellee.
By an agreement effective from April 20, 1906, a partnership was formed by
Antonio David y Abelido and Adriano Buenaventura y Dezollier for the conduct of
the business of real estate brokers in the city of Manila, under the firm name
"Abelido and Co." The first named party was the capitalist member of the firm and
its manager., while the last named was the industrial member and bookkeeper. The
firm maintained a feeble external existence for a few months, during which period
the capitalist associate placed P209.86 in the enterprise. This was consumed in
office rent and other incidental expenses. Only two profitable transactions were
ever accomplished by the firm of Abelido and Co. during its existence. These
produced a total income of P42, which sum was noted on the credit side of the
company's ledger.
It was agreed in the articles that the partnership should be liquidated upon April
20, 1907, in the absence of any agreement for the extension of its life; but upon
February 1, 1908, it was agreed in writing that the partnership should not be
liquidated until the sale of a piece of real estate in which the firm had become
interested should be effected with profit. The property to which reference was
thus made consisted of a farm in the municipality of Murcia, in the Province of
Tarlac, known as the "Hacienda de Guitan."
This farm had been formerly owned by the spouses Loni Diangco and Epifania
Torres; and long before the firm of Abelido and Co. had come into existence
Antonio David y Abelido had been their creditor by reason of certain sums of
money from time to time loaned them. After the death of Lino Diangco in 1890 still
other sums of money were advanced by David to the widow, Epifania Torres, in
behalf of herself and her minor son Pablo Diangco. Upon July 10, 1906, Epifania
agreed to convey the Hacienda de Guitan to Abelido and Buenaventura for a
consideration stated at P2,050 (Exhibit C). The purpose of the transaction was to
settle the debt of several thousand pesos owing by her and her son to Antonio
David y Abelido. The conveyance by which this contract was finally carried into
effect was executed upon January 30, 1908. The grantee named in the deed was
Antonio David y Abelido; and no reference was made in this instrument to the firm
of Abelido and Co., or to Buenaventura as a partner therein. Buenaventura was
present at the time of the execution of this deed and signed as a subscribing
witness. The total consideration for the conveyance was P7,170, of which the sum
of P5,870 was consumed in satisfying the old indebtedness due to David. The
balance (according to the recitals of the deed) was paid by him to Epifania Torres. It
further appears that Antonio David y Abelido proceeded to procure the registration
of the hacienda in his own name and a Torrens title was in due course issued to
him.
Upon the same day that the above-mentioned deed was executed by Epifania
Torres to Antonio David, a declaration was drawn up and ratified by Antonio David
and Adiano Buenaventura in which it was stated that Epifania Torres had sold the
estate above mentioned to Antonio David for the sum of P7,170 and that of this
amount the sum of P3,370 had been advanced by Abelido & Co., while P3,800 had
been paid by David individually. It was then said that the firm thereby became the
owner of the property in the proportion of the value satisfied by it; and this was
followed by an obscure clause meaning, probably, that the right of the firm to
acquire this participation was dependent on the reimbursement of David for the
outlay made by him with respect to such share. A further statement was added to
the effect that Buenaventura should have the option to advance half of the sum
paid out by Antonio David y Abelido, to wit, the sum of P1,900, in the event
Buenaventura should desire to have a half interest in the property in his own
name.
From the date of the conveyance above mentioned David exercised all the rights of
an owner over the property. Upon one occasion he mortgaged it for the sum of
P5,000 and Buenaventura was paid P300 for assisting in the securing of this loan. At
another time David mortgaged the property for the sum of P15,000 and applied the
money thus secured to his own use.
Upon February 18, 1915, or more than seven years after the day upon which the
deed to the property had been executed to David, Buenaventura filed the
complaint in this action. In this proceeding he seeks relief embracing the following
features: (1) a dissolution of the partnership of Abelido and Co.; (2) judgment for a
balance of some P2,344.85. alleged to be due as arrears upon salary account; (3) a
transfer of the title of the Hacienda de Guitan to Abelido and Co.; (4) and
accounting for, and division of all money, property and other effects of the firm;
and especially an accounting for profits alleged to have been made by the
defendant David from investments of money derived from the hacienda, which
profits were alleged to amount to the sum of P5,190; (5) a judgment for damages
in the sum of P10,000; (6) such and further relief as might seem to the court just
and equitable.
At the hearing the court entered a judgment declaring that the partnership of
Abelido and Co. was dissolved and denying all other relief sought in the complaint.
From this judgment the plaintiff Buenaventura has appealed.
As regards the Hacienda de Guitan, it is in our opinion clear upon the oral
testimony and other proof adduced in the cause that every cent of the
consideration for the purchase of this property was supplied by David; and it
consisted, as we have seen, mostly of money previously loaned. Buenaventura had
no resources, and it was evidently quite beyond his power to raise the funds
necessary to participate in a business transaction of the size of that in question. His
pretension that he supplied P1,025 or half of the consideration named in the
original contract (Exhibit C) was rightly rejected by the court. Furthermore it
appears that the firm of Abelido and Co., as distinguished from the individual David
Abelido, never in fact advanced a single peso in the transaction, although the
"declaration" of January 30, 1908, states that the firm advanced P3,370. That
declaration constitutes an admission which entitles it to weight but its recital as to
the money paid or received may be explained and even contradicted, as in case of
a simple receipt. David's explanation is that the plaintiff, as bookkeeper, had made
it appear in the firm books that the firm was debtor to David in the amount of
P3,370 in respect to this transaction and that the plaintiff had requested David to
sign the declaration showing the firm to be a participant. Throughout this affair
David exhibited considerable complaisance in signing papers at Buenaventura's
request. He apparently considered Buenaventura an amiable old friend and was
willing to indulge the latter's fancy with the idea that he was party to an important
transaction, well knowing that he could never put up the necessary money to
enable him to share in the deal. Whatever may be the explanation of David's
imprudence in allowing himself to be thus drawn into an admission showing that
the firm participated in the deal, it is quite clear that he supplied all the money for
the purchase in question.
The situation then, as regards the title to the hacienda is this: David, who supplied
all the funds, has obtained the legal title in his own individual name. This was
accomplished with knowledge on the part of Buenaventura. Furthermore he has
registered his title by means of legal proceedings which were probably known to
Buenaventura. Still later, the latter is seen acting as broker for David in securing a
loan on the hacienda and receives a fee for his services. Meanwhile the original
partnership enterprise is abandoned. Finally more than seven years after the day
when Buenaventura stood by and signed as a witness the deed conveying the
property to David, he comes into court and seeks to reach this property through
the ghost of the firm of Abelido and Co. and bring the defendant to account for the
profits which he has obtained from the investments of its proceeds in various
enterprises.
The purpose of the action is to impress a trust on the property in favor of Abelido
and Co., to divest the title out of the present owner, and to have it, or its proceeds,
liquidated and administered as firm assets. We are of the opinion that there is no
merit in the plaintiff's contention. It is true that a court will not hesitate, under
certain circumstances, to divest a title out of the holder and impress a trust upon it
in favor of another, or to require the holder of the title to administer the property
for the true owner (Uy Aloc vs. Cho Jan Ling, 19 Phil. Rep., 202); yet this will not be
done in the absence of a sufficient contract, an express trust, or other strong
equitable circumstances requiring the intervention of equity. No such relief can be
granted, upon purely equitable grounds, against a party who has himself paid the
entire purchase price in favor of one who advanced nothing. But the declaration of
January 30, 1908, is relied upon as evidence of a contract establishing the right of
Abelido and Co. The reply is that by the terms of that instrument Buenaventura's
personal right was dependent upon the advancement of money by him which was
in fact never supplied, and as to the statement contained in that declaration that
Abelido and Co. had advanced a certain sum, it clearly appears that this is not true;
and we hold that the defendant is not precluded, or estopped, by that admission
from showing the actual facts.
 located at Sto. Nio and Talisay, Negros Occidental, and cash deposits in the local
branches of the Bank of the Philippine Islands and Prudential Bank.
Furthermore, it is evident that the plaintiff's case is adversely affected by his long
delay in bringing this action. Undue delay in the enforcement of a right is strongly
persuasive of a lack of merit in the claim, since it is human nature for a person to
assert his rights most strongly when they are threatened or invaded. It is hard to Throughout the existence of the partnership, and even after Vicente Tabanaos
believe that, if the plaintiff had been convinced of the justice of his contention, he untimely demise in 1994, petitioner failed to submit to Tabanaos heirs any
would have failed to assert his right to a division at the time when the defendant statement of assets and liabilities of the partnership, and to render an accounting
was pocketing the proceeds of the loans obtained upon the security of the of the partnerships finances. Petitioner also reneged on his promise to turn over to
Hacienda de Guitan. The probabilities are that Buenaventura realized at the time Tabanaos heirs the deceaseds 1/3 share in the total assets of the partnership,
that his hopes of sharing in this investment were doomed to disappointment and amounting to P30,000,000.00, or the sum of P10,000,000.00, despite formal
that with full knowledge of all the facts he decided to abandon the claim, or not demand for payment thereof.[2]
assert it. However, the documents which appear on their face to establish his right
to a participation in this property remained in existence; and in course of time said
claim was made the basis of this action. The assertion of doubtful claims, after long
delay, can not be favored by the courts. Time inevitably tends to obliterate Consequently, Tabanaos heirs, respondents herein, filed against petitioner an
occurrences from the memory of witnesses, and even where the recollection action for accounting, payment of shares, division of assets and damages.[3] In
appears to be entirely clear, the true clue to the solution of a case may be their complaint, respondents prayed as follows:
hopelessly lost. These consideration constitute one of the pillars of the doctrine
long familiar in equity jurisprudence to the effect that laches or unreasonable delay
on the part of a plaintiff in seeking to enforce a right is not only persuasive of a
1. Defendant be ordered to render the proper accounting of all the assets and
want of merit but may, according to the circumstances, be destructive of the right
liabilities of the partnership at bar; and
itself. Vigilantibus non dormientibus equitas subvenit.

2. After due notice and hearing defendant be ordered to

The decision of the main issue relative to the hacienda renders unnecessary any
pay/remit/deliver/surrender/yield to the plaintiffs the following:
discussion of other features of the case presented in the appellant's brief. Upon the
whole it is our opinion that there was no error prejudicial to the plaintiff in the
action of the court below and the judgment is therefore affirmed, with costs
against the appellant. A. No less than One Third (1/3) of the assets, properties, dividends, cash, land(s),
fishing vessels, trucks, motor vehicles, and other forms and substance of treasures
which belong and/or should belong, had accrued and/or must accrue to the
partnership;
EMILIO EMNACE, petitioner, vs. COURT OF APPEALS, ESTATE OF VICENTE
TABANAO, SHERWIN TABANAO, VICENTE WILLIAM TABANAO, JANETTE
TABANAO DEPOSOY, VICENTA MAY TABANAO VARELA, ROSELA TABANAO and
VINCENT TABANAO, respondents. B. No less than Two Hundred Thousand Pesos (P200,000.00) as moral damages;
Petitioner Emilio Emnace, Vicente Tabanao and Jacinto Divinagracia were partners
in a business concern known as Ma. Nelma Fishing Industry. Sometime in January
of 1986, they decided to dissolve their partnership and executed an agreement of C. Attorneys fees equivalent to Thirty Percent (30%) of the entire
partition and distribution of the partnership properties among them, consequent share/amount/award which the Honorable Court may resolve the plaintiffs as
to Jacinto Divinagracias withdrawal from the partnership.[1] Among the assets to entitled to plus P1,000.00 for every appearance in court.[4]
be distributed were five (5) fishing boats, six (6) vehicles, two (2) parcels of land

Petitioner filed a motion to dismiss the complaint on the grounds of improper
venue, lack of jurisdiction over the nature of the action or suit, and lack of capacity
of the estate of Tabanao to sue.[5] On August 30, 1994, the trial court denied the
motion to dismiss. It held that venue was properly laid because, while realties were
involved, the action was directed against a particular person on the basis of his
personal liability; hence, the action is not only a personal action but also an action
in personam. As regards petitioners argument of lack of jurisdiction over the action
because the prescribed docket fee was not paid considering the huge amount
involved in the claim, the trial court noted that a request for accounting was made
in order that the exact value of the partnership may be ascertained and, thus, the
correct docket fee may be paid. Finally, the trial court held that the heirs of
Tabanao had a right to sue in their own names, in view of the provision of Article
777 of the Civil Code, which states that the rights to the succession are transmitted
from the moment of the death of the decedent.[6]
I. Whether or not respondent Judge acted without jurisdiction or with grave abuse
of discretion in taking cognizance of a case despite the failure to pay the required
docket fee;
II. Whether or not respondent Judge acted without jurisdiction or with grave abuse
of discretion in insisting to try the case which involve (sic) a parcel of land situated
outside of its territorial jurisdiction;
III. Whether or not respondent Judge acted without jurisdiction or with grave abuse
of discretion in allowing the estate of the deceased to appear as party plaintiff,
when there is no intestate case and filed by one who was never appointed by the
court as administratrix of the estates; and

The following day, respondents filed an amended complaint,[7] incorporating the IV. Whether or not respondent Judge acted without jurisdiction or with grave
additional prayer that petitioner be ordered to sell all (the partnerships) assets and abuse of discretion in not dismissing the case on the ground of prescription.
thereafter pay/remit/deliver/surrender/yield to the plaintiffs their corresponding
share in the proceeds thereof. In due time, petitioner filed a manifestation and
motion to dismiss,[8] arguing that the trial court did not acquire jurisdiction over
On August 8, 1996, the Court of Appeals rendered the assailed decision,[12]
the case due to the plaintiffs failure to pay the proper docket fees. Further, in a
dismissing the petition for certiorari, upon a finding that no grave abuse of
supplement to his motion to dismiss,[9] petitioner also raised prescription as an
discretion amounting to lack or excess of jurisdiction was committed by the trial
additional ground warranting the outright dismissal of the complaint.
court in issuing the questioned orders denying petitioners motions to dismiss.

On June 15, 1995, the trial court issued an Order,[10] denying the motion to
Not satisfied, petitioner filed the instant petition for review, raising the same issues
dismiss inasmuch as the grounds raised therein were basically the same as the
resolved by the Court of Appeals, namely:
earlier motion to dismiss which has been denied. Anent the issue of prescription,
the trial court ruled that prescription begins to run only upon the dissolution of the
partnership when the final accounting is done. Hence, prescription has not set in
the absence of a final accounting. Moreover, an action based on a written contract I. Failure to pay the proper docket fee;
prescribes in ten years from the time the right of action accrues.

II. Parcel of land subject of the case pending before the trial court is outside the
Petitioner filed a petition for certiorari before the Court of Appeals,[11] raising the said courts territorial jurisdiction;
following issues:

III. Lack of capacity to sue on the part of plaintiff heirs of Vicente Tabanao; and

IV. Prescription of the plaintiff heirs cause of action.
It can be readily seen that respondents primary and ultimate objective in instituting
the action below was to recover the decedents 1/3 share in the partnerships
assets. While they ask for an accounting of the partnerships assets and finances,
what they are actually asking is for the trial court to compel petitioner to pay and
turn over their share, or the equivalent value thereof, from the proceeds of the
sale of the partnership assets. They also assert that until and unless a proper
accounting is done, the exact value of the partnerships assets, as well as their
corresponding share therein, cannot be ascertained. Consequently, they feel
justified in not having paid the commensurate docket fee as required by the Rules
of Court.
We do not agree. The trial court does not have to employ guesswork in
ascertaining the estimated value of the partnerships assets, for respondents
themselves voluntarily pegged the worth thereof at Thirty Million Pesos
(P30,000,000.00). Hence, this case is one which is really not beyond pecuniary
estimation, but rather partakes of the nature of a simple collection case where the
value of the subject assets or amount demanded is pecuniarily determinable.[13]
While it is true that the exact value of the partnerships total assets cannot be
shown with certainty at the time of filing, respondents can and must ascertain,
through informed and practical estimation, the amount they expect to collect from
the partnership, particularly from petitioner, in order to determine the proper
amount of docket and other fees.[14] It is thus imperative for respondents to pay
the corresponding docket fees in order that the trial court may acquire jurisdiction
over the action.[15]
Nevertheless, unlike in the case of Manchester Development Corp. v. Court of
Appeals,[16] where there was clearly an effort to defraud the government in
avoiding to pay the correct docket fees, we see no attempt to cheat the courts on
the part of respondents. In fact, the lower courts have noted their expressed desire
to remit to the court any payable balance or lien on whatever award which the
Honorable Court may grant them in this case should there be any deficiency in the
payment of the docket fees to be computed by the Clerk of Court.[17] There is
evident willingness to pay, and the fact that the docket fee paid so far is
inadequate is not an indication that they are trying to avoid paying the required
amount, but may simply be due to an inability to pay at the time of filing. This
consideration may have moved the trial court and the Court of Appeals to declare
that the unpaid docket fees shall be considered a lien on the judgment award.
Petitioner, however, argues that the trial court and the Court of Appeals erred in
condoning the non-payment of the proper legal fees and in allowing the same to
become a lien on the monetary or property judgment that may be rendered in
favor of respondents. There is merit in petitioners assertion. The third paragraph of
Section 16, Rule 141 of the Rules of Court states that:
The legal fees shall be a lien on the monetary or property judgment in favor of the
pauper-litigant.
Respondents cannot invoke the above provision in their favor because it specifically
applies to pauper-litigants. Nowhere in the records does it appear that respondents
are litigating as paupers, and as such are exempted from the payment of court
fees.[18]
The rule applicable to the case at bar is Section 5(a) of Rule 141 of the Rules of
Court, which defines the two kinds of claims as: (1) those which are immediately
ascertainable; and (2) those which cannot be immediately ascertained as to the
exact amount. This second class of claims, where the exact amount still has to be
finally determined by the courts based on evidence presented, falls squarely under
the third paragraph of said Section 5(a), which provides:
In case the value of the property or estate or the sum claimed is less or more in
accordance with the appraisal of the court, the difference of fee shall be refunded
or paid as the case may be. (Underscoring ours)
In Pilipinas Shell Petroleum Corporation v. Court of Appeals,[19] this Court
pronounced that the above-quoted provision clearly contemplates an initial
payment of the filing fees corresponding to the estimated amount of the claim
subject to adjustment as to what later may be proved.[20] Moreover, we reiterated
therein the principle that the payment of filing fees cannot be made contingent or
dependent on the result of the case. Thus, an initial payment of the docket fees
based on an estimated amount must be paid simultaneous with the filing of the
complaint. Otherwise, the court would stand to lose the filing fees should the
judgment later turn out to be adverse to any claim of the respondent heirs.
The matter of payment of docket fees is not a mere triviality. These fees are
necessary to defray court expenses in the handling of cases. Consequently, in order
to avoid tremendous losses to the judiciary, and to the government as well, the
payment of docket fees cannot be made dependent on the outcome of the case,
except when the claimant is a pauper-litigant.
Applied to the instant case, respondents have a specific claim 1/3 of the value of all
the partnership assets but they did not allege a specific amount. They did,
however, estimate the partnerships total assets to be worth Thirty Million Pesos
(P30,000,000.00), in a letter[21] addressed to petitioner. Respondents cannot now
say that they are unable to make an estimate, for the said letter and the admissions
therein form part of the records of this case. They cannot avoid paying the initial
docket fees by conveniently omitting the said amount in their amended complaint.
This estimate can be made the basis for the initial docket fees that respondents
should pay. Even if it were later established that the amount proved was less or
more than the amount alleged or estimated, Rule 141, Section 5(a) of the Rules of
Court specifically provides that the court may refund the excess or exact additional
fees should the initial payment be insufficient. It is clear that it is only the
difference between the amount finally awarded and the fees paid upon filing of
this complaint that is subject to adjustment and which may be subjected to a lien.
In the oft-quoted case of Sun Insurance Office, Ltd. v. Hon. Maximiano
Asuncion,[22] this Court held that when the specific claim has been left for the
determination by the court, the additional filing fee therefor shall constitute a lien
on the judgment and it shall be the responsibility of the Clerk of Court or his duly
authorized deputy to enforce said lien and assess and collect the additional fee.
Clearly, the rules and jurisprudence contemplate the initial payment of filing and
docket fees based on the estimated claims of the plaintiff, and it is only when there
is a deficiency that a lien may be constituted on the judgment award until such
additional fee is collected.
Based on the foregoing, the trial court erred in not dismissing the complaint
outright despite their failure to pay the proper docket fees. Nevertheless, as in
other procedural rules, it may be liberally construed in certain cases if only to
secure a just and speedy disposition of an action. While the rule is that the
payment of the docket fee in the proper amount should be adhered to, there are
certain exceptions which must be strictly construed.[23]
In recent rulings, this Court has relaxed the strict adherence to the Manchester
doctrine, allowing the plaintiff to pay the proper docket fees within a reasonable
time before the expiration of the applicable prescriptive or reglementary
period.[24]
In the recent case of National Steel Corp. v. Court of Appeals,[25] this Court held
that:
The court acquires jurisdiction over the action if the filing of the initiatory pleading
is accompanied by the payment of the requisite fees, or, if the fees are not paid at
the time of the filing of the pleading, as of the time of full payment of the fees
within such reasonable time as the court may grant, unless, of course, prescription
has set in the meantime.
It does not follow, however, that the trial court should have dismissed the
complaint for failure of private respondent to pay the correct amount of docket
fees. Although the payment of the proper docket fees is a jurisdictional
requirement, the trial court may allow the plaintiff in an action to pay the same
within a reasonable time before the expiration of the applicable prescriptive or
reglementary period. If the plaintiff fails to comply within this requirement, the
defendant should timely raise the issue of jurisdiction or else he would be
considered in estoppel. In the latter case, the balance between the appropriate
docket fees and the amount actually paid by the plaintiff will be considered a lien
or any award he may obtain in his favor. (Underscoring ours)
Accordingly, the trial court in the case at bar should determine the proper docket
fee based on the estimated amount that respondents seek to collect from
petitioner, and direct them to pay the same within a reasonable time, provided the
applicable prescriptive or reglementary period has not yet expired. Failure to
comply therewith, and upon motion by petitioner, the immediate dismissal of the
complaint shall issue on jurisdictional grounds.
On the matter of improper venue, we find no error on the part of the trial court
and the Court of Appeals in holding that the case below is a personal action which,
under the Rules, may be commenced and tried where the defendant resides or
may be found, or where the plaintiffs reside, at the election of the latter.[26]
Petitioner, however, insists that venue was improperly laid since the action is a real
action involving a parcel of land that is located outside the territorial jurisdiction of
the court a quo. This contention is not well-taken. The records indubitably show
that respondents are asking that the assets of the partnership be accounted for,
sold and distributed according to the agreement of the partners. The fact that two
of the assets of the partnership are parcels of land does not materially change the
nature of the action. It is an action in personam because it is an action against a
person, namely, petitioner, on the basis of his personal liability. It is not an action in
rem where the action is against the thing itself instead of against the person.[27]
Furthermore, there is no showing that the parcels of land involved in this case are
being disputed. In fact, it is only incidental that part of the assets of the partnership
under liquidation happen to be parcels of land.
The time-tested case of Claridades v. Mercader, et al.,[28] settled this issue thus:
The fact that plaintiff prays for the sale of the assets of the partnership, including
the fishpond in question, did not change the nature or character of the action, such
sale being merely a necessary incident of the liquidation of the partnership, which
should precede and/or is part of its process of dissolution.
The action filed by respondents not only seeks redress against petitioner. It also
seeks the enforcement of, and petitioners compliance with, the contract that the
partners executed to formalize the partnerships dissolution, as well as to
implement the liquidation and partition of the partnerships assets. Clearly, it is a
personal action that, in effect, claims a debt from petitioner and seeks the
performance of a personal duty on his part.[29] In fine, respondents complaint
seeking the liquidation and partition of the assets of the partnership with damages
is a personal action which may be filed in the proper court where any of the parties
reside.[30] Besides, venue has nothing to do with jurisdiction for venue touches
more upon the substance or merits of the case.[31] As it is, venue in this case was
properly laid and the trial court correctly ruled so.
On the third issue, petitioner asserts that the surviving spouse of Vicente Tabanao
has no legal capacity to sue since she was never appointed as administratrix or
executrix of his estate. Petitioners objection in this regard is misplaced. The
surviving spouse does not need to be appointed as executrix or administratrix of
the estate before she can file the action. She and her children are complainants in
their own right as successors of Vicente Tabanao. From the very moment of
Vicente Tabanaos death, his rights insofar as the partnership was concerned were
transmitted to his heirs, for rights to the succession are transmitted from the
moment of death of the decedent.[32]
Whatever claims and rights Vicente Tabanao had against the partnership and
petitioner were transmitted to respondents by operation of law, more particularly
by succession, which is a mode of acquisition by virtue of which the property, rights
and obligations to the extent of the value of the inheritance of a person are
transmitted.[33] Moreover, respondents became owners of their respective
hereditary shares from the moment Vicente Tabanao died.[34]
A prior settlement of the estate, or even the appointment of Salvacion Tabanao as
executrix or administratrix, is not necessary for any of the heirs to acquire legal
capacity to sue. As successors who stepped into the shoes of their decedent upon
his death, they can commence any action originally pertaining to the decedent.[35]
From the moment of his death, his rights as a partner and to demand fulfillment of
petitioners obligations as outlined in their dissolution agreement were transmitted
to respondents. They, therefore, had the capacity to sue and seek the courts
intervention to compel petitioner to fulfill his obligations.
Finally, petitioner contends that the trial court should have dismissed the
complaint on the ground of prescription, arguing that respondents action
prescribed four (4) years after it accrued in 1986. The trial court and the Court of
Appeals gave scant consideration to petitioners hollow arguments, and rightly so.
The three (3) final stages of a partnership are: (1) dissolution; (2) winding-up; and
(3) termination.[36] The partnership, although dissolved, continues to exist and its
legal personality is retained, at which time it completes the winding up of its
affairs, including the partitioning and distribution of the net partnership assets to
the partners.[37] For as long as the partnership exists, any of the partners may
demand an accounting of the partnerships business. Prescription of the said right reglementary period has not yet expired. Thereafter, the trial court is ORDERED to
starts to run only upon the dissolution of the partnership when the final accounting conduct the appropriate proceedings in Civil Case No. 416-C.
is done.[38]

Costs against petitioner.

Contrary to petitioners protestations that respondents right to inquire into the
business affairs of the partnership accrued in 1986, prescribing four (4) years
thereafter, prescription had not even begun to run in the absence of a final
accounting. Article 1842 of the Civil Code provides: SO ORDERED.

The right to an account of his interest shall accrue to any partner, or his legal
representative as against the winding up partners or the surviving partners or the
person or partnership continuing the business, at the date of dissolution, in the
absence of any agreement to the contrary.

Applied in relation to Articles 1807 and 1809, which also deal with the duty to
account, the above-cited provision states that the right to demand an accounting
accrues at the date of dissolution in the absence of any agreement to the contrary.
When a final accounting is made, it is only then that prescription begins to run. In
the case at bar, no final accounting has been made, and that is precisely what
respondents are seeking in their action before the trial court, since petitioner has
failed or refused to render an accounting of the partnerships business and assets.
Hence, the said action is not barred by prescription.

In fine, the trial court neither erred nor abused its discretion when it denied
petitioners motions to dismiss. Likewise, the Court of Appeals did not commit
reversible error in upholding the trial courts orders. Precious time has been lost
just to settle this preliminary issue, with petitioner resurrecting the very same
arguments from the trial court all the way up to the Supreme Court. The litigation
of the merits and substantial issues of this controversy is now long overdue and
must proceed without further delay.

WHEREFORE, in view of all the foregoing, the instant petition is DENIED for lack of
merit, and the case is REMANDED to the Regional Trial Court of Cadiz City, Branch
60, which is ORDERED to determine the proper docket fee based on the estimated
amount that plaintiffs therein seek to collect, and direct said plaintiffs to pay the
same within a reasonable time, provided the applicable prescriptive or